Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Section 21 news ( and comment)

Spencer v Taylor [ 2013] EWCA Civ 1600.

The Court of Appeal has recently revisited the requirements of section 21 of the Housing Act 1988 and its application to statutory periodic tenancies, which in due course is likely to significantly alter and simplify the way notice is served on statutory periodic tenants of an Assured Shorthold Tenancy (AST).

The facts

The Landlord, Mr Spencer, served notice on his tenant, Miss Taylor who was on a weekly statutory periodic tenancy following on from a fixed term agreement. From the transcript of the judgment it would seem that the notice was sent in the usual format that most agents use, and was a “standard” section 21(4)(a) notice. (There is no statutory required standard form but a customary standard form has developed).

The expiry date was in the format approved in the case of Elias v Spencer, i.e. it required possession “after 1/1/2012 or (b) at the end of your period of tenancy which will end next after the expiration of two months from the service upon you of this notice” (i.e. the “saving provision” as approved in Lower Street Properties v Jones.

Possession proceedings were brought once the notice expired. The tenant defended the proceedings arguing that the given date of expiry of the section 21 notice was not the last day of a period of her tenancy and that the saving provision gave a second date, which invalidated the first. In other words a continuation of the interpretation of the requirements of section 21 (4)(a) Housing Act 1988.

The tenant defended successfully in the first instance. The Landlord appealed successfully in the High Court. The Tenant appealed to the Court of Appeal.

The Court of Appeal

The appeal judge hearing the tenant’s appeal in the Court of Appeal, Lewison LJ, concentrated on the requirements of section 21 as a whole, starting with section 21(1) finding:

1. The fixed term tenancy came to an end on its expiry date for the purposes of section 21(1)(a).
2. No other tenancy had come into existence save for a statutory periodic tenancy (which we now all know is a new tenancy following Superstrike!).
3. The landlord gave the tenant two months’ notice.
All three conditions of s21(1) were satisfied and therefore the court could give possession

The significance

To go back (briefly) to basics: section 21 of the Housing Act 1988 provides the mechanism by which a landlord can recover possession of his property that has been let on an AST. A court can grant a possession order under section 21 (1), or under section 21 (4) if certain conditions are satisfied.

Prior to the judgment in this case, the courts have been finding that section 21(1)(b) applied only to serving notice during the fixed term of an AST. This line of thinking is supported by section 21(2), which provides that notice may be given under section 21(1) before or on the day the fixed term comes to an end, even if a statutory periodic tenancy arises part way through the notice period.

Once a statutory periodic tenancy had arisen, it was understood that section 21(4)(a) applied: “without prejudice to any such right as is referred to in [s21(1)], a court shall make an order for possession of a [property] let on an AST which is a periodic tenancy.

The requirements of section 21(4)(a) are that: “…the landlord…has given to the tenant a notice in writing stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession…is required by virtue of this section”; and “…that the date specified…is not earlier that the earliest day….the tenancy could be brought to and end by a notice to quit…”

It is well known in the industry that adhering to the requirements of section 21(4)(a) have been tricky to the point of ridiculousness. Possession claims have historically been thrown out of court simply because the landlord required possession on the wrong date, or asked for possession “on” a date, rather than “after” (see Fernandez v McDonald [2003] EWCA Civ 1219). There has been much case law interpreting section 21 (4)(a), some of it to alleviate the harsher requirements of the section, ( see for example Lower Street Properties v Jones in which the court approved the use of the “saving provision” to avoid the risk of putting an incorrect date on the notice).

The law therefore is now that a landlord wishing to gain possession of his property let on an AST which was a fixed term and has become periodic needs to give only two months’ notice in writing, pursuant to section 21 (1)(b) and need not concern himself with rental periods.

So what about section 21 (4)(a) and the case law surrounding it? Fernandez v McDonald [2003] EWCA Civ 1219, the leading case that requires notices under s21(4)(a) to demand possession “after” rather than “on” a date? Lord Justice Lewison considered that that case fell “squarely within section 21(1) rather than section 21(4)”. However he emphasised that his comments on Fernandez v McDonald were not part of the “ratio decidendi” of the case ( i.e. not part of his judgment). Therefore the case law surrounding section 21 (4) ( a) remains good law, but it is section 21 (1)(b) that governed Spencer and Taylor, and by extension any notice served on a periodic tenancy ( statutory or otherwise) that was once a fixed term.

Comment

This judgment is surprising perhaps in that it has come apparently out of the blue, when agents and solicitors up and down the country have accepted ( if reluctantly) the difficulties and specific requirements of serving valid notice on statutory periodic tenancies. However it is well known that there has been significant ( and many would say understandable) criticism of the section 21 (4)(a) requirements and so the idea that the Court of Appeal has moved to simplify things is not so surprising. Further, Lewison LJ’s interpretation is of section 21 is not new – it is just new to the courts.

On the face of it then, Spencer and Taylor has removed the onerous requirements of section 21 (4)(a) from fixed term ASTs that have become periodic. Gone is the need for the saving provision lest the date of expiry be wrong. Gone too is the need to work out what is the “period” of the tenancy when the rent day does not match the beginning and end dates of the fixed term. Instead the landlord/agent simply needs to ensure proper service of the notice according to the terms of the tenancy agreement, and to ensure that he gives at least two months notice in writing as if serving the notice during the fixed term of the tenancy in accordance with section 21(1)(b).

However, some words of caution:

Although this Court of Appeal judgment is good law today this point may be appealed to the Supreme Court and may be overturned in the next year or two. A notice which satisfies section 21 (4)(a) will also satisfy the looser requirements of section 21 (1)(b). Most tenants give back possession and do not quibble over the validity of notices, but if they do, possession claims are usually done on the paper (accelerated) procedure or a 5 minute possession hearing with a District Judge. Court of Appeal judgments take time to trickle down to the lower courts and do you really want to have to set yourself up for an argument or risk an adjournment when you could just serve notice to expire at the end of a rental period?

Tenants wishing to serve notice are still bound by the common law rules which would mean that if they are on for example, a quarterly periodic tenancy, their notice period must still run for a clear quarter and expire at the end of a rental period ( or on the day rent is due). Spencer v Taylor gives landlords a much easier way of serving notice while leaving the tenants with much more onerous requirements.

So after breathing a sigh of relief that we can all forget about section 21 (4)(a) in practice we would suggest that, in light of the above, agents might like to keep the practice of serving notices that comply with section 21 (4)(a), at least for the near future.
Section 21(4) a will continue to apply to contractual periodic tenancies which never had an initial fixed term, and to tenancy agreements which provide for an initial term to continue on a contractual periodic basis . The latter may become more prevalent following the Superstrike ruling as a way of avoiding the need to serve prescribed information, and it should be noted that for the purposes of section 21 (1)(a ) the tenancy will not have come to an end at the end of the fixed term and therefore section 21 (1) (b) will not apply.

In conclusion, the ruling in Spencer v Taylor is good law and should in the long run make serving notice on tenants much simpler. However for the moment our advice is that if you do change your systems to serve section 21 (1)(b) for all but contractual periodic ASTs, you should do so knowing that the courts might take some persuading that the notice is validly served. You will also have to keep an eye out for any Supreme Court reversals. If you are prepared for this then fine, otherwise it might be easier to let others beat the path first.

Filed under: England & Wales, , , , , ,

APPOINTMENT OF A MANAGER

We have recently seen a rise in the number of enquiries from long leaseholders dissatisfied with the management of their building. Often after the leaseholders have themselves taken over the management.

Many of our readers will be aware that the Commonhold and Leasehold Reform Act 2002 introduced Right to Manage (RTM). This was a non-fault ground that if the majority of leaseholders in a building wished to take over management then in effect they could do so. The process was thought to be straight forward but the rise in cases before the First Tier Tribunal Property Chamber and subsequent appeals to the Upper Tribunal are a clear indication that many freeholders will not give up management without a fight. Even when the process has been followed dissatisfaction can still exist with some leaseholders unhappy with the conduct of others.

So what other options are there? The Landlord and Tenant Act 1987 provides an alternative route. To follow this it is first necessary to show that in some way the body managing the development is not complying with its statutory duties and requirements under the lease. Any one leaseholder is entitled to follow this procedure.

