Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Court Fees to Increase on 22 April 2014

In a move that has been described by the Civil Justice Council as “a tax on litigation”, HM Courts and Tribunals Service have announced that many Court fees will be significantly increased from 22 April 2014.

The fees for possession proceedings are subject to some of the highest increases with the fees for claims issued via the Court’s Possession Claims Online (PCOL) system to suffer a staggering rise from £100 to £250 and the fee for paper based claims to see a rise of in excess of 60% from £175 to £280.

There is a catalogue of other significant increases, which can be viewed on the court website. It has been approximated that all of the increases will boost Court revenue by approximately £200m.

Understandably there has been much criticism of the increases, which will undoubtedly considerably add to the cost of accessing justice for litigants.

Landlords may feel particularly hit in light of the need for a court order to recover possession, and especially since many local authorities will not re-house tenants until they have been formally evicted.

Filed under: England & Wales,

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, , , , , ,

Phillips v. Francis: Permisssion to Appeal granted

At the end of last year we were all faced with the Judgement in Phillips v. Francis [2012] EWHC 3650 (Ch). No doubt those of you with an interest in long leasehold matters and particularly property management will recall that Sir Andrew Morritt, The Chancellor, in what is believed to be one of his final judgments, determined that the test for qualifying works requiring consultation under the Landlord and Tenant Act 1985 required all qualifying works to be considered together. If the total cost would exceed £250 then consultation was required.

He determined that it was a case of looking at qualifying works as a whole in the relevant service charge period and if the cost would exceed the threshold for consultation then the landlord/managing agent should consult. So if the cost of repairs (no matter what was included) in any one service charge period would mean that any one leaseholder would have to contribute more than £250 (the current threshold) then consultation should take place. Prior to this the practice had been that elements could be broken down and it was a question of looking at the particular works and consulting on those for which the contract sum would result in a charge above the threshold.

The Supreme Court in Daejan v. Benson offered some relief in its decision earlier this year. Here the Supreme Court determined that generally dispensation for a failure to consult should be granted although conditions may be attached. However the Francis decision continued to cause much consternation.

It appears initially the Landlords did not appeal due to a lack of funds. It is understood that they have now gained support from interested parties including ARMA and RICS. An application for permission to appeal and an extension of time was made. This application was granted by the Court of Appeal yesterday, 18th November 2013, with Lord Justice Gloster giving Judgment.

The Court of Appeal accepted that there was a point of principle such as to satisfy Civil Procedure Rule 52.13. As a result time was extended and permission to appeal granted with the court taking account of the unprecedented industry interest and concern over the original decision.

It would appear the Respondents are concerned that the Appellants have assistance from various parties with the appeal yet supposedly no party has come forward to offer assistance to the Respondents. Various other arguments were raised which it is understood they will continue to pursue at any substantive hearing of the appeal.

It seems likely that the full hearing will come before the court at some point next year and so for the time being the position as to when to consult appears to be in a position of flux. As we learn more we will post updates.

We would like to thank Anneli Robins a pupil at Arden Chambers who attended the hearing and prepared a note and Justin Bates, also of Arden Chambers, for supplying us with a copy of the same.

Filed under: England & Wales, , , ,

Agents signing prescribed information

We are running out of titles for deposit blogs. We have had some queries regarding a court case in which possession proceedings were thrown out because the Prescribed Information had been signed by the agent, not the Landlord. This is unreported and we do not know exactly what went on although it has been reported here:

Painsmith has also experienced a claim for possession defended on this same point: the tenant argued (i) that the certificate on the deposit protection certificate must, pursuant to paragraph 2(g)(vii) of the The Housing (Tenancy Deposits) (Prescribed Information) Order 2007, ( the Housing Order ), be signed personally by the landlord, (ii) that under paragraph 2(g) (iii) the landlord’s address etc must be provided and not the agent’s and that accordingly the s.21 notice is invalid.
In our case the matter settled so we can only speculate on the outcome of that hearing, which would have only been a county court decision and thus not precedent.

However we disagree with the above view. Section 2 of the Housing Order provides that prescribed information for the purposes of section 213(5) of the Housing Act 2004 (“the Act”) includes: at 2g (iii) “the name, address, telephone number, and any e-mail address or fax number of the landlord”; and at 2g(vii) confirmation (in the form of a certificate signed by the landlord) that—
(aa)the information he provides under this sub-paragraph is accurate to the best of his knowledge and belief; and
(bb)he has given the tenant the opportunity to sign any document containing the information provided by the landlord under this article by way of confirmation that the information is accurate to the best of his knowledge and belief.

The Housing Order sets out what information is needed for the purposes of the Housing Act 2004. Chapter 4 of the The Housing Act 2004 deals with tenancy deposit schemes. Section 212 part 9 of the Housing Act provides that “In this Chapter [ i.e. Chapter 4] – (a) references to a landlord or landlords in relation to any shorthold tenancy include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies……”.

So, for the purposes of s213, the obligations on the landlord are also onto a person or persons acting on his or their behalf i.e. his agent. The Housing Order prescribes what information must be given for the purposes of compliance with s213.

In our view “landlord” for the purposes of the Housing Order 2007 should share the definition with the primary legislation i.e. the Housing Act 2004. It is not logical to interpret the Housing Order 2007 in a way that is incompatible with its parent legislation.
It follows that in our view the deposit schemes are correct to allow the agent to sign.

However as we know, the courts can make some odd decisions so we might have to concede if a precedent is set in a higher court. Watch this space.

Filed under: England & Wales, , , , ,

Another Deposit case

Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 (14 June 2013)

So what’s the big deal?

The facts: On 12 January 2007, Mr Rodrigues entered into a fixed term tenancy agreement for a year less one day. The deposit was not protected as the compulsory tenancy deposit legislation (which required landlords to protect the deposit and serve the prescribed information) came into effect on 7 April 2007 i.e. after the tenancy agreement was entered into. On the expiry of the fixed term, Mr Rodrigues remained in occupation under a statutory periodic agreement and the deposit remained unprotected. On 22 June 2011 the Landlord served a section 21 notice and issued proceedings on it, which Mr Rodrigues defended, amongst other things, on the basis that the section 21 was invalid as it was served while the deposit was unprotected.

The decision: Firstly the Court of Appeal ruled that the statutory periodic tenancy was a new tenancy under Section 5 of the Housing Act 1988. This decision is uncontroversial as the wording of the section is clear.

The next question was – if a new statutory tenancy arose in January 2008, was a deposit received at this time (thus triggering the requirements to protect the deposit and serve the prescribed information?) The landlord argued that it didn’t as no money was physically received, i.e. no cash, cheque or bank transfer made but the Court of Appeal disagreed. In paragraph 38 of his judgment, Lewison LJ stated:

“In my judgment, although there is no evidence that the parties said or did anything of that kind, and it is likely that they were not aware of the nature or incidents of the legal process that took place when the fixed term tenancy came to an end, nevertheless the position as between them should be treated in the same way as if they had had such a discussion. The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement”.

What this means: When a new statutory periodic tenancy arises, the deposit is received for the purposes of section 213 Housing Act 2004 as at that date and so must be protected and the prescribed information served.

What now?
Tenancies that were created before the deposit protection legislation came into effect i.e. before 6 April 2007, but rolled over into a statutory periodic tenancy after that date, fell to have their deposits protected on the expiry of the fixed term.

On the expiry of the fixed term and the arising of a statutory periodic tenancy, or a new fixed term, the requirements of the Housing Act deposit rules kick in for this new tenancy, which are that within 30 days of receipt of the deposit it must be protected and prescribed information served. Whether the prescribed information must be re-served has been a matter of discussion and you can enjoy some excellent analysis from Nearly Legal and David Smith of Anthony Gold Solicitors.

A cautious landlord and agent might prefer to re-serve for each new tenancy, (including a statutory periodic tenancy), than expose themselves to tenancy deposit claims or defences to section 21 possession proceedings.

