Tenancy deposit roundup

A few matters on the subject of tenancy deposit protection which I have been meaning to comment on for a while.

The August issue of Legal Action Magazine has two cases on tenancy deposit claims, which go to support tenants claiming against landlords who breach the tenancy deposit regulations. If you want to read the full stories, this is set out in Nearly Legal. However just to summarise:

Woods v.Harrington
This case involved a landlord who protected the deposit so late it was after the tenancy agreement had ended. The Judge held that was 'not only contrary to the letter of the law but is contrary to the spirit of the law and the public policy considerations that Parliament was seeking'. The landlord lost and was ordered to pay the penalty fine of three times the deposit sum for being in breach of the tenancy deposit regulations.

Delicate v. Sandberg
Here the landlord served the s21 notice before the deposit was protected. However notwithstanding this, in the absence of the tenant in prison, they obtained an order for possession and possession of the property via the bailiffs. On being released from prison, the tenant re-entered. The Landlords applied for an order for restitution, but the Court held that the section 21 notice had been invalid, the possession order should be set aside.

The swarb forum
My client Alan (you know who you are) has also drawn my attention to two interesting posts on the www.swarb.co.uk forum:

1. This one says that a tenancy deposit case it to be taken to the Court of Appeal, funded by one of the landlords associations. If anyone has any more information about this, please leave a comment.

2. This one is an interesting post looking at the complexities of the TDPS legislation, pointing out that the wording appears to provide for the landlord to escape the penalty by paying the deposit at any time before the court hearing, and also discussing whether the legislation can apply to former tenants as well as current ones.

I will be doing a presentation on tenancy deposits for my talk for Professional Conferences in December, so would welcome any information readers may have about new cases and developments.

(Note - you can read all my other posts on tenancy deposits here)

Pigeon problems

In some towns pigeons are such a problem that feeding them is punishable by eviction from your home! So says this report from the Norwich Evening News. ASBOs are also threatened against those anti-social tenants who persist in feeding the birds. Indeed apparently in Bristol, 63-year-old Graham Branfield was given an indefinite anti social behaviour order for feeding birds in his back garden and now faces up to five years in prison if he breaches the order by feeding pigeons or any other animals.

However I very much doubt whether any tenants will actually be evicted, plus any possession order made on this basis would almost certainly be subject to appeal. Although the reported case in the Law Reports would make very interesting reading, and the tenant would achieve lasting fame by having his case cited in almost all property law text books.

My ten top posts on tenancy deposits (as @ 19/08/09)

I have done a lot of writing about the tenancy deposit protection scheme (TDPS) regulations and the problems they have thrown up. You can read them all of course by following the link to the tenancy agreements tag. But which ones are most worth reading? Here are ten suggestions:

1. Tenancy Deposit Protection - 62% failure

This has to be my most popular post ever. It was written over a year ago and still shows up in my stats as one of the most visited posts. It has an amazing 58 comments - people kept asking questions which I answered, until eventually I felt it was getting silly and stopped. If you ask a question there now I won't answer it, in fact it won't even get allowed in now, as the post is officially closed. It is still worth reading though, not so much for the post itself but for the questions and comments which follow.

2. Complaints about the DPS
This is another popular one in the stats, probably because of its title. Many people do have problems, with all the tenancy deposit companies, and this post (and the posts linked from it) gives some guidance on what you should do. In particular there are a few comments on using the Arbitration Act to challenge unfair decisions (a suggestion made by barrister Francis Davey). This post also features the fabulous DPS tea cosy.

If you have a complaint against your TDPS, you should also read:

3. Complaints against the DPS - the governments response
This reproduces a letter sent to one of my clients, who wrote to the Department of Communities and Local Government with a complaint about a DPS arbitration. With thanks to my client (you know who you are) for letting me reproduce the letter.

4. Deposit protection avoidance
This is another popular one and looks at ways landlords can avoid using the tenancy deposit protection schemes. It should be read in conjunction with:

5. Advance rent = deposit?
This looks at a case which throws doubt on the legality of the practice of taking two months rent in advance instead of one month and a deposit. This course of action is not recommended by me now (although before this case I thought, along with many others, that it was acceptable).

6. Landlords out of pocket for deposits - DPS may best best after all
This is an important post as it explains why landlords may be vulnerable if their agent becomes insolvent and the tenancy deposit money is lost.

7. Tenancy deposits with student lets
This is a helpful post for landlords with students, as it looks at what you should do if you have lots of tenants and guarantors signing at different times, before the start of the tenancy. With thanks to Roger for providing the information.

8. Four more cases on possession proceedings
There are many case reports on the Landlord Law Blog on tenancy deposits, but this post looks at four (although one is on licensing), and gives a useful overview of the relationship between the TDPS rules and possession proceedings. If you are interested in case law, you should also follow the link to read about the Sheffield case, one of the very few cases which have been appealed (although sadly, not to the Court of Appeal).

9. New tenancy deposit case - deposit paid before 7 April 2007
This considers a useful case (albeit, as with all of them, a county court decision) as it goes to prove what we lawyers have always thought. Ie that deposits paid before 7 April 2007 where the tenancy is renewed, are caught by the regulations.

10. Tenancy Deposit muddle
Finally, this is an example of the byzantine complexity of the TDPS rules, and how new interpretations are always springing up to ambush us, after we thought we had got a grip on them. With thanks to Alan who drew the forum post mentioned, to my attention.