Initially a Notice must be give to the freeholder and the person managing under section 22 of the 1987 Act. This notice needs to give details of what the perceived difficulties are and suggest how the manager can remedy the same. If the landlord and manager do not then remedy the breaches within a reasonable period of time an application can be made to the First Tier Tribunal Property Chamber inviting them to appoint a manager.

At the hearing the Applicant has to justify to the Tribunal that it is “just and convenient” to appoint a manager. Generally the Tribunal will want to be satisfied that the current appointee has not been complying with the lease and statute. The Tribunal will also take account the views of other leaseholders and the freeholder. The Tribunal will consider all points to try and determine if the imposition of a manager will improve the lot of the leaseholders to ensure good management of the building.

It is for the Applicant to source a person to be a manager. Generally the Tribunal will want to appoint a professional who can demonstrate that they fully understand what is required of them, will follow one of the approved statutory codes of management (such as the RICS Residential Service Charge Code), have sufficient professional expertise and hold insurance. The proposed manager will normally be required to attend any hearing and in effect be interviewed by the Tribunal to satisfy them as to the suitability. The reason for this is that the Manager (who may also be given powers as a Receiver) is an appointee of the Tribunal and answerable to them in the first instance rather than the parties to the leases. The management order will set out comprehensively the terms of appointment including prescribing the fees the manager can charge, the length of the appointment and other rights give to them. If anything is not covered or difficulties arise any party (including the manager) can then apply to the Tribunal for further directions. Typically an appointment will initially be for two or three years and before the Order lapses it is possible for the parties to apply for an extension of the same.

The benefit is that an entirely independent manager is appointed who is personally answerable (as the Order always names a specific individual) to the Tribunal. We have seen a rise in situations where the leaseholders have taken over management (either as a result of an RTM or collective enfranchisement) but issues have arisen. All too often we come across situations where factions arise who do not wish to strictly comply with the lease or statute. When such agreements are unanimous this can work but there are risks. In these circumstances the imposition of a manager may be better for all parties to resolve disputes. It is also worth noting that the leaseholder(s) who apply will themselves have no liability for the management. In forming and setting up an RTM their will be costs which the participating leaseholders are joint and severally liable for and those leaseholders whop become Directors of an RTM also have responsibilities under the rules and regulations governing companies.

These situations typically are complicated but appointment of a manager can be an effective method of resolving long residential leasehold management problems. We at PainSmith are happy to advise on any such matters, including assisting in finding managers prepared to accept such appointments.

Filed under: England & Wales, , ,

Office of Fair Trading to study Residential Property Management services

The OFT last week announced that it intends to launch a market study into the residential property management field for leasehold property in England and Wales.

Ahead of the study the OFT has invited interested persons to tell them about what areas they should be concerned about. Their Press Release sets out what areas the OFT is particularly interested in and so if you are involved in this sector you should be reviewing this and consider what if anything you want the OFT to look at.

Recently leasehold law does seem to have come on to the political agenda so it will be interesting to see what steps the OFT takes following on from its investigation into retirement home security services.

Filed under: England & Wales, , , , , , ,

More Long Leasehold News

For those of you who are involved in people looking to extend their leases or undertaking freehold purchase by way of collective enfranchisement under the Leasehold Reform Housing and Urban Development Act 1993 you will no doubt be aware of the issues with regards to signing the Initial Notices required under this Act.

Due to a case called St Ermin’s Property Co. Ltd v. Tingay [2002]EWHC 1673 (Ch) it was determined that all such Notices must be personally signed by the relevant leaseholder. The case determined that the Notice could not be signed by a solicitor or even under a Power of Attorney but required an actual signature. This practically caused many issues particularly once the residence requirement was removed and leaseholders were often “Buy to Let” landlords spread all over the globe.

As a result a Private Members Bill, Leasehold Reform (Amendment) Bill, is due to get its second reading on 22nd November 2013. The Bill sets out to amend paragraph 99 of the 1993 Act to remove the requirement that Notices must be personally signed. If the Bill should become law it will mean that Notices may be signed “by or on behalf of the tenant” and should remove this practical difficulty.

Whilst this may seems minor many notices have been rejected by freeholders on the grounds they have not been properly executed and leaseholders have had to start the process all over again incurring not only their own costs but having to pay costs to freeholders.

Filed under: England & Wales, , ,

Yes you are your brother’s keeper. Immigration Bill 2013

Last week the Immigration Bill was given its first reading in Parliament. As was mooted in the Queen’s Speech, it contains requirements on landlords and agents to check the immigration status of tenants, with penalties for failure to comply.

If the Bill becomes law, people living in the UK without the “right to rent” are to be prohibited from renting premises in the UK. Section 17 of the Bill provides that persons “disqualified by immigration status” are not to be granted tenancies. Tenants who become disqualified during a tenancy are to lose their right to rent.

And the landlord/agent is responsible for checking.

If a landlord and/or agent lets a property to, renews a tenancy agreement with, or possibly allows continued occupation once a statutory periodic tenancy arises of a disqualified person, that landlord/agent will face a penalty of up to £3000.00.

There is a list of excuses that landlords can look to rely on, including that it was the agent’s fault (!), or that the “prescribed requirements” ( yet to be prescribed, but probably something along the lines of taking copies of passports/visas etc) were complied with before the tenancy was granted. If a person becomes disqualified during the tenancy the Landlord can try to wriggle out of paying a penalty if he tells on the tenant. Agents will have similar excuses set out in section 21.

The penalty system looks like this: 1. Landlord/agent receives penalty 2. Landlord/agent objects 3. Penalty is cancelled, reduced, increased, or no action to be taken. The prospect of an increase might put some people off lodging an objection.

The Bill anticipates that landlords might try to get around the responsibility to check immigration status by inserting a clause into the tenancy agreement prohibiting occupation by a disqualified person; section 17(6) provides that any such clause will be ignored for the purposes of determining whether there has been a contravention.

In anticipation of the fact that asking landlords and agents to do the job of the UKBA could give rise to racial profiling and discrimination ( hmmm, that name looks a bit foreign, let’s be on the safe side and not let our property to them),
Section 28 provides that a code of practice is to be issued to ensure compliance with the Equality Act 2010 and Race Relations ( Northern Ireland) Order 1997. Interestingly though a breach of the code will not incur civil or criminal proceedings. This looks like a dangerous balance: breach of the Immigration Act will incur a penalty, whereas breach of the so-called safe-guard will not.

Points to note:
• The Bill is currently in draft form. If and when it becomes law the current draft provisions may have been amended considerably.
• It does not apply to British Citizens, EEA nationals or Swiss nationals.
• Currently the referencing checks that reputable agents carry out would probably provide the necessary information ( sight of passports, evidence of bank accounts etc).
• The Bill covers tenancy agreements whether written or oral.

The above may seem unusually political for a Painsmith blog. This is not the intention. However Painsmith is committed to helping to eliminate discrimination in the private rental sector and in its current form this bill is set to cause problems.

Filed under: England & Wales, , , , ,

Property Owners Beware of Fraudulent Transfers

If you own a property that is registered and do not live in it yourself, you could be an easy target for fraudsters.

One type of fraud that is not new but seems to be becoming more common involves fraudsters transferring a property into their own name with HM Land Registry and then securing a mortgage against it. Having converted the equity in the owner’s property into cash, the fraudster disappears, defaults on the mortgage and leaves the true owner to deal with the consequences.

This is what happened in the case of Barclays Bank plc v Guy 2008. When Mr Guy found out about the fraud on his property, he applied to the Court to rectify the register to show that he was the owner and not the fraudster. The Court found that Mr Guy was entitled to this but he was not entitled to have the mortgage charge removed. The Court found that the mortgage remained valid and so the mortgage company was entitled to seek an order for sale to recover the sum it had lent to the fraudster if they were not paid.

How can this be right? The Court referred to Section 58 of the Land Registration Act 2002 which provides that, if a person is listed as the proprietor of a legal estate with HM Land Registry, that is conclusive evidence of ownership. The Court accordingly found that, the transfer into the fraudster’s name was a mistake and so rectifiable but the mortgage charge was not a mistake as the mortgage company was entitled to rely on the information on the Land Register as conclusive evidence of ownership. The Charge was therefore not rectifiable. This means too that if the fraudster sells the property to an innocent third party, that transaction would be binding.