Following this case there is undoubtedly a number of long-term tenants who could challenge the validity of any section 21 notice served on them. Landlords in doubt may want to consider returning the deposit to their tenants (with or without deductions) before service of a section 21 notice.

Interestingly, the courts service N5B form for accelerated possession proceedings asks the Claimant at section 7(a): “was a money deposit received on or after 6 April 2007?” After the Court of Appeal decision one presumes that the answer to this will, if a statutory periodic tenancy arose after that date, have to be answered affirmatively.
Statutory periodic tenancies that arose before that date and have never been renewed will not be affected by this decision.

On 17 June 2013 the deposit schemes made a joint press release here.

Filed under: England & Wales, , , ,

Leasehold Valuation Tribunals, are they no cost forums?

Over the past year or so we have read some of the debate that has been ongoing over the recoverability of legal costs at the Leasehold Valuation Tribunal (LVT).

The starting point as with most Tribunals in England and Wales is that they are a none costs shifting forum which in simple terms means that each party is responsible for their own costs and the Tribunal will not order the losing party to pay the other sides costs. This means that any costs which either side incurs will be for them themselves to pay. In the LVT under the current rules (which are due to change in July when the LVT becomes part of the new Lower Tribunal (Lands Chamber)) if a party has behaved vexatiously or unreasonably the LVT can order that that party pays to the other side up to £500 towards any costs which have been incurred. Such Orders are rare.

The situation is however muddied in that in disputes before the LVT, which will inevitably involve Leaseholders and Freeholders, there will be a contractual relationship between the parties being the lease. Often leases will include a clause allowing a Freeholder to recover legal costs in connection with disputed service charges as a management expense. If so it may be recovered under the service charge and so even though the Freeholder has perhaps “lost” at the LVT the costs they have incurred can be recovered from all the Leaseholders. Also some leases contain clauses that allow a Freeholder in certain circumstances to recover LVT costs directly from any one Leaseholder who sought to bring a challenge as an Administration Charge.

What this means is that Leaseholders as we have said in previous posts need to carefully consider what the terms of their leases provide. If the lease does not allow recovery then the risk may only be the £500 if a Freeholder can satisfy an LVT that conduct was frivolous or unreasonable but care needs to be taken.

So what can Leaseholders do? It is important to remember that LVTs are simply creatures of statute and so have to operate within the framework that Parliament has laid down for them. Certain safeguards are in place. In particular it is possible for Leaseholders to make an application under section 20C of the Landlord and Tenant Act 1985 to seek limitation of the costs which a Freeholder can recover as a service charge expense. The LVT has broad powers and discretion. It is vital that Leaseholders make such an application and think carefully about the reasons. These do not simply have to be limited as to whether they win (since submissions will often be made before the LVT has issued its decision) but should explain why the application was necessary to be made or responded to and in what ways the Freeholder may have been unreasonable such as failing to enter into constructive dialogue etc.

The LVT can then look to make such an Order. This may prevent the recovery of whole or part or even fix the amount which can be recovered. This would then bind a Freeholder in respect of recovery via the service charges whatever the terms of the lease may provide. If however the LVT declines to make an Order the Leaseholder can still challenge the reasonableness although this challenge itself may incur costs.

With regards to recovery from a Leaseholder directly this would be an Administration charge and again can be challenged as to reasonableness and the payability via the LVT. For challenges of this type it is worth taking advice on the specific terms of the lease and what may be considered reasonable. This will involve looking at the specific lease terms and then going on to look at the circumstances as to how the costs were incurred and what work was undertaken.

As can be seen in terms of the rules of the LVT it is fundamentally a no costs forum (and the change in July to the new Tribunal is not likely to fundamentally change this). The problem is that everyone is bound by their lease terms as to what can be recovered. In the throes of purchasing a property all too little time is often given to looking at what can and cannot be recovered under a service charge. A good understanding as to the terms of your lease and your ownership can prove worth its weight in the long run.

Filed under: England & Wales, , , , ,

HMO mandatory licensing- calculating storeys

London Borough of Islington v The Unite Group Plc [2013] EWHC 508 (Admin)

Thanks again to David Smith and our friends at Nearly Legal for drawing this recent case to our attention. NL has summarised the case comprehensively here so the below is a quick overview.

The High Court in this case has clarified the rules on calculating the number of storeys of a property in a block of flats. This is important in order to determine whether a particular property falls into the mandatory licensing category.
The building in the case in question contained a number of flats over more than 3 storeys. Each flat comprised of one storey with up to six student occupiers in each flat – what you might describe as a standard HMO. The ground floor of the building was used as business premises.

The Court was asked to determine whether these flats were HMOs that required licensing. The statutory requirements are that if an HMO or any part of it comprises three storeys or more and it is occupied by five or more persons and those persons form two or more single households, then the HMO must be licensed.

The high court found that “it is the HMO that must comprise the three storeys and not the building in which an HMO happens to be found”.

So, where living accommodation is in a part of a building above or below business premises you must take into account each storey comprising the business premises. Where a series of self-contained flats sit above commercial premises, you count the commercial premises in your calculation and the number of storeys in the flat itself, not the building.

The case should make it simpler to calculate whether an HMO falls into the mandatory licensing category and should release many landlords from the requirement to license self-contained single storey flats that sit in a block. However, since failure to have a licence when required has such severe consequences including prosecution, fine and rent repayment orders, if in doubt do seek guidance from the local authority (armed with a print out of the high court ruling to wave at them if necessary).

This ruling contrasts with the case of R v Roderick John Williams 2008 but as a High Court decision will take precedence. In Mr Williams’ case, he was successfully prosecuted for having an unlicensed HMO. This HMO actually covered two storeys but it sat on top of a basement flat and the court decided that under the Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2006 [link] the two storey flat had to be calculated as having three storeys as it sat over a one storey flat.

Filed under: England & Wales, , , ,

Read the Lease!

A recent decision of the Upper Tribunal (Lands Chamber) in Sadd v. Brown [2012] UKUT 438 (LC) stands to remind us that it is always important that you read and understand the terms of the lease.

The case was about the recoverability of an insurance premium. In the past all parties to the lease had assumed that it allowed the recoverability of the costs incurred by the landlord in insuring the building. At first instance the LVT decided that whilst the amount charged was reasonable on the true construction of the lease the premium was not payable by the leaseholder. It would appear that this point was not itself taken by the parties but raised by the LVT itself.

Once again the Upper Tribunal made clear to the LVT that it is not for them to take points and certainly not without referring the issue to the parties for their comments. If we stop there it is important that all parties in approaching the LVT bear in mind that panels are now less likely to raise issues of their own motion and so parties must make sure they have properly considered what points they may have in their favour. The Upper Tribunal has made clear over the past 18 months that the LVT should be slow to interfere and raise points if not raised specifically by the parties.

The above being said the Upper Tribunal took the view given the landlord as part of its appeal had put forward its arguments it was reasonable for the upper Tribunal to determine the issue. The landlord contended that it was unusual for a lease to not include a term allowing the landlord to recover the cost of the insurance. He relied upon the fact that until this application both parties had assumed that the lease did allow recoverability. The landlord invited the tribunal to imply such a term into the contract relying upon Liverpool City Council v. Irwin [1977] AC 239. The Tribunal took the view that given this was a lease containing detailed provisions regulating the parties relationship and on the face of it contained all terms it was not appropriate to imply such a clause. Further the Tribunal took the view that it was not necessary to imply such a term to give effect to any other terms of the lease in the way that often the term “reasonable” is implied. Finally the tribunal decided that it was not necessary to imply such a term to give business efficacy to the lease (although we are sure the landlord did not agree with this!).

