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Welsh Government Consult on Extending Minimum Notice Period for a No-Fault Eviction

Modern Apartments

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.

Government Responds to Consultation on Leasehold Reform

New Houses

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.

Supreme Court Ruling on Estate Agent’s Commission

Contract for Signing

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.

Renting Homes (Fees etc.) (Wales) Act 2019 Receives Royal Assent

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.

New Section 21 Notice (Form 6A) (England)

bad news

The Assured Tenancies and Agricultural Occupancies (Forms) (Amendment) Regulations 2019 were passed on 7 May 2019. These regulations amend the Section 21 Notice (prescribed Form 6A) for use in England, to evict tenants occupying a property under an Assured Shorthold Tenancy (‘AST’) on expiry of the fixed term of the tenancy. The new Section 21 Notice (Form 6A) must be used in England from 1 June 2019 onwards.

These regulations were introduced to coincide with the Tenant Fees Act 2019. The main change to the prescribed form is the addition of a new subparagraph which explains that you cannot serve a Section 21 Notice (Form 6A) on a tenant in England if you have charged a prohibited payment or have retained a holding deposit in breach of the Tenant Fees Act 2019.

Landlords in England and letting agents acting on their behalf must ensure that they are not in breach of the Tenant Fees Act 2019 prior to serving a section 21 Notice as any breach may invalidate the notice.

Although the Government announced plans on 15 April 2019 to abolish Section 21 Housing Act 1988 notices, no timetable has been set for when this consultation will be launched. Until new legislation is introduced, Section 21 Notices are required to be served using the new prescribed Form 6A from the 1 June 2019.

Here at Simply-Docs we will amend our template Section 21 Notice (Form 6A) (England) to reflect the changes to the form prescribed immediately prior to the 01 June 2019.

Tenant Fees Act 2019 – Greater Protection for Tenants in England in the Private Rented Sector

As part of the Government’s drive to make renting fairer and more affordable, and to improve transparency and affordability in England’s residential lettings market, the private rented sector in England faces further changes in the shape of the Tenant Fees Act 2019 (‘the Act’) which comes into force on 1 June 2019.

This Act prohibits landlords and letting agents in the private rented sector in England from charging certain fees to a tenant. Financial penalties apply for non-compliance and, for repeat offences, further fines and a possible criminal conviction. Landlords and letting agents will not be able to evict a tenant using the section 21 eviction procedure until they have repaid any unlawfully charged fees or returned an unlawfully retained holding deposit.

It is important that residential landlords and letting agents are prepared for these changes and should ensure that their business models, internal practices and procedures are compliant with the Act when it comes into force on 1 June.

Which Tenancies are Affected?

Assured shorthold tenancies, licences to occupy (excluding social housing), and student lettings in England granted on or after 1 June 2019 will be affected. If a tenancy was granted before 1 June 2019, payments which may be prohibited under the Act can still be charged but only until 31 May 2020.  From 1 June 2020, all tenancies and licences (previously referred to) will be caught by the Act.

What Payments are Permitted Under the Act?

A tenant can be charged:

  • Rent.
  • A refundable tenancy deposit (capped at five weeks’ rent if the yearly rent is less than £50,000, or six weeks’ rent if the yearly rent is £50,000 or more).
  • A refundable holding deposit (capped at no more than one week’s rent); strict time frames have been introduced for repayment.
  • Certain ‘default’ fees, which must be written into the tenancy agreement – payment for a lost key and interest for late payment of rent (if the rent is unpaid for more than 14 days). The rate of interest must not exceed the rate of 3% above the Bank of England base rate.
  • Utilities / Communication services / TV Licence / Council Tax (only the billed amount).
  • £50 fee for the landlord’s consent to vary a tenancy agreement as requested by the tenant.
  • An early termination fee (in the event the tenant wishes to terminate early, but not where the tenant is exercising a break clause).

What Payments are Prohibited?

Landlords, or letting agents on their behalf, are prohibited from charging tenants any fees which are not permitted payments (described above).

For example, letting fees (such as administration fees, obtaining references, preparation of inventories, credit checks) cannot be passed on to a tenant and must be fronted entirely by the landlord.

A common clause in a tenancy agreement requiring a tenant to pay for a professional clean at the end of the tenancy is now a prohibited payment. It is permissible to require a tenant to clean to a professional standard, but not to pay for a professional clean.

What are the Penalties and Consequences for Non-Compliance?

Landlords and letting agents can be subject to a fine of up to £5,000 for a first offence. If a further offence is made within five years of the first, this will be a criminal offence and a landlord or letting agent could be liable for an unlimited fine. Some local authorities may impose a financial penalty of up to £30,000 as an alternative to prosecution.

To find out more about the Tenant Fees Act, why not take a look at our all new Guidance Note? This new document is available here.