So, how do you minimise the risk of this happening to you? If you do not live at your property personally you must make sure that you amend the Register to show that (by using a Unilateral Notice) and provide your current address for correspondence. Updating your address with HM Land Registry is free – all you need to do is complete a form and send it to a freepost address with evidence of your identity.

Filed under: England & Wales, , ,

Another Deposit case

Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 (14 June 2013)

So what’s the big deal?

The facts: On 12 January 2007, Mr Rodrigues entered into a fixed term tenancy agreement for a year less one day. The deposit was not protected as the compulsory tenancy deposit legislation (which required landlords to protect the deposit and serve the prescribed information) came into effect on 7 April 2007 i.e. after the tenancy agreement was entered into. On the expiry of the fixed term, Mr Rodrigues remained in occupation under a statutory periodic agreement and the deposit remained unprotected. On 22 June 2011 the Landlord served a section 21 notice and issued proceedings on it, which Mr Rodrigues defended, amongst other things, on the basis that the section 21 was invalid as it was served while the deposit was unprotected.

The decision: Firstly the Court of Appeal ruled that the statutory periodic tenancy was a new tenancy under Section 5 of the Housing Act 1988. This decision is uncontroversial as the wording of the section is clear.

The next question was – if a new statutory tenancy arose in January 2008, was a deposit received at this time (thus triggering the requirements to protect the deposit and serve the prescribed information?) The landlord argued that it didn’t as no money was physically received, i.e. no cash, cheque or bank transfer made but the Court of Appeal disagreed. In paragraph 38 of his judgment, Lewison LJ stated:

“In my judgment, although there is no evidence that the parties said or did anything of that kind, and it is likely that they were not aware of the nature or incidents of the legal process that took place when the fixed term tenancy came to an end, nevertheless the position as between them should be treated in the same way as if they had had such a discussion. The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement”.

What this means: When a new statutory periodic tenancy arises, the deposit is received for the purposes of section 213 Housing Act 2004 as at that date and so must be protected and the prescribed information served.

What now?
Tenancies that were created before the deposit protection legislation came into effect i.e. before 6 April 2007, but rolled over into a statutory periodic tenancy after that date, fell to have their deposits protected on the expiry of the fixed term.

On the expiry of the fixed term and the arising of a statutory periodic tenancy, or a new fixed term, the requirements of the Housing Act deposit rules kick in for this new tenancy, which are that within 30 days of receipt of the deposit it must be protected and prescribed information served. Whether the prescribed information must be re-served has been a matter of discussion and you can enjoy some excellent analysis from Nearly Legal and David Smith of Anthony Gold Solicitors.

A cautious landlord and agent might prefer to re-serve for each new tenancy, (including a statutory periodic tenancy), than expose themselves to tenancy deposit claims or defences to section 21 possession proceedings.

Following this case there is undoubtedly a number of long-term tenants who could challenge the validity of any section 21 notice served on them. Landlords in doubt may want to consider returning the deposit to their tenants (with or without deductions) before service of a section 21 notice.

Interestingly, the courts service N5B form for accelerated possession proceedings asks the Claimant at section 7(a): “was a money deposit received on or after 6 April 2007?” After the Court of Appeal decision one presumes that the answer to this will, if a statutory periodic tenancy arose after that date, have to be answered affirmatively.
Statutory periodic tenancies that arose before that date and have never been renewed will not be affected by this decision.

On 17 June 2013 the deposit schemes made a joint press release here.

Filed under: England & Wales, , , ,

Forfeiture and the Courts

As many of our readers will be aware that since the passing of the Commonhold and Leasehold Reform Act 2002 before a freeholder can take steps to forfeit a lease a determination is required. Section 168 of the 2002 Act gave jurisdiction to the Leasehold Valuation Tribunal to determine if there was a breach of covenant under the lease. As with all Leasehold Valuation Tribunal claims a more limited cost regime applies although some leases may allow recovery of any freeholders costs as an administration charge.
Recently a case came to be decided by the High Court Queens Bench Division known as Cussens v. Realreed Limited [2013] EWHC 1229 (QB). The freeholder applied to the County Court for a declaration that the Leaseholder was in breach of her lease of two flats which she owned which she had sub let and which had then been used for the purposes of prostitution. It appears form the judgment that the unlawful use itself was not disputed. The County Court made a declaration that the lease terms had been breached and made an order for the leaseholder to pay the freeholders costs. The tenant then appealed challenging the County Court’s jurisdiction to make such a declaration and also against the order for costs.
It was argued that given the terms of section 168 of the Commonhold and Leasehold Reform Act 2002 it was for the LVT to make the determination that there has been a breach of the lease. The High Court determined that there is nothing to stop a freeholder seeking a declaration in the County Court for such a breach of covenant. It is worth pausing here to remember that potentially a County Court could of course refer the matter itself to the LVT to make a determination as to whether there has been a breach.
With regards to the question of costs the leaseholder tried to argue that it was inappropriate to make an order for costs given if application had been made to the LVT a more limited costs regime would have applied. This would have limited the costs which the LVT could have ordered the leaseholder to pay to the freeholder and the court should have had regard to this. The judge referred to the fact that prior to the appeal no objection had been taken to forum chosen and that no doubt the leaseholder had hoped to recover her own costs if she had been successful in resisting the landlords claim. All of this being said the Court determined that there was nothing wrong with the order made by the Judge at first instance. The Judge had made the declarations sort (which this appeal upheld) and it followed he could make an Order for costs as he had done. The barb in the tail for the landlord was that the High court Judge did say that it would be open to the leaseholder to argue in any costs assessment hearing that the costs should be limited to take account of the LVT costs regime.
So what does this all mean? It leaves open to freeholders the right to apply to the county court. Tactically careful consideration needs to be given and certainly if there is no clear provision within a lease for costs recovery then a freeholder may be better advised to apply to the court rather than the LVT. The plus of the LVT for a determination is that often a hearing and determination can be achieved quicker allowing a freeholder to have any breach dealt with sooner.

Certainly any leaseholder who finds themselves threatened with any form of breach of covenant declaration or determination proceedings would be well advised to take urgent advice. Both to consider the merits of any such claim and the best tactics to adopt. A declaration can have fairly devastating effects given that ultimately it could lead to a forfeiture of the leasehold interest leaving the leaseholder owning nothing and potentially still owing any mortgage or other loan they had taken out!

Filed under: England & Wales, , ,

Leasehold Valuation Tribunals, are they no cost forums?

Over the past year or so we have read some of the debate that has been ongoing over the recoverability of legal costs at the Leasehold Valuation Tribunal (LVT).

The starting point as with most Tribunals in England and Wales is that they are a none costs shifting forum which in simple terms means that each party is responsible for their own costs and the Tribunal will not order the losing party to pay the other sides costs. This means that any costs which either side incurs will be for them themselves to pay. In the LVT under the current rules (which are due to change in July when the LVT becomes part of the new Lower Tribunal (Lands Chamber)) if a party has behaved vexatiously or unreasonably the LVT can order that that party pays to the other side up to £500 towards any costs which have been incurred. Such Orders are rare.

The situation is however muddied in that in disputes before the LVT, which will inevitably involve Leaseholders and Freeholders, there will be a contractual relationship between the parties being the lease. Often leases will include a clause allowing a Freeholder to recover legal costs in connection with disputed service charges as a management expense. If so it may be recovered under the service charge and so even though the Freeholder has perhaps “lost” at the LVT the costs they have incurred can be recovered from all the Leaseholders. Also some leases contain clauses that allow a Freeholder in certain circumstances to recover LVT costs directly from any one Leaseholder who sought to bring a challenge as an Administration Charge.

What this means is that Leaseholders as we have said in previous posts need to carefully consider what the terms of their leases provide. If the lease does not allow recovery then the risk may only be the £500 if a Freeholder can satisfy an LVT that conduct was frivolous or unreasonable but care needs to be taken.

