Estate Rentcharges – what do you mean?

Last year all the interest was on Leasehold Houses. Developers were selling new houses as 999 year leaseholds rather than freeholds in the normal way. This meant that the buyer would pay a lump sum, or ‘premium’ as if they were buying a freehold, but also pay a small ground rent to the freeholder (initially the developer) for the duration of the lease, and a service charge to cover the cost of the provision of services, such as maintaining the roads and cutting the grass on the estate.

Leasehold Houses

Most buyers thought nothing of it. They had been tenants of flats for years and this is the way that all flats operate, so why would this be a problem? And besides, it would be explained to them that the service charge would only operate until the local council adopted the roads and the verges, and they could always buy the freehold at an indicative price of a few thousand pounds. The developers might even have gone on to explain that unless they sold the houses leasehold they wouldn’t be able to recover the service charge from all the residents, as once the first buyers sold to a new owner the new owner would not be liable to pay it because in freeholds

the burden of a positive covenant (like paying for repairing the roads) doesn’t run with the land and bind the owner for the time being,

whereas in leaseholds it does. This sounds sensible, even if the reason for it sounds rather esoteric – a Maxim of Equity that lawyers learn about in the first year of their law degree.

Now if the developers had been fair and reasonable (not their natural inclination) this wouldn’t have been a problem. And if local councils hadn’t been subject to enormous financial pressures, so they didn’t want to take over housing estates in the way that they had always done, the problems would have been reasonably short-lived. But developers worked out pretty quickly that as well as sorting out the problem of recovering the cost of maintenance they could make extra money by selling on the freeholds after they had finished the development. As the prices depended on a multiple of the ground rent the developers weren’t content with ground rents of £10 a year, but built in rapidly increasing rents, say £250, perhaps doubling every 5 or 10 years.

The new owners of the freeholds then noticed that they could make even more money by increasing the maintenance charges, getting associates to cut the grass, or manage the estate, and that they could levy charges for alterations to the properties, like changing the colour of the doors or windows, altering the kitchen, or even keeping a pet. Service charges ran to hundreds of pounds a year. And the cost of buying the freehold went through the roof – people were quoted £50,000 or more.

Clearly this couldn’t last, and the first reaction was from mortgagees, who refused to provide morgages on these properties. So nobody would buy them, and the first buyers were stuck with properties that were essentially worthless.

It was a scandal, and the government had to act. After a lot of huffing and puffing in 2017 and 2018 the Housing Secretary eventually announced on 27th June 2019 that the sale of leasehold new-built houses was to be banned, and, what is more immediate, the help-to-buy monies were not to be made available for them. There has been no legislation yet (November 2019), as far as I can see, presumably because Brexit and the General Eelction had been getting in the way, but the writing is clearly on the wall, and developers have had to think again.

Because the underlying problem hasn’t gone away. If you have a lot of estate roads, some car parking areas, grass with swings, street lighting and so forth, somebody is going to have to pay to look after it. And there will be a cost that won’t be recoverable easily from the second and subsequent owners of the freehold houses.

Estate Rentcharges

So they went back to their lawyers, who dug out an old device, beloved of the Victorians – rentcharges.

These used to be pretty common. Most Victorian houses in Manchester and the North-West were originally sold this way. The original developers would pay a sum cash-down of a bit less than the market value and would then pay a small annual sum for ever – a perpetual rentcharge. This way the landowner would get both a price for the land and a continuing income, as if he had rented it. The payment was secured in much the same way as rent would be – if payment wasn’t made then the land could be repossessed. In Victorian times this was not a real issue, as all the houses would actually be occupied by tenants anyway, so the payments were made by the landlords, who weren’t too worried if payments were occasionally missed and somebody lost their home from time to time.

Times have changed, and they are all owner-occupiers now. Rentcharges were felt to be out of date, as well as giving rise to the sorts of problems set out below, and so the Rentcharges Act 1977 prohibited the creation of most new ones, allowed existing rentcharges to be redeemed (usually for 16 times the annual payment, which was generally less than £12.50 a year), and brought all such rentcharges to an end after 60 years, ie in 2037.

