Leases from start to finish

Transcription

1 Leases from start to finish Contents Introduction Creating a lease or tenancy Creating a tenancy with a term of three years or less Electronic / online signatures The agreement Terms implied into oral tenancies Changing the terms of a tenancy Periodic tenancies Ending tenancies Ways that tenancies can end Conclusion Introduction A freehold interest in land is fairly straightforward. Technically it is held from the Crown but for all practical purposes the freeholder is the absolute owner for an indefinite period. Leasehold interests are different. By definition they will be created out of a freehold interest, and they only last for a limited period of time. So they have a beginning, a middle and an end. The leaseholder also has a relationship with the freeholder, out of whose interest his lease was created and who will receive the land back when the lease or tenancy ends. Creating a lease or tenancy As we saw in the earlier article, the general rule is that a legal lease has to be created by deed. Let us remind ourselves how to create a deed: The document must make it clear that it is intended to be a deed. For example putting above the signature area signed as a deed It must be signed by the person making it, and witnessed by someone who is present at the same time and who signs the deed as witness

2 It must be delivered ie the person must indicate in some way that he intends to be bound (generally just signing it is enough) Remember also that it no longer needs to be sealed. So the words of the song signed, sealed, delivered should really be changed to signed, witnessed, delivered. Although they don t have quite the same ring about them. In most cases, if a lease is not signed as a deed, it will take effect in equity only. However this rule is changed for short lets. Creating a tenancy with a term of three years or less The rules are set out in the Law of Property Act 1954 Nothing in the foregoing provisions of this Part of this Act shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine. Law of Property Act 1925 s54(2) So that gives us four conditions which have to be met to allow a legal lease to be created without a deed: taking effect in possession for a term not exceeding three years at the best rent which can be reasonably obtained (ie a market rent), and without taking a fine Lets take a quick look at two of these: Taking effect in possession This means that the tenant goes into occupation immediately. So if you are signing a tenant up a long time in advance (for example for a student let) it is generally a good idea to get your tenancy agreement signed as a deed. However if you don t do that, it is not a huge problem as a legal tenancy will be created anyway when they go in, and the signed tenancy agreement will apply, as that will clearly have been the intention of the parties. So if your tenants sign in March for a tenancy to start in September and the tenancy agreement is not signed as a deed, there WILL be a legal tenancy, which will be created automatically at the time the tenants move in. However if possible I would still recommend that the tenancy be signed as a deed in March, as there can then be less argument.

3 Fines A fine or premium is a payment made for a lease or tenancy. This is done all the time for long leases, which often cost as much if not more than a freehold property. They used to be taken for short leases at the start of the last century when they were known as key money. However they were then made illegal under the housing legislation which was passed during the first world war and this was incorporated into the Rent Act Premiums are no longer illegal under the Housing Act 1988, however they are not normally taken mainly because they affect the right of the landlord to prevent assignment of the lease. You can see more about this in the blog posts linked from the further reading page. There is no reason in law why, say, assured shorthold tenancies cannot be created, with a premium, for longer fixed terms such as three to seven years (or even longer if the tenant is prepared to accept the repairing obligations). I suspect many landlords and tenants would like this. The main reason why it never happens is because it is prohibited by virtually all mortgage lenders. Electronic / online signatures On other thing to consider in connection with the creation of tenancies is whether tenancy agreements can be signed electronically for example online. This is a difficult subject as we do not have any case law to help us. The general view is that a tenancy agreement probably CAN be created by an electronic signature. However only if the tenancy has a term of less than three years. The electronic signature will then take effect as evidence that the tenant intended to be bound by the agreement and will satisfy the contract element of a tenancy. So far as the land part of the tenancy is concerned, this will be created when the tenant goes into occupation, under s54(2) of the LPA. If the tenant is signing up to a tenancy without having seen the property as for example happens in many student lets note that the Distance Selling Regulations will apply and the tenant will have a seven day cooling off period, provided the landlord complies with the terms of the act. No doubt this is the way things will go in the future. However for the time being, you are less likely to experience problems if you show the tenant (or if there is more than one, at least one of them) round the property (the physical property rather than via video) and then get them to sign a tenancy agreement, in ink (ie a wet signature), in front of you, before they are given the keys to the property. The agreement