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So there you are. Ten posts (plus linked posts). These will give you a flavour of this, surprisingly complex, subject. If you want more, you will find them all here.

Case throws up injustices in the tenancy deposit scheme legislation

A very interesting article in the New Law Journal (NLJ) from Laura West, barrister, Arden Chambers and Marianne Rivett, solicitor, Kennedys (currently available here) highlights some of the injustices and inconsistencies in the current tenancy deposit protection scheme (TDPS) legislation.

The article considers a case heard in May 2009 in the Central London County Court, Jacklin v Fraser Property Management Ltd, T/a Martin and Co (Bedford). Here the landlord was supposed to protect the deposit but failed to do so. When the agent (the defendant in the case) discovered this, he arranged for the deposit to be protected. The landlord subsequently went bankrupt, and the tenants abandoned the property during the fixed term and stopped paying rent. However despite this, on discovering the problem with the deposit, they brought a claim for the penalty for default, which is the fine of 3x the deposit sum.

The Judge chucked the case out because the claim had been improperly brought by only one of joint tenants (something future joint tenants should note when bringing claims). However the Judge went on to point out various problems as he saw it which would have put him in an impossible situation, had he not been able to do this (this section quotes from the NLJ article):

- He found he would have been compelled to order that the defendant pay the penalty despite the clear arrangement between the defendant and landlord—a completely unjust result. The inequity of such a decision would have been compounded by the fact that the landlord had since gone bankrupt and, had it not been for the actions of the defendant, the monies would have been as good as lost to the claimant.

- Had he been compelled to order the payment of the penalty by either the defendant, or indeed the landlord, the claimant may well have benefited from an enrichment which would have been unjust since he had abandoned the tenancy during the fixed term—where the landlord did not accept the abandonment—and ceased to pay rent without any legal basis for doing so.

- s 213(3) would require the court to either order the person who appears to the court to be holding the deposit to repay it to the applicant (s 213(3)(a)) or order that the person pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme (s 213(3)(b)) within 14 days.

Any such order would be completely pointless in the circumstances since the deposit was already protected in the insurance backed scheme. Furthermore, were the deposit protected in a custodial scheme the court would be compelled to order the return of the deposit to the tenant (even where the landlord was entitled to a set off).

However, where the landlord had chosen the insurance scheme (as in Jacklin) the court could manipulate the system and merely order the transfer of the deposit funds from an insurance backed scheme to a custodial scheme pursuant to s.213(3)(b) in order to avoid returning the monies to the tenant.

The NLJ article then goes on to consider three other problems with the legislation:

(1) Set off: the Judge in this case appeared to think that he would have allowed set off, whereas in another case, Stankova v Glassonbury, the Judge refused set off on the basis that if the landlord had registered the deposit he would have been able to do this via the arbitration scheme. But then in another case in Tunbridge Wells, Davies v Smith, set off was allowed!

(2) New tenancy agreements. It now seems that deposits paid in respect of a tenancy starting before TDPS came into force in 4/07 will be caught if a new tenancy agreement is given to the tenant but this is not clear from the legislation, and

(3) Whether a tenant receive the benefits of the legislation after the tenancy has ended. The legislation does not define 'tenant' and it is arguable that it only means current tenants. Although I would say that this would also be unfair, as often tenants only discover that a landlord has failed to protect after they have left the property and seek to claim the deposit. They then find that the landlord unreasonably fails to return it and that they are deprived of the benefit of the free arbitration service, because the deposit is unprotected.

I think we will all agree with the NLJ article's concluding comments:

As a result of the draftsman’s haste to get this scheme on the statute books, it would seem that this supposedly “no fuss” mechanism for tenants has run into problems. County court judges seem increasingly perplexed that they are compelled to make orders within a rigid system, with the potential for inequitable and unjust results. This is in clear conflict with the original aims of the legislation. In giving his judgment in Jacklin DJ Lightman commented that “the sooner Parliament looks at this the better”. In the interim it would seem that there is a real need for guidance from the higher courts and, in the longer term, need for amendment of the legislation.

If you have found this summary interesting, I would recommend you read the original article in the New Law Journal. Authors Laura West, barrister, Arden Chambers & Marianne Rivett, solicitor, Kennedys.

HMO Landlords fined in Manchester

More and more landlords and agents are being prosecuted under the HMO licensing regulations. For example, a report in the Sikh Daily Times mentions two cases under the HMO legislation in Manchester.

In cases heard 20 July 2009 at Leeds Magistrates Court, a landlord, Mrs Ghamar Gill, was fined £1,000 and ordered to pay costs of £1,554. An inspection of her property revealed a lack of adequate fire precautions and the property had no fixed heating system which meant tenants had to rely on portable heaters. No doubt the Local Authority will have served an improvement notice on her in respect of this.

The other case involved an agent, Mr Qumar Javed of 2View Properties management company, who had taken over the management of a property on behalf of a private landlord and failed to license it. He was fined £2,000 and ordered to pay costs of £828.

Whether you are a landlord or an agent, the legislation must be complied with. If you own or manage a property with more than five tenants and you don’t know if your property needs a license or not, have a word with someone at your local authority. You can find contact details via my Local Authority Directory.

Do you know of any landlords who have been prosecuted?

