Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

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, , , , , ,

More Long Leasehold News

For those of you who are involved in people looking to extend their leases or undertaking freehold purchase by way of collective enfranchisement under the Leasehold Reform Housing and Urban Development Act 1993 you will no doubt be aware of the issues with regards to signing the Initial Notices required under this Act.

Due to a case called St Ermin’s Property Co. Ltd v. Tingay [2002]EWHC 1673 (Ch) it was determined that all such Notices must be personally signed by the relevant leaseholder. The case determined that the Notice could not be signed by a solicitor or even under a Power of Attorney but required an actual signature. This practically caused many issues particularly once the residence requirement was removed and leaseholders were often “Buy to Let” landlords spread all over the globe.

As a result a Private Members Bill, Leasehold Reform (Amendment) Bill, is due to get its second reading on 22nd November 2013. The Bill sets out to amend paragraph 99 of the 1993 Act to remove the requirement that Notices must be personally signed. If the Bill should become law it will mean that Notices may be signed “by or on behalf of the tenant” and should remove this practical difficulty.

Whilst this may seems minor many notices have been rejected by freeholders on the grounds they have not been properly executed and leaseholders have had to start the process all over again incurring not only their own costs but having to pay costs to freeholders.

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, , , , ,

Daejan v. Benson: where are we at?

We have made various posts about service charges etc on long leaseholds but still have questions asked about the infamous case of Daejan v. Benson.

To recap this started life as an LVT claim as to whether service charges were recoverable or if they were capped due to a failure by Daejan to comply with Service Charges (Consultation Requirements) (England) Regulations 2003 and subsequently on application to dispense with the need to consult under the Landlord and Tenant Act 1985. In both instances the LVT found against Daejan who appealed to the Upper Tribunal (Lands Chamber) who in November 2009 upheld the LVT decisions. So off went Daejan to the Court of Appeal.

The Court of Appeal gave its judgment in late January 2011 (Daejan Investments Ltd v Benson & Ors). The Court of Appeal upheld the previous decisions and therefore found against Daejan. Not put off Daejan sort leave to appeal to the Supreme Court and was granted the same at the end of June 2011. Currently we understand that the matter is likely to be heard by the Supreme Court and judgment given towards the end of this year.

So where does this leave the law? If you are a Landlord (whether arms length or residents) you must ensure that you comply with the Section 20 Consultation requirements to the letter! To do otherwise leaves you open to significant risk that costs will not be recoverable. As the law stands the financial consequences to the freeholder are not a matter for the LVT to take account of when considering prejudice. What needs to be shown is that a failure to comply must not cause any genuine prejudice to the Leaseholders. Whilst LVT’s may have substantial sympathy with residents management companies under the regulations no differentiation is made. LVT’s currently are likely to take a strict view given the fact that the current statement of the law was supported by both the Upper Tribunal (Lands Chamber) and the Court of Appeal.

Landlords and those advising them do have options. Given the serious ramifications of a decision going against a Landlord after works have been completed it is worth bearing in mind that they can apply for a prior determination. When there is opposition to a scheme and it is clear from the conduct of some leaseholders that they will challenge the works this may mean despite there being a delay that an application should be made to the LVT. Given most LVT panels can hear cases with fairly short timescales ( assuming no appeals) then this can be factored in to the process and quotes etc can be obtained which perhaps have a longer “shelf life” than normal to allow for an application. It seems to us that given the various rules and regulations specifically allowing prior determinations this must be the prudent step given that it provides Landlords with a safety net to check compliance if any doubt in the Landlords or their agents mind.

We will of course have to see what view the Supreme Court takes and we will be sure to blog on this when we know more!

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

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, , , ,

Missing Landlord: an alternative solution

Many of you will be aware that when a long residential Leaseholder of a flat has a missing Landlord the Leasehold Reform Housing and Urban Development Act 1993 provides a remedy. The process involved requires a Court application and then a determination of the price by the Leasehold Valuation Tribunal using the valuation principles under the 1993 Act, as amended. This means that if the Leaseholders hold leases with less than 80 years remaining then they will have to pay an element of marriage value.

Under the Landlord and Tenant Act 1987 Part III there is an alternative method which may be used. This may be a better route due to the valuation formula used which is believed to be more favourable to Leaseholders in that generally they will not have to pay marriage value.

Under the 1987 Act if there is a building consisting of 2 or more flats held by qualifying Leaseholders (i.e. long leases) and they amount to more than 2/3rds of the total number of flats then the Act may apply (section 25). The commercial parts of the building must not exceed 50% of the total internal floor space ( so further reason why this method can be used rather than the 1993 Act). Subject to these then the 1987 Act will apply.

The starting point is then to look at Sections 27, 28 and 29 of the 1987 Act. Under Section 27(3) when the Landlord is missing an application to the Court can be made to dispense with the service of a Notice. The application can then be made for an Acquisition Order and under Section 29 if the Landlord is not carrying out their management function, which includes repair, maintenance and insurance of the property, as required by the lease (and almost by definition if there is a missing landlord and no intermediate Management Company they will not be) then the Court may make an Acquisition Order. The Order may be on such terms as the Court thinks fit but they will refer the question of price to the Leasehold Valuation Tribunal.

