Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

The Assured Tenancies and Agricultural Occupancies (Forms) (England) Regulations 2015

Some of you may have seen that as at 6th April 2015 new forms have been prescribed for certain notices and applications with the most relevant to our readership being those in respect of Section 8 and Section 13 of the housing Act 1988 (as amended).  We will be updating the Notices for sale on our Shop and also those contained in our Document Vault (for our Helpline subscribers) and will put up a post once done.

In the meantime you should be aware that if from the 6th April 2015 you are looking to serve one of these notices it must be in the new form or it will be invalid.

So what are the changes?

In the main they are minor changes to the guidance notes.  With regards to the Section 8 Notice it is to take account of the fact that two new grounds (Grounds 7A and 14A) have been enacted. For the section 13 notices it is to update them to provide that the forum for referring any rent not agreed is the First Tier Tribunal (Property Chamber) which now undertakes the functions of the Rent Assessment Committee.

So the changes are minor and probably practically make very little difference for most of what you do, but be warned the new notices must be used or you do run the risk of any reliance you place on such a notice being challenged!

Filed under: England & Wales, , , ,

Rent Review: RPI, CPI and RPIJ

Commonly over the past few years longer term agreements or those with rent review clauses have tended to review the rent in line with the Retail Prices Index (RPI).
RPI was previously a National Statistic prepared by the Office of National Statistics (ONS) and used by Government as a measure of price changes. However earlier this year it was downgraded so that it was no longer a national statistic. ONS has confirmed that they will continue to produce RPI figures for the time being. This means that for agreements which refer to this as the measure to be used for calculating any rent review there is no need to worry. The statistic is still produced and ascertainable so the clause can still be operated. Remember all parties are bound by the terms of the lease and the court will give all words a common-sense interpretation. This means that simply because RPI is no longer a national statistic there is no reason why it cannot still be used.

So what about the future? You can still use RPI. It still exists and can be readily determined (even if a little harder to find on the ONS website than previously). The issue is that some parties are uneasy about using a statistic which is not a nationally excepted measure of price increases. RPI does however include housing and mortgage costs. For this reason alone it may be said to be a more accurate prediction on how inflation has affected rents although some economists suggest such figures alone help to perpetuate inflation.
Certain other figures are referred to. In particular the Consumer Prices Index (CPI) which is also calculated having regard to a specified “basket” of items save it does not include housing and mortgage payments. Hence this has tended to be considerably lower. If you are acting for Landlords CPI is less likely to appeal as the percentages have historically been substantially lower than RPI.

We are due to get two new indices produced by ONS. Both are meant to give a “truer” reduced level of inflation which again a landlord may disagree with although both supposedly will include some reference to housing costs. The two are RPIJ and CPIH. The ‘J’ in RPIJ stands for Jevons, which is the formula that replaces the one that was found to not meet international standards. It is likely to be lower than RPI. CPIH is similar to CPI but includes owner-occupier housing costs. It seems clear one of these will become the preferred option for including in rent review clauses but time will tell. There will always be a pull between landlord and tenant to adopt whichever either side sees as the most advantageous to them.
It should be remembered that a rent review clause can contain whatever mechanism the parties agree. This could include agreed increases by fixed amounts or determination by an external party. The later whilst common in commercial leases has tended not to find favour with residential tenancies given the short time nature means parties want a formula which will not put them to expense.

The bottom line is as ever to remember whatever terms are placed in the tenancy are binding upon both parties unless they mutually agree to the contrary.

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

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, , , , , ,

SHELTER REPORT

Many of you will have heard on the news today about the publication of SHELTER’s report on rent levels. We felt it was worthy of mention here on the this blog given our interest in all things relating to the private rented sector.

Campbell Robb, Shelter’s Chief Executive, says: ‘We have become depressingly familiar with first time buyers being priced out of the housing market, but the impact of unaffordable rents is more dramatic.
With no cheaper alternative, ordinary people are forced to cut their spending on essentials like food and heating, or uproot and move away from jobs, schools and families.’

The report focuses on the affordability of accomodation in the private rented sector and is part of an ongoing series of reports which SHELTER intend to publish. The report highlights the large rises in rental levels over the decade prior to 2007 and suggests that in large parts of the country rental levels are now at a level that makes them unaffordable. As a result SHELTER is calling on the Government to stabilise the market and bring in policies which will bring rental levels into line with earnings.

What is clear from the report is that the supply of rental properties in some areas are not suffcient for those seeking such property. With changes to Housing Benefit there must be real concerns as to the effects this will have on many families. Plainly some elements of the Localism Bill (particuarly those in relation to planning) are supposed to assist in this area but this will take time to filter through. We are sure that this report will generate much debate and would welcome readers comments.”

