Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

10 May, 2013 • 17:09 1

Rent Review: RPI, CPI and RPIJ

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, , , , , ,

23 April, 2013 • 21:18 2

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, , , ,

1 February, 2013 • 11:10 4

The Green Deal

28 January 2013 was the first day on which works can start under the government’s Green Deal initiative on residential properties in England.

The aim of the Green Deal is to improve the energy efficiency of properties by removing the upfront cost of improvements and instead allowing the cost to be paid in instalments through energy bills.

Green Deal Finance can be used to pay for improvements such as cavity wall or loft insulation; upgraded heating; installation of draught-proofing; installation of double glazing; and installation of renewable energy technologies such as solar panels or wind turbines.

A Green Deal Assessor will carry out an inspection of the property being proposed for improvements and will make recommendations as to the most suitable – weighing the cost of the improvements against the likely savings that the improvements would attract. The golden rule is that the savings enjoyed as a result of installing any particular technology must be equal to or greater than the cost of the finance required.

Once the Green Deal Assessor has made recommendations, a Green Deal Plan will need to be signed with a Green Deal Provider. The Green Deal Plan is a contract setting out what work will be done and how much it will cost and once it has been signed the Green Deal Provider will arrange for a Green Deal Installer to carry out the contracted work. All participants in the process are bound by the DECC’s code of practice and must display the quality mark.

Once the Green Deal Installer has carried out the work, the cost will be payable in instalments through energy bills. As the finance obligation passes with the liability to pay the energy bills rather than with the person that signs the Green Deal Plan, Green Deal finance must be disclosed in all new property transactions as part of the EPC information. A written acknowledgment of the finance should be obtained from the tenant, licensee or purchaser in a standard form to confirm the information has been given.

In respect existing tenancies, neither the landlord nor the tenant can sign a Green Deal Plan without the permission of the other.

There are plans afoot to obligate landlords to install green technologies upon receipt of a “reasonable request” from tenants but, as we understand it, these are unlikely to come into force before April 2016.

Filed under: England & Wales, , , ,

24 January, 2013 • 15:34 2

Wood burning stoves and what agents need to know.

Over the past few years wood burners and open fires have come back into vogue. Most people agree that sitting in front of a fire on a cold winter evening is something they like to do. Open fires and wood burning stoves bring there own complications.

As part of the structure of the building landlords have an obligation to keep the stove and the chimney in good repair. Landlords should also check what the requirements are of any building insurer with regards to the same.

We have recently received questions asking whether landlords need some form of certificate; and can tenants be required to clean the chimney?

With regards to any fuel burning appliance installed after October 2010 it must comply with appropriate Building Regulations. This means that any such appliance must either have been installed by a HETAS approved engineer, who can then self certificate, or specific Building Regulation consent should have been obtained. A homeowner should ensure that such certification is kept in a safe place as this may be required. Under these regulations a carbon monoxide detector will also have to be installed which the landlord will have to check is in good order. The landlord will then be responsible for the ongoing maintenance and repair of such a stove whilst it is in the property. For appliances installed before this there is no specific requirement for certification save that landlords should be satisfied that they are safe and as part of this they would be well advised to ensure that a carbon monoxide detector is present.

We would always recommend that landlords carry out regular inspections to check what, if any, repair or maintenance issues may exist. There is however currently no statutory requirement to obtain some form of annual certification.

Generally such stoves require for general safety that the chimneys are swept at least once in every twelve month period. Many tenancy agreements contain a term that the tenant should ensure that this takes place. Some commentators seem to indicate that this is an unfair contract term relying on the guidance issued by the OFT in 2005. We disagree.

In our opinion provided a landlord can show that the chimney was swept before the start of a tenancy it is not unreasonable to place an obligation upon a tenant to ensure that the chimney is swept at regular intervals provided there is no obligation for them to return the property with the chimney in a better state than it was given to them. This can only apply to having the chimney swept and any maintenance which may be required from time to time would be the landlord’s responsibility. We are not aware of any specific challenges made by tenants to such terms and if anyone is would welcome hearing from them.

To summarise our view is that a well advised landlord will check if the installation was after October 2010 that they have a copy of the certificate. They will prior to any tenancy have the chimney swept (or make sure they have evidence that this happened) and also make sure that in any pre-tenancy inspection they check no repair or maintenance issues arise. We would always suggest that if in doubt a reputable professional is employed to undertake a check and the prudent landlord will ensure that their property has smoke and carbon monoxide detectors fitted.

Filed under: England & Wales, , , , ,

13 December, 2012 • 10:32 1

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, , , , , , , , ,

9 November, 2012 • 14:52 11

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, , , , , , , ,

26 October, 2012 • 16:50 1

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, , , ,

23 July, 2012 • 11:53 5

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, , , , ,

6 June, 2012 • 12:17 7

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, , , , ,

15 May, 2012 • 16:03 0

Why do I need a tenancy agreement?