Under S. 33 where the Landlord is missing then the Senior President of the Tribunal shall select a surveyor to determine the price payable. This will be on terms that the interest may realise if sold on the open market and that the assumption that none of the Leaseholders were seeking to buy. Generally it is believed that in instances where marriage value would be payable under the 1993 Act this may be a more favourable valuation method.

The LVT will then make appropriate directions as to the price and other terms. The court may then execute the transfer and subject to paying the monies into Court the acquisition can be created.

Whilst all routes involving missing Landlords are perhaps cumbersome it is worth thinking which route is best. Discussion with the professional advisers is best at an early stage to consider fully the best valuation method. From a time perspective given the actual processes are similar then little can be gained. It is also worth bearing in mind that in instances where a Manager has been appointed under the 1987 Act then provided the Manager has been appointed for not less than 2 years then this method can also be available.

If you have such a situation then we would be happy to advise.

Filed under: England & Wales, , ,

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, , , ,

Is my property an HMO?

For a full definition go to s254 & 257 Housing Act 2004. For those who want a translations, read on.

This area is not straight forward so we have tried to make sense of the legislation and hope that you find this helpful! Basically, there are two definitions of HMO.

1. Whether your property is a house, or a flat, if you rent it out, and the property has 3*** or more occupiers ( note you need to count the occupiers not just the tenant, including children) and these occupiers make up more than one household*, sharing basic amenities ( e.g. kitchen, bathroom), then the property is likely to be an HMO for the purposes of the Housing Act 2004. There are other criteria, for example, the property must be the principal home of at least one of the occupiers. A Student house is considered the occupiers’ principal home thanks to s259 (2)(b). There are exceptions, including owner occupiers, prisons, care homes, student halls of residence, convents.

*For the purposes of the legislation a household includes members of the same family. Family members include partners** and relatives , partner’s relatives, partner’s relatives’ partners.

**Partner = husband, wife, civil partner (i.e. the other half of the couple)

*** Strictly speaking section 254 of the legislation states that 2 occupiers making up more than one household i.e. 2 non-related sharers, is an HMO but schedule 14 contains a series of exceptions which cannnot be HMOs’ and one of these is 2 person properties. Therefore these properties are not HMOs’.

2. A house that has been converted into flats may also be an HMO for the purposes of the Housing Act 2004. If it was converted not in accordance with the Building Regulations 1991, and one-third or more of the flats are let on leases of less than 21 years then the building may qualify as an HMO.

Scenario 1:
• Do you rent out your property?
• Is the property a house or a self contained flat?
• Is it occupied by more than 2 households* who share at least one basic amenity ( e.g. kitchen, bathroom)?
• Do you ( as landlord) live elsewhere ( i.e. you are NOT one of the households)?

If you answered YES to ALL the above questions then your property is most likely an HMO.

Scenario 2:
• Do you rent out your property?
• Is the property a house or self contained flat?
• Is it occupied by more than 2 households who share at least one basic amenity ( e.g. kitchen, bathroom)?
• Do you as landlord live in the property ( i.e. you make up one of the households?)
• Do you have 3 or more unrelated people living in the property with you?

If you answered yes to ALL the above questions then your property is most likely an HMO.

Scenario 3:
• Do you rent out your property?
• Is the property a converted block?
• Does it comprise only self-contained flats?
• Are one third or less of the flats owner occupied [ an owner occupier is someone with a lease of at least 21 years]?
• Was the conversion done before 1991, and therefore not compliant with 1991 Building Regulations?

If you answered yes to all the above questions then your property is most likely an HMO.
NB a purpose built block of flats, built after 1991 will not be an HMO, but its individual self-contained flats may well be.

If you are not sure as to the status of your property, then do look in the legislation here.
Next: The property that I let/manage is an HMO. What does that mean for me?

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, , , , ,

Survey of tenants in private rented sector.

The university of Winchester has launched a survey of tenants in a private rented sector. There is a real shortage of good information about the sector and Tenant’s experiences of it. Again, the government is in danger of making policy decisions in this information vacuum. PainSmith ask all readers of this blog to promote this survey to any tenants in a private rented sector they deal with.

The survey can be found at http://www.survey.winchester.ac.uk/prs

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, , , ,

Appointment of a Manager instead of RTM

The Commonhold and Leasehold Reform Act 2002 introduced the new none fault Right to Manage legislation.

The idea was that if you had not less than 50% of the Qualifying Tenants interested they could form an RTM company and then take over the day to day management. This was seen as an alternative to enfranchisement or even a stepping stone to the same.

However as with enfranchisement whilst at first this can seem a good idea it is worth thinking about what in practice this will mean. In particular since RTMs involve leaseholders working together this is not always appropriate for reasons similar to those given in our earlier blog post on the Cons attached to enfranchisement. In particular you may all need to work together and make difficult decisions about the management of the building.

Sometimes the leaseholders find themselves in a position where they all agree that the current management of the building is not working. Often this can be down to neglect or actual mismanagement. Whilst there may be differing opinions as to the way to move forward it may be possible to use the Landlord and Tenant Act 1987 (“The Act”) to impose some control.

The starting point is for one or more leaseholders to serve a Notice (section 22 of the Act) upon the Landlord and any Managing Agent appointed. This should set out the defaults complained of and invite them to set out how they intend to remedy the same. A reasonable period must be allowed.