So what can Leaseholders do? It is important to remember that LVTs are simply creatures of statute and so have to operate within the framework that Parliament has laid down for them. Certain safeguards are in place. In particular it is possible for Leaseholders to make an application under section 20C of the Landlord and Tenant Act 1985 to seek limitation of the costs which a Freeholder can recover as a service charge expense. The LVT has broad powers and discretion. It is vital that Leaseholders make such an application and think carefully about the reasons. These do not simply have to be limited as to whether they win (since submissions will often be made before the LVT has issued its decision) but should explain why the application was necessary to be made or responded to and in what ways the Freeholder may have been unreasonable such as failing to enter into constructive dialogue etc.

The LVT can then look to make such an Order. This may prevent the recovery of whole or part or even fix the amount which can be recovered. This would then bind a Freeholder in respect of recovery via the service charges whatever the terms of the lease may provide. If however the LVT declines to make an Order the Leaseholder can still challenge the reasonableness although this challenge itself may incur costs.

With regards to recovery from a Leaseholder directly this would be an Administration charge and again can be challenged as to reasonableness and the payability via the LVT. For challenges of this type it is worth taking advice on the specific terms of the lease and what may be considered reasonable. This will involve looking at the specific lease terms and then going on to look at the circumstances as to how the costs were incurred and what work was undertaken.

As can be seen in terms of the rules of the LVT it is fundamentally a no costs forum (and the change in July to the new Tribunal is not likely to fundamentally change this). The problem is that everyone is bound by their lease terms as to what can be recovered. In the throes of purchasing a property all too little time is often given to looking at what can and cannot be recovered under a service charge. A good understanding as to the terms of your lease and your ownership can prove worth its weight in the long run.

Filed under: England & Wales, , , , ,

Not another Deposit case!

Taking six months’ rent up front is not a deposit, the Court of Appeal has ruled in Johnson & Ors v Old [2013] EWCA Civ 415.

The facts will strike chords with many agents and landlords: the rent was expressed to be £950.00 per month, payable in advance (standard AST practice), with the first six months’ rent to be paid “up front” (also common practice for example where a tenant might have failed a credit check). When the landlord brought possession proceedings the judge at first instance threw the case out on the basis that the six months’ rent up front was a security deposit, which had not been registered and that therefore the section 21 notice was not valid. The landlord appealed and won; the tenant then appealed to the Court of Appeal, which is where we are today.

The key issues included whether the rent paid six months up front was money held as security against future rent payment dates (the tenancy agreement made reference to the rent due date being the first of every month). If so, the tenant argued, it was a deposit as defined in S212(8) Housing Act 2004 and fell to be protected, which it had not been.

The Court of Appeal hearing the tenant’s appeal was unequivocal: the money paid was rent, and not “money intended to be held as security for the performance of any obligations of the tenant or the discharge of any liability of his, arising under or in connection with the tenancy”. The point was tested by “asking, rhetorically, how the tenant would have responded to a demand on 1 September 2010, for rent in respect of the month of September 2010……her answer would have been “why are you asking me for rent which I have already paid?”….”

The court also gave short shrift to the idea that, as the agent held onto the money and drip fed it in monthly payments to the Landlord, the money held by the agent was a deposit. The Court found that the rent was paid over by the tenant, and the arrangements between the agent and landlord about how the monies were transferred was neither here nor there.

So what are the implications of this decision? The position remains as we have been advising agents and landlords to date: rent in advance does not constitute a deposit in need of protection. With the above being said, it is always advisable to have clear and well drafted tenancy agreement that all parties can follow.

It is important to differentiate this case from another common scenario: where an extra payment (usually a month’s rent) is received and held in case the tenant defaults on a rental payment during the tenancy but would be paid back. This is a deposit. Rent taken at the beginning of a tenancy in respect of the last month of a tenancy is not a deposit but an amount taken at the beginning to be applied in the event that there is any default is.

Filed under: England & Wales, , , ,

Deposit News

1 April 2013 has seen more changes to deposit protection.

There are now four authorised schemes: TDS, DPS and mydeposits have been joined by Capita tenacy deposit protection scheme . This is an insurance based, rather than custodial scheme, meaning that the deposit is held by the agent or landlord.

It’s all change in the established schemes too. TDS have relaxed their rules and have summarised the main changes on their own blog here and in pdf form here.

DPS has introduced an insurance based scheme. You can read about it here.

Mydeposits scheme in Northern Ireland went live on 1 April 2013. See their press release here.

Filed under: England & Wales, , , , ,

EPCs – latest news

Tomorrow 9 January 2013 sees the coming into force of changes in the regulations regarding Energy Performance Certificates.

The government announced these changes to the EPC, and air conditioning inspections regime, on 19 December 2012. The changes come from the EU Directive (Council Directive 2010/31/EU) on the energy performance of buildings (EPB Directive 2010). The directive mainly consolidates the regulations but there are some significant changes in relation to the contents, issue and display of EPCs.

In relation to residential lettings the significant changes are as follows:
• property advertisements are to include details of the energy performance certificate rating ( the A-G rating) where available;
• the requirement to attach the front page of the certificate to any written material is to be removed;
• listed buildings are exempt from the need to have a certificate on their sale or rent.

The above does get around some of the problems that agents have been facing such as how to attach a front page to the particulars on display in the window. However agents will nevertheless have to produce the EPC to potential tenants and there is no additional leniency in respect of obtaining it, and the penalties have not been amended for failure to comply.

Remember the other requirements still apply and you can read about them on our previous blogs here.

Filed under: England & Wales, , , , , ,

Private Rented Sector Consultation

Just a reminder to everyone in the Rental Industry that the Communities and Local Government Select Committee is currently conducting an enquiry into the private rented sector. Submissions have been invited from any interested party dealing with the private rented sector. Submissions should be emailed to clgev@parliament.uk by 17th January 2012.

In particular submissions are being sought in connection with possible rent control and also regulation of the sector. Full details can be found here.

Filed under: England & Wales, , , , , , , , ,

Trips and slips with Section 21 Notices

The agent, landlord or lawyer must comply with the requirements of the deposit protection rules. To serve a valid section 21 notice the deposit must be protected and prescribed information served pursuant to section 213 of the Housing Act 2004 as amended by the Localism Act 2011 within thirty days of the tenancy starting or the deposit being taken whichever is earlier. If the deposit is not protected then a valid section 21 notice cannot be served until either the deposit is handed back to the tenant in full or with agreed deductions. If the Prescribed Information (“the Information”) has not been served then a valid section 21 notice cannot be served until the Information is served . (N.B. doing the above will not avoid any potential claim for failure to protect the deposit).

Notices need to be served in accordance with the terms of the notice provisions in the tenancy agreement; such as notices being served by first class post deemed served two working days later. Notices served pursuant to a “break clause” must comply with section 21 (1)(b) of the Housing Act 1988 AND the provisions of the clause itself. The courts will interpret the terms of a break clause strictly.
Another major hurdle relates to notices served pursuant to section 21(4)(a) Housing Act 1988. It is easy to get the date wrong, where the fixed term runs from different dates to the rent payment date. The courts have approved a “saving provision” whereby the notice can ask for possession “ after the end of the period of your tenancy which will next end after the expiration of 2 months from the service”. The believed end date is included within an accompanying letter.
If the property requires licensing under part 3 Housing Act 2004 for a House in Multiple Occupation (“HMO”) being selective licensing of residential properties. A licence will be required or an application in the pipeline before service of a section 21 notice.

Top Tips to serving a valid section 21 notice:
1. Check that the deposit is registered and Prescribed Information served BEFORE serving a section 21 notice.
2. If the deposit is not protected then hand the deposit back to the tenant either in full or with agreed deductions.
3. If the deposit is in a scheme but the Prescribed Information not served, serve the prescribed information BEFORE serving the section 21 notice.
4. Check the tenancy agreement for the service of notice clause. Does notice have to be served in a certain way? If so, do it.
5. Is notice being served pursuant to a “break clause”? Follow the requirements of the clause.
6. If the tenancy is periodic the 21(4)(a) notice use the “saving provision”.
7. Don’t cut dates too fine. A longer notice period might be quicker than re-serving a notice.
8. Check the HMO licensing requirements with the local authority.
9. Rent: Continue collecting the rent and passing it on to the landlord.
10. Make the landlord aware a section 21 is a notice seeking re-possession not forcing the tenant to move out without possession proceedings. The notice allows the judge to grant mandatory repossession in Court

Filed under: England & Wales, , , , , , , ,

Deposits: so what is next?