The simple answer to this question is that for most circumstances you do not strictly need a written agreement however if you don’t this can have unintended consequences!

As regular followers of the blog will know the starting point for determining the terms and what you should do in a particular instance is the tenancy agreement. If no written agreement exists it will be a question of trying to recollect what was discussed and possibly looking at any letters or emails about the negotiations to determine the parties intentions. This can result in the terms being unclear particularly if a dispute has arisen.

Assuming we are discussing Assured shorthold tenancies, which are the majority of private letting agreements, as many of you will know this is now the default tenancy in most cases ( for exactly what is an assured shorthold tenancy see the Housing Act 1988 as amended). If you are taking a deposit you are now required to register such a deposit with an approved scheme of which there are three. As part of this process you are required to give certain prescribed information. If you do not do you will not have complied with the rules. Most standard agreements which can be purchased ( such as those we produce and are for sale in our shop on our website) incorporate this information. For this reason giving an agreement, practically, can be easier to ensure the information is given and nothing is missed.

If then you have a written agreement you can specify the exact terms. Whilst you cannot contract out of rules laid down by Parliament, such as the landlords responsibility to keep the property in repair, you can make sure everything is clear. This can be things as diverse as the length of term and break clauses through to restrictions on smoking or loud music (although you might want to have a look at the Office of Fair Trading (OFT) guidelines to check the likely enforceability of your clause). Such comprehensive agreements allow you to effectively manage your investment and to make sure that both sides are clear as to what to expect from the other. Having an effective list of rules of occupation can assist in helping any potential disputes being seen off as having a clear reference to point to.

Whilst sorting out the paperwork can sometimes appear to be a chore if and when you are faced with a dispute it is vital. As we have repeatedly blogged the courts will take the agreement as the starting point. If you have no agreement in writing often the courts will find it difficult to impose onerous terms on one or other party unless it can be shown unequivocally that this was agreed. Whilst relying on terms other than rent or operation of a break clause to evict can be difficult in our experience without a rewritten agreement it is almost impossible.

So take 5 minutes and make sure you have an agreement which is up to date and covers what you want and require.

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

12 March, 2012 • 16:17 8

SUBJECT TO CONTRACT: WHAT DOES IT MEAN?

Many people dealing with short term residential tenancy agreements will have seen the term “subject to contract” used but what does this actually mean?

The basics are that in English law a contact does not have to be in writing (and in this context we are talking about usual residential tenancy agreements). For a contract to be made one part has to offer to do something, e.g.. let a house, on the basis they will receive something in return, e.g.. Rent, and this offer is then accepted by the other party telling the person who made the offer. This could simply be a conversation.

To avoid contracts being unintentionally created most agents make clear that all negotiations are “subject to contract”. In practice many agents have a standard form of words on emails or letterhead setting this out. This mans that the parties are free to have negotiations and in principle reach an agreement. It is usually at this point that an actual tenancy agreement will be sent out. Provided the initial negotiations are “subject to contract” even at this point no contract will have been created. This means that the parties are not yet bound by the terms.

For the contract to bind all the parties both sides need to physically complete the document. What this usually means is that the Landlord (or his agent when so authorised) and the Tenant will each sign their part of the agreement. Usually these agreements will then be returned to the agent who will then oversee completing the transaction by exchanging and completing the documents by dating the same. It is at this point that the contract is completed and the parties are then bound by the terms.

The system can seem cumbersome but provides safeguards for both sides. Usually both sides want to have the opportunity to have negotiations. In particular Landlords will often wish to check references and ensure monies etc are paid before the agreement is actually completed. Tenants may be looking at more than one property. It is vital then that parties understand that once they sign (or Landlords give the agent authority to sign), exchange and date the agreement they will be contractually bound. If a party does not want to become bound until some condition or additional authority is given they should either withhold the signed agreement or make clear the terms upon which they agree to the agreement being completed. Once completed either side can then require the other to comply with their obligations.

Subject to contract is a useful device to protect all parties but you should be clear as to when completion has taken place and only allow completion of an agreement if you actually want to be bound by the contract! Once completed there may be no way back.

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

9 March, 2012 • 09:57 3

Common Questions- “Olympic Lets”

1. Are the tenancies ASTs?
Most of you will be aware that for an AST the conditions are that the property is let to an individual who will use it as their principle home. Many Olympic visitors will be here in the UK on holiday therefore it is safe to assume that they will not be residing here and so will not have ASTs but “holiday lets”. These are simply common law tenancies. However some visitors maybe visiting contractors or employees and they will be working either at or during the Games. In those cases the property that you let could actually be let under an AST and the tenant could potentially remain there for 6 months provided they pay the rent as you will not be able to remove them using a section 21 notice. You are therefore strongly advised to find out the purpose behind the visit in order to safeguard the landlord’s position.