However, some rentcharges survived. The sort that we are interested in is the estate rentcharge. This is defined in s2(4) and s2(5) of the Act:

(4) For the purposes of this section “estate rentcharge” means (subject to subsection (5) below) a rentcharge created for the purpose—

(a) of making covenants to be performed by the owner of the land affected by the rentcharge enforceable by the rent owner against the owner for the time being of the land; or

(b) of meeting, or contributing towards, the cost of the performance by the rent owner of covenants for the provision of services, the carrying out of maintenance or repairs, the effecting of insurance or the making of any payment by him for the benefit of the land affected by the rentcharge or for the benefit of that and other land.

(5) A rentcharge of more than a nominal amount shall not be treated as an estate rentcharge for the purposes of this section unless it represents a payment for the performance by the rent owner of any such covenant as is mentioned in subsection (4)(b) above which is reasonable in relation to that covenant.

Unpicking this for a bit, it means that you can have

  • a nominal payment, which allows the charge-owner to enforce positive covenants against the land-owner; or
  • a payment for the cost of providing services, maintenance etc for the benefit of the land or of the land and other land.

In other words, you can use an estate rentcharge to recover the cost of maintaining private roads, common areas for carparking, cutting the grass and repairing the swings – just what the developers needed. As good as a lease, in many ways. So what has gone wrong?

The Problems with Estate Rentcharges

Well, like a lot of things, if you don’t change and adapt with the times, install the upgrades, and fix things that go wrong you end up with a Victorian quill when what you need is a modern laptop.

Rentcharges had been ignored by everybody for so long that they just hadn’t been updated in the way that leasehold law had. If you have a long lease then before your landlord can bring it to an end because of failure to pay service charges they have to:

  • serve a formal demand, complete with prescribed information;
  • get approval for the charge claimed from the First Tier Tribunal or the County Court;
  • serve a notice under s146 Law of Property Act and allow you time to pay;
  • bring possession proceedings in the County Court which can allow relief if you pay up, sometimes even after you have been evicted.

All these safeguards have been brought in during the 20th and 21st century, as the balance of power between landlords and tenants has changed. But nothing much has happened with the enforcement of rentcharges. This is set out in s121 Law of Property Act 1925. You can read the section via the link but the relevant parts are:

(3) If at any time the annual sum or any part thereof is unpaid for forty days next after the time appointed for any payment in respect thereof, then, although no legal demand has been made for payment thereof, the person entitled to receive the annual sum may enter into possession of and hold the land charged or any part thereof, and take the income thereof, until … the annual sum and all arrears thereof due at the time of his entry, or afterwards becoming due during his continuance in possession, and all costs and expenses occasioned by nonpayment of the annual sum, are fully paid; ….

(4)In the like case the person entitled to the annual sum, whether taking possession or not, may also by deed demise the land charged, or any part thereof, to a trustee for a term of years, … on trust, … to raise and pay the annual sum and all arrears thereof due or to become due, and all costs and expenses occasioned …

….

(5) This section applies only if and as far as a contrary intention is not expressed in the instrument under which the annual sum arises, and has effect subject to the terms of that instrument and to the provisions therein contained.

…..

This is draconian. It allows the owner of the rentcharge to:

  • take possession or
  • grant a lease

of the land if any payment or part, is 40 days in arrears, whether demanded or not.

Furthermore, following the case of Roberts v Lawton [2016] UKUT 395 any lease that is granted can be registered against the title in priority to the landowner’s and will continue even after all arrears and costs (which can be as high as the rentcharge owner likes) have been paid in full. The only way the landowner can get their land back is if they can pay whatever the owner of the rentcharge asks for a surrender of the lease.

In that case, the arrears were between £6 and £15. The rentcharge owner had made no demand and refused to prove that they owned the rentcharge without payment of a £60 administration fee. They granted 99 year leases of the land to their directors, as trustees, and sought to register them at HM Land Registry. This was held to be valid and enforcable.

