Deregulation Act 2015 – what to look out for from July 2015

Introduction

If you have read this Act, you may be forgiven for thinking that Parliament is intent on making life difficult for landlords.

The provisions relevant to housing are found in sections 28–48. This post does not deal with the sections already in force (on pre–2007 tenancy deposits: sections 28–32; and planning and development: sections 42–48). Indeed, much has already been written about the changes to tenancy deposits. Instead, this post tackles the changes which are due to take effect on 1 July 2015 and 1 October 2015.

All of the changes discussed below will for the time being only apply to new assured shorthold tenancies which are granted in England from 1 July 2015 (or 1 October 2015, depending on the provision in question). From 2018, the changes will apply to all assured shorthold tenancies in existence (apart from the provisions in section 39 of the Deregulation Act 2015 which will only apply to tenancies granted from July 2015).

1. Section 21 notices from 1 July 2015

Section 38 introduces a new section 21A into Housing Act 1988. This will prevent the giving of a section 21 notice where the landlord is in breach of a “prescribed requirement”. The prescribed requirements relate to the condition of dwelling–houses or their common parts, the health and safety of occupiers, and the energy performance of the dwelling–house. It is not yet clear what requirements will be prescribed. It is likely that they will relate to gas and electrical safety, providing a tenant with the energy performance certificate (EPC), and the like. Failure to comply will prevent a landlord from giving a section 21 notice.

Section 39 inserts a new section 21B into Housing Act 1988. Landlords must provide prescribed information to tenants about the rights and responsibilities of a landlord and tenant. This provision will only apply to new tenancies granted from 1 July 2015 and not to periodic assured shorthold tenancies which arise following the expiry of a fixed term which began before July 2015. The rights and responsibilities may look much like the summary of rights and obligations which must accompany service and administration charge demands. Failure to provide this information prevents the giving of notice under section 21.

Finally, section 37 empowers the Secretary of State to prescribe the form for section 21(1) and 21(4) notices from July 2015. This is keenly awaited. There are a number of inadequate section 21 notices floating around, so a standardised form is welcomed. It is not yet clear when this will be provided.

2. Retaliatory evictions” from 1 October 2015

Section 33 prevents the giving of a notice under section 21 Housing Act 1988 for a period of six months where a tenant has complained about the condition of the dwelling–house and the local housing authority has served a relevant notice. It is helpful that the tenant must make a formal complaint and follow this up with a complaint to the local housing authority (s.33(2)).

This provision may be inadequate where allegations of disrepair are contrived, or where the allegations are not sufficiently serious so as to prompt the local authority to serve notices on the landlord. Having said this, the categories of hazard under Housing Act 2004 which might result in a relevant notice being served are fairly wide. Further, the requirement that a court “must” strike out proceedings if a relevant notice is served by the local authority after service of a valid section 21 notice is worrying (s.33(6)). This means there is a risk that an otherwise valid section 21 notice could be invalidated retrospectively between service and the date of a hearing. Landlords (and their agents) will need to be diligent about responding to complaints promptly to ensure that the right to possession under section 21 is kept intact.

Section 34 stipulates that the provisions above in section 33 do not apply where the tenant is responsible for the condition of the dwelling–house (which is surely a triable issue and not one that might be determined easily at a first hearing), or the landlord is genuinely selling the property, or a mortgagee is exercising its power of sale and requires vacant possession.

3. Section 21 notices from 1 October 2015

There are three key changes here. First, and most significantly, section 36 inserts new sections 21(4B)–(4E) into Housing Act 1988. This prevents a section 21 notice being given within four months of the commencement of the tenancy, and possession proceedings from being commenced more than six months after the date on which a section 21 notice is given (or later than four months after the date of expiry of a section 21 notice).