We continue to receive many enquiries relating to deposits and the effect of changes brought in by the Localism Act.

It seems clear that the Courts are aware of the requirements generally and certainly the experience we have is that Judges are alive to the issues and are considering them. The up to date Accelerated Possession Claim form requires information about any deposit taken to be included and also for the Claimant who is the landlord to confirm compliance with the rules of the relevant scheme including the giving of prescribed information and compliance with any other conditions such as the requirement to serve the Terms and Conditions of DPS on a prospective tenant. This means that any solicitor instructed must ask questions with regards to the above and satisfy themselves that there has been compliance before they can sign a statement of truth and commence proceedings in the County Court. Without such compliance any section 21 notice served will be invalid and proceedings would be dismissed.

It is therefore important that all agents and landlords regularly audit their portfolios to ensure compliance and perhaps more importantly ensure that they have systems ion place to be able to demonstrate that compliance has taken place meaning that all prescribed information has been served and the deposit protected within thirty days of the tenancy commencing or the deposit being taken whichever is the earlier. As we have blogged about previously the consequences of not being able to demonstrate compliance may make obtaining possession under the no fault section 21 ground difficult and leave both agent and landlord open to claims for a penalty from the tenant under the Housing Act 2004.

With regards to penalties as yet there seems little guidance regarding the factors the Court will take into account. As a result it is vital that if a landlord or agent becomes aware they have not complied they should urgently consider what action should be taken. In general terms they can either try and remedy any breach (e.g. by serving prescribed information out of time); an/or return the whole of the deposit to the tenant. It is not believed that this will prevent a claim but it may stand as good mitigation if a claim is made by any tenant. Agents in particular should be able to show why a lapse occurred and what steps they have taken to prevent this happening again. The impression seems to be that Courts will look favourably on those who are open and straightforward and save the harshest penalties for those deliberately flouting the rules and then prevaricating when claims are made. A documented system and protocol for dealing with deposits may be useful evidence. It seems likely that professional indemnity insurers will become alive to these issues and may impose their own requirements upon agents whom they offer cover.

It is worth remembering that certain aspects of the pre- Localism Act case law still applies. Certainly it is believed that where there is a joint and several tenancy agreement any claim will need to be made by all the named tenants. It may be that other aspects as time goes by will be upheld. The difficulty currently for advisers is that we have little guidance and so the advice offered must err on the side of caution.

No doubt over the coming months more cases will be reported and certainly as and when we become aware of them we will post further articles on this topic but if any of our readers have any experiences we would really like to hear them.

Filed under: England & Wales, , , ,

So what is a “house”?

The Supreme Court consisting of a panel of seven Justices handed down its Judgement in the cases of Day v. Hosebay and Howard de Walden Estates Limited v. Lexgorge Limited [2012] UKSC 41 on 10th October 2012.

This was an appeal to determine what is a “house” under the Leasehold Reform Act 1967 with regards to the enfranchisement of houses. The Act is in place to allow the owners of leasehold houses to enfranchise and thereby purchase their freeholds. Issues arose as a result of amendments made under the Commonhold and Leasehold Reform Act 2002 which removed the previous residence requirement. As a result of these amendments companies which owned leaseholds and those sub-letting or owning as a second home were able to exercise rights under the legislation.

In the Judgement (given by Lord Carnwath and agreed by all six other Justices) consideration was given to the intentions of Parliament in making such amendments and highlighting that the purpose was to address perceived flaws in the “residential leasehold system” and not in the wider sense.

In all of the lower courts it was found that the buildings in question were a “house” and so could enfranchise.

The property in Hosebay at the date of service of the relevant notice was being used as a self-catering hotel. In Lexgorge they were being used as offices. The Court said that this was not “a house reasonably so called”. Simply because the properties looked like a house and might sometimes be referred to as a house did not displace the fact that their use was entirely commercial.

What seems clear is that the Supreme Court has taken account of the intention of Parliament. The legislation should apply to properties genuinely being used as residential accommodation and simply because of the amendments made by the 2002 Act this should not be extended to allow buildings which may originally have been “houses” but are now used for commercial purposes being able to enfranchise. Undoubtedly the great estates in London and other property companies will be breathing a sigh of relief.

Filed under: England & Wales, , ,

Appeals from the LVT and the Upper Chamber (Lands Tribunal)

Applications to the LVT appear to be on the rise.  Whilst currently the rules for these Tribunals are subject to consultation pending the formation of the Lower Tribunal (Lands Tribunal) it is worth reminding everyone about the current rules.

 Once you receive a decision of the LVT you have 21 days from the date when it was sent to apply for leave.  The Tribunal has produced a standard form for making such an application although this is not mandatory.  This time scale is quite short and it is open for a party within this period to request an extension of time together with reasons which the LVT will then need to consider.

 Generally as with most applications for leave to appeal the original panel will be reluctant to grant leave unless it is a clear cut case or there is some particular point of principle.  The reasoning behind this is that generally it is felt that the appellate court should determine what work it is hearing.

 If leave is granted the appeal continues to the Upper Tribunal.  If not granted it is then open to the parties, again within 21 days, to renew the application to the Upper Tribunal who will have the final say.  It is worth remembering that appeals to the Upper Tribunal can be by way of re-hearing in appropriate cases.

 Once a decision has been made by the Upper Tribunal this in effect is a final determination.  The Court of Appeal has recently considered the matte3r in the case of The Wellcome Trust Limited v. 19-22 Onslow Gardens Freehold Limited [2012]EWCA Civ 1024.  In this case the Court of Appeal reiterated that there was no right of appeal to the Court of Appeal. A challenge to the decision should be made by way of application for judicial review in the Administrative Court.

 So that is the process if you need to appeal.

Filed under: England & Wales, , ,

Forfeiture of Residential Long Leases

For sometime there has been debate as to whether a County Court default Judgment satisfied the requirements of Section 168 of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) and section 81 of the Housing Act 1996 (“the 1996 Act”)

The section of the 2002 Act provides that a Landlord cannot serve a forfeiture notice in respect of a tenant’s breach of covenant until a Court or Tribunal has determined that the breach has occurred. The 2002 Act introduced a special procedure for the Leasehold Valuation Tribunal (“the LVT”)to determine breaches of covenant. The 1996 Act provided that there needed to be a final determination or agreement before forfeiture could take place.

Many landlords continued as part of their debt collecting processes to issue proceedings in the County Court and obtain default judgements which they then relied upon to seek forfeiture. If claims for service charges in the County Court are defended then often they will be transferred to the LVT for a determination. Until recently it was not clear as to whether a default judgement was a final determination with two results in cases, one saying it was a default judgement and the other the opposite.

In Church Commissioners v. Koyale Enterprises and Thaleshwar [2012] 21 EG 96 at first instance the District Judge determined that a default judgement was not a final determination and therefore section 81 of the 1996 Act was not satisfied. The landlord appealed.

The matter then came before HHJ Dight at Central London County Court. He ruled that where a default judgement had been entered the issues were to be treated as “determined” between the parties and that for the purposes of section 81 of the 1996 Act a default judgement was a determination.

In his view the leaseholders had been provided with an opportunity to mount a challenge to the charges if they had chosen to do so. Simply deciding that a default judgement was a “final determination “did not prevent the leaseholders form subsequently challenging (e.g. making an application to set aside the judgement). The judge was concerned that requiring an actual hearing in circumstances where no defence was filed would be unfair on landlords and increase pressure on the courts. For all of these reasons the judge decided that a default judgement was a final determination.

It seems that the judge was perhaps swayed by the practical difficulties that would arise if a default judgement was not a final determination. This may require landlords in service charge cases to require the Court to hold a hearing even when the leaseholders had not looked to defend. Clearly at a time when the Court Service is under enormous pressure this was not appealing particularly given the whole process of seeking a judgement does allow the defendant an opportunity to appeal.

