Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Shareholders and Leaseholders- Different Obligations

In Morehead Mansions Ltd v Di Marco the Court of Appeal has held that there is a difference between a tenants obligation to pay service charges and an arrangment made by a shareholder to pay into a company fund by seperate agreement.

The Defendant in the case was a shareholder in a company which owned the lease of a series of flats. Simultaneously, the Defendant held one of those leases. The shareholders had agreed to pay into a new ‘recovery fund’ in two tranches in a sum which varied according to their respective shareholdings.

The Court held that the payment was not related to the Defendants role as a tenant and so was not governed by the limitations imposed by the Landlord & Tenant Act 1985. Equally, failure to make such a payment, as it was not a lease-related matter, was enforceable as a normal breach of contract and did not give rise to the normal forms of enforcement and recovery used by a landlord against a tenant such as forfeiture of the lease.

It is important therefore where a company is set up to run a block and is, in effect, owned by the block residents whether payments into that company are being levied by way of service charges, in which case all the normal requirements of consultation and the like must be carried through, or whether they are to be levied by way of contractual agreement with shareholders, avoiding consultation but giving up the more powerful enforcement options.

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Corporate Manslaughter and Homicide Act 2007- Audit Your Procedures

The Corporate Manslaughter and Homicide Act 2007 came into force on 1 April 2008. This Act introduced a new offence of Corporate Manslaughter (Corporate Homicide in Scotland) which applies to organisations that cause the death of an individual by way of a gross breach of their Duty of Care.

The Duty of Care is the same as that set out by the common law of negligence but for lettings agents or corporate landlords would certainly include their basic requirements to ensure that a property is safe and that a landlord’s Gas Safety Certificate has been obtained.

The offence is triable in the High Court before a jury. The jury must consider whether the breach of the Duty of Care is one which falls “far below what can reasonably be expected of the organisation in the circumstances”. Factors to consider will include breaches of any legislation designed to protect health and safety and the seriousness and risk of death posed by such breaches and whether “there were attitudes, policies, systems or accepted practices within the organisation that were likely” to have encouraged or tolerated the breach of Duty that led to the death.

It is important to note that the offence is only committed if it can be shown that it was the manner of organisation and management of an organisations activities by its senior management that led to the death. In this case senior management is defined as those responsible for making or implementing decisions as to the management or organisation of the whole or a substantial part of the organisations activities.

For many organisations it will be the attitude and policy considerations that will cause the greatest concern. However, there is no requirement to spend excessive time dealing with individuals as long as the senior management is making the right decisions and promoting the right policies. However, the definition of ‘senior management’ could be very wide. It will certainly include board members, lettings directors, operations managers, and possibly branch managers. It should not be forgotten that the Act applies equally to partnerships and this form of operation provides no protection. Sole traders were, of course, already liable under the more common charge of manslaughter by gross negligence.

The key point to protection is the need for all organisations to ensure that they have clear, written policies in respect of all health and safety matters, whether these are in connection with their internal or external relations and further to ensure that staff are fully aware of and trained in these policies. Finally, it is important that no ‘culture’ of ignorance of the policies is promulgated by the senior management and that any breach of policy is dealt with swiftly and seriously.

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Consent to Assign or Alter

It is common for commercial tenants to seek consent to assign their lease or to make alterations to the premises. Most landlords are happy to consent to this as long as certain conditions are observed and a proper licence to assign or alter is drawn up.

Any communication between the parties that implies that the landlord is minded to grant the consent but specifically states that the consent can only be seen as given once a licence is signed would normally be thought to do precisely what it says. Imply that the landlord is prepared to grant consent but on further conditions being imposed and that the consent will not therefore be granted until a full licence setting out all those conditions has been signed.

However, in the case of Alchemy Estates Ltd v Astor & Anor the High Court felt differently. It followed a decision in the Court of Appeal and held that a consent given in principle was sufficient to bind the landlord into the assignment sought by the tenants.

The practical upshot of this is simple. It was relevant in the Alchemycase that the lease did not provide for any conditions to be imposed on a consent to assignment. The first solution then is to ensure that any lease imposes conditions on assignment or alteration. Additionally, and most crucially it is vital that no suggestion is made that any consent will be given until the licence to assign with all relevant conditions is completed and a draft sent to the tenant. Only by giving no indication beyond the fact that a licence is being drawn up can a landlord avoid the principle of implied acceeptance put forward in Alchemy

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Move to Monthly Rents in Commercial Leases

The British Retail Consortium has stepped up its campaign to force landlords to accept rent monthly in advance rather than on the usual quarter days as has previously been the practice. They have produced template letters for tenants to send to landlords to seek alterations in their leases to allow for monthly payment of rent.