The above changes do not apply to replacement tenancies or tenancies which are periodic as a result of section 5 Housing Act 1988. Even still, this is the first occasion on which a time limit has been introduced for section 21 notices. Landlords nowadays rarely serve section 21 notices at the commencement of an assured shorthold tenancy. This was previously a more widespread practice which attracted criticism but was lawful. These changes mean that a section 21 notice will only be valid where it is given because the landlord is serious about obtaining possession.

Second, section 40 introduces a new section 21C into Housing Act 1988. This entitles a tenant to repayment of a proportion of rent paid in advance where, following service of a section 21 notice, the tenant leaves the dwelling–house before the end of a rental period.

Finally, section 35 removes the requirement for a notice served under section 21(4) Housing Act 1988 to expire on the last day of a period (if the dwelling–house is in England) by inserting a new section 21(4ZA). Section 21(4) notices have become increasingly rare – given that after Spencer v Taylor it is possible to serve notice under section 21(1) even where a fixed term assured shorthold tenancy has expired and a periodic tenancy has arisen.

It ought to be remembered that there are certain situations where a section 21(4) notice must be served (e.g. where the assured shorthold tenancy was periodic from the beginning). If notice is to be served under section 21(4), note the requirement in section 21(4)(b) that the notice must state that it is served under that section. This is contrary to section 21(1) notices, which do not have this same requirement.

Summary

There are several changes on the horizon which will serve to increase the hurdles facing a landlord who is seeking possession. There is scope for landlords to be caught out by these provisions, so it is best to be prepared.

Court of Appeal super-strikes again

In Charalambous & Karali v Ng & Ng [2014] EWCA Civ 1604 the Court of Appeal has confirmed that, even where a tenancy deposit is received by a landlord in respect of an assured shorthold tenancy many years before the obligation to place the deposit in an authorised scheme arose (in April 2007), if the fixed term expires and a periodic tenancy arises before that date, nevertheless the landlord is precluded from serving a notice under section 21 Housing Act 1988 if the deposit has not been protected or returned to the tenant.

For landlords, one issue remains undecided but relatively clear. Protecting the deposit after the period of 30 days from receipt (or before 6 May 2007) will not avoid the double sanctions – i.e. damages, and being prevented from serving a section 21 notice. It is not certain that this is true where the tenancy deposit was taken before 6 April 2007 (as in this case). If in doubt, return the deposit. This will likely not avoid the sanction in 214(4) Housing Act 2004 (unless, as in Charalambous, the deposit was received some time ago), but it may help to ameliorate the situation if a claim for damages is made. It will also entitle a landlord to serve a section 21 notice.

If a deposit has been received but the prescribed information has not been provided to the tenant, it is still possible to serve the prescribed information late. A landlord should then be entitled to serve a section 21 notice.

For tenants, the case of Superstrike v Rodrigues [2013] EWCA Civ 669 remains helpful. This is until clause 31 of the Deregulation Bill is enacted. Clause 31 of the Bill would alleviate the harshness of the statutory scheme which, in its current form, penalises a landlord who protected a tenancy deposit and provided prescribed information when the deposit was first received but failed to provide the prescribed information when the tenancy was later renewed or became a periodic tenancy. However, clause 31 as it is currently drafted would only avail landlords in situations where the fixed term tenancy expired after 6 April 2007.

There are likely to be further developments on tenancy deposits in 2015, and this is an area which is likely to see more litigation given the manner in which the provisions of the Housing Act 2004 have been drafted and re–drafted.

Damages for unlawful eviction

The Supreme Court in Loveridge v Mayor and Burgesses of the London Borough of Lambeth [2014] UKSC 65 (read the judgment here) has confirmed the correct approach to the calculation of damages under section 28 Housing Act 1988. At the same time, the Court has suggested that this provision is ripe for reform by Parliament.

Facts

The appellant, Mr Loveridge, was a secure tenant of a flat under Housing Act 1985. He went abroad in 2009 for almost five months. He did not notify the respondent, the London Borough of Lambeth, of this absence, despite being required to do so under the terms of his tenancy agreement. The council, believing that he had died, forcibly re–entered the flat, left a notice to quit, and removed the appellant’s belongings. The council then re–let the flat.

