Commonly over the past few years longer term agreements or those with rent review clauses have tended to review the rent in line with the Retail Prices Index (RPI).
RPI was previously a National Statistic prepared by the Office of National Statistics (ONS) and used by Government as a measure of price changes. However earlier this year it was downgraded so that it was no longer a national statistic. ONS has confirmed that they will continue to produce RPI figures for the time being. This means that for agreements which refer to this as the measure to be used for calculating any rent review there is no need to worry. The statistic is still produced and ascertainable so the clause can still be operated. Remember all parties are bound by the terms of the lease and the court will give all words a common-sense interpretation. This means that simply because RPI is no longer a national statistic there is no reason why it cannot still be used.
So what about the future? You can still use RPI. It still exists and can be readily determined (even if a little harder to find on the ONS website than previously). The issue is that some parties are uneasy about using a statistic which is not a nationally excepted measure of price increases. RPI does however include housing and mortgage costs. For this reason alone it may be said to be a more accurate prediction on how inflation has affected rents although some economists suggest such figures alone help to perpetuate inflation.
Certain other figures are referred to. In particular the Consumer Prices Index (CPI) which is also calculated having regard to a specified “basket” of items save it does not include housing and mortgage payments. Hence this has tended to be considerably lower. If you are acting for Landlords CPI is less likely to appeal as the percentages have historically been substantially lower than RPI.
We are due to get two new indices produced by ONS. Both are meant to give a “truer” reduced level of inflation which again a landlord may disagree with although both supposedly will include some reference to housing costs. The two are RPIJ and CPIH. The ‘J’ in RPIJ stands for Jevons, which is the formula that replaces the one that was found to not meet international standards. It is likely to be lower than RPI. CPIH is similar to CPI but includes owner-occupier housing costs. It seems clear one of these will become the preferred option for including in rent review clauses but time will tell. There will always be a pull between landlord and tenant to adopt whichever either side sees as the most advantageous to them.
It should be remembered that a rent review clause can contain whatever mechanism the parties agree. This could include agreed increases by fixed amounts or determination by an external party. The later whilst common in commercial leases has tended not to find favour with residential tenancies given the short time nature means parties want a formula which will not put them to expense.
The bottom line is as ever to remember whatever terms are placed in the tenancy are binding upon both parties unless they mutually agree to the contrary.
Filed under: England & Wales, comment, contracts, guidance, rent, review, tenancy agreements
As some of you will recall we mentioned some possible changes to the Tenancy Deposit Protection legislation. These TDP changes do not however, appear to have survived the committee stage of the bill. This is not to say that they will not get back in later but it is of some concern that what we considered to be improvements has been overlooked.
Filed under: England & Wales, FLW Article, comment, consultations, deposits, Housing Act 2004, review
We have been asked a few questions recently about a tenants right to remain in a property when there are rent arrears. We understand that some landlords and agents are concerned that tenants are defeating possession claims pursuant to Article 8 of the European Convention on Human Rights.
> The reason for this concern is probably due to the recent cases in the Supreme Court. In Hounslow LBC v Powell, Leeds CC v Hall and Birmingham CC v Frisby the Supreme Court held that where a local authority brings possession proceedings relying on mandatory grounds for possession any defence to the claim, can include the tenants entitlement to have the proportionality of his eviction assessed under Article 8.
> Given that these cases are concerned with social landlords as opposed to the private market, I will briefly explain the facts of the Powell case.
> Mrs Powell fell into arrears and upon serving her with a notice to quit, Hounslow County Council issued possession proceedings. Mrs Powell admitted that there were rent arrears but then also averred that the reason for the arrears was due to the delays and errors made by Hounslow in processing the benefit claim.
> Hounslow has since offered Powell suitable accommodation.
> The reason for this article is to reassure those landlords that believe that tenants who are on benefits have rights to the property beyond that provided for in the Housing Act 1988.
> The cases have one thing in common that is local councils who are subject to the test of proportionality when they apply for possession. This test of proportionality is not expected to be relevant in the private sector as that would prevent landlords from managing their own property in the manner they see fit within the parameters of the Housing Act 1988.
Filed under: England & Wales, England only, comment, Housing Act 1988, possession, review
The government-sponsored review of the Private Rented Sector carried out by Julie Rugg and David Rhodes (the “Rugg Review”) has recently been unveiled.
A large part of the review is simply a look at the current state of the sector and principally makers clear just how little understanding of the sector there is within local and national government and in Parliament. In particular, the myth that the majority of landlords are out to steal from their tenants came in for some criticism. It is also apparent from the review that the quality of information on which decisions are based is very poor.
The review makes six key recommendations:
- A sound base of evidence should be developed to inform future policy and decision-making.
- Improvement of the quality of lettings and management agents should be encouraged, primarily through the compulsory licensing of all agents. This would be overseen by a new, independent body. Continuing Professional Development should a be a key requirement for all agents as a part of any accreditation system.
- Government policy should be modified to view landlords less as investors and more as active small-businesses. This will mean changes in taxation schemes to recognise the business status of landlords and incentives for good landlords to grow their portfolios. The mortgage market will also need to be reformed to encourage buy-to-let landlords to present a business plan as a part oif their mortgage application and also to ensure that tenants do not find themselves evicted if those businesses fail.
- Tenants who rely on benefits to meet obligations in the private sector should be better supported with assistance over deposits and rent arrears. Local authorities should be encouraged to set up social sector lettings agents offering attractive rates to landlords in return for placement of their properties in the social sector.
- All landlords should be licensed although fees and red-tape to obtain the licence should be kept to a minimum. Where a landlord proves unwilling to aknowledge his responsibilities he should be excluded from the sector by withdrawal of the licence. Licence fee income could be used to help fund a new tribunal service for resolution of landlord and tenant disputes without recourse to the Courts.
- There seems to be no immediate need to reform the actual legal framework of letting by reforming or amending the Assured Shorthold Tenancy system although landlords should be encouraged to offer longer-term lets. All parties should be encouraged to view letting as a lower risk activity to reflect the large percentage of tenancies that occur without any problems.
On the whole the review is a balanced and sensible document. It does a good job of taking the best parts of prevcious considerations of the sector and promoting them while leaving behind the more complex and unworkable ideas. It does much to imporve understanding of the sector by providing sober review of the issues and should be applauded for this. In general, while some tenant organisations have been unhappy that the review does not go far enough it has received a warm welcome from landlords and agents. Whether government takes up the recommendations remains to be seen.
Filed under: Uncategorized, review