RESIDENTIAL LANDLORD AND TENANCY UPDATE. Amanda Gourlay was called to the Bar in 2004 after a career in the travel industry.

Transcription

1 RESIDENTIAL LANDLORD AND TENANCY UPDATE A talk given by Amanda Gourlay of Tanfield Chambers at the Property Litigation Conference, 23 March Biography Amanda Gourlay was called to the Bar in 2004 after a career in the travel industry. She completed her pupillage at Tanfield Chambers and became a tenant there in October She has represented both landlords and tenants in residential tenancy disputes, in the private and public sectors. She has seen her service charge practice expand significantly in the last four years. Cases on reasonableness before the LVT have included issues as to whether the disputed charge was a service charge within the meaning of s.19 of Landlord and Tenant Act 1985, limitation and historic neglect. She has advised and acted for public and private landlords in relation to dispensation from the requirement to consult for major works. In September 2011, Amanda represented the successful landlord in Church Commissioners for England v Koyale Enterprises, on the question of whether a default judgment constitutes a determination for the purposes of s.81 Housing Act In addition to her landlord and tenant work, she is developing a real property practice. She is increasingly asked to advise on mortgage possession claims, and recent court work includes a five day trial arising from a claim to an overriding interest alleged to be protected by actual occupation. Amanda is a member of the Property and Chancery Bar Associations. 1

2 LANDLORD AND TENANT RESIDENTIAL UPDATE Introduction This update covers case law and statutory developments in seven key areas recently considered by the courts. The issues covered are: 1) The Tenancy Deposit Scheme 2) Disrepair 3) Service charges: consultation 4) Service charges: time limits for demands 5) Service charges: formalities for demands 6) Forfeiture for non-payment of service charges 7) Bankruptcy and assured tenants. Each issue is illustrated by a scenario with a summary suggested solution, followed by a short outline and discussion of the relevant cases/statute. 2

3 THE TENANCY DEPOSIT SCHEME Scenario 1 1. Ms Dobbs, the former assured shorthold tenant, was evicted by the bailiffs a month ago following a possession order made using the accelerated procedure. She paid a deposit at the commencement of the tenancy. She has now written to her former landlord complaining that it was not properly protected. 2. The current assured shorthold tenant, Mr Denning, who moved in four weeks ago, has just made an application to court for repayment of the deposit and for an order for payment to him of three times the deposit. Suggested solution Ms Dobbs 3. A s.21 notice cannot be given where a deposit is not held in accordance with an authorised scheme and the prescribed information has not be given. 4. Ms Dobbs could therefore apply to set aside the possession order, although she would need to explain the delay in doing so: under CPR 55, she has 14 days after the grant of the order to make her application to set aside. 5. If notice under s.8 Housing Act 1988 was served rather than a s.21 notice, the tenancy having come to an end, there are no grounds for making a s.214 application. It is only if she makes her s.214 application before the end of the tenancy that she has grounds for a claim. 6. If the landlord put her possessions in a bin bag and unlawfully evicted her, in principle her tenancy continues, and the court would have jurisdiction to hear her application. Mr Denning 7. Up to 06 April 2012, sanctions only caught the landlord if, at the date of the hearing, there was a total failure to comply with either requirement of the Act. 3

4 Case law and statute Draycott v Hannells Lettings Ltd [2010] EWHC 217 (QB), Tugendhat J. (12/02/10) 8. The landlord had failed to pay the deposit into an approved scheme within 14 days. Tugendhat J held that the 14 day time limit was not part of the initial requirements of the scheme in question and that accordingly the landlord s failure could not be subject to the 3x sanction. Vision Enterprise Ltd (t/a Universal Estates) v Tiensia [2010] EWCA Civ 1224 (11/11/10) 9. The Court of Appeal endorsed and broadened Tugendhat J. s judgment in this case, where the landlord had failed to comply with the initial requirements of the scheme, but had done by the date of the hearing of the tenant s application. 10. The Court of Appeal held that: a) Failure to comply must be a failure to comply at all with the scheme, and b) The time at which failure is measured is the date of the hearing of the tenant s application. Potts v Densley [2011] EWHC 1144 (06/05/11) 11. The situation here was rather contrived. The deposit was not paid into an approved scheme. By the time the landlords came to pay the deposit into a scheme, the tenant had exercised a break clause, pursuant to which he was to vacate the property on 15 August. 12. The landlord offered to repay the deposit to the tenant rather than pay it into a scheme. The tenant refused the offer and on 10 August insisted that the money be paid into a scheme. 13. On 13 August, two days before the end of his tenancy, the tenant made an application to court under s.214 of the Act. The tenancy came to an end on 15 August. On 16 August, the landlord protected the deposit in an authorised scheme. 14. Sharp J. dismissed the tenant s appeal. In her view, if the deposit was protected by the date of the hearing, even if it was protected after the end of the tenancy, the landlord has a complete defence to a s.214 application. 4