In the lower courts

At first instance, HHJ Blunsdon found that Mr Loveridge had not ceased to occupy the flat as his only or principal home. Therefore, he had continued as a secure tenant during the period of his absence from the flat. It followed that Mr Loveridge had been unlawfully evicted.

Mr Loveridge sought compensation for unlawful eviction. Damages under section 27 Housing Act 1988 were tortious, but damages under this section cannot be awarded in addition to damages at common law (section 27(4)). Damages under section 27 are calculated using the procedure set out in section 28. That calculation involves valuing the building in which the premises are situated by reference to different assumptions.

The valuation of the building on the assumption that both flats in the building were let on secure tenancies was £123,000, and the valuation of the building on the basis that the upstairs flat was let on a secure tenancy and Mr Loveridge’s flat was vacant was £213,500. The difference between these two valuations was £90,500. This resulted in the circuit judge awarding Mr Loveridge damages of £90,500 under section 27 Housing Act 1988. The judge also awarded Mr Loveridge £9,000 in respect of the trespass to his goods.

The Court of Appeal interpreted section 28 Housing Act 1988 differently. It unanimously allowed the council’s appeal. The Court of Appeal accepted the argument that the building had to be valued on the basis that it was being sold to a private landlord (as stipulated by section 28(3)(a)), which would result in the existing secured tenancies becoming assured tenancies. The council’s expert evidence showed that (a) when the building was valued on the assumption that both flats were subject to assured tenancies the value of the building was £304,000 and (b) when the building was valued on the assumption that the first floor flat was subject to an assured tenancy and Mr Loveridge’s flat was vacant, the figure was also £304,000. The difference between the two valuations was nil, so the Court of Appeal declined to award tortious damages under section 27.

Instead, the parties had agreed that at common law Mr Loveridge was entitled to damages amounting to £7,400. Therefore, the Court of Appeal allowed Mr Loveridge the sum of £16,400, being £9,000 for trespass to his goods and £7,400 in damages at common law.

Issue before the Supreme Court

What effect does section 28(3)(a) have on the valuation exercise that a Court must conduct under section 28(1)(a)? In other words, what is the impact of the assumption that the Court is required to make – that the landlord who has evicted is selling his or her interest on the open market to a willing buyer – on the valuation of the landlord’s interest?

The council argued that the valuation ought to take into account the obvious fact that a sale of the property on the open market to a private landlord would result in the tenancy of the flat (as well as the tenancy of the second flat in the building) being converted from a secure into an assured tenancy. Mr Loveridge argued that the Court of Appeal was wrong to accept this argument.

Decision

Lord Wilson gave the unanimous judgment of the Court. He held that:

“the notional exercise mandated by subsection 3(a) of section 28 does not extend to making the consequential adjustments to the nature of Mr Loveridge’s right (or indeed that of the tenant upstairs) consequent upon sale. For that is barred by the words of subsection 1(a)” [para 27].

This means that, in valuing the landlord’s interest, the Court must assume that the tenant continues to have the same right to occupy following the eviction as he or she did before the eviction. This is so, even if it fails to take into account the inevitable consequences where the landlord is selling his or her interest on the open market. In this case, the inevitable consequence of a sale would have been to convert the upstairs flat secure tenancy into an assured tenancy, but the calculation under section 28 should disregard this. In other words, the assumption within section 28(1)(a) trumps the consideration of other hypothetical consequences under section 28(3)(a).

Comment

The council did not seek to make a gain by evicting Mr Loveridge. He had continued to pay rent during his five–month absence. This case shares very little in common with the case of AA v London Borough of Southwark [2014] EWHC 500 (QB). That was a case involving multiple causes of action in unlawful eviction, conspiracy, misfeasance in public office, Article 8 breaches, negligence, and trespass. This case is referred to in the judgment of Lord Wilson at §15 and is expertly summarised here.