Filed under: England & Wales, ,

Mitigation

We have heard that agents have been advised recently that a landlord is required to mitigate his losses when seeking to recover rent arrears, where a tenant abandons the demised premises. This is not correct, the landlord is in fact under no such obligation.

In Reichman v Beveridge the Court of Appeal dismissed the appeal of two tenants who had abandoned the office premises. The landlord took no steps to terminate the lease and sued for the rent arrears for the period that the premises were abandoned. The tenants argued that the landlord should have mitigated its loss by marketing the property or accepting the offer of a prospective tenant.

However the court held that the tenant’s argument should fail because the landlord had not acted wholly unreasonably in refusing to take steps to find a new tenant. The court also held that damages would not be an adequate remedy for the landlord as, if current market rent had been lower than that reserved by the lease, terminating the lease and re-letting the premises would leave the landlord with a shortfall in rent which it would be unable to recover. If, however, market rent was the same or higher, then it would have been possible for the tenant to take steps itself to find an assignee.

The rationale behind the decision is that landlord will be prevented from enforcing his contractual rights to maintain the contract and sue for the contract price only where an election to keep a contract open is wholly unreasonable, or where damages would be an adequate remedy.

Therefore whilst there is no requirement in most cases of L&T to mitigate, the advice is that you consider it. If for example your tenant is from abroad and for whatever reason abandons the premises is makes no sense to sue for the rent if there is no possibility of recovering it. What should be considered is for the tenant to be put on notice that whilst the landlord is not required to mitigate he will do so by replacing the tenant at the tenant’s expense and confirming that the tenant is responsible for the rent until a new tenant has been secured.

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

Changes to Court Procedures

The UK coalition government has published proposals to reform the way cases are handled in the county courts. In respect of housing litigation, the proposals include retaining the £1000 small claims limit to housing disrepair cases and the provisions of the protocol mandatory for rent arrears and mortgage possession cases.

The deadline for responses to the consultation is the 30 June 2011.

The protocol for rent arrears applies to social landlords, such as local authorities and housing associations, not to private landlords.

The protocol reflects the guidance on good practice given to social landlords and private registered providers in the collection of rent arrears. It recognises that it is in the interests of both landlords and tenants to ensure that rent is paid promptly and to ensure that difficulties are resolved wherever possible without court proceedings.

Its aim is to encourage more pre-action contact between landlords and tenants and to enable court time to be used more effectively. The protocol requires specifically for the landlords to contact a tenant as soon as possible after the tenant’s rent arrears accrue, to discuss the arrears, the tenant’s financial position and his or her entitlement to benefits.

The protocol no doubt leads to suspended possession orders in order to allow the tenant the opportunity to repay the arrears however, given the current problems we have with court backlogs this is a welcome consultation as it is hoped that it will assist with reducing the number of claims issued.

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

Enforcement of possession orders

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

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

Pursuing debts:

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

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

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

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

An attachment of Earnings:

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

Third Party Debt Order:

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

Charging Orders:

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

Bailiffs/Sheriff:

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

Partial Settlement:

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

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

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

Rent Arrears on Common Law Tenancies- Last Chances to Act

Landlords who have common law tenancies which will become ASTs on 1 October and whose tenants are in arrears of rent should act now.

Once those tenancies become ASTs the tenant will need to be in 2 months of arrears before the landlord stands a good chance of securing possession in Court. If proceedings are issued before the tenancy converts then it will not become an AST, even if the Court hearing is after 1 October, and the landlord will be able to seek possession under the common law rules of forfeiture. These require the Court to award possession however small the level of rent arrears. While the tenant has the option of paying the outstanding rent and staying in the property he will also be obliged to pay the landlord full interest and their legal costs so the tenant has an incentive to pay up and the landlord does not lose out.

By contrast if the landlord waits until after 1 October he will need to wait for a full two months worth of rent arrears to accrue, give 14 days notice under section 8 of the Housing Act 1988 and then start proceedings. In Court he will get an order for the arrears, interest, but probably less than his total legal costs but the tenant has no right to stay if they pay the landlord. Therefore the incentive on the part of the tenant to pay the debt is much reduced.

However, proceedings must be issued by the Court before 1 October. In practice this means they will need to have been sent to the Court by 27 September at the very latest.

Filed under: England only, , ,

Harsh Results in Rent Increases After a Long-Lease Ends

A recent case has exposed a very unfortunate loophole in the law which might have harsh consequences for certain long leaseholders.

