This is good news for residential property owners.

Section 144 of the Act creates a new criminal offence of squatting in a residential building. Under the Act, a squatting offence will be deemed to have been committed if a person does all of the following:

1. Is in a residential building as a trespasser, having entered it as a trespasser;

2. Knows or ought to know that he or she is a trespasser; and

3. Is living in the building or intends to live there for any period of time

Although section 144 has not yet come into force (and no definite date has been given at the time of writing), if a person enters a residential building as a trespasser before or after the section’s enforcement, that person will have committed an offence under the Act. Offenders face up to one year in prison and/or a fine of up to £5000.  Some further background information is here.

There are a number of exceptions to this new offence, where an offence will not have been committed – for example, when a legitimate tenant or occupier who has occupied a property with permission refuses to leave following a disagreement with the landlord.

Importantly, the Act does not extend to commercial properties, so commercial property owners will have to continue to evict squatters through the civil possession procedure.

The Act is expected to come into force in September 2012, but we are awaiting confirmation.

Landlords must now register a tenant’s deposit, comply with the initial requirements of an authorised scheme and serve the tenant with Prescribed Information within 30 days of a deposit being received.

In respect of existing tenancies which are in effect on or after 6 April 2012, landlords have until 6 May 2012 to comply with the new requirements to avoid falling foul of the requirements.

If a landlord fails to comply with the requirements and a tenant issues proceedings at Court for such a failure, the Court must order the landlord to:

1. repay the deposit to the tenant or protect it; and

2. pay the tenant between one to three times the value of the deposit.

Further, a landlord is prevented from serving a section 21 notice seeking possession if the requirements have not been met.

If you need further information please contact me at faiza.ahmad@mablaw.com.

To recap, since 6 April 2007, a landlord of an assured shorthold tenancy must protect any deposit received from a tenant in one of the three approved tenancy deposit schemes in accordance with section 213(1) of the Housing Act 2004, which states that “A tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received be dealt with in accordance with an authorised scheme.” Section 213 (2) of the Housing Act 2004 requires the initial requirements of an authorised scheme to be complied with by the landlord within 14 days of the deposit being received. The initial requirements are to register the deposit and give the tenant and any other relevant person the prescribed information required under Section 213 (5) (“the Prescribed Information”).      

The changes proposed by section 184 of the Localism Act 2011 will amend section 213 of the Housing Act 2004 to the extent that:

1. The period for the landlord to comply with the initial requirements of the scheme and to give the tenant the Prescribed Information will be increased from 14 to 30 days. The 30-day period begins on the day the deposit is received from the tenant;

2. If the landlord fails to comply with his obligation to register the deposit and serve the Prescribed Information within 30 days, the tenant will be able issue proceedings at Court against the landlord for this failure, even after the tenancy has ended. Currently tenants cannot bring an action for failure to register a deposit after the tenancy has come to an end. Further, they cannot currently seek to recover damages if the deposit is protected after the required 14 day period and prior to the Court hearing dealing with the landlord’s failure to register the deposit and serve the Prescribed Information; and

3. The penalty for failing to comply with the requirement to register the deposit will be between one and three times the deposit. The current penalty is set at three times the deposit. In addition to the penalty, the Court will order that whoever is holding the tenant’s deposit, if it has not been registered, is to protect the deposit in one of the schemes or pay it back to the tenant within 14 days of the date of the order.

Landlords should beware that a tenant can issue proceedings for failure to register the deposit in time so even if the deposit is registered after 31 days the tenant will be entitled to recover one to three times the amount of the deposit from the landlord. 

The changes are meant to provide a more practical means of dealing with the issue of non-registration of deposits, giving tenants more protection and landlords greater clarity on the consequences for not complying with their obligations.

Whilst it is expected that the changes will come into effect in April 2012, we await a Commencement Order setting out the commencement date of the new provision and will do a further blog when this comes through.

The Government is asking for opinions on regulations that affect the private rented sector, social housing, construction, and the building regulations. Full details are here.

In the Government’s press release on the issue, Communities Minister Baroness Hanham said:

“For years builders, businesses, landlords and residents have had to navigate an increasingly complicated set of rules and regulations to do things by the book. Now we’re giving them the chance to tell us what they would like us to change so that building a new home or property is a smoother ride.”

Interested parties have four more weeks to put forward their views and this can be done on the Red tape challenge website. This website has full details of the challenge and you can also read the opinions of those who have already commented (and respond to those comments if you so wish.)

Following on from the Government’s recent introduction of a new-build indemnity scheme to help purchasers of new-build properties who are struggling to obtain a mortgage, the Council of Mortgage Lenders has said that over the past few months it has received a “steady trickle” of enquiries from local councils who want to be able to offer mortgages to local residents.

But are local councils really able to offer mortgages?

Well, actually yes. Despite what most people may think, local councils are able to offer mortgages without having to register with the Financial Services Authority, which regulates mortgage lending.

And they used to be popular.

During the 1960s, 1970s and early 1980s, thousands of homeowners had mortgages with their local councils. Local councils were able to offer cheap mortgages, mainly because they could borrow money at rates that were only slightly higher than those available to the UK Government; however, by the mid-1980s these loans became less attractive when mortgage finance became more readily available from banks and building societies.

And it also appears that established lenders are prepared to work with local councils in offering mortgages.

In March this year, fifteen local authorities across the UK agreed to put money into a Lloyds TSB scheme – entitled Local Lend a Hand – to increase the deposits of first-time buyers trying to buy a home in their areas; in some cases, first-timers have been able to buy a home with a deposit of as little as 5 per cent.

Borrowers can be rest assured that if they take out a mortgage with their local council and fall into arrears, the local council must uphold the FSA’s Treating Customers Fairly requirements (as any bank or building society would have to.)

Whether the local council mortgage makes a full national comeback remains to be seen, but for homebuyers in certain parts of the country it could be a viable option.

The introduction of a new-build indemnity scheme, aimed at increasing the supply of affordable mortgage finance for new-build homes will be welcomed by cash-strapped first-time buyers with little savings. The scheme will be available to all potential buyers, subject to appropriate mortgage underwriting criteria, except buy-to-let investors and second home owners.

Under the scheme, homebuyers will be able to purchase a new-build house or flat with only a five per cent deposit. Housebuilders and the Government will contribute up to 95 per cent of the cost of the home to an indemnity fund, which will be used to pay out to a lender if a buyer defaults and where there is a shortfall if the property is repossessed.

The scheme is open to all housebuilders and all lenders operating in England. Mortgages will be available under the scheme from March 2012.

According to the Government, the following lenders have agreed in principle to participate in the scheme: Barclays, HSBC, Lloyds Banking Group, Nationwide, RBS, Santander and Yorkshire and Clydesdale Banks.

The Government has also confirmed that more than 25 homebuilders have agreed in principle to participate in the scheme: Barratt Developments, Crest Nicholson, McCarthy and Stone Retirement Lifestyles, Bellway, Fairview New Homes, The Miller Group, Bloor Homes, Galliford Try, Persimmon, Bovis Homes Group, Gladedale Group, Redrow, Taylor Wimpey, Antler Homes, Grainger, Stewart Milne, Aquinna Homes, Jones Homes, Places for People Group, Banner Homes Group, Morris Homes, Strata Homes, CALA Group, Nicholas King Homes, Urban Renaissance Villages Ltd, Croudace Homes Group, Octagon Developments, William Davis, and Heyworth Developments

Also, social housing tenants will encouraged to buy their homes after the Government offered them up to a 50 per cent discount under the Right-to-Buy scheme.

However, as expected, the Government confirmed that the stamp duty land tax relief for first time buyers will end on 24 March 2012, as planned. The loss of this relief is disappointing. Although the Government said that the relief had been “ineffective” in increasing the number of first-time buyers entering the property market, it is highly probable that there would have been fewer first-time buyers if it hadn’t been in place.

The Bill, which was introduced to Parliament in December last year, will devolve more power from central government to local councils, so that communities have more control over housing and planning decisions in their areas.

Once Royal Assent is received (which should be a formality) and the relevant sections come into force, the Bill will, amongst other things:

1. Abolish the Regional Strategies;

2. Force local planning authorities (LPAs) to co-operate with each other on issues which cross council boundaries, particularly in relation to sustainable development and the use of land for strategic infrastructure.