As a result the appeal was dismissed and the landlord could not recover the cost of insurance as the lease did not allow recoverability. As we have said before it is vital that a careful review of the lease is made. Anyone taking on block management should always ask to see all the leases and check with the Land Registry that no variations have been granted. Only when you have done this will you be sure as to what can and cannot be recovered as any failings are likely to find themselves laid at the managing agent’s door if they have not previously been drawn to the freeholder’s attention

Filed under: England & Wales, , , ,

Consultation for Repairs on Long Leaseholds

We all await the Supreme Court ruling in the Daejan v. Benson case which hopefully we will receive judgement on soon. Shortly before Christmas the High Court Chancery Division got in on the act. It ruled in the case of Phillips v. Francis [2012]EWHC 3650 (Ch).
In brief the facts are that this related to a holiday park consisting of various chalets let on long leases. A dispute had arisen over charges levied by the freeholder. From the point of view of this article the interesting point was whether the consultation requirements imposed by the Landlord and Tenant Act 1985 as amended applied to “repair” costs. The issue was what are “qualifying works”.

The court considered the definition of “qualifying works” set out in the Act which provides that these are “works on a building or any other premises..”. Consideration was also given to a case decided prior to the current legislative framework being Martin v. Maryland Estates [1999] 2 EGLR 53 but this case was discounted as being of relevance.

Whilst only a High Court decision, the decision itself was given by the Chancellor of the High Court . He determined that all works should be bought into the account to calculate the contribution and then apply the limit. In essence what this means is that all repair works carried out in any service charge period should be lumped together and then if any one leaseholders contribution exceeds £250 then consultation should be undertaken. The Judge said it is not appropriate to simply break the works down into what he termed “sets of qualifying works”.

This means that where a leaseholder has been presented with a service charge account with any item over £250 including for repairs undertaken in a twelve month period they may be able to challenge this to have a cap applied. Typically repair costs in an account may be made up of various relatively minor ongoing maintenance issues which have arisen during that period none of which it was imagined individually would require consultation.

For Landlords this poses a dilemma. For past charges they need to see if challenged. If so Landlords will then need to consider whether they look to make an application for dispensation from consultation. Currently, whilst the outcome of Daejan is awaited, this is certainly not a forgone conclusion. Alternatively every year they will need to consult on the process they will seek to adopt for repairs, although practically it is difficult to see how this can properly be undertaken. It may be that this decision itself will be appealed.

What is clear is that this year is going to see much debate on the question of consultation. It appears to us as the regulation over consultation grows and becomes more complex it is likely that the costs charged by Managing Agents (either for management in general and consultation in particular) are likely to rise to take account of the increased work and the risks involved in providing this service.

Filed under: England & Wales, , ,

So what is a “house”?

The Supreme Court consisting of a panel of seven Justices handed down its Judgement in the cases of Day v. Hosebay and Howard de Walden Estates Limited v. Lexgorge Limited [2012] UKSC 41 on 10th October 2012.

This was an appeal to determine what is a “house” under the Leasehold Reform Act 1967 with regards to the enfranchisement of houses. The Act is in place to allow the owners of leasehold houses to enfranchise and thereby purchase their freeholds. Issues arose as a result of amendments made under the Commonhold and Leasehold Reform Act 2002 which removed the previous residence requirement. As a result of these amendments companies which owned leaseholds and those sub-letting or owning as a second home were able to exercise rights under the legislation.

In the Judgement (given by Lord Carnwath and agreed by all six other Justices) consideration was given to the intentions of Parliament in making such amendments and highlighting that the purpose was to address perceived flaws in the “residential leasehold system” and not in the wider sense.

In all of the lower courts it was found that the buildings in question were a “house” and so could enfranchise.

The property in Hosebay at the date of service of the relevant notice was being used as a self-catering hotel. In Lexgorge they were being used as offices. The Court said that this was not “a house reasonably so called”. Simply because the properties looked like a house and might sometimes be referred to as a house did not displace the fact that their use was entirely commercial.

What seems clear is that the Supreme Court has taken account of the intention of Parliament. The legislation should apply to properties genuinely being used as residential accommodation and simply because of the amendments made by the 2002 Act this should not be extended to allow buildings which may originally have been “houses” but are now used for commercial purposes being able to enfranchise. Undoubtedly the great estates in London and other property companies will be breathing a sigh of relief.

Filed under: England & Wales, , ,

Service charges: Reasonableness of charges caused by breaches of other leaseholders covenants

An interesting case recently came before the Upper Tribunal (Lands Chamber) relating to what is the position when service charge costs have risen because of the breach by some leaseholders of their covenants.

 In the case of Liverpool Quays Management Limited v. Carol Ann Moscardini [2012] UKUT 244(LC) The President of the Upper Tribunal considered these points and various other points on appeal from the LVT.

 The facts were that this development in Liverpool was directly adjacent to the Liverpool Echo Arena which opened in 2008.  As a result of this and the fact that the development was experiencing problems from short term lettings of the flats the cost of providing security for the estate escalated significantly with the costs approximately doubling.  The Respondent challenged these sums and the LVT at first instance disallowed part reducing the amount to that of previous years stating that there had been “excessive increases over previous years”.

 The leases contained no covenant against short term letting although they did contain the usual provisions re nuisance and covenants that the properties only be used as private apartments and not for trade or business.  There was a covenant for enforceability by the management company but Mrs Moscardini had not exercised this.  Mrs Moscardini submitted that the real reason for the increase was as a result of the management company not properly policing and controlling short term and hotel type lettings leading to various problems including a large number of incidents involving the police.

 Invoices were produced by the management company and a director explained how the contractor had been chosen.  The President was satisfied that the increase was due to the opening of the arena and the problems with the short term lets.  He was satisfied that the response was adequate and the service provided was of a reasonable standard.  Whilst he recommended that the management company did look at taking some enforcement action he did accept that there response in increasing security was proportionate (and recoverable under the lease) and even if they had taken action this may not have successfully dealt with the problem during the period in question. Such action was a long term solution and would not alter the need for security.

 What is clear is that the President in reaching his decision was trying to balance the invidious position the management company found themselves in.  This is a not unusual situation where leaseholders are faced with a proportion of leaseholders not sticking to the terms of the lease.  For the management company they may not have funds available to take action directly themselves without some mandate from the leaseholders.  Most leases today have a mutual enforceability covenant which can be relied upon although as in this case it may require the leaseholder to offer some form of costs indemnity.   It would have been interesting to see if the decision would have been different if Mrs Moscardini had looked to exercise this or the application was supported by a wider group of leaseholders who could show a pattern of complaints to the management company.  The implication is that it might have been different if the management company had not then acted to deal with this nuisance. 

 Clearly if you are faced with a situation where you believe service charges are increasing due to breaches of covenant pressure should be bought to bear upon the management company to take action.  You should try and involve other leaseholders for them also to complain and require action by the freeholder or management company.  Records should be kept.  Whilst some freeholders will then take action if asked for an indemnity or some money on account it would always be wise to take advice to check what your liability is going to be or what action you can expect.

 One of those situations where perhaps it is important to understand fully your lease not just for what you can do but what you can prevent other doing!

Filed under: England & Wales, , ,

What factors should the court take account of in adjourning a trial?

We are often faced with questions when a final hearing is approaching asking about what will happen if the other side tries to adjourn or even our client wanting to adjourn!

The starting point for all Tribunals and Courts is that they should be reluctant to adjourn a final hearing unless there is good reason. The general principle is that given all parties will have had notice and will often have been involved in the whole listing process it would be against the overriding objective to adjourn trials given the expense and time that would be wasted.

Recently in the case of Dhillon v. Asiedu [2012]EWCA (Civ) 1020 the Court of Appeal issued guidance on the issues to be taken account of. The facts in the instant case are that the Appellant had taken a loan from the Respondent with the terms negotiated by a friend. The matter then appears to have been subject to litigation and the matter was listed for trial. Sadly shortly before this the friend died and the Appellant suffered a severe bereavement reaction. It would appear various trial dates were then adjourned and unless orders made and ultimately a litigation friend was appointed. At the trial date then fixed an application was made to adjourn on the basis that the Appellant was unable to attend, give evidence and be cross examined and it was fundamentally unfair to continue.

An interesting set of facts at probably the more extreme end of the scale and one can see that a court would have had sympathy with the Appellant given these circumstances.