Once that has expired the Leaseholders can then apply to the LVT under section 24 of the Act for the appointment of the manager. It will be for the Leaseholders to propose a professional managing agent who is prepared to accept an instruction. Generally the LVT will issue Directions and these will require the proposed agent to confirm that they agree to being appointed and ask them to confirm the terms upon which they would be appointed, provide a CV and other information. There will also be Directions requiring the Leaseholders to file evidence of the breaches complained of and for the Landlord/Current agent to reply. We pause at this point to highlight that this is a fault based procedure and the LVT must be satisfied that there are breaches and it is just and convenient to make an order.

There will then be a hearing (note generally the LVT has no powers to deal with matters summarailly) and the LVT will hear evidence. Usually they will require the proposed manager to attend and give evidence so that the LVT is satisfied that they are a proper person and able to adequately manage. The Manager is an appointee of the LVT and will operate pursuant to the terms of their Order.

Once appointed it will then be for the Manager to manage. They must ensure compliance with all terms of the lease and of course statute and will normally be expected to manage in accordance with one of the recommended codes of good practice for management.

The manager should act independently to pursue his or her duties. This often can be useful as the obligation to make decisions etc as to the management will be down to the manager and not the Leaseholders (or Freeholder). This means that sometimes difficulties can arise and the Manager is unsure what to do. If the terms of the appointment under the Order appointing do not make clear they are entitled to make application to the LVT to seek further Directions.

As can be seen whilst RTM provides a useful tool for leaseholders it is not suitable for all circumstances particularly today in some blocks which have many absentee leaseholders. Appointment of a manager can ensure that a building is properly managed particularly when the leaseholders (or some) are satisfied that it is not being done properly but they themselves do not want to become involved in the management or cannot agree on exactly how the building should be managed.

As with all things relating to residential Landlord and Tenant we at PainSmith are happy to advise Landlords or Tenants about such applications or the options open to them.

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

It’s not the lawyers! It really isn’t!

Delays in possession hearings are not common in our experience but they can happen. In the case of Benesco Charity Ltd v Kanj and Unknown Persons the occupiers of a property were granted permission to appeal a possession order thus delaying the execution of the bailiff warrant for possession.

Benesco granted Speedway Tyres a 10 year lease. Mr Kanj set up the company but it was his wife that was the director of the company. Speedway and an associated company, Speedway Autocare Ltd (Autocare) was placed into a creditors voluntary liquidation.

The liquidator appointed for both companies disclaimed the lease. This meant that Speedways obligations under the lease were at an end. However this did not put at an end any lease that Speedway may have granted to third parties for the property. Mr Kanj received notification of the disclaimer.

Benesco then issued possession proceedings on the basis that Mr Kanj and the other unknown persons were trespassers. Mr Kanj defended on the basis that at some point he was granted a sub tenancy by Speedway or Autocare. However at the hearing Mr Kanj then changed his position and stated that he did not have a personal tenancy but that a tenancy had been granted to Autocare by Speedway.

There were other issues too but dealing with the delay aspect, the court decided that upon reading the witness statements it did appear as though the issue over the sub tenancy needed to be dealt with and as such the witness statements could not be rejected at a possession hearing which is summary in nature.

A person is entitled where there are matters raised in the witness statement to take the matter to trial. The court found that on the evidence there was an arguable case that at least Autocare had a sub tenancy. The court accepted that it was not clear what the true position was but stated that Mr Kanj and his wife could be cross examined in court and should not have been dismissed out of hand.

The moral of the story…….delays are possible even when the tenants/occupiers case appears to be groundless.

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

A survey of tenants experience……

A survey of tenants experience……

Resolution Foundation, an organisation that works to highlight the experiences of low-to-middle earners (LMEs) through its research has published a report on its survey of tenants experience in the private rented sector.

Resolution Foundation conducted I mystery shopping exercise of 25 letting agents and also spoke to tenants about their experience in the lettings market where a letting agent was involved. The main cause for concern appears to be that the lettings agents are unregulated and that there is a lack of transparency with agents charging arrangements.

The survey found that many agents do not confirm what these fees are in the initial paperwork which can cause some financial difficulty even before the tenancy has begun. PainSmith Solicitors has for many years stressed the importance of confirming these fees at the outset so these results are alarming especially given that in some cases they may not be recoverable under the Consumer Protection from Unfair Trading Regulations.

The report has therefore made the following recommendations:

-letting agents to be brought under the Estate Agents Act (1979), thereby giving the Office of Fair Trading powers to ban agents who act improperly;

-all letting agents to become members of an ombudsman service, giving tenants the opportunity to pursue redress in cases of poor practice;

-an amendment to the code of practice of the ombudsman service to make it a requirement for agents to present landlord and tenant fees on their websites, in adverts and in all paperwork in a way that is easily comparable across agents;

-government to make use of the 2012 retendering process for the tenancy deposit protection schemes to find ways to make it easier for tenants to use their old deposits when moving in the private rented sector;

-local authorities to extend rent deposit schemes to members of the low-to-middle income group.

Whether or not you agree with the recommendations it is important that tenants understand what they are expected to pay and when. These fees should therefore be confirmed in writing before any agreements are concluded to ensure that the fees are recoverable.

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

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, , , , , ,

“Why Do I Need Court Proceedings? And What Do These Involve?

Many of our readers will know why there is a need to obtain a Court Order to evict residential tenants however for those that do not we hope the below helps.

