Landlords as Consumers

One of the biggest difficulties in dealing with unfair terms questions relates to the point that it only applies to consumers. The Unfair Terms in Consumer Contract Regulations 1999 (UTCCR) define a consumer as “any natural person who … is acting for purposes which are outside his trade, business or profession”. This definition is particularly problematic when we consider the position of a landlord. While it seems fairly clear that a casual landlord with one or two properties is largely within the definition of a consumer the position becomes less certain when dealing with landlords who own several properties, who may be highly sophisticated and experienced, and who derive a substantial percentage of his income from his activities.

In the past there has tended to be a view in the industry that a landlord with more than a certain number of properties should be viewed as being outside the ambit of a consumer. However, this immediately raises the question of precisely how many properties should mark the boundary. The Solicitors Ombudsman Scheme has indicated recently that it views the threshold to be four properties but it has not provided any clear understanding of how it arrives at that position.

The question of how to categorise the more sophisticated and knowledgeable client has, surprisingly, not exercised the Courts a great deal but the one apposite case indicates that a concentration on the number of properties may be missing the point.

In Standard Bank London Ltd v Apostolakis & Anor [2002] CLC 933 the Court was required to consider a contract relating to currency trading between a UK bank and a Greek couple. The Greek couple were highly educated professionals, being a civil engineer and a lawyer, and had been trading currency for many years. The income of this made up approximately one-fifth to one-quarter of their total income from all sources. During the course of a number of futures trades the couple built up a significant exposure which the bank eventually liquidated when the situation turned radically against them in 1998. For a number of reasons the Court was required to consider whether the Greek couple could be found to be consumers under the terms of the UTCCR.

The Court found that a contract for foreign currency trading was not part of the normal trade or profession of the Greek couple. The Court further found that despite the couples evident education and experience with currency trading they were still not acting in the course of a trade or profession by entering into the currency trading that they had. The Court found that they were rather “disposing of income which they had available.” They were “using their income in what they hoped would be a profitable manner” and were not “trading in foreign exchange in the sense that a bank or dealer can be said to trade.”

If we bring this view across to the world of the private landlord we paint a bleak picture. It would appear by analogy that a private landlord who simply invests his income in a degree of property speculation should still be viewed as a consumer as they are not speculating in the sense that a property developer does. To step outside the realms of a consumer the landlord would appear to need to be dealing by way of a company vehicle or be deriving the majority of his or her income from such transactions.

In short, it would be a dangerous tactic for any agent to rely on showing that an individual landlord was not a consumer as a means to defeat a claim under the UTCCR.

Filed under: Uncategorized , Unfair Terms

OFT v Foxtons- Renewal Commissions and Mis-reporting

Following the decision in OFT v Foxtons on Friday there has already been a great deal of mis-reporting of the outcome.

One of the most noticeable points relates to the issue of renewal commission and the suggestion in much of the media that renewal commissions are unfair and that landlords will be able to recover commission already paid.  This is simply incorrect.  Unfortunately, as a result of these misunderstandings many agents have already been contacted by landlords demanding repayment of alleged unfair fees.

It is worth considering the judgement in detail at this point.  In paragraph 33 of his judgement Mr Justice Mann said the following:

I should first make clear what I am not deciding, and what I am not asked to decide. I am not asked to decide, and do not decide, that renewal commissions (in the sense used in these proceedings) are always unfair. I make that clear because some of the evidence and submissions of the OFT come close to asserting a case that they are always unfair, and some of the correspondence seemed to be based on such a proposition, though Mr Nicholas Green QC, for the OFT, eventually made it clear that that was not his case. Mr Michael Kent QC, for Foxtons, opened his submissions by saying that I would eventually have to, and should, rule on renewal commission generally, but he moved away from that. I shall not decide whether or not renewal commission is always unfair to consumer landlords.

Therefore, the judgement in no way states that renewal commission is unfair.  What was decided was that Foxtons renewal commission clauses were not worded in plain and intelligible language and were excessive in the level of commission charged and in their wider definition of renewals by associates of the tenant which would also attract a fee.