The Court of Appeal set out the following guidance:

• Fairness requires the position of both sides to be considered and all cases must be dealt with justly, expeditiously and fairly. A number of outcomes are possible and only if the judge had failed to take account of relevant factors, had taken into account immaterial factors or come to a decision that was impermissible would the Court of Appeal interfere.

In this case the Court decided that the Judge was entitled to say that the late evidence of incapacity was not a sufficient factor as this could have been available sooner. Further he was entitled to say that the Appellant could have in the past filed evidence and complied with various unless orders. The oral agreement involving the deceased friend’s evidence was a key part and the Appellant could not have given material evidence on this in any event. It was accepted that the Appellant could attend the trial but she did have a litigation friend appointed to conduct her case. Taking all of these into account the Judge had to balance this against the fact that the Respondent lived abroad and had flown to the UK for the hearing which was the third time the case had been actually listed. On balance he was entitled to not agree the adjournment.

What is clear is that simply coming along on the day of the trial and seeking an adjournment is not going to find favour. If a party thinks they need an adjournment for whatever reason they should apply at the earliest opportunity and make sure they can go through all the reasons and try and demonstrate why this is fair and just. The courts are clearly entitled to take a robust stance with regards to such applications and the Court of Appeal will clearly be reluctant to interfere.

Filed under: England & Wales, ,

Why do Courts let Tenants make Unmeritorious Applications?

Many landlords and agents will have come across the situation where they have successfully been granted an Order for possession and then receive from the Court (often the day before execution of a warrant) an application from a tenant requesting the Court to set aside an Order on the basis of grounds either previously advanced at the original hearing; or on matters not strictly relevant to the possession process. For parties not experienced with the Court process this can seem inherently unfair to landlords; and be seen as the tenant simply “playing the system”. From the solicitors point of view it is also often frustrating having to explain to the Client that the process must be gone through before possession can be obtained.

The Courts are required to give proper consideration to any application made. Generally applications should be heard at an oral hearing at which both parties should have the opportunity to attend. Recently this approach was affirmed by the Court of Appeal in Frey and others v. Labrouche [2012] EWCA Civ 881 . In this case an application to strike out a claim was made. The Judge at the start of the hearing indicated that he thought the application was unsustainable and he was not going to hear from Counsel of the Appellant. The Appellant claimed that the judge’s refusal to hear the application was a breach of their fundamental common law right to present the case. The Court of Appeal agreed and stated that a judge could not properly dismiss the application without giving the applicant a fair opportunity to put its case. It was vital that justice was seen to be done.

Whilst it is accepted that judges can (and should under the Civil Procedure Rules) take a robust stance this does not preclude parties making applications and the Court should give proper consideration and allow oral argument. This is why applications, even when made at the eleventh hour are listed and heard even when this can delay the execution of a warrant or other process.

Filed under: England & Wales, ,

Electronic Signatures: Can we use them?

We have over the past few months seen a rise in the number of enquiries we receive about the use of “electronic signatures” for the signing of tenancy agreements.

This area is complicated and not 100% clear. For the purposes of this article when we refer to a tenancy agreement we mean an assured shorthold tenancy (“AST”). Historically the rule has always been that you should obtain a “wet” signature on the tenancy agreement from both the Landlord (or the Landlords agent) and the Tenant before commencement. Many agreements are also drawn up that they are a deed and the signatures are witnessed. Generally for a valid AST of 3 years or less this does not have to be by deed and so does not strictly require a witness.

There are various providers of electronic signatures which have a method of encryption and digital certificate which can be used to provide an audit trail of how, when and by what address/information they were created. It is obviously important that before opting for any electronic signature system that you ensure you are satisfied as to the system and that it can, if required, provide to you the proof and evidence which a Court may seek. EU Directive 1999/93/EC sets out the standard which should be met.

The Electronic Communications Act 2000 provided that electronic signatures can be used as evidence of a signature (see section 7 of this Act which provides a definition). This Act came into force in July 2000. The Land Registry also indicated it would be looking at adopting electronic signatures but at this time this appears to have been shelved for the time being.

What the Act means is if you have an electronic signature you can rely upon this as evidence in a Court of Law. This means is if you can satisfy a Court that there is a valid electronic signature you will then have a valid tenancy. If this was an agreement which had to be completed as a deed to comply with the Law of Property (Miscellaneous Provisions) Act 1989 (i.e. for a tenancy of more than 3 years) then this system would probably not work and you will probably need wet signatures. To satisfy a Court you would need to produce an audit trail and be able to explain how the system worked. Unless challenged by a party it is likely that a Court would accept this at face value.

It is worth bearing in mind that since of course a tenancy agreement does not have to be in writing even if a party did challenge the validity of the electronic signature it may well still be possible to show that the “agreement” was evidence in writing of the terms which had been agreed. This would be in the same way that when agreements are challenged you would often look to rely upon the conduct of the parties and correspondence/emails to satisfy a court as to the terms.

All of the evidence appears to be that there is no reason why a tenancy agreement can not be signed electronically provided you use a reputable form of electronic signature. There may be other issues relating to making sure you have correctly identified the parties but your existing procedures hopefully would cover this. We do, however, expect that it is likely that there will be some case law and no doubt at some point the Courts will give guidance on what they will expect to see but for the moment we are not aware of any such guidance.

What seems clear is that this form of completing agreements is going to become the norm. If anyone has any experiences relating to the use and interpretation by the Courts please do let us know. In the meantime if and when we hear we will blog further!

Filed under: England & Wales, , , , ,

Break Clause requirements go both ways.

As I am sure many of you who subscribe to the helpline will be aware, the advice for a Landlord or an agent invoking a break clause to bring about an end to the tenancy agreement is to follow the provisions of the break clause exactly. If this means serving the notice by hand whilst balancing a bowl of water on your head then that is what needs to be done.

The Avocet Industrial Estates case makes clear that this is not just the case for the Landlord and Agent but also the Tenant.

In this case the requirements of the break clause in a 10 year commercial lease, were that the break would be ineffective if “any payment” due under the lease remained unpaid and if a sum equivalent to 6 months rent was due. The day before the break date the tenant handed a cheque for 6 months rent which was due to the Landlord and handed back the keys. The Landlord challenged this claiming that simply handing a cheque does not constitute the amount being paid. This would mean that there were still monies owed at the break date and the break invoked by the Tenant should be ineffective.

The court agreed deeming that a cheque was not legal currency and therefore there was default interest amounting to £130 still owed. This meant that both requirements of the break clause were not satisfied and the Tenant could not rely on the break clause. The court accepted that the result was rather harsh but the decision was based on the legal principle of certainty.

This case simply demonstrates that parties continue to do things without reading the tenancy agreement. On the helpline we often have people that serve section 21s by hand and assume that its deemed served the same day if posted before 4.30pm. However the tenancy agreement states something different, which is that it is deemed served the next day. The section 21 is therefore invalid. This is common and should not be if people just took 10 minutes to read the agreement, assuming you are familiar with it is simply not good enough.

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

Subletting

It does appear to be quite common now that the person that signs the tenancy agreement as the tenant is not in fact the person that is actually residing at the property. Sometimes agents carrying out periodic viewings attend properties expecting to see a family and are faced with as many as 15 complete strangers.

So what can the law do to help? In Rose Chimuka’s case, she was convicted of fraud and sentenced to 4 years and 3 months imprisonment.

The scam involved Chimuka, often using a false name, approaching estate agents saying that she was looking for a large family home to rent. She would discuss school catchment areas and often confirm that her husband worked away.

However, rather than moving in with family, Chimuka would advertise locally for tenants so that she could sub-let the property to other tenants without the property owners consent or knowledge. She would then sub-divide the houses she had rented and put locks on internal doors and permit up to 15 people in some cases to reside in the properties.

Chimuka would collect rent money in cash from her ‘tenants’ and fail to pay her own rent for the properties she was renting.

Landlords often point the finger at agents accusing them of not carrying out the right checks etc. However, when you are faced with prospective tenants giving false information it can be difficult to detect the lies until it is too late. PainSmith Solicitors has obtained possession proceedings in these circumstances and whilst the proceedings can be slow (due to court backlogs) we have obtained possession at the first hearing. So there is hope and the courts are sympathetic to landlords in these situations.