What this case means is that in respect of service charge arrears recovery freeholders and landlords can rely upon County Court default judgements as the basis for forfeiture. For landlords this system is seen as relatively quick and user friendly for the majority of claims which are not defended. If a landlord thinks a matter may be defended they may still wish to consider whether to use the County Court or the LVT and both options are open. Hopefully we do now have some clarity on this difficult issue although the Courts still remain reluctant to forfeit a residential lease for what are often modest service charge arrears when considered against the value of the leasehold interest.

Filed under: England & Wales, , ,

I Haven’t Protected the Deposit? What can I do?

As regular readers of this blog will be aware the 6th April 2012 saw the amendments made to the Housing Act 2004 by the Localism Act 2011 come into force.

Prior to these changes various court decisions (in particular Tiensa v. Vision Enterprises Ltd [2010] EWCA Civ 1224 and Gladehurst Properties Ltd v. Hashemi [2011] EWCA Civ 604) rendered the provisions on enforcement of the deposit protection scheme, in the words of Lord Justice Sedley, “a dead letter”. These decisions meant that where a deposit had not been protected it was relatively easy for landlords and agents to avoid any of the penalties as included in section 214 of the Housing Act 2004. The changes were meant to correct the errors in the original drafting and give the Housing Act 2004 real teeth.

The changes mean that if a deposit is now not protected (and more below as to what this means) properly then the landlord and/or agent will be subject to a penalty amount if the tenant makes an application to the Court. The other serious consequence is that a landlord will not be able to serve a valid Notice under section 21 of the Housing Act 1988 (Section 215 Housing Act 2004). This Notice allows a tenancy to be ended without the landlord having to prove any fault on the part of the tenant and is a sure way for a landlord of obtaining possession.

To properly protect a deposit there must be strict compliance with the rules of one of the authorised schemes (section 213 Housing Act 2004). This now means that the deposit must be protected within 30 days of receipt (not necessarily the same as the start date of the tenancy), together with the giving of any and all prescribed information and any other requirements of the particular scheme (some require an advice leaflet to be given). If the deposit has not been fully registered within this scheme the general view currently is whilst you can register the deposit out of time this will not afford you protection.

So if the deposit is not properly registered what can happen? Firstly you will not be able to use a section 21 Notice to seek possession. The court forms for accelerated possession have been changed to ensure that details of the deposit and its registration are included. In our experience Courts are looking at this information and considering if deposits have been properly registered. The tenant may also make an application under section 214 of the Housing Act 2004 to seek a return of the deposit and also a penalty amount.

The Court has the power to order the return of the deposit in full to the tenant or that it is paid into an authorised scheme. Whilst prior to the changes the Court had to award a penalty amount of three times the deposit this has been amended so the Court can award an amount between one and three times the deposit amount. It is here that the Court retains some discretion as to the amount. It will be for the landlord or the agent to adduce evidence to try and mitigate this amount perhaps by showing that there was a technical breach, financial hardship etc. Clearly an award requiring the return of a deposit and also a penalty of three times the deposit (which of itself could be more than 4 months rent) will be crippling to many landlords and if such a claim is made as a counterclaim in rent arrears proceedings may wipe out any and all arrears meaning that possession is not granted.

With regards to section 21 notices if the authorised scheme has not been strictly complied with the landlord cannot serve a valid Notice. At this stage there are no particular cases relating to the changes and how in practice the Court will look at this situation. It is however believed that simply complying with the requirements out of time will not of itself allow you to then serve a valid section 21 Notice. Section 215 does provide that you can return the deposit in full to the tenant. It is believed that tenants will be advised not to accept the return of the deposit so in this way preventing a landlord from being able to serve a section 21 Notice. If the tenant brings a claim under section 214 Housing Act 2004 and this has been determined, withdrawn or settled this will allow the landlord to then be able to serve a section 21 Notice. If a section 21 Notice cannot be served this would then mean that a landlord could not rely upon this mandatory no fault ground to bring possession proceedings. A tenant would then find themselves in the position of almost being akin to an assured tenant only able to be made the subject of a possession order if one of the grounds to Schedule 2 of the Housing Act 1988 had been made out.

We are yet to see how the Courts interpret the amended Act and whether they give landlords “get outs” as they did previously. Most people will not want to be the no doubt expensive guinea pig to test this situation. The will of Parliament was to give the legislation teeth as part of the regulation of the private rented sector. It is vital that you do comply and if you become aware of a deposit which has slipped through the net take advice.

Filed under: England & Wales, , , , ,

Electronic Signatures: Can we use them?

We have over the past few months seen a rise in the number of enquiries we receive about the use of “electronic signatures” for the signing of tenancy agreements.

This area is complicated and not 100% clear. For the purposes of this article when we refer to a tenancy agreement we mean an assured shorthold tenancy (“AST”). Historically the rule has always been that you should obtain a “wet” signature on the tenancy agreement from both the Landlord (or the Landlords agent) and the Tenant before commencement. Many agreements are also drawn up that they are a deed and the signatures are witnessed. Generally for a valid AST of 3 years or less this does not have to be by deed and so does not strictly require a witness.

There are various providers of electronic signatures which have a method of encryption and digital certificate which can be used to provide an audit trail of how, when and by what address/information they were created. It is obviously important that before opting for any electronic signature system that you ensure you are satisfied as to the system and that it can, if required, provide to you the proof and evidence which a Court may seek. EU Directive 1999/93/EC sets out the standard which should be met.

The Electronic Communications Act 2000 provided that electronic signatures can be used as evidence of a signature (see section 7 of this Act which provides a definition). This Act came into force in July 2000. The Land Registry also indicated it would be looking at adopting electronic signatures but at this time this appears to have been shelved for the time being.

What the Act means is if you have an electronic signature you can rely upon this as evidence in a Court of Law. This means is if you can satisfy a Court that there is a valid electronic signature you will then have a valid tenancy. If this was an agreement which had to be completed as a deed to comply with the Law of Property (Miscellaneous Provisions) Act 1989 (i.e. for a tenancy of more than 3 years) then this system would probably not work and you will probably need wet signatures. To satisfy a Court you would need to produce an audit trail and be able to explain how the system worked. Unless challenged by a party it is likely that a Court would accept this at face value.

It is worth bearing in mind that since of course a tenancy agreement does not have to be in writing even if a party did challenge the validity of the electronic signature it may well still be possible to show that the “agreement” was evidence in writing of the terms which had been agreed. This would be in the same way that when agreements are challenged you would often look to rely upon the conduct of the parties and correspondence/emails to satisfy a court as to the terms.

All of the evidence appears to be that there is no reason why a tenancy agreement can not be signed electronically provided you use a reputable form of electronic signature. There may be other issues relating to making sure you have correctly identified the parties but your existing procedures hopefully would cover this. We do, however, expect that it is likely that there will be some case law and no doubt at some point the Courts will give guidance on what they will expect to see but for the moment we are not aware of any such guidance.

What seems clear is that this form of completing agreements is going to become the norm. If anyone has any experiences relating to the use and interpretation by the Courts please do let us know. In the meantime if and when we hear we will blog further!

Filed under: England & Wales, , , , ,

Fire Safety revisited

We have had a few queries regarding the Fire Safety (Protection of Tenants) Bill on which we have previously blogged, and so here is our update: the Bill failed to complete its passage through Parliament before the end of the session. This means the Bill will make no further progress and will not become law.

To recap, this was “a bill to require landlords to provide smoke alarms in rented accommodation; and connected purposes”. All landlords were to be required to install a mains operated battery backed smoke alarm before the tenancy agreement is signed.

The tenant would have been required to test the smoke alarm at least once a month and notify the landlord of any defects, who would then be required to carry out the repairs. There was to be a criminal penalty of up to 2 years in prison and/or a fine of up to £5000.00.

Filed under: England & Wales, , , ,

Attention all Landlords!

We draw your attention to this recent decision of the Upper Tribunal which has caused a stir amongst leasehold lawyers in relation to service charges.

Section 47 of the Landlord and Tenant Act 1987 (LTA1987) provides that where any written demand is given to a tenant of residential leasehold property, then that demand must contain:

a) the name and address of the landlord and
b) if that address is not in England and Wales, an address for service.

Section 47 goes on to provide in subsection 2 that any part of the amount demanded that consists of a service charge will not be treated as being due until such information is furnished by notice given by the landlord to the tenant.