2. Do I have to protect the deposit?
Where a tenancy is not an AST then the deposit protection provisions of the Housing Act 2004 do not apply. However the risks described above should be borne in mind and there is no harm in registering a deposit if you are unsure.

3. Do I have to grant a tenancy at all?
It will be seen as a tenancy unless a landlord is living in the property and sharing basic amenities with an Olympic visitor. If you are concerned that the visitor could be eligible for an AST then you could adopt a serviced apartment arrangement whereby you provide services which are so extensive that they are incompatible with the tenants presumed right to exclusive possession. This will prevent the occupancy being a tenancy at all and so the protection granted by the Housing Act 1988 will not apply. However, this can be very hard to do in practice.

4. What about HMOs and licensing?
Whether the property is considered an HMO will depend on how many occupiers there are and whether they are occupying as their only and main residence. It is assumed that migrant workers occupy the property as their only or main residence. However, anyone here for a holiday will not be doing so. As always, the advice is to consult your local authority in cases of doubt.

5. I have heard there is some issue with short lets.
Lettings under 90 days inside London can be controlled by local authorities. A number of them will do so during the Olympic period. However, the control is by way of planning and requires a planning permission to be obtained for a short letting. However, a breach of planning is not a criminal offence. The local authority will have to identify the breach and then serve an enforcement notice. It is only once this notice has expired that an offence is committed. Normally these notices give a period of time to put the planning breach right and by the time this is up the Olympics will be over and the short let will have ended. However if you want to be cautious you should be able to obtain the permission for a modest fee.

6. What if the tenants do not leave at the end of the term?
The usual common law principles apply to a holiday let. That is that the tenant must vacate at the end of the tenancy. If they do not then landlords may apply for possession to the Courts the day after the term ends.

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

1 March, 2012 • 15:46 34

The Localism Act

Most landlords and agents are aware of the current provisions relating to tenancy deposit protection under the Housing Act 2004. Many will also be aware of the damage that has been done to the provisions by the many, many, many, many court decisions. As a reminder two of the Court of Appeal decisions:

Tiensia v Vision Enterprises Ltd (t/a Universal Estates) – a landlord can protect the deposit at any stage, even if more than 14 days have elapsed since it was received, without penalty as long as they do so before the case comes before a court.

Gladehurst Properties Ltd v Hashemi - a tenant could not bring a claim for an unprotected deposit at all once the tenancy was over.

The government has therefore resolved the problems posed by these cases by radically amending the legislation. This is being done by way of the Localism Act, which should come into force on or around the 6th April.

The New TDP Legislation
The changed legislation has three components:
1. Alteration of the current 14 day timescale for protecting the deposit;
2. The closing of current loopholes exposed by the courts;
3. Change to the current regime of penalties.

1. Under the old current provisions the landlord is obliged to protect the deposit and provide the prescribed information to the tenant and any relevant person within 14 days of receipt, however this 14 days will be changed to 30 days from the date of receipt.

2. The decisions in Tiensia and Hashemi will no longer assist landlords who have failed to register the deposit within the 14 days. Therefore, a landlord will be obliged to protect the deposit within 30 days and if he fails to do so he is in breach of the legislation and the tenant can immediately issue proceedings against him or his agent. Protection after 30 days, or after issue of proceedings, is not sufficient to cure the landlord’s failure. Landlords will not be able to argue the Hashemi point once the tenancy is over either as tenants are also going to be entitled to issue proceedings once the tenancy has ended. The so-called ‘must also’ loophole, which allowed landlords to return the deposit to a tenant before a hearing and then assert that the court could not return that money to the tenant and therefore it could not ‘also’ make an award of the three times penalty, has also been closed by the simple expedient of removing the word ‘also’ from the text of the legislation.

3. The draconian three times the value of the deposit penalty will also cease. The court will have a discretionary power to award a penalty of between one and three times the value of the deposit. Therefore, a landlord who has protected the deposit as soon as they became aware of the problem and acted reasonably will be penalised at the lower end of the scale while landlords who have been less cooperative will find themselves penalised at the top end of the scale. If a landlord has however failed to protect they will be liable for not less than a penalty of one times the deposit.

What has changed?
This all means that the Tiensia and Hashemi decisions will not have any force after the 6th April. However, many parts of the legislation are wholly unchanged. There is no change in the definition of a deposit, or the restriction on taking property as a deposit instead of money. So, court decisions which interpret these unchanged parts of the legislation are not affected.