There are stories of all sorts of charges being made, from grossly excessive maintenance expenses to escalating payments growing at more than RPI. As bad as, indeed worse than, leasehold houses. Especially after the CA held in Smith v Canwell [2012] EWCA Civ 237 that the court has a very limited role under s2(5) of the Rentcharges Act 1977 in assessing the reasonableness of any charges raised.

Not only does this cause considerable heartache to the homeowners, but it is of course wholly unacceptable to mortgagees in the modern context. Any property with a rentcharge is virtually unsaleable, unless the holder agrees to exclude these remedies from the rentcharge, and rely on a simple money claim  to recover what ought to be small sums of money, or at the least give the mortgagees say 2 months’ notice of intention to enforce.

But until the community woke up to the danger (and there are numerous articles on many solicitors’ websites) they became very popular. HM Land Registry figures, (quoted by the Conveyancing Association) show that 178,769 rentcharges have been registered since 2015, and 29,968 have been registered in 2019 so far, with no doubt more in the pipeline. This weekend there were reports on the BBC Website of house sales falling through once a rentcharge was discovered by the buyer’s mortgagees, and a piece on Money Box on Radio 4 on 23.11.19.

The Solution?

Well, you could introduce the safeguards found in leases to rentcharges, or go back to leases but with more restrictions. Or even resurrect commonholds, which were introduced by the Commonhold and Leasehold Reform Act 2002 but have been almost entirely ignored by the legal and business community ever since.

Some developers use restrictions on freehold titles, meaning that properties cannot be sold without the new purchaser entering into a direct covenant with the management company to pay for the cost of maintenance etc. This can work but needs rigorous administration by all the conveyancers involves, because one break in the chain releases all the future owners from the liability.

Another posibility is to rely on the doctrine in Halsall v Brizell [1957] Ch 169 that in order to take the benefit of a covenant you have to bear the burden. This has been qualified in Rhone v Stephens [1994] UKHL 3 to emphasise that you have to have a choice in the matter. In Halsall you could decide not to make use of the right of way and so not have to contribute towards its repair. In Rhone the owner of a roof couldn’t decide not to make use of the right of support to the building partly below his house, so was not liable. And it can give rise to a lot of argument about how much of the estate you have to use before you are liable, especially if one house has,  say, its own parking and so doen’t need to use the car-park.

Councils could be given more money and given obligations to take over the common parts of developments. This would reduce the problem but not really solve it. And if developers make money on selling off the rights they might not be prepared to co-operate and offer up the land, or keep a small portion of a site unfinished so as to avoid a compulsory purchase trigger. It will need careful legisltion if it is to be effective.

Or a decisive government could take the bull by the horns and abolish the doctrine that the burden of positive covenants don’t run with the land. But this is perhaps asking a bit much.

One way or another however a solution needs to be found.

Can I Come In at 10.30 am on Thursday?

Sometimes you look at a court decision and think “How did they get to that?” and sometimes you think “Well that’s obviously correct, so why did they appeal?” This is one of the second type.

New Crane Wharf v Dovener is a claim by a landlord against a tenant in a residential block of flats. The landlord wanted access to the flat for some reason (which isn’t given in the report) and so made use of a pretty standard clause in the lease, which is a covenant by the Tenant:

3.08 To permit the Lessor and its agents and workmen at all reasonable times on giving not less than 48 hours notice (except in case of emergency) to enter the Demised Premises for [a number of purposes which are not in dispute – presumably inspecting for breaches of covenant or for carrying out repairs etc.]

The Landlord’s solicitor wrote on 11th September 2017 requiring T to give L access to inspect the premises on 29th September at 10.30 am. So far so good. They asked T to confirm his agreement to this by 18th September. Again a sensible request. T did not reply. Also a common scenario. But then they made their first mistake – L’s agents did not turn up on 29th September and ask to be let in. Instead they carried on writing to T.

