Improvements, rent and former long leaseholders – a nasty loophole

The recent case of Hughes v Borodex Ltd [2009] EWHC 565 (Admin) illustrates a pitfall that may face the very small number of former long leaseholders who have become assured tenancies as a result of the Local Government and Housing Act 1989 (“the 1989 Act”).

Mrs Hughes had been the tenant under a lease that was originally granted for a term of 39.25 years (less 3 days) on 25 March 1964. The tenancy was kept alive by the 1989 Act (which requires the landlord to serve a notice to bring most long residential leases to an end after the term has expired).

In due course the respondent landlord did serve a notice proposing that a new assured tenancy start on 28 February 2004. The rent was not agreed and a reference to the Rent Assessment Committee (“RAC”) was made under provisions of Schedule 10 of the 1989 Act. A rent was set at £1,668 per month.

The process by which an RAC assesses a new rent under Schedule 10 is very similar to that followed under s.14 of the Housing Act 1988 (“the 1988 Act”) with which some readers will be familiar. S.14(2) requires the RAC to disregard “relevant improvements” which are (subject to some conditions) improvements made by the tenant either under the tenancy in question or under some previous assured tenancy up to a maximum of 21 years before. The landlord should not get more rent because the tenant did the house up.

Schedule 10 imports most of s.14 but changes the definition of “relevant improvement” to mean any improvement carried out during the long residential tenancy. Just as one might expect.

The flaw in this neat scheme is that, under the new assured tenancy, the landlord may, in the course of time serve a s.13 notice to increase the rent. Any challenge to that rent will result in a determination under s.14 under which the RAC will not be able to take into account the improvements made by the tenant during the long lease.

This happened to the Claimant and a new rent of £2,340 per month was assessed by an RAC on 7 May 2008 now disregarding the Claimant’s improvements during the long tenancy. The new rent is of course sufficient to push the annual rent over £25,000 per year taking the Claimant’s tenancy outside the security of tenure in the 1988 Act.

Her statutory appeal against the RAC’s decision failed because the High Court found, as I have indicated, that there is no statutory provision to permit the RAC to consider her improvements. Various inventive arguments were offered in support of her appeal but as far as I can see it was doomed to fail.

This is a classic example of the kinds of personal tragedy and injustice that result when governments try to draft legislation in the messy and complex way that has been their usual practice in housing law for at least as long as I have been alive. The Claimant will suffer the consequences.

Posted in assured-tenancy, Housing law - All, Leasehold and shared ownership and tagged , , , .

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