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

SUBJECT TO CONTRACT: WHAT DOES IT MEAN?

Many people dealing with short term residential tenancy agreements will have seen the term “subject to contract” used but what does this actually mean?

The basics are that in English law a contact does not have to be in writing (and in this context we are talking about usual residential tenancy agreements). For a contract to be made one part has to offer to do something, e.g.. let a house, on the basis they will receive something in return, e.g.. Rent, and this offer is then accepted by the other party telling the person who made the offer. This could simply be a conversation.

To avoid contracts being unintentionally created most agents make clear that all negotiations are “subject to contract”. In practice many agents have a standard form of words on emails or letterhead setting this out. This mans that the parties are free to have negotiations and in principle reach an agreement. It is usually at this point that an actual tenancy agreement will be sent out. Provided the initial negotiations are “subject to contract” even at this point no contract will have been created. This means that the parties are not yet bound by the terms.

For the contract to bind all the parties both sides need to physically complete the document. What this usually means is that the Landlord (or his agent when so authorised) and the Tenant will each sign their part of the agreement. Usually these agreements will then be returned to the agent who will then oversee completing the transaction by exchanging and completing the documents by dating the same. It is at this point that the contract is completed and the parties are then bound by the terms.

The system can seem cumbersome but provides safeguards for both sides. Usually both sides want to have the opportunity to have negotiations. In particular Landlords will often wish to check references and ensure monies etc are paid before the agreement is actually completed. Tenants may be looking at more than one property. It is vital then that parties understand that once they sign (or Landlords give the agent authority to sign), exchange and date the agreement they will be contractually bound. If a party does not want to become bound until some condition or additional authority is given they should either withhold the signed agreement or make clear the terms upon which they agree to the agreement being completed. Once completed either side can then require the other to comply with their obligations.

Subject to contract is a useful device to protect all parties but you should be clear as to when completion has taken place and only allow completion of an agreement if you actually want to be bound by the contract! Once completed there may be no way back.

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

Owner Managed Freeholds

Another case involving Owner Managed Freeholds has recently been decided by the Court of Appeal in Newman v. Framewood Manor Management Co Ltd.

In this case the Various leaseholders were in a typical way shareholders in a Company which managed the development. It would appear that this was a smart development which had various communal leisure facilities which had given rise to various problems. The various leases had covenants governing the provision of the various leisure facilities by the Management Company. As all too often can be the case various problems arose concerning the leisure facilities and repairs and replacement. The costs involved looked as though they would be considerable and many leaseholders seem to have had little appetite to incur these costs.

The Company then after various meetings at which a majority of Leaseholders agreed with the Companies proposals made various changes. Sadly Mrs. Newman, as Leaseholder, did not agree and proceedings were bought for specific performance and damages.

The lease contained a provision which appeared to exonerate the Company from damages claims if these were not covered by Insurance. The Court of Appeal found firmly that in there view this clause did not prevent a leaseholder bringing a claim for loss of amenity under the lease.

The Court then went on to consider the various individual claims. Whilst it did not award specific performance (although certain works had been undertaken or undertakings were given by the Company) damages were awarded. What is clear from the decision is that Owner Managed Freeholds as with any Freehold/Leasehold relationship are bound by the terms of the lease. In practice it is vital that all Freeholders have regard to the lease terms. If services are to be provided under the lease simply because a majority is happy with a change that of itself will not be sufficient to just proceed as the Freeholder will be open to claims as in this case.

That is not to say that the situation cannot be resolved. It is always open to parties to mutually agree variations (if all agree) or in certain circumstances can an application be made to the LVT to vary the terms of the lease.

As we have flagged before in various articles it is vital that Freeholders and their advisers consider the Lease terms and check exactly what they allow or provide. A failure to do so can be expensive for all and whilst it seems in the case referred to there is a separate costs appeal undoubtedly all sides will have spent large sums given the matter has got as far as the Court of Appeal. PainSmith Solicitors are happy to advise Freeholders or Leaseholders on the obligations under a lease and generally with regards to this complicated area of law.

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

The Localism Act

Most landlords and agents are aware of the current provisions relating to tenancy deposit protection under the Housing Act 2004. Many will also be aware of the damage that has been done to the provisions by the many, many, many, many court decisions. As a reminder two of the Court of Appeal decisions:

Tiensia v Vision Enterprises Ltd (t/a Universal Estates) – a landlord can protect the deposit at any stage, even if more than 14 days have elapsed since it was received, without penalty as long as they do so before the case comes before a court.

Gladehurst Properties Ltd v Hashemi – a tenant could not bring a claim for an unprotected deposit at all once the tenancy was over.

The government has therefore resolved the problems posed by these cases by radically amending the legislation. This is being done by way of the Localism Act, which should come into force on or around the 6th April.

The New TDP Legislation
The changed legislation has three components:
1. Alteration of the current 14 day timescale for protecting the deposit;
2. The closing of current loopholes exposed by the courts;
3. Change to the current regime of penalties.

1. Under the old current provisions the landlord is obliged to protect the deposit and provide the prescribed information to the tenant and any relevant person within 14 days of receipt, however this 14 days will be changed to 30 days from the date of receipt.

2. The decisions in Tiensia and Hashemi will no longer assist landlords who have failed to register the deposit within the 14 days. Therefore, a landlord will be obliged to protect the deposit within 30 days and if he fails to do so he is in breach of the legislation and the tenant can immediately issue proceedings against him or his agent. Protection after 30 days, or after issue of proceedings, is not sufficient to cure the landlord’s failure. Landlords will not be able to argue the Hashemi point once the tenancy is over either as tenants are also going to be entitled to issue proceedings once the tenancy has ended. The so-called ‘must also’ loophole, which allowed landlords to return the deposit to a tenant before a hearing and then assert that the court could not return that money to the tenant and therefore it could not ‘also’ make an award of the three times penalty, has also been closed by the simple expedient of removing the word ‘also’ from the text of the legislation.

3. The draconian three times the value of the deposit penalty will also cease. The court will have a discretionary power to award a penalty of between one and three times the value of the deposit. Therefore, a landlord who has protected the deposit as soon as they became aware of the problem and acted reasonably will be penalised at the lower end of the scale while landlords who have been less cooperative will find themselves penalised at the top end of the scale. If a landlord has however failed to protect they will be liable for not less than a penalty of one times the deposit.

What has changed?
This all means that the Tiensia and Hashemi decisions will not have any force after the 6th April. However, many parts of the legislation are wholly unchanged. There is no change in the definition of a deposit, or the restriction on taking property as a deposit instead of money. So, court decisions which interpret these unchanged parts of the legislation are not affected.

There is no change in the requirement to protect the deposit within a set time after it has been received in connection with an AST. So money that the landlord or agent has obtained which is intended to be used in relation to an AST agreement falls within the legislation.

Therefore, the county court guidance that states that taking the last months rent in advance at the start of the tenancy is probably a deposit remains valid, as does the Court of Appeal decision which holds that a promise to pay money at some future date does not qualify as a deposit, as this requires money to be paid by the tenant with the intent that it will be returned. Likewise, the obligation to serve the prescribed information properly and in full also remains unchanged. It also remains the case that a lettings agent is liable for a failure to protect the deposit and can be sued in preference to the landlord. However, the advent of the new variable penalty would now allow a court to make an order against the agent with the penalty fixed at the lower end of the scale if they were not responsible for registering the deposit.

One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.

Section 21
Where the deposit has not been registered and the prescribed information not sent to the tenant within 30 days the landlord only really has one option if he seeks vacant possession. That is to hand the deposit back to the tenant and the serve the notice. Landlords will of course not be happy about this as many like the security of being able to call for that money when there are dilapidations, so this is all the more reason for getting it right.

