Section 21 news ( and comment)

Spencer v Taylor [ 2013] EWCA Civ 1600.

The Court of Appeal has recently revisited the requirements of section 21 of the Housing Act 1988 and its application to statutory periodic tenancies, which in due course is likely to significantly alter and simplify the way notice is served on statutory periodic tenants of an Assured Shorthold Tenancy (AST).

The facts

The Landlord, Mr Spencer, served notice on his tenant, Miss Taylor who was on a weekly statutory periodic tenancy following on from a fixed term agreement. From the transcript of the judgment it would seem that the notice was sent in the usual format that most agents use, and was a “standard” section 21(4)(a) notice. (There is no statutory required standard form but a customary standard form has developed).

The expiry date was in the format approved in the case of Elias v Spencer, i.e. it required possession “after 1/1/2012 or (b) at the end of your period of tenancy which will end next after the expiration of two months from the service upon you of this notice” (i.e. the “saving provision” as approved in Lower Street Properties v Jones.

Possession proceedings were brought once the notice expired. The tenant defended the proceedings arguing that the given date of expiry of the section 21 notice was not the last day of a period of her tenancy and that the saving provision gave a second date, which invalidated the first. In other words a continuation of the interpretation of the requirements of section 21 (4)(a) Housing Act 1988.

The tenant defended successfully in the first instance. The Landlord appealed successfully in the High Court. The Tenant appealed to the Court of Appeal.

The Court of Appeal

The appeal judge hearing the tenant’s appeal in the Court of Appeal, Lewison LJ, concentrated on the requirements of section 21 as a whole, starting with section 21(1) finding:

1. The fixed term tenancy came to an end on its expiry date for the purposes of section 21(1)(a).
2. No other tenancy had come into existence save for a statutory periodic tenancy (which we now all know is a new tenancy following Superstrike!).
3. The landlord gave the tenant two months’ notice.
All three conditions of s21(1) were satisfied and therefore the court could give possession

The significance

To go back (briefly) to basics: section 21 of the Housing Act 1988 provides the mechanism by which a landlord can recover possession of his property that has been let on an AST. A court can grant a possession order under section 21 (1), or under section 21 (4) if certain conditions are satisfied.

Prior to the judgment in this case, the courts have been finding that section 21(1)(b) applied only to serving notice during the fixed term of an AST. This line of thinking is supported by section 21(2), which provides that notice may be given under section 21(1) before or on the day the fixed term comes to an end, even if a statutory periodic tenancy arises part way through the notice period.

Once a statutory periodic tenancy had arisen, it was understood that section 21(4)(a) applied: “without prejudice to any such right as is referred to in [s21(1)], a court shall make an order for possession of a [property] let on an AST which is a periodic tenancy.

The requirements of section 21(4)(a) are that: “…the landlord…has given to the tenant a notice in writing stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession…is required by virtue of this section”; and “…that the date specified…is not earlier that the earliest day….the tenancy could be brought to and end by a notice to quit…”

It is well known in the industry that adhering to the requirements of section 21(4)(a) have been tricky to the point of ridiculousness. Possession claims have historically been thrown out of court simply because the landlord required possession on the wrong date, or asked for possession “on” a date, rather than “after” (see Fernandez v McDonald [2003] EWCA Civ 1219). There has been much case law interpreting section 21 (4)(a), some of it to alleviate the harsher requirements of the section, ( see for example Lower Street Properties v Jones in which the court approved the use of the “saving provision” to avoid the risk of putting an incorrect date on the notice).

The law therefore is now that a landlord wishing to gain possession of his property let on an AST which was a fixed term and has become periodic needs to give only two months’ notice in writing, pursuant to section 21 (1)(b) and need not concern himself with rental periods.

So what about section 21 (4)(a) and the case law surrounding it? Fernandez v McDonald [2003] EWCA Civ 1219, the leading case that requires notices under s21(4)(a) to demand possession “after” rather than “on” a date? Lord Justice Lewison considered that that case fell “squarely within section 21(1) rather than section 21(4)”. However he emphasised that his comments on Fernandez v McDonald were not part of the “ratio decidendi” of the case ( i.e. not part of his judgment). Therefore the case law surrounding section 21 (4) ( a) remains good law, but it is section 21 (1)(b) that governed Spencer and Taylor, and by extension any notice served on a periodic tenancy ( statutory or otherwise) that was once a fixed term.

Comment

This judgment is surprising perhaps in that it has come apparently out of the blue, when agents and solicitors up and down the country have accepted ( if reluctantly) the difficulties and specific requirements of serving valid notice on statutory periodic tenancies. However it is well known that there has been significant ( and many would say understandable) criticism of the section 21 (4)(a) requirements and so the idea that the Court of Appeal has moved to simplify things is not so surprising. Further, Lewison LJ’s interpretation is of section 21 is not new – it is just new to the courts.

On the face of it then, Spencer and Taylor has removed the onerous requirements of section 21 (4)(a) from fixed term ASTs that have become periodic. Gone is the need for the saving provision lest the date of expiry be wrong. Gone too is the need to work out what is the “period” of the tenancy when the rent day does not match the beginning and end dates of the fixed term. Instead the landlord/agent simply needs to ensure proper service of the notice according to the terms of the tenancy agreement, and to ensure that he gives at least two months notice in writing as if serving the notice during the fixed term of the tenancy in accordance with section 21(1)(b).