5 Hashemi v Gladehurst Ltd [2011] EWCA Civ 604 (19/05/11) 15. The Court of Appeal was here considering an application made after the end of the tenancy. 16. It was common ground that the tenant vacated the property without the landlord having paid the deposit into a scheme. The landlord had deducted money from the deposit for disrepair and other matters before returning it to the tenant. 17. The tenant made an application for sanction against the landlord. 18. The Court of Appeal held that the court had no power to make an order under s.214 of the Act once a tenancy has come to an end. In the view of the court the wording of s.214 of the Act carried the strong implication that a landlord s default could still be remedied. Since the remedies available to the court on a s.214 application are either to order the repayment of the deposit to the applicant or to order the landlord to pay it into an authorised scheme, for the court to have a genuine discretion, both alternatives must be available, and they are not available once a tenancy has come to an end. Suurpere v Nice [2011] EWHC 2003 (27/07/11) 19. The issue here was that the prescribed information required by the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 had not been given to the tenant by the date of the hearing. 20. Relations between the landlords and tenant were deteriorating. On 10 August, the tenant issued a s.214 application. Four days later, relations with her landlords had deteriorated to the point that she felt forced to leave the property. 21. On 01 September the landlords returned the tenant s deposit to her, no doubt believing that the tenancy had now come to an end, and that a s.214 application was no longer sustainable. 22. Cox J. held that the tenancy had not come to an end, since the tenant had effectively been unlawfully evicted, and that, as the landlords had not supplied the prescribed information as required, the application should be successful. 23. He also held that the obligation to provide the prescribed information is a personal one for a landlord, and that a landlord could not seek to argue that it had provided the prescribed information by way of information sent to the tenant by the DPS. 5

6 The Localism Act The effects of these cases need to be viewed through the prism of the amendments to the 2004 Act, which came into force by virtue of s.184 Localism Act 2011 on 06 April The Localism Act 2011 makes three key amendments to ss Housing Act a) The 14 day time frame is extended to 30 days; b) Determined tenancies will fall within the scheme; c) The financial penalty for non-compliance will be on a sliding scale. 6

7 DISREPAIR Scenario The flat is let to Mr Atkin on an assured shorthold tenancy by the long lessee Mr Bridge. In Mr Bridge s lease, the demise does not extend to the roof. 27. Mr Atkin has complained to Mr Bridge that water is coming into his flat from a problem with the roof of the block. The leak is causing the plaster in the flat to bubble, discolour and flake. Suggested solution 28. Plaster is part of the structure of the property, and Mr Atkin will therefore have a legitimate claim against Mr Bridge in this respect Case law Grand v Gill [2011] EWCA Civ 554, 19/05/ Plaster was not part of the structure of a property up to 19 May 2011 by reason of the High Court s decision in Irvine v Moran (1990) 24 HLR Thomas, Lloyd, Rimer LJJ reversed this view in Grand. Rimer LJ reviewed earlier case law on the issue: a) In Quick v Taff Ely the landlord council conceded for the purposes of the appeal that the plaster in the house was part of its structure and so that decision provided no authority on the point; b) In Staves v Leeds City Council (1990) 23 HLR 107, a like concession was also made by the landlord council. Given the concession, that case also could not be regarded as authority on the point; c) In Niazi Services Ltd v van der Loo [2004] 1 WLR 1254 an issue came before the Court of Appeal as to whether plasterwork forms part of the structure of a dwelling house within the meaning of section 11 of the 1985 Act. Having recognised it as a difficult question, the court explained in para 7 why it did not propose to answer it; 7