Advice for landlords seeking to recover commission post OFT v. Foxtons

You are a landlord. You are not a 'professional landlord' (i.e. you do not have a large portfolio and landlording is not your main business). You have paid commission to your agent (who may or may not be Foxtons) in the past, even though they were not managing the property. The commission was charged under a clause which was buried in the small print of your agency agreement and not drawn to your attention before you signed. In the light of the Foxtons case decision, you want to reclaim it. What should you do?

Initially, the answer is "not much", as the recent decision is not necessarily the end of the story. First, the Judge states at the end of his judgement that the practical consequences of his decision are yet to be either agreed between the OFT and Foxtons, or will be the subject of a further hearing. So that needs to be sorted out.

Second, this was a High Court decision, and High Court decisions can be overturned on appeal to the Court of Appeal, (and possibly then again on an appeal to the House of Lords). At the present time, we don't know whether Foxtons will appeal or not.

Whether Foxtons appeal will probably depend on the decision in the other big (even bigger) OFT unfair contract terms litigation, which is the case against the banks on bank charges. There is a House of Lords decision due out at some stage on this (the case was heard at the end of June), so we all need to wait and see what happens.

So overall it is tricky to predict the final outcome in the Foxtons case and how it will affect other clauses providing for commission on renewals in non managed agency contracts. My gut feeling is that Mr Justice Mann got it right in his decision in the Foxtons case, so far as it went, and I think it is unlikely a court will want to substantially alter his judgement (other than perhaps to take it further).

However I am not so sure that the House of Lords (or the Supreme Court as we will shortly have to call it) will feel very happy about coming to a similar sort of decision in the banks case, if this will require banks to pay back millions of pounds in charges to customers, at a time when most of the banks are still a bit fragile after the crash. It is not unknown for HL decisions to be influenced by politics (for example Lord Hoffmans judgement in Birmingham City Council v. Oakley [2001]).

So what should landlords do? Well I agree with others posting on this subject (for example the National Landlords Association and the Residential Landlords Association) which is that they should send a letter now to their agents, requesting them to return the commission paid within 14 days, to establish their claim. However once this is done, my advice is then to wait and see what happens. I will keep posting on this topic, and will try to keep you up to date, as will the landlords associations.

If though, your agent was Foxtons under one of their old agreements criticised by the Judge, or if your agent had a very similar clause which was buried in the small print of your agency agreement, and you don't want to wait, you could consider issuing proceedings now to get a place in the queue of similar cases in the County Court that is no doubt building up. However, no-one can be certain of anything at present, and always bear in mind that if you lose your case, you may have to pay your agents' legal costs.

Hating Foxtons, and another case

I was very amused, while surfing the internet recently, to find that there is a whole web-site dedicated to hating Foxtons - www.wehatefoxtons.com. If you are interested in the landlord business and have a spare few minutes, it is worth a look, if only for the amusing spats between those posting (which include landlords, tenants, and Foxtons employees).

However there is one interesting case, which you can read here, Foxtons Ltd v Willis Estates Ltd, which was heard on 3 June 2009 at the Brentford County Court.

In this case the landlords, no fools, had deleted the renewal commission clause from the Foxtons agency contract before signing. The property was then let to tenants, the tenancy agreement signed, and the tenants paid the initial payments. In the interregnum between this happening and the tenants moving in, someone at Foxtons twigged that the agency agreement had been changed and they were on line to lose their renewal commission. They therefore told the landlords that they had to sign a new agency agreement, and that if they did not they would not release the keys to the tenants and the letting would not go ahead. The landlord signed.

The court case was the agents claim for the commission. The Judge found for the landlords, saying that as the property had been let, there was no consideration for the second agreement (this is a legal term which means that a contract is only enforceable if both sides provide something of value), plus it was void anyway as it was signed under duress.

An interesting case, not only on the renewals commission saga, but also for shedding light on Foxtons business practices. The landlords here recommend that other landlords using Foxtons, get the tenants to pay rent to them, the landlords, direct rather than to Foxtons so they do not have funds out of which to deduct their commission claims.

Another TDPS case - Locke & Orchard v Osborn

I have just learned about this case decided at the end of June. Here Mrs Osborn was let down by her agents, Countrywide Residential Lettings who, despite having protected the deposit, had failed to serve notice on the tenants giving the prescribed information, or return the money within the proper period of time. As a result, an order was made that she should pay the 'fine' of three times the deposit amount.

The shocking thing about this case is that apparently the elderly landlord, suffering from dementia, had to be driven by her son from her care home in Norfolk to the court hearing in Portsmouth. Which not surprisingly she found completely baffling. This and the long journey seems to have been a pointless exercise and unnecessarily distressing to Mrs Osborn.

My initial thoughts were that it should have been possible to avoid this. For example solicitors could have arranged for representation at the hearing (there are professional companies which provide advocacy services). Mrs Osborn could have given evidence by way of an affidavit (presumably she would just say that she had left matters in the hands of her agents), and a medical certificate could have been obtained to excuse her non attendance. As the property was being managed by letting agents, they were the ones to give evidence, not her.

However as the whole problem was caused by the agents failing to deal properly, Mrs Osborn will have grounds to claim re-imbursement from them. In fact from the reports I have seen, it looks as if they accept this.

But this just goes to re-inforce the fact that landlords must protect tenancy deposits and serve notice with the prescribed information on the tenant. If both are not done the landlord is at risk.