The other area of mis-reporting is in relation to the rights of parties to demand the return of sums already paid.  Contrary to the decisions made in the various cases involving bank charges there is nothing in this judgement which allows for monies already paid to be recovered.  This particular issue was one which Foxtons fought hard to avoid and at the current time the Court has not made any ruling in relation to it.

In short, no agent is in any way obliged by Friday’s decision to return monies to any party.

Filed under: Uncategorized , OFT, Unfair Terms

Initial response to OFT v Foxtons

Following the ruling today in this matter, letting agent terms of business may well contain some significant flaws and unenforceable terms.  In particular any term which seeks to charge a commission fee where the landlord sells the property to the tenant will be deemed unfair.  In addition, where an agent seeks to charge commission on a renewal where the landlord has sold the property to another landlord such clauses will be deemed unfair.

What is not unfair is the charging of a renewal fee, even where the agent has not been involved in the negotiation of the renewal, provided that this charge is signposted to the landlord at the outset of the instruction and drawn to their attention.  The reporting of this matter is inaccurate in this aspect.

Nothing in today’s judgement requires agents to refund monies to landlords but it will prevent agents from using or relying on clauses that have been found to be unfair.

PainSmith have already amended our standard terms of business and are able to provide these for immediate use as a stop-gap measure until such time as agents can amend their standard terms.

Filed under: Uncategorized , litigation, OFT, Unfair Terms

OFT v Foxtons Links

The OFT press release on today’s judgment can be found here

The judgement can be found in full here

Filed under: Uncategorized , OFT, Unfair Terms

OFT v Foxtons – early hints

Its 9.30 and we’re waiting for the judge to give his decision which should start 10.00. It appears that both parties have had early copies of his judgment and hints have started to leak. First indications appear to show that the oft have succeeded on the matter of charging commission to landlords who sell their property to tenants or occupiers and this type of provision may well now be considered unfair.

The oft have further succeeded in relation to charging commission to landlords who have divested themselves of their interest in the property and where the new landlord renews a tenancy with the original tenants. It appears, however, that charging of renewal commission in other circumstances even where the agent has not been directly involved in the negotiations of the renewal is acceptable provided that the terms of the agreement are expressed in plain and intelligible language. It may well be that many clauses currently in use fall short on that requirement.

It seems that some early comments on the news media this morning may have been premature. More information as we get it.

Filed under: Uncategorized , OFT, Unfair Terms

OFT v Foxtons

The judgement in this matter is being rendered at 10am tomorrow in the High Court. PainSmith solicitors are contracted to one of the main organisations representing lettings agents to provide a brief electronic response and a full consideration. The brief response should be available late tomorrow.

Filed under: Uncategorized , OFT, Unfair Terms

Changes in Home Ownership Attitudes

The Today programme tells me that the Chartered Institute of Housing has published a new study which suggests that young people, in particular, are turning away from house ownership after being scared off by the economic downturn and the concomitant drop in house prices.

This leads to the immediate question about where these people are living. Presumably this will lead to an increase in renting. Inevitably much of this increase will be felt in the private sector. However, the private sector is not really geared towards the longer-term renter which is something that will be desirable to those seeking to stay in the sector. Indeed, the legislation tends to discourage longer term arrangements.

Contractual provisions can provide the long-term security that tenants will seek but few landlords are prepared to grant such long-term rights. In addition mortgage companies, freeholders, and insurers all tend to refuse consent for such long-term lettings. In addition there is no protection for tenants whose landlords fail to maintain their mortgage payments which inevitably erodes the security offered. Finally, the creaking Civil Court system is too slow to deal with possession claims and this pouts landlords off lettings where they cannot get rid of tenants easily.

The Law Commission proposed changes to the legislation which would help here. The creation of two tenancy types giving short-term and long-term rights would allow landlords and tenants to make a clear choice as to the nature of tenancy they were in the market for. However, without other legilative and structural changes the Law Commissions proposals will fall on barren ground.

The current government as well as its challengers are all keen to talk about housing and to make sweeping statements. However, much of this proposed action seems to get lost in a maze of reviews. Until these are backed by real legislative intent and proper incentives things are unlikely to change.

Filed under: Uncategorized , comment, law commission

The Life and Death of Tenancy Deposit Scheme

This week has seen a degree of excitement in the world of Tenancy Deposit Protection. We know….the excitement is just too much to bear.