8 d) The point was, however, the subject of decision by Mr Recorder Thayne Forbes QC in Irvine v Moran (1990) 24 HLR 1, who said: I have come to the view that the structure of the dwelling house consists of those elements of the overall dwelling house which give it its essential appearance, stability and shape. The expression does not extend to the many and various ways in which the dwelling house will be fitted out, equipped, decorated and generally made to be habitable. 31. Rimer LJ came to the following conclusion (at para 25): For myself, whilst I would accept and adopt Mr Recorder Thayne Forbes QC's observations as to the meaning of the structure of the dwelling house as providing for present purposes, as Neuberger LJ put it, a good working definition, I am respectfully unconvinced by his holding that the plaster finish to an internal wall or ceiling is to be regarded as in the nature of a decorative finish rather than as forming part of the structure. 32. In the days when lath and plaster ceiling and internal partition walls were more common than now, the plaster was, I should have thought, an essential part of the creation and shaping of the ceiling or partition wall, which serve to give a dwelling house its essential appearance and shape. 33. I would also regard plasterwork generally, including that applied to external walls, as being ordinarily in the nature of a smooth constructional finish to walls and ceilings, to which the decoration can then be applied, rather than a decorative finish in itself. 34. I would therefore hold that it is part of the structure. I would accordingly accept that the wall and ceiling plaster in Ms Grand's flat formed part of the structure of the flat for the repair of which Mr Gill was responsible. 35. Lloyd LJ endorsed Rimer LJ s observations. At para 34, he said: I would not limit my reasoning to cases where the wall or ceiling is of lath and plaster or similar construction. I agree that plaster as applied to even a solid wall or ceiling is not in the nature of a decorative finish, as Mr Recorder Thayne Forbes QC said, and that it is to be regarded as a part of the wall or ceiling upon or to which a decorative finish, of whatever kind, may be applied. Accordingly I would hold, as a general proposition, that plaster forming part of or applied to walls and ceilings is part of the structure of the relevant premises. 8

9 SERVICE CHARGES: CONSULTATION Scenario Mr and Mrs Lloyd are long lessees of flat 3. They are liable to pay for works to the block as a service charge. 37. Major works to the roof were carried out between March and May Mr and Mrs Lloyd have informed the landlord that they will not pay the service charge for the roof works, when raised, because the landlord did not follow the correct consultation procedure because it did not have regard to their complaint that the works were not necessary. Suggested solution 39. I have not provided a suggested solution to this scenario, since it will turn on the statutory consultation requirements and nature of the landlord s breach and there is insufficient time to consider these in detail. 40. This scenario does however afford me the opportunity of reviewing four decisions dealing with consultation and dispensation from the requirement to consult. Case law and statute The Service Charges (Consultation Requirements) Regulations 2003 (SI 2003/1987) 41. The relevant regulations are the Service Charges (Consultation Requirements) Regulations The Schedules to those regulations set out the requirements with which a landlord must comply if s/he/it wishes to recover the cost of major works or qualifying long term agreements from tenants. Daejan Investments Ltd v Benson [2011] EWCA Civ Two key points arise from the Court of Appeal s decision in Benson. When considering the exercise of the discretion to grant dispensation: 1) The financial effect of the grant or refusal of dispensation is an irrelevant consideration, and 2) Significant prejudice to the tenants was a consideration of first importance. 9

10 43. In Benson, the Court of Appeal dismissed the landlord s appeal against the decisions of the LVT and the Lands Tribunal that dispensation should not be granted. The Court of Appeal s decision is itself now the subject of the landlord s further appeal to the Supreme Court. LB Newham v Hannan [2011] UKUT 406 (07/10/11) 44. This is a case cut from Morecambe & Wise cloth: it transpired that the landlord local authority had, as did Ernie Wise in his rendition of Grieg s Piano Concerto, played all the right notes, but not necessarily in the right order. 45. The relevant consultation schedule was Schedule 2: the local authority was required to serve a notice of intention on its tenants before giving public notice in the Official Journal of the European Union. Regrettably it gave public notice first. 46. The landlord had expressly submitted that there had been no prejudice to the tenants by the breach. The LVT refused to grant dispensation from the requirement to consult. In its decision it did not consider the question of prejudice. The landlord appealed. 47. HHJ Gerald held that the LVT had not even addressed its mind to the issue of prejudice; it must therefore follow that it had not considered it at all, and had therefore erred in principle. 48. He held that even absent any express submissions on prejudice to the tenant, it was still incumbent upon the LVT to consider and take into account relevant principles and key factors, of which the issue of prejudice was one of the most notable. 49. At paragraphs 35 and 40, he took a two stage approach to considering prejudice: a) the first question to consider is what opportunity the landlord is supposed to be giving the tenant at the given stage of consultation eg the right to be engaged as far as is possible in the consultation process; b) the second question is what opportunity the tenant has lost by the landlord s non compliance. In this case he said: whilst it is sometimes a matter of speculation as to what the tenants might have done had they been given proper notice (referring to Grafton and Daejan in particular), this is not one of those cases because it is known that the tenants did nothing. 10