Certain long leaseholds are protected under the terms of Part 1 of the Landlord & Tenant Act 1954. The qualification for this protection was that the tenancy was for more than 21 years and the tenant would otherwise have fallen under the protection of the Rent Act 1977 save that the rent was too low too qualify for that protection. At the end of the term of such tenancies the tenant would originally have gained the protection of the Rent Acts. These provisions are being phased out after the introduction of the Local Government and Housing Act 1989 and a wholly new scheme set out in Schedule 10 applies. This scheme provides that the original lease continues until specified notices are served at which stage the tenancy changes into an Assured periodic tenancy under the Housing Act 1988. Part of this process includes a process by which the parties are to agree a new monthly rent and if they cannot agree the Rent assessment Committee has the power to set an appropriate rent. Quite properly, when setting the rent the RAC is required to exclude from its consideration any increase in the rent that would be attributable to improvements the tenant has made to the property. Therefore if the tenant has fitted a new kitchen during the long lease the landlord cannot take advantage of it to seek a higher rent once the tenancy becomes Assured.

Naturally, once the tenancy has become Assured the landlord is entitled to increase the rent to a market level every 12 months using the normal procedure supplied by section 13 of that Act. Bizarrely, although the RAC is required to exclude consideration of tenants improvements on the initial setting of the rent it is not permitted not do so on any subsequent determination of the rent. Therefore although a tenant who fits a new kitchen will not be liable to pay a higher rent for that improvement when he or she first gets the Assured tenancy, the landlord will be able to seek a higher rent due to that improvement 12 month later using the usual section 13 process.

Essentially this is precisely what has occurred in the case of Hughes v Borodex which came before the Court of Appeal a few months ago. The Court of Appeal held, with regret, that it had no power to change the rent assessment of the RAC which had taken into account the tenant’s improvements on setting the rent under a section 13 notice. What makes this case even more unjust is that the RAC determination took the rent over the sum of £25,000 per annum making it possible for the landlord to evict the tenant as the Housing Act 1988 no longer applied to her tenancy.

Regrettably, if all this had occurred just a few months later the tenant would have been protected by the increased rent threshold for Housing Act 1988 tenancies that will be introduced on 1 October 2010.

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

Housing Act Rent Increase Order Published

The Government has finally published the necessary statutory instrument to change the maximum rent threshold for tenancies under the Housing Act 1988. The Assured Tenancies (Amendment)(England) Order 2010 has been laid before Parliament as at 25 March 2010 and will come into force on 1 October 2010.
Despite all the suggestions from the Government that they were trying to decide the best way of making the change work they have ultimately gone for the simple approach. On 1 October the threshold will change from £25,000 to £100,000. While this is not, as has mistakenly been stated, a retroactive change it will affect tenancies that are already in place on 1 October. Therefore a tenancy that has started before 1 October which is for a rent in excess of £25,000 per annum but for less than £100,000 per annum will on 1 October automatically convert to an AST.
This will mean that a number of tenancies will, on that date, potentially need to have their tenancy deposits protected and will also fall under the section 8 notice regime for breach of contract and the section 21 notice regime for the termination of the tenancy.
Technically this poses a potential problem in three areas:

  1. Tenancy deposits that have been taken for tenancies starting before 1 October which have become ASTs on 1 October will have had the deposit taken more that 14 days before it is registered. This may leave the landlord and agent open to a claim for the usual penalties. There is of course the reasonable argument that the deposit was taken at a time that the tenancy was not an AST and therefore that there is no need to protect in much the same way as there was no need to protect deposits taken prior to 6 April 2007 when the tenancy deposit legislation first came into force.
  2. Where Court proceedings have been started for breach prior to 1 October there is a potential argument at the time it reaches trial that the tenancy is now an AST and the appropriate notices have not been served.
  3. For tenancies that end shortly after 1 October there will not be time between 1 October and the end date to serve the necessary two months notice under section 21. If the notice is served before 1 October, at the time when a tenancy has not become an AST there may be some doubt as to its validity.

All of these problems will not doubt need to be worked out by the Courts.
It should be noted that the change is being carried out in England only. It is not certain what the Welsh Assembly will choose to do. They have an ongoing consultation on the private rented sector which discusses a similar threshold change but this does not end until 14 May so they will, presumably not act until at least that date. However, the pressure to act in Wales is somewhat lower as rents there do not tend to reach the levels found in some parts of England.

