Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Recovery of Leaseholder’s Legal Costs

Most commercial and long residential leases contain provisions which enable the landlord to recover any legal costs that may be incurred, however due to the vast amount of case law surrounding this issue there is considerable uncertainty as to whether or not the landlord can recover these costs if they proceed through the Leasehold Valuation Tribunal (LVT).

In the case of Freeholders of 69 Marina v Oram & Ghoorun the freeholders of a block of flats undertook work on the common parts and sought to recover the service charges from the tenants. However two tenants disputed the amount and the freeholder applied to the LVT to recover the service charges and the costs of taking the matter before the LVT. No monies were received from the two tenants despite the LVT decision so the freeholders served notice under section 146 of the Law Property Act 1925 demanding payment and issued a claim at the county court. The tenants then made payment. The issue to then be decided was whether the tenants should be equally liable for the costs of enforcement of the legal costs or whether the costs should be applied to all the tenants collectively. The Court of Appeal interpreted the terms of the lease and it was held that the costs were to be recovered from the two tenants only.

The above decision of the Court of Appeal is one that courts will have to consider in future cases. It should be noted that this decision was made because the costs clause in the lease was unambiguous. The decision clearly indicates that each particular lease needs to be carefully considered and whilst many leases contain covenants with the wider wording such as Freeholders of 69 Marina, many other leases contain the narrower wording.

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

“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, , , , , , ,

Collective enfranchisement: what is it?

Collective enfranchisement is the term given to Leaseholders acquiring the Freehold of the property they live in. For the purposes of this article we will be referring to the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”) as amended and the collective enfranchisement of flats. There is other legislation such as the Leasehold Reform Act 1967 which mainly relates to houses.

For many people owning a share of the freehold of the block of flats they occupy is seen as being vital as people often do not like the idea of simply being a tenant. In practice there are many different considerations which need to be weighed up before any application is made.

Firstly the Leaseholders need to act together (at least in part) since in simple terms 50% of the long leaseholders have to all come together to be able to purchase the freehold and if the building has any commercial parts these must not exceed 25% of the building. Assuming that these basic conditions are met the Leaseholders can then at least in principle consider whether they wish to pursue this route. Often there will be a vocal group who wish to “get on ” with the application. At this stage it is usual that people will then look to appoint a surveyor experienced in these matters to provide some guidance on the price payable. The methodology is set out in the Act and has been subject to numerous decisions of which the most famous is probably the decision in the case known simply as Sportelli. It is vital that a proper valuation is undertaken at an early stage to give all of the potential participants some idea as to what price may be paid.

Assuming that the numbers then match the Leaseholders pockets a detailed consideration should be given as to the right to qualify. Often a valuer experienced in this field will already have flagged if he foresees any particular issues. At this point it would always be advisable to instruct someone experienced in this field as the law, despite various amendments being made under the Commonhold and Leasehold Reform Act 2002, remains hugely technical with various pitfalls for the unwary. The adviser can then draw up the appropriate documentation and advise whether the Leaseholders will hold the freehold subject to any trust or company structure. It is worth pausing at this point to highlight that it is always open to Leaseholders to enter into informal negotiations with the Freeholder.

A Notice will then be served upon the Freeholder specifying a date by which they must reply. If there is no response then an application can be made to the County Court but usually (assuming a valid Notice has been served) the Freeholder will respond agreeing the right but disputing the price. There can however still be many technical reasons why a Notice may not be accepted by a Landlord and the Court of Appeal and the Supreme Court continue to hear a large number of appeals on very technical aspects although the bulk of these do relate to high value properties in what is known as Prime Central London however the outcomes tend to be binding on all.

The Act then allows for a period of negotiation after which if no agreement is reached an application can be made to the Leasehold Valuation Tribunal for a determination of the terms of the purchase. After this determination or agreement there will then be a transfer of the freehold and the Leaseholders will have acquired the freehold.

It is at this point that the hard work starts. Often Leaseholders will be advised to grant to themselves extended leases (typically 999 year terms) and possibly review any other perceived or actual failings in the lease. Certainly this should be looked at at this stage as there can be various issues if the Leaseholders only look to do this some way down the line, not least certain tax consequences which can arise.

It is important that all parties to the Collective Enfranchisement understand that there will still be a Leaseholder and Freeholder and whilst not impossible to own a freehold flat this is highly undesirable for reasons outside the scope of this article. The previous leasehold structure will then remain. For this reason before going down the route the Leaseholders must consider what Collective Enfranchisement will mean in practice.

The Freeholder will still be required to comply with both the terms of any leases (whether participants in the acquisition or not) and also the various statutory rules particularly governing recovery of service charges. The LVT in various recent decisions has made clear it has no jurisdiction to deal more leniently with Resident Owned freeholds than those owned by commercial investors. Given how complicated some of these rules are Leaseholders will always be well advised to consider appointing external managing agents to make sure these obligations are complied with. Owning the freehold brings both rights and obligations and this should not be forgotten. In particular awkward situations can arise where you have non paying tenants as the Freeholder and the Leaseholders who comprise the same will need to pursue action against these people.