The OFT v. Foxton case - commission on renewals

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

There is still quite a bit of confusion regarding the recent decision in the case of the Office of Fair Trading (OFT) v. Foxtons (which I reported on here). One of the questions being asked is what exactly is the status now of clauses providing for commission on renewals?

I should make it clear here that we are talking about non management contracts, where the agent just finds the tenant, and the landlord then takes over the management of the property, but where the agent's agency agreement with the landlord provides for him to continue to receive commission whenever the tenancy is renewed. Also the regulations under which the case is brought, The Unfair Terms in Consumer Contracts Regulations 1999, are only enforceable in the context of an contract between a business and a consumer, made under the business's standard contract terms.

In his decision (which you can read in full here) the Judge, Mr Justice Mann, made it clear that he was not saying that clauses providing for commission on renewals were necessarily unfair in themselves. His ruling was just in respect of the specific clauses in the Foxtons agreements, before the court.

Or to use the Judge’s own words “I am not asked to decide, and do not decide, that renewal commissions (in the sense used in these proceedings) are always unfair.”

So can such clauses ever be fair, and if so what do agents need to do to make them fair? Well in my view, at the very least the renewal commission clauses must be given equal prominence with clauses setting out the initial commission charged, and the agents marketing literature must also make it clear that this type of commission will be charged and say how much. In other words, total transparency, so the landlord is fully aware of and understands the nature of the contract he is entering into.

It is also important that the way in which the average landlord/consumer is likely to view the contract is taken into account. To quote the Judge (para 84):

“the argument of Foxtons [is] that the renewal commission is justified because it is part of the payment for an income stream that has been introduced to the landlord .. There is no evidence that landlords generally (let alone consumer landlords) would view the commission in that way, and nothing in the way in which the matter is presented to them in publicity or otherwise which would bring the point home to the landlord. The landlords in question are not sophisticated economists, or even sophisticated businessmen, and would be unlikely independently to think in those sort of terms. They are likely to see themselves as paying 11% for getting a tenant into the property for the agreed first term. I doubt if many of them will think beyond that ...”

And again (para 91)

“I think it unlikely that the typical consumer who has got a tenant for (say) a year's tenancy, and paid 11% of the rent up-front, would expect a repeat bill in year 2 (and all years thereafter) unless that point is spelled out to him in some way. In the absence of that it becomes a trap, or a time bomb.”

The Judge then referred to Foxton’s glossy publicity and the first pages of the agency agreement as being suitable places for these points to have been made.

One of the main criticisms of the Foxtons clauses were that they were buried in the small print of the agreement. To quote the Judge again (para 92):

“I think that such a consumer will expect a lot of detail be dealt with in what is frequently labelled the "small print", but the whole point of that expression ... is that it contains things which are not of everyday concern to the consumer – it contains various clauses which are thought by the supplier to be necessary but which are not usually relied on ... The consumer would not expect important obligations of this nature with likely and significant impact to be tucked away in the "small print" only, with no prior flagging, notice or discussion. ... that is not a fair way to bring the point to the attention of the consumer, and is not adequate.”

However, is there any ground for saying that renewal commission is unfair per se? The Judge commented that Foxtons did very little work for their renewal commission (para 91):

“No particularly burdensome services are part of the package for years 2 and onwards (or at least nothing like the services involved in advertising the property and getting the tenant in in first place) and it would not readily occur to the landlord that the same sum would be payable in the future for years where that distinction remains true.”

If renewal commission is capable of being fair, could it then be argued that charging the same rate of commission for very much less work is unfair in itself? Although the Judge in this decision does not specifically address this point, this does not mean that it will not be considered at a later date, either in this case or another. From a common sense point of view, renewal commission for what appears to be hardly any work does seem to be unfair, although agents will no doubt continue to argue that it is only right that their firm should share in the good fortune of the landlord in having a long term paying tenant with no voids.

However at the moment we have a decision which avoids this point and seems to imply that such clauses will be fair if the are adequately flagged up in advance so the landlord is aware of them. Agents should be wary about relying on this unduly however. My advice would be that if such clauses are used they must be seen to be fair in an obvious way, i.e. to the ordinary person. If you want to charge renewal commission I would suggest charging a commission which is considerably less than the initial commission, to reflect the reduction in the work done by the agent at this stage. This would be less likley to be considered unfair.

I also think that agents should content themselves with looking to receive renewal commission (if it is claimed) only while the property is in the ownership of the landlord. This was not specifically discussed in the decision (as the renewal clause itself was found unfair). However it seems to me to be wholly unfair that a landlord should be expected to pay commission when the property has been sold on to a third party and is no longer under his control (and when he is no longer receiving any rent out of which to pay the commission), and I suspect that a court would also come to this view.

However this not the end of the Foxtons case. If the OFT and Foxtons are unable to agree on how the decision made is to be worked out in practice, the case may come before the court again. And although their initial comments seem to imply that they will not be appealing this decision to the Court of Appeal, this does not mean that Foxtons will not do so. An appeal court could come to a different view from Mr Justice Mann. The safest thing to do is to wait and see.

So my advice overall to agents is to try to make the clauses in their agency agreements as fair and transparent as possible, and not to put in too big an order for printed copies at their stationers. The fat lady has not yet sung!