What do you need to do now?
It is not clear whether the new provisions will apply to tenancies that began before the 6th April 2012 however we advise that agents and landlords should begin to check agreements now and register deposits and provide prescribed information if they discover they have not done so to avoid the new scale penalties.

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

Security for landlords

From the 1st of this month the Land Registry launched Form LL which allows landlords to register a restriction for free against the title of their home when they do not live at the property. The restriction is designed to help prevent forgery by requiring a solicitor or conveyancer to certify they are satisfied that the person selling or mortgaging the property is the true owner.

Property is usually the most valuable asset people own. It can be sold and mortgaged to raise money and is therefore an attractive target for fraudsters. The properties most vulnerable to fraud are usually empty, tenanted or mortgage-free. To help prevent forgery, absent owners can ask the Land Registry to enter a Form LL restriction on the title.

This is something that landlords that are abroad or far from the tenanted property should consider and agents are asked to consider mentioning this to their clients.

The cynics out there are probably thinking that there is another reason why the Land Registry has released this practise note and it is to do with the compensation they have to pay out when something like this happens however it’s easier to register a restriction than seek compensation when you are abroad.

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

Money Claims- Changes to the rules

From the 19th March 2012 all claims for money only started in the County Court and not already subject to special procedures under the CPR will now be known as “designated money claims”. All of these claims must now be sent to the County Court Money Claims Centre which is based in Salford. The claims will then technically be issued out of the Northampton County Court.

For these money claims the Business Centre in Salford will be the administrative office. When you issue your proceedings you will be required to specify which is your “preferred court” for dealing with matters if the claim gets transferred. The usual rules on transfer will still apply so the claim will if against an individual be transferred to his or her home court. This centre will deal with all matters up to and including the filing of allocation questionnaires. Only at that point will the claim be transferred out.

This is a significant change and reduction in the work which local County Courts will handle in the first instance. Generally for many people issuing money claims themselves it may be easier to simply use Money Claims Online to deal with making the claim rather than paper applications. We wait to see what if any further effects these changes may have on the Courts. You should be aware that if you are contemplating enforcing via the High Court (e.g. by Sheriffs Officers) you may be better advised to issue your claim out of the local High Court District Registry although the rules on financial limits still apply.

Filed under: England & Wales, FLW Article, ,

Can Freeholders charge for Consenting to Underletting?

Most long residential leases today contain some provision about underletting. Often the clause in the lease will require the Leaseholder to obtain the prior consent of the Freeholder or their managing agent. It is when this consent is sought that problems can arise.

As ever the starting point should be the lease. Many leases have a specific provision indicating something along the lines of ” not to underlet without the consent in writing of the Landlord such consent not to be unreasonably withheld”. In those circumstances an application should be made to the Landlord prior to each and every subletting. Recently the Lands Tribunal in the cases of Holding And Management (Solitaire) Ltd v Norton and Bradmoss Ltd, Re 10 Meadow Court considered whether Landlords were entitled to make a charge in such situations.

The LVT at first instance had determined that the Landlord could not recover costs. Consideration was given to Section 19(1) of the Landlord and Tenant Act 1927. The Lands Tribunal made clear that in their opinion Section 19(1) allowed a Landlord as a reasonable condition of granting Consent to require payment of their reasonable costs. Further the Lands Tribunal went on to confirm that in its opinion such a charge would then be a variable administration charge and the LVT had power under Schedule 11 of the Commonhold and Leasehold Reform Act 2002 to determine the reasonableness of the charge. The answer is therefore that the Landlord can recover these costs subject as ever to the lease terms.

At this stage the Lands Tribunal has requested submissions as to the reasonableness of the charges proposed in these various cases and we await further guidance. Clearly Freeholders will have to justify each and every charge they make and to be able to explain how the charge has been calculated both as to the particular development and their own organisation. Hopefully some further guidance will be offered as this is an area which many investor leaseholders often feel that Freeholders simply use as a mechanism to charge high fees to simply profit from the freehold rather than to cover any reasonable costs which they may have incurred. A case of watch this space ….

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

LEASE INTERPRETATION: WHAT DO COURTS AND TRIBUNALS LOOK AT?

We have over the past few months referred in our articles to the fact that the starting point for LVTs and Courts in leasehold disputes is the lease itself.

Often residential leases were drafted many years ago and are in a format which even to professionals can be difficult to assess but what are the steps that the Court and LVT go through to determine the terms?

Initially they will go through the document. For a long residential lease all of the terms must be in writing. Some terms will be very clear and easily interpreted. This will often be the case in respect of terms over payment of ground rent and insurance. Certainly for any lease which has changed hands over recent years it should be in a format covering all the major areas such as rent, insurance, service charge, repairs etc as conveyancing solicitors should be checking that the lease complies with Council of Mortgage Lenders (CML) requirements. These requirements require these fundamental terms to be covered in a clear and satisfactory manner.

What is often more complicated is the extent of a clause. This can be particularly true of service charge clauses. Many of these clauses are written in a very general manner with some kind of “sweeping up” clause whose function is meant to be to cover everything not expressly stated. Be warned they do not always work!

The general principle is that clauses are given a meaning which a reasonable person would understand and words are given there ordinary meaning. Courts will not tie themselves in knots in carrying out an interpretation even if the natural meaning gives a strange result. If this is the case other remedies may be open to the parties such as rectification if they can fulfil the grounds. The Courts and LVT will not imply terms into an agreement and will expect all the terms to be present in the document relied upon.

If then a clause is still unclear and or could be interpreted in a number of ways generally it will be decided in a way most beneficial to the person not seeking to rely upon that clause. This is due to the fact that the burden of proof will be upon the person relying upon the clause to prove that meaning. It is for this reason that “sweeping up” clauses often do not achieve the desired effect.

Usually the terms are clear but it is vital that proper consideration is given to the terms. Anyone buying a lease (or a freehold) should understand what the rights and responsibilities under the lease are. Certainly as can be seen in the published LVT decisions often in service charges Freeholders and their Agents try and argue that it would be perverse to not allow them to recover management fees, accountancy fees etc and whilst a Panel may have sympathy if the lease does not cover this the hands of the LVT are bound.

Again early consideration of the contractual terms can prevent disputes and if in doubt parties would be well advised to take specialist advice to avoid costly Court or LVT cases.

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

How to prepare for an LVT Hearing in respect of service charges

For many people having an LVT hearing can be a daunting prospect and there first experience of dealing with a Court or Tribunal particularly in an unrepresented capacity.

For the purpose of this blog post we are specifically referring to applications made under Section 27A of the Landlord and Tenant act 1985 although the principles apply to all LVT cases.

These applications can be made by either the Freeholder or a Leaseholder and the purpose is to determine whether a charge is payable and the reasonableness of the same. In making its determination the LVT will have regard to the terms of the lease and then whether the statutory processes have been complied with.

Whoever makes the application is required to complete an application form. Copies of the forms and guidance notes may be obtained from the Justice department website.

As part of the application you should specify exactly what it is you are seeking. It is important to make this clear so that the LVT is clear what is being sort. Often if the Freeholder this will be the whole of particular years and if the Leaseholder they may wish to object to specific charges. This should be set out clearly and specify which service charge years are being referred to.

The application should have attached to it a copy of any relevant lease and other relevant documents. If it is the Freeholder we would recommend this should include:

• Any and all service charge demands with summaries of tenants rights etc as appropriate
• Copy of relevant lease
• Copy of any Consultation documents etc

If it is the Leaseholder then they should attach:

• Copies of demands received
• Copy lease
• Copy of any consultation notices you have received
• Copies of any correspondence disputing the sums

Remember that the LVT when they first look at the application will want to understand what the claim is about. This will assist the LVT in issuing Directions or listing for a Pre Trial Review (PTR).

If there is an oral pre trial review the LVT will want to use this to identify the issues and then issue clear guidance as to what should happen. It is crucial that both sides consider the case from this point of view. The LVT will not be deciding the case then but making sure all is in order for a hearing.

