Category Archives: Landlord & Tenant Law

Can a Landlord recoup defence costs and damages from own breaches?

Can a landlord recoup damages and legal costs arising from it’s own breach of covenant through a service charge?

In the Upper Tribunal (Lands Chamber) case of Fairbairn v Etal Court Maintenance Ltd [2015] one of the services the landlord could recharge under the service charge was doing “all other acts and things for the proper management administration and maintenance of the blocks of flats as the Lessor in its sole discretion shall think fit.”

The Tribunal said such a general charging provision was, in principle, wide enough to cover the costs of legal advice or even, where appropriate, of litigation.

However a sum paid to meet a successful damages claim for breach of covenant is not expenditure on the proper management and administration of the buildings.

Also, the legal work here was not so much advice on whether repair work was within the landlord’s covenant. It was rather defending the landlord’s failure of compliance.

In short, the steps required of the landlord resulted from the landlord breaching it’s own obligations under the lease.

The landlord’s repairing covenant required it to maintain the unlet parts of the buildings, including their foundations and structure, in good and substantial repair and condition.

It was precisely because the proper management and administration of the building had been neglected, for however short, that proceedings were commenced by the tenant. So the damages and legal costs were not recoverable through the service charge.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Tenant not entitled to refund of unused prepayments under lease break clause

A “break clause” in a lease permits the tenant to terminate the lease on a date (“the break date”) prior to the last day of the term. In the same clause the landlord may well demand compensation, often in the form of a “break premium”, whose payment is made a pre-condition of a “break” under the break clause.

Where the break clause requires a break premium but says nothing about an apportionment of the rent, which the lease requires the tenant to pay in advance, can the court imply a term which requires the landlord to refund that part of the advance payment of rent which relates to the period (“the broken period”) after the break date, because by that time the lease would have terminated?

In Marks And Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor [2014] M&S operated the break clause and paid the reverse premium and sued the landlord to recover rent and charges for the broken period.

There was no express term which entitled the tenant to be repaid any sum by way of basic rent, car parking fee, insurance or service charge that the tenant had paid over and above what was attributable to the period prior to the break date.

The issue was whether a term was to be implied into the break clause that the tenant could claim back that proportion of the rent paid on the last quarter day which related to the broken period?

As the rent was reserved “proportionately for any part of year” and the quarterly payments were “installments”, the High Court had accepted the tenant’s view that that term should be implied.

The Court of Appeal accepted that the words “proportionately for any part of a year” in the rent clause might, at first sight, be read as meaning that there should be an implied term for repayment of the rent for the broken period once the break premium had been paid and termination had taken place.

However, those words were only applicable to a payment of rent for a broken period within the original term of the lease. So they did not apply where on the last quarter day there had been no certainty as to whether termination would take place on the break date.

Worse still the court said a party seeking to establish an implied term must show, not simply, that the term could be a part of the agreement but that a term would be part of the agreement.

The starting point was that, if there was no express term, none should be implied because if the parties had intended that a particular term should apply to their relationship they would have included a term to that effect, rather than left it to implication.

In such a case the usual inference is that nothing is to happen. If the parties had intended something to happen, the document would have said so.

An unexpressed term might be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men had it been suggested to them. It had to be a term that went without saying, a term necessary to give business efficacy to the contract.

To be implied it had to be a term which, though tacit, formed part of the contract which the parties made for themselves.

However, the fact that an agreement could work without the implied term did not rule it out being an implied term.

That would be to overlook the court’s approach to interpretation which was to seek the parties’ common aim in entering into the agreement.

A term may also be implied if it was necessary to achieve the parties’ objective in entering into the agreement, even if it was not necessary to the workings of the agreement.

It would have been obvious to the parties before they signed up to the lease that there was a possibility that rent would have to be paid on the last quarter day in full for a period which went beyond the break date. They could therefore have made some provision for this case but had not done so.