4 Most tenancies will have a written agreement. However as it is possible for a legal tenancy to be created just by the tenant going in and starting to pay rent, there are quite a few oral tenancies around where there is nothing at all written down. What will the situation be there? Terms implied into oral tenancies Looking specifically at short lets here, these are all the things which will always be present in a tenancy where there is no written agreement. First the obvious things: The parties these will be the landlord and the tenant The term if this has not been agreed otherwise, the tenant will normally have a periodic tenancy based on the period rent is paid for. So if rent is paid monthly, the tenant will have a monthly periodic tenancy The rent this will be whatever has been agreed The property this is one reason why a written tenancy is desirable, as this is something that could be in dispute for example, is that parking space or garage included or not? Generally if the tenant uses the garage and the landlord does not object, the garage will be included Lets take a look now at the other terms which will automatically be implied into a tenancy: The covenant of quiet enjoyment This is a fundamental right of all tenants to live in the rented property without disturbance from the landlord (it is nothing to do with noise and enjoying yourself!). See the blog post on the six most important elements of a tenancy or lease for more information. The condition of the property All rented properties which are let furnished will be subject to a common law rule that they are fit for human habitation. Now this will probably mean that there will be no category 1 hazards under the Housing Health and Safety Rating System. All tenancies with a term of less than seven years will also be subject to the landlords statutory repairing covenants as set out in section 11 of the Landlord and Tenant Act Financial obligations

5 Needless to say there is an obligation on the part of the tenant to pay the rent! So far as the landlord is concerned, he can only increase the rent by agreement or according to the procedure required for the type of tenancy concerned. Note by the way that the Landlord will be bound by section 48 of the Landlord and Tenant Act 1987 which requires him to serve a notice on the tenant giving an address for service of notices and which says that rent will not be payable until he does so. This notice is normally included in the tenancy agreement. Health and safety All landlords are subject to the various health and safety regulations such as the gas regulations, the furniture regulations, regulations regarding smoking, gas cookers and so on. It will also be subject to the jurisdiction of the Local Authority, as are all properties, under the Housing Act Local Authorities are under an obligation to enforce housing standards using the Housing Health and Safety Rating system. Tenancy deposits If a deposit is taken a landlord will have to deal with it in accordance with the regulations. He will however be at a disadvantage as he will have no tenancy agreement clause setting out his rights to make deductions! The tenants obligations Its not all one sided. As well as the landlords obligations the common law also implies obligations for the tenant. One important one is the common law obligations on the tenant to behave in a tenant like manner. This was described by Lord Denning in the following case : Warren v. Keen [1954] What does to use the premises in a tenant-like manner mean?..the tenant must take proper care of the place. He must, if he is going away for the winter, turn off the water and empty the boiler. He must clean the chimneys, when necessary and also the windows. He must mend the electric light when it fuses. He must unstop the sink when it is blocked by his waste. In short, he must do those little jobs about the place which a reasonable tenant would do. In addition, he must, of course, not damage the house willfully or negligently; and he must see that his family and guests do not damage it; and if they do, he must repair it. But apart from such things, if the house falls out of repair owing to fair wear and tear, lapse of time or for any reason not caused by him, then he will not be liable to repair it. Court of Appeal, Lord Denning, 1954