In Beitov Properties Ltd v Elliston Martin it has been decided that the wording of section 47 LTA 1987 means that where any written demand is given to the tenant the Landlord must put his or her actual address on the demand, not a care of address or agent’s address. A demand for service charges will be invalid without.

According to the Tribunal “The purpose of the requirement in section 47 to include in any demand the name and address of the landlord, in my judgment, is to enable a tenant to know who his landlord is, and a name alone may not be sufficient for this purpose. To provide an address at which the landlord can be found assists in the process of identification”.

It is noted however that the sanction for failing to give the actual landlords address in section 47 of the LTA 1987 is that service charges are not due. Nothing is said about rent and as such we are of the opinion that where you have an AST landlords and agents can continue to use care of addresses. If the position changes we will of course let you know.

Most people are aware also aware of section 48 LTA 1987. Therefore to complete this article we should mention subsection (1) which requires a landlord to furnish the tenant with an address for service, which can be a care of address or agent’s address but must be an address in England and Wales. Unless and until the landlord gives an address for service in England and Wales then rent will not be treated as falling due.

Filed under: England & Wales, FLW Article, ,

Wheel Clamping: Protection of Freedoms Act 2012

The 1st May 2012 saw the Protection of Freedoms Act being given Royal Assent. Whilst covering many areas this also introduced further regulation of wheel clamping and has, in effect, outlawed wheel clamping of vehicles on private land. The actual offence is set out in section 54 of the Act and provides that anyone found guilty of an offence under this Act would be liable for a fine.

For many Private Estates wheel clamping has been used as an effective tool to prevent unauthorized third parties parking without authority. Clearly they will need to look again at what steps are taken. The Act does make clear that the use of a fixed barrier would not be a an offence if the barrier was in place when the vehicle was parked whether in use or not. For many estates this is not a desirable option but other options are limited.

Clearly for any estates currently using wheel clamping they will need to liaise with their provider and see what if any alternative services they may offer such as imposition of fines etc. Sadly it seems that the actions of “cowboy” clampers have meant that this method of protecting rights has now been removed.

Filed under: England & Wales,

Daejan v. Benson: where are we at?

We have made various posts about service charges etc on long leaseholds but still have questions asked about the infamous case of Daejan v. Benson.

To recap this started life as an LVT claim as to whether service charges were recoverable or if they were capped due to a failure by Daejan to comply with Service Charges (Consultation Requirements) (England) Regulations 2003 and subsequently on application to dispense with the need to consult under the Landlord and Tenant Act 1985. In both instances the LVT found against Daejan who appealed to the Upper Tribunal (Lands Chamber) who in November 2009 upheld the LVT decisions. So off went Daejan to the Court of Appeal.

The Court of Appeal gave its judgment in late January 2011 (Daejan Investments Ltd v Benson & Ors). The Court of Appeal upheld the previous decisions and therefore found against Daejan. Not put off Daejan sort leave to appeal to the Supreme Court and was granted the same at the end of June 2011. Currently we understand that the matter is likely to be heard by the Supreme Court and judgment given towards the end of this year.

So where does this leave the law? If you are a Landlord (whether arms length or residents) you must ensure that you comply with the Section 20 Consultation requirements to the letter! To do otherwise leaves you open to significant risk that costs will not be recoverable. As the law stands the financial consequences to the freeholder are not a matter for the LVT to take account of when considering prejudice. What needs to be shown is that a failure to comply must not cause any genuine prejudice to the Leaseholders. Whilst LVT’s may have substantial sympathy with residents management companies under the regulations no differentiation is made. LVT’s currently are likely to take a strict view given the fact that the current statement of the law was supported by both the Upper Tribunal (Lands Chamber) and the Court of Appeal.

Landlords and those advising them do have options. Given the serious ramifications of a decision going against a Landlord after works have been completed it is worth bearing in mind that they can apply for a prior determination. When there is opposition to a scheme and it is clear from the conduct of some leaseholders that they will challenge the works this may mean despite there being a delay that an application should be made to the LVT. Given most LVT panels can hear cases with fairly short timescales ( assuming no appeals) then this can be factored in to the process and quotes etc can be obtained which perhaps have a longer “shelf life” than normal to allow for an application. It seems to us that given the various rules and regulations specifically allowing prior determinations this must be the prudent step given that it provides Landlords with a safety net to check compliance if any doubt in the Landlords or their agents mind.

We will of course have to see what view the Supreme Court takes and we will be sure to blog on this when we know more!

Filed under: England & Wales, FLW Article, , , , ,

Charges for underletting: what is reasonable?

In February the President of the Upper Tribunal (Lands Chamber) gave Judgement in respect of various charges for underlettings in a number of joined cases, the lead case being Holding and Management (Solitaire) Limited v. Norton [2012] UKUT 1 (LC).

Suffice to say the President substantially reduced the fees payable both for advance and retrospective consent determining the fee payable should be £40+VAT.

Obviously, as we have repeatedly blogged upon, the starting point is the lease terms and what they provide. Many leases however do provide that either some form of advance consent is required or notice must subsequently be given. Generally if such provisions exist there will be an express or implied right for the Freeholder/Managing Agent to charge a reasonable fee. In making such a charge they must ensure that the same is reasonable and also serve the appropriate Summary of Rights.

In this case the Agent asserted that a large amount of specific work was required including review by qualified legal staff. No specific hourly rate was given but it was suggested that in total the process took about 3 hours. There were no details as to what work had been done in each of the cases in question and the President took the view that the list of work was a list of everything that conceivably could be done and was not evidence of what was done.

Certainly many Leaseholders complain that the costs they are charged for underlettings are too high for the work undertaken whereas Landlords conversely argue they have very real duties to all Leaseholders (and sometimes the block Insurers) to exercise appropriate due diligence. What is clear is that the President accepted that a Landlord may need to carry out appropriate checks but in calculating the fee they need to be able to demonstrate, generally, and with regards to the specific case how the fee is justified. It seems that Landlords and their Agents should ensure that they consider whether they wish to maintain time records in case of challenge.

Whilst many people simply pay (even if begrudgingly) there is a route open for challenge of Administration fees and it may only be a question of time before some Landlords make their own advance applications to determine that the charges they make are reasonable.

Filed under: England & Wales, FLW Article, ,

It’s (not) a gas

A Landlord has been prosecuted, found guilty, fined £2,000.00 and ordered to complete 150 hours’ community service for breaching the gas safety regulations including using unregistered gas engineers for gas safety checks. The HSE report can be read here.

Landlords and agents are reminded that there is no defence to non compliance with the regulations. There may be instances where the HSE decides not to prosecute ( e.g where tenants have refused access) but without mitigating circumstances a landlord must comply. To find or check a Gas Safe Registered engineer in your area click here.

Filed under: England & Wales, FLW Article, , ,

Valuation in Lease Extensions and Enfranchisement: What is involved?

We are often asked to explain what is involved in the valuation issues relating to lease extensions and collective enfranchisements under the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”). Whilst our first instincts are always to advise people that they need expert professional help from a Valuer experienced in these matters such as Valuer members of ALEP we thought it might be useful to explain the process. This article is simply an overview and a professional valuation should always be obtained.

The principles for what is required are set out in Schedule 6 for collective enfranchisements and Schedule 13 of the Act for lease extensions. The principles for each are similar and both are based on “market value”. The reality is that this idea of “market value” is somewhat false often involving various assumptions or discounts.

The valuation date for both types of claim are the date of actual service of the Notice. This fixes the date and the valuation is calculated having regard to the facts at that point in time. This can be very important particularly when some claims do not have the price actually determined until sometime (even years) later.

The price payable for a collective enfranchisement is the total of:
• The value of the freeholders interest if sold on the open market
• The freeholders share of the marriage value
• Any compensation.

For lease extensions it is:
• The reduction in the value of the freeholders interest
• The freeholders share of the marriage value
• Any compensation

So what does this all mean in practice? Taking the elements in turn:

Marriage value is the extra value which is gained when the freehold and leasehold interests come together. In collective enfranchisement claims it is only payable in respect of those flats actually taking part and for both following amendments made to the Act the amount payable is fixed at 50% of any marriage value unless the unexpired term exceeds 80 years in which case no addition is made for marriage value. It is this amendment which has meant that it is vital that Leaseholders and their advisers give careful regard to lease terms getting shorter.

