For the purpose of this blog post we are specifically referring to applications made under Section 27A of the Landlord and Tenant act 1985 although the principles apply to all LVT cases.

These applications can be made by either the Freeholder or a Leaseholder and the purpose is to determine whether a charge is payable and the reasonableness of the same. In making its determination the LVT will have regard to the terms of the lease and then whether the statutory processes have been complied with.

Whoever makes the application is required to complete an application form. Copies of the forms and guidance notes may be obtained from the Justice department website.

As part of the application you should specify exactly what it is you are seeking. It is important to make this clear so that the LVT is clear what is being sort. Often if the Freeholder this will be the whole of particular years and if the Leaseholder they may wish to object to specific charges. This should be set out clearly and specify which service charge years are being referred to.

The application should have attached to it a copy of any relevant lease and other relevant documents. If it is the Freeholder we would recommend this should include:

• Any and all service charge demands with summaries of tenants rights etc as appropriate
• Copy of relevant lease
• Copy of any Consultation documents etc

If it is the Leaseholder then they should attach:

• Copies of demands received
• Copy lease
• Copy of any consultation notices you have received
• Copies of any correspondence disputing the sums

Remember that the LVT when they first look at the application will want to understand what the claim is about. This will assist the LVT in issuing Directions or listing for a Pre Trial Review (PTR).

If there is an oral pre trial review the LVT will want to use this to identify the issues and then issue clear guidance as to what should happen. It is crucial that both sides consider the case from this point of view. The LVT will not be deciding the case then but making sure all is in order for a hearing.

It is vital that parties follow the Directions given. The time scales are there to help all parties. You should read the Directions carefully and make sure you understand what is required. In particular the fact that you need to supply copies of all documents you will look to rely upon for proving your case. Often the Directions are detailed and very specific for the matters in dispute particularly if there has been an oral PTR.

Generally the LVT cannot refuse to admit documents (even if late) but must give everyone ample opportunity to consider. This could result in a hearing being adjourned if there is a late submission and possibly an application being made that such behaviour should result in a costs penalty (the LVT can order costs of up to £500 a party). If a party attends at a hearing and tries to submit late documents the LVT will consider whether it can give a short adjournment for the other party to consider the documents but the hearing itself could be adjourned. The LVT will not be happy with submissions on the day unless there is a very good reason given the effect this can have on the LVT being able to decide the matter.

It is vital that when preparing for a hearing that a proper bundle is prepared. This should include an Index and the documents should all be paginated in order and placed in a folder. These bundles must be supplied in good time to the LVT office so that the Panel has a reasonable opportunity to consider before the hearing. This will assist the LVT in considering the matter and whilst the panel should not draw any adverse inferences from a late submission they are only human. Late submissions and badly prepared bundles will not assist your case! It is worth asking someone to consider your bundle and submissions to see if a person who knows nothing about your case can properly understand the points you are making and can follow clearly the documents and submissions you want the LVT to understand.

Remember that at the hearing often the LVT will raise there own questions and points and so even if the other side has not raised something the LVT may still do so itself. This is particularly true of making sure that demands comply with the various statutory requirements and or consultation when required.

The LVT panel will usually not have met until the day of the hearing but will have been sent out the bundles etc. If they have received these in good time they will be better prepared for dealing with the case. The LVT will normally be proactive in managing the case in front of them and this is assisted by timely receipt of documents in good order. The panel is there to decide the matter and a case is always helped by good preparation on the part of the parties.

If in doubt about anything then you should refer to the Clerk at the LVT dealing with your case. Whilst they cannot give you legal advice they can help with understanding what is required or that you need to do.

LVTs are used to having parties appear in front of them unrepresented and pride themselves on being user friendly. For both Freeholders and Leaseholders they can effectively deal with matters in a timely way particularly with a well presented case.

We are always happy to advise and if necessary represent Freeholders and Leaseholders with all such applications.

Stenau Properties Ltd had written to the leaseholders informing them of the consultation requirements and had subsequently held a meeting with the leaseholders. However, the impression formed by the leaseholders was that their views would not be considered in the selection process.