6 There is also a common law rule that tenants should not commit waste which is a legal term for any act or omission which results in a permanent change to the premises. Then, section 81 of the Housing Act 1980 provides that a tenant should not carry out any improvements or alterations to a property without the landlords written consent. However any refusal given by the landlord must be reasonable. For protected and assured / assured shorthold tenancies, there will also be implied conditions that the tenant will look after the property and its contents, not cause a nuisance to neighbours, and not use the property for immoral or illegal purposes, as these are all matters which can be the basis for a claim for possession under the discretionary grounds in the Housing Act 1988 and the Rent Act These are all the terms which will be implied into a tenancy if the parties do not make an agreement themselves. However this leaves a lot out. One further issue regarding covenants or terms in the tenancy agreement is, what do you do if you want to change them? Changing the terms of a tenancy As a tenancy is a form of contract, in most cases the standard contractual rules that we looked at in module two apply. So there is no problem about changing the terms of the tenancy if both parties agree to this. However if this is not possible, then it cannot normally be done. I have often known situations where landlords have purchased a property with sitting protected tenants and want them to sign a new tenancy agreement with their standards terms and conditions. However all tenants in this position will be advised to refuse to do this. There is absolutely nothing the landlord can do about this, as protected tenants have strong rights as regards security of tenure and cannot be evicted for refusing to sign a new tenancy agreement. In the case of assured and assured shorthold tenancies however it IS possible to change the terms of a tenancy, provided it is a statutory periodic tenancy and the proper form of notice (which is prescribed) is served during the first year after the fixed term ends. The notice can be served either by the landlord or the tenant, and if the other party does not agree with the proposed new terms, it can be referred to a Rent Assessment Committee for review. These are set out in s6 of the Housing Act I understand however that it is very rare for the RAC to receive these applications. Periodic tenancies People often get very confused about periodic tenancies. What are they and when do they occur?

7 A periodic tenancy is when, instead of being for an agreed period of time (a fixed term) the tenancy runs from period to period. The most common period for a periodic tenancy is monthly, but there are quite a few weekly periodic tenancies around too. Quarterly, half yearly and annual periodic tenancies are less common but do exist. There are three main ways they can come about: Statutory periodic tenancies these will happen automatically when a tenant stays on at the end of the fixed term. If the tenancy is a protected or assured / assured shorthold tenancy the periodic tenancy will arise because the act said it will. Hence the name statutory periodic tenancy. Contractual periodic tenancies sometimes it will be intended from the start that a tenancy will be periodic the tenancy agreement will give a term of one month and will specifically state that it will then run from month to month (or week to week etc) A contractual periodic tenancy will also arise at the end of a common law tenancy or one where statute does not provide for a statutory periodic, if the tenant just stays on in the property and the landlord accepts rent. Ending tenancies It is necessary for a tenancy to be properly ended before the tenant is released from his obligation to pay rent, and the landlord is entitled to re-enter the property, change the locks and (if he so wants) re-let it to a new tenant. What are the different ways this can be done? As a tenancy is a form of contract, we need to revisit week 3 and the ways set out there on ending contracts. There are a few others to add to them though. Lets take a look at them all one by one: Ways that tenancies can end: Effluxion of time Effluxion of time is one of those wonderful phrases which only lawyers ever use, but which I am secretly rather fond of. It means that the time given in the tenancy for the fixed term has ended. It is the same thing as a normal contract ending by performance (as discussed in the contract article). So if a tenancy is given to Mrs Torrington for six months and she moves out at the end of that time, then her tenancy will have ended by effluxion of time. Surrender This is where the parties decide to end the tenancy, for example in the middle of the fixed term. It is normally done by agreement. Sometimes there is a formal deed of surrender,