Furthermore, the presence of other clauses in the break clause dealing with the consequences of termination showed that there must have had some discussions about what was to happen on the exercise of the break clause.

That was not to say that those provisions were inconsistent with there being an implied term. But they did show that the parties could easily have added to clause 8.5 words requiring the lessor to repay any rent (or other charges) paid for the broken period.

When all the circumstances were considered, it was right to infer that the parties proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell. Thus no term for repayment was to be implied.

M&S appealed to the Supreme Court. However the Supreme Court found there to be a ‘clear, general understanding that neither the common law nor statute apportion rent payable in advance on a time basis’.

The Supreme Court could not imply any intention on the part of a landlord and tenant for the tenant to be refunded an apportioned part of the rent paid in advance.

This blog has been posted out of general interest it does not replace the need for bespoke legal advice in individual cases.

Payment of lease extension completion statement did not oust LVT’s judgement on costs

By section 60 of Leasehold Reform Housing Urban Development Act 1993 (the 1993 Act) it is the enfranchising residential tenant who must pay the costs of the extension lease. Where those costs are in dispute there is a mechanism for completion to take place without resolution of that dispute. This is provided by section 56(3) of the 1993 Act.

Whether the Leasehold Valuation Tribunal (LVT) has jurisdiction depends, to some extent, on section 91(1) of the 1993 Act. It says the LVT only has jurisdiction “in default of agreement” as to the amount of costs recoverable under section 60.

In the Upper Tribunal (Lands Chamber) case of Friends Life Ltd & Anor v Jones [2014] the central issue was whether a binding agreement as to the amount of the solicitors’ conveyancing fees occurred, or was made, when the residential tenant’s solicitor paid, without demur, the completion monies requested by the intermediate and head landlords, at completion of the extension lease, on 22 March 2013.

The Tribunal determined that there was no agreement as to costs because by its surveyor the residential tenant had five weeks earlier issued an application in the LVT under section 92(1)(d) of the 1993 Act seeking determination of the reasonable costs payable and, a week prior to the completion of the extension lease, the LVT had issued directions without hearing requiring the intermediate and head landlords to send a detailed statement of the costs which they sought under section 60(1) of the 1993 Act.

Seen in that context, the payment of the completion monies could not amount to an unequivocal acceptance of the 22 March 2013 cost figure. Rather, the payment of the full completion fees accorded with section 56(3) of the 1993 Act, which requires that where the amount of costs is not agreed the tenant cannot require completion of the extension lease without tendering the amount “so far as ascertained” of the costs for which the tenant is liable under section 60. Here the amount of the costs was “ascertained”, and full payment had been tendered and made, even if the amount of the costs had not been “agreed” because any costs in excess of £722 plus disbursements and VAT were disputed as was clear from the residential tenant’s surveyor’s section 92(1)(d) application.

In short, the payment of the costs on 22 March 2013 was merely the provision of full “security” so as to enable completion of the extension lease to take place pending the outcome of the residential tenant’s surveyor’s section 92(1)(d) application to the LVT. The fact that the tenant was acting by two representatives, or agents, did not affect that conclusion. Their separate acts were to be treated as the joint acts of the principal i.e. the residential tenant.

So the LVT had jurisdiction to decide the cost issue. That jurisdiction had not been ousted by any “agreement” as to the amount of costs recoverable under section 60.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Banksy was the Landlord’s to pass on

What term is to be implied into a lease as to the ownership of a valuable part of a let property which is justifiably removed from the property by the tenant, in accordance with the tenant’s repairing obligation, and so becomes a chattel?