If someone is occupying a residential property whether lawfully or not then an Order of the Court is required (a Possession Order) which generally can only be enforced by County Court bailiffs or Sheriffs Officers. This is true of squatters and tenants but this blog post is limited to tenants. If you evict a Residential Tenant from their home without a Court Order you can find yourself as Landlord (or others who assist in this such as an agent) liable to both civil action for damages and a right of re-entry from the tenant and also possibly criminal prosecution under the Protection from Eviction Act 1977 which can render you liable for a fine or in severe cases a custodial sentence. For these reasons alone it is vital that the correct procedure is adopted to avoid such penalties.

If therefore the Landlord wants to get his or her tenant out he should make sure he follows the correct process. The starting point will be the tenancy agreement itself to see on what basis the tenant can be evicted. If the Landlord simply wants the property back and there are no major breaches then generally the fixed term will need to be ending or for the agreement to have a break clause which the landlord can rely upon. Most types of residential tenancy require some form of notice most usually a s.21 notice and for others some form of Notice to Quit.

If there are breaches of the agreement itself such as none payment of rent then different notices may need to be served such as a s.8 notice for assured tenancies (including Assured Shorthold Tenancies).

Once the notice has expired an application can be made to the Court. Usually this will be the County Court local to the tenanted property. Whilst you can apply for possession through the accelerated (a misnomer!) process where you have a expired s.21 in the case of a s.8 or where you wish to seek costs, rent arrears and interest as well as possession pursuant to the expired s.21 then you will be listed for a first hearing. This should be within 8 weeks of issue but we have experienced recently delays which we have posted about. At the hearing if the Judge is satisfied that you have complied with the rules then unless your tenants have a Defence you should obtain a Possession Order. This will usually be for either 14 or 28 days but the Court can extend the time up to a maximum of 42 days.

Once you have this Order the tenants should vacate by the date given, if they do not then you will have to apply to the Court for a bailiff appointment. This will then be listed and again usually within about 4-6 weeks. Whilst the bailiff does not have power to use force to evict the Tenants in our experience we have found that the bailiffs are very effective at doing their job and persuading tenants to leave.

It is perhaps worth highlighting a point we have made in previous blogs given the current state of the economy. We are seeing more and more tenants who are approaching the Local Authority to be rehoused once given notice by their Landlord. Sadly most Local Authorities will not properly consider the tenants request for re-housing until a date has been fixed for the bailiffs appointment and the tenants themselves will be advised that if they vacate before-hand then they will have made themselves voluntarily homeless and the Local Authority will not assist.

So once the bailiff has executed the warrant the landlord will hopefully gain possession to relet his or her property to another.

It is important that all the way through you get the process right. If not then the whole procedure can be delayed substantially and the costs for the Landlord can escalate. This blog assumes no defence has been lodged and only gives a brief overview.

We appreciate that Landlords often at the time of evicting a tenant wish to limit their financial exposure and hence we offer a capped price eviction service but it can often be a false economy to not take advice on the whole process at the outset!

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

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, , , , , , ,

Enfranchisement: can you bring multiple claims?

Recently the High Court has ruled on the case of Westbrook Dolphin Square Limited v. Friends Provident Life and Pensions Limited.

The Leasehold Reform Housing and Urban Development Act 1993 expressly considers the position which may arise when a Notice (whether for enfranchisement or a lease extension) has been validly served but is not proceeded with whether by way of an express withdrawal or a deemed withdrawal when a party does not comply with the time limits under the Act. In those circumstances the Leaseholders are then barred from issuing a fresh Notice for a period of 12 months from the date of withdrawal. The participants will also be liable to pay the Freeholders costs. Thus the Act envisages that multiple Notices may be served.

In The Westbrook case a Notice was originally served and a negative counter notice was served and proceedings issued which had reached the stage of being a couple of weeks form the date fixed for hearing when Westbrook withdrew the Notice and the claim supposedly due to the fall in property values. Westbrook made clear when serving Notice that they would take further steps to acquire the freehold on what they felt would be more advantageous terms. Friends Provident indicated at this stage that they felt if Westbrook did this under the Civil Procedure Rules they would need the Courts permission. Westbrook duly paid Friends Provident the costs of the Court proceedings.

A new Notice was duly served (after the 12 month moratorium period had expired). This Notice contained a different purchase price, date and manner of signature of the participating tenants. Friends Prov served a counter notice and proceedings were issued by Westbrook without permission of the Court being sought in advance. Five out of the six grounds raised by Friends were the same as the earlier proceedings. Friends submitted that the second claim was an abuse of process in that there was a public interest in the finality of litigation and that no party should be vexed by the same cause of action twice. Westbrook submitted that it did not require permission and if they did they should be granted permission as the possibility of successive claims was a feature of the Act.

Mr. Justice Arnold struck out the claim. He decided that the principle of finality of litigation and that a person should not be vexed twice should inform the courts approach. The claim amounted to an abuse of process. The facts were substantially the same. Whilst withdrawing the Notice was acceptable they should not have discontinued the claim and then looked to in effect bring a second claim on substantially the same facts. They should have pursued the Court claim and had that adjudicated upon and at that stage, if they had been successful, they could have withdrawn the Notice.