They wrote again on 18th January 2018 insisting that T confirm that access would be given by 5pm on 23rd January, or they would make an application to the First Tier Tribunal (FTT) for a declaration that T was in breach of covenant (presumably as a prelude to serving a s146 Notice). This was their second mistake, compounded by not trying to get in on 23rd January either.

Then they made their application to the FTT who threw it out. They held that T had not refused access to L – L hadn’t tried to exercise access, and so no breach had occurred.

Now New Crane Wharf (or their representatives) had clearly got the bit between their teeth so it was off to the Upper Tribunal on appeal. L’s counsel  got off to a bad start when Judge Behrens in the UT cast considerable doubt on whether the letter of 18th January amounted to a notice under cl3.08 at all. It didn’t give notice of an inspection, as it didn’t give an appointment as such, but is merely a request to T to make an appointment, which isn’t what the lease requires.

The other letter of 11th September was however valid. However, as the lease does not require T to allow access earlier than the specified time and date, and as L did not attend at the appointment that they had fixed (and as T said that he was actually there at the time) there was no breach of the covenant and the appeal failed, as did an associated claim for costs by L. The UT did comment that if T had refused permission in advance it might have been reasonable for L not to attend the appointment, but that would depend on the facts, such as the clarity of the refusal, and other circumstances, and didn’t apply here.

So it was win-win for the unrepresented T. Not terribly glorious for the legally represented L. Perhaps a lesson that if you get something wrong it is often better to accept it and think of a work-round – in this case just serving another notice and attending their own appointment would have been quite enough to get what L wanted.

And an important decision as it is such a common clause in leases – both residential and commercial – so Landlords and their agents really need to know how it works.

PS – There is now a more detailed note on this case on the Nearly Legal blog.

 

Another Game of Forfeits

Last year I wrote about an unusual case where an order to forfeit a long lease of a flat was made – the case of Malik v McCadden. Forfeiture is the nuclear option, when a court allows a landlord to bring a lease to an end without any compensation to the tenant, and allows them to sell it again to somebody else – normally because the tenant hasn’t been paying the rent or service charges. I commented at the time that you very rarely get as far as forfeiting long residential leases, and that the courts are very much against making forfeiture orders, and require landlords to jump through a lot of hoops in order to get one. More details are set out in my piece on Malik if any of you want to look them up.

Well, here’s another case about forfeiture, and this time it’s in the Court of Appeal, not just the County Court, as most of them are. It’s Golding v Martin [2019]EWCA Civ 446, and like Malik it shows the dangers of not responding to legal action being taken by your landlord. However, it also shows the danger of acting for a landlord and not checking up on the procedural requirements if you are trying to do something at all out of the ordinary.

The Facts

Ms Martin was the lessee of a flat in Sidcup, on a long lease that had been extended in exchange for a substantial premium. It had the usual clauses providing for a service charge, reserved as rent, and allowing forfeiture if the rent was 21 days in arrears. She moved to Majorca in 2003 leaving the flat unoccupied, and not leaving a forwarding address for her landlord. Mr Golding acquired the freehold in 2012 and caried out extensive refurbishment of the block containing the flat. He served a demand for the service charges at the flat and when this was not paid got a decision from the FTT that Ms Martin’s share of the cost was nearly £12,000 but was unable to recover this from her. He was in communication with her brother, a surveyor and some solicitors, but still had no address for Ms Martin. So he got a money judgment and issued proceedings for forfeiture. Ms Martin was unaware of these proceedings and so did not attend the hearing on 15th July 2016 when an order for posession was made.

This is where things started to go wrong for the landlord.

The Law

Most possession claims in the County Court are brought in respect of Assured Tenancies, or Assured Shorthold Tenancies, and are not brought by way of forfeiture but under the express provisions of s7 or s21 of the Housing Act 1988. This however was a long lease and so the order is made under s138 County Courts Act 1984. It’s a long complicated provision and all set out here, but in essence it provides that an order for possession must be suspended to allow payment of the arrears and costs for a period to be fixed by the court (but for at least 4 weeks). T can apply for this time to be extended, and can even apply for relief from the forfeiture (under s138(9A)) for up to 6 months after possession is taken by L. So forfeiture is very much a last resort, only to be granted when all other options are exhausted.