3. Make changes to the Community Infrastructure Levy, so that LPAs will have greater control over the setting of their charges;

4. Introduce Neighbourhood development orders and plans (so local communities can specify where they think development should take place and how the local area should be planned);

5. Require developers to consult local communities before submitting planning applications for certain developments;

6. Introduce new enforcement measures for LPAs, including the power to reject retrospective planning applications; extend time limits on taking enforcement action against people who conceal unauthorised development; set new financial penalties; and increase powers to deal with unauthorised advertisements;

7. Abolish the Infrastructure Planning Commission, so that its functions can be transferred to a new unit in the Planning Inspectorate and decisions can be made by democratically elected (and accountable) government minsters; and

8. Reform the delivery of social housing.

Royal Assent could be given as early this week, but, if not, certainly before the end of the year; the Bill is then expected to come into force in April 2012 (although confirmation is still awaited.)

UPDATE: The Localism Bill received Royal Assent on 15 November 2011.

Well, the county of Cornwall will shortly launch a scheme of its own.

Their scheme is similar to FirstBuy, but is tailored to Cornwall only. Rather than seeking contributions from developers through section 106 agreements, Cornwall Council will offer the developer the option to sell homes at a discount of up to 40 per cent. This discount will then be passed over to the Council as an equity loan to the purchaser. (First-time buyers would have to take out a mortgage to cover the rest of the cost.) When the home is eventually sold, the Council would be repaid this percentage of the market value by the homeowner. This money will then be used to help other purchasers in the county.

The Council has said that the new scheme will also enable small and local developers to get involved (rather than just volume housebuilders, who are predominantly used in the FirstBuy scheme.)

Any scheme to help first-time buyers and housebuilders should be supported, and Cornwall Council is showing that local authorities can get involved in helping local people.

EPCs provide information on how energy-efficient a building is and make recommendations on how to reduce that building’s energy use and carbon dioxide emissions.

Subject to Parliamentary approval, the Government intends to make the following changes:

1. The duty to commission an energy performance certificate (EPC) before marketing a property will be extended to the sale and rent of residential and non-residential buildings;

2. The current 28-day period within which an EPC should be obtained using “all reasonable efforts” will be reduced to 7 days. (However, there will be an additional 21-day period during which the EPC can be obtained if it has not been secured within the initial 7-day period);

3. The requirement to include an EPC with written particulars will apply to all residential and non-residential buildings, whether offered for sale or rent. It will not be possible to only include the asset rating;

4. The powers of Trading Standards Officers (TSOs) will be increased so that they can force estate agents and letting agents (and not just landlords or building owners) to prove that an EPC has been commissioned and to produce a copy of it for inspection. This will mean, for example, that TSOs will be authorised to require estate/letting agents to produce evidence that an EPC has been commissioned in circumstances where they are marketing a building without one;

5. An air-conditioning inspection report (if required) will have to be lodged on the central EPC register. (This will no longer be voluntary); and

6. Regulation 5 of the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 will be amended to make it clear that the provision of the EPC cannot be delayed until shortly before the parties enter into a contract for sale or rent.

These changes were supposed to have been implemented in two stages – on 1 July 2011 and 6 October 2011, so we will have to wait and see whether the Government sticks to its new April 2012 date. It certainly seems strange that the Government is pressing ahead with these changes in spite of their stated intention to reduce the burden of red tape on businesses.

The guidance applies to high street and online estate agents, property auctioneers, buyers’ agents, and solicitors and online property sites which offer services that count as estate agency work.

The new guidance focuses on two important pieces of legislation: (1) the Consumer Protection from Unfair Trading Regulations 2008, which prohibit traders/estate agents from engaging in commercial practices that are unfair to sellers, buyers, potential sellers and potential buyers of residential property, and (2) the Business Protection from Misleading Marketing Regulations 2008, which prohibit traders/estate agents from using misleading marketing when they advertise services to potential business clients or market commercial property for sale.

The draft guidance seeks to clarify how these two Regulations apply to estate agency work. It contains examples of trading practices that could breach the Regulations, and offers practical steps that businesses can take to comply with the law when they do any of the following:

1. advertise for new business, including through flyers, websites, newspaper advertisements and verbal discussions;

2. provide advice to new clients and take new instructions;

3. market properties, including when property details are put on the Internet;

4. negotiate and make sales; and

5. deal with complaints.

Currently, if you are convicted of committing a criminal offence under the CPRs or BPRs, you could face a fine not exceeding the statutory maximum , which is £5,000 (if convicted in the Magistrates Court), or an unlimited fine and/or imprisonment for up to two years (if convicted on indictment in the Crown Court.)

Also, under the Estate Agents Act 1979, if the OFT deems a business to be unfit to engage in estate agency work, it can issue a prohibition order banning the business from doing so.

The deadline for responding to the consultation is 9 December 2011. After this date, the OFT will publish its final guidance and a summary of the responses received.

Any conditions attached to a lease break clause must have been satisfied before one can successfully break a lease. As seen in various cases, such conditions will be strictly construed.

NYK Logistics (UK) Ltd v Ibrend Estates BV (2011)

The lease permitted the tenant to terminate it on giving the landlord not less than six months’ previous written notice, provided that the tenant paid all the rent up to the break date and delivered up vacant possession of the property on the break date. The break clause also provided for the landlord to waive the conditions if they had not been satisfied, though it was not obliged to do so.

The tenant served a valid break notice. The tenant wanted to do the repairs itself to control the quality and costs, and to avoid a dilapidations claim for damages in excess of its own costs in doing the repairs.

On 1 April 2009, the surveyors for the landlord and tenant attended a site meeting where it was agreed that, although the tenant had substantially completed its repairing and decorating obligations, there were some outstanding matters. The landlord’s surveyor found that the tenant had emptied the property of its fixtures, fittings, furniture and stock, save for a small quantity of items that would fit into a small van.

On 2 April 2009, the tenant’s surveyor emailed the landlord’s surveyor stating that there were a number of relatively minor defects and proposed that the tenant:

1. Pay a security guard for the property for a further week, during which time the tenant’s workmen would be able to deal with these items – the property was in an area that suffered from vandalism and theft.

2. Would not pay rent or rates, but would hand over the keys on the break date so that the landlord would have full access.

On 3 April, the tenant’s surveyor chased the landlord’s surveyor and its agent to make arrangements for the handover of the keys and with regard to its proposals, but received no response.

On 6 April, the tenant’s workmen entered the property to carry out the remaining repairs, where they remained until 9 April. The tenant had arranged security for the property until 10 April 2009.

On 7 April, the tenant emailed the landlord’s agent about the keys as it wanted to know what to do with them. The landlord’s agent subsequently spoke with one of the tenant’s representatives who informed him that there was some minor repairs and cleaning that were in the process of being completed. The landlord informed the tenant that he would send someone round to collect the keys on 8 April.

On 8 April, nobody came to collect the keys on behalf of the landlord. However, the landlord’s agent went to the property and spoke to the tenant’s security guard, but did not go in: the security guard was cautious about granting the agent access and the agent did not insist on its right of entry.

On 9 April, after having received legal advice, the landlord’s agent contacted the tenant to inform it that the conditions of the break clause had not been satisfied.

The landlord sought a declaration that the lease had continued after the break date and claimed payment of the rent due, which in fact had been paid on a without prejudice basis. The landlord argued that the tenant had failed to provide vacant possession because it had:

1. Maintained security at the property after the break date and had allegedly prevented its agent from entering the property on 8 April;

2. Retained a small quantity of its equipment in the property after the break date; and

3. Retained its workmen in the property from 6 to 9 April for its own purposes (i.e. to complete the repairs required by the schedule of dilapidations.)

The tenant counterclaimed and:

1. Denied that the lease had continued and claimed repayment of the rent.; and

2. Alternatively argued that the landlord had waived the requirement to comply with the conditions in the break clause on the grounds that the landlord’s agent’s statement on 7 April that he would send someone round to collect the keys was consistent only with the landlord acknowledging that the lease had been terminated. The landlord was only entitled to the keys on termination of the lease and, consequently, it must have accepted that vacant possession had been given.

County Court decision

The County Court judge held that the tenant had not terminated the lease and there had been no waiver. The tenant appealed.  

Court of Appeal decision

The Court of Appeal found in favour of the landlord.