As a result of the wide impact the Act will have on the private rented sector in England, several of our template documents on the Property portfolio are being updated, most notably the Assured Shorthold Tenancy (AST) Agreements. These updates will be published before the Act comes into force.

In related news, the Renting Homes (Fees etc.) (Wales) Bill, has passed through the Welsh Assembly and is awaiting Royal Assent. Similar provisions to the Tenant Fees Act 2019 are proposed under this Bill. We will produce further guidance and updated documents once this Bill has passed into law.

As a landlord or letting agent do you believe these legislative changes will necessitate an increase in rent (even if this is a negligible increase) and therefore preferable to a tenant being charged up-front fees? Is Buy-to-Let less attractive now? Your comments are, as ever, welcome!

Proposed Mandatory Requirements for Landlords to be Members of a Redress Scheme

Houses with red doors

Earlier this year, the Government gave its response to the consultation on ‘Strengthening Consumer Redress in the Housing Market’.

This consultation ran for two months at the beginning of last year and considered the current procedure for addressing complaints and disputes in the housing market and whether the process could be improved.

The Government wants to focus on empowering tenants, ensuring that tenants in both the private rented sector and social housing have confidence in renting. Complaints and disputes should be dealt with fairly and in a timely manner, and tenants will be compensated where due. The current mechanism for resolving disputes is seen to be confusing, complicated, and cumbersome. The Government is also looking to move the resolution of disputes away from the courts and hopes that these measures will achieve this.

The Government has announced that they will be introducing legislation in England to address the following:

  • All private landlords, including private providers of purpose-built student housing and park home site operators must belong to a redress scheme. Failure to belong to a redress scheme will result in a financial penalty of up to £5,000. These measures reflect the requirements introduced in 2014 for all letting and managing agents in England to become a member of a redress scheme.
  • A ‘New Homes Ombudsman’ for developers of new-builds. It is proposed that developers of new-builds will need to be members of this Ombudsman by 2021 if they wish to participate in the Government’s landmark Help to Buy scheme.
  • Establish a working group (to be known as the Redress Reform Working Group) to develop a ‘Housing Complaints Resolution Service’. This resolution service is intended to be a one-stop-shop for housing complaints. It is intended to be used by tenants and leaseholders (social and private rented sector) as well as purchasers of new-build homes and users of all residential property agents.
  • The working group is also to review the current standards of resolving disputes with a view to creating a single ‘Code of Practice’ on complaint handling across all tenures, to ensure consistency and to raise the standard of service consumers should expect when they seek help.

No date has been set for the introduction of the new rules, but the Government has said that they will bring forward legislation at the earliest possible opportunity (once parliamentary time allows).

Government Plans to Abolish s21 Eviction Procedure

bad news

The Government has outlined plans to consult on new legislation to abolish Section 21 evictions in England. Similar plans have also been announced for Wales.

Under the current law in England, landlords can evict tenants (giving them eight weeks’ notice) at any time after the fixed-term contract has come to an end, without specifying a reason. This procedure is known as a s21 eviction procedure and is often referred to as a ‘no-fault eviction’.

If this procedure is abolished, landlords would need to rely on the Section 8 eviction procedure (under which landlords need a legitimate reason) to seek possession of a property. This is seen by many as being a costly and lengthy procedure which can take an average of 22 weeks to resolve.

Along with the abolishment of the Section 21 eviction procedure, the Government has announced an intention to amend the Section 8 eviction procedure to allow for a landlord to regain possession of a property where they wish to sell it or move into it.

The Government has also promised extra resources and changes to the court process to ensure that cases are expedited and run smoothly through the courts.

The Government’s aim is to protect tenants; the official press release stated that the Section 21 eviction procedure is one of the biggest causes of family homelessness. With more than four million people in private rented accommodation, the Government argue that more needs to be done to ensure that tenants have greater certainty and security in the housing market.

There is concern that the Government’s proposals will result in renting being more expensive as landlords face increasingly costly eviction procedures, or as a result of a decrease in supply if landlords cease renting out their properties altogether. There is also speculation that landlords may prefer to rent out their properties as holiday lets.

No dates have yet been announced for the consultation. In the meantime, the current Section 21 procedure can still be used.

As a landlord, what impact would the abolishment of the Section 21 eviction procedure have on your business? Your comments are, as ever, welcome!

RICS Professional Statement on Service Charges in Commercial Property

Commercial property agents who are members of the Royal Institute of Chartered Surveyors (RICS) or who are regulated by RICS (RICS’ Agents) will need to comply with the RICS Professional Statement ‘Service charges in commercial property (1st edition)’ (‘the Statement’) which came into force on 01 April 2019.

The Statement replaces the RICS Service Charge Codes which were previously only guidance around best practice for the operation of service charge in commercial properties occupied by more than one tenant. The Statement imposes mandatory requirements on RICS’ Agents which are supported by core principles.