However, it is clear that the calculation under section 28 is intended to be punitive. Landlords in both the public and private sectors are best advised to take advice before even considering eviction of tenants in such a manner. The penalty in damages is stiff, not to mention criminal and civil sanctions if there are breaches of Protection from Eviction Act 1977, Criminal Law Act 1977, or Protection from Harassment Act 1997.

Ten tips on enforcing your judgment

I recently co–presented a seminar at the Tanfield Chambers Junior Landlord & Tenant Conference on “Enforcement: making your judgment count”. Here are 10 pointers on the enforcement of judgments.

1. KYD

Know Your Debtor. It should not be difficult to find out whether the debtor has the funds or assets to satisfy any judgment. It is possible to check the Register of Judgments, Orders, and Fines for only £4 with details of the debtor’s name and address, to see if there are countless CCJs which would suggest difficulties in enforcing. A credit check, bankruptcy search, or Land Registry enquiry could also be useful.

2. Start early… but on time

There is no good reason for failing to establish whether or not to even bring proceedings against a potential defendant who is a man of straw. At the same time, be sure that the time for compliance has passed, the judgment or part of it remains unsatisfied, there is no stay on enforcement, and the judgment is not statute–barred.

3. Transfer up wisely

The equity jurisdiction of the County Court has been increased to £150,000 from £30,000. It is no longer necessary to transfer proceedings for most charging orders to the High Court. However, it remains possible to transfer a judgment for enforcement by writ of control (formerly writ of fieri facias) whilst still being able to seek a charging order or third party debt order in the County Court.

4. Use CPR but not just in an emergency

Part 71 of the Civil Procedure Rules can be an effective tool for obtaining information from a debtor. You can discover more about the debtor’s assets and ability to pay. If the debtor does not comply with orders requiring him or her to attend Court to give information, you can seek an order for committal.

5. Get better protection for your charge

It is widely thought that the wording of the Form K standard restriction, which is placed against the title following the registration of a charging order, is inadequate. In truth, very few purchasers of land will complete without an undertaking that any charges on the register are first discharged by the vendor. However, the system may be abused by a judgment debtor by disposition to an acquaintance or associate. Use a modified draft final order on Form N87 to seek a non–standard restriction pursuant to section 46 Land Registration Act 2002.

6. Insolvency proceedings are an option, but be wary

This is not strictly a method of enforcement but may have the same effect. It can be costly, there may be some delay, and it may prove counter–productive if the debtor has other (and secured) creditors whose claims will outrank your client’s.

7. Take control (of goods)

The new Regulations incentivise enforcement agents and simplify the procedure for what was previously known as ‘executing against goods’. If the debtor has assets but no cash, this may be an extremely effective method of enforcement. It is also relatively risk–free, since the enforcement agent takes responsibility for enforcement.

8. Keep interest

Interest is not available automatically for sums under £5,000, but it may be available under contract or statute (e.g. Late Payment of Commercial Debts (Interest) Act 1998). It is also possible to obtain an order for a higher rate than the judgment rate of 8%, and for interest to run from earlier than the date of judgment. Always claim and state it clearly.

9. Call the cops sheriffs!

It is possible to enforce a possession order in the High Court, and not just an order made against trespassers. The sheriffs (or High Court Enforcement Officers to call them by their correct names) are accessible and effective. You will need an order transferring the judgment up to the High Court and additional fees are payable.

10. KYC

Perhaps it goes without saying… Know Your Creditor. The recovery costs of most enforcement methods are fixed. Recovery can never be guaranteed. If your client does not have the funds to obtain orders in aid of execution, or if the sums in dispute are disproportionate to the costs, then as difficult as this may sound, it may be better not to bring proceedings at all. A well–timed pre­–action letter or statutory demand may be the best bet at securing payment.

North East Property Buyers: “fraud unravels everything”?