OFT victory in Foxtons unfair contract terms case

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Landlords up and down the land will be jumping with glee at the Office of Fair Trading (OFT)’s victory over Foxtons regarding their unfair contract terms. To read the background to this, see my previous posts here and here. The OFT was challenging the clauses under the Unfair Terms in Consumer Contracts Regulations 1999 (The Regulations).

The court hearing took place over three days at the end of April/early May 2009 and the judgement was published today. It has already at the time of writing been reported fairly widely, including of course the OFT press release. These are my comments after reading the report (which you can see online here).

There are basically three types of clause which were looked at:

1. A clause providing for Foxtons to receive commission if the tenancy is renewed or extended
2. A clause providing for Foxtons to continue to receive this commission from the landlord even if he has sold the property, and
3. A clause providing for Foxtons to receive commission if the property is sold to the tenant

Foxtons claimed, in essence, that these clauses were fair as they were their just reward for finding a long term tenant, which provided the landlord with an income stream and no voids.

The first thing which struck me on reading the report was the eye poppingly high price charged by Foxtons for providing a tenancy agreement, of £320. Bearing in mind that you can get a perfectly good agreement in the High Street for under a fiver, and that unlimited access to my agreements are available online for £80 pa (together with all my other annual member benefits), this strikes me as exorbitant!

Returning to the case, the Judge confirmed that although the Regulations only apply to consumers (i.e. not to professional landlords whose main income is from landlording), as this agency agreement is used for both business and consumer landlords, it is subject to them. Examples of consumer landlords are those who are letting their home where they are posted abroad for their job, or who have invested in a couple of properties in lieu of a pension. A substantial proportion of landlords only have one or two properties and therefore will normally come within the ‘consumer’ category.

1. Commission on renewal.
The Judge spent most of his time looking at this point.. He found that Foxton’s clauses were unfair, and made the following comments:

• He made it clear that he was not saying that renewal commission would always be unfair. It would depend on the circumstances of the case and how clearly the renewal commission clause was presented to the consumer.

• The Regulations specify that they do not apply to clauses which are part of the ‘core bargain’ of the parties. However the Judge held that this is not the case here, as the average consumer would not consider the renewal clauses to be part of their core agreement with Foxtons (which was primarily for getting a tenant for a specified fixed term)

• Even if the clauses were ‘core terms’ they would still need to be plain and intelligible and be subject to the fairness test.

• The clauses concerned are not plain and intelligible as the language used would not be clear to the average consumer (even though businessmen and lawyers reading the contract closely would pick up on the points)

• 11% of the rent over an extended period of time is a significant sum and a very significant part of the rent, and the typical consumer would not realise that this was part of the agreement, particularly as it is nowhere mentioned in the sales literature provided by Foxtons about their service

• Compared to the initial work finding the tenant, where quite a lot is done by the agents, very little work is done by them for renewals, other than the provision of a tenancy agreement, which is charged for separately anyway

• Unless it is clearly spelled out at the time the agreement is made so the landlord is fully aware that it will be charged, a renewals clause becomes a trap, or a time bomb (these are the words used by the Judge)

• Although a typical consumer is familiar with the concept of commission, normal commission arrangements (such as with an Estate Agent) do not include commission extending long term into the future, as here

• A consumer would not expect important obligations of this nature with ‘likely and significant impact’ to be tucked away in the "small print" only, with no prior flagging, notice or discussion

• Most normal consumers would be surprised at such a clause, and if they were represented by lawyers, it is something that their lawyer would very likely request be removed (a further indication of unfairness)

• Although the Judge accepted that the lack of a void is good for landlords, he held that the important thing is that the landlord would not, (in this case), normally be aware, from this agreement and the pre contract information provided by Foxtons, that he would be paying ongoing commission on renewals in this way

I think that these are the main points made by the Judge, although anyone particularly interested should go and read the decision for him or herself.

2. Commission when the property is sold.
The Judge merely said here that having found that the renewals commission clause in itself was unfair, it would be even more unfair if the landlord was having to pay it after the property was sold on.

3. Commission on sale to the tenant.
The Judge also found that this would be unfair and therefore in breach of the regulations. The main reason for this was the such a situation was not being considered or contemplated by the consumer landlord at the time he entered the contract, and in most cases he would be astonished by its inclusion. He was instructing Foxtons to find a tenant, not to sell the property.

The Judge also made the point that the clause would impose a potentially large financial liability on the landlord in circumstances where Foxtons had not actually done anything. If such a clause were to be imposed on him, a normal landlord would consider that he had been ambushed. It was clearly unfair.

Although it is arguable that this type of clause would also be allowable if it was properly explained to the landlord, and he understood and accepted it, before signing the agency agreement.

Conclusion
The case report ends by saying that there will be a further hearing to consider how this decision will be implemented in practice, unless the parties (i.e. Foxtons and the OFT) are able to reach an agreement first. Of course there is also the possibility that the case will be referred to the Court of Appeal so this is not necessarily the end of the story. However to summarise

• Unless they are very clearly flagged up to the landlord at the time he signs the agency agreement, and given equal prominence to the fees for the initial letting, clauses providing for commission on renewals will normally be unfair and therefore void under the regulations.
  