To satisfy the vacant possession condition, vacant possession had to be given to the landlord by midnight on the break date. The Court stated that the concept of “vacant possession” meant that:

1. The property must be empty of people;

2. The landlord must able to assume and enjoy immediate and exclusive possession, occupation and control of the property.; and

3. The property must be empty of chattels, although this obligation would only be breached if what was left substantially prevented or interfered with the enjoyment of the right of possession of a substantial part of the property.

The tenant knew that its proposal to extend its occupation required the landlord’s agreement. The tenant should have moved everyone and everything out by the break date and then with the landlord’s permission return to the premises to complete the outstanding works.  The tenant had done nothing to demonstrate that it was giving up possession. Although it had offered to return the keys, it had not done so and as such the tenant maintained control of the premises.

The Court also held that the tenant was not entitled to award itself an extension of time for the giving of possession, even though there were concerns about vandalism, as these were rightly the landlord’s problem from the break date. In addition the court decided that the tenant wanted to complete the repairs for its own benefit to avoid a subsequent dilapidations claim rather than it being a condition of the break clause.

The Court found that the landlord had not waived the lease. The landlord’s agent only stated that he would arrange for the keys to be collected, but failed to do so following its solicitors’ advice. The Court stated that if the landlord’s agent had accepted the keys, there may have been a surrender of the lease by operation of law, but that did not happen. The landlord’s agent’s words were not sufficient to end the lease.

Comment

The landlord had no new tenant lined up for the premises and despite the fact that the landlord’s interests were not affected by the tenant’s behaviour, the Court held that the tenant remained in possession for its own purposes. The sensible action to take would have been to have left the premises, return the keys and arrange with the landlord to go back in and carry out the works.

This is a further reminder, if one was needed, that break clause conditions are strictly construed. The tenant was required to pay the rent for the remaining term, but such additional cost could have been avoided by taking early legal advice.

Through FirstBuy, the Government and housebuilders will jointly offer a 20 per cent equity loan to eligible first-time buyers to help them purchase a new-build property. The first-time buyer will then have to provide a five per cent deposit and obtain a 75 per cent mortgage on the rest of the property. The loans will need be repaid on the resale of the property.

Mr Shapps has now confirmed that over 100 housebuilders will take part in the FirstBuy scheme, by offering their new-build homes for sale to first-time buyers. A full list of these housebuilders is available here (Excel Spreadsheet.) The Government has also confirmed that the Halifax, Nationwide, Barclays, and The Melton Mowbray Building Society will be offering loans on these purchases.

This scheme is to be welcomed by both first-time buyers and housebuilders who have struggled in the recession. It will particularly benefit those buyers who can afford the monthly mortgage payments on a property, but who have been unable to purchase a house because they simply haven’t saved enough money to put down a 10-20 per cent deposit. To find out if you are eligible to take part in the scheme, please click here.

The first homes are expected to become available in September 2011.

Mr Shapps said that by Autumn 2011, every Government department with significant landbanks will publish plans to release thousands of acres of previously-developed land to housebuilders.

And to make sure that these housebuilding projections are met, the Public Expenditure Committee will carefully scrutinise each government department’s plans, to make sure every possible site is made available for housebuilding. The Government will also encourage local councils to also make their unused land available for development.

This announcement follows the launch of the Government’s ‘Build Now, Pay Later’ initiative in March this year. Under this scheme, developers will be able to build homes on Homes and Communities Agency sites without paying for the land in advance. The first six sites being developed under this new scheme are in Hemel Hempstead, Basingstoke, Tower Hamlets, Northampton, Rushcliffe and Telford. It is anticipated that these developments will create up to 3,000 new homes.

The Government’s announcement is to be welcomed by housebuilders. As the Government holds a huge amount of land, it is right that it is now freeing this land up to help alleviate the housing shortage. It is hoped that the ‘Build Now, Pay Later’ scheme will also help struggling housebuilders to get their developments up and running.

EPCS are only required for a building or part of a building which has walls, a roof and energy conditioned interior. The requirement for an EPC would therefore not apply to mobile homes or caravans. It would also not apply to individual rooms that are let out, for instance in a bed and breakfast.

1. Provide a summary of observations received from leaseholders in response to the landlord’s notice explaining why the proposed works are necessary;

2. Make all estimates for the works obtained available for inspection in accordance with the landlord’s notice; and

3. Allow the tenants 30 days to inspect the estimates and make observations on the same. Indeed the landlord had indicated that it had already awarded the building contract.

The landlord applied for dispensation from compliance. Although the LVT is permitted to dispense with the consultation requirements “if it is satisfied that it is reasonable to dispense with the requirements”, the LVT held that the landlord’s failure to consult had caused substantial prejudice to the tenants. The LVT also found that the disproportionate financial consequences for the landlord could not be taken into account and, as such, the liability of the tenants would be limited to £250 each.

The landlord appealed to the Lands Tribunal which dismissed the application. Appeal was made to the Court of Appeal.

Decision

The appeal was dismissed. The court decided:

1. The financial effect of the grant or refusal of dispensation was irrelevant to the exercise of the court’s discretion, because it would impose a burden on the LVTs if they had to undertake inquiries of the financial circumstances of landlord and tenants.

It would not make sense if the higher the service charge the more readily dispensation were given.

The focus of the legislation was on the consultation requirements and not the consequences of non-compliance.

The grant of dispensation might be appropriate where the importance of the consultation was not undermined (for example where the landlord needs to undertake emergency works; only a single specialist contractor is available; or a minor breach of procedure causes no prejudice to the tenants);

2.  A less rigorous approach might be justified for tenant owned/controlled landlords; and

3. Significant prejudice to the tenants was an important issue when exercising the discretion. The landlord’s non-compliance with the consultation requirements constituted a serious failing and caused the tenants serious prejudice. The landlords incorrect statement that it had already awarded the building contract was not just a technical, minor or excusable oversight.

Comment

The landlords should ensure that they comply with the service charge consultation requirements. The consequences of failing to comply can be costly. In this instance the tenants paid £1,250 towards the total cost to the landlord of the works amounting to £270,000. The court made it quite clear that the circumstances in which dispensation would be granted in favour of the landlord would be very limited.

The consultation paper, Relaxation of planning rules for change of use from commercial to residential, includes proposals to amend the Town and Country Planning (General Permitted Development) Order 1995, so that it will be permissible to allow a change of use from Class B (business and industrial uses) to Class C3 (dwelling houses) without having to obtain planning consent.

Under these proposals, more land would become available for housing, by permitting empty commercial buildings to be converted into new homes. This move follows the Chancellor’s announcement in his recent Budget that the Government would consult on proposals to increase the categories of changes of use that can be made without the need to apply for planning permission.

The consultation paper seeks views on a number of areas, including:

1. Whether a change from use class B1 (offices, research and development, and light industry) to C3 (dwelling house) should be allowed without express planning permission (subject to effective measures being put in place to mitigate the risk of homes being built in unsuitable locations);

2. Whether a change of use from classes B2 (general industrial use not within class B1) and B8 (storage and distribution) to C3 should be classed as permitted development (subject to effective measures being put in place to mitigate the risk of homes being built in unsuitable locations); and

3. Whether current permitted development rights that allow a change from class A1 (shops) and A2 (financial and professional services) to a mixed use (including one residential flat) should be widened to allow for more than one dwelling.

The consultation paper also asks for comment on whether the Government has identified all the possible problems/issues that could arise from widening permitted development rights, and what measures might be needed to mitigate against those problems.

The closing date for responses is 30 June 2011.

The reforms, which were unveiled in the Localism Bill (click here for more details), are designed to give local people more of a say in the way their neighbourhoods are developed. Through local parish councils or neighbourhood forums, local people will be able to decide which types of development should be given automatic planning permission through a ‘Neighbourhood Development Order’ (NDO). If approved by a local referendum, a council will have to adopt a neighbourhood plan, providing it is line with the council’s wider ambitions for growth in the area.

Local authorities will work with community groups and parish councils in the 17 pilot neighbourhood areas to prepare draft plans and NDOs. These documents will be prepared under the current legal and policy framework, ahead of the new provisions for neighbourhood planning that will be introduced by the Localism Bill when it is enacted. (It is thought that the Bill will be enacted in late 2011 and will come into force in early 2012.)