The Supreme Court has handed down its judgment in the Re North East Property Buyers Litigation following a hearing in March this year. The decision is not unexpected. It is good news for the innocent (but perhaps irresponsible) lenders, but not so good news for the many innocent, elderly, and often vulnerable residents who sold their homes as part of the “sale and leaseback” schemes operated by the North East Property Buyers (“NEPB”). It seems that fraud does not unravel everything when it comes to the Land Registration Act 2002.

Facts

Typically, individuals (“the vendors”) sold their homes to the buyers (“the buyers”) – who were nominee purchasers for the NEPB – at a discount, and on NEPB’s promise that the vendors could remain in their home for years thereafter.

The buyers bought the properties with buy–to–let mortgages from lenders (“the mortgagees”) on the basis that they were purchasing the properties with vacant possession and could only let them out on short–term assured tenancies.

The buyers defaulted on the loans that they had secured against the properties. The mortgagees then sought to repossess against the vendors.

In the lower courts

The vendors had failed to persuade the High Court (before HHJ Behrens in the Chancery Division at Leeds District Registry) and the Court of Appeal (before Lord Neuberger MR, and Rix and Etherton LJJ). Prior to completion, either there was no equitable interest or equity in favour of the vendors, or the vendors’ rights were personal and not proprietary, and in any event the vendors’ interest could not bind the mortgagees. The well–known decision in Abbey National Building Society v Cann [1991] 1 AC 56 was not distinguishable: the transfer and mortgage were one indivisible transaction and the vendors’ interest (by virtue of their occupation of the properties at the relevant time) could not “override” or take priority to that of the mortgagees.

Issues before the Supreme Court

The two linked questions for the Supreme Court were: (1) Did the vendors have the benefit of equitable proprietary rights (by reason of constructive trust or estoppel following the representations made by or on behalf of the buyers) or personal rights? (2) If the vendors had proprietary rights, could these bind the mortgagees?

Decision

The vendors fared no better in the Supreme Court. Lord Collins (§§1–94), with whom Lord Sumption agreed, held on issue (1) that the buyers’ promises only created personal rights in favour of the vendors. On issue (2), Lord Collins held that those personal rights were “fed” by the buyers’ purchase of the legal estate. However, at that stage, the analysis in Cann – that the contract, conveyance, and mortgage were one indivisible transaction, which was immune to the overriding interest of anyone in actual occupation that arose on completion – would apply. Thus, the vendors lost on both counts.

Lady Hale (§§95–122), with whom Lord Wilson and Lord Reed agreed, agreed that the rights were personal rather than proprietary. However, Lady Hale differed from Lord Collins and Lord Sumption on issue (2), albeit accepting the issue would be unlikely to arise given the unanimous agreement on issue (1). Lady Hale was unconvinced that the contract, transfer, and mortgage should all be assumed to be one indivisible transaction. To suggest that they were all part of the same transaction could be confusing. It might be possible, for instance, for a vendor to create an overriding interest between the contract and the conveyance.

Comment

The judgment of Lady Hale on issue (2) is attractive and in my view correct. In Cann it was appropriate to view the transaction as indivisible but in three parts. However, the analysis is of little practical consequence, in the sense that it does not aid the vendors in these cases.

This decision is true to the analysis in Cann. The vendors did not argue that Cann was wrongly decided. One struggles to think of how the “indivisibility” of the conveyance and mortgage can now be properly challenged in light of the modern practice as regards simultaneous completion and mortgage.

However, and more significantly, as Lady Hale suggests, no exception is created for cases involving fraud, such as these. The vendors were truly innocent: conned by the NEPB, and failed by the solicitors that were appointed to act for them in the sale and leaseback transactions. The mortgagees’ solicitors, meanwhile, might have been more alert.

Lady Hale (at §122) raises these points. The answer may well be that there are always losers in cases of fraud. The innocent vendors lose out under the current system of land registration in favour of the mortgagees. This is clearly a policy decision, reflecting the principle of certainty in land registration. This may change following the Law Commission review beginning this year.