Monthly Archives: July 2019

Section 21 of the Housing Act 1988 currently gives landlords in England and Wales the right to serve a notice on their tenant giving them 2 months’ notice to leave the property. Tenants must have been in occupation for four months before a landlord can serve this notice on the tenant.

Section 173 of the Renting Homes (Wales) Act 2016 (“the Act”) (which only applies to Wales) will replace section 21 of the Housing Act 1988 and will apply to the new periodic standard occupation contracts which are to replace assured shorthold tenancies when the Act comes into force.

Additional provisions have been inserted at section 186 of the Act to further protect tenants. For example, a tenant cannot be required to give up possession before the fixed term has ended, or within six months of the date the tenant was entitled to occupy the property. Despite this further protection, the Welsh Government are nervous that a 2-month notice period does not do enough to give tenants security of tenure.

More and more people are going into rented property and the Welsh Government are trying to strike a balance between giving tenants greater security and protecting the rights of landlords to be able to regain their property should they need to do so.

The Welsh Government has launched a consultation and are seeking views on the following:

• Extending the minimum notice period for a no-fault eviction notice from 2 months to 6 months; and
• Increasing the period at the beginning of a contract during which a landlord cannot give notice from 4 months to 6 months.

The Welsh Government previously announced that they would launch a consultation to abolish no-fault eviction notices, but this latest consultation seems to suggest that they will not be pursuing this and so will carry on as they are until the Renting Homes (Wales) Act 2016 comes into force.

The consultation document can be found here.  Responses are welcome from letting agents, landlords and tenants (contract-holders).

The consultation closes on 05 September 2019. You can either respond online, by email, or by post.

The Government issued a consultation in October 2018 to seek views on how it can implement changes in the leasehold sector in England to tackle exploitative practices.

The Government’s response to the consultation has now been published: ‘Implementing reforms to the leasehold system in England’ as has its response to the ‘Housing, Communities and Local Government Select Committee report on Leasehold Reform’.

Changes are being proposed to tackle unfair leasehold practices. Purchasers are being burdened with leasehold properties which are hard to sell and are controlled by freeholders and managing agents who do not respond within reasonable time frames, in some cases charging what they want for permission fees. The Government wants to make the system fairer and more transparent for leasehold owners and make it easier for them to extend their leases or buy their freehold under existing legislation. The current process is not cheap, nor is it risk free for tenants and can often result in litigation.

The proposed changes will make fundamental changes to the residential leasehold sector.  Investors and owners of commercial property should also be aware of the proposed changes especially if they own mixed-use properties.

These proposed changes will affect longer-term leases (not assured shorthold tenancies) in England only. Although the reforms will not immediately benefit existing leaseholders, the proposed changes to commonhold and leasehold enfranchisement may offer solutions and protection. Draft legislation will be produced once parliamentary time allows (it is not expected until 2020).

The headline reforms proposed are as follows:

Sale of New Leasehold Houses to be Banned

All new houses must be sold as freehold and not long leasehold. There will be limited exceptions for retirement properties.

Ground Rents in New Leases to be Set to a Peppercorn (Zero Financial Value)

Ground rents are often found in long leases and are annual payments a tenant must make to its landlord which gives the landlord an incentive to retain some interest in the property. Some leases contain mechanisms for ground rents to increase over decades which can make the payments quite substantial. This has become problematic for prospective purchasers who cannot get funding as banks are refusing to lend because of the increased liability of ground rents.

For new leases, the Government has proposed that ground rents will not have any monetary value.

Reform Commonhold

Commonhold is a form of land ownership which has been around for 15 years but there are few cases where land is held in this way. Under commonhold, each flat owner would own their flat and a share in a private company limited by guarantee which would be responsible for the maintenance and upkeep of the common parts.

Commonhold is an attractive model as it means no ground rents, no lease extensions, no risk of forfeiture, no landlord, and greater control for residents over service charges and major works.

There has been little uptake in commonhold as people are wary as to whether this system would work (there are presently few examples of commonhold). Lenders are wary that the private company could go insolvent and/or that inexperienced tenants will not contribute to or participate in the maintenance of the common parts of the building, making it risky for the bank to lend.