Usually the term, which is to be implied, is that the chattel becomes the property of the landlord. For:

1. the default position is that every part of the property belongs to the landlord. The tenant only has a tenancy for a period of time. If the tenant thinks differently it is for the tenant to show that it is right to imply into the lease a term which leads to a contrary conclusion;

2. the mere fact that the tenant is carrying out its repairing obligation does not imply that it acquires ownership of the chattel which results from part of the property being removed;

3. even if a term could be implied that (1) waste or (2) chattels with just scrap or salvage value belong to the tenant, it did not mean that it should be implied with respect to the ownership of a chattel with a substantial value. Such a term would not be necessary, would not go without saying and would not be one that would be implied as something that might have been raised by an “officious bystander” when the terms of the lease were originally hammered out;

4. it makes no difference that the value is attributable to the spontaneous actions of a third party. Whatever solution is adopted, one party gets a windfall. Who has the better right to the windfall? Usually it will be the landlord.

In The Creative Foundation v Dreamland Leisure Ltd & Others [2015] a Mural attributed to Banksy was removed by the First Defendant (“Dreamland”) from a building at Folkestone (“the Building”). Then the wall was made good. Dreamland was the tenant of the Building.

This was done without the knowledge or permission of Stonefield Estates Ltd (“the Landlord”). The Landlord had assigned to the Claimant (“the Foundation”) its ownership of the Mural and its rights to sue Dreamland. The claim was for the return of that section of wall.

The High Court said the problem arose from the public knowledge that a Banksy had been on the site and would remain the same whether the Banksy was removed by overpainting, cleaning or removal and reinstatement of the wall. The shrine would remain a shrine, whichever method was used. So the removal of the wall was not in any event justified.

Even if it had been justified the wall would still belong to the Foundation as assignee of the Landlord’s ownership of it – under points 1-4 listed above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Improvement notice relating to apartment block should have been served on tenants

Where an apartment block is managed by a Right to Manage (“RTM”) Company who can a local housing authority serve an improvement notice on requiring work? Can an improvement notice still be validly served on the landlord under paragraph 4(2) of Schedule 1 to the Housing Act 2004 (“the Housing Act”)?

In the Upper Tribunal (Lands Chamber)case of Hastings Borough Council v Braear Developments Ltd [2015] Hastings Borough Council served an improvement notice requiring work to the common parts on Braear Developments Limited, the freeholder, and on the RTM Company.

Previous freeholders had granted long leases of the five first, second and third floors flats in the building, for a term of 99 years. The leases of the flats granted rights over the only means of access. Four of the five flats in the building were sublet on assured tenancies by the lessees. The fifth flat was not let, but if it were, the recipient of the rack-rent would be the lessee.

The Tribunal said looking at the building as a whole, the “person in control”, in the statutory sense of the person(s) in receipt of the rack rents, were the lessees of the five flats.

It would be wrong to ascribe a notional rack-rent to the common parts of the building, when there is no realistic possibility of such a rent being received.

The persons in control of the building were the lessees of the five flats.

Collectively they received the rack-rent of the building. So they satisfied the description in section 263(1) of the Housing Act.

Neither the respondent, as freeholder, nor the RTM Company could be served with an improvement notice in relation to any part of the building.

The freeholder did not qualify to receive the notice as the “person in control” of a House in Multiple Occupation (“HMO”) because it did not receive the rack-rents of the premises and so did not match the description in section 263(1) of the Housing Act. The RTM Company was in the same position.

Nor were either of the freeholder or the RTM a “person managing the building” within section 263(3) of the Housing Act. The respondent received a ground rent from the lessees, but no rent from persons who were in occupation as tenants or licensees of parts of the premises. The RTM Company received no rent at all.

So, in relation to the building as a whole, paragraph 2 of Schedule 1 to the Housing Act required the improvement notice to be served on the lessees collectively, and, to the extent that work was required within any individual flats, it required each lessee of those flats to be served with the notice requiring that work.

Paragraph 2 of Schedule 1 to the Housing Act applies only to HMOs which are not licensed. So where a building is an HMO subject to licensing it would normally be expected that an improvement notice would be served on the person holding the licence.

This building was subject to licensing as an HMO but it was not licensed.