8 sometimes they just agree a date orally when the tenancy will end and the tenant just moves out. There is however also a situation where a landlord can repossess without the specific agreement of the tenant this is implied surrender. Implied surrender is where the conduct of the tenant is inconsistent with an intention to continue with the tenancy. This can operate as an implied offer of surrender which the landlord can accept by going in and changing the locks. Landlords need to be very careful about this, as repossessing a property without a court order is normally both a criminal offence and a civil wrong entitling the tenant to claim compensation. However if the tenant has moved out all his belongings and left the keys behind a landlord is normally safe to go in and change the locks. For more information about implied surrender, see the blog post here. Forfeiture This is a very old eviction procedure which is available to landlords where tenants breach the terms of their agreement. It is specifically excluded for assured and assured shorthold tenants so is not used much nowadays for residential tenancies. It is however available for common law and protected tenancies. The most common reason for forfeiture is forfeiture for non payment of rent. Landlords can issue proceedings for this without having to serve a notice first (for short lets anyway the rules are different for long leases ). However: if the forfeiture takes place during the fixed term, there must be a forfeiture clause in the tenancy agreement The tenant has the right to claim relief from forfeiture by paying the rent, even after a possession order has been made by the court Forfeiture is also possible for other breaches but this is very rare. The landlord has to serve a notice under s146 of the Law of Property Act 1925 and be careful about accepting rent otherwise he may be deemed to have waived forfeiture. Frustration This is a contractual doctrine where the contract is brought to an end because it becomes impossible to perform. Tenants would like this to apply if their job moves them to another city, but actually, if this doctrine does apply to tenancies, it will probably only be in circumstances where the property is actually destroyed, such as by fire.

9 Notice An old style Notice to Quit (NTQ) will end a common law periodic tenancy and also a contractual protected periodic tenancy (although it will not end the statutory periodic protected tenancy). However the landlord will need to get a court order if the tenant fails to move out voluntarily. Section 5(1) of the Housing Act 1988 states however that Notices to Quit will be of no effect if served by a landlord in respect of assured and assured shorthold tenancies. So don t serve one on your assured shorthold tenant as you may risk a stroppy letter from the Local Authority housing officer accusing you of harassment by requiring your tenant to leave using an invalid notice. So far as other notices are concerned, the two Housing Act 1988 notices, under section 8 and section 21, do not actually end the tenancy they just entitle the Judge to make an order for possession if they have been properly served and the notice period expired before the court proceedings have been issued. Tenants notice to quit Although s5ha1988 states that landlords cannot use notices to quit, there is nothing to stop a TENANT using one. It won t be effective to end the tenancy during the fixed term but it WILL end a periodic tenancy. There is a common law rule which says that one joint tenant can end the tenancy by serving a notice to quit, even if the other tenants don t agree to this or even know that the notice has been served! So if this happens during a periodic tenancy, then the NTQ will end the tenancy and all the tenants liability under it. If the remaining tenants stay in the property and continue to pay rent, then a new periodic tenancy will come into place, under section 54(2) of the Law of Property Act, as discussed above. However the tenant who served the notice will no longer be apart of the tenancy. The notice period The normal notice period to end a tenancy under a Notice to Quit is equivalent to the period concerned. So for a monthly periodic tenancy you give one months notice, for a quarterly period you give three months notice, and so on. Generally you give a notice for complete period of the tenancy, ending at the end of the notice period. So the actual notice period will be between one and two times the period of time depending on when you serve the notice. Therefore for a monthly periodic tenancy which runs from the 5th day in the month to the 4th day in the month, you need to serve notice ending on the next 4th day of the month after one month. The notice periods are changed for annual periodic tenacies where the notice period is six months, and for periods under one month, where the Protection From Eviction Act 1977 has provided that the notice period will not be less than 28 days.

10 The act also provides that special prescribed information needs to go on Notices to Quit otherwise they will be invalid. Note that this information is ONLY needed however on Notice to Quit so it does not need to go on other notices such as section 21 notices. Court order As it is a criminal offence to evict a tenant other by a County Court bailiff (or High Court Sheriff) acting under a court order for possession, this is the main way that tenancies end if the parties are not in agreement. Conclusion So here we are at the end of a rather long article. I have tried to limit it to the underlying common law rules but of course it is impossible to describe these in isolation from the statutory codes which govern much of our residential property law today. Next week we move on to look at these statutory codes, and the new rules which they imposed on the existing common law structure. Tessa Shepperson