The Law Commission are to provide their responses and recommendations to the reform of commonhold, but the Government want existing leasehold flat ownership to be converted into commonhold.

Reform Enfranchisement

Enfranchisement is the process whereby a tenant can purchase the freehold or they can extend their lease. Enfranchisement is currently a costly and administratively burdensome process. The Government wish to make it cheaper, less cumbersome and more accessible.

The Law Commission are reviewing the process for enfranchisement and will report later this year, with their focus being on simplifying the law in this area and making it more favourable for residential tenants wishing to acquire the freehold interest.

Other Changes

The Government is also focusing on wider issues of reform:

• The Government has asked the Law Commission to update their work regarding forfeiture;
• Improving the leasehold sale process. Landlords and agents to produce replies to enquiries within a set time frame (15 working days) and the costs of doing so are to be capped;
• Greater clarity and information regarding the lease should be provided at the outset for people buying leasehold;
• Extend the right of first refusal to leasehold houses; and
• Promoting more fairness in the way that maintenance charges are charged to freeholders and leaseholders.

The Government has also launched a consultation seeking views on a New Homes Ombudsman to provide better redress for purchasers of new build homes. Please click here to access the consultation document. The consultation closes at 11:45pm on 22 August 2019. Responses are welcome from anyone who has an interest in the design and delivery of the New Homes Ombudsman, its powers, remit, and how to fund it.

Agent’s Commission Payable but Reduced for Not Complying with the Estate Agents Act

An important ruling was recently handed down by the Supreme Court in Wells v Devani [2019] UKSC 4, which concerned a dispute between an estate agent and seller which arose when the seller refused to pay the estate agent’s commission following completion of the sale of properties to a purchaser (whom the estate agent had found).

Mr Wells owned property which he wanted to sell, and he spoke with Mr Devani (an estate agent) over the telephone in 2008.  At trial, the contents of the call were disputed but the trial judge found that the parties had discussed that the agent would find a buyer for Mr Wells in return for a 2% commission plus VAT and therefore a verbal contract had been entered into.  There had been no discussion as to when the commission would be payable.  Mr Devani found a potential buyer for Mr Wells.  It was agreed that the flats would be sold for £2.1million.  Mr Devani then sent his terms of business to Mr Wells which confirmed that commission would be payable at 2% plus VAT of the sale price on exchange of contracts.  The properties were sold, and Mr Wells refused to pay the commission saying that the terms of the arrangement were too vague, and no binding contract had been made between them.

The trial judge had found that there was a contract and they implied a term into the contract to say that commission was payable on completion of the transaction (i.e. when the properties would be sold).

The Court of Appeal overturned this decision stating the court could not imply terms where there was an incomplete contract.

The Supreme Court judgment reversed the decision of the Court of Appeal. It unanimously decided that there had been a contract and that it was not necessary to imply a term into the contract as this was obvious and it “goes without saying” that an estate agent’s commission is due on completion of the sale.

The Supreme Court also confirmed that they would have implied this term into the contract if it was not so obvious to the reasonable person that this was the expectation of the parties.

Although the Supreme Court upheld the decision that a contract had been made and that commission was payable to the estate agent, it also ruled that there had been a breach of s18 of the Estate Agents Act 1979 and as a result the agent would only be entitled to a third of the commission due as a penalty for breach of these regulations.

Under the Estate Agents Act 1979, agents are required to provide the following information to a client before engaging in estate agency work:

1) The circumstances when the seller would be liable to pay the agent for carrying out estate agency work;
2) The amount payable to the agent to remunerate them for their work; and
3) Other payments which the seller is liable to pay, save for the estate agent’s commission.

Whilst this case proves that the courts are willing to uphold oral contracts and imply terms into oral contracts where necessary, in order to protect the agent and avoid financial penalties, all agents should ensure that the contract is in writing and that all communications (including verbal) should be put in writing and communicated to clients as soon as possible.

In May of this year, the Court of Appeal delivered an important decision for employers who enhance maternity pay but do not mirror that enhancement for employees taking shared parental leave.