Had the RTM Company obtained an HMO licence under Part 2 of the Act, as it should, it would have been the appropriate person on whom an improvement notice ought to be served under paragraph 1 of Schedule 1. As it had failed to do so the notice was to be served on the lessees collectively under paragraph 2.

There may be circumstances where a local housing authority could, and might have to, serve an improvement notice in relation to common parts either on the freeholder or on some or all of the lessees of flats. Each case would turn on which of those owners “ought to take the actions specified in the notice” in the circumstances. For example, where an RTM company has the management the freeholder would have no power to undertake works and no entitlement to recoup the costs of works from lessees.

Here, the better course would be to direct any improvement notice at those lessees who are members of the RTM company and who are therefore collectively able to control the RTM company’s decisions. Usually the RTM company would be able to carry out the works and to recoup their costs under service charges.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Housing: Corresponding date rule validated Right to Manage Claim Notice

An application may be made for the appointment of a manager of leasehold housing under the Commonhold and Leasehold Reform Act 2002 (“2002 Act”).

Section 80 of the 2002 Act prescribes that the claim notice:

– must specify a date, at least one month after “the relevant date”, by which each person who was given the notice under section 79(6) may respond to it by giving a counter-notice under section 84 (Section 80(6)) and

– must specify a date, at least three months after that specified as above, on which the Right To Manage company (“RTM company”) intends to acquire the right to manage the premises (Section 80(7)).

In the Upper Tribunal Lands Chamber) case of Windermere Court Kenley RTM Company Ltd v Sinclair Gardens Investments (Kensington) Ltd [2014] “the relevant date” was the 29th August 2013, when the claim notice was given, and the 30th September 2013 was the date specified under section 80(6) and the 31st December 2013 was the date specified under section 80(7).

Issue: whether a specified date of 31st December 2013 satisfied the requirements of section 80(7) or whether the earliest date it could have been was 1st January 2014.

The Tribunal said:

– The corresponding date in the following month or months was to be used as the date of calculation particularly where, as here, there was one.

– The application of the corresponding date rule in this case required that the start time specified for the RTM company must be a date ‘after’ midnight on 30th-31st December 2013.

– The start-time the claim notice specified for the RTM company was 31st December 2013.

– 31st December was the day ‘after’ midnight on 30th-31st.

Accordingly specifying 31st December 2013 as being the first day three months “after” the 30th September 2013 satisfied the requirements of section 80(7). So the claim notice complied with the provisions of section 80 of the 2002 Act.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Former or current lease guarantor can give guarantee on transfer back to former tenant

In UK Leasing Brighton Ltd & Ors v Topland Neptune Ltd & Anor [2015] a lease was granted to T1. T1’s lease obligations were guaranteed by G.

The lease was a new tenancy under the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”).

T1 transferred the lease to T2 in breach of a covenant. As a result T2 became liable under the tenant covenants in the lease.

Since the transfer was in breach of covenant, T1 as the original lessee and G as the guarantor were not released under the 1995 Act from their liabilities in respect of the tenant covenants in the lease.

The parties were united in their wish to revest the lease in T1 with G again guaranteeing the tenant’s obligations under the lease.

The 1995 Act seemed to lay various obstacles to this.

There was a concern that if T2 re-assigned the lease to T1 a fresh guarantee by G would be void under the 1995 Act.

The tenants suggested T2 assigned the lease to an associated company (“Newco”). Then (a day or so later), Newco assigned the lease to T1 and G entered into a fresh guarantee of T1’s obligations as tenant under the lease. However, the landlord imposed a pre-condition that Newco T1 and G first commit to the landlord that thereafter the term would be assigned by Newco to T1 and that G would enter into a fresh guarantee.

But the court ruled that such an agreement would itself be invalidated by the 1995 Act. The suggested agreement would frustrate the operation of section 24(2) of the 1995 Act.