The 17 ‘front-runners’ include both rural and urban areas. They are:

1. Birmingham City Council – Balsall Heath (Birmingham);

2. Bristol City Council – Lockleaze (Bristol);

3. London Borough of Southwark – Bermondsey;

4. London Borough of Sutton – Hackbridge;

5. North Tyneside Council – North Shields Fish Quay;

6. Wirral Borough Council – Devonshire Park;

7. Allerdale Borough Council – Cockermouth;

8. Blaby District Council – Blaby;

9. Cherwell Borough Council – Banbury;

10. Exmoor National Park Authority – Lynton;

11. Gedling Borough Council – Newstead;

12. Lewes District Council – Ringmer;

13. Northumberland County – Allendale;

14. Shropshire Council – Much Wenlock;

15. Teignbridge District Council – Dawlish;

16. West Dorset District Council – Cerne Abbas; and

17. Royal Borough of Windsor and Maidenhead – Bray.

Each of the 17 pilot areas will receive £20,000 towards developing their plan from a £1m fund.

The pilot areas will not be able to put their draft plans and NDOs into effect until the relevant provisions on neighbourhood planning in the Localism Bill come into force.

Squatting is not currently a criminal offence in England and Wales, so the police will not get involved. Film maker Guy Ritchie was recently a victim when squatters took up occupation of his £6m Grade I listed property in Fitzrovia, and Saif al-Islam Gaddafi, the son of the Libyan leader, also had his Hampstead home recently occupied by squatters. Property owners have to issue court proceedings to get squatters out of their properties, which can sometimes be a lengthy and expensive process.

Mr Shapps said that he wanted to “lock the door on squatters and their so-called rights once and for all.” In the first instance, he has announced the publication of a revised guidance note for homeowners with problems with squatters. The guidance, which replaces a note published in November 2010, reassures homeowners that there are steps they can take if a squatter unlawfully occupies their home. For example, it highlights that:

1. It is an offence for a squatter to stay in a residential property if they have been asked to leave by the displaced residential occupier;

2. If a squatter causes damage when entering or whilst occupying the property, they can be reported to the police for possible criminal damage; and

3. The ‘legal warning’ squatters often post on the front door of the property, stating that it is a criminal offence to use or threaten violence to enter the property against the will of those inside, is a distortion of section 6 of the Criminal Law Act 1977. It does not apply to displaced residential occupiers trying to get back into their homes and does not prevent police from entering the property if they want to arrest somebody inside on suspicion of criminal damage.

This will provide little comfort for homeowners who are rarely able to persuade the police to deal with any criminal damage. The position will not improve until there is a more radical review.

If you have been affected by squatting and require some legal advice, please contact me at faiza.ahmad@mablaw.com.

1. Assistance for first-time buyers

The Government announced that it will provide £250m to support first-time buyers in purchasing new-build properties. The FirstBuy programme will assist over 10,000 households by providing equity loans of 20 per cent of the cost of relevant properties. These loans will be jointly funded by the Government and housebuilders. The purchaser will have to provide a 5 per cent deposit.

2. Reform of the rules governing bulk purchases of residential property

The Government will use the Finance Bill 2011 to introduce legislation that provides stamp duty land tax (SDLT) relief for residential property purchasers who acquire interests in more than one dwelling from the same seller. This means SDLT charges will be based on the average value of the multiple properties, rather than the value of each individual home. A minimum SDLT rate of 1 per cent will apply.

The Government hopes that this relief will encourage investment in residential property and promote the supply of private rented housing.

3. Withdrawal of disadvantaged area relief

The Government has announced that SDLT and stamp duty relief for land transactions in disadvantaged areas will be abolished after 2012. The final date for abolition will be decided following consultation.

4. First-time buyer SDLT relief

The Government will announce the outcome of its review of first-time buyer SDLT relief in autumn 2011. Currently, first-time buyers can claim a relief from SDLT if the amount they paid for the residential property does not exceed £250,000.

5. Extension of the Support for Mortgage Interest scheme

The Government will extend the Support for Mortgage Interest (SMI) scheme until January 2013. SMI is currently available after 13 weeks at 100 per cent of eligible mortgage interest on mortgages of up to £200,000. This benefit was due to end in January 2012.

If you have any queries about the SDLT changes, particularly those made to bulk house purchasing (which will be welcomed by the property industry), please contact my colleague Shimon Shaw, who specialises in this area, at shimon.shaw@mablaw.com.

Although most landlord and tenant disputes are settled before they reach court, these figures prove that problems can escalate. The rise in the number disputes (and legal action) can probably be blamed on the recession, with tenants desperate to reduce their property overheads and landlords keen to protect the investment value of their properties. Particular problems that can – and do – arise include the following:

1. A tenant trying to sublet office space;

2. A tenant wanting to assign a lease to another company;

3. A tenant failing to carry out repairs (during a lease or at termination of a lease);

4. A landlord breaking his obligations under a lease;

5. A landlord refusing to accept that a break clause served by a tenant has been validly given, or the break conditions complied with;

6. Disagreements over the level of service charge payable; and

7. Rent review disputes.

These are of course just some of the problems that can arise between landlords and tenants. Disputes involving commercial leases can threaten a landlord’s investment and a tenant’s livelihood, so it is essential that you take legal advice as soon as possible. 

For more information on how we can help you, please click here and here. If you have any concerns about anything I’ve set out here, or would like any legal advice, please contact me at laura.seaman@mablaw.com.

The result is that fewer empty non domestic properties will be able to claim property relief from business rates. With the current economic climate in mind many were hoping that the threshold would not be reduced. Unfortunately this is not the case.

The Green Deal, which is included in the Government’s Energy Bill, will allow homeowners and businesses to take out loans to improve the energy efficiency of their properties (e.g. through cavity wall/loft insulation, heating and lighting improvements.) The loans will be paid back over a fixed period through the savings that the property owner makes on his or her heating and fuel bills.

However, many people are unaware of this scheme, and a new CBI survey has suggested that three-quarters of the general public do not even consider the energy efficiency of a property when buying or renting a home. The CBI’s concerns and recommendations for making the Green Deal work can be read here.

There have been some other developments in February concerning the offering of greater financial incentives to make the Green Deal more appealing:

1 February: The Housing minister Grant Shapps said that the Government may extend the Green Deal scheme for energy efficiency improvements to new-build homes (rather than just existing homes.) He said that the Government would consult with the housebuilding industry on how the scheme could be adapted to help housebuilders meet the costs of building a zero-carbon home. Housebuilders have indicated that they would be keen to use Green Deal money to make zero-carbon housing developments more viable.

14 February: The Financial Times newspaper reported that that the Chancellor of the Exchequer, under pressure from the Department of Energy and Climate Change (DECC), is considering giving homeowners a rebate on stamp duty in return for them joining the scheme and making their properties more energy-efficient. This move, which could be announced in the spring Budget, has been backed by a number of companies and organisations, including Marks and Spencer and the British Retail Consortium. The CBI has also admitted that changes to stamp duty may be necessary in order to encourage take-up of the scheme.

Further details of the Green Deal scheme (including the financial benefits to property owners) are here.

The Energy Bill does not contain any provisions that force landlords of both domestic or non-domestic properties to sign up to the Green Deal and make energy efficiency improvements; however, the Bill does contain powers for the Secretary of State to create regulations at a future date should it be deemed necessary.

The Energy Bill is currently being debated in the House of Lords, with the DECC anticipating that it will be consulting on draft secondary legislation for the implementation of the Green Deal in autumn 2011.

The exemption had meant that businesses in England with an empty property with a rateable value below £18,000 did not have to pay business rates. The government intends to lower the threshold from £18,000 to £2,600. Also, the government does not intend to re-introduce a 50% relief, and small firms will not be able to claim Small Business Rate Relief on the property.

The FSB have written to local government minister, Bob Neill, to protest that the changes could potentially put some small firms out of business. If the cuts cannot be avoided, the FSB claims, it would be better to provide per cent relief or at least to allow a business to claim Small Business Rate Relief on their empty property.

The press release can be viewed here.

As a general reminder of the law, the LTCA introduced the concept of authorised guarantee agreements (AGAs) in connection with the assignment of new leases. An AGA must be entered into pursuant to a lawfully imposed condition of the landlord’s consent to the assignment. To be lawful, a condition imposed by a landlord must be either of the following:

1. The subject of an agreement under section 19(1A) of the Landlord and Tenant Act 1927 (LTA); or.

2. Reasonable under the general rules of reasonableness.

Any agreement which excludes, modifies or frustrates the operation of the LTCA is void. AGAs are an exception, provided they comply with all of the requirements of section 16 of the LTCA.