Filed under: England only, , ,

Commercial Rent Arrears Recovery on Hold

Under centuries-old common law principles commercial landlords have been able to “distrain”, or seize tenants’ goods, without the need for a court order, and sell them to recover arrears of rent. The right to distrain arises as soon as rent becomes overdue and is a self help method used for recovering unpaid rent. However the method is considered draconian and has long been prohibited in relation to residential property. The Tribunals, Courts and Enforcement Act 2007 was expected to stop distress in relation to commercial leases and accordingly it introduced a different method to deal with unpaid rent known as Commercial Rent Arrears Recovery (“CRAR”).

However, it now seems that the introduction of CRAR is to be delayed in light of the announcement by the Justice Minster, Bridget Prentice, who suggested that the implementation of the procedure may be postponed until April 2012.

Part 3 the Act contains the new CRAR procedure. Many landlords do not like the effects of CRAR as it significantly reduces the their rights with regards to distress for landlords, because it requires them to give their defaulting tenants advance notice of the proposed seizure of goods before the CRAR procedure can be used. Further it will also limit the circumstances in which distress can be used.

The Act received Royal Assent over two years ago, however CRAR needs further regulations (not yet introduced) to be implemented before it will be fully functional. Until the regulations are passed landlords can continue with the current regime of distress given that the announcement by Justice Minister, Bridget Prentice, seems to indicate that there are no imminent plans to implement CRAR. Ms Prentice did not directly refer to CRAR in her speech however she did state that a consultation process would be commenced shortly in relation to Part 3 of the Act, which contains the CRAR provisions, with a view to implement the changes in 2012.

It therefore seems that CRAR will not be implemented before the general election and, if we do not see a Labour victory, there must be serious doubt as to whether CRAR will be implemented at all.

Commercial landlords might therefore have some grounds for celebration or at least some grounds for considering how they might vote!

Filed under: England & Wales, , ,

Tenant’s Notices to Quit, Holding Over and Double Rent

In these difficult times tenants are increasingly giving notice to end their tenancy and then seeking to withdraw that notice or staying for a few days beyond their original term. This practice is known as holding over. Where a tenant has given notice to quit, either under a break clause or in relation to a periodic tenancy, that notice is binding on the tenant even if it is defective and it can only be withdrawn or rescinded with the consent of the landlord.

Where a tenant gives notice to quit and then does not in fact vacate the premises, staying for a few extra days the provisions of section 18 of the Distress for Rent Act 1737 come into play. This section states that to discourage tenants causing “great inconveniences … by … refusing to deliver up the possession when the landlord hath agreed with another tenant for the same” the landlord may seek double the sum normally charged in rent.

This can only occur where the tenant has given a valid notice to quit which the landlord accepts as a valid notice and where the landlord is, therefore treating the tenant as a trespasser while they hold over. In other words it can only apply where the landlord would have a right to seek possession through the Courts but is unable to do so because the tenant will not be remaining in the property for long enough to make it a practical option. The landlord may not seek double rent for a full period of the tenancy (as this would be inconsistent with treating the tenant as a trespasser) and must charge it on a daily basis. It should also be noted that failure to return keys promptly is not sufficient to engage this principle.

A landlord can recover his double rent in the normal manner from the tenant’s deposit or through the Courts although landlords are warned that, in general, neither tenancy deposit protection adjudicators or judges are familiar with this legislation and so a claim may be hard to pursue in practice.

It should be noted that this stipulation does not apply to tenants who remain in a property for a few extra days at the end of the fixed term or who try to leave part way through a period of a periodic tenancy. In both of these cases the tenancy does not end and the landlord cannot treat these persons as trespassers. The tenancy simply continues for another period until the notice is properly given.

Filed under: Uncategorized, , ,

Rent Increase Clauses and Statutory Periodic Tenancies

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

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

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

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

Whether this will work or not remains to be seen.

Filed under: Uncategorized, ,

Move to Monthly Rents in Commercial Leases

The British Retail Consortium has stepped up its campaign to force landlords to accept rent monthly in advance rather than on the usual quarter days as has previously been the practice. They have produced template letters for tenants to send to landlords to seek alterations in their leases to allow for monthly payment of rent.

It is, of course, one thing for large retailers who, irrespective of the financial situation retain enormous financial muscle, to demand changes to rent payment provisions and quite another for the average small retailer to do so. However, other than the slight inconvenience of collecting rent monthly there seems few sound reasons for landlords not to accept a move to monthly rent and most new commercial leases stipulate monthly rental payments. The fact that the government also backs such a change is also a powerful force.

More information including the various templates can be found at the rent monthly website.

Filed under: Uncategorized, ,

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