The operation of the relevant provisions of the 1995 Act had been considered in the decision of the Court of Appeal in K/S Victoria Street v House of Fraser [2012] (“Victoria Street”). From Victoria Street the High Court Judge extrapolated the following propositions:

1. Whilst section 25(1) of the 1995 Act invalidated any agreement which involved a guarantor of the assignor guaranteeing the assignor’s assignee, if the assignor gave the landlord an authorised guarantee (“AGA”), in respect of the assignee, the guarantor of the assignor (whilst the assignor was the tenant) could also give a guarantee in relation to the assignor’s liability under that AGA.

2. If a tenant assigned with landlord’s consent and the tenant and the tenant’s guarantor were thereupon released, there is nothing to stop that guarantor becoming a guarantor again on a later assignment whether the subsequent assignee is a new party or is an earlier tenant whose liabilities were previously guaranteed by that guarantor. The Court of Appeal felt able to reach this conclusion because:

2.1 section 24(2) of the 1995 Act said the Guarantor was thereby released “to the same extent as the tenant is released from that tenant covenant” and because, strictly speaking and viewed somewhat in isolation, the operation of those words was not frustrated for the purposes of section 25 of the 1995 Act, even if the price of the assignment being consented to was G freshly guaranteeing T1; and

2.2 It produced a “sensible commercial result in the circumstances.”

Accordingly, it was open to the parties to proceed with a direct assignment by T2 to T1 with T1’s obligations being guaranteed by G.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Landlord’s surveyor could not unilaterally apportion residential service charges

A service charge clause may say the Landlord’s surveyor will decide how the Landlord’s service costs are to be divided between residential tenants and that that decision will be “final and binding.”

However Section 27A(6) of the Landlord and Tenant Act 1985 renders void any parts of any agreement that, in effect, provide for any question to be determined in any particular way, if that question could be referred to the appropriate tribunal under s.27A(1).

A clause that provides for determination of proportions by the landlord’s surveyor is such a provision, whether it is said to be “final and binding” or not. So Section 27A(6) deprives the landlord’s surveyor of his role in determining the apportionment.

Any service charge provision which purports to give the landlord’s surveyor that role is to be read as if that method of ascertaining a fair apportionment was omitted from the clause altogether.

That being the case in the recent Upper Tribunal (Lands Chamber) case of Gater & Ors v Wellington Real Estates Ltd & Anor [2014] where similar facts applied, the tribunal ruled that:

1. Where the provision for determining an apportionment was void under section 27A(6), then, unless the parties could agree what was fair, the fair apportionment fell to be determined by the appropriate tribunal.

2. Here it had been for the Leasehold Valuation Tribunal to decide what fair proportion of the cost of communal services was payable by the respondents.

3. The appropriate tribunal would consider what valid parts of the parties’ agreement remained.

4. In that particular case, what the tribunal thought had survived was the parties’ agreement that the tenant’s share would be:

4.1 a due and fair proportion of the service costs

4.2 to be divided having regard to “the relevant floor areas within the Building or other reasonable factors”.

5. As the tribunal thought the provisions at 4 above did not in their effect provide for a determination “in a particular manner”, they did not offend section 27A(6). We might disagree and think they had precisely that effect. But the key factor may be that the clause wording claiming to RELEGATE the tribunal’s discretion to apportion the service costs under those provisions TO “the landlord’s discretion” had been declared void by the tribunal and cut out of the lease.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice individual cases.

VAT: the supply of student accommodation was exempt and not standard rated

The First-tier Tribunal (Tax) case of The Principal & Fellows of Lady Margaret Hall v Revenue & Customs [2014] related to the VAT treatment of supplies of term-time accommodation made to students of Lady Margaret Hall, Oxford University (“the College”) and whether those supplies were standard rated, as the College’s Principal & Fellows (the appellant) argued, or exempt as HMRC argued.

The appellant had a subsidiary, LMH Hospitality Services Limited (“LMHHS”) and entered into an agreement with LMHHS whereby LMHHS was to supply accommodation to College students.