It is vital that parties follow the Directions given. The time scales are there to help all parties. You should read the Directions carefully and make sure you understand what is required. In particular the fact that you need to supply copies of all documents you will look to rely upon for proving your case. Often the Directions are detailed and very specific for the matters in dispute particularly if there has been an oral PTR.

Generally the LVT cannot refuse to admit documents (even if late) but must give everyone ample opportunity to consider. This could result in a hearing being adjourned if there is a late submission and possibly an application being made that such behaviour should result in a costs penalty (the LVT can order costs of up to £500 a party). If a party attends at a hearing and tries to submit late documents the LVT will consider whether it can give a short adjournment for the other party to consider the documents but the hearing itself could be adjourned. The LVT will not be happy with submissions on the day unless there is a very good reason given the effect this can have on the LVT being able to decide the matter.

It is vital that when preparing for a hearing that a proper bundle is prepared. This should include an Index and the documents should all be paginated in order and placed in a folder. These bundles must be supplied in good time to the LVT office so that the Panel has a reasonable opportunity to consider before the hearing. This will assist the LVT in considering the matter and whilst the panel should not draw any adverse inferences from a late submission they are only human. Late submissions and badly prepared bundles will not assist your case! It is worth asking someone to consider your bundle and submissions to see if a person who knows nothing about your case can properly understand the points you are making and can follow clearly the documents and submissions you want the LVT to understand.

Remember that at the hearing often the LVT will raise there own questions and points and so even if the other side has not raised something the LVT may still do so itself. This is particularly true of making sure that demands comply with the various statutory requirements and or consultation when required.

The LVT panel will usually not have met until the day of the hearing but will have been sent out the bundles etc. If they have received these in good time they will be better prepared for dealing with the case. The LVT will normally be proactive in managing the case in front of them and this is assisted by timely receipt of documents in good order. The panel is there to decide the matter and a case is always helped by good preparation on the part of the parties.

If in doubt about anything then you should refer to the Clerk at the LVT dealing with your case. Whilst they cannot give you legal advice they can help with understanding what is required or that you need to do.

LVTs are used to having parties appear in front of them unrepresented and pride themselves on being user friendly. For both Freeholders and Leaseholders they can effectively deal with matters in a timely way particularly with a well presented case.

We are always happy to advise and if necessary represent Freeholders and Leaseholders with all such applications.

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

All very frustrating, but what are the options?!

Painsmith has recently encountered the Kafkaesque world of the tenancy deposit protection schemes, specifically the DPS and its new rules relating to the release of the deposit following a court hearing.

DPS is currently refusing to release deposits where the courts have not specifically ordered it and they have changed their rules to reflect the same. Under rule 29 (a) DPS will only release the Deposit if the Court Order specifically refers to the Deposit and how much to be paid out to the tenant.

Several of our landlord clients have obtained a possession order on the grounds of rental arrears and are finding it impossible (or very nearly impossible….or just very expensive) to get the deposit released, even where the contract specifically allows for the deposit to be applied against rental arrears.

Of course it is always open for the tenant to agree the release of the deposit to the landlord, but once possession is obtained many tenants lose interest in co-operating with their former landlord.

In the absence of an agreement from the former tenant the landlord is left to apply to the scheme to ask for the release of the deposit. We believe this should simply be a matter of drawing the scheme’s attention to the court order for possession and rent arrears and the clause in the contract, which allows the deposit to be used against rental arrears, where applicable.

However on more than one occasion recently a landlord’s application to the DPS for the release of the deposit has been refused and the applicant referred to clause 29 of the terms and condition ( see above) and informed that if they want DPS to release the deposit to them they must either arrange for the Court Order to be amended or a Third Party Debt Order to be obtained.

Concurrently, courts are refusing to make orders that would satisfy the DPS rules with many judges refusing to address the issue of the deposit on the grounds that it is a matter for the scheme and they do not want to usurp the jurisdiction of the Adjudicator.

You will recall that part of the point of these schemes was to take the matter of deposit handling away from the courts and instead use an alternative dispute resolution, that is the Adjudicator. However landlords find themselves facing courts that refuse to deal with the deposit because it is a matter for the scheme, and the scheme refusing to release the deposit without a court order so the whole thing becomes farcical.

Painsmith has historically been involved in deposit protection reform and we would suggest that between the schemes and the courts there needs to be some clarification.

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

What should I think about before I buy my freehold? The Cons.

For many Leaseholders getting together with fellow Leaseholders to buy the freehold of the building they occupy is seen as the end of problems with freeholders and controlling their own destiny. Whilst this is of course true before going down this major step leaseholders should consider if and why this is the right route for them.

The motivation for many is to rid themselves of a freeholder who they perceive is not offering good value for money and service and often the fact that all the leaseholders need to act to extend their leases. Undertaking a collective enfranchisement can often be achieved at a similar cost to that of all extending their leases particularly when legal and valuation costs are thrown into the mix. All seems simple and many groups at this stage press on with the purchase.

The issues generally arise sometime down the line when the glow of having purchased has worn off. Simply because you have bought your freehold does not mean that all problems go away. In our experience freehold purchases tend to be driven by a small group of leaseholders who put in enormous amounts of time and effort. Sometimes after the initial euphoria they find that they do not wish to (or can’t) give as much time to the freehold as before. As a freeholder you remain bound by the terms of the leases particularly with regards to service charges and repairs. Whilst often on completion the leaseholders will all have extended their leases (typically to 999 years) the service charge and repairing covenants usually remain the same. The freeholder is still governed by the statutory rules governing residential leases and must comply with all of these obligations including in relation to consultation. This year we have seen a number of LVT decisions reiterating this and making clear that there will be no let off for leaseholder owned companies.

As a result some of the imagined costs savings cannot be achieved as often a managing agent for practicality will still be required as well as having to go through all the processes. Certainly we would always recommend to any group considering enfranchisement that they should look to appoint managing agents to ensure that the day to day running complies fully with all of the legal requirements. We have seen over the past decade the increase in rules and regulations to ensure that individual leaseholders are protected but this has driven up costs as the work involved has increased.

Increasingly we are also being asked to advise both individual leaseholders and freeholds where the parties find themselves in dispute. This can be as simple as someone not having the money to pay the service charge and fellow neighbours having to take Court action to recover monies. The other extreme is in small blocks where the freehold is owned by named individuals and one is looking to sell and one or more of the other Owners will not sign the necessary transfer paperwork causing a sale to fail. Consideration needs to be given as to how you feel you will get on as a collective group and not just with your current leaseholders but potentially with subsequent Owners.

We have seen instances where the repercussions are so great that fresh collective enfranchisement claims have been made. Now with the lower qualifying majority of 50% it is possible that buildings can enfranchise and re-enfranchise again and again. We have seen a situation where the leaseholders of a small block has enfranchised on 3 occasions! The fees spent on such an exercise must be immense for little real gain to the leaseholders individually.

Whilst none of the above should necessarily put anyone off buying their freehold it is important that everyone enters this with their eyes wide open. Under the legislation there are various other routes that can often be adopted such as Right to Manage and undertaking bulk lease extensions either by the statutory route or negotiation. Commercial freeholders are alive to these issues and many will negotiate over items. There can be a benefit in having a completely separate (and we deliberately do not say independent!) freeholder. Whilst for most groups who enfranchise the process is an unqualified success story with many real and perceived benefits as with most transactions there are risks and it is important that all participants understand these.

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

Mediation: what is it all about?

Mediation and Alternative Dispute Resolution (ADR) have become buzz words used by litigators over the past few years. Sadly however many people have simply paid lip service to these concepts and not properly engaged with them to make the best use of the opportunities which they provide for settling disputes.

Mediation itself comes in two forms. Evaluative Mediation which is where the mediator looks to advise the parties as to the merits and strengths of their case. This is similar to arbitration. More prevalent is Facilitative Mediation. This will be the focus of this blog post.

This type of mediation is a process whereby an independent party tries to assist the parties in reaching some form of agreement. The mediators role is to listen and adapt the process according to the requirements of the parties given it is their process.