As a result careful consideration needs to be given not just as to the acquisition but what this means for the future. It is also worth noting that simply because a building has undergone Collective Enfranchisement on one occasion does not mean this will not happen again and the writer has seen instances where one group have enfranchised but there has been a parting of the ways with some members of the freehold and so a second collective enfranchisement has taken place!

For some Leaseholders the costs of Collectively Enfranchisement mean that this is more economic than bulk lease extension applications but Leaseholders should proceed with their eyes fully open as to what is involved once you have been successful. Advice at an early stage of the process is vital so all are aware of the full implications of going down the route but if you decide this is the route for you it really can be a satisfying journey to have greater control of your destiny for what for many is their largest single asset

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

Section 8: Back to Basics

From time to time it is important to go over old ground. It can be easy to lose track or just need a quick reminder of the basics of possession cases.

Section 8 notices, as I’m sure you are all aware, can be used as a vehicle to gain possession of the property whilst at the same time obtaining the rent arrears that may have developed. There are a number of different situations that can trigger the requirement of a Section 8 notice which could be scrutinised in an incredible amount of detail. With regards to this blog entry, I am going to focus more specifically on the mandatory and discretionary grounds and how they differ in the courts eyes in particular with relation to the more common grounds for possession i.e. grounds 8,10 and 11.

The Housing Act 1988 s.7(3) stipulates that when the court feels that any of the grounds listed in Pt 1 of Sch.2 of the 1998 Act are satisfied then possession must be granted for that property. If this is compared to Pt 2 which substitutes the phrase ‘must be’ with the far less convincing ‘may be’ then it starts to become clear why having mandatory grounds is infinitely more desirable that simply pinning hopes on discretionary grounds. As a general rule we as a firm only advise issuing proceedings on mandatory grounds unless the evidence is particularly strong on discretionary, as we have found that judges tend not to be too receptive to the idea of handing over possession of the property to the landlord and making the tenant potentially homeless, unless there is overwhelming evidence against them or the mandatory grounds have been met.

The most commonly used of the grounds for possession are 8, 10 and 11. Ground 8 is mandatory whereas 10 and 11 are discretionary. If for example the tenant at this point pays some of the rent arrears to the landlord, enough to just about drop below the 2 month minimum requirement (if it was a monthly rental period) to claim ground 8, it would mean the claim would be resting on discretionary grounds which, as explained earlier, are far from reliable, particularly in matters involving rent arrears. The discretionary grounds in cases such as this service the role of supporting the mandatory ground and are normally too weak by themselves to satisfy possession criteria. As soon as the mandatory ground is lost the case for the landlord is generally lost along with it.

This is not always the case. However, if a mandatory ground can be relied upon it is preferable to do so rather than assuming possession will be granted on discretionary.

With discretionary grounds, on the making of an order for possession, the court can postpone the order for as long as the court sees fit. In this period the court will normally issue certain conditions with regards to the payment of the rent arrears as well as any other conditions that the court deems applicable. If these conditions are followed, the court can discharge or rescind the possession order if it sees fit. Can you see the pattern here? The level of discretion available to the court is illustrated by the repeated use of the term ‘if the court sees fit’. The only discretion available to the courts when it comes to mandatory grounds is a delay from the usual 14 days to a maximum of 6 weeks in cases of exceptional hardship, but this in itself has a high threshold in which to satisfy.

In light of the above costs need to be considered and proceedings against a tenant to gain possession is not an insignificant sum. To risk this sum on the courts discretion, particularly when the order for possession would result in the tenant being made homeless, may not be the best course of action.

This blog has been drafted in response to a comment. Thank you for your continued support Valerie.

Filed under: England & Wales, , , , ,

BAILII appealing for funds

Some of you will no doubt be aware that in order to keep our readers up to date we use the website of the British And Irish Legal Information Institute (Bailii). The service is at risk due to sponsors indicating that they may not be in a position to continue with the financial support. Given how invaluable this free service is we hope that those who can, will pledge what they can in support.

Filed under: England & Wales, FLW Article, ,

Small Claims or what?

Ministers are consulting on increasing the value of disputes that will be allocated to the small claims court from £5,000 to £15,000, or even £25,000, as part of radical shake of the court system as we know it.

The small claims track, which is not a court but a procedure within the county court is designed to serve as a low-cost, user-friendly, informal forum for resolving disputes without the need for a lawyer. A key feature of the track is that in the vast majority of cases legal costs are not recoverable from the losing party which reduces the risks for both sides and encourages economic settlement.

There have been many different opinions on this change ranging from welcoming the news because it will make it easier for consumers to take cases without the risk of exposure to costs, to the concern that a lack of legal representation will lead to inequality between the parties when one party can afford a solicitor and the opposing party can not.  

The agents reading this blog will obviously have concerns about their ability to recover small debts. When they call us for advise they are told that in most cases it is not economical to instruct us to pursue the matter on their behalf. There is also the risk that by increasing the threshold of the small claims track parties will have no incentive to settle sooner rather than later. The financial incentive to save costs rather than pursue a expensive litigation matter will no doubt be eroded. 