A new tenancy deposit scheme appeared to have set itself up earlier this month calling itself MyTenancyDeposit. Its website described itself as a custodial scheme. This was a surprise to the three government approved schemes and indeed to the Department of Communities and Local Government as no such scheme had in fact been authorised. Much paper was expended behind the scenes and the telephone wires turned red hot!

All has now been revealed. Looking at the website today it appears that MyTenancyDeposit had already registered with the MyDeposits scheme and was, in effect, acting as a deposit taking agent protecting its holdings with the MyDeposits scheme. They are now apparently taking legal advice as to whether they can continue to operate.

While it appears that there was no intent to evade the provisions of the Housing Act 2004 the website was, at best, deceptive about the actual method of operation of the system. Given that the system was essentially free and actually paid £10 to agents who registered deposits with it, it is hard to see how it was actually going to make any money as its earnings on the deposits would be limited to that obtainable as interest on a ring-fenced account.

Anyway, the system may reappear depending on legal advice given. However, MyTenancyDeposit may find it hard to persuade MyDeposits, or any other provider, to work with them.

Filed under: Uncategorized , comment, deposits, Housing Act 2004

Sale and Rent Back Regulation

The Financial Services Authority has released more details of its plans to regulate the sale and rent back sector. In the downturn this sector has grown substantially and unscrupulous lenders have excited the interest of the Office of Fair Trading and HM Treasury due to a lack of good information being given to consumers.  This is an interim regime and will ultimately be replaced by a full regime which is expected to come into operation on 30 June 2010.

Unauthorised firms operating in the sale and lease back sector will now need to seek authorisation from the FSA.  The scheme is expected to come into operation on 1 July 2009 and firms will have until 1 August 2009 to seek authorisation.  Already authorised firms will need to apply for a variation of permission to allow them to continue to operate.

Firms wishing to apply for authorisation should look at this page on the FSA website which contains information to assist with an application including the type of information that will need to accompany the application. The FSA states that the page will soon also contain draft application forms.

Filed under: Uncategorized , FSA, regulations, sale and lease back

Electrical Safety in Dwellings- A Reminder

The Gas Safety (Installations and Use) regulations 1998 require landlords to ensure that the gas appliances in their property are safe.  These regulations were supported and policed by the Council for Registered Gas Installers (CORGI) and now the Gas Safe Register.

There are similar statutory requirement for landlords to maintain electrical systems under their control in a safe condition, the legislation is less explicit and there is no electrical equivalent of the Gas Safe Register.

There are 2 main Acts of Parliament that place a statutory duty on Landlords to ensure that the electrical equipment in their properties is safe.

1. The Consumer Protection Act 1987

2. The Health and Safety at Work etc. Act 1974

The Consumer Protection Act affects all persons who let property in the course of their business because it defines them as “suppliers”, i.e. they are supplying goods to the tenant. There are several items of secondary legislation under the umbrella of the Consumer Protection Act that are directly relevant to the supply of electrical goods, including:

1. The Low Voltage Electrical Equipment Regulations 1989

2. The Electrical Equipment (Safety) Regulations 1994

3. The General Product Safety Regulations 1994

4. The Plugs and Sockets etc. (Safety) Regulations 1994

A failure to comply with the Electrical Equipment (Safety) Regulations 1994 and the The Consumer Protection Act 1987 is a criminal offence and may result in:

• A fine of £5,000 per item not complying
• Six month’s imprisonment
• Possible manslaughter charges in the event of deaths
• The Tenant may also sue you for civil damages
• Your property insurance may be invalidated

The Consumer Protection Act provides a defence of “due diligence” if it can be shown that the landlord or agent took all reasonable steps to avoid committing an offence – you will need documentary evidence of this.

The regulations are enforced by the Health & Safety Executive.

Although there is no statutory requirement to have annual safety checks on electrical equipment (PAT testing) it is advisable to have periodic checks done by a qualified electrician.

Electrical appliances and fittings within the property need to be SAFE and in good working order, but the legislation does not require the landlord to obtain a electrical safety certificate. However, if any electrical fittings or appliances within the property cause harm to a tenant the landlord/agent could be held liable.

