Which section 21 notice should I use and does it matter anymore?

Under section 21 of the Housing Act 1988 a landlord is entitled to recover possession of a property let on an assured shorthold tenancy as of right at the end of or after the expiry of the initial fixed term, so long as proper notice is given. There is no requirement for the landlord to show any default on the part of the tenant.

There are two subsections to section 21 of the Housing Act 1988 which prescribe different requirements which apply in different circumstances. The key differentiator is that under section 21 (1) the landlord need only give not less than two months notice, which does not have to expire on a particular day. Under section 21 (4) the landlord needs to give not less than two months notice but it must expire on the last day of a complete period of a tenancy. Generally speaking a section 21 (1) notice is used to terminate a fixed term tenancy and a section 21 (4) notice is used to terminate a periodic tenancy. The latter can sometimes mean a landlord having to give almost 3 months notice depending upon when notice is served.

A periodic tenancy arises at the end of the fixed term of an assured shorthold tenancy which gives rise to the question what is the appropriate notice to use?

In the case of Spencer and Taylor the Court of Appeal has given a helpful boost to landlords by clarifying that the s21 (1) notice may be used to terminate a fixed term tenancy at the end of the fixed term and may also be used to terminate the statutory periodic tenancy that arises thereafter, crucially this may save landlords some weeks when recovering possession and accordingly avoid some off the lost rent that often accrues in these situations.

The section 21 (4) notice is not dead though. It will still be necessary to use that to terminate pure periodic tenancies.

More RTM litigation reaches the Upper Tribunal

Right to Manage is one area which continues to produce litigation and another disputed claim reached the Upper Tribunal at the end of 2013.

In Pineview Ltd v 83 Crampton Street RTM Company Ltd a notice of claim served by the tenants was challenged by the landlord because it was signed by the legal representative for the tenants and not an officer of the RTM company and also because it failed to specify / identify whether any appurtenant property was involved.

Such technical challenges are increasingly common in RTM claims where some landlords simply try to exhaust the tenants enthusiasm for the project by digging in for disputes.

In this case the Tribunal found in favour of the tenants at first instance and the Upper a Tribunal upheld that decision. The signatory was considered to have had the authority of the RTM company as required on the prescribed form of claim notice. The issue of appurtenant property was also considered not to require certainty at the date of giving of the notice and so failure to refer to it did not invalidate the notice as that would be decided later in the claim.

Phillips and Goddard v Francis to be revisited in 2014

About this time last year the Chancellor of the High a Court handed down judgment in an appeal of a decision of the Upper Tribunal (Lands Chamber) in a case involving Point Curlew Holiday Park in Cornwall which has has far reaching consequences for residential property management across the country. The decision turned on its head the received wisdom that the consultation process for qualifying works under section 20 of the Landlord and Tenant Act 1985 should be applied on a project by project basis.

Project by project consultation was open to abuse in that landlords would in some cases artificially split a programme of works into sufficiently small portions to deliberately evade the consultation process. Consultation is required where the contribution of any individual tenant to the cost of qualifying works exceeds £250. The consultation process is designed to allow tenants the opportunity to have input into both the scope of works to their block and also to influence the choice of contractor but can prevent landlords from instructing connected or preferred contractors.

As I understand it, the original LVT decision in the Phillips and Goddard v Francis case based it’s reasoning on there being no qualifying works requiring consultation under section 20 (so far as I am aware the had been inadequate or no consultation by the landlord and no claim for dispensation either). Accordingly, the landlord was not capped at recovering only £250 per leaseholder and could recover its expenditure in full.

The result of the tenant’s appeal turned received wisdom of the operation of section 20 on its head and led to landlords and managing agents having to rethink their approach to major works because of the risk of substantial irrecoverable expenditure.

The Chancellor of the High Court rejected the concept that qualifying works could be split into different sets and instead propounded the idea that the intention of the amended statutory scheme was for the landlord to consult on an annual basis for all qualifying works proposed to take place in the forthcoming year. This change to established practice created some practical headaches for property managers who often were not and could not be aware of all the likely qualifying works due to take place in any given financial year sufficiently in advance to properly consult. That has given rise to some criticism of the decision, although a critique on this basis overlooks the availability of dispensation applications to remedy some of these difficulties.

As I understand it the landlord has secured some financial backing from parts of the property management industry in order to move forward with an appeal and recently obtained permission to appeal out of time. It is expected that the appeal will be heard in the early part of next year and could draw a line under the uncertainty of the past twelve months.

RTM offer must be made to personal representatives

A phenomenally busy couple of months has kept me away from blogging. However, I’m back with an update on another Right to Manage case that emphasises the need for prospective RTM participants to take proper legal advice before embarking upon a claim.