There is no change in the requirement to protect the deposit within a set time after it has been received in connection with an AST. So money that the landlord or agent has obtained which is intended to be used in relation to an AST agreement falls within the legislation.

Therefore, the county court guidance that states that taking the last months rent in advance at the start of the tenancy is probably a deposit remains valid, as does the Court of Appeal decision which holds that a promise to pay money at some future date does not qualify as a deposit, as this requires money to be paid by the tenant with the intent that it will be returned. Likewise, the obligation to serve the prescribed information properly and in full also remains unchanged. It also remains the case that a lettings agent is liable for a failure to protect the deposit and can be sued in preference to the landlord. However, the advent of the new variable penalty would now allow a court to make an order against the agent with the penalty fixed at the lower end of the scale if they were not responsible for registering the deposit.

One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.

Section 21
Where the deposit has not been registered and the prescribed information not sent to the tenant within 30 days the landlord only really has one option if he seeks vacant possession. That is to hand the deposit back to the tenant and the serve the notice. Landlords will of course not be happy about this as many like the security of being able to call for that money when there are dilapidations, so this is all the more reason for getting it right.

What do you need to do now?
It is not clear whether the new provisions will apply to tenancies that began before the 6th April 2012 however we advise that agents and landlords should begin to check agreements now and register deposits and provide prescribed information if they discover they have not done so to avoid the new scale penalties.

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

23 January, 2012 • 09:59 10

What duty does a Landlord have if the tenant leaves their belongings in the property once they have vacated?

The above question is one which we get frequently asked by agents on the PainSmith helpline. It is often the case that tenants will vacate a property and leave their personal possessions behind which can pose a real problem for landlords.

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

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

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

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

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

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

10 January, 2012 • 12:58 0

It’s not the lawyers! It really isn’t!

Delays in possession hearings are not common in our experience but they can happen. In the case of Benesco Charity Ltd v Kanj and Unknown Persons the occupiers of a property were granted permission to appeal a possession order thus delaying the execution of the bailiff warrant for possession.

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

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

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

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

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

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

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

3 January, 2012 • 13:11 3

A survey of tenants experience……

A survey of tenants experience……

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

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

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

The report has therefore made the following recommendations:

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

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

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

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

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

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

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

9 December, 2011 • 22:58 0

“Why Do I Need Court Proceedings? And What Do These Involve?

Many of our readers will know why there is a need to obtain a Court Order to evict residential tenants however for those that do not we hope the below helps.

If someone is occupying a residential property whether lawfully or not then an Order of the Court is required (a Possession Order) which generally can only be enforced by County Court bailiffs or Sheriffs Officers. This is true of squatters and tenants but this blog post is limited to tenants. If you evict a Residential Tenant from their home without a Court Order you can find yourself as Landlord (or others who assist in this such as an agent) liable to both civil action for damages and a right of re-entry from the tenant and also possibly criminal prosecution under the Protection from Eviction Act 1977 which can render you liable for a fine or in severe cases a custodial sentence. For these reasons alone it is vital that the correct procedure is adopted to avoid such penalties.

If therefore the Landlord wants to get his or her tenant out he should make sure he follows the correct process. The starting point will be the tenancy agreement itself to see on what basis the tenant can be evicted. If the Landlord simply wants the property back and there are no major breaches then generally the fixed term will need to be ending or for the agreement to have a break clause which the landlord can rely upon. Most types of residential tenancy require some form of notice most usually a s.21 notice and for others some form of Notice to Quit.

If there are breaches of the agreement itself such as none payment of rent then different notices may need to be served such as a s.8 notice for assured tenancies (including Assured Shorthold Tenancies).

Once the notice has expired an application can be made to the Court. Usually this will be the County Court local to the tenanted property. Whilst you can apply for possession through the accelerated (a misnomer!) process where you have a expired s.21 in the case of a s.8 or where you wish to seek costs, rent arrears and interest as well as possession pursuant to the expired s.21 then you will be listed for a first hearing. This should be within 8 weeks of issue but we have experienced recently delays which we have posted about. At the hearing if the Judge is satisfied that you have complied with the rules then unless your tenants have a Defence you should obtain a Possession Order. This will usually be for either 14 or 28 days but the Court can extend the time up to a maximum of 42 days.

Once you have this Order the tenants should vacate by the date given, if they do not then you will have to apply to the Court for a bailiff appointment. This will then be listed and again usually within about 4-6 weeks. Whilst the bailiff does not have power to use force to evict the Tenants in our experience we have found that the bailiffs are very effective at doing their job and persuading tenants to leave.