• Clauses relating to commission for sales in a contract for agency services for lettings are likewise almost invariably going to be void, unless they are made very clear indeed to landlords at the time they sign the agreement and given prominence in the agreement

This decision is very good news for landlords, although it could be catastrophic for Foxtons and any letting agents who have used similar clauses in their agency agreements in the past. They will now be faced with claims by landlords for recovery of charges paid, and it is going to be difficult to see how they can successfully defend these (assuming the decision is not appealed and overturned).

The OFT also say in their press release "The OFT expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.". You are warned!

Shelter victory in sale and rent back case

Housing charity Shelter are jubilant after succeeding in saving the home of Paul Amanda Jackson of Shrewsbury, where they had lived for over 20 years.

According to the BBC report, Mr and Mrs Jackson entered a sale and rent back deal with a company, Repossessions Stopped, in 2005 after getting into mortgage arrears. However two years later they faced repossession from Repossessions Stopped's mortgage company after they fell into arrears with their mortgage payments. Apparently Repossessions Stopped (described by the Judge in this case as 'dishonest'), had paid only £63,000 for the property, despite it having a market value of £100,000, and had assured Mr and Mrs Jackson that they could live in it for the rest of their lives.

Thankfully for them, Shelter stepped in to assist and a judge at Birmingham County Court has ruled they can stay there and pay rent. The Shelter report states that His Honour Judge Worster has ruled that the family can either revert to being owner-occupiers, or rent the property for the rest of their lives, with their daughter inheriting the tenancy.

The news reports I have seen just state the order made and not the legal reasons for them, so it will be interesting to read the report of the Judgement when it comes out.

PS There is now an excellent analysis of the legal points on the Nearly Legal web-site here.

No smoke, no fire ...

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Who’d be a smoker today? First it was just a few places, then transport with the trains and busses bringing in a ban, now its banned practically everywhere! Happily I gave up quite some time ago so its not a problem for me.

It is going to be a problem for landlords though, particularly HMO landlords, as from 1 July they must not permit smoking in any of the communal areas of their properties. This includes things like shared stairways, lifts, common parts in houses converted into flats and shared kitchens, toilets and the like. Notices must be put up in entrances, and it must be made clear to tenants that slipping off to the toilet (a shared one that is) for a quick ciggie is definitely not allowed!

In point of fact, landlords should have been wary for some time of allowing any smoking in the common parts of their properties, if only because of the 2000 Court of Appeal decision in Ribee v. Norrie. This is an entertaining case with many typically British case law features – a quotation from Phillip Larkin, reference to a Lord Denning decision, Rylands and Fletcher (escape by fire), and ‘a sprightly 70 year old lady’ (with a ‘heroic’ pet spaniel) who had lived in the adjoining property all her life.

The case makes the point that landlords should take care to prevent their tenants smoking and allowing fire to escape and damage neighboring properties – Mr Norrie ended up paying a judgment debt of £5,063.02 plus a substantial interest payment and costs. One of the Judges even suggested that he should have appointed a live in manager or moved to live at the property himself.

So bear in mind landlords, that if you do not have strict no smoking rules and notices, and your tenants break the law, you are risking not only an on the spot fine but also (if fire escapes to next door) a claim for damages from your neighbours.

Rent increases in periodic tenancies

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Most landlords know that after the fixed term of a tenancy has ended, if it is an assured or an assured shorthold tenancy, section 5 of the Housing Act 1988 intervenes and provides for a new 'periodic' tenancy to be created. This tenancy runs from month to month (if rent is paid monthly) or from week to week (if rent is paid weekly), and the section provides that it will be subject to the same terms and conditions as the preceding fixed term tenancy.

So that landlords are not stuck with the same rent forever, the act also provides for a special procedure, for these periodic tenancies, for increasing rent. This is set out in section 13. Landlords need to serve a special notice (which must be in the proper form) proposing a new rent. Tenants can challenge this and ask for it to be reviewed by the "Rent Assessment Committee" (part of the Residential Property Tribunal Service). If the rent is not challenged within one month, the proposed rent in the notice becomes the new rent.

But what is the situation where the tenancy agreement already includes a rent review clause? This situation was considered by the High Court in a recent case London District Properties Management Ltd v. Goolamy. Here Mr and Mrs Goolamy's tenancy agreement contained a rent review clause providing for rent to be increased annually by 5%. However the landlords had served a notice under s13 proposing a much higher increase. Which rent increase procedure would apply?

The Rent Assessment Committee held that they had no jurisdiction to review the rent as the clause in the tenancy agreement continued under s5. The Landlord appealed to the High Court.

The High Court allowed the appeal. They pointed out that at the start of section 13 two types of periodic tenancies are mentioned. Statutory periodic tenancies and all other periodic tenancies. With the statutory periodic tenancies, the section 13 procedures take precedence. With the other periodic tenancies, the contractual rent increase procedure (if any) takes precedence. So as this was a statutory periodic tenancy, the landlord could use the section 13 procedure. The case was therefore sent back to the Rent Assessment Committee to review the rent.

So landlords can use the s13 notice procedure when their tenancies run on under statute, even if their tenancy agreements include a rent review clause. Unless of course this case is appealed and the decision overturned.

New tenancy deposit case - deposit paid before 7 April 07

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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This is a new case reported in the excellent Legal Action Magazine, Saad v. Hogan from the Brentford County Court.

