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Receivership Matters – April 2019

Receivership Matters – April 2019

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Residential landlords – Gas safety is paramount to[...]

Walker Morris’ Housing Litigation experts Karl Anders explains two recent cases which highlight that compliance […]

Walker Morris’ Housing Litigation experts Karl Anders explains two recent cases which highlight that compliance with gas safety is an essential pre-requisite for residential landlords wishing to recover possession.

Recovering possession by section 21 notice

Residential landlords will be aware that serving two months’ notice under section 21 of the Housing Act 1988 is a method by which an assured shorthold tenancy can be brought to an end without the landlord having to give a reason for requiring possession.

However, the situation is not straightforward because of the requirements which must be complied with before a section 21 notice can be validly served. For tenancies granted after 1 October 2015, the requirements include the need to provide the tenant with a valid Energy Performance Certificate (EPC); the current version of the booklet: ‘How to rent: The checklist for renting in England’ and a valid Gas Safety Certificate (GSC). Furthermore, the Assured Shorthold Tenancy Notices and Prescribed Requirements (England) Regulations 2015 (the 2015 Regulations) specifically require that a landlord must provide a GSC to a tenant at the start of the tenancy, before the tenant takes up occupation.

A crucial question…

Whether a landlord’s failure to provide a GSC at the outset in respect of such tenancies is an absolute bar to service of a section 21 notice to recover possession, or whether it is a breach that can be rescued by later provision of a GSC, has now been addressed in two recent cases: Caridon Property Ltd v Monty Shooltz [1] and Trecarrell House Ltd v Rouncefield [2] – with both decisions being firmly in favour of the tenant.

…repeatedly answered for the tenant

In Shooltz in 2018 HHJ Luba, a very experienced housing judge, stated that the requirement to provide a GSC to a tenant at the outset is a “once and for all obligation on a prospective landlord in relation to a prospective tenant” and that if the intention was that a once and for all breach should not debar a landlord from serving a section 21 notice, then the legislators could have stated that expressly in the 2015 Regulations. HHJ Luba also stated: “…if the… GSC was not given to the tenant before he or she occupied, this is a breach which cannot be rectified”.

In Rouncefield in February 2019 HHJ Carr echoed HHJ Luba’s reasoning and decision. He added that the reasons behind the gas safety regulations were self-evident (a tenant moving into residential premises needs to be sure that the gas appliances are well-maintained and safe) and that a landlord would not lose the ability to serve a section 21 notice unless they failed to provide basic safety information.

WM Comment and practical advice

Whilst these decisions are at County Court level and are not therefore strictly binding on other courts, this very clear and consistent safety-focused approach is likely to have a persuasive effect on other County Court judges. The decisions have received considerable publicity and are likely to be relied upon by tenants as an absolute defence to section 21 possession claims wherever the landlord has failed to provide a GSC at the outset of a tenancy. Advocates acting for tenants may also seek to argue that, by analogy, the same principle should apply where the landlord fails to provide an EPC and possibly also the How to Rent Booklet.

It is possible that the more recent Rouncefield case may be appealed to the Court of Appeal and Walker Morris will monitor and report on any developments.

In the meantime, landlords and their managing agents should ensure that, in all cases, tenants are provided with an EPC, a GSC and the How to Rent Booklet before start of the tenancy and before the tenant moves in. If the tenancy is held jointly, these documents should be issued to all prospective tenants. Landlords and their agents should also keep clear records of both the date of issue of these documents and of the tenant’s receipt, in case evidence is required in any subsequent possession claim.

For further information or advice, please do not hesitate to contact Walker Morris’ Housing Management & Litigation specialists.

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[1] Central London County Court, 2 February 2018
[2] Exeter County Court, 13 February 2019

Landlords begin to feel the effect of higher tax bills

A housing crisis could be on the horizon, as thousands of buy-to-let landlords face going […]

A housing crisis could be on the horizon, as thousands of buy-to-let landlords face going out of business in 2019, when tax rises, introduced by the former chancellor, George Osborne, start to bite, according to Doncaster-based Touchstone Education which runs courses in property investment.

Some of the UK’s 2.3 million private landlords will have faced significantly higher income tax bills last month, following the first stage of the phasing out of mortgage interest tax relief on finance costs. Section 24 of the Finance Act 2015 (also known as the ‘Tenant Tax’) began to take effect in April 2017 and will continue to be phased in over four years. From April 2017, mortgage, loan and overdraft interest costs are not taken into account when calculating taxable rental income, resulting in many landlords paying more tax on their property income.

In addition to the ‘Tenant Tax’, in October 2018, the Chancellor announced that the Government is going to consult on reforming lettings relief so that it only applies in situations where the owner of a property is in shared occupancy with their tenant. This will reduce the amount of capital gains tax relief that landlords receive and reduce the final period of exemption from 20 months to nine months.

WM Comment

If, as some industry experts predict, the buy-to-let market faces a real crisis in 2019 and beyond, the appointment of receivers by lenders may well start to rise again. The number of appointments will be a good barometer of the existence and extent of a failing market. It is important that lenders think strategically about what may well lie ahead and gear up accordingly, both internally and also externally with regard to their associated advisors.

MEES – yet another increase in costs for landlords

An important change to the exemptions within the Minimum Energy Efficiency Standards Regulations add an […]

An important change to the exemptions within the Minimum Energy Efficiency Standards Regulations add an extra layer of red tape for private landlords.

The Minimum Energy Efficiency Standard Regulations came into being in March 2015 and from 1 April 2018 it became unlawful for a landlord in the private rented sector to grant a new domestic tenancy, or renew an existing one, if the property did not have an EPC rating of E (or better). From April 2020 this will apply to all existing tenancies (not just when renewed).