11 50. On the facts of the case before him, HHJ Gerald found that no opportunity had been lost because none of the tenants raised any questions about the Official Journal advert or made any observation or expressed any desire to be involved in the selection of contractors. 51. The landlord s appeal succeeded. 52. One further point to note from this decision is HHJ Gerald s view (at para 37) that, although the regulations simply require the local authority to inform its tenants that public notice is to be given for the works, it was his view that a local authority should go further when serving notice of intention on the tenant and identify the Official Journal as the place where the public notice might be viewed. This suggestion goes beyond the requirements of the consultation regulations, and it will be interesting to see whether tenants attempt to rely on it in future cases. Stenau Properties Ltd v Leek, Reckling [2011] UKUT 478, 23/11/ This was a Part II, Schedule 4 case. The landlord had failed to comply with the consultation requirements and sought dispensation from the requirement to consult. 54. The LVT declined to grant such a determination, but its decision did not set out explicitly the prejudice suffered by the tenant, although the issue was plainly considered (by contrast with Hannan above). 55. In the Lands Tribunal, HHJ Mole reminded himself of Gross LJ in Daejan, who endorsed the approach of treating a loss of opportunity to make further representations and to have them considered as itself amounting to significant prejudice, at least where the non-compliance with the consultation regulations has been substantial. 56. HHJ Mole therefore asked himself: a) Whether it is open to the LVT, as a matter of law in the light of Daejan in the Court of Appeal, to find that the breach was so substantial that prejudice must be taken to flow from it even though there is no evidence of anything that the leaseholders would or might have done differently if a consultation had been carried out properly, and b) Whether such a decision was open to the Tribunal below on the facts that it found. 11

12 57. He concluded: In my judgment, as a matter of law, the LVT in this case was entitled to find that the breach was so substantial that prejudice must be taken to have flowed from it, even though there was no evidence of any work that would have been done differently if the consultation had been carried out properly. 58. On the facts of this case the landlord s appeal failed. The key elements of HHJ Mole s decision were: a) Where there has been a minor breach of procedure it will be important for a tribunal to find evidence that respondents were prejudiced or disadvantaged, however b) Where the breach is substantial it may be reasonable to assume prejudice. Garside v RFYC Ltd & BR Maunder Taylor [2011] UKUT 367 (15/09/11) 59. This decision by HHJ Alice Robinson does not relate to consultation, but I include it here because it fits into this group of cases, considering as it does the impact of sharp increases in service charges on tenants. Those increases are most likely to occur in the context of major works. 60. In this case, the appointment of a manager and major works to bring a dilapidated estate into repair led to service charges rising tenfold over a three year period between 2007 and The increases led to tenants receiving invoices of between 7,500 and 9,000 per flat. 61. It was common ground that the work being done needed to be done. The tenants however contended that the works should be carried out in a phased manner. 62. The manager accepted that it had already spread the works over a period of time: the most pressing issues had been dealt with first, and it was intended to address more cosmetic matters at a later date. The manager conceded that this was in order to reduce the financial impact of the works on the tenants. 63. HHJ Robinson concluded that it would be odd if the LVT could not take into account the same factors as a landlord in deciding whether the landlord s actions in deciding to incur costs were reasonable. Financial impact on tenants was therefore a factor, but so plainly were other factors such as the urgency of the work and the increased cost of phasing its completion. 64. She emphasised however that her decision should not be taken to be an alteration of the bargain between a landlord and a tenant. 12

13 SECTION 20B NOTICES Scenario Miss Jessel is the long lessee of the flat. She is liable to pay for works to the block as a service charge. She accepts that, for the major works to the roof between March and May 2010, she was properly consulted. No service charge demand has been raised. 66. In October 2011, the landlord sent a letter to Miss Jessel informing her that it had just finalised the account for the works, the delay being due to the contractor going into liquidation. The letter set out an estimate of the amount Miss Jessel would be likely to have to pay by way of service charge under the terms of her lease. 67. Miss Jessel contends that her landlord is out of time for demanding the costs incurred by the major works. Suggested solution 68. It is arguable that the costs were not in fact incurred until either a demand for payment of the works was raised by the contractor, or the demand was itself paid. 69. A letter containing an estimate of costs incurred is insufficient to satisfy s.20b(2). Case law and statute S.20B, Landlord and Tenant Act (1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred. (2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge. 13