How might this help the College?

The College will have a much reduced capacity to recover input VAT on costs as it makes mainly VAT exempt supplies.

The introduction to it’s supply chain of a “subsidiary” capable of, and tasked with, making taxable supplies to the students would facilitate the recovery of input VAT. Costs bearing VAT could be channeled to be incurred by that subsidiary.

But would anything like that work here?

The case is important as other educational institutions have tried this, and variants of the principle. The recent case of HMRC -v- University of Huddersfield [2014] (q.v.) being a case in point.

The issues were:

1. Who supplied the accommodation to the students? Was it LMHHS as the appellant argued or the College as HMRC argued?

2. If (as the appellant had contended) LMHHS made the supply to the students, was it exempt under Schedule 9 Group 1 Schedule 1 of the Value Added Tax Act 1994 (“VATA”) as a licence to occupy land?

Under s31(1) VATA a supply of services is an exempt supply if is of a description specified in Schedule 9 including:

2.1 Schedule 9 Group 1

d) “The grant of any interest in or right over land or of any licence to occupy land….” and

2.2 Schedule 9 Group 6

Item 1

“1. The provision by an eligible body of:

(a) education …

4. The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided —

(a) the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply; and

(b) where the supply is to the eligible body making the principal supply, it is made by another eligible body.”

The appellant said that a supply by LMHHS could not be exempt under the education exemption (Schedule 9 Group 6 VATA 1994) because LMHHS was not “an eligible body” even if the College was.

Schedule 9 Group 1, Item 1 provides an exception to the VAT exemption at Schedule 9 Group 1 (see 2.1 above) for:

“(d) the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering;”

A Note 9 to the Schedule provides:

“Similar establishment” includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the provision of food, which are used by or held out as being suitable for use by visitors, or travellers.”

If the supply was prima facie exempt within Schedule 9 Group 1, was the appellant correct to say it was nevertheless standard rated because it fell out of exemption under the exception in Item 1(d) of the Schedule covering the provision of accommodation which is provided in an establishment similar to a hotel?

The Tribunal said “no”. Access to academia and library facilities were not found in hotels or similar establishments. Hotels do not have shared eating arrangements but allow guests to be seated at separate tables.

The students were not “visitors” paying visits to the College from home. It cannot necessarily be assumed that students will return to where they came from. They may have left home. Students needed advance permission for parties. Visitors do not normally throw parties for others at the place they are visiting. During term time the College was their home.

3. If the supply was to be taxable under the exception to the exemption at 2.1 above was it necessary for the students to have exclusive possession to fall within Schedule 1 Group 9?

The appellant argued it was not.

The Tribunal disagreed. It was necessary. But the concept of exclusive possession in European case law might differ from “exclusive possession” as English law considered to be a fundamental characteristic of leases. What was fundamental was the ability to exclude others from occupying “as owner”.

Only the student could occupy a room that was subject to the agreement. Though not explicitly, the agreement effectively conferred on the student “the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right”.

4. If exclusive possession was necessary HMRC said LMHHS was not able to grant this to the students because LMHHS had not itself been granted the necessary and adequate land interest under the agreement between the College and LMHHS.

The Tribunal agreed with the appellant that what LMHHS had been granted by the College made no difference. What counted was the nature of the agreement between LMHSS and the students. If that agreement said that the students would get exclusive possession that was an agreement capable of falling within the land exemption (Schedule 9 Group 1) whether or not LMHSS had the necessary legal status to deliver that benefit.

5. If the answer to issue 1. was that the College made the supply, was the supply exempt because it is a supply by an eligible body of something which is “closely related” to the supply of education?

Fatally to the appellant’s overall case, the Tribunal agreed with HMRC that:

– the College supplied the accommodation to the students with LMHHS merely acting as the College’s agent.