Therefore in order to minimise the risk of something going wrong with the electrics landlords and agents are advised to make visual inspections and have periodic checks carried out by a qualified electrician. The landlord could also keep supplied appliances to a minimum, ensure that operating instructions and safety warning notices are supplied with the appliances and make sure that tenants know the location of and have access to the main consumer unit, fuses and isolator switch.

In January 2005 legislation under Part P of the Building Regulations made it a requirement that for certain types of electrical work in dwellings, plus garages, sheds, greenhouses and outbuildings to comply with relevant standards. It is therefore necessary to ensure that a competent electrician must carry out the work. For DIY electrical work you must belong to one of the Government’s approved Competent Person Self-Certification schemes or submit a building notice to the local authority before doing the work. Any Landlord, regardless of whether they see themselves as running a business or not, should look to comply with these regulations to ensure that all electrical equipment supplied is safe.

It should also be remembered that Houses of Multiple Occupation have their own electrical testing requirements.  The Management of Houses in Multiple Occupation (England) Regulations 2006 require that HMOs should have their fixed wiring tested every five years.  This applies equally to licensed and unlicensed HMOs.

Filed under: Uncategorized , electrical safety, regulations

LACORS on Cancellation of Contracts

On my weekly NFOPP email I was directed to this article on their website which mentions LACORS guidance on the Cancellation of Contracts Made in a Consumer’s Home or Place of Work Etc Regulations 2008.
Unsurprisingly LACORS takes the view that the Regulations apply to Estate (and presumably also Lettings) Agents.
What is more interesting is one of the scenarios in the guidance which we have reproduced here:

2.3.3 – During an estate agent’s visit to the consumer’s home, if the consumer has been able to review the information required by the Estate Agents Act 1979 and the Estate Agents ( Provision of Information) Regulations 1991 and then agrees to the quotation provided by the estate agent and says “Yes” to contracting with the estate agent for his services. The estate agent says “I’ll go back to the office and finalise the contract and send it through” – the Regulations are likely to apply as the contract is made following the offer made by the consumer. The estate agent needs to be careful to give the written notice of the right to cancel at the point the offer is made by the consumer.

This is an interesting view. LACORS is essentially saying that if a verbal agreement is made for business to commence then the notice must be handed over at that stage and cannot wait until the written contract is signed.
This is, of course, quite logical as a verbal agreement concluded on agreed terms is enforceable immediately and does not need to be reduced to writing. However, agents should take care and consider at what stage they are at with a landlord if they are talking to him face-to-face in his own home or place of work. If they are taking away from the meeting that they can immediately start marketing a property and can get th terms signed along the way then they should have handed over a cancellation notice and could potentially be liable to prosecution.

Filed under: Uncategorized , guidance, LACORS, regulations

OFT v Foxtons- A Clarification

It is not normally the practice of this blog to comment on matters that are still before the Courts but we are becoming frustrated by the large amount of incorrect information about this matter that is floating around.

Currently the OFT has suggested that certain aspects of Foxtons terms of business may be unfair.  They have particularly focused on the practice of seeking a fee on the sale of a property by a landlord to a tenant where the tenant was introduced by Foxtons and on the practice of seeking a fee where a tenancy which was carried out on a let only basis is renewed for a further period without any involvement by Foxtons.

The OFT has not said that all agents fees or even all renewal fees are unfair. They are particularly focused on those issues where the agent has not done any work to secure the renewal.  They have also suggested that charging the same fee on a renenwal as on an initial rental may also be unfair as the amount of work done in the two situations is different.

At the current time (21 May 2009) none of these fees are unfair and they will not be so until the High Court rules on the point (probably mid to late June 2009).  Even then there is a high chance of appeals to the Court of Appeal and possibly further.

In terms of outcomes there is a large range of possibilities.  The Court could decide that the specific clauses used by Foxtons are unfair or that any similar clause used by Foxtons is unfair or that clauses of this type are generically unfair and can also choose whether to impose this view only going forwards or retroactively.