The Hearings

The DDJ clearly didn’t realise that there was a prescribed form of words for his order and made an order stating that the lease held in respect of the flat be forfeited and possession be granted to L. And L’s solicitors can’t have noticed the problem either. So there was no period before possession was given, and no relief if the arrears and costs were paid before then. As there is a prescribed form of order set out in an Act of Parliament this order was clearly very defective indeed.

Mr Golding took possession of the empty flat shortly after the hearing and it was sold on to a third party in 2016 or early 2017. However, shortly before the 6 month period for applying for relief under s138(9A) expired Ms Martin got to hear of the order and applied to set it aside under r39.3(5) CPR.  This provides:

(5) Where an application is made [to set aside an order] by a party who failed to attend the trial, the court may grant the application only if the applicant—

(a) acted promptly when he found out that the court had exercised its power … to enter judgment or make an order against him;

(b) had a good reason for not attending the trial; and

(c) has a reasonable prospect of success at the trial.”

The DDJ hearing the application accepted a) and b) but denied c) on the grounds that relief against forfeiture is not technically “success” as there was no defence to the possession claim as such.

HHJ Luba, in the County Court at Central London allowed the appeal, and the CA agreed with him, but only after a lot of very technical argument about whether the hearing on 15th June 2016 was a “trial”, whether the order was a nullity or merely one that should be set aside, and whether relief from forfeiture was indeed “success”. So they all go back to the County Court for a fresh hearing of the possession claim. I hope the flat is worth all this expense, and wonder what is going to happen to the new owners following the sale in 2016/17.

And the Moral?

You have got to know what you are asking for, and when things might be about to cause you problems. Don’t expect a busy DJ to know the form of words in anything other than a run-of-the-mill case. Look up the legislation and bring along a copy.

But again, don’t leave your valuable flat and go off to Spain for 13 years without leaving an address for your landlord, or a very reliable agent, as problems arise from time to time and they are much easier to deal with if you know about them at the time.

Forfeiture is a minefield. If you remember this I’ve done some good.

PS – Since writing this there has been a more detailed report (as ever) on the Nearly Legal blog, if you want more bells and whistles.

 

 

Recent Developments in Housing – a Round-up

As one year turns to the next it is tempting to write a piece with some of the stories that haven’t made it into the main blog during the year, and this is one of those pieces.

Homes (Fitness for Human Habitation) Act 2018 

This would have made the main blog anyway, except it was enacted on 20th December 2018 and so was too late for the year. It is a short and comparatively simple piece of legislation which more or less does what it says on the tin.

Very briefly, it imposes an obligation on the landlord of a residential lease of less than 7 yearsof a dwelling in England that the dwelling is fit for human habitation when the lease is granted, and will remain fit for human habitation throughout the length of the lease. It works alongside the obligations in s11 Landlord & Tenant Act 1985 which require landlords of short residential leases:

(a) to keep in repair the structure and exterior of the dwelling-house (including drains, gutters and external pipes),

(b) to keep in repair and proper working order the installations in the dwelling-house for the supply of water, gas and electricity and for sanitation (including basins, sinks, baths and sanitary conveniences, but not other fixtures, fittings and appliances for making use of the supply of water, gas or electricity), and

(c) to keep in repair and proper working order the installations in the dwelling-house for space heating and heating water.

The new Act expands the obligation so as to include things which are not matters of repair as such as natural lighting and internal arrangement. The factors which a court has to take into account in deciding whether the property is fit for human occupation are set out in s10:

In determining for the purposes of this Act whether a house is unfit for human habitation, regard shall be had to its condition in respect of the following matters—

repair,

stability,

freedom from damp,

internal arrangement,

natural lighting,

ventilation,

water supply,

drainage and sanitary conveniences,

facilities for preparation and cooking of food and for the disposal of waste water;

in relation to a dwelling in England, any prescribed hazard;

and the house shall be regarded as unfit for human habitation if, and only if, it is so far defective in one or more of those matters that it is not reasonably suitable for occupation in that condition.