Stenau Properties argued that there had been very little if any prejudice to the leaseholders and therefore the fact that the consultation process had not been followed to the letter was not important. However, although the LVT found that the service charges were reasonable, it held that the leaseholders, being the people who would ultimately be paying, must have confidence that they had some influence in the decision making process. It also held where there is a significant breach of the consultation requirements, there is likely to have been genuine prejudice whether or not the final choice of contractor would have been the same.

The Lands Tribunal confirmed this view and went on to say that even if the failure to properly consult was due to a misunderstanding of the process or incompetence that could not excuse a breach of the requirements. As a result of this decision, Stenau Properties will only be able to recover £250 from each leaseholder.

In January 2011 the gas boiler broke down, upon the landlord failing to repair it the tenant and her partner complained to HSE. Following an initial investigation the HSE served the landlord with an improvement notice requiring him to produce the gas safety certificate by May 2011. The landlord did not comply.

In October 2011 the landlord finally replaced the boiler but while the gas engineer was at the property he found the cooker to be dangerous and isolated it. The gas safety certificate was produced in October 2011.

Mr Hussain, pleaded guilty yesterday to breaching Section 33(1)(g) of the Health and Safety at Work etc Act 1974 and Regulation 36(3)(a) of the Gas Safety (Installation and Use) Regulations 1998 and was fined £2,000 and ordered to pay £3,000 costs.

The HSE’s comments on the case can be read here.

We still get asked by landlords and agent when and if gas safety certificates are required when residential properties are let out. This is of some concern given the age of the legislation and we hope that whilst there was no fatality in this case that those in the letting business will take this obligation more seriously.

The Torts (Interference with Goods) Act 1977 requires a landlord to take care of the tenant’s possessions and states that they have a duty to ensure that they undertake all reasonable efforts to trace the tenant to return their possessions. It is only when the tenant cannot be traced and a reasonable period of time has lapsed, can the landlord under the Torts (Interference with Goods) Act 1977 sell the possessions. Part II of Schedule 1 states that the tenant should be given at least 3 months notice of the landlord’s intention to sell. However a clause in the tenancy agreement is enough to vary this 3 months to for example, 14 days.

Usually the landlord will hold a forwarding address for the tenant and so will be able to trace the tenant this way however if the tenants whereabouts are unknown then reasonable steps should be taken to trace the tenant including placing an advertisement in the local newspaper and notices on local community boards.

If the landlord manages to trace the tenant the Act goes on to state that a written notice must be served by the landlord on the tenant stating their intention to dispose of the possessions, how to arrange collection and that disposal of the possessions will occur only once the notice has expired. The notice should go on to further state that if the possessions are not collected by the expiry of the notice then the possessions will be sold. If a landlord and tenant are in dispute as to the possessions (such as ownership) then the they cannot be sold until the dispute has been resolved. Where the possessions are sold without confirming who the actual owner of the possessions is, the landlord takes the risk of having the actual owner turning up at his door to make good on this sale without consent, which could mean paying double the actual value of the possessions.

When it comes to selling the possessions the landlord must account for all proceeds of sale, less any reasonable costs (such as storage) and should use the best method of sale which is usually by auction. Any proceeds left over will belong to the tenant up until six years after the sale.

It is often the case that some items that may have been abandoned by a tenant are of little or no value. If this is indeed the case then steps should be taken to determine that the possessions are of little value, for example a letter confirming this by the auctioneer before a landlord or agent on their behalf, disposes of them by any other means.

DPS is currently refusing to release deposits where the courts have not specifically ordered it and they have changed their rules to reflect the same. Under rule 29 (a) DPS will only release the Deposit if the Court Order specifically refers to the Deposit and how much to be paid out to the tenant.

Several of our landlord clients have obtained a possession order on the grounds of rental arrears and are finding it impossible (or very nearly impossible….or just very expensive) to get the deposit released, even where the contract specifically allows for the deposit to be applied against rental arrears.

Of course it is always open for the tenant to agree the release of the deposit to the landlord, but once possession is obtained many tenants lose interest in co-operating with their former landlord.