It seems that if you receive a negative Counter Notice before issuing proceedings you need to consider whether you wish to go through with them. Once proceedings are started if you then withdraw serving a Notice again on the same basis will be difficult without permission of the Court which it seems may not be given. If therefore you have a block where there may be issues over the right to enfranchise tenants need to be committed to going all the way through with proceedings and if in doubt need to be prepared to withdraw the Notice at an early stage. In practice this probably applies to a minority of claims and seems to be the Court expressing annoyance at corporate participating tenants looking to exploit the system as the judge saw it. Yet more case law deriving form LRHUDA 1993!

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

Its all in the Drafting!

The recent case of Estafnous v London and Leeds Business Centres Ltd (LLBC) showed what can happen where an agreement is drafted which does not cover the way the sale is finally concluded. In this case, LLBC wished to sell a property known as Regent House. In this regard, Mr Estafnous, an agent, introduced an interested purchaser, Mr Kapoor, to LLBC.

An agreement was drafted between Mr Estafnous and LLBC which set out that in consideration for introducing the buyer and seller and on completion of the purchase of the Property, the agent would be entitled to £2 million commission.

Following negotiations it was decided that Mr Kapoor would purchase the company that owned the leasehold interest in the property, rather than the property itself, in order to save on stamp duty. The purchase proceeded on a Share Sale Agreement between the purchaser and the seller.

When Mr Estafnous claimed his commission payment from LLBC it refused on the grounds that the property itself had not been sold and therefore the agreement did not apply. Unfortunately for Mr Estafnous, the Court of Appeal held in favour of LLBC.

The lesson to be learned from this is that agents should ensure commission agreements are drafted to cover all possible outcomes if they don’t want to be paid for the work undertaken.

Filed under: England & Wales, FLW Article, ,

Back to basics 3: Voluntary Surrender and Abandonment

It can be tricky to know the correct procedure to take when you believe that the tenant has vacated the property. The main issue you want to avoid like the plague is a claim for unlawful eviction. Claims of this nature can be troublesome to deal with, costly and will hinder your attempts for possession a great deal. It is therefore crucial to follow the relevant steps to make sure that vacant possession can be gained without undue delay.

Surrender is one of the more amicable ways to formally bring an end to a tenancy. The Landlord and tenant mutually agree that it is best for all concerned to end the tenancy. Signing a deed of surrender ties up all loose ends and ensures that parties are not unwittingly still involved in the tenancy. This is a situation that is best avoided to mitigate chances of a nasty surprise somewhere down the line.

All circumstances are easier to deal with when you have mutual agreement between the parties. As I am sure a number of you attest to, sometimes not all the boxes can be ticked off, and it is situations like these that you need to be careful about. This is where abandonment notices can be worth their weight in gold.

Abandonment notices are very simple concepts. It is simply a note on the door saying that if they are still in occupation can they let you know within 14 days. This time limit can be altered but in past experience, we as a firm believe that 14 days both allows sufficient time for the tenant to inform the landlord or agent of his presence, whilst at the same time ensures that the Landlord does not need to keep their property off the market for too long and therefore does not lose out on potential future rental payments.

I will add a cautionary note here. Although the notice needs to be visible i.e. not hidden in a bush, it should not be brought to the attention of everyone and their dog who is going to pass the property. Those that call the helpline have stressed that they are concerned about third parties noticing that properties are empty when they get sight of these notices and therefore it is advised that you simply use your common sense.

Back to the notice itself, if no contact has been made by the tenant in the time frame stipulated, then the day after it has expired that is the fifteenth day, the locks can be changed and the property put back on the market. There is obviously the issue of dealing with the tenant’s possessions if any have been left behind but that is a topic for another day.

For those on the helpline there is a draft Deed of Surrender and Abandonment Notice in the document vault.

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

The Tenants Bankrupt!

We have come across two decisions from earlier this Summer dealing with the problem of what to do when faced with a Tenant who is made bankrupt or enters into a Debt Relief Order.

Generally anyone who is made bankrupt or obtains a Debt Relief Order is subject to certain moratoriums on proceedings and the recovery of money which they owed prior to the Court Order making them bankrupt etc. This means that landlords can find themselves with a tenant who has run up arrears which they then cannot recover save for making a claim in the insolvency process under which it is likely they will only recover a small proportion of the monies.

In Sharples v. Places for People Homes Limited (bankruptcy) and Godfrey v. A2 Dominion Homes Limited (debt relief order) the Court of Appeal gave consideration as to whether a Landlord may bring Possession proceedings relying on arrears as a ground for possession not withstanding that the Tenant was subject to some form of insolvency procedure.

The Court determined that Landlords could bring proceedings relying on the rent arrears in the usual way if the ground could be made out then the insolvency of itself would not prevent the court making an Order for Possession in these circumstances. What the Court did say is that the Court could not make a monetary Judgment and nor could it suspend any Order on terms requiring the arrears to be paid.

Whilst often a Landlord may be best advised to rely on Section 21 if at all possible obviously this is not always available. Landlords will therefore still have the option of Section 8 proceedings.

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

Ground 14

Most of you will have heard about the coalition governments crack down on anti social behaviour especially in light of the recent rioting and looting. However, the coalition government is taking it that one step too far, in our humble opinion, and suggesting that those that are convicted of anti social behaviour should be evicted from rented accommodation even where the anti social behaviour has nothing to do with the rented property.

In August 2011 the Department for Communities and Local Government released its consultation on “A new mandatory power of possession for anti-social behaviour.” The consultation is aimed at making Ground 14 of Schedule II of the Housing Act 1988 a mandatory ground for possession.