There are the usual exceptions for unfitness caused by the tenant’s breach of obligations, or to carry out works that are prohibited by legislation (eg planning and listed-building laws) or for which he needs consent from a third party (eg a neighbour) and despite reasonable endeavours has not been able to get it.

The remedy is in the County Court, and because of s17 of the 1985 Act the court has wide powers to order specific performance as well as awarding damages.

The Act applies to all new tenancies granted on or after the commencement date – 20th March 2019, including the periodic tenancies that arise at the end of a fixed-term, and to all periodic tenancies from 20th March 2020.

This is only a short note. The Act was heavi;y supported by Giles Peaker, and there is a much more detailed note on his blog Nearly Legal.

McDonald v McDonald – application in the ECHR

I covered this case when it was in the Supreme Court here. The losing party had applied to the ECHR, arguing that there was a right to review the proportionality of any possession claim if it was based on mandatory grounds – in this case s21 Housing Act 1988.

The ECHR rejected the application as inadmissible, basically on the same grounds that the SC had used. The Convention is not directly enforceable in a dispute between two inividuals, and so a contractual or statutory claim such as this one is not subject to claims for proportionality. It would be different if a public body was involved (such as the Pinnock case). But the national courts were entitled to apply national legislation, such as s21, which drew a line between the competing rights of two individuals, and the ECHR would not interfere.

There is, as ever, a much more detailed note on Nearly Legal.

Consultation for a new Housing Court

The Government has launched a consultation on whether a new Housing Court should be formed and all submissions need to be in by 22nd January 2019 – further details here.

Superficially there would appear to be a lot to be said for a court full of specialists who could deal with possession claims in residential cases, disputes over deposits, harrassment and eviction claims, injunctions seeking access to residential properties and so on.

However, the leading suggestion is that this should be based on the First Tier Tribunal (Property Chamber), and although these tribunals have a lot of expertise big problems arise because they do not award costs in most cases, have no provision for Legal Aid, and cannot grant injunctions. This would seriously restrict the ability of many tenants to enforce their rights. Landlords generally attend the FTT with lawyers, and unless tenants can have Legal Aid, or have the possibility of No-Win No-Fee assistance from solicitors (which requires the payment of costs by the loser) then the system is going to be very unfair.

And although the FTT has some spare capacity at present, they really will not be able to cope with the current 120,000 possession cases a year, let alone other housing matters.

This clearly isn’t straightforward. There are articles pointing both ways by Nearly Legal, and by David Smith of the RLA, and a more recent one from Nearly Legal, so you need to think about it and then have your say by 22nd January 2019.

And a Happy New year to you all.

Coming Up To Speed – AST Changes from 1st October 2018

In March 2015 the rather misleadingly-titled Deregulation Act 2015 was enacted. It contained a surprising amount of regulation. As is normal with this sort of thing the sections of the Act came into force on various different dates, and provided for things to be covered by regulations, so there was no need to cover all of this at the time.

The portion that I’m interested in here, ss33-41, generally came into force on 1st October 2015 and I covered it at the time here. In order to allow landlords (and tenants) a chance to get themselves organised the provisions only took effect for ASTs which commenced on or after 1st October 2015 – specifically:

41  Application of sections 33 to 40

(1)Subject to subsections (2) and (3), a provision of sections 33 to 40 applies only to an assured shorthold tenancy of a dwelling-house in England granted on or after the day on which the provision comes into force.

(2)Subject to subsection (3), a provision of sections 33 to 40 does not apply to an assured shorthold tenancy that came into being under section 5(2) of the Housing Act 1988 after the commencement of that provision and on the coming to an end of an assured shorthold tenancy that was granted before the commencement of that provision.

(3)At the end of the period of three years beginning with the coming into force of a provision of sections 33 to 38 or section 40, that provision also applies to any assured shorthold tenancy of a dwelling-house in England—

(a)which is in existence at that time, and

(b)to which that provision does not otherwise apply by virtue of subsection (1) or (2).