The Good Harvest Decision:

A subtenant assigned his sublease. In accordance with the terms of the sublease, as a condition of the landlord’s consent to the assignment, the subtenant and the subtenant’s guarantor entered into an AGA under which both guaranteed the assignee’s obligations under the sublease. The High Court held that:

1. Only the subtenant (not the subtenant’s guarantor) could give a guarantee for the assignee. The guarantee could only be in the form of an AGA;

2. The requirement by the landlord that the subtenant’s guarantor should guarantee the obligations of the assignee, was void under section 25 of the LTCA; and

3. The guarantee given by the subtenant’s guarantor for the assignee was similarly void.

Comment:

The decision in K/S Victoria Street confirms the decision in Good Harvest, in that any agreement which requires the tenant’s guarantor to guarantee the assignee’s obligations will be void under section 25 of the LTCA. K/S Victoria Street does not deal with the other issues that Good Harvest left unanswered, namely:

1. Whether a voluntary guarantee given by the tenant’s guarantor, guaranteeing the assignee’s obligations, would also be void; and

2. Whether a guarantee, given by the tenant’s guarantor, guaranteeing the tenant’s obligations under an AGA, also falls foul of section 25 of the LTCA.

An appeal in K/S Victoria Street is due to be heard later this year, once a number of other preliminary issues have been heard.

1. A custodial scheme under which the deposit is paid to the administrator of the scheme until the tenancy comes to an end; or

2. An insurance scheme under which the landlord holds the deposit but secures this by paying a fee and insurance premiums to the scheme administrator.

Under section 213 of the HA, the landlord must within 14 days of receipt of the deposit secure the deposit using one of the above schemes and provide the prescribed information. Section 214 of the HA provides that should the landlord fail to comply with the initial requirements and provide the prescribed information, the court must order the landlord to pay to the tenant a sum of money three times the amount of the deposit.

The Facts:

The following cases came before the Court of Appeal: Tiensia v Vision Enterprises Ltd (t/a Universal Estates) and Honeysuckle Properties v Fletcher and others (2010) EWCA Civ 1224. The facts were broadly similar in that the tenant paid a deposit and the landlord failed to protect the deposit using one of the schemes or provide the prescribed information. The terms of the deposit scheme used required the landlord to protect the deposit within 14 days of receiving it. The landlord had only protected the deposit and provided the prescribed information by the time of the initial court hearing.

The tenant argued that the court should order the sanction under Section 214 of the HA as the landlord failed to comply within 14 days of receipt of the deposit. In addition, the deposit scheme itself required the deposit to be protected within 14 days and this requirement formed part of the scheme’s “initial requirements”. The tenant argued that even if the 14-day time limit did not apply, the date for compliance should have been the date when the tenant issued a claim and not the date of the hearing.

The landlord argued that the HA was concerned with whether the landlord was still in breach at the time of the hearing and the sanction was not specifically linked to the 14-day time limit. The landlord also argued that the cut-off date was the date of the hearing, otherwise the landlord would have no incentive to comply with the purpose of the legislation. Any time limit imposed by the scheme itself was not an “initial requirement” of section 213 HA.

The Decision:

The Court of Appeal found in favour of the landlord and applied a strict interpretation of the provisions. The court decided that the “initial requirements” of section 213 did not include any time limit imposed by one of the schemes, otherwise there would be confusion if a scheme imposed a time limit which was different to the statutory time limit.

A landlord’s failure to comply with the requirements of section 213 within the time limit was not a pre-condition of an application under section 214. The focus on section 214 was on the failure of the landlord to comply with the requirements at all and not on the failure to comply with the time limit. 

The purpose of the legislation was to protect deposits paid by tenants rather than punish landlords who might be a day late in complying with the provisions. The date of the hearing was the cut-off date for compliance  

Comment:

The decision means that the court will rarely use the penalty available in practice, since most landlords will comply with the legislation rather than risk a penalty of three times the deposit. In addition, tenants will be unlikely to pursue a landlord in the knowledge that the landlord has until the hearing date by which to comply. Although the court stated that the legislation’s purpose was to protect tenant’s deposits, this decision may have a different effect since landlord’s will be less likely to comply with the 14-day limit knowing they can avoid a penalty right up to the date of the hearing.

The LRHUDA 1993 defines the common parts as including the structure and exterior of the building or part and any common facilities within it.

The Facts:

Cadogan and another v Panagopoulos and another (2010) EWCA Civ 1259 involved a  property which was subject to a headlease, and was divided into five flats held on subleases and a basement which was divided into a storage area and a caretaker’s flat.

In the subleases, three of the subtenants had a right to the services of a caretaker and two of them had a right to require a resident caretaker (living in the caretaker’s flat).

In April 2006, three of the five qualifying subtenants (the purchasers) gave notice exercising their right to acquire the freehold of the property. The owner of the property served a counter notice and, in October 2006, the purchasers applied to the Leasehold Valuation Tribunal (LVT) to determine the terms of the purchase.

In March 2007, the owner gave notice that it intended to grant a lease of the caretaker’s flat to a third party, the validity of which was challenged by the purchasers. The owner and the purchasers then agreed terms for the purchase of the property on alternative bases, according to whether the intended grant of the lease of the caretaker’s flat was, or was not, void.

In March 2008, the owner granted a long lease of the caretaker’s flat to the third party. The purchasers argued that under section 19 of the LRHUDA 1993, the lease of the flat was void.

The High Court agreed and held that the purchasers were entitled to buy the caretaker’s flat on the grounds that it was a “common part” within the meaning of the LRHUDA 1993. The owner appealed to the Court of Appeal.

The Decision:

The Court of Appeal found in favour of the purchasers on the basis of the following:

1. Was the caretaker’s flat a common part? The court decided that the word “common”  was anything shared between the property and other parts of the development or it was anything that benefited or was a concern to the other occupiers. The common benefit was primarily the caretaker’s services for which a resident caretaker would require a flat, rather than the use of the flat. This could be regarded as a “common facility” within the LRHUDA 1993. The fact that the purchasers had no right over the flat did not prevent it from being a common part.

2. Was it reasonably necessary to buy the caretaker’s flat? The court decided that it was necessary otherwise they would not be able to use it to accommodate a caretaker.

Comment:

This case shows that the courts are willing to use a common sense approach to interpreting the LRHUDA 1993, so as to give effect to the principles allowing qualifying tenants to acquire the freehold of their property and any other common parts or facilities which are used in common, such as the services of a caretaker. Although in this particular case the qualifying tenants had a right to use the common facilities (i.e. the services of a caretaker), the court did not set out whether such a legal right was necessary to include such common facilities within an enfranchisement claim.

EDMOs were introduced in 2006 by the previous Government in an attempt to reduce the number of unoccupied homes in the UK, and they allow local authorities to take over properties (and seize furniture, fixtures and fittings) that have been empty for as little as six months.

There are currently two types of EDMO – (1) an interim EDMO which gives a local authority one year to help the homeowner get the property back into use; and (2) a final EDMO (this occurs when no agreement has been reached between the local authority and homeowner; a final EDMO can last up to seven years.)

Under EDMOs, local authorities have the right to, amongst other things, seize properties after six months if:

1. They have been left vacant following the death of the occupant or owner. (Homes of the deceased can be confiscated for up to seven years, even if inheritance issues have not been finalised), or

2. The unoccupied home is on the property market, but the local authority believes the asking price is “unrealistic.”

The Government has now said that it will do the following:

1. Limit EDMOs to empty properties that have become targets for vandalism, squatters and other forms of anti-social behaviour;  

2. Only allow an EDMO to be obtained if a property has been empty for at least two years; and

3. Give property owners at least three months’ notice before issuing an EDMO.

This move, which is subject to consultation, will be welcomed by private homeowners, particularly those who regularly spend a lot of time away from their homes, as it will reduce the possibility of their properties being seized by local authorities. The news will also benefit bereaved families, who, during a traumatic time, may be unable to decide whether to occupy, sell or rent out their loved one’s home.

In order to comply with the forthcoming Directive, the Government published a consultation paper in March 2010 on improving the use of energy performance certificates (EPCs) and their data. It proposed broadening the scope of (1) EPCs to include Houses in Multiple Occupation (HMOs) and holiday lets, and (2) display energy certificates to include commercial buildings.