Several exemptions are available but exemptions have to be applied for, and they only last for five years. An important change to the exemptions will come into force later in 2019, and that is that the ‘no funding’ exemption is to be removed. Currently, if a landlord cannot obtain funding for the improvements (under the Green Deal or similar scheme) then the landlord can let a property with an F or G rating provided that the exemption is registered. However, that exemption is to be replaced with one stating that the cost of improvements must not exceed £3,500 (including VAT). If the landlord is going to argue that the costs exceed £3,500, then he will need to provide three installer quotes to qualify. Landlords with an existing ‘no cost’ exemption will have that automatically expire on 1 April 2020.

WM Comment

This change is due to come into force in 2019, although no date has been set yet. It is another example of the increased financial burden which is being placed on private landlords, which may lead to increased default and lenders calling in their loans.

The English Housing Survey and other research suggests there may be turbulent times ahead

The English Housing Survey and various pieces of industry research suggest that there may be […]

The English Housing Survey and various pieces of industry research suggest that there may be rough times ahead for the buy-to-let market.

Every two years, the Government publishes the English Housing Survey, that offers landlords and other property professionals detailed information about the property market. Here are the most pertinent findings in relation to buy-to-let landlords:

most landlords operate as individuals with 94 per cent. of landlords renting personally, 4 per cent. through a company and 2 per cent. operating as some other organisation
although 45 per cent. of landlords own one property, half of buy to let homes are let by the 17 per cent of landlords with five or more properties
the number of single property landlords has plunged from 78 per cent. of all private rented homes to 45 per cent. since 2010 – equivalent to a decline from 40 per cent. to 21 per cent. of the market
the number of landlords with portfolios of five or more homes climbed from 5 per cent. to 17 per cent. since 2010 – from 39 per cent. to 48 per cent. market share.

It is clear from the above snippets that the vast majority of private landlords are individuals who rent out one or two properties. They are not ‘professional’ landlords with large portfolios of properties but rather smaller, possibly accidental landlords. It is these smaller landlords who are at particular risk from the increase in the existing tax burden and proposals to bring in yet more financial penalties.

In addition, new research from the National Landlords Association (NLA) shows that 79 per cent. of landlords are only servicing the interest on their mortgages. As they contend with the rising costs of the business, it seems they are not able to pay down significantly on their loans.

Richard Lambert, CEO of the NLA, says: “There are myriad costs to running a letting business, including maintenance, repairs and upgrades, licensing, and insurance. Rents have to cover all these costs, as well as the interest on a mortgage, where there is one. Housing is expensive for everyone at present. The Government needs to encourage the supply of housing in all tenures, including the private rented sector.”

Further research contends that average rental yields in the UK have dropped to a three-year low of 5.6 per cent. It claims that almost a quarter of buy-to-let investors, especially those with larger portfolios, now plan to sell up and leave the private rented sector, with the research citing tax and regulation changes as the main reasons why landlords are offloading properties.

Another twist to when Receivers can take possession of a property

A county court has held that a fixed charge receiver can bring proceedings in the […]

A county court has held that a fixed charge receiver can bring proceedings in the name of the borrowers against the borrowers, even though it then appeared that the borrowers were suing themselves.

Menon and Menon v Menon and Menon [2018] unreported was, on the face of it, a typical case involving receivers and the repossession of property. Mr & Mrs Menon owned a property in London which was worth approximately £5 million. Mr & Mrs Menon had borrowed the money to finance the acquisition of the property under two facility agreements and charged the property as security. The sums advanced under the facilities fell due to be repaid and when Mr & Mrs Menon defaulted on the repayment, fixed charge receivers were appointed by the lender under the terms of the charge. The charge included provisions conferring powers on the receivers, additional to those under section 109(2) of the Law of Property Act 1925 (the LPA), to take possession of and generally manage the property, as well as take, continue or defend any proceedings and do acts incidental to those powers.

Under the LPA, there are provisions dealing with the power to carry out certain acts in the name of the borrower or the lender. The LPA states that a receiver appointed under the powers conferred by that Act shall be deemed to be the agent of the mortgagor; and the mortgagor shall be solely responsible for the receiver’s acts or defaults unless the mortgage deed says otherwise.

The receivers sought to take possession of the property by issuing proceedings in the name of the borrowers and so seemingly the borrowers were suing themselves. The question for the court was whether the effect of the receivers’ powers and their agency was such that they could bring such proceedings.

It was argued by solicitors to the Menons that the receivers could not bring valid possession proceedings in the names of the borrowers as they were acting as the agents of the borrowers. It was further argued that the role of receiver as agent meant that it was illogical for such an agent to be able to sue their principal for possession of a property which the principal owns. Those arguments failed to persuade the Court which found that the receivers could bring proceedings in the name of the borrowers to effectively take possession of their own property.

The case was decided in the county court and so the decision cannot be taken as a binding authority. However, Counsel for the receivers are known for their expertise in this area of law and our view is that the decision is correct. Leave to appeal has been granted so we may not have to wait too much longer for further authoritative guidance on the issue.

Contacts

Karl Anders - Partner, Housing Litigation & Management Team at Walker Morris LLP square.

Karl Anders
Partner
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Simon Clark - Partner, Banking, Restructuring & Insolvency at Walker Morris LLP square

Simon Clark
Partner
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Owen Ormond, Director, Banking, Restructuring & Insolvency at Walker Morris LLP square

Owen Ormond
Director
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