Given marriage value only applies directly to those participating on occasion when you have a block with differing lease terms it may not be beneficial to have all leaseholders participating and it is worth highlighting that individual leaseholders cannot demand to be part of the process if others will not allow them to join. An amendment was made under the Commonhold and Leasehold Reform Act 2002 which would have forced all leaseholders to be given an opportunity to join using what was known as Right to Enfranchise Companies (RTE) however these amendments were never given force and in fact are due to be repealed. That being said it is not unknown for notices to be served by only some leaseholders on the understanding that once they have the freehold others will then join in or be given an extension but if freeholders become aware of this (and they are entitled to have notice of any agreements made which may affect value) they can pursue recovery of any value they may have lost.

Compensation is then to compensate the freeholder for any direct loss of value, or reduction in the value of the interest as a result of the process. Often in the various cases this relates to what is known as “Hope Value”. Generally this tends to come into play with collective enfranchisement claims more so than lease extensions.

For the purposes of this article there are two main types. Firstly on enfranchisement claims it will be an amount assessed having regard to the marriage value that is likely at some point in the future to be paid by non-participating flats. A percentage is assessed as to what sums at a later date would be paid by these leaseholders for a lease extension. The second is for loss of any redevelopment potential. The most common scenario is when a freeholder asserts that they could or would be able to build some additional units at the property. It will be a question of looking at all the evidence such as any planning history and assessments which have been undertaken to see whether this is real or imagined to then calculate what value should be attached to this.

Finally there is the value of the Freeholders interest. There are two main parts to this. The capitalised value of the ground rent and the value of the freehold with vacant possession deferred until the end of the unexpired term.

For the ground rent it is a question of working out what the total value of the ground rent is worth at the valuation date. This is a formula calculating the current annual ground rent income, assessing the type of percentage return an investor would want and then calculating the value given the number of years the landlord would be entitled to this income under the current lease(s).

As for the freehold this is a question of calculating the unimproved vacant possession value in what is referred to as a “No Act” world. Generally this will be less than the actual value of the Unit. The idea is to calculate the amount an investor would pay now on the basis that at the end of the lease term they would recover vacant possession. Again once the vacant possession value is calculated then a percentage of this is calculated for what would be paid at the valuation date of that possibility occurring.

These amounts are then added up to give the premium which can be payable.

The process is complicated and does require a thorough understanding of all the valuation principles not least since many of the percentages and rates applied to the actual valuation numbers are calculated having regard to various tables and graphs. The whole area of valuation has given rise to a substantial body of case law as to what percentages should be applied in what situations and almost every aspect of the valuation formula has at one time or another led to cases in the House of Lords (as it then was) or the Supreme Court.

With good advice these issues can be readily tackled and a valuation produced. Given that valuation is an art rather than a science usually you will be advised as to a best, worst and likely figure since as with all valuations there is always room for negotiation!

If you need help or further guidance we would be happy to help.

Filed under: England & Wales, FLW Article, ,

Subletting

It does appear to be quite common now that the person that signs the tenancy agreement as the tenant is not in fact the person that is actually residing at the property. Sometimes agents carrying out periodic viewings attend properties expecting to see a family and are faced with as many as 15 complete strangers.

So what can the law do to help? In Rose Chimuka’s case, she was convicted of fraud and sentenced to 4 years and 3 months imprisonment.

The scam involved Chimuka, often using a false name, approaching estate agents saying that she was looking for a large family home to rent. She would discuss school catchment areas and often confirm that her husband worked away.

However, rather than moving in with family, Chimuka would advertise locally for tenants so that she could sub-let the property to other tenants without the property owners consent or knowledge. She would then sub-divide the houses she had rented and put locks on internal doors and permit up to 15 people in some cases to reside in the properties.

Chimuka would collect rent money in cash from her ‘tenants’ and fail to pay her own rent for the properties she was renting.

Landlords often point the finger at agents accusing them of not carrying out the right checks etc. However, when you are faced with prospective tenants giving false information it can be difficult to detect the lies until it is too late. PainSmith Solicitors has obtained possession proceedings in these circumstances and whilst the proceedings can be slow (due to court backlogs) we have obtained possession at the first hearing. So there is hope and the courts are sympathetic to landlords in these situations.

Filed under: England & Wales, FLW Article, , , ,

EPC- newspaper adverts and window cards

At the last ARLA regional meeting in London, Marveen Smith noted that many of those attending were not happy with the changes to the EPC regulations.

Therefore having called some people and then some more people we were referred to:

Do newspaper adverts or window cards for property lets meet the definition of written particulars? No. The requirement to attach a copy of the front page of the Energy Performance Certificate to written particulars is where an agent proposes to provide written particulars to a person (i.e. a specific individual) who may be interested in buying or renting the building. This implies that a copy of the front page of the Energy Performance Certificate does not need to be attached to ‘advertising material’ – ie – a newspaper or window card.

Can the Energy Performance Certificate be re-sized if the written particulars are produced in A5 format?
The Energy Performance Certificate can be reproduced in a smaller size provided it is still legible and meet any other legal obligations, such as the Equality Act 2010.

Want to read more then click here.

We understand that the guidance will be adhered to therefore we strongly recommend that you keep a copy in the office just in case the enforcement team comes knocking…..

One thing we would like to make clear is that this guidance does conflict with the legislation. Therefore despite the existence of the guidance, agents could still be pursued by trading standards and as such it will be a commercial decision on what to do and what not to do with the EPC and the marketing material they use.

Filed under: England & Wales, FLW Article, , , ,

Missing Landlord: an alternative solution

Many of you will be aware that when a long residential Leaseholder of a flat has a missing Landlord the Leasehold Reform Housing and Urban Development Act 1993 provides a remedy. The process involved requires a Court application and then a determination of the price by the Leasehold Valuation Tribunal using the valuation principles under the 1993 Act, as amended. This means that if the Leaseholders hold leases with less than 80 years remaining then they will have to pay an element of marriage value.

Under the Landlord and Tenant Act 1987 Part III there is an alternative method which may be used. This may be a better route due to the valuation formula used which is believed to be more favourable to Leaseholders in that generally they will not have to pay marriage value.

Under the 1987 Act if there is a building consisting of 2 or more flats held by qualifying Leaseholders (i.e. long leases) and they amount to more than 2/3rds of the total number of flats then the Act may apply (section 25). The commercial parts of the building must not exceed 50% of the total internal floor space ( so further reason why this method can be used rather than the 1993 Act). Subject to these then the 1987 Act will apply.

The starting point is then to look at Sections 27, 28 and 29 of the 1987 Act. Under Section 27(3) when the Landlord is missing an application to the Court can be made to dispense with the service of a Notice. The application can then be made for an Acquisition Order and under Section 29 if the Landlord is not carrying out their management function, which includes repair, maintenance and insurance of the property, as required by the lease (and almost by definition if there is a missing landlord and no intermediate Management Company they will not be) then the Court may make an Acquisition Order. The Order may be on such terms as the Court thinks fit but they will refer the question of price to the Leasehold Valuation Tribunal.

Under S. 33 where the Landlord is missing then the Senior President of the Tribunal shall select a surveyor to determine the price payable. This will be on terms that the interest may realise if sold on the open market and that the assumption that none of the Leaseholders were seeking to buy. Generally it is believed that in instances where marriage value would be payable under the 1993 Act this may be a more favourable valuation method.

The LVT will then make appropriate directions as to the price and other terms. The court may then execute the transfer and subject to paying the monies into Court the acquisition can be created.

Whilst all routes involving missing Landlords are perhaps cumbersome it is worth thinking which route is best. Discussion with the professional advisers is best at an early stage to consider fully the best valuation method. From a time perspective given the actual processes are similar then little can be gained. It is also worth bearing in mind that in instances where a Manager has been appointed under the 1987 Act then provided the Manager has been appointed for not less than 2 years then this method can also be available.

If you have such a situation then we would be happy to advise.

Filed under: England & Wales, , ,

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