Looking at the consultation itself statements that should be noted are:

“It is clearly right that eviction for anti-social behaviour should remain exceptional: the loss of one’s home is a serious sanction and eviction may simply displace the problem elsewhere rather than providing a long term solution.”

“But where landlords turn to possession as a last resort in order to provide respite to communities and as a serious sanction against perpetrators that process can take too long”.

“Most importantly though lengthy possession proceedings mean that the suffering of victims is further extended”.

“….serious anti-social behaviour and criminality beyond the immediate neighbourhood of the property can clearly be taken into account”.

The consultation then asks those that wish to respond to consider the following questions:

1. Do you agree that we should extend the scope of the current discretionary ground for possession for anti-social behaviour and criminality in this way?
2. Do you agree that we should construct a new mandatory power of possession in this way?
3. Are these the right principles which should underpin a mandatory power of possession for anti-social behaviour?
4. Have we defined the basis for the new mandatory power correctly? If not, how could we improve the definition?
5. As a landlord would you anticipate seeking possession using the mandatory power in some or all of the instances where this would be available?
6. Are there other issues related the introduction of a mandatory power for possession for anti-social behaviour that we should consider?

So how to respond in a rational and clearly though out manner, difficult, but here goes.

If Ground 14 is made mandatory both social and private landlords will be allowed to issue possession proceedings not only where the tenant is convicted for anti-social or criminal behaviour but also if the occupier or a visitor of the tenant has such a conviction. So will this lead to problems with the convicted father visiting his children? Does this contradict one of the coalition government’s aims, to promote family life, I think so.

Its quite clear that this consultation is in response to the riots in August and that there was as much though put behind it as Teresa May’s statement about the Right to Family Life and the cat. But whilst the consultation appears to recognise that the court process is too long it makes no reference to why that is and no reference to how that should be improved. Even where landlords have mandatory grounds for rent arrears the process can take too long with agents and landlords taking their frustrations out on us poor, overworked lawyers (its true!).

One has to wonder however with the current housing shortage and the problems that were recognised with the younger generation following the rioting whether moving people on is really the best we can do. We live by the principle that “if you do the crime you must serve the time” but after that time people are entitled to get on with their lives because this justice system promotes the right to rehabilitation. It is obviously very difficult for some to accept this especially where they have been victims of a serious crime but this consultation is not promoting re-habilitation it is promoting ostracising certain sections of the community which can lead to an increase in crime and looting.

This cycle must end and housing, communities and the court system needs investing. Under Ground 14 it is possible to get possession where the tenants are a nuisance in our experience and this is simply going too far.

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

Collective enfranchisement: what is it?

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

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

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

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

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

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

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

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

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

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

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

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

Change in Tenants

Sam asked “change of occupancies can be a legal minefield so some clarification on the best procedure would be helpful.”

The document you need is the Deed of Assignment.

The 3 main points to note:

Deposit
We do not know how many of you have been affected by this but DPS in their rules (16c) state that they will only allow registrations to be changed where you have the written consent of the outgoing tenant. So the Deed should include a clause which states that the outgoing tenant permits the landlord to change the registration of the deposit into the name of the new tenant and that the new tenant and outgoing tenant agree to settle the issue of any deposit monies to be passed between them themselves.

Inventory
The Deed also needs to include clauses relating to the inventory. When a tenancy is being assigned the new tenant must be given a copy of the inventory and given the opportunity to go through it before the Deed is signed. This may mean an additional visit to the property. However when the inventory is agreed this should be noted in the Deed and the inventory should be attached to the Deed. If the new tenant takes issue with the condition of the property then have the outgoing tenant and the new tenant deal with that between themselves even if that means the outgoing tenant compensates the new tenant and then have them contact you to finalise the Deed. The new tenant must agree that the condition of the property when they move in is as per the inventory compiled at the beginning of the tenancy. Agents and landlords should not finalise the Deed until the inventory is agreed to as this will affect the landlord’s ability to make any claim on the deposit at the end of the tenancy if the need arises.

It is recommended that you consider both the issues above no matter what scheme the deposit is registered with.

Signature
As you are no doubt aware when tenants enter into a tenancy they do so on a joint and several basis. This means that when one gives notice you can accept it on behalf of all of them and when one defaults in his rent payment you can seek the default amount from those that have already paid. It is due to this joint and several principle that many argue that when there is going to be a change in tenants that the remaining tenants consent should be sought and they should also sign the Deed.

It is therefore advisable that all the tenants that remain also sign the Deed along with the outgoing and new tenant and of course the landlord. However obtaining everyone’s signature is sometimes easier said than done. Whilst you can choose not to release the outgoing tenant unless they obtain the consent of the others, if for example, they are leaving the country they are unlikely to be too concerned about the procedure that they need to follow. Therefore if you obtain the signature of only the outgoing and new tenant along with the landlord the new tenant has at best an equitable right to remain in the property where rent is paid and accepted. This means that possession proceedings can be pursued against all those in the property following the assignment but the assignment needs to be fully explained in the court papers.