The current legal position is that it is up to employers to decide whether or not to enhance contractual pay to employees on shared parental leave, when they pay enhanced maternity pay. In making such a decision, employers must take into account the need to avoid discrimination in that if they make enhanced payments to employees on maternity leave but not to employees on shared parental leave, there is a risk of sex discrimination claims from male employees who take shared parental leave and consider that they are being treated less favourably than female employees on maternity leave.

This latter point was tested out in Capita v Ali and Hextall v Chief Constable of Leicestershire [2019] EWCA Civ 900, where Mr Ali and Mr Hextall argued that the failure by their respective employers to mirror enhanced maternity pay amounted to direct and/or indirect sex discrimination. Mr Ali argued that it was direct sex discrimination by his employers to allow a new father on shared parental leave only 2 weeks’ leave on full pay when female staff were allowed 14 weeks’ maternity leave on full pay. Mr Hextall argued that it was indirectly discriminatory for him to receive only statutory pay during shared parental leave, whereas a woman on maternity leave was entitled to full pay for the first 18 weeks of her maternity leave.

In both cases, the Court of Appeal held that there was neither direct nor indirect discrimination. As regards direct discrimination, the court found that the correct comparator for a man on shared parental leave is a woman on shared parental leave, not a woman on maternity leave. The court said it was necessary to consider the purposes of maternity leave and pay, which include enabling the mother to recover from the effects of the pregnancy and childbirth.

Similarly, the Court rejected the argument that a policy of enhancing maternity pay but not shared parental pay amounted to indirect sex discrimination against men.  It held that Mr Hextall’s claim was actually an equal pay claim (which was not upheld) rather than indirect discrimination.

Although this decision gives employers a degree of clarity in respect of enhanced maternity pay and shared parental leave, the government has expressed concern about the low take-up of shared parental leave and so it may be that there is a review of statutory pay during shared parental leave in the future.

The Renting Homes (Fees etc.) (Wales) Act 2019 (‘the Act’) received Royal Assent on 15 May 2019 and is due to come into force in Wales on the 01 September 2019.

The purpose of this Act is to make costs more transparent and to make the private rented housing market in Wales more accessible to tenants who often struggle to meet up front costs.

This Act is similar to the Tenant Fees Act 2019 (which affects landlords and letting agents in England) in that it bans letting agents and landlords in Wales charging anything other than ‘Permitted Payments’ (defined by the Act) in consideration of the grant, renewal or continuance of a ‘standard occupation contract’.

Standard occupation contracts are to be introduced by the Renting Homes (Wales) Act 2016 (when the relevant sections of the Renting Homes (Wales) Act 2016 come into force) and will replace assured shorthold tenancies.  The Act allows ministers to make regulations to apply the provisions of the Act to assured tenancies and assured shorthold tenancies if the Renting Homes (Wales) Act 2016 has not been commenced when the bill comes into force.

It is important to note that if a landlord or letting agent in Wales is in breach of any part of the Act, they will be guilty of a criminal offence (in England a criminal offence will only be committed for a second breach if it occurs within five years of the first). However, a local authority in Wales may impose a civil penalty of £1,000 as an alternative to prosecution.  Any prosecution or penalty will also be reported to Rent Smart Wales.  This may result in a landlord or agent losing their authorisation.

Consultation

There are provisions in the Act which empower ministers to make further regulations.

The Welsh Government has issued a consultation on two sets of further regulations: (1) Default fees (permitted amounts and when they can be charged); and (2) Prescribed Information to be provided to Tenants when taking a holding deposit.

The Welsh Government wish to achieve a list of default payments which are permitted to be charged so that tenants know what costs may be charged if they breach their tenancy agreement.  The consultation provides a list of categories the government consider to be relevant.

They also wish to ensure that a tenant is provided with all relevant information prior to entering into a tenancy agreement and before handing over a holding deposit.

The consultation seeks views from landlords, tenants and letting agents.  The consultation closes on the 19 July 2019.

You can respond online here.

Following the consultation further legislation will be issued and guidance on the regulations will be produced by the Welsh Assembly in due course.  In the interim landlords and letting agents in the private rented sector in Wales need to consider their current business models carefully and begin to prepare for these legislative changes.

Here at Simply-Docs we will be producing further guidance and updated documents on this Act which will be produced before it is due to come into force.