In the absence of an agreement from the former tenant the landlord is left to apply to the scheme to ask for the release of the deposit. We believe this should simply be a matter of drawing the scheme’s attention to the court order for possession and rent arrears and the clause in the contract, which allows the deposit to be used against rental arrears, where applicable.

However on more than one occasion recently a landlord’s application to the DPS for the release of the deposit has been refused and the applicant referred to clause 29 of the terms and condition ( see above) and informed that if they want DPS to release the deposit to them they must either arrange for the Court Order to be amended or a Third Party Debt Order to be obtained.

Concurrently, courts are refusing to make orders that would satisfy the DPS rules with many judges refusing to address the issue of the deposit on the grounds that it is a matter for the scheme and they do not want to usurp the jurisdiction of the Adjudicator.

You will recall that part of the point of these schemes was to take the matter of deposit handling away from the courts and instead use an alternative dispute resolution, that is the Adjudicator. However landlords find themselves facing courts that refuse to deal with the deposit because it is a matter for the scheme, and the scheme refusing to release the deposit without a court order so the whole thing becomes farcical.

Painsmith has historically been involved in deposit protection reform and we would suggest that between the schemes and the courts there needs to be some clarification.

The idea was that if you had not less than 50% of the Qualifying Tenants interested they could form an RTM company and then take over the day to day management. This was seen as an alternative to enfranchisement or even a stepping stone to the same.

However as with enfranchisement whilst at first this can seem a good idea it is worth thinking about what in practice this will mean. In particular since RTMs involve leaseholders working together this is not always appropriate for reasons similar to those given in our earlier blog post on the Cons attached to enfranchisement. In particular you may all need to work together and make difficult decisions about the management of the building.

Sometimes the leaseholders find themselves in a position where they all agree that the current management of the building is not working. Often this can be down to neglect or actual mismanagement. Whilst there may be differing opinions as to the way to move forward it may be possible to use the Landlord and Tenant Act 1987 (“The Act”) to impose some control.

The starting point is for one or more leaseholders to serve a Notice (section 22 of the Act) upon the Landlord and any Managing Agent appointed. This should set out the defaults complained of and invite them to set out how they intend to remedy the same. A reasonable period must be allowed.

Once that has expired the Leaseholders can then apply to the LVT under section 24 of the Act for the appointment of the manager. It will be for the Leaseholders to propose a professional managing agent who is prepared to accept an instruction. Generally the LVT will issue Directions and these will require the proposed agent to confirm that they agree to being appointed and ask them to confirm the terms upon which they would be appointed, provide a CV and other information. There will also be Directions requiring the Leaseholders to file evidence of the breaches complained of and for the Landlord/Current agent to reply. We pause at this point to highlight that this is a fault based procedure and the LVT must be satisfied that there are breaches and it is just and convenient to make an order.

There will then be a hearing (note generally the LVT has no powers to deal with matters summarailly) and the LVT will hear evidence. Usually they will require the proposed manager to attend and give evidence so that the LVT is satisfied that they are a proper person and able to adequately manage. The Manager is an appointee of the LVT and will operate pursuant to the terms of their Order.

Once appointed it will then be for the Manager to manage. They must ensure compliance with all terms of the lease and of course statute and will normally be expected to manage in accordance with one of the recommended codes of good practice for management.

The manager should act independently to pursue his or her duties. This often can be useful as the obligation to make decisions etc as to the management will be down to the manager and not the Leaseholders (or Freeholder). This means that sometimes difficulties can arise and the Manager is unsure what to do. If the terms of the appointment under the Order appointing do not make clear they are entitled to make application to the LVT to seek further Directions.

As can be seen whilst RTM provides a useful tool for leaseholders it is not suitable for all circumstances particularly today in some blocks which have many absentee leaseholders. Appointment of a manager can ensure that a building is properly managed particularly when the leaseholders (or some) are satisfied that it is not being done properly but they themselves do not want to become involved in the management or cannot agree on exactly how the building should be managed.

As with all things relating to residential Landlord and Tenant we at PainSmith are happy to advise Landlords or Tenants about such applications or the options open to them.