So the Act applies to all ASTs from 1st October 2018 – next week, as I write this. However, it isn’t as dramatic as it looks.

You may remember that the Act covered a number of requirements:

  1. service of EPCs
  2. service of gas safety certificates
  3. service of the booklet “How to rent: the checklist for renting in England”
  4. a prescribed form of s21 notice
  5. no service of s21 notices in first 4 months of tenancy
  6. s21 notices to be valid for 6 months only
  7. an end to retalitory evictions

These all now apply for all ASTs. However,  as the requirement for Nos 1 & 2 was to serve the “prescribed” information, and as the regulations in question exclude all tenancies starting before 1st October 2015, there is, at present, no prescribed information to serve for such tenancies. It may be that something appears in the next week or so, but if not it would clearly be prudent for a landlord to provide the information and any updating gas certificates, but they do not actually have to.

The other headings have now become the new “normal”. The How to Rent booklet merely needs to be served before the s21 notice. The prescribed form is now used invariably anyway, the 4 months will necessarily have expired some 2.5 years ago, and few landlords now delay issuing proceedings once a notice has been served.

That leaves the prohibition on retalitory evictions. This seems to have been something of a damp squib, as far as I can see. They require an improvement notice to be served by the local authority. LAs are very strapped for cash and the tenancy protection officers that used to deal with this sort of thing have almost entirely disappeared, being replaced with multi-tasking staff who rarely have time to deal with anything short of an emergency. And of course the worst landlords just make the tenants an offer that they can’t refuse. It’s all very patchy at best.

Please note that the exclusion includes all ASTS whose fixed term starts before 1.10.15 AND the periodic tenancies which arise when they expire.

I don’t know how many tenancies are affected by this change. Tenants in ASTs tend to move on and change – which is one of the complaints about the system, and the spur for the current discussions on making the minimum length of the tenancies to be 3 years – but there will be a significant number unprotected by the EPC and gas certificate protection afforded to the rest.

The government might take the opportunity, when issuing the missing regulation, of sorting out the potential major problem of whether a landlord can serve a gas certificate and an EPC late, or whether they have just lost the right to use s21 for the duration of that letting – see my piece here for more details.

More information on the Nearly Legal website, as ever.

This is No Game of Forfeits

I tell my clients that you can mess the courts about, but you cannot (and must not) ignore them. And if you do, then unpleasant things are bound to happen to you. This is a salutary tale.

The Times reported on Saturday 15.9.18 the sad and unusual case of Malik v McCadden. I can’t give you a link because of their paywall. But the brief facts are that McC bought a long lease of the upper floor of a house in North London from M (who lived on the ground floor) for some £518,000 in 2016. The lease appears to have contained the usual clauses prohibiting structual alterations without consent, but shortly after completion McC seems to have carried out substantial alterations including resiting the gas boiler, removing fixtures, rendering the outside, removing floorboards and installing a new central heating system, bathroom and kitchen.  He did not ask for consent for any of this.

The building work was disruptive to M, and McC had removed carpets, in breach of the lease, making the floors noisy. He also failed to pay his share of service charges for insurance and management.

M tried to get access to the flat to see what exactly was going on but was refused on 5 occasions, and correspondence was ignored. So M had to go to court and ask the court to bring McC’s lease to an end – to forfeit it. This is the nuclear option, because it means the tenant loses the property without any compensation, and the landlord can sell it again to someone else. The law has therefore imposed a large number of restrictions on doing this.

It isn’t as easy as just issuing a summons. Before issuing the landlord has to serve  notice under s146 Law of Property Act 1925. This warns the tenant of the breach, requires them to rectify it, and to pay the landlord compensation, and gives the tenant a reasonable time to do so. The only time this isn’t needed is if the rent is in arrears, which wasn’t the case here.