Assethold Ltd is a freehold company who crops up in cases from time to time (indeed it has been involved in other reported RTM litigation) and in the case of 7 Sunny Gardens Road RTM Ltd it was disputing the purported exercise of an RTM claim by the tenants in a block it owned.

Before exercising the right to manage the RTM company must give notice to the qualifying tenants in the block who aren’t and haven’t agreed to be part of the RTM company to give them the opportunity to participate. RTM is a no fault right and so the majority of the litigation that has come before the courts and tribunals in recent years concerns the procedural requirements and this is another such case.

All of the leaseholders had agreed to participate in this RTM but unbeknown to the advisers acting by the time that by the RTM company was incorporated one of them had died. No notices inviting participation were therefore served and the landlord who objected on the basis that the procedure had not been complied with. Initially, the landlord was unsuccessful but won on appeal because the lease of the deceased participants flat had vested in his personal representatives upon his death and so notice of invitation to participate should have been served upon them.

One sideline to this decision is that there was a 7 month delay in incorporating the RTM company from when the papers were signed by all participants so had those instructions been carried out promptly this situation could possibly have been avoided.

Avon Freeholds Ltd v Regent Court RTM Ltd: Substantial Compliance in RTM claims

Freeholders are often reluctant to allow tenants to follow the right to manage process brought in under the Commonhold and Leasehold Reform Act 2002. This has resulted in many technical challenges to tenants attempts to invoke the right to manage procedure. The latest in these line of cases concerned Regent Court in Plymouth, which I think was also a retirement development.

The Right to Manage legislation was supposed to create a simple means of leaseholders exercising a right to take control of the management of their block. The process prescribed is broadly as follows:

1. Invitation notice sent to all qualifying leaseholders;
2. Notice of claim served on landlord by participating leaseholders;
3. Landlord’s counter-notice admitting or denying the claim;
4. Acquisition of management responsibilities by the Right to Manage Company or proceedings over the validity of the RTM claim.

In this case, the tenants got everything right up to service of their initial notice which didn’t allow for the correct time periods. This was recognised and a second notice was served remedying this error but without re-inviting all of the qualifying tenants to participate. The landlord then challenged the second notice on that basis.

The Upper Tribunal appreciated the landlords argument but found that the invitation stage was not fatal to he right to the right to manage process as no serious prejudice resulted from it. The upshot of this case could be a substantial compliance threshold is enough for an RTM claim to succeed even where there is a procedural defect.

The lessons to learn from Superstrike

The facts of the recent Superstrike v Rodrigues Court of Appeal case don’t on the face of it appear the be applicable to tenancies granted after the tenancy deposit scheme legislation came into force in April 2007. The case concerned a deposit originally held in respect of a fixed term tenancy which began before the requirement to protect the deposit and to serve the prescribed information came into force. However, the important point from Lord Justice Lloyd is that when a periodic tenancy replaces the original fixed term there is deemed receipt of the deposit in respect of the new periodic tenancy unless a new deposit is paid.

This would apply to tenancies which were entered into after 6 April 2007 and effectively means that a landlord needs to re-serve the prescribed deposit information on the tenant within the relevant time period starting from the commencement of the periodic tenancy. This is even where it has already been served at he start of the fixed term. Failure to do so could expose a landlord to the statutory fine and prevent section 21 of the Housing Act 1988 to recover possession.

Is an unlawfully converted commercial premises a house?

They are still at it in the higher courts arguing about whether a variety of different types premises could qualify as a house reasonably so called under the Leasehold Reform Act 1967, so as to allow the tenant to forcibly acquire the freehold from their landlord. Under the 1967 Act the tenant has the right to acquire the freehold of their leasehold house in exchange for the payment of a premium calculated according to a statutory formula.

The oft asked question is what is a house reasonably so called? Recent case law has seen various commercial tenants or tenants of premises with a dominant commercial use try to argue that the right under the Act applies to them.

The latest of this line of cases reached the Court of Appeal and judgment was given earlier this year in Henley and another v Cohen. The simple question on appeal was whether a ground floor shop with a first floor that had been converted into a flat be described as a house, so as to entitle the tenant to acquire the freehold? If you have been paying attention to the recent line of cases on this issue, then you might be able to take an educated guess at the answer.

The Court of Appeal decided, unsurprisingly, that it wasn’t. It followed the reasoning from last years Hosebay cases and determined that because the premises were neither adapted for residential use at the date of the lease or ever used as such until recent works shortly before the notice purporting to exercise the right to enfranchise. The new residential accommodation upstairs was smaller than the downstairs commercial element and there was not a direct access between them. The judge was also unimpressed that the first floor conversion was unlawful and commented that such action should not be allowed to found the basis of an enfranchisement claim but the was not strictly part of his judgment.