Benesco granted Speedway Tyres a 10 year lease. Mr Kanj set up the company but it was his wife that was the director of the company. Speedway and an associated company, Speedway Autocare Ltd (Autocare) was placed into a creditors voluntary liquidation.

The liquidator appointed for both companies disclaimed the lease. This meant that Speedways obligations under the lease were at an end. However this did not put at an end any lease that Speedway may have granted to third parties for the property. Mr Kanj received notification of the disclaimer.

Benesco then issued possession proceedings on the basis that Mr Kanj and the other unknown persons were trespassers. Mr Kanj defended on the basis that at some point he was granted a sub tenancy by Speedway or Autocare. However at the hearing Mr Kanj then changed his position and stated that he did not have a personal tenancy but that a tenancy had been granted to Autocare by Speedway.

There were other issues too but dealing with the delay aspect, the court decided that upon reading the witness statements it did appear as though the issue over the sub tenancy needed to be dealt with and as such the witness statements could not be rejected at a possession hearing which is summary in nature.

A person is entitled where there are matters raised in the witness statement to take the matter to trial. The court found that on the evidence there was an arguable case that at least Autocare had a sub tenancy. The court accepted that it was not clear what the true position was but stated that Mr Kanj and his wife could be cross examined in court and should not have been dismissed out of hand.

The moral of the story…….delays are possible even when the tenants/occupiers case appears to be groundless.

Interestingly the prosecutions were brought as a last resort only after attempts to work with the landlords to “turn the management of the property around” failed. Bristol City Council maintains that it is committed to working with private landlords to maintain and improve the quality of housing in the city.

If you are an HMO landlord the advice is – work with your local authority: respond to their letters within the specified time limits. If you believe that they are demanding measures not required by law, then raise this with them. If you are not sure of your rights then as always make sure you seek independent legal advice as soon as you can.

You can read the full article here.

Well the Christmas break is now over and we look ahead to another year. We expect there to be changes in the rules governing Tenants Deposits both statutory and the rules of the individual schemes. This year may also see the Energy Act secondary provisions being enacted but we will wait and see…!

In other areas of law we are aware that the long awaited decision in the case of Hosebay v. Day as to what is a flat is likely to receive Judgment in the Supreme Court this Summer. Further we expect more decisions relating to service charges and recoverability particularly where there has been issues over consultation.

We will continue to try and keep you aware of any developments that we think might be relevant but if ever any areas you would like us to blog on or any questions please let us know.

Here’s to a prosperous New Year for one and all.

Resolution Foundation, an organisation that works to highlight the experiences of low-to-middle earners (LMEs) through its research has published a report on its survey of tenants experience in the private rented sector.

Resolution Foundation conducted I mystery shopping exercise of 25 letting agents and also spoke to tenants about their experience in the lettings market where a letting agent was involved. The main cause for concern appears to be that the lettings agents are unregulated and that there is a lack of transparency with agents charging arrangements.

The survey found that many agents do not confirm what these fees are in the initial paperwork which can cause some financial difficulty even before the tenancy has begun. PainSmith Solicitors has for many years stressed the importance of confirming these fees at the outset so these results are alarming especially given that in some cases they may not be recoverable under the Consumer Protection from Unfair Trading Regulations.

The report has therefore made the following recommendations:

-letting agents to be brought under the Estate Agents Act (1979), thereby giving the Office of Fair Trading powers to ban agents who act improperly;

-all letting agents to become members of an ombudsman service, giving tenants the opportunity to pursue redress in cases of poor practice;

-an amendment to the code of practice of the ombudsman service to make it a requirement for agents to present landlord and tenant fees on their websites, in adverts and in all paperwork in a way that is easily comparable across agents;

-government to make use of the 2012 retendering process for the tenancy deposit protection schemes to find ways to make it easier for tenants to use their old deposits when moving in the private rented sector;

-local authorities to extend rent deposit schemes to members of the low-to-middle income group.