It is, of course, one thing for large retailers who, irrespective of the financial situation retain enormous financial muscle, to demand changes to rent payment provisions and quite another for the average small retailer to do so. However, other than the slight inconvenience of collecting rent monthly there seems few sound reasons for landlords not to accept a move to monthly rent and most new commercial leases stipulate monthly rental payments. The fact that the government also backs such a change is also a powerful force.

More information including the various templates can be found at the rent monthly website.

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Ground 14 and Possession for Criminality

The Court of Appeal has recently had cause to consider Ground 14 of Schedule II to the Housing Act 1988 in some detail. This ground provides a discretionary right to possession where the tenant has committed a criminal offence in, or in the locality of, the dwelling-house.

In Raglan Housing Association Ltd v Fairclough the tenant was convicted of downloading and possessiing indecent images of children. However, the offences were committed prioir to the current tenancy while he was residing in a property under a tenancy from the same landlord a few doors away. The Court of Appeal upheld the order for possession deciding that the relevant date was that of conviction and that the objective of Ground 14 was to ensure that individuals who might be disruptive or offensive did not remain in the locality.

In North Devon Homes Ltd v Nova Batchelor the tenant was convicted of possession of cannabis, possession of cocaine with intent to supply, and money laundering. The Court declined to award possession on the basis that the crimes were of a minor nature and it did not consider it necessary. The Court of Appeal upheld this decision.

The upshot of these decisions is that the position on Ground 14 possession for criminality remains uncertain with the higher Courts unwilling to interfere in the exercise of discretion by lower Courts. A more detailed discussion of these cases can be found at http://www.painsmith.co.uk/downloadnow/ground14.pdf.

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Cancellation of Consumer Contracts

Under the Cancellation of Contracts Made in a Consumer’s Home or Place of Work Etc Regulations 2008 new restrictions were imposed on certain types of contract from 1 October 2008.

The regulations do not apply to tenancy agreements but they do apply to agent’s terms of business with landlords. The regulations only apply where the contract is concluded (ie. signed) in the consumer’s home or workplace with the agent present. If they are mailed out and back or signed in some other place then the regulations will not apply.

Contracts that are made in the consumer’s home or workplace are able to be cancelled within 7 days of being made. Agent’s can seek reimbursement of any costs they have incurred provided that the consumer has agreed in writing but there is no right to claim any form of fees.

Contracts that fall under the regulations must include a notice setting out the consumer’s right of cancellation and failure to provide this is a criminal offence punishable by a fine of up to £5,000. In addition, clauses in the agreement will not be enforceable until such notice is given.

PainSmith Solicitors are able to supply copies of such notice on request.

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Agents Fees

In the recent case of Foxtons v Pelkey-Bicknell the Court if Appeal considered the fee provisions in Foxtons terms of business. These were based on the Estate Agents (Provision of Information) Regulations 1991 but are similar to those used across much of the estate and lettings field.

There was extensive discussion regarding the nature of effective cause terms and whether these should be implied into the agency contract but the Court declined to make such an implication. The Court focused instead on the phrase “a purchaser introduced by us” and looked closely at its meaning.

Ultimately, Lord Neuberger, who gave the leading decision, took the view that the proper reading of this phrase was “a person who becomes a purchaser as a result of our introduction” and not “a person who at some time in the future becomes a purchaser” as was put forward by Foxtons.

This is an interesting decision. The Court was keen to point out that users of residential agents should be afforded more protection than those using commercial agents and wherever possible the position should be that a vendor or landlord should not have to pay fees to two agents in respect of work done. However, it is clear that the Court was unwilling to imply terms into the agreement that were not there and so, if a fee clause is correctly expressed it would seem to be the case that an agent can still seek a fee where an individual comes to a property through the seperate efforts of two sole agents.

PainSmith Solicitors have produced a clause which they believe will survive the decision in Pelkey and can supply this on request.

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Interest Rate Cuts and Tenancy Deposits

Today the Bank of England cut its base rate to 2%.  While this will hopefully help the economy there is an unintended consequence that will affect many tenants.  Tenancy Deposit Protection was introduced by the Housing Act 2004.  One of the three approved tenancy deposit protection schemes was the government-backed Deposit Protection Scheme (DPS).  The Housing (Tenancy Deposits) (Specified Interest Rate) Order 2007specified that this scheme would pay interest at 2.32% below the Bank of England base rate.  With the rate cut this means that the DPS is now paying interest at -0.32%.  Effectively, tenants will find themselves paying interest to the scheme at 0.32%.  While it is unlikely that this will occur and the government will hopefully act to resolve the problem it is nonetheless embarassing.

Meanwhile the primary advantage to tenants of using the DPS, the payment of interest, has now gone.  Agents who wish to attract tenants and use one of the other schemes may choose to offer to pay interest to tenants, albeit at a low rate.

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