Because the test of what is a house reasonably so called is so highly fact sensitive, this is unlikely to be the last of these cases that we will see.

From what is a house to what is a flat?

Last year was the year of the house after the decisions in Day v Hosebay Limited / Howard de Walden v Lexgorge Limited and the early signs are that this could be the year of the flat after a decision in the county court in the case of Smith and Dennis v Jafton Properties Ltd (not to be confused with the earlier case involving the same parties and their status as qualifying tenants).

The Hosebay/Lexgorge cases concerned the definition of what constitutes a house reasonably so called under the Leasehold Reform Act 1967, which confers a right to acquire the freehold interest on qualifying tenants.

The Leasehold Reform Housing and Urban Development Act 1993 confers a similar right upon tenants of flats. But what is a flat?

In this case the tenants contended that the loft units, which had been constructed by converting a warehouse and then sublet to a company who used them for short term serviced lettings, were flats. Despite the physical appearance of the units being that of conventional flats, this was not determinative. The actual use was not really as dwellings but more akin to hotel use. As such, the county court was not persuaded that the flats were in fact flats, following similar reasoning to the Hosebay/Lexgorge cases from last year.

Physical characteristics and occupation looked at together is the correct way to approach the question of what is a house or what is a flat and not one of those criteria alone. The judge did emphasise that the decision was finely balanced and may be the subject of an appeal.

OM Property Management Ltd v Burr: Liability has to crystallise before it becomes a cost

Regular readers of my blog will recall that I wrote an article last year on the Upper Tribunal case of OM Property Management Ltd v Burr which gave guidance upon what is known as the 18 month service charge rule under section 20B of the Landlord and Tenant 1985. Landlords are prevented from recovering service charge costs from tenants if they were incurred more than 18 months before they are demanded unless the correct form of prior notification is given.

The facts were peculiar in that they concerned the cost of heating a communal swimming pool, a facility that no doubt more long leaseholders would want as standard in their blocks.

OM Property Management Ltd (OMP) was given incorrect information about the gas supplier for the swimming pool heating system which eventually led to a bill for the period 2000 – 2007 in the sum of around £135,000. In the Leasehold Valuation Tribunal the LVT panel determined that the gas supply expense was incurred when the gas was supplied and not when the invoice was levied by the supplier.

OMP appealed to the Upper Tribunal who reversed the LVT’s decision on the basis that cost and liability are conceptually different, although there could be issues in cases where invoiced costs were diluted and not paid until outside the relevant period. In this case it was determined that the service charge cost was only incurred at the earliest, when the gas supplier rendered its invoice. That, you may have thought was the end of it. However, Mr Burr appealed to the Court of Appeal.

The Court of Appeal held firm and agreed with the Upper Tribunals view that a cost must crystallise for the 18 month clock to start ticking. The cost in this case only crystallised when there was a demand for payment by the supplier.

Mr Burr had argued that the purpose of section 20B was defeated by this approach in that it effectively removed the tenants statutory protection as there would be no end date for the payment of charges if invoices could be delayed for many years and tenants could not prepare for this (I don’t know if the impact of section 20 consultation was raised in the context of this proposition). However, the Court of Appeal disagreed with this and effectively said that the purpose of the statutory protection was not as wide as Mr Burr submitted.

Are advance payments of rent caught by the Tenancy Deposit Scheme rules?

The short answer is in most cases probably not and I was a little surprised to find that this had been argued all the way to the Court of Appeal in Johnson and others v Old.

The claim arose after the tenant in this case had fallen behind with the rent and the landlord sought possession under section 21 of the Housing Act 1988. The tenancy had become a statutory periodic tenancy following on from several fixed term tenancies which had provided for payment by the tenant of both a fixed deposit sum and an advance payments of rent well in excess of the usual monthly payments in most agreements.

The Tenancy Deposit Scheme provisions of the Housing Act 2004 provide that where a landlord receives payment by the tenant of a sum of money intended to be held as security for the performance of the tenants obligations or discharging any liability of the tenant under the tenancy. Regular readers will remember that if a deposit is not protected then the landlord cannot rely upon any s21 noticed served.

In this case the landlord had protected the deposit element but it had been argued that the landlord ought to have also have protected the advance rent payments as well. The tenant had success with this argument at first instance, despite in my view the fact that the advance rent payment was not security for the performance of the tenants obligations but the actual performance of those obligations.

On appeal the judge went on to overturn the original decision and upon further appeal to the Court of Appeal, the tenant was defeated again. Relief for landlords that advance rental payments shouldn’t attract the requirement to register them in a scheme but there USA warning that the obligations of the tenancy need to be look at as a whole so it isn’t a hard and fast rule.