However, some words of caution:

Although this Court of Appeal judgment is good law today this point may be appealed to the Supreme Court and may be overturned in the next year or two. A notice which satisfies section 21 (4)(a) will also satisfy the looser requirements of section 21 (1)(b). Most tenants give back possession and do not quibble over the validity of notices, but if they do, possession claims are usually done on the paper (accelerated) procedure or a 5 minute possession hearing with a District Judge. Court of Appeal judgments take time to trickle down to the lower courts and do you really want to have to set yourself up for an argument or risk an adjournment when you could just serve notice to expire at the end of a rental period?

Tenants wishing to serve notice are still bound by the common law rules which would mean that if they are on for example, a quarterly periodic tenancy, their notice period must still run for a clear quarter and expire at the end of a rental period ( or on the day rent is due). Spencer v Taylor gives landlords a much easier way of serving notice while leaving the tenants with much more onerous requirements.

So after breathing a sigh of relief that we can all forget about section 21 (4)(a) in practice we would suggest that, in light of the above, agents might like to keep the practice of serving notices that comply with section 21 (4)(a), at least for the near future.
Section 21(4) a will continue to apply to contractual periodic tenancies which never had an initial fixed term, and to tenancy agreements which provide for an initial term to continue on a contractual periodic basis . The latter may become more prevalent following the Superstrike ruling as a way of avoiding the need to serve prescribed information, and it should be noted that for the purposes of section 21 (1)(a ) the tenancy will not have come to an end at the end of the fixed term and therefore section 21 (1) (b) will not apply.

In conclusion, the ruling in Spencer v Taylor is good law and should in the long run make serving notice on tenants much simpler. However for the moment our advice is that if you do change your systems to serve section 21 (1)(b) for all but contractual periodic ASTs, you should do so knowing that the courts might take some persuading that the notice is validly served. You will also have to keep an eye out for any Supreme Court reversals. If you are prepared for this then fine, otherwise it might be easier to let others beat the path first.

Filed under: England & Wales, contracts, Housing Act 1988, legislation, litigation, possession, procedure

APPOINTMENT OF A MANAGER

We have recently seen a rise in the number of enquiries from long leaseholders dissatisfied with the management of their building. Often after the leaseholders have themselves taken over the management.

Many of our readers will be aware that the Commonhold and Leasehold Reform Act 2002 introduced Right to Manage (RTM). This was a non-fault ground that if the majority of leaseholders in a building wished to take over management then in effect they could do so. The process was thought to be straight forward but the rise in cases before the First Tier Tribunal Property Chamber and subsequent appeals to the Upper Tribunal are a clear indication that many freeholders will not give up management without a fight. Even when the process has been followed dissatisfaction can still exist with some leaseholders unhappy with the conduct of others.

So what other options are there? The Landlord and Tenant Act 1987 provides an alternative route. To follow this it is first necessary to show that in some way the body managing the development is not complying with its statutory duties and requirements under the lease. Any one leaseholder is entitled to follow this procedure.

Initially a Notice must be give to the freeholder and the person managing under section 22 of the 1987 Act. This notice needs to give details of what the perceived difficulties are and suggest how the manager can remedy the same. If the landlord and manager do not then remedy the breaches within a reasonable period of time an application can be made to the First Tier Tribunal Property Chamber inviting them to appoint a manager.

At the hearing the Applicant has to justify to the Tribunal that it is “just and convenient” to appoint a manager. Generally the Tribunal will want to be satisfied that the current appointee has not been complying with the lease and statute. The Tribunal will also take account the views of other leaseholders and the freeholder. The Tribunal will consider all points to try and determine if the imposition of a manager will improve the lot of the leaseholders to ensure good management of the building.

It is for the Applicant to source a person to be a manager. Generally the Tribunal will want to appoint a professional who can demonstrate that they fully understand what is required of them, will follow one of the approved statutory codes of management (such as the RICS Residential Service Charge Code), have sufficient professional expertise and hold insurance. The proposed manager will normally be required to attend any hearing and in effect be interviewed by the Tribunal to satisfy them as to the suitability. The reason for this is that the Manager (who may also be given powers as a Receiver) is an appointee of the Tribunal and answerable to them in the first instance rather than the parties to the leases. The management order will set out comprehensively the terms of appointment including prescribing the fees the manager can charge, the length of the appointment and other rights give to them. If anything is not covered or difficulties arise any party (including the manager) can then apply to the Tribunal for further directions. Typically an appointment will initially be for two or three years and before the Order lapses it is possible for the parties to apply for an extension of the same.

The benefit is that an entirely independent manager is appointed who is personally answerable (as the Order always names a specific individual) to the Tribunal. We have seen a rise in situations where the leaseholders have taken over management (either as a result of an RTM or collective enfranchisement) but issues have arisen. All too often we come across situations where factions arise who do not wish to strictly comply with the lease or statute. When such agreements are unanimous this can work but there are risks. In these circumstances the imposition of a manager may be better for all parties to resolve disputes. It is also worth noting that the leaseholder(s) who apply will themselves have no liability for the management. In forming and setting up an RTM their will be costs which the participating leaseholders are joint and severally liable for and those leaseholders whop become Directors of an RTM also have responsibilities under the rules and regulations governing companies.

These situations typically are complicated but appointment of a manager can be an effective method of resolving long residential leasehold management problems. We at PainSmith are happy to advise on any such matters, including assisting in finding managers prepared to accept such appointments.

Filed under: England & Wales, legislation, long lease, service charges