The Government has studied all the submitted responses, published a summary of them, and now plans to do the following:

1. Make all EPC data publicly available (e.g. the property address, EPC rating, and EPC recommendations.) This goes beyond the Government’s initial proposal in the consultation paper;

2. Require landlords to provide an EPC when granting holiday lets of more than four months. Presently, an EPC is not required for the short-term letting of holiday accommodation;

3. Require property advertisements to contain the EPC rating from July 2013;

4. Encourage the owners of commercial buildings to voluntarily obtain display energy certificates;

5. Require air conditioning reports to be lodged on the non-domestic EPC register in England and Wales; and

6. Consider whether to clarify when an EPC is required.

The consultation paper had proposed forcing landlords to provide an EPC for the entire building when only one room in an HMO is rented out, but the Government has decided against this.

These proposed reforms will have big implications for building owners and managers, as they impose on them further obligations. Also, by making EPC data publicly available, the Government has made it much easier to check whether building owners are implementing energy efficiency measures. This will enable the Government to identify any improvements that need to be made so that the UK meets its emissions reduction targets.

This case revolves around a landlord’s liability for council tax where the property is a House in Multiple Occupation (HMO), and demonstrates that councils are now more than ever keen to recover unpaid council tax.

The Local Government Finance Act 1992 provides that council tax is payable by either the resident or the owner of a property. The associated 1992 Regulations provide that an owner is liable where the property is an HMO. The Regulations provide that a property is an HMO where either of the following apply:

1. It is a dwelling which was originally constructed or subsequently adapted for occupation by persons who do not constitute a single household;

2. It is a dwelling which is inhabited by a person who, or by two or more persons each of whom either:

(a) is a tenant of, or has a licence to occupy, part only of the dwelling; or

(b) has a licence to occupy, but is not liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of the dwelling as a whole.

In this case, the landlord owned a detached bungalow with a conservatory attached to the rear, which the landlord had let on a series of six annual furnished shorthold tenancies for the period 21 October 1999 until 31 December 2007 as follows:

 ●        The landlord granted the first three tenancies to four tenants, A, B, C and D.

 ●        These tenants surrendered the last tenancy on 1 January 2002 at which point the landlord granted the subsequent assured shorthold tenancies to only A, B and C. The last of these three tenancies expired on 31 December 2007. However, the landlord allowed the three tenants to hold over until 1 February 2008.

 ●        Although D was no longer a tenant, he remained in the property following 1 January 2002 until October 2005. Although unclear from the facts, he was either a sub-tenant or licensee of the three tenants. His interest extended to the whole of the property and any payment he made was treated as a contribution towards the rent paid by the three tenants.

●        Each tenancy demised the whole of the property to the tenants, including the conservatory. However, with the tenant’s ageement the landlord stored the furniture that came with the property in the conservatory.

●        Each tenant paid their “share” of the rent direct to the landlord. However, the formal tenancy agreements provided for a single rent per month for the property of £1,200 for which each joint tenant was jointly and severally liable.

The local authority had treated the property as being let to the tenants under a single tenancy that covered the entire property, so that the tenants were liable for council tax and had billed the tenants for council tax. However, there was some council tax outstanding on the tenant’s vacating the property, and the local authority decided to pursue the landlord for it on the basis that the property had been a HMO since 1 April 2002, claiming that:

●        The three tenants had occupied part only of the property because the conservatory had not been used.

●        D occupied part of the property and had not been liable (whether alone or jointly with other persons) to pay rent or a licence fee in respect of the whole property.

The landlord appealed to the Valuation Tribunal, which also held that the property was an HMO thereby making the landlord liable for the council tax because:

●        The individual rent that each tenant had paid to the landlord had given rise to “multiple occupation”.

●        The tenants had not occupied the whole of the property because the furniture that had been stored in the conservatory had prevented them from so doing.

Decision:

The High Court decided that the property was not an HMO and the landlord was not liable to pay the council tax.

The High Court held that the Valuation Tribunal had misunderstood the law. The local authority had failed to satisfy the definition of an HMO as required by the 1992 Regulations:

●        The local authority had failed to satisfy test 2(a) in that the property, including the conservatory, had been occupied by the three tenants who, by the unvaried terms of their tenancy, had been entitled to occupy the whole of the property including the conservatory:

- The tenants had remained tenants of the conservatory, even if factually they had been unable to use or gain access to it.

- The only items of furniture stored in the conservatory were items for which the tenants had paid rent. The tenants were entitled at any stage to enter the conservatory should they wish and could have removed the furniture from the conservatory so long as they had stored or used the furniture elsewhere.

●        The local authority had failed to satisfy test 2(b) in that the three tenants had been liable to pay rent in respect of the property as a whole, notwithstanding that each had paid a separate cheque to the landlord for part of the rent. This was simply a convenient arrangement and did not diminish or affect their overall liability for the rent in respect of the property as a whole.

Comment:

The test for establishing whether a property is an HMO for council tax purposes is different to the one used for the licensing of HMOs under the Housing Act 2004.  Landlords wishing to ensure that they are not exposed to council tax liability should put all tenants on a single agreement and not reserve any part of the property for themselves.

The growth in the letting of property and the effects of the recession have resulted in an increase in the number of evictions of unauthorised tenants. As a consequence, the previous Labour Government introduced the MRPTA 2010, which came fully into force on 1 October 2010, in order to protect residential tenants by ensuring that they are entitled to a reasonable period of notice to leave a property if their landlord is repossessed

In short, the MRPTA 2010:

1. Gives courts the power to postpone a possession order for up to two months (thus allowing tenants the opportunity to find alternative accommodation); and

2. Requires lenders to give notice of the proposed execution of the possession order.

Further comment on the Act is available here.

The Guidance aims to inform lenders, landlords and tenants of their rights and responsibilities under the MRPTA 2010.

Although the working party that set up the consultation concluded that, on the basis of the responses received, there was insufficient consensus on how to address CRC issues in leases, it did say that it would produce a revised version of the Carbon Reduction Commitment: A Guide for Landlords and Tenants, which it originally published in June 2009.

On 3 September 2010, the updated version of the Guide was published by the British Property Federation. It discusses the following:

1. How the costs of the CRC can be apportioned between landlords and tenants. This is because the CRC Energy Efficiency Scheme Order 2010, which came into force in April 2010, does not oblige landlords to pass CRC costs on to their tenants, or to share with their tenants the benefit of any Revenue Recycling Payments that they receive;

2. Issues that are likely to arise when the ownership of a building changes; and

3. The advantages and disadvantages of four possible methods for incorporating CRC provisions into leases. These include adding the cost of a CRC to the normal service charge; running a separate CRC service charge; charging a levy on energy costs; and leaving the lease silent on the CRC (or specifically providing that the landlord will not require a contribution to its CRC costs from tenants.)

If you have any queries about this, or anything else CRC-related, please contact me at joe.kwok@mablaw.com.

A buyer was contracted to purchase an underlease of a flat off-plan from a developer. The contract was conditional upon the grant to the developer of a headlease by the longstop date of 1 June 2008. In the event that the headlease was not granted by the longstop date, either party could rescind the contract. The conditional clause did not make provision for the developer to advise the buyer if the condition had been fulfilled. As a result of the credit crunch, the value of the property dropped and the buyer could no longer obtain a mortgage for the amount required to complete the purchase. The buyer advised the developer of their situation but had not realised that the headlease had not been granted and so could have exercised their right to rescind the agreement. The seller agreed to reduce the purchase price. The headlease was eventually granted on 4 September 2008. The buyer purported to rescind the agreement on 29 September 2008 because the headlease had not been granted by the longstop date.

Decision

The Court of Appeal held that the agreement was conditional on the grant of the headlease, although time was not of the essence, and as such the agreement could become unconditional if the headlease were granted after the longstop date. The right of rescission could only be exercised before the agreement had become unconditional and therefore the right to rescind existed only until the headlease had been granted and did not continue beyond that point.

The Court of Appeal stated that the buyer knew that they could rescind after the longstop date, provided no headlease had been granted, and could have taken steps to establish if the headlease had been granted by checking with the Land Registry. The Court of Appeal went on to say that if the right to rescind continued after the grant of the headlease, then the right would have to exist in favour of both parties, as it could be unfavourable to either party, depending on the market conditions.    

Comment

Both developers and buyers should check that they understand the terms of any conditional clause and longstop dates in their agreements and that such clauses are drafted as tightly as required. A buyer would also wish to ensure that any similar clause includes an obligation on the developer to advise the seller whether the condition has been satisfied or not.

