I have found myself unaccountably lethargic post-lunch, so when the Chief put us on to the new DCLoG consultation document on “unauthorised tenancies” I jumped at the opportunity to post on it. It’s a beautifully produced document with lots of pictures, about a small but immensely important issue: a borrower, in breach of the mortgage conditions, creates a tenancy of the property; during the currency of that tenancy, the lender takes possession proceedings (or just possession, eg voluntarily); the lender, on standard principles of property law, is not bound by the tenancy; but what should happen to a borrower’s “tenants” who can otherwise be evicted on short notice? Francis’ excellent post on the 50th update to the CPR pointed out the changes made in terms of notification to the occupiers. But DCLoG had already committed itself to taking action – which represents a major success for the campaign run by the CAB, Shelter, Crisis and the CIH (see their document, A Private Matter, which is liberally quoted in the CP, and for which congrats from me). The CP estimates (and there can be no precise figure) that there are around 2-3000 tenants pa in this position (para 1.17), and sets out three objectives for the proposal, that they should be practical, proportionate and fair.
The resulting options are fivefold, although really there is only one. Option 1- do nothing – is discounted for obvious reasons (ie the government has already declared its intention to change the law). The government’s preferred option is option 2 (and strongly preferred to the extent that the three others are seen as possibilities in tandem with option 2 – see para 3.6). Option 2 is this: Give the courts a power to delay possession for unauthorised tenants. That power would be for two months on a tenant’s application to, and adequate representations at, court in the possession proceedings. The policy benefits are obvious to DCLoG: “It would also encourage tenants to attend court and become a part of the process, and provide a mechanism for early direct contact between the lender and any tenant, both of which are highly desirable”. It is recognised that this may still leave problem issues – where the borrower is in breach of an SPO and the lender takes possession; voluntary repo’s; and where the tenant doesn’t open the mail.
These issues lead into the three alternative options, of which the favoured one appears to be option 4: New notice of intention to enforce possession, with a mechanism for unauthorised tenants to apply for a delay of enforcement. Basically, the lender sends a notice to the occupier when it intends to enforce its right to possession. The notice would give the tenant 14 days to apply to the lender for a two month delay in the eviction. Now, in principle, that’s not a bad idea, but it does require us to trust the lender and, when it comes to lenders and possession, “trust” is not something I necessarily have in lenders, who in this case would also be required to decide if the claim was genuine or not (with a right of appeal to the County Court).
My other concern about these proposals is that, although they are undoubtedly well-meaning, how many tenants are really going to make those representations?
DCLoG also sets out the work it is doing behind the scenes, including promoting the use of receivers (although readers may also be interested in J’s post on Horsham v Clarke and Andrew Dismore’s 10 minute rule Bill on this point), clarifying advice from the FSA and CML. All-in-all, a fair bit of back-slapping, although whether the same can be said of DCLoG’s mortgage support scheme is up for grabs (how many successful applications have there been?).
Glad to provide some inspiration to shift the post-lunch torpor. Might one suggest a few less glasses of port at lunch? ;-) Hopefully that’s the smiley you were looking for the other day.
Sadly no port at lunch, just a cheese and tomato sandwich (which may account for the need for inspiration).
For shame. I thought that if you’re not having port with lunch you’re not doing it right.
Sorry – when did you become a Bencher? :-)
In post-prandial mode (is that right?), I obviously forgot the important bit about when/how/to whom to respond:
by 14 October 2009;
to
roni.fraser@communities.gsi.gov.uk
or post to:
Roni Fraser, Repossessions Strategy Team
Department for Communities and Local Government, First Floor, Eland House
Bressenden Place, London SW1E 5DU
If you are replying by e-mail, you need to put in the subject line: ‘Protection of Tenants Consultation’.
Two months will often not be enough for people to find alternative homes, especially in London. Where tenants are in priority need and apply to the local authority I can see this becoming just another “gatekeeping” obstacle.
Rather than “promoting” to use of receivers, the court should be given the power to appoint one in default of the claimant doing so, with a presumption in favour of that course rather than a possession order.
Mortgagee claimants should also be required to make reasonable enquiries as to whether anyone is occupying the premises and certify the steps taken and any apparently negative result as a condition of obtaining a possession order. In practice, this will mean going to the place. It shouldn’t matter whether the tenant is actually contacted or not, there are always signs of occupancy or the lack of it.
Jim,
Who would pay for the additional costs involved in sending someone to the premises to certify whether or not it is occupied? Presumably the mortgage company will simply seek to add the costs of the same to the mortgage debt. If they have to make such a check before each hearing then this could very easily add up to a couple of thousand pounds (plus interest on those charges) which means less money for the (former) homeowner once the property is sold.
As for receivers – again, I can see some practical problems. Receivers have to be paid for their services. How are they to be paid? From the collected rent? But then you could find that the rent no longer covers the mortgage (i.e. CMI £100, rental income £110 pcm, payment to reciever £20 pcm) with the result that the owner will get further and more rapidly into arrears. If the receiver is paid by the mortgage company then, as above, presumably the charges will just get added to the mortgage debt.
I can’t see how a simple physical check on occupancy could cost anything like £2,000. 20 minutes time for some locally employed agent.
If collected rent minus receiver’s fees and management costs doesn’t cover the mortgage payments -tough! Depending on the type and age of the mortgage, it may well cover the interest. The alternative at present is likely to be no revenue at all and a home either empty and depreciating rapidly or sold below value (e.g. at auction). What do they want?
A reduced, but reliable, revenue stream for the lender is not really a bad deal for them. If I had supreme power, I’d give them a much worse one!
The factor which needs to be balanced against it is that the cost of evicting tenants in these cases is often going to be carried by the public purse in the form of a homelessness application (subject to much more investigation than the simple check on occupancy I’m suggesting), temporary accommodation, additional pressure on social housing stock, etc. That’s not counting the social (and sometimes monetary) cost of stress and disruption to the tenants, which may result in developmental or educational disadvanatge to children or physical or mental health problems.
Increased “churn” in the private rented sector, particularly now that it includes increasing numbers of children, has financial as well as social costs. I don’t see why those who set out to profit from it shouldn’t bear some of them. When third party tenants are involved (“authorised” or not) it isn’t good enough to view the situation exclusively within the capsule of a private arrangement between borrower and lender.
But presumably you’d want such a check carried out before each hearing, hence my suggestion of a couple of thousand pounds – a couple of adjournments, and warrant suspensions means it all adds up