It is perhaps worth highlighting a point we have made in previous blogs given the current state of the economy. We are seeing more and more tenants who are approaching the Local Authority to be rehoused once given notice by their Landlord. Sadly most Local Authorities will not properly consider the tenants request for re-housing until a date has been fixed for the bailiffs appointment and the tenants themselves will be advised that if they vacate before-hand then they will have made themselves voluntarily homeless and the Local Authority will not assist.

So once the bailiff has executed the warrant the landlord will hopefully gain possession to relet his or her property to another.

It is important that all the way through you get the process right. If not then the whole procedure can be delayed substantially and the costs for the Landlord can escalate. This blog assumes no defence has been lodged and only gives a brief overview.

We appreciate that Landlords often at the time of evicting a tenant wish to limit their financial exposure and hence we offer a capped price eviction service but it can often be a false economy to not take advice on the whole process at the outset!

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

4 December, 2011 • 16:01 4

Back to Basics 4: Section 21

A section 21 notice is not a notice to quit. Many people that call the helpline refer to a section 21 as a notice to quit even today and it’s not, so stop it!

A section 21 notice is used by the landlord when he wishes to gain back possession of the property at the end of an assured shorthold tenancy, pursuant to a break clause or even where the tenant is in the periodic period of the tenancy. There are two types of section 21 notices that a landlord can serve on a tenant. The section 21(1)(b) notice and the section 21(4)(a) notice.

Although both notices refer to section 21 they should not be confused with each other especially given that have very different notice requirements. If the wrong notice is served and relied upon then it can delay or hinder possession proceedings.

Depending on whether the tenancy is either of a fixed term or a statutory periodic will depend on which notice a landlord will need to serve.

The Section 21(1)(b) Notice – Fixed Term:

A section 21(1)(b) is served during the fixed term of a tenancy. A landlord serving this notice must give not less than two months notice stating that he requires possession. The notice should specify a date “on” which the landlord requires possession. The notice cannot expire before the end of the fixed term unless the landlord is relying on a break clause in the tenancy agreement. Therefore a notice should not be dated to expire before the last day of the tenancy as this would make the notice invalid and whilst it could be dated to expire on the last day of the fixed term there are many out there that believe that dating the notice to expire on the last day makes the notice invalid. We at PainSmith do not.

Other issues that need to be noted are that tenants have 6 months security of tenure and so a landlord can not issue court proceedings on a section 21 until the tenant has been in residence for 6 months. The other issue is that any notice served pursuant to a break clause should comply with the provisions of that break clause and then finally if the notice is served in the fixed term to expire in the periodic period it’s still a section 21 (1) (b) that needs to be served.

The Section 21(4)(a) Notice – Periodic Tenancies:

A section 21(4)(a) is served after the fixed term has expired when the tenancy is a statutory periodic tenancy. A landlord serving this notice must give two clear months notice stating that he requires possession and the day on which the notice expires must be at the end of a period of the tenancy. The section 21(4)(a) notice often causes the most confusion amongst landlords due to the fact that if the wrong date is specified on the notice then it becomes invalid. To avoid this pitfall it is vital that a landlord looks at the tenancy agreement to assess what the tenancy period is.

Some of you are aware that unlike a section 21(1)(b) a date need not be specified on the notice and instead the ‘saving provision’ can be used following the decision of Lower Street Properties Ltd v Jones however, rather oddly we still find some of you are dating the notice. Why complicate things?

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

3 October, 2011 • 12:59 0

Look at the lease!

We have posted on this topic before but many questions we receive on the helpline come back to the same answer.

Whether you are dealing with an AST or long leasehold dispute the starting point must always be the agreement or lease. The Courts, adjudicators and LVTs will always look at the lease/agreement as the starting point. It is imperative that advisers check the document carefully to ensure that all terms have been complied with and/or the remedy sort is provided for. Generally Courts etc will not look to imply terms into such a written agreement and will expect parties to comply with the terms that are written. This is particularly true for the party seeking to rely on the same.

Service charge clauses in particular often contain detailed requirements. It is not sufficient to say a party is not prejudiced by a failure to comply strictly with the terms. A careful review should always be undertaken by all managers and owners whether or not it appears that everyone is happy. Parties can and often do raise disputes at a later stage.

The Courts, adjudicators and LVTs have issued a number of decisions over the past 12 months making this clear.

The moral is therefore, check the documents and check you comply!

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

30 May, 2011 • 22:44 0

Not an AST?

In Kahlon v Isherwood the court held that a tenant that had a Assured Tenancy but agreed to the grant of an Assured Shorthold Tenancy as part of a settlement of court proceedings was, in fact, still an Assured Tenant.