Facts

Three properties were originally constructed as large houses on two separate leases. Both leases described the properties as “a messuage or dwelling house”. One lease required use only as 16 residential flatlets with a residential caretaker, while the other restricted the use to that of a single family residence or high class furnished property for up to twenty occupiers. At the time of the enfranchisement claim, the properties were being used for short term tourist and business visitors’ accommodation. The tenant had sublet to an associated company which ran the short term lettings business from the properties. It was unclear when the conversion works were carried out.

The landlord challenged the tenant’s enfranchisement claim on the basis of the following grounds:

1. Each property was not a house within the LRA; and

2. The underleases were part of a sham arrangement

Decision

The County Court found in favour of the tenant on the basis that:

1. the properties were adapted, or designed for living in, and although they had been adapted from the original design, the adaption was “for living in”.
2. the tenant had sublet the properties to the associated company, which occupied them for its business. The protection of the Landlord and Tenant Act 1954 (“LTA) did not apply since the undertenant company was not in occupation. The Commonhold Leasehold Reform Act 2002 excludes a tenant from being able to enfranchise where the tenant had the protection of the LTA and as such the tenant was entitled to enfranchise.

On the landlord’s appeal of ground one only, the Court of Appeal held: 

• That the properties were “designed for living in” as they were constructed as a house for single occupation. However Lord Neuberger confirmed that where a property had been “designed for living in” but subsequently adapted for another use (unless it was readapted for living in), it would not be a house for the purposes of the LRA. This addressed the gap left by the previous case of Boss Holdings Limited v Grosvernor West End Properties and others (2008) which had found that “designed” meant the original purpose for which the property was designed, not its use at the time of the enfranchisement claim. The literal interpretation of the LRA indicated that “designed” and “adapted” were alternative requirements;
• Lord Neuberger considered the effect of the conversion works which provided mainly self-contained units of accommodation. Even if the current use of the properties was not for living in, that did not mean that they were not adapted for living in. To establish if the property had been adapted for living in the Court would:
  • look at the effect of the works which altered the building not the furnishings;
  • consider how the building was adapted and not why;
  • not look at the intention of the person carrying out the works, so far as the intended use was concerned, although the Court may consider the actual or intended use of the building; and
  • not look at the use of the building at the time of the claim.
• Lord Neuberger thought that the works had been carried out before the leases were granted. If the works had been carried out during the term of the leases, then the landlord would have been able to produce a permission to carry out the works. Such evidence was not available and therefore given the user covenants in the leases, even if the subjective purpose for which the works of adaption were carried out, and the use to which the building was then put, was relevant, that purpose was for “living in”. 
•  Each of the properties was a house reasonably so called. The factors that should be considered were the external and internal appearance of the house and the permitted use of the properties under the leases. The previous case of Grosvernor Estates Limited v Prospect Estates Limited (2008) placed too much significance on the user covenant in a lease. Essentially, reference had to be made to the physical appearance so that a property built as a house which was internally converted into offices would “reasonably be called” a house, even though it was not used for residential purposes, and even if it was not permitted to be used for that purpose.

Comment

This case is one of a number of cases on what constitutes a house for the purposes of leasehold enfranchisement. Lord Neuberger considered the above cases in detail and clarified a number of points, but it is clear that he considers the LRA has gone beyond what was originally intended by Parliament. Following the findings of various cases and the revisions introduced by the Commonhold Leasehold Reform Act 2002, it is now possible for commercial tenants to enfranchise where for example the properties are empty or are substantially commercial. This seems to go far beyond what was originally intended ( i.e. assisting residential tenants who occupy a property as their main residence to acquire the freehold or a lease extension.)

In the report, the OFT said that landlords, as unsecured creditors, are unfairly disadvantaged in insolvencies compared to secured creditors (such as banks) and should be given greater powers to influence the fees charged by insolvency practitioners.

The OFT has offered to assist the Department for Business, Innovation and Skills (BIS), and the Insolvency Service in taking forward its recommendations. The British Property Federation (BPF) has expressed its support for the recommendations and has urged BIS to act on them.

The consultation asked for feedback on a number of issues, including:

• Whether tenants should contribute towards CRC costs incurred by landlords in relation to the energy used within the tenant’s premises, or in the common parts;
• How CRC costs should be apportioned between different tenants;
• If CRC costs are not passed on to tenants, how landlords and tenants could be encouraged to work together to reduce carbon emissions;
• Whether tenants should provide landlords with the money to buy allowances in respect of carbon emissions, or whether landlords should buy the allowances and charge tenants retrospectively; and
• What should happen if either the landlord or the tenant changes.

If the consultation showed that a consensus could be found, the Working Party intended to create standard clauses for use in commercial leases, which would help reduce the time it takes to grant or review leases, or to agree documentation for the sale and purchase of properties that are subject to occupation leases.

A summary of the responses received during the consultation was published on 7 July 2010. However, after evaluating the responses, the Working Party concluded that there was insufficient consensus on how to address CRC issues in leases, meaning there was little point in creating standard clauses.

However, due to a number of the responses calling for additional guidance on the options open to landlords and tenants, the Working Party has decided to publish a new version of The Carbon Reduction Commitment: A Guide for Landlords and Tenants (originally published in June 2009) in the next few weeks. This updated guidance will outline the CRC issues that need to be considered when drafting leases; set out the different methods by which landlords and tenants could share the costs and rewards of the CRC; and summarise the advantages and disadvantages of each method.

The new EPBD 2010 repeals and replaces the EPBD 2002 from 1 February 2012 and must be implemented into national legislation by 2013.

The key provisions of the recast EPBD 2010 include:

1. Member states must set minimum energy performance requirements for new buildings and existing buildings that are undergoing major renovation (provided that doing so is technically, functionally and economically feasible);

2. The feasibility of using high energy efficient systems (such as renewable energy, cogeneration, and district heating) must be taken into account before the construction of a new building begins;

3. New buildings owned or occupied by the public sector need to be “nearly zero-energy” by 31 December 2018. This will be extended to the private sector by 31 December 2020;

4. Member states must draw up their own plans to increase the number of “nearly zero-energy” buildings, including policies for retrofitting existing buildings;

5. Member states must submit to the European Commission a list of financial incentives to support the implementation of the EPBD 2010; and

6. Energy performance certificates must be displayed in buildings over 500m2 (instead of 1000m2 under the EPBD 2002) that are occupied by public authorities and frequently visited by the public. This threshold will decrease to 250m2 on 9 July 2015. Energy performance certificates must also be displayed in private buildings over 500m2 that are frequently visited by the public.

Whilst the new EPBD 2010 is less onerous than the European Commission’s original proposals, it does significantly tighten energy efficiency requirements and considerably extends its scope by reducing the 1000m2 threshold to 500m2. It will also be interesting to see how the new term “nearly zero-energy” buildings is interpreted and used by the Government.

Similarities are notable between the Conservative and Liberal Democrat manifestos, which can be used to interpret what impact this Government is likely to have on Property.

The first similarity was clearly the plan to abolish Home Information Packs before a property could be sold. The Liberal Democrats did however wish to retain the Energy Performance Certificate element of the packs. As of today (21 May), this plan has been implemented following the announcement by the Government for their immediate suspension. This would seem to be a sensible move by the Government; many had predicted this move and could therefore have had the effect of sellers withholding their properties from the market, hoping to save the cost of the Home Information Pack. This move will certainly be welcomed by residential developers and sellers alike, and hopefully bring back some spontaneity to the market.

A second point on which both parties are agreed is for a more localised planning policy. The Conservatives want to see a new “open source” policy, with local people being able to specify what type of development they want. The Liberal Democrats want local authorities to determine how and what type of developments are carried out. These proposals are in line with a clear intention to scrap the previous Government’s housebuilding targets, which many commentators state to be unrealistic based on current levels of construction. Whether a more local planning policy will help developers in obtaining planning for developments remains to be seen. One move which developers may not be so keen on is a Conservative proposal to force developers to pay a tariff to local authorities as compensation for the loss of amenities and costs of additional infrastructure.

The Conservatives proposal to permanently scrap Stamp Duty Land Tax for first-time buyers on properties priced under £250,000 may help the lower end of the market. Whilst this is likely to be welcome news, its effectiveness could be watered down by the scaling down of schemes such as Homebuy Direct, which has been suggested by the Liberal Democrats. This scheme has been of assistance to a number of developers and purchasers alike during challenging times.