14 Jean-Paul v Southwark [2011] UKUT 178, 09/05/ In this case the President considered the question of when costs are incurred for the purposes of s.20b. 72. He said, at para 17: In my judgment, costs are only incurred by the landlord within the meaning of section 20B when payment is made. There is clearly a distinction between incurring liability (ie an obligation to pay) and incurring costs, and it is the latter formulation that is used in the provision. 73. The question was considered again in January 2012, this time by HHJ Mole QC. OM Property Management Ltd v Burr, [2012] UKUT 2, 26/01/ In this case, there had been some confusion as to whether EDF or Total had supplied gas to an estate. By the time invoices were raised for the supply, more than 18 months had passed since the gas had been supplied. 75. The specific question before HHJ Mole QC was whether the cost of gas used was effectively time-barred by s.20b(1). On the meaning of incurring costs, HHJ Mole QC said: [T]he statute declares that it is costs that are incurred which are relevant. In the present case it is sufficient to say that the costs were not incurred when the gas was used. I appreciate that the liability to pay somebody something may have been incurred at that point, but the use of the word costs is significant. As the President pointed out, it is the cost that must be incurred. A liability does not become a cost until it is made concrete, either by being met or paid or possibly by being set down in an invoice or certificate under a building contract. 76. In connection with the President s judgment in Hyams v Wilfrid (LRX/102/2005) and Jean-Paul, he continued (at paras 21 et seq): The crucial and helpful point was the drawing by the President of the distinction between incurring a liability and incurring a cost. I am happy to adopt the formulation of HHJ Baker QC in Capital & Counties Trust [[1987] 2 EGLR 49] that costs will be incurred when they are expended or become payable. A cost and a liability are separate things and Parliament chose to use the word cost in section 20B. If the intention of Parliament is clear from the words it used, considerations of the policy Parliament may have had in mind must take a back seat. But in any event the judge's comments in Gilje [v Charlgrove [2003] EWHC 1284 (Ch)] were not made about a situation where the landlord could not warn 14

15 the tenant to set aside provision because the landlord did not appreciate that the costs were likely to be incurred. The landlord can only give "sufficient warning" or "adequate prior notice" of something of which he is aware. I cannot read Etherton J's words as giving any support for the proposition that the 18 months limit is an absolute cut-off point that operates regardless of any fault on the landlord's behalf. In my judgement the true answer is that as a matter of the interpretation of section 20B costs are incurred on the presentation of an invoice or on payment; but whether a particular cost is incurred on the presentation of an invoice or on payment may depend upon the facts of the particular case. It is possible to foresee that where, for example, payment on an invoice has been long delayed, the decision as to when the cost was actually occurred might be different depending on the circumstances; it might be relevant to decide whether the payment was delayed because there was a justified dispute over the amount of the invoice or whether the delay was a mere evasion or device of some sort. In the former case the tribunal of fact might find that the costs were not incurred until a genuine dispute was settled and the bill paid. In the latter case the tribunal might be very reluctant to allow deliberate prevarication to postpone the running of the time limit imposed by section 20B. 77. It emerges from these two cases that a tenant cannot count the months from the provision of the service or works in order to avail him/herself of the protection of s.20b, and there may in fact be more than eighteen months between the carrying out of works and the rendering of an invoice by the supplier. Brent LBC v Shulem B Association 29/06/11 Morgan J 78. In this case the parties had agreed the date of incurring the costs which the landlord wanted to recover from the tenants. The issue here was/is (the case is subject to appeal) the requirement for a properly worded s.20b(2) notification. 79. The landlord carried out major works, and in February 2006, after the works had been completed, sent each tenant a letter informing them that the actual cost of the works had not yet been calculated. It referred to an attached schedule setting out the amount which it estimated each tenant would have to contribute to the works by way of service charge, but warned that the actual costs might be greater than those shown in the schedule. 80. In December 2006 the landlord sent each tenant a second letter notifying them of the actual cost of the works and the amount which they would have to contribute by way of service charge, which was less than the estimated amount set out in the schedule attached to the earlier letter. 15