But you can’t even serve a s146 notice without a determination by a court or tribunal that the tenant is in breach unless they admit it – s168 Commonhold & Leasehold Reform Act 2002. So M applied to the First Tier Tribunal (Property Chamber) – the old LVT – for the appropriate decision. The FTT sent out their directions, advising McC to take legal advice, and arranging a site-inspection. McC ignored these, and didn’t let the FTT in. They went ahead with their proceedings and decided in November 2017 that the breaches of the lease were serious, and that a s146 notice could be served. They advised McC to take advice. He continued to ignore them.

The s146 notice was served, nothing further happened and so the landlord issued proceedings in the County Court at Willesden asking for forfeiture and possession, and this was served and listed, no doubt many weeks ahead.

Now, the courts have always treated the power to forfeit a lease as being just a form of security for the landlord, and will grant relief from forfeiture if the tenant applied for it and gives suitable undertakings to put things right, or pay the arrears of rent or service charges if applicable, and pay the landlord’s costs of having to go so far. This is a very old power, pre-dating even the Law of Property Act 1925, and the courts will nearly always grant it, or possibly give an adjournment for the tenant to get themselves organised, or make an order but postpone it for say 6 months to let the tenant sell the property, because they don’t want to push the nuclear button any more than most landlords want to ask for it to be pushed. However, a tenant has to ask for relief in order to get it, and it appears that McC didn’t attend the hearing and so an order was made in August 2018  bringing the lease to an end and giving possession to M.

This is pretty disastrous for McC. He has probably* lost a flat worth some £600,000 (according to The Times article) and M has a windfall, and the prospects of a better neighbour to boot. But the case has been reported, and covered in this blog, because it is so very unusual for things to go so far. Virtually all cases of this sort come to an end after the FTT decision that the tenant is in breach, or when the s146 notice tells the tenant that the landlord is seriously going for possession, or at the very latest when the proceedings are issued, and the tenant makes an application for relief, which nearly always succeeds. But if you do nothing, don’t attend the hearings, and don’t take advice (or possibly don’t listen to the advice you are given) then it will certainly lead to tears by bedtime.

The tenant’s explanation – that he was unaware of the FTT proceedings, and unable to defend the County Court proceedings after being let down by lawyers – must be weighed against the fact that the FTT decided that he knew about the proceedings, and that the County Court would have been satisfied that he had been served with the s146 notice, and the court proceedings before making its order.  He is unfortunate in that he doesn’t have a mortgagee. They normally wade in with gusto if there is any risk to their mortgage security, paying arrears, applying to be joined into the case and asking for relief themselves, as well as harrying the tenant to get things resolved without delay.

Can you blame the landlord, M? Well, what else could they do to protect their investment, and ensure that the tenant sticks to the terms of the lease? This is the way leases work, and normally – probably in 99 cases out of 100 – you don’t get an order for forfeiture. I have never actually come across a forfeited long residential lease, although I have got pretty close on occasions, in more years than I care to remember acting for landlords, and tenants, in this field.

And the reason for the probably*? Well, it is still possible to apply for relief even after the order has been made, although the tenant will need to get on with things, and admit that they are in breach in the ways that the FTT decided, and give credible undertakings to put things right. Given McC’s history, this doesn’t look too promising.

There is a good, and more detailed, piece on this by Nearly Legal, and lots of comments on Twitter and elsewhere. It is really one for the records.

 

Can I Come In? – important change

In 2016 I posted a piece on enforcing suspended possession orders, following the CA case of Cardiff CC v Lee which confirmed that following the changes in the CPR in 2014 you had to apply to the court for permission to enforce a suspended possession order before applying for a warrant of possession. The development caused quite a stir at the time, as many landlords weren’t doing this.

Well, from 1st October 2018 they won’t need to bother in the most common case – the non-payment of arrears of rent or service charges – because there is a new clause being inserted into CPR r83.2(3)(e) which reads:

after “has been fulfilled” insert “(other than where non-compliance with the terms of suspension of enforcement of the judgment or order is the failure to pay money)”.

It is still necessary if there are other terms – the noisy dog for example – but no need if it’s just non-payment of money. You certify the breach on the application for a warrant – form N325 – and that is it.