Finally it should be noted that the OFT case is based on a general challenge and is therefore focused on the idea of a ‘typical consumer’.  This leaves open the option in any other case for an agent to show that their landlord was not a ‘typical consumer’ and that they should not be protected by the decision.

In any event there is still a long way to go.

Filed under: Uncategorized , fees, litigation

Proper Place for TDS Claims

The Court Service has published guidance setting out that the proper route for bringing claims under the Tenancy Deposit Provisions of the Housing Act 2004 is via Part 8 of the Civil Procedure Rules.

Key points to note are:

• these claims are automatically allocated to the multi-track which means that legal costs are recoverable irrespective of the size of the claim;
• the claim must be commenced on a form N208 and not the standard N1 claim form;
• the claim cannot be commenced using the moneyclaim online service;
• the Claimant is required to serve a witness statement with their claim form setting out their evidence;
• the Defendant is required to serve a witness statement with its aknowledgment of service setting out its evidence;
• failure to serve witness statements at the appropriate times will preclude reliance onm evidence save by permission of the Court

A great many claims are currently not being commenced correctly and are not having the appropriate procedure followed.  While it is unlikely that a claim will be struck-out for following the improper procedure, a defendant may be precluded from giving evidence and there may be costs implications for both parties if the correct procedures are not followed.

Filed under: Uncategorized , deposits, Housing Act 2004, litigation

Changes to ASTs

The government has published a response to the Rugg Review.

One of the proposed changes is that the upper limit threshold on Assured and Assured Shorthold Tenancies (set at £25,000 by para 2(1)(b) of Schedule I of the Housing Act 1988) should be raised to £100,000.

Section 2A of the Act allows this amount to be easily varied by Stautory Instrument and we have heard on the grapevine that the government is minded to do this as soon as October this year.

This will have far reaching consequences, particularly in the South-East as the majority of higher value tenancies that were outside the Act will not be brought into it. This will mean a large increase in the number of tenancies requiring to have their deposits protected and changes in the way possession proceedings are brought for these tenancies.

There are some important uncertainties. Will it be the case that the raise will be retroactive such that all tenancies under a rent of £100,000 per annum will automatically fall inside the Act? If so, this will affect tenancies already in place and will mean that their deposits will need to be placed in protection.

It would be better if the change was made so that only new tenancies after the start date were caught. However, in that case it will be necessary to bear in mind that renewal tenancies will drop inside the Act.

Filed under: Uncategorized , deposits, Housing Act 1988, legislation

Premium Leases and the Budget

Although the 2009 Budget was fairly unexciting from a Landlord and Tenant point of view the Chancellor did make one very important, but quiet, change.

This was to remove a tax efficiency in premium leases which was used by a number of companies. Previously, the lease premium was not treated as part of the employees renumeration package and so the National Insurance and tax liability of both employer and employee was reduced. This loophole has been removed and the premium paid will now be treated as if it were rent for the purposes of taxation and NI contributons in respect of all premium leases of 10 years or less.

This is not retroactive but will apply to all new or extended leases from yesterday, 22 April 2009.

More information is available on the HMRC website.

Undoubtedly this will markedly reduce the number of premium leases in the market.

Filed under: Uncategorized , premium lease, taxation

TDP again!!

A recent judgement in Clerkenwell & Shoreditch County Court has clarified another issue relating to Tenancy Deposit Protection. HHJ Cryan has indicated that as far as he is concerned a deposit taken for a tenancy which began prior to the intorduction of TDP on 6 April 2007 does not have to be protected but that when the tenancy is renewed the deposit is, in effect, taken again and must therefore be protected from that point. This was a well accepted interpretation of the position but it is nice to see confirmation. It must of course be noted that this decision is not one of record and is not, therefore binding on other Courts.

Unfortunately, this opens up another possible problem. It is widely believed that a tenancy that becomes periodic under the aegis of s5 Housing Act 1988 does not need its deposit protecting. However, s5 states that the periodic tenancy is arises immediately the fixed term tenancy ends and it therefore seems to be thae case that this is a new tenancy just as much as any renewed tenancy. One wonders when this point will be raised and what the outcome will be. In the meantime the rule must be that if there is any doubt then the deposit should be protected.