There has also been much news on plans to increase the rate of Capital Gains Tax, currently at 18 per cent, and thought to be likely to increase to at least 40 per cent. This is not just likely to hit property investors and people investing in property to fund their retirement, but potentially also people who had lost confidence in pensions and may not have made separate provisions. However, if this has the effect of putting off potential buy-to-let investors from entering the market, then this could see an upturn in rental incomes as demand outstrips supply for rental properties.

Clearly, some uncertainty remains as we wait to see whether any such plans are watered down following consultation and the parliamentary process.  

The expected rise in CGT – a key plank of the Liberal Democrats’ election manifesto – will particularly hit buy-to-let landlords and property investors. This is because when a property is sold, the entire gain made on that property is potentially liable for CGT in that tax year. Consequently, there is likely to be a sudden rise in landlords and investors selling their properties in the coming weeks, before the impending tax rise.

At the time of writing, it is not known when the CGT rise will take effect, though it is likely to be in April 2011. There is, however, the possibility that it will be brought in immediately following next month’s emergency budget.

The full details of the change have yet to be decided; in fact all the Government has said is that it “seeks to agree a detailed agreement” on raising CGT, so that it falls in line with income tax rates. However, with the proposed change only affecting “non-business” assets, the key issue will be how the Government defines “business” in the forthcoming legislation. The National Landlords Association has called on the Government to treat buy-to-let property as a business asset, so that investors ‘escape’ the rise.

Landlords and investors who have been thinking about disposing of their property portfolios would be advised to consider whether they should act sooner rather than later, so that they benefit from the current 18 per cent CGT rate. However, it may not always be practical (or desirable) to sell a property or portfolio on the open market in such a short timeframe; aside from a lack of purchasers, property values are still depressed. With careful tax planning it may, however, be possible to dispose of the asset and trigger a taxable gain without making such a sale. If this is of interest, please contact our tax department or your usual Matthew Arnold & Baldwin contact.

In the meantime, we, and the property industry as a whole, await the Government’s emergency budget with great interest.

Landlords of residential properties where the annual rent is more than £25,000 are not currently required to register a tenant’s deposit with a tenancy deposit scheme but they will  need to protect that deposit before 1 October 2010. Failure to do so will result in a Landlord falling foul of the requirement to protect a tenant’s deposit in accordance with the provisions of the Housing Act 2004, leaving them open to a claim by a tenant for failing to register the deposit.

For tenants this change means greater protection as they will be afforded the rights granted to them under the Housing Act 1988. Landlords face potential claims against them for failing to register a tenant’s deposit. The change will of course impact Landlords with expensive properties in London where rents are higher than the rest of the country as well as Landlords of larger properties which are occupied by multiple tenants such as student houses where the rent is more likely to exceed the current threshold.

The changes will increase the number of tenancies coming within the Assured Shorthold Tenancy regime which will standardise procedures for Landlords to gain possession and allow use of the accelerated possession route (only open to Landlords of Assured Shorthold Tenancy Agreements).  Landlords who do not and who are required to register a tenant’s deposit will be unable to get possession of a property on a “no fault” basis until the deposit is registered, causing unnecessary delay.

Landlords – review rental levels register your deposits without delay.

Managing Agents – notify your Landlord clients immediately of the impact of this change and the steps they need to take.

We are already seeing cases in the County Courts regarding non-registration of deposits and no doubt Court offices across the country will see further cases next year arising out of these changes.

We’ve had a great discussion on this already click here and thanks for all contributors.

Q1. What is a first time buyer?
A. A person who has not acquired a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run) or an equivalent interest anywhere in the world.

Shimon’s comment: this is going to be hard for the stamp office to police.

The 21 year point also means that if you bought a lease which had been granted to someone else with 21 years or more on it, you won’t qualify. Alternatively, if the lease is granted to you for a term of 21 years of more then you would qualify.

I would query whether a 15 year lease which was extended so that in practice it lasted 21 years would count. Also – it seems unfair that it someone has a business property that they should be caught but seemingly this would be the case.

Q2. When is the relief available?
A. The relief is available for transactions with an effective date on or after 25th March 2010 but before 25th March 2012.

Shimon’s comment: Despite what most people are saying the effective date is not always completion. If you either pay the majority (90%+) of the price or you take possession before completion then this might also be an effective date.

Q3. How do I claim the relief? A. The relief must be claimed on a land transaction return by entering relief code 28 at box 9.

Shimon’s comment: Your solicitor should deal with this.

Q4. I want to buy a house with my partner but one of us has previously owned a residential property. Can we claim the relief? A. No. All of the buyers, when there are more than one, must be a first time buyer.

Shimon’s comment: this is particularly unfair if you have only been on the title to help out a friend or family member. Also when the house will be yours but, say, Mum and Dad help out with the mortgage (and the bank wants them on the title too).

Q5. I previously bought a house jointly with my spouse/partner. The partnership has broken up so can I be treated as a first time buyer?
A. No. Where the individual has previously acquired an interest in a residential property as a joint tenant or a tenant in common the individual is not a first time buyer.

Shimon’s comment: All property ownership will count to exclude you from the relief – even joint ownership.

Q6. Is the relief available on transfers of interests in a home between partners? A. Such a transfer normally requires a transfer from the existing owner to him/herself and the partner. Even if the partner is a First-time buyer the existing owner is not. So the relief is not available.

Shimon’s comment: Depending on the price paid for stamp duty purposes, this is not always an issue. This is a technical area and you should speak to a specialist.

Q7. Can I get relief if I have previously owned an inherited property?
A. No. In this case a person will previously have acquired a major interest in a residential property.

Shimon’s comment: for stamp duty “acquiring” a property includes when it is given to you or when you inherit it.

Q8. Can I claim the relief if I’m buying on behalf of my parents?
A. No. Relief is not available unless the first time buyer(s) are buying, for themselves, a property that they intend to use as their only or main residence.

Shimon’s comment: this is, again, going to be hard to police. It is possible than on an investigation, the stamp office would want to see hard evidence that this was being used as the main residence.

Q9. Is there an age limit on claiming the relief?
A. No. First time buyers can be of any age.

Shimon’s comment: not much to say to this…umm, minors can’t own property in their own names.

Q10. Is there a price limit on claiming the relief? A. Yes, the sum for the whole of the purchase must not exceed £250,000.

Shimon’s comment: this will include when there are multiple purchases. E.g. if you buy two houses each worth £150k from the same person you’d loose out on the relief. Another technical point this, and you should take advice. The technical note HMRC published specifically said that they wouldn’t penalise you for buying connected properties – e.g. a house with a lease over a parking space. But there will be limits to what they accept.

Q11. Can the relief be claimed on shared ownership transactions? A. The relief can be available but only if a market value election is made. The relief is not available if taxed as a lease. Normal shared ownership rules apply on staircasing.

Shimon’s comment: you will need to ensure that your agreements allow you to do this and your solicitor may need to review this. If you have any questions about this please contact Sarah Wilkins in our Milton Keynes office.

Q12. How does the relief apply to alternative finance arrangements? A. Special rules apply to put this form of finance on a level playing field. Under these schemes relief for first time buyers is available for the first purchase by the financial institution, where the person(s) entering into the arrangements meet(s) the qualifying conditions for relief.

Shimon’s comment: this refers to shariah compliance finance arrangements. Under many of these the bank would actually buy the property. Clearly the bank wouldn’t qualify for the relief, but there will be an exeption from the rule for shariah compliant finance.

Q13. Can I claim the relief retrospectively? A. No. Transactions with an effective date before 25th March 2010 do not qualify.

Shimon’s comment: and the relief will continue until midnight on 24 March 2012.

Whenever a tenant pays rent to a landlord that is non-resident, or to a letting agent who then pays the rent to a non-resident landlord, the non-resident landlords scheme comes into play.

Essentially, the tenant or letting agent needs to deduct tax before paying rent to the landlord and account to HMRC for this. The landlord will still need to complete a tax return which might result in more tax or a refund. It is possible for landlords to register to receive rent gross of tax. This applies to all landlords, including individuals, companies, partnerships or trusts.

On 10 March, HMRC have published the first of their “Information Bulletins” for non-resident landlords, designed to provide information about changes in HMRC practice and some FAQs: http://www.hmrc.gov.uk/cnr/nrl-bulletin1.pdf

If you need help in registering for the non-resident landlords scheme or in understanding how this applies to you, please feel free to contact me.