16 81. The landlord then brought a claim against the defendant tenant, which was the lessee of 15 of the flats, to recover service charges due in relation to those flats. The tenant applied for an order striking out the claim, contending that the notification fell foul of s.20b. It was common ground that the relevant costs had been incurred more than 18 months before the December letter but that most of the costs had been incurred less than 18 months before the February letter. 82. At first instance the judge held that the February letter, although not a valid demand for the purposes of section 20B(1), was a written notification for the purposes of section 20B(2), so that section 20B(1) did not apply. 83. The tenant appealed. Morgan J held that a written notification for the purposes of section 20B(2) of the 1985 Act must state a figure for the amount of costs which the landlord had incurred. In his view, such notification would be valid even if the costs which the landlord later put forward in a service charge demand were in a lesser amount. 84. Therefore, on the facts of the case, since the February letter did not purport to state what the actual costs were it set out the only costs known at the time, ie estimated costs and warned that they might be greater than the estimated costs which were referred to, it did not constitute a notification in writing for the purposes of section 20B(2). 85. Morgan J also held that, where the written notification served on a tenant under section 20B(2) of the 1985 Act specifies a figure for costs, and the landlord later serves a service charge demand which takes into account a figure for costs incurred which is greater than the one specified in the written notification, the notification will be effective in relation to the figure specified in it but not to any excess over that figure. 86. What is striking about this case is Morgan J. s solution to the landlord s predicament if the costs incurred are unknown at the date of serving the s.20b(2) notification: I have considered what a lessor should do if it knows that it has incurred costs but it is unable to state with precision what the amount of those costs was and it is concerned to serve a notice under section 20B(2)... In my judgment, there is a clear practical course open to a lessor in such a case. It should specify a figure for costs which the lessor is content to have as a limit on the cost ultimately recoverable. In my judgment, a lessor can err on the side of caution and include a figure which it feels will suffice to enable it to recover in due course its actual costs, when all uncertainty has been removed. 16

17 87. Effectively therefore it would appear that a landlord s best course of action is to make an educated guess as to the final figure that s/he will wish to recover from the tenant. 88. Viewed through the prism of Jean Paul and Burr, it might be said that the above situation is unlikely to occur often: if, for example, a cost is not incurred until an invoice is rendered, the landlord should know at least the maximum figure claimed by a contractor. Nonetheless, it seems unhelpful to both landlord and tenant for a landlord to try to strike a moving target in circumstances where a s.20b(2) notice is required in the absence of fixed figures. Plainly, a prudent landlord will err on the side of caution rather than otherwise. 17

18 SERVICE CHARGES: FORMALITIES FOR DEMANDS Scenario Mr Nourse is the long lessee of flat 5, and liable to pay for works and services to the block as a service charge. Mr Nourse received the balancing service charge demand for the y/e 30 April 2009 on 28 October The demand was accompanied by a compliment slip and nothing else. In December 2010, the landlord sent Mr Nourse a copy of the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations (2007/1257). Mr Nourse has read the Regulations and thinks that he may not be liable to pay the demand. Suggested solution 90. As matters stand, Mr Nourse is not obliged to pay the service charge demand. The statutory information relating to the summary of tenants rights and obligations must be sent with a service charge demand. A copy of the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations themselves is insufficient for this purpose. Case law and statute The Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations Article 3 of the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007 (2007/1257) sets out the prescribed heading and information which must be sent to tenants with service charge demands. Tingdene Holiday Parks Ltd v Cox [2011] UKUT 310 (08/08/11) 92. This is a cautionary tale relating to the service of the summary of tenants rights and obligations. 93. On 04 April, the landlord sent Mr Cox a statement of the estimated service charge for the year ending 31 December It was not accompanied by the summary of tenants rights and obligations. 94. Mr Cox pointed this out to his landlord on 15 April His landlord then simply sent him a copy of the summary, but did not re-serve the demand with it. 18

19 95. On 01 July, the landlord served a demand for payment of the third quarter s service charge. Accompanying that demand was a full print out of the 2007 Regulations. 96. Mr Cox s case was that neither demand was valid. He withheld payment. 97. On its third attempt, the landlord finally corrected its errors and omissions and served demands accompanied by the correct paperwork. By then however, it had already begun forfeiture proceedings in the county court founded on non-payment of the first two service charge demands. 98. The LVT held that the first two demands were invalid, but the third was valid. 99. In order to pursue its forfeiture claim, the landlord appealed to the Lands Tribunal The President s decision was clear: 1) it could not be said that the summary of tenants rights and obligations accompanied the service charge demand when it was sent some eleven days after the service charge demand itself, and 2) The heading and layout of the summary was of itself important, and service of a full copy of the regulations did not constitute service of the summary, particularly because the text of the summary appears at regulation 3, and is therefore preceded by two regulations. 19