The College:

– advertised the rooms;
– received payment;
– through it’s own staff dealt with accommodation issues and complaints;
– effectively created the demand for the supply of accommodation to the College’s students. Under College regulations students were required to get permission if they wanted to live away from College (the “residency requirement”);
– set the terms of the accommodation agreement; and
– effectively controlled the price of the accommodation.

There was no evidence of LMHHS marketing or promoting in respect of a supply being offered by LMHHS as might be expected if LMHHS was the principal.

Applying also the “economic reality test” the factors were more consistent with the College being the person who, in economic reality, made the supply to the students and pointed away from the economic reality being that LMHHS made that supply; and

– that the supply of student accommodation by the College in term-time was “closely-related” to the College supplying education to the students. The residency requirement imposed by the College was a factor strongly indicating this.

In conclusion the supply of student accommodation was by the College and was VAT exempt and not standard rated.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Unprotected Non Refunded Pre Regulation Tenancy Deposit invalidated repossession notice

Statutory regulation of tenancy deposits was introduced from 6 April 2007 by sections 212 to 215 of the Housing Act 2004. They were designed to end complaints that residential tenants’ deposits had been unreasonably withheld or purloined by landlords at the end of tenancies.

The sections have been amended by the Localism Act 2011.

In the Court of Appeal case of Charalambous & Anor v Maureen Rosairie NG & Anor [2014] Mr Charalambous and Ms Karali took a succession of short tenancies of 14 Sapphire Court in Spitalfields starting on 20 August 2002.

They paid a deposit of £1,560. On each renewal the same deposit was required to be paid. No further deposit was paid or money actually changed hands. Instead the original deposit was carried over and credited against each renewed tenancy.

The contractual term of the last of the written tenancies expired in 2005 and so by the time when the tenancy deposit protection provisions became effective, the tenancy had already become a statutory periodic tenancy.

The landlord continued to hold the deposit.

On 17 October 2012 the landlord served notice under section 21 of the Housing Act 1988 requiring possession of the property to be given after 17 December 2012.

The deposit paid by Mr Charalambous and Ms Karali was never held under a statutory scheme. Was the section 21 notice valid?

The Court of Appeal said Section 215 (1) (a) itself is unclear but the terms of Article 16 of the Commencement No. 4 and Transitional, Transitory and Saving Provisions) Order 2012 (“the Order”) plainly envisaged that as from the coming into force of the amendments made by section 184 of the Localism Act 2011 the code would apply to existing tenancies.

What was relevant was not the date at which the deposit was received, but the date on which the tenancy was in effect.

Article 16 (1) of the Order was clear that the 2011 Act amendments would apply to tenancies in existence on 6 April 2012.

Since the amendments made by section 184 included amendments to section 215 (1) itself, it must have been envisaged that section 215 in its amended form would apply to all such tenancies.

That on its own was enough to lead to the conclusion that the section 21 notice was invalid.

The case contained a number of interesting side views in the lead judgement.

Under the original version of section 215, the landlord could comply with the requirement to have the deposit held in accordance with an authorised scheme, even if this was not done within the 14 days then stipulated.

That may no longer apply given the amendment to section 215(1)(b) made in 2012. As regards failure to provide the necessary information, under section 213(6), the sanction preventing service of a section 21 notice applies until the prescribed deposit information notice is given to the tenant, even if that is done late (section 215(2)) and it’s saying: “until such time as section 213(6)(a) is complied with” was also significant, though the time stipulation is in section 213(6)(b). So, a distinction had been made, the landlord can retrieve the position, as regards the failure to serve the prescribed information notice, by complying late.

The same did not appear to apply to a failure to protect the deposit by an authorised scheme at all. Though the court made no decision on the point it may be that the only way in which the landlord can now escape from the provisions of section 215(1) is by returning the deposit to the tenant.

So the landlord here and any landlord in a similar position may well be precluded from serving a section 21 notice unless she repaid the deposit to the tenants.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.