Whether or not you agree with the recommendations it is important that tenants understand what they are expected to pay and when. These fees should therefore be confirmed in writing before any agreements are concluded to ensure that the fees are recoverable.

Leaving aside the accuracy of the statements and without joining in any mudslinging, Painsmith comments as follows:

1. Under ground 8 of schedule 2 of the Housing Act 1988, if rent is payable monthly and at least two months’ rent is unpaid the grounds for possession are made out. Rent means rent lawfully due from the tenant. This is spelled out in the Housing Act. Where rent is payable in advance but the tenant does not pay the rent on the payment date, then from the day after the rent payment date that months’ rent is lawfully due but unpaid, and ground 8 is made out.
2. Painsmith deals with hundreds of section 8 notices a certain number of which lead to possession proceedings for rent arrears. Painsmith has never experienced a judge adjourning a hearing on the basis that the section 8 notice should have been served in the third month.
3. Where the tenants pay quarterly then ground 8 is made out if “at least one quarters’ rent is more than three months in arrears”. In this case then you would need to wait until the tenant was three clear months in arrears.

Of course there is no compulsion to serve a section 8 notice on ground 8 immediately that the ground is made out. However the law is clear: where a tenant pays monthly in advance ground 8 is made out the day after the second unpaid rental due date has passed. As the leading landlord and tenant legal practitioners in this field Painsmith has a duty to set the record straight.

The motivation for many is to rid themselves of a freeholder who they perceive is not offering good value for money and service and often the fact that all the leaseholders need to act to extend their leases. Undertaking a collective enfranchisement can often be achieved at a similar cost to that of all extending their leases particularly when legal and valuation costs are thrown into the mix. All seems simple and many groups at this stage press on with the purchase.

The issues generally arise sometime down the line when the glow of having purchased has worn off. Simply because you have bought your freehold does not mean that all problems go away. In our experience freehold purchases tend to be driven by a small group of leaseholders who put in enormous amounts of time and effort. Sometimes after the initial euphoria they find that they do not wish to (or can’t) give as much time to the freehold as before. As a freeholder you remain bound by the terms of the leases particularly with regards to service charges and repairs. Whilst often on completion the leaseholders will all have extended their leases (typically to 999 years) the service charge and repairing covenants usually remain the same. The freeholder is still governed by the statutory rules governing residential leases and must comply with all of these obligations including in relation to consultation. This year we have seen a number of LVT decisions reiterating this and making clear that there will be no let off for leaseholder owned companies.

As a result some of the imagined costs savings cannot be achieved as often a managing agent for practicality will still be required as well as having to go through all the processes. Certainly we would always recommend to any group considering enfranchisement that they should look to appoint managing agents to ensure that the day to day running complies fully with all of the legal requirements. We have seen over the past decade the increase in rules and regulations to ensure that individual leaseholders are protected but this has driven up costs as the work involved has increased.

Increasingly we are also being asked to advise both individual leaseholders and freeholds where the parties find themselves in dispute. This can be as simple as someone not having the money to pay the service charge and fellow neighbours having to take Court action to recover monies. The other extreme is in small blocks where the freehold is owned by named individuals and one is looking to sell and one or more of the other Owners will not sign the necessary transfer paperwork causing a sale to fail. Consideration needs to be given as to how you feel you will get on as a collective group and not just with your current leaseholders but potentially with subsequent Owners.

We have seen instances where the repercussions are so great that fresh collective enfranchisement claims have been made. Now with the lower qualifying majority of 50% it is possible that buildings can enfranchise and re-enfranchise again and again. We have seen a situation where the leaseholders of a small block has enfranchised on 3 occasions! The fees spent on such an exercise must be immense for little real gain to the leaseholders individually.

Whilst none of the above should necessarily put anyone off buying their freehold it is important that everyone enters this with their eyes wide open. Under the legislation there are various other routes that can often be adopted such as Right to Manage and undertaking bulk lease extensions either by the statutory route or negotiation. Commercial freeholders are alive to these issues and many will negotiate over items. There can be a benefit in having a completely separate (and we deliberately do not say independent!) freeholder. Whilst for most groups who enfranchise the process is an unqualified success story with many real and perceived benefits as with most transactions there are risks and it is important that all participants understand these.