Ms Hogan paid her deposit, £1,000, in November 2005. Her tenancy was renewed in November 2007. In June 2008 the landlord brought proceedings for possession based on the serious rent arrears ground. Ms Hogan counterclaimed for the 'fine' of three times the deposit amount on the basis that the deposit had not been protected, and asked that this be offset against the rent arrears.

The Judge at first instance found for the landlord and made the possession order. This was on the basis that there was no obligation on the landlord to protect the deposit, as no deposit moneys had been paid when the tenancy was renewed in November 2007, but only before the regulations came into force on 7 April 2007. Ms Hogan appealed.

The appeal Judge viewed the case differently. He found it extraordinary that there was no provision in the legislation for this situation. However the main purpose of the legislation was to protect deposits. Although there had not been any physical or electronic payment of money in November 2007, in a sense there had been a payment at that time. He allowed the appeal, and awarded £3,000 to Ms Hogan to be offset against the rent arrears.

As this case was an appeal to the County Court Judge it will have more authority than District Judge decisions. However it will still, technically, not be binding. It would be nice if this could go to the Court of Appeal, so this point could be settled.

However the case does support the view generally taken by lawyers, that deposits paid before April 2007 are caught by the regulations if a new tenancy agreement is given to the tenant after that date.

NLA/SPLA case dismissed

No sooner do I write a post saying that a case looks to continue than I get an email telling me it has been dismissed!

A news release on the NLA web-site here states:

"On Thursday 21 May, His Honour Judge Pelling QC dismissed the legal challenges to the merger. He also ordered those who brought the action to pay the NLA’s costs."

A full written judgement will follow in due course, and will no doubt be made available via the NLA web-site.

The end of the tolerated trespasser?

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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For a long time housing law has been bedeviled by a concept known as 'the tolerated trespasser' which occurs when a tenant who has had a suspended possession order made against him, breaches the terms of the order but is allowed to stay in occupation.

A suspended possession order is where a possession order is made but the landlord is not allowed to send in the bailiffs to recover physical possession of the property so long as the tenant complies with conditions set out in the court order - normally relating to the payment of the rent arrears by instalments. Often the terms of the order are breached by something which was not the tenants fault, such a failure to pay rent which is solely due to non payment of housing benefit. He then becomes a 'tolerated trespasser'.

This 'tolerated trespasser' situation has caused problems, as many tenants (generally tenants of registered social landlords such as council tenants) have continued to live in the properties months and years after the order was made, but because their tenancy officially been ended when the order was breached they are no longer proper tenants. This means for example that they cannot enforce repairing covenants against their landlords.

However in a recent case, the Court of Appeal has suggested a new form of court order to solve this problem. In this new form of order, it will state that a possession order has been made but will provide for the date for possession to be fixed by the court at a later stage, upon application by the claimant if the defendant breaches the terms of the order. In the meantime the defendant keeps his tenancy, and the 'tolerated trespasser' problems will not arise.

Its nice to see the Court of Appeal sorting things out. Let us hope that the new order is taken up as they suggest, and that it works.

The case (which is actually two cases heard together) is reported on BAILII and is called Bristol City Council v. Hassan/Bristol City Council v. Glastonbury.

Four more cases on possession proceedings

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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There are four interesting cases in the most recent edition of Legal Action Magazine on proceedings for possession under section 21 and the provisions of the Housing Act 2004, so I hasten to share them with you. They all cover different points. Although they are all County Court decisions and therefore not binding on other Judges, they show how Judges are thinking and interpreting the statute.

Universal Estates v. Tiensia
Croydon CC, 23 Feb 2009
In this case the deposit was paid in instalments. The tenant, Ms Tiensia, fell into arrears and the landlord served a s8 notice based on rent arrears. Ms Tiensia counterclaimed for the 3 x deposit award on the basis that the deposit was unprotected. The landlord then protected the deposit with MyDeposits and faxed the certificate to Ms T. However the Judge found that this was not enough. The landlord had failed to comply with the initial requirements of MyDeposits terms and conditions, and was thus in breach of s213(1) and (4) and s214(1)(a) of the Housing Act 2004. Order for £7K to Ms T.

I was particularly pleased (and perhaps a little smug) to see this decision, as the point about the failure to comply with the schemes own rules, is something I remember writing about some time ago, but has not so far as I am aware been mentioned by anyone else until now.

Seghier v. Rollings
Bow CC, 6 Mar 2009
Here the landlord, Ms Rollings, only protected the deposit shortly before the hearing and handed the certificate to the tenant at court. However she did not fully comply with the notice requirements, and for example had not handed over the MyDeposits leaflet. Here the Judge 'distinguished' (legal phraseology meaning the two cases are not the same) the Sheffield case of Harvey .v Bamforth (where the landlord won) because here the landlord had not fully complied with s214(6)(a). Order in favour of the tenant.

Beal v. McCartney
Plymouth CC, 12 Mar 2009
Poor old Mr Beal was evicted by his landlords mortgage company due to his landlords mortgage arrears. As he had not been given any information about his deposit by his landlord, he sued for the fine of 3 x the deposit sum. He succeeded and was also awarded £500 damages for the eviction (legal terminology is for 'breach of quiet enjoyment'). However the fact that he was evicted by his landlords mortgage company indicates that his landlord is in probably in dire financial problems, so this may be a bit of a phyrric victory.