Isherwood became a tenant in 1994. Since 2000 there had been 3 claims for possession due to rent arrears. On the third occasion the parties agreed to mediate and reached an amicable solution to Kahlon’s claim for arrears and Isherwood’s claim for disrepair. As part of this agreement Isherwood also agreed to sign a new Assured Shorthold tenancy for a period of 12 months and in return arrears of rent were written off.

The ‘new’ tenancy term began on the 2 June 2008. This agreement included a break clause at any time upon the expiry of 2 months notice. The ‘new’ tenancy did not have the same security of tenure as an assured tenancy where such notice would be ineffective as a means to end the tenancy.

On the 31 March 2009 Kahlon served notice on Isherwood to expire on the 2 June 2009. Upon the expiry of the notice possession proceedings were issued and Isherwood defended claiming he was an Assured tenant.

The county court rejected Isherwood’s defence and awarded Kahlon possession. Isherwood appealed.

The Court of Appeal held that when a tenant losses his security of tenure he must be fully aware of the effect of this change in status. That in this case Isherwood should have been served with a prescribed notice pursuant to section 20 and schedule 2A of the Housing Act 1988.  This notice has a prescribed form and must  include a warning of the legal consequences of becoming an Assured Shorthold tenant and this would have assisted Isherwood in making an informed decision about the change of status.

The court held that in the absence of this notice Isherwood was still an Assured tenant and set the order for possession aside.  The notice requirements were not negotiable and could not be waived by the court even where the original agreement which demoted the tenancy had been approved by the court.

Whilst the decision seems a little unfair on the landlord who wrote off a substantial amount of arrears as part of the mediation agreement the court made the only decision available to it. The legislation makes the process very clear and attempts to circumvent the procedure will fail.  Care should be taken when entering into any form of agreement to demote a tenancy from Assured to Assured Shorthold and advice should be sought.

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

28 April, 2011 • 15:03 1

Mobile Homes and Article 8!

In Murphy v Wyatt the Court of Appeal Wyatt brought in a mobile home to replace a dilapidated caravan after her partner Mr Barrett died. The caravan was located on just under 2 acres of rough pasture which the Wyatt’s partner used for his livery business. The landlord served a notice to quit in 2009.

Mr Barrett entered into a oral weekly tenancy in 1975 and in 1979 he moved a caravan onto the plot and began sleeping in the same from time to time. His relationship with Wyatt began in the mid-80s and in 1989 Wyatt moved in with Mr Barrett. In 1996, Mr Barrett then ceased using the land for his livery business.

Mr Barrett then sought a certificate of lawful use for the caravan in 2002 in order to claim Housing benefit. Upon Mr Barrett’s death in 2002 Wyatt continued living in the caravan and paid rent with Murphy’s consent.

The caravan was then replaced in 2007 with a mobile home. Wyatt failed to obtain planning permission and failed to obtain Murphy’s consent. The mobile home was on the same original location but was slightly larger than the caravan. Again the certificate of lawful use was obtained.

The issue before the Court was therefore did Wyatt have security of tenure under the Mobile Homes Act 1983.

The court held that Wyatt did not and found in favour of Murphy. The reasoning for the courts decision was that the 1983 Act could not apply to a tenancy where planning permission was sought after the tenancy term began. The court held

“it would be a little surprising if the 1983 Act protected an occupier, who, after entering an agreement, brought a caravan onto the premises and lived in it, simply because there was nothing in the agreement which precluded his from doing this, unless there has always been planning permission for such a use…”.

The court also held that they did not believe that the 1983 Act could apply to more land than the land on which the mobile home is to be sited plus any garden or other amenity land. If the Act applied to land other than the pitch that was for the tenants use this would run into “serious conflict” with the legislation protecting business and even agricultural tenants.

Wyatt sought permission to appeal but was refused. The court did however state that if any further applications for possession of this site are made the courts may need to consider Article 8 of the European Convention on Human Rights.

Whilst we can not fault the court for its reasoning it is unfortunate that the issue of Article 8 was dealt with so swiftly and briefly. With the influx of cases recently suggesting that Article 8 is only applicable to social landlords there are fears among private landlords that the scope of Article 8 is going to be extended and some certainty would have certainly been welcome.

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

17 January, 2011 • 15:21 1

What’s the Point of a Tenancy Agreement Anyway?

Landlord X’s tenant has registered a business at her address, changed the locks, put holes in the walls, let in another occupier, allowed his favourite orange tree in the garden to die and has breached 25 other terms of the tenancy agreement. Landlord X wants her out, and is therefore extremely upset to discover that despite all these breaches, he has to go through a court process and persuade a judge that it is reasonable to grant a possession order. Landlord X asks “What’s the point of a written tenancy agreement?!!”.