RICS’ Agents who fail to comply with the mandatory requirements could face legal and/or disciplinary action, such as negligence claims, if they commit a repudiatory breach of these requirements. A RICS’ Agent can only depart from these requirements for justifiable reasons.

In short, the Statement aims to make service charge costs transparent, hold agents to account, and ensure that service charge budgets and end of year demands are issued in a timely manner.

Nine Mandatory Requirements

(1) All expenditure to be recovered from tenants must be in accordance with the lease;
(2) Owners and managers must not seek to recover more than 100% of the proper and actual costs of the services;
(3) Each year owners and managers must be provided with service charge budgets, including appropriate explanatory commentary;
(4) Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts;
(5) Interest earned on these bank accounts must be credited to the service charge account (after any necessary deductions have been made);
(6) Owners and managers must ensure that an approved set of service charge accounts (which have been certified by an appropriately qualified person) are provided annually to tenants;
(7) Owners and managers must ensure that a service charge apportionment schedule is provided annually to tenants;
(8) In respect of disputes when acting for a tenant, the manager must advise the tenant that if money is being withheld, it is only the amount in dispute which is being withheld; and
(9) In respect of an accounting error when acting on behalf of the landlord, managers must inform the landlord that the service charge has been raised incorrectly and will be adjusted without any undue delay.

The Statement vs the Lease

The Statement does not override the service charge provisions of an existing lease, however; the Statement is to be read in conjunction with the terms of an existing lease. The purpose of the Statement is to help to identify the best approach in interpreting a lease and is likely to assist in resolving disputes that may arise in relation to service charge management.

If a landlord will be engaging a commercial property agent to manage the service charge and they are a RICS’ Agent, then the lease should be compliant with the Statement and service charge provisions in new leases or renewal leases should be drafted by reference to the Statement.

The Statement may cause increased administration for landlord and RICS’ Agents who may need to make changes to their current accounting procedures. However, these changes are likely to be well received by tenants who are likely to benefit from increased transparency and communication as a result of these changes.

Are you a commercial landlord/property agent and do you welcome these changes? Your comments are, as ever, welcome!

Mandatory CMP Schemes for Letting Agents and Property Managers

The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations came into force on 01 April 2019.  Under these regulations, all private sector letting agents and property managers in England who hold client money are required to be members of a government approved Client Money Protection Scheme (CMP Scheme) from the 01 April 2019 or face fines of up to £30,000.

Client money does not include tenancy deposits, which are protected under an approved tenancy deposit scheme.

These regulations give landlords and tenants the confidence that their money is safe, and that they will be compensated in the event of the monies being misappropriated or if the agent becomes insolvent. This is one of several legislative changes being introduced to protect customers against rogue letting agents and to regularise this industry.

These regulations only affect agents operating in England. Letting agents and property managers in Wales are already required to be a member of a CMP Scheme before they can obtain a license to operate in Wales.

Agents who belong to a professional body such as ARLA will already be members of a CMP Scheme.

In order to comply with the regulations, agents must:

(1) Be a member of an approved or designated CMP Scheme;
(2) If they’ve been provided with a certificate from the scheme administrator:
(a) Obtain a certificate confirming membership of the CMP Scheme;
(b) Display the certificate at the agent’s premises and on their website; and
(c) Produce a copy of the certificate to any person who may reasonably require it, free of charge;
(3) Notify all clients within 14 days if their CMP membership is revoked, or they change to a different approved CMP scheme; and
(4) Notify all clients of the name and address of the CMP scheme.

Financial Penalties for Non-Compliance and Right to Appeal

Every local authority in England is under a duty to enforce these requirements.

In respect of a breach of point 1 above, an agent can be fined up to £30,000.

In respect of a breach of points 2-4 above, an agent can be fined up to £5,000.

An agent can appeal against a decision to impose a penalty and the amount of the penalty.

Only one financial penalty may be imposed on the same property agent in respect of the same breach unless:

(1) the breach continues after the end of 28 days after the final notice is served and the agent hasn’t appealed the final notice within that period; or
(2) the breach continues 28 days after an appeal is finally determined (excluding the day on which the appeal is decided).

At the time of writing there are five government approved CMP Schemes:

(1) UK Association of Letting Agents (UKALA);
(2) Money Shield;
(3) Client Money Protect;
(4) Propertymark; and
(5) National Approved Lettings Scheme (NALS).

Agents will be required to pay an annual membership fee to join a CMP Scheme. The amount of the membership fee will vary depending on the sum of money that the agent holds from time to time.

Requirements vary from scheme to scheme, but the current approved schemes all require agents to:

(1) show that they have a designated client account in which to place client monies which is separate from their business account;
(2) Professional Indemnity Insurance; and
(3) Bank statements for the designated client account.

Are you already a member of a CMP Scheme? Have you had any problems joining a CMP Scheme?  As a letting agent/property manager operating in England, do you welcome these changes? Your comments are, as ever, welcome!

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