Raco Ltd v. Roberts
Central London CC, 6 Mar 2009
Unlike the others in this post, this case is about failure to obtain an HMO license. A good sub heading for this case would be 'if at first you don't suceed, try, try and try again, and still fail'!

Here the landlord had served two section 21 notices and issued two separate sets of proceedings. Mr Roberts, the tenant, defended the first on the basis that the s21 notice had been served before the tenancy was signed and at a time when the property was unlicensed, and the second set of proceedings just on the basis that the property was unlicensed. The two cases were joined and dealt with together. The landlord then served a further section 21 notice (presumably by this time having obtained a license) and applied to the court to have the proceedings amended to rely on this notice rather than the earlier two. However the Judge refused the application as a 1996 Court of Appeal decision (Lower Street Properties v. Jones) has held that the s21 notice must expire before the issue of proceedings. (Presumably Raco Ltd have now changed their lawyers and started a new set of proceedings, but we are not told about this).

In conclusion
All of these cases were resolved in favour of the tenant. This just goes to show how careful landlords need to be to follow the rules properly. If you don’t, you risk not only losing your claim for possession, but also being made to pay your tenants legal costs. Which, if they were in receipt of legal aid, could be expensive.

Reflections on Riverside v. White

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Housing associations, in particular Riverside Housing Association, will have been popping champagne corks recently, to celebrate the result of the recent House of Lords decision in the case of Riverside Housing Association v. White.

In this case Mr and Mrs White, who were being evicted by their landlords, Riverside, sought to claim that they were not really in rent arrears because Riverside had not complied properly with the rent review clause in their tenancy agreement for the past four years or so. Worryingly for the housing association, the Court of Appeal agreed with them. This had very serious implications for Riverside, as the Whites were not the only tenants whose tenancies contained this clause and whose rent had been increased in this way. They had no option but to appeal.

The House of Lords have now found in their favour, finding a slightly different way of interpreting the wording of the review clause. However there were some interesting points in this decision:

• Their Lordships made it clear that this case was being treated slightly differently because it was not like the normal run of rent review clauses which appear before them. The appellant is "a charity and a registered social landlord and it is publicly funded. Its tenants will be relatively poorly off individuals, no doubt normally with limited, if any, experience of interpreting legal documents."
  
  
• They also commented that the whole structure and drafting of the rent review provisions (which was criticised in the decision) was quite different from that which one would expect to find in any commercial lease.

This seems to be signalling that slightly different considerations will apply in future when interpreting rent review clauses in residential leases (particularly for social tenancies) as opposed to commercial leases.

However this does not mean that landlords can now take a relaxed view of rent review clauses. Riverside had to wait several years and go all the way to the House of Lords to get this decision. Even though their opponent has been ordered to pay their legal costs (another drain on the legal aid fund), it is likely that they will have suffered financially as a result of this case.

It is far better to do your utmost to avoid the possibility of any dispute, to draft clear and unequivocal rent review clauses in the first place (which do not make the parties go through too many hoops - all of which can become points for dispute later), to and ensure that the clause is followed to the letter every time the rent is reviewed.

A new case on section 21 notices

We have recently had a fairly sensible case on section 21 notices, where the Court of Appeal has squashed an attempt by a tenant to wriggle out of getting evicted by claiming that the notice was defective.

This was a situation where the fixed term of the tenancy had expired and the landlord was having to rely on section 21(4) of the Housing Act 1988. The notice used the words "Possession is required of the premises which you hold as tenant(s) at the end of the period of your tenancy which will end after expiry of two months from the service upon you of this notice.". Section 21(4) contains the following wording:

"that the landlord or, in the case of joint landlords, at least one of them has given to the tenant a notice stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession of the dwelling-house is required by virtue of this section".

At first instance an order for possession was made, but the tenant then sought legal advice and decided to run the argument that the wording in the notice did not comply with the notice in the statute, claiming that the possession order should therefore be set aside. The argument went that the phrase "at the end of the tenancy" meant "on the last day" so that the notice did not satisfy section 21.

Happily however (for the landlord) the Court of Appeal did not agree and found that the notice did comply sufficiently. The court held that the judge had been entitled to conclude that the notice complied with section 21(4)(a) since it was clear that, applying a normal use of language, the phrase "at the end of a tenancy" in a notice under section 21 meant "after the end of the tenancy". It did not mean at the split second after the tenancy came to an end, but any time thereafter.

This follows other Court of Appeal decisions in the past on notices, where so long as the sense of the notice is clear, the court have not allowed the notice to be defeated by minor technical quibbles. For those who are interested in such things, the name of the case is Nottingham Hill Housing Trust v. Roomus. I have not been able to find a report of this online so am unable to give a link.

Foxtons on Twitter

Having nothing better to do today, while messing around on the computer I did a twitter search on Foxtons. It was interesting to see what came up.

- There were a large number of moans from discontented tenants and landlords.
- There was the announcement of the Court of Appeal's decision (against Foxtons) in the preliminary point in the case brought by the OFT (see more here).
- Finally (and I had missed this earlier) there were, a couple of days after the CA decision announcement, tweets on the possible deal re-financing Foxtons and writing off their massive debt (see the report here on Reuters)

Could all these be connected?

My own view is that I don't want them to go bust before the case with the OFT has gone through to its conclusion. There are so few cases on the Unfair Terms in Consumer Contracts Regulations, we really need this one. Plus it is important now for the letting industry to know where they stand.