The problem with this issue is that there is no legislation or case law that supports the view that everyone should sign or not as the case may be. There is also the concern that in the case of an assured shorthold tenancy the new tenant could argue that he has 6 months security of tenure because he has a new tenancy. At PainSmith, 2 solicitors a barrister and 2 paralegals argued over this issue for some time and still there is no consensus. Therefore whilst the easy option is to sign a whole new tenancy this may not be what the landlord wants because of the security of tenure issue and as such the Deed with only the outgoing and new tenant signing maybe the only option available with the landlord warned of the above risks. To minimise the signature being a problem agents could consider handing tenants a letter at the outset explaining that if there is to be a change that everyone will have to sign a Deed and if they do not that not change will be considered. We can draft a template of this letter for readers to purchase if needed.

Sam thank you for the feedback and sorry for the delay!

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

Oxford, again….

We have been provided with a copy of a letter that Oxford City Council is distributing to relevant parties in the lettings industry.

As regular readers will know, the Labour government amended the planning use classes in April 2010 to limit the C3 use class and created a C4 use class for HMOs’. We reported on this here.

After the election the new coalition government amended the General Permitted Development Order to allow movement between the C3 and C4 classes. This was reported here.

Local Authorities can opt out of the GPDO by making an Article 4 Direction and requiring planning permission to switch from C3 to C4 use. Oxford is stating that they have a shortage of housing and a high demand for HMO accommodation. This might appear to be inconsistent with a policy of increased planning control but Oxford justify the policy by stating that there is a shortage in all types of accommodation and that wholesale conversion to HMOs in all areas means that other areas are not satisfied. However, Planning Policy Statement 3 requires local authorities to adopt planning policies that provide sufficient living accommodation for all types of use. It will be for Oxford to show that their new restrictions on HMO accommodation do not violate this policy statement.

Finally, there is some doubt as to whether Oxford’s article 4 Direction will actually matter. As we explained in this post the fact that a property use moves from one use class to another does not automatically mean it is a material change of use, which requires planning permission.

It should also be noted that Oxford is not permitted to charge a planning application fee for applications made as a result of an Article 4 Direction and one possible way of frustrating the proposals is simply for a large number of landlords to make applications thereby tying up resources.

Thank you to Mark at College and County

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

Consultation Works

Where landlords of long leases (more than 21 years) wish to carry out works they must consult the leaseholders before they are entitled to a contribution towards these works. If the consultation process is not followed pursuant to s.20 Landlord and Tenant Act 1985 the landlord’s ability to recover monies is capped at £250 per leaseholder. The landlords can apply for a dispensation from these consultation requirements however this is subject to the LVT’s approval.

In Daejan Investments Ltd v Benson and others, Daejan sought to recover some £270,000 of service charges from five leaseholders in respect of the works to the common parts of the building containing their flats. However, unfortunately for Daejan, the LVT found that that it had failed to comply with the consultation requirements.

Specifically the LVT held that Daejan failed to:

1. set out a summary of the observations received and the landlord’s response to the initial notice;

2. ensure that the estimates were available for inspection at a place for the period specified in the notice;

3. give 30 days to enable leaseholders to make observations on the estimates.

The LVT held that it would be wrong to grant the landlord dispensation from the consultation requirements because it considered that the leaseholders had been prejudiced by not seeing the full estimates and having a shortened opportunity to make observations. This is despite the fact that the leaseholders had not identified what comments they would make, if any, if given the opportunity. Daejan appealed to the Upper Tribunal (Lands Chamber).

The Upper Tribunal dismissed the appeal and held that the LVT had to focus on the scheme and the purpose of the consultation requirements and any financial prejudice to the Landlord was irrelevant. However, the Tribunal confirmed that the extent to which the leaseholders were prejudiced or disadvantaged was relevant and a common sense approach should be applied when making any findings.

Daejan appealed unsuccessfully to the Court of Appeal. The Court of Appeal reiterated most of what was said by the LVT and emphasised that following the consultation process in the proper manner was the essence of the statutory scheme and curtailing consultation was a serious failing that could cause significant prejudice.

Whether or not and in what circumstances the LVT will grant dispensation, retrospectively or otherwise, is not clear following this judgment. However, where there has been no prejudice to the leaseholder due to a minor breach or where works have been carried out in a genuine emergency dispensation may be possible.

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

Potts –v- Densley & Pays Update

As advised on the 4th February 2011, PainSmith attended the hearing at the High Court today.

There were 3 issues considered by the court, 2 of which were subsidiary and therefore not relevant for the purposes of this blog.

The main issue before the court was, can the tenant sue for the usual penalties where the landlord has protected the deposit after the end of the tenancy, albeit before the court hearing.

The judgment has been reserved but we hope that the court will hand it down in late March and obviously we will publish the decision as soon as we receive it on this blog.

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

When is a Trial Not a Trial……

When it is a hearing of course! The recent case of Forcelux v Binnie in the Court of Appeal reviewed the status of initial hearings under part 55 of the Civil Procedure Rules, which govern possession actions. It seems that the first hearing before a Court is not a trial even though a possession order may be awarded and it may be the only hearing.

The key upshot of this is that it is far easier for a tenant to apply to set aside any possession order made at such a hearing where it has been made in his absence. This is because any attempt to set aside a decision made at trial can only be made by application under rule 39.3(3) and this requires that the party seeking for the order to be set aside must show:
1. He acted promptly;
2. He had good reason for his non-attendance; and
3. He has reasonable prospects of success at an re-trial.
This can be hard to do and therefore has the effect of preventing many re-hearings of matters where the defendant was not at the original trial. However, as the first hearing of a matter under CPR 55 is not a trial CPR 39.3(3) does not apply and the Court power to set aside the hearing is provided by CPR 3.1(2)(m). This does not require prompt action or the Defendant to show that they have reasonable prospects of success but merely requires a the Court to be persuaded that justice will not be done without a proper hearing.