20 FORFEITURE FOR NON-PAYMENT OF SERVICE CHARGES Scenario Miss Hoffmann is the long lessee. She has identical obligations to pay a service charge as Mr & Mrs Lloyd and Mr Nourse. The lease reserves service charges as rent Miss Hoffmann has paid nothing towards the service charge for more than two years The landlord now wants to forfeit the lease, has obtained default judgment on the service charge arrears and has written to Miss Hoffmann inviting her to settle the debt Miss Hoffmann has replied that the landlord: a) cannot rely on the default judgment as a prelude to forfeiture. b) has failed to serve a s.146 notice, and Suggested solution 105. Default judgment can be sufficient to constitute a determination that the amount of the service charge is payable for the purposes of s.81 Housing Act However in the light of recent case law, it would be prudent to serve a s.146 notice as a prelude to forfeiture, even where the service charge is reserved as rent. Case law and statute Church Commissioners for England v Koyale Enterprises (unrep. Central London County Court, 22/09/11, HHJ Dight) 106. In this appeal, I represented the successful landlord: a detailed consideration of the issues arising in the case appeared at p.13 of the Property Law Journal No.277, of 10 October The question under consideration was whether default judgment constituted a determination for the purposes of s.81 Housing Act 1996 as amended. Whilst the two previous county court decisions (LB Southwark v Tornaritis [1999] CLY 3744 and Hillbrow (Richmond) Ltd v Alogaily [2006] CLY 2707) are reported in summary form in Current Law, a full judgment is available for this case. 20

21 108. The key points of the judgment here are: a) A default judgment can constitute a determination. A default judgment is capable, for example of setting up an estoppel, and can bar future litigation by way of it being res judicata, even if in fact it is entered on request rather than at the hearing of an application; b) The word challenge in s.81(3) is not a reference to an application to set aside default judgment, but a technical term referring to proceedings under the Arbitration Act c) The word final, inserted by CaLRA 2002, does not change anything in the meaning of the section: it simply gives time for at least one appeal. As originally enacted, s.81 made no allowances for any appeals. d) If the tenant refuses to participate in a landlord s claim, how, other than by the obtaining of default judgment, can the landlord otherwise prove its case? Summary judgment is not available without leave of the court in the absence of a defence, and, our legal system being an adversarial one, how can a landlord know what matters are admitted and what disputed without an opposing case at a trial? Freeholders of 69 Marina, St Leonards-on-Sea, v Oram, Ghooram [2011] EWCA Civ 1258 (08/11/11) 109. The case turned on the construction of the normal clause entitling a landlord to recover directly from a tenant the costs of and incidental to the preparation of a s.146 notice and the service of notices and schedules relating to wants of repair The property in question suffered from water penetration. The landlord carried out repairs and brought proceedings in the LVT to recover the costs of the works, the tenants contesting their cost and the landlord s compliance with the consultation requirements The landlord was successful before the LVT, and brought county court proceedings for the sum at issue and the costs incurred before the LVT. These latter were claimed under a costs recovery clause in the lease. The landlord succeeded on its claim before the district judge, and then served a s.146 notice in relation to non-payment of the service charge (even though the service charge was reserved as rent in the lease). 21