With thanks to James Browne, Lamb Chambers

Filed under: Uncategorized

Tenancy Deposit Protection and ‘Rent in Advance’

A recent case in Grimsby County Court reported in Legal Action magazine has cast doubt on a method commonly used by private landlords to avoid the tenancy deposit protection regime.

Under section 213(8) of the Housing Act 2004 a deposit is defined as property intended to be held as security for the performance of any obligation of the tenant. Many landlords seek to avoid this by taking money described as ‘rent in advance’ and claiming not to hold a deposit at all.

This was precisely the position in the case of Piggot v Slaven in Grimsby. The Court held that the question of whether or not money has been taken as security must be judged objectively in each case. However in the case before the Court it was held that the money was intended to provide the landlord with security should the tenant fail to pay rent at some future date. The money held was therefore caught by the defintion in s213(8) and should have been prtected in a scheme. The landlord was accordingly ordered to pay the normal ‘3 times the deposit’ penalty to the tenant.

While this case is only a decision of a District Judge in a County Court and is therefore not binding on other Courts it is undoubtedly a shot accross the bows of landlord who seek to avoid the tenancy deposit protection provisions by asserting that money they are holding is merely rent in advance and not a deposit.

Filed under: Uncategorized , deposits, Housing Act 2004

Digital Switchover

As most people will know the UK is in the throes of switching from analogue to digital telelvision signals. For many people this will simply involve a change in equipment, such as a new television set. However, some areas will require that a new aerial is fitted to the property to allow reception of the new signal.

For private landlords there will of course be the question of whether there is an obligation to upgrade the installations in their properties. In the case of O’Connor v Old Etonians Housing Association the Court of Appeal considered whether a landlord was required to upgrade a water installation to deal with a drop in supply pressure. It commented that while it would be unreasonable to expect a landlord to provide an installation which coped with any possible change in supply of services there would be times where a technical advance, which was well flagged in advance, would require a change in installations. In these cases the Court felt that it would be reasonable forr a landlord to be expected to upgrade installations to cope with the change. On this basis one would be forced to the conclusion that landlords will be expected to meet the cost of altering installations to make them compatible with the digital signal.

There are a number of sources of further information on the digital switchover although the majority are targetted at block landlords. There is a Chartered institiute of housing good practice guide as well as a range of resources for property managers.

Filed under: Uncategorized , guidance, Utilities and Services

Gas Safe Register

Boarding my train to London this morning I saw a poster campaign for the new Gas Safe Register. The successor to the old CORGI Landlords Gas Safety Certificate regime. While it is good to see promotion of gas safety, landlords and agents should make sure they are familiar with the new system and ensure that all their contractors are properly registered.

Filed under: Uncategorized , gas safety, regulations

More TDP Problems

PainSmith Solicitors is currently instructed in a matter relating to Tenancy Deposit Protection which has significant implications for the entire industry.  In this case the agent was instructed on a let-only basis and passed the deposit over to the landlord.  The landlord subsequently failed to register the deposit within the 14 day timeline.  Leaving aside the still, highly disputed, question of whether late registration is acceptable this case raises another, far more concerning issue.  The tenant has issued proceedings against the agent as well as the landlord and has stated that the agent is liable alongside the landlord for the penalty of three times the deposit.  To support their argument the tenant’s solicitor has put forward the wording of section 212(9)(a) of the Housing Act 2004 which states:

references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies

The tenant therefore submits that this definition includes the agent and therefore the penalties set out in s214, which are expressed as applicable to the landlord, are equally applicable to the landlord’s agent.

This poses a serious problem.  The DCLG has advised, and the view has generally been, that where an agent acts for a let-only landlord the liability is on that landlord to ensure that the deposit is properly protected and that if the landlord does not do so then the agent has no liability.  This case has the potential to overturn that comfortable certainty which will leave agents acting for let-only clients in a difficult position.  It is likely that the only sure way for agents to resolve this will be to require let only landlords to leave their deposits with the agent for the agent to register under their own scheme membership.  In the meantime many agents will be faced with a large number of potential claims.  It may be possible to seek insurance to cover this risk but this is not a good time to ask insurers to cover large potential risks of uncertain scope.

Filed under: Uncategorized , deposits, Housing Act 2004, litigation