In Rainy Sky SA and others v Kookmin Bank the Supreme Court unanimously overturned the previous decision of the Court of Appeal. The facts of the case are complicated because it’s a Maritime case and outside the remit of this blog. Therefore, briefly, the drafting of the guarantee agreement was the main cause of disagreement between the parties, as the drafting did not match that as stated in the shipbuilding contracts. Where the shipbuilding contracts had stated that should one party enter into insolvency then the buyers would have a right to rescind the contract and therefore obtain a refund for payments made pursuant to the contract, the guarantee agreement did not. Paragraph 2 of the guarantee stated that the buyers would be entitled to a refund if they exercised their right to “termination, cancellation or recission” their contracts and paragraph 3 provided the guarantee obligation that the defendant would pay the buyers “all such sums due to you under the contract”. But when one party began having financial difficulties and entered into a form of insolvency the defendant refused to give them a refund on the guarantee paid pursuant to the contract because the defendant argued that the insolvency was not “termination, cancellation or rescission”. The claimants argued that this literal interpretation made no business sense and that there was no good reason why insolvency should be excluded.

The courts decided to approach the contractual wording with what a reasonable person would have understood the parties to have meant, keeping in line with the consistency of the commercial purpose of the bonds. This approach to construction has been used in previous case law, notably Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd where it was held that the ultimate aim of interpreting a provision in a contract is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. However in Rainy Sky SA and others v Kookmin Bank [2001] UKSC 50 they were faced with the question of what happens if the reasonable person is capable of reaching two different interpretations from the same words? The court found it necessary to use the construction in a manner consistent with business common sense, as a language capable of producing an absurd or irrational result was held not to prevail over the commercial purpose of the agreement. The court therefore held that insolvency would be included in the list of grounds on which the parties could rely on in order to terminate the agreement and have the bond returned.

So why did the court allow common sense to prevail and what does it mean for the future? Language can be deemed as flexible in the sense that what might seem reasonable to one, isn’t deemed reasonable to the other. Thus meaning that although the presumption of a reasonable person can be used in most situations, it cannot be used in every situation that arises.

What does this mean to landlords and letting agents?
This case means that contracts, and particularly guarantee agreements, will be looked at by the Courts with an eye to giving them the force that the parties reasonably intended. They will not normally allow a guarantor to escape their obligations by reading a piece of ambiguous wording in an overly restrictive manner.

However, this should not be seen as a licence not to take care with documents. No landlord or agent would wish to undergo the expense of the multiple appeals that this case required.

The Bill was given the force of law on the 18 October 2011.

The basic issue for our readers is that:

• The Act includes provisions to ensure that from April 2016, private residential landlords will be unable to refuse a tenant’s reasonable request for consent to energy efficiency improvements where a finance package, such as the Green Deal and/or the Energy Company Obligation (ECO), is available.

• Provisions in the Act also provide for powers to ensure that from April 2018, it will be unlawful to rent out a residential or business premise that does not reach a minimum energy efficiency standard (the intention according to the Department of Energy and & Climate Change is for this to be set at EPC rating ‘E’).

Before the deadline of April 2018, the Secretary of State will need to pass regulations so that a landlord can not let a property until the above has been complied with. There does not appear to be any indication of when this might be however, the current Energy and Climate Change Secretary Chris Huhne has made his intentions clear about introducing the regulations.

The Act only applies at present to tenancies governed by the Housing Act 1988 or the Rent Act 1977 and so does not apply to Common Law or Company Let agreements but this could change and if it does we shall update. The other issue to note is that the Act does not apply where the EPC has been obtained prior to the Regulations coming into force.

Whether or not landlords believe that this:

“The Green Deal is a win-win opportunity for landlords by removing the upfront cost of work to upgrade the property making it cheaper to run, more environmentally friendly and ultimately more attractive to rent.” (Chris Huhne, Secretary of State)

The fact is that the legislation is coming into force and agents should warn landlords of it so they have more than enough time to carry out the energy improvements.