22 112. The lessees appeal, having failed to persuade the circuit judge, reached the Court of Appeal. The Court of Appeal also dismissed it The striking aspect of this case however is paragraph 12 of the judgment, in which the Chancellor holds that given that the definition of service charge [in s.18 LTA 1985] includes an amount payable as a part of the rent, the evident intention [of the legislation] is that the s.146 procedure, as modified, is to be applicable in cases of non-payment of a service charge even when such charge is recoverable as rent The Chancellor supported his reasoning as follows: a) s.146 does not affect the law relating to re-entry or forfeiture for nonpayment of rent; b) the lessees liability to pay for the repair works was a service charge within the meaning of s.18 Landlord & Tenant Act 1985, even though it was recoverable as rent; c) s.81(1) Housing Act 1996 prevents a landlord from exercising a right to forfeit before obtaining a final determination that the amount of the service charge is payable; d) s.81(2) and (4A) of the 1996 recognise that the s.146 procedure is applicable in the case of re-entry or forfeiture for non-payment of service charges: s.81(2) prevents a landlord from serving a s.146 notice before a determination of breach, and by s.81(4a), references in this section to the exercise of a right of re-entry or forfeiture include the service of a notice under s.146, and e) ss CaLRA 2002 also refer to s.146 notices in connection with service charges Called as I was in 2004, I respectfully disagree with the Chancellor: a) none of the legislation cited expressly requires a landlord to serve a s.146 notice for arrears of service charges reserved as rent; b) there are plainly circumstances in which a s.146 notice will be required before a landlord can exercise a right of re-entry/forfeiture, those being primarily where the service charge is not reserved as rent; 22

23 c) the definition of service charges in s.18 includes service charges payable as rent so as to avoid landlords arguing that service charges reserved as rent have only one character i.e. that of rent, and therefore do not fall within the meaning of s.18; d) if my analysis of s.18 is correct, s.81(2) of the 1996 Act (i.e. no service of a s.146 notice before a determination that the amount is payable) sets out the correct sequence of events for the obtaining of a determination and the service of a s.146 notice (if a s.146 notice is required), and e) s.81(4a) (references to the exercise of a right of re-entry/forfeiture include references to the service of a s.146 notice) is no more than a subsection providing a definition of the meaning of the exercise of a right of reentry/forfeiture Be my view as it may, the effect of this case is that landlords will be welladvised, even where service charges are reserved as rent, to serve a s.146 notice on the defaulting tenant. 23

24 BANKRUPTCY AND ASSURED TENANTS Scenario Mr Dunedin occupies this flat under an assured tenancy. The monthly rent is 1,100. Rent arrears now stand at 4, The RSL landlord has exhausted all other avenues for the recovery of the rent, and has now decided to seek possession on grounds 8, 10, 11 of Schedule 2 to the Housing Act Two weeks ago, Mr Dunedin was adjudged bankrupt. Suggested solution 119. The landlord can obtain an order for possession against a bankrupt tenant on the grounds of rent arrears. The court cannot however give a money judgment for any of the rent arrears provable in the bankruptcy, nor can it make a suspended order conditional upon payment of the arrears by instalments. Case law and statute s. 285 Insolvency Act 1986 (excerpts only) 120. (1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt. (2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on terms. (3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall (a) have any remedy against the property or person of the bankrupt in respect of that debt, or (b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose. 24

25 Sharples v Places for People Homes Ltd [2011] EWCA Civ 813 (15/07/11) 121. Mr Sharples was the assured tenant of Places for People Homes Ltd. Although nothing appears to have turned on it, it is worth noting at the outset that assured tenancies do not vest in the trustee in bankruptcy on bankruptcy The question subject of the appeal was whether a landlord can obtain a possession order against an assured tenant on the ground of non-payment of rent without the leave of the court The Court of Appeal answered yes : the exercise of a right of re-entry is not a remedy for the purposes of s.285(3)(a) Insolvency Act 1986: its purpose is to prevent recurrence of a breach The court was also asked to consider what might be said to be a more difficult issue, even though technically it did not arise in the case before it: does s.285(3)(b) impose a blanket requirement on landlords to obtain leave of the court before bringing any proceedings against a bankrupt? 125. Answering no, Etherton LJ considered that the literal reading of that subsection was not the correct reading. At para 92 of his (lead) judgment, he reached the conclusion that s.295(3)(b) should be interpreted by limiting it to actions or legal proceedings against the bankrupt in respect of the provable debt (my emphasis) On that basis possession proceedings can be brought against a bankrupt tenant without requiring leave of the court. It should however be noted that although the court would be in a position to grant the possession order, as a general rule it will not be able to give a money judgment in respect of the rent arrears on which the claim to possession is based, because those rent arrears will, in all likelihood, constitute a debt provable in the bankruptcy This principle applies equally to suspended possession orders: the court cannot suspend the possession order on condition that, for example, the tenant pays current rent and a weekly sum towards his arrears, because that weekly sum would again constitute payment of a debt provable in the bankruptcy. There is of course nothing to prevent the court making an order conditional on payment of current rent alone. 25 Amanda Gourlay Tanfield Chambers 2-5 Warwick Court London WC1R 5DJ 30 April 2012