 However mediation assessment meetings will be made compulsory in small claims, so to a large extent mediation will become almost impossible to avoid. Agents are therefore advised to familiarise themselves with the mediation process in order to ensure the swift and cost effective resolution of future disputes. 

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

Enforcement of possession orders

Landlords and their agents often breathe a collective sigh of relief following a successful court hearing for a possession claim. The hearing often represents the apex of many months of preparation and relief that the tenants, in contravention of their agreed obligations, will finally be ordered to leave and make good their breaches. However relief at this stage is premature. Tenants, even if they remain after the date a court orders them to leave, still have rights and there is a further process to embark upon to remove the tenant and pursue them for their debts.

Firstly evictions of tenants in England and Wales can only be carried out either by county court bailiffs or, if proceedings are in the High Court, high court sheriffs. The warrant can only be applied for once the date for possession on a court order has passed. Bailiffs will then attend the property to evict tenants and in most cases are successful in doing so, although police officers and further court proceedings for contempt of court can be necessary.

Pursuing debts:

If you have a money judgment against a tenant who subsequently fails to pay what is ordered, you have three options:

1. Pursue your former tenant(s) for the monies owed. However, further costs, delays and court proceedings may not be a viable option.
2. Drop the matter entirely and write off the lost monies against your tax liabilities.
3. Wait for a few months before doing anything. Your judgment remains valid for the next 6 years and the financial status of the former tenant(s) may change in that time.

Pursuing debts in England and Wales are inherently difficult and this should be borne in mind before undertaking the time and further costs incurred in pursuing the debtor. The first step is to find a forwarding address for the tenant. If the tenant has left no forwarding address then enquiry agents can be instructed to ascertain their whereabouts.

Once a forwarding address has been obtained the following enforcement options are available:

An attachment of Earnings:

Apply to the court for an order permitting the regular deductions from the debtors monthly/weekly wage.

Third Party Debt Order:

Apply to the court for an order which permits the release of funds by a third party. The third party is usually a bank or building society.

Charging Orders:

This option is only available if the Debtor has property and usually ideal where you have a Guarantor. The charge does not extract money from the Debtor or the Guarantor but secures the debt against property which is then discharged when the property is sold, just like a mortgage.

Bailiffs/Sheriff:

The Bailiff or Sheriff is instructed to attend the Debtor’s home and seize goods if the Debtor does not agree to pay the debt or enter into a dialogue with regards to a payment plan.

Partial Settlement:

Sometimes debtors are prepared to make a single lump sum part payment in full and final settlement of the outstanding debt which may be more economic than accepting small instalments over a lengthy period.

Given the inherent problems with recovery, it is in the landlord’s best interest to obtain a guarantor where possible to maximise the chances of recovery. Where a guarantor is not a possible option then landlords are advised that taking a commercial view on recovery can be the most pragmatic and cost effective option.

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

Costs and the Disrepair Pre-Action Protocol

In a recent case the Court of Appeal considered the issue of legal costs on a claim using the Disrepair Pre-Action Protocol.
In Birmingham City Council v Lee the Council was initially given notice of disrepair in Mrs Lee’s property by solicitors in a letter which made mention of the protocol. The Council repaired the property during the course of the following month and negotiations then took place with regard to payment for damages and Mrs Lee’s legal costs.  These apparently broke down and a claim was issued in the for damages of between £1000-5000.  As the repairs were complete there was no claim for specific performance and as the amount claimed fell below £5000 the matter was properly allocated to the small claims track.  However, Mrs Lee sought damages on the fast track scale for, at the minimum, the time between notification and completion of the repairs.  It seems fairly likely from thr papers that the action was largely begun in an effort to obtain legal costs.

At first instance the Deputy District Judge refused costs.  On the tenant’s appeal the Circuit Judge made a costs order allowing costs prior to allocation to be reserved for consideration by the trial judge at the conclusion of the matter.  The Council appealed this decision to the Court of Appeal.

In a unanimous verdict the Court (led by Hughes LJ) declined the appeal in its main points, largely because it left too much to be decided later.  They substituted an order awarding Mrs Lee costs up until completion of the repairs.

While both sides made much in argument about the nature of litigation funding the Court set this aside and took the view that it should decide whether an award of pre-allocation costs was necessary in order to make the protocol operate as intended.

Ultimately the Court decided that this was necessary otherwise landlords would have the option of refusing to repair until a pre-action letter was issued then completing all repairs pre-allocation, having the matter allocated to the small claims track, and thereby having no liability for the tenant’s reasonably incurred legal costs in forcing the landlord to carry out works in the first place.

This decision will prove a boon to a number of public assistance firms as it will increase their ability to recover legal costs where they have assisted tenants under the protocol, even where the landlord immediatley does the works required.  From a landlord’s point of view it reinforces the need to get works done early as once a pre-action protocol letter arrives the legal costs meter will start ticking.

Filed under: Uncategorized, , ,

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