The (non-exhaustive) points are:

  1. Oranges are not the only fruit: eviction is not the only remedy. The tenancy agreement is a contract, and under normal contractual principles Landlord X may be entitled to damages to compensate him for any loss suffered as a result of the tenant’s breaches. A written agreement that sets out the terms (e.g. not to put holes in the walls) is essential if one wants to be able to prove breach of those terms and resulting loss and to end up financially compensated.
  2. A rose by any other name would smell as sweet: if a tenancy falls within the protection of the Housing Act 1988 (occupation of dwelling house by individual for rent of less than £100,000 p.a.) it will be an AST, written terms or not. A landlord will not be able to use the section 21 procedure to evict the tenant until after the first 6 months. Further the Landlord will continue to be subject to the repairing obligations as set out in s11 LTA 1985.
  3. Bad apples: some tenants fail to pay rent. The most common ground for bringing possession proceedings in an AST (other than expiry of a s21 notice) is on expiry of a section 8 notice for rental arrears. The Housing Act 1988 specifies that the courts can only order possession on the grounds specified in the act ( grounds 1-17 set out in schedule 2). The courts will not imply a forfeiture clause where there is none in the agreement in AST and non-ASTs alike. A written agreement providing for re-entry on the specified grounds is an essential insurance against non payment of rent.
  4. It makes sense to know exactly what is agreed between landlord and tenant so both parties know where they stand in terms of covenants and liabilities. The easiest way to know what exactly is agreed is to have it recorded in a written document.
  5. Where assured shorthold tenants have not vacated in accordance with an expired s21 notice, the court service’s accelerated procedure can be used to recover possession, which in theory should a quick and relatively cheap process. There is no hearing and if the claim is not defended the landlord can gain a possession order approximately 3-5 weeks after sending the papers to court, compared to the 8-12 week timescales involved when there is a hearing. In order to go through the accelerated procedure the tenancy must, among other conditions, be the subject of a written agreement.
  6. There is certain information that landlords are statutorily required to provide to tenants in written form, such as the prescribed information set out in the Housing (Tenancy Deposits)(Prescribed Information) Order 2007 where a deposit is taken. Therefore as soon as a deposit is involved certain written information must be available. The Housing Act 1988 requires the landlord to provide the tenant with a written statement of tenancy terms on request by the tenant. In Northern Ireland the legislation has gone so far as to require all tenancy agreements to be in writing on pain of criminal sanctions.
  7. Any tenancy agreement – including an assured shorthold tenancy – created for more than 3 years must be in writing. (Law of Property Act 1925 s54).

    8. When either party to a tenancy agreement defaults in any way it can be extremely frustrating not to be able to walk away from the contract immediately: Landlords want to evict; Tenants want to find somewhere else to live. Eviction is the ultimate sanction against tenants for breach of tenancy agreement, and those with experience of bringing possession proceedings against residential tenants will be aware that unless the court is statutorily obliged to give possession, it can take much convincing that granting a possession order is reasonable. Likewise the tenant is not in a position to consider the tenancy at an end because of a minor breach by the landlord. A written tenancy agreement is no guarantee against landlord and tenant disputes, and there are statutory obligations that cannot be contracted out of; nevertheless it is an important contractual document that both parties should ensure is properly drawn up.

    Tenancy Agreements are available to be bought from the Painsmith Solicitors webshop.

    Filed under: England & Wales, FLW Article,

3 August, 2010 • 09:35 5

Understanding ‘Subject to Contract’

We are often asked whether or not an agreement for a tenancy has come into effect when only one of the parties has signed it or some other variation on this theme has occurred. It is commonly thought that if only one party has signed then the party that has not signed is not bound by the agreement. If the parties have clearly agreed to a tenancy and that has been reduced to writing then the fact of a signature is irrelevant. The verbal agreement is sufficient to create a tenancy.

To avoid this occurring it is common to use a phrase such as “Subject to contract” or “Subject to lease”. This also means that any other discussions or offers made are subject to their incorporation in the final lease agreement. However, there some other consequences of the use of this phrase which are not so favourable and it may not always be the best course of action.

First it is worth examining precisely what the Courts understand the situation to be when the “Subject to Contract” formula is used. The Courts construe the formula in accordance with the conveyancers understanding of the phrase. This is that a negotiation for a conveyance of land which is expressed to be ‘subject to contract’ is not complete until there is an exchange of contracts. There is an entire set of procedures for such exchange which are set out and agreed between solicitors. It is this position that allows for such situations as ‘gazumping’ where the seller suddenly pulls out of a deal because they have had a higher offer. In the case of Salomon v Akiens, the Court of Appeal had to consider whether this formulation should also be applied to a lease agreement. The Court was clear that there was practically no circumstances in which a negotiation for a lease should be seen as any different from that for a sale and therefore the ‘subject to contract’ formula should apply equally to both.