Generally prior to the mediation the parties will have chosen the mediator and agreed a mediation agreement and then provided a mediation bundle. The mediators job is not then to rule on the merits or otherwise of the parties position but obviously it is useful for them to have an overview of the respective positions.

Mediation is a completely confidential process. This means that whatever is said should remain at the mediation and it is exceedingly rare for mediators to give evidence at a trial. Also it is not the mediators job to advise upon the settlement or to write the same up. All of this is the job of the parties jointly and they must satisfy themselves as to what they are doing. Usually the mediator will start the process by explaining all of this and then inviting the parties to each have a say.

This process of itself can often be very useful as it allows the parties to explain their position and often to vent emotions they feel. Whilst this can be a difficult process doing this in a controlled environment can of itself help to move the matter forward. Once initial statements have been made the mediator will then consider whether the parties should break into individual sessions. That being said there is no right or wrong as it must dependant upon the wishes of the parties.

The mediator may then move backwards and forwards between the parties. Sometimes inviting them back to joint sessions to discuss matters and also in closed sessions sometimes helping the parties test their cases. The mediator is often best doing their job when they appear to be like a ghost and are saying little!

Hopefully some common ground can be found and the parties can agree something. This will generally be drafted by the parties and they will sign this. Remember this agreement can cover anything not just what a court could or might order. This of itself is one of the great benefits for commercial disputes. A confidential settlement can be reached and relationships maintained.

Mediation does not prevent disputes but it does offer parties a chance to resolve them speedily and effectively. For the process to really work all the participants including the lawyers need to understand the process and the benefits.

If you want advice on mediation or require a mediator we would be happy to help. We have trained mediators who can provide a fixed price service to help resolve disputes.

Filed under: England & Wales, FLW Article, ,

Can the freeholder recover costs incurred in pursuing me at the LVT as service charge?

The above question is one which frequently arises when a claim has been made by a freeholder to the LVT to determine the reasonableness of service charges.

Obviously it is always open to the tenant to request that the LVT in determining the application will exercise it’s discretion and make an order under Section 20c Landlord and Tenant Act 1985. If such an order is made the LVT can order that no costs will be added to the service charge accounts or limit the amount/proportion that may be recovered. If the freeholder is generally successful in their application often the LVT will not make such an order and so then the costs may be recoverable.

As various articles have said it is then important to look at the terms of the lease. Unless the lease allows recovery the freeholder will not be allowed to recover these costs.

Recently the Court of Appeal had to consider the interpretation of the lease in Freeholders of 69 Marina, St. Leonards-on-Sea –Robinson, Simpson and Palmer v John Oram and Mohammed Goorun [2011] EWCA Civ 1258 .

In this case the freeholder had brought proceedings in the LVT to determine the reasonableness of the service charge and subsequently looked to recover the costs. Proceedings were issued in the County Court who determined at first instance that the costs were recoverable under clause 3(12) of the lease which said:

“pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act…. and to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord of and incidental to the service of all notices and schedules relating to wants of repair of the premises…..”

The District Judges findings were upheld at first instance by the Circuit Judge but the leaseholders appealed to the Court of Appeal. The appeal was dismissed as the Court of Appeal determined that clearly the Landlord had incurred costs in undertaking repairs etc and under section 81 of the Housing Act 1996 an application to the LVT is a necessary pre condition of the forfeiture process.

An interesting decision making clear that the Court will give a broad interpretation to these clauses to allow Landlords to recover costs

Filed under: England & Wales, , , , , ,

Back to Basics 4: Section 21

A section 21 notice is not a notice to quit. Many people that call the helpline refer to a section 21 as a notice to quit even today and it’s not, so stop it!

A section 21 notice is used by the landlord when he wishes to gain back possession of the property at the end of an assured shorthold tenancy, pursuant to a break clause or even where the tenant is in the periodic period of the tenancy. There are two types of section 21 notices that a landlord can serve on a tenant. The section 21(1)(b) notice and the section 21(4)(a) notice.

Although both notices refer to section 21 they should not be confused with each other especially given that have very different notice requirements. If the wrong notice is served and relied upon then it can delay or hinder possession proceedings.

Depending on whether the tenancy is either of a fixed term or a statutory periodic will depend on which notice a landlord will need to serve.

The Section 21(1)(b) Notice – Fixed Term:

A section 21(1)(b) is served during the fixed term of a tenancy. A landlord serving this notice must give not less than two months notice stating that he requires possession. The notice should specify a date “on” which the landlord requires possession. The notice cannot expire before the end of the fixed term unless the landlord is relying on a break clause in the tenancy agreement. Therefore a notice should not be dated to expire before the last day of the tenancy as this would make the notice invalid and whilst it could be dated to expire on the last day of the fixed term there are many out there that believe that dating the notice to expire on the last day makes the notice invalid. We at PainSmith do not.

Other issues that need to be noted are that tenants have 6 months security of tenure and so a landlord can not issue court proceedings on a section 21 until the tenant has been in residence for 6 months. The other issue is that any notice served pursuant to a break clause should comply with the provisions of that break clause and then finally if the notice is served in the fixed term to expire in the periodic period it’s still a section 21 (1) (b) that needs to be served.

The Section 21(4)(a) Notice – Periodic Tenancies:

A section 21(4)(a) is served after the fixed term has expired when the tenancy is a statutory periodic tenancy. A landlord serving this notice must give two clear months notice stating that he requires possession and the day on which the notice expires must be at the end of a period of the tenancy. The section 21(4)(a) notice often causes the most confusion amongst landlords due to the fact that if the wrong date is specified on the notice then it becomes invalid. To avoid this pitfall it is vital that a landlord looks at the tenancy agreement to assess what the tenancy period is.

Some of you are aware that unlike a section 21(1)(b) a date need not be specified on the notice and instead the ‘saving provision’ can be used following the decision of Lower Street Properties Ltd v Jones however, rather oddly we still find some of you are dating the notice. Why complicate things?

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

Is it reasonable to expect tenants to pay large service charges?

The Upper Chamber Lands Tribunal recently considered whether in determining if costs have been reasonably incurred account should be taken of the financial impact on tenants and whether major works should be phased (Garside and others v. RYFC Ltd and others [2011] UKUT 367). The case involved an estate of 5 blocks with 54 flats which as a result of historical neglect had a manager appointed by the LVT after an application by some of the leaseholders.

The Manager appointed set about arranging for outstanding works to be carried out. However a number of the leaseholders became concerned as to their ability to pay due to the significant increase in service charges these works would cause.

The leaseholders agreed that the scope of works was acceptable but queried whether it was necessary to carry out the bulk of the works at once. They suggested that the works should be phased to spread the costs over a longer period. The costs were likely to be in the year 2010 £7,600 or more and it was said that some Leaseholders would be forced to sell their flats.

The LVT rejected the argument that consideration should be given to the individual leaseholders ability to pay in determining the reasonableness of the costs. The LVT determined given there was no argument over the reasonableness of the costs, the specification or the ability of the Manager to recover the costs in advance and therefore in the LVTs opinion section 19 of the Landlord and Tenant Act 1985 only related to the reasonableness of the works and costs and not the ability of the leaseholders to pay.

The leaseholders appealed to the Upper Chamber Lands Tribunal. HHJ Robinson determined that the 1985 Act did not limit what is reasonable. In her opinion “reasonable” should be given a broad meaning in accordance with Ashworth Frazer v. Gloucester City Council [2001] 1 WLR 2180. Thus in her opinion the financial impact and whether works could and should be phased was a material consideration in determining whether costs have been reasonably incurred under section 19 of the 1985 Act.

The Judge said that a wide consideration had to be given of all the issues including the urgency of the works. These were all matters of fact and judgment for the LVT to determine. She did emphasis that the LVT could not alter a tenants contractual liability to pay whatever the hardship.

The lesson here is that if Leaseholders are faced with consultation over major works and they are concerned over the ability to pay they must raise this. This would be a legitimate matter to raise and for the person undertaking the works to have regard to and whether the works can be phased. Certainly something all property managers should be alive to particularly when drawing up specifications of works.

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

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