Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Gas Safe Register Confusion

Gas Safe Register appear to be advising on their helpline that a landlord is obliged to obtain a new gas safety certificate every time a tenancy is entered into, notwithstanding any current gas safety certificate that is in place. This is not the position.

The Landlord (or the Agent if it forms part of the terms of business) is required to arrange the annual preparation of a gas safety certificate and ensure that throughout any tenancy a valid gas safety certificate is in place at all times.

An annual gas safety check must be carried out by a Gas Safe Registered engineer. A record of the safety check must be kept for 2 years. A copy of the certificate must be issued to each existing tenant within 28 days of the check being completed, and in any event before the commencement of a tenancy.

This is consistent with the advice as given on the Gas Safe Register website.

The relevant legislation can be read here.

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Planning and HMOs

Not sure how we missed this really but the Department of Communities and Local Government has launched a consultation on possible changes in planning systems to deal with HMOs.

This consultation is in response to an increase in HMOs in parts of the country and the tendency for these to be grouped together in small areas. This is sometimes referred to as “studentification”.

The current method of control of HMOs involves the licensing of larger properties. However, there is no power to refuse a licence on the basis that there are a large number of other HMOs in the same area. The problem is made worse by the fact that student naturally wish to cluster and the type of property suitable for conversion naturally tends to be built in blocks.

There is an aspect in which this is a bit ironic in that many of the issues with concentrations of HMOs are caused by the growth of educational institutions and the need to house the resulting large numbers of students. The government encouraged this but made no effort to ensure that the growing establishments provided suitable accommodation for there students. Therefore the private sector has tended to take up the slack. For the government and local authorities to complain about this now is a little unfair and is largely illustration of a failure to properly consider all the consequences of unchecked growth in higher education establishments.

In any event, the consultation ends on 7 August 2009.

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Rent Increase Clauses and Statutory Periodic Tenancies

In a periodic Assured or Assured Shorthold Tenancy the provisions of section 13 of the Housing Act 1988 are used to increase the rent. This is not a wholly satisfactory system as it is overly technical and ultimately allows appeals to the Rent Assessment Committee which can be somewhat capricious.

It has been thought that a clause in the agreement which set out a mechanism for increasing the rent, however abbreviated, would be sufficient to oust the provisions of section 13 and the clause would prevail.

In London District Properties Management Ltd v Goolamy [2009] EWHC 1367 (Admin) this view has been overturned. The High Court ruled that the prevailing view was inaccurate. Taking a literal view of section 5(3) of the Act the Court held that in a statutory periodic tenancy the provisions of section 13 would overrule any rent increase clause.

Bizarrely, the legislation appears to draw a distinction between tenancies which are intended to be periodic from the outset and those which start out as fixed term tenancies and become periodic by operation of section 5. The former can incorporate rent increase clauses, the latter will have theirs overruled by the section 13 process once the tenancy has become periodic. While the Court does not mention this point it would seem that the way around the problem is to simply agree a tenancy for a fixed term with a contractual provision that it will then continue as a periodic tenancy. Presumably if it is pre-agreed that this will occur then the provisions of section 5 will not be required to create a periodic tenancy and thus the section 13 provisions will not be given the primacy that section 5(3) provides.

Whether this will work or not remains to be seen.

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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.

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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.

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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.

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OFT v Foxtons Links

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

The judgement can be found in full here

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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.

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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.

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