Practical Consequences
What does this mean in practice? In the case of Longman v Viscount Chelsea the Court made clear that this means that the “relationship does not become binding … until there is an exchange of lease and counterpart, before which either party can withdraw”. In other words, until both the landlord and tenant have signed the agreement, the agreement has been executed, and the signed agreement has been passed to the other side then either party is free to withdraw without any penalty whatsoever.

Ending the Formula
Of course, there are other ways in which the ‘subject to contract’ formula can be dealt with. The parties could agree that the formula should no longer apply which is a common device in commercial or high-value leases where the parties will enter into an agreement to make an agreement. Alternatively, the parties can perform an action which sets the formula to one side. The most obvious of these is provision of the keys and the acceptance of rent and deposit payments. The formula comes into force once either party expresses an offer or acceptance of an offer as being ‘subject to contract’ and will remain in force even if following correspondence does not bear the same formulation until it is specifically brought to an end as described above.

Recovery of Expenses
The use of the formula also has implications for the recovery of costs and expenses. Where a party expends monies on the basis of an agreement which is subject to the formula it will be very hard to recover any monies expended on the basis of that agreement. As the High Court made clear in Regalian Properties v
London Dockland Development Corpn each party must accept that any monies spent are a calculated risk and there will be no recompense if no contract results. This is not to say that agents cannot take steps to ameliorate this risk and a well- drawn up holding deposit agreement is a great help in this regard. Despite the fact that costs cannot be recovered in respect of actions taken under a belief that a contract that is subject to the formula was to be entered into there is no reason why a separate agreement taking a holding deposit from an applicant cannot be enforced. Such an agreement would typically cover the costs of referencing, preparing the agreement and would therefore protect the landlord from incurring agents costs with no prospect of recovering them. Such an agreement has the added benefit of ensuring that the agent will be paid for their time as well!

Other Formulas
There are other, more limited, formulas of a similar nature which may also be of value. The most commonly seen of these is probably ‘subject to references’ or some such phrase. This will have an effect similar to the ‘subject to contract’ formula but will be more limited and will effectively expire once satisfactory references have been received or the parties make clear that they have moved beyond that stage. By choosing to ignore them and agreeing a finalised contract, for example. The exact point at which these more limited formulas cease to be effective is not as certain due to the lack of Court decisions on the topic. In each case it will have to be decided at what point it was intended that the formula should come to an end and whether actions were taken to make it clear that it should no longer be effective.

Overuse
Some agents use the ‘subject to contract’ formula everywhere. This is bad practice and quite dangerous. In Shirlcar Properties Ltd v Heinitz the landlord sought to give notice to trigger a rent review contained in a tenancy agreement but used the phrase ‘subject to contract’ in the letter giving the notice. The review notice was held to be invalid because the tenant could not know if the landlord was bound to accept the higher rent proposed in the notice. Therefore the use of this formula where it throws doubt on the contents of the communication is very dangerous.

Practice Points
Agents should consider in every case what is best for their client. In higher value properties where the landlord is unlikely to wish to pull out of the deal unexpectedly it may be best to avoid use of the ‘subject to contract’ formula to ensure that the tenant is tied into the contract as early as possible. In other circumstances, where the landlord is uncertain of the tenant or may want to pull out of the deal it may be wise to use the formula in order to preserve the landlord’s position. Alternatively, it might be best to start negotiations ‘subject to contract’ but then agree at a later stage that the deal is finalised and that the formula should no longer apply, although this may be difficult where a deal is moving fast. As always, agents should take great care in the representations they make and how they are made to avoid invoking or rescinding the formula unintentionally. Equally, agents should not use the formula across the board by including it in all emails or letters by default.

Points to note

  • Once the Subject to Contract formula has been invoked it will stay in force until it is specifically rescinded or the lease or tenancy has been signed and exchanged.
  • Either party can withdraw from the contract without penalty while the formula is in force.
  • Agents holding deposit agreements are not affected and therefore recovery can be made from this for expenses such as referencing etc.
  • The formula should not be used automatically in every case and should be tailored to the specific requirements of each letting.
  • Make sure you have a solid holding deposit agreement setting out what charges the tenant is liable to pay.
  • Don’t use the formula where it is not appropriate

Scotland

The position regarding the use of ‘subject to contract’ in Scotland is rather different. Scots law tends to allow contracts to be created rather more easily than is the norm south of the border. It is also rather less enamoured of the ‘subject to contract’ formulation. In Erskine v Glendinning it was held that an acceptance of a deal which was qualified “subject to lease drawn out in due form” was entered into notwithstanding this phrase. Therefore, the use of ‘subject to contract’ remains a phenomenon which applies south of the border only.

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

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