In practice, this means that many more Defendants may have the opportunity to apply to the Court to set aside possession orders where they can show that the overriding objective of fairness will be best served by doing so. Agents and landlords should be aware that this may allow unscrupulous tenants to delay possession further and should also be aware that simply proceeding to a hearing without the presence of the tenant may not be the ideal situation that it may first appear to be.

Filed under: Uncategorized, , ,

New Generic Pre-action Protocol

From 1 April 2009 the 49th update to the Civil Procedure Rules will come into force.  One of its most important changes is the introduction of a generic pre-action protocol.  A number of types of case already have pre-action protocols in place, the new general protocol will apply to most other case types.

As with other protocols failure to comply without good reason will lead to a request for an explanation for the non-compliance by the Court and could lead to costs being awarded against the defaulting party, even in the small claims track.  It is therefore clear that an understanding of, and compliance with the new protocol is important.

There are genuine practical advantages to compliance too.  The aim of the protocol is to assist parties in settling disputes at an early stage without embarking on litigation.  Therefore compliance with the protocol could assist parties in settling their dispute more quickly and at a lower cost.

Pre-action Letter

The protocol requires a pre-action letter to be sent by the claimant.  The letter should include:

  • The claimants name and address;
  • The basis of the claim;
  • A clear summary of the facts;
  • The remedy the claimant seeks;
  • An explanation of how any financial remedy sought has been calculated;
  • Provide details of any specific funding arrangement entered into by the Claimant;

The protocol also requires the claimant to:

  • List the main documents on which they rely (and presumably include copies);
  • State when the claimant expects a response;
  • Offer ADR if the claimant thinks it appropriate and invite agreement;
  • Ask for copies of specific documents that the claimant desires to see.

A number of points are worth noting from this list of requirements:

    1. The claimant must show a basis for calculation of any financial demands.  This is something that claimants frequently do imprecisely, if at all, and so it will be necessary to apply more rigour to such calculations;
    2. While the protocol does not require the claimant to provide the documents he is relying on he is required to list them and so the implication appears to be that copies should be provided;
    3. The claimant is encouraged to put forward a proposal for ADR.  Interestingly the protocol list several different methods of ADR, including mediation, early neutral evaluation, arbitration, and plain old negotiation so the current bias in the Courts toward mediation as the only valid form of ADR may start to change;
    4. The claimant is allowed to ask for copies of documents.  However he is required to ‘identify’ them so the protocol is not a licence for ‘fishing expeditions’.

Additionally, where a defendant is believed to be unrepresented the claimant is expected to refer the defendant to the protocol and provide a warning that ignoring the letter could lead to the commencement of legal proceedings.

Defendant’s Response

The defendant is normally expected to respond within 14 days in full.  Where that is not possible they should send an acknowledgment letter within 14 days stating:

  • If an insurer is involved;
  • If the defendant is seeking advice who they are seeking it from;
  • When the defendant, its insurer, or its advisors will provide a full response;

The letter should also request any further information the defendant requires to make its full response.

The full response should begin by accepting the whole or part of claim or denying the claim.  If the defendant is not accepting the whole claim the letter should then state:

  • Why the claim is being denied by reference to the facts which are disputed and clearly identifying any parts which are accepted;
  • State whether any counter-claim is to be made and provide the same information as must be provided by the claimant’s pre-action letter;
  • State whether the defendant believes the claimant to have been to blame for any part of the claim and, if so, state why;
  • Agree to the proposals for ADR or state why they are not agreed and propose an alternative form of ADR or state why no ADR is relevant;
  • List the essential documents on which the defendant intends to rely;
  • Supply any documents requested by the claimant or, alternatively, state why they will not be supplied;
  • Identify and ask for any documents the defendant wishes to view.

Claimants Response

In response to the defendant’s letter the claimant should provide the documents sought or state why they will not be provided and, if the defendant has made a counterclaim, should respond in the form required for the defendant’s letter.

After this process the protocol anticipates that the parties will be in a position to review the relative merits of their respective cases, to eliminate unimportant issues, and consider how to proceed.  The protocol encourages further careful thought before the issue of proceedings.

Debt Proceedings

Where the claim being contemplated is one by a company against an individual for unpaid debts there are further requirements to be followed.  The initial claim letter is required:

  • To provide details of how the outstanding monies can be paid;
  • To state that the defendant can contact the claimant to discuss repayment options and provide details of a suitable contact; and
  • Give the defendant details of organisations that can provide free, independent advice and help.

Conclusions

Many will undoubtedly see this process as an unnecessary and unwieldy bar to swiftly progressing a claim into Court.  However, the Courts are increasingly awash with relatively minor claims that could easily be resolved by sensible negotiation between the parties.  By forcing both sides to declare their case earlier and also creating significant costs consequences for failure to comply with the protocol in all tracks the Courts presumably intend to reduce the quantity of cases being litigated.  The introduction of the protocol makes it even more important for landlords and agents to consider whether their agreements should include clauses offering suitable forms of ADR to reduce their reliance on the protocol and to help expedite disputes.

Filed under: Uncategorized, ,

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