This is a guest post by Prof. Ian Loveland of Arden Chambers, first published in Legal Action June 2016, and gratefully posted here with permission.

A few years ago now, I was instructed by Luton Law Centre in a series of possession cases brought by BPHA (a housing association) in Luton and Bedford County Courts. The claims were all for rent arrears, brought variously on Housing Act (HA) 1988 Sch 2 Grounds 8, 10 and 11. Their common feature was that, in all of them, BPHA had (apparently unwittingly) been raising the rent in breach of the terms

The agreements provided that rents could never be increased less than a year after the previous increase (1). BPHA, however, fell into the practice of raising the rents on the first Monday in April, which, in six years out of seven, would mean the increase was levied 364 days – ie less than a year – after the previous increase.

The defence that we ran in these cases was that the rent lawfully due was only the amount that was last charged in accordance with the terms of the tenancy agreement. The consequence of this defence was that a headline arrears figure of several thousand pounds was wholly erroneous and the accounts were a substantial amount in credit, the tenant having unknowingly been paying too much in. This argument would seem to be clear from the judgments of the Court of Appeal and the House of Lords in White and White v Riverside Housing Association Ltd [2005] EWCA Civ 1385; [2006] HLR 15 and [2007] UKHL 20; [2007] HLR 31.

BPHA nonetheless repeatedly dismissed our argument as nonsense in correspondence that flowed back and forth during the county court litigation, but settled every case, usually on the basis of writing off the arrears in exchange for an agreement that the current rent was indeed lawfully due.

A few months after I wrote this saga up (see July/August 2014 Legal Action 49), BPHA began a Grounds 8, 10 and 11 claim in the High Court, seeking, inter alia, a declaration that the rent rises it had levied were lawful.

BPHA’s solicitors had by now revised their view of the merits of our position. A witness statement filed with the claim: suggested that the issue was one in which there was a substantial interest for the social housing sector as a whole; noted that BPHA had brought almost 2,000 rent arrears claims against tenants with the relevant term in their agreements; recorded that ‘recently’ the unlawful increase defence had been raised in (just) seven of those cases; and informed the court that BPHA had, for the time being, ‘ceased to seek possession against the majority of tenants in its housing stock and … ceased to issue warrants for possession against tenants in default of suspended possession orders as a result of the defences raised that the claimant’s rent increase procedure has been defective’.

We met the claim with our usual defence and shortly afterwards – for reasons that were not explained – BPHA settled that case as well.

I had concluded my Legal Action article by wondering how many other housing associations had fallen into the same trap as BPHA. Shortly afterwards, I was instructed by Shelter to raise a similar argument against the Co-operative Development Society (CDS), which manages some 3,300 rented homes in southern England.

That claim, too, settled shortly after our defence was filed. And a couple of months ago, Sally Moorhead at Shelter instructed me to defend a rent arrears claim brought by Family Mosaic against a tenant who had fallen into, prima facie, very substantial arrears when doubts over her immigration status led to a temporary (but lengthy) cancellation of her housing benefit. Indeed, Family Mosaic claimed she was the best part of £8,000 in arrears.

The claim was brought under Grounds 8, 10 and 11. Para 3 of the claim had pleaded that the current weekly rent was £162.85. The crux of the defence was pleaded as detailed below.

Although we had filed and served our defence in advance of the first hearing, Family Mosaic had not instructed either a solicitor or counsel to attend. The rather hapless housing officer who did turn up seemed to ignore the defence, mumbled rather incoherently about s13, and just asked for an outright order. The district judge adjourned the matter generally for 28 days, suggesting that Family Mosaic might want to consider the legal position carefully before going any further.

Sally promptly invited Family Mosaic to settle the case on the basis of setting the rent account to a nil balance and paying our costs in return for the tenant accepting that the current rent was lawfully due.

Shortly before the hearing, Family Mosaic agreed that the claim should be dismissed and it should pay our costs. The quantum of rent lawfully due thus remains unknown.

It would seem unlikely that legal aid would be granted to enable the tenant to seek a declaration on that issue, given that her occupancy of her home was no longer under any immediate threat.

That is perhaps unfortunate, in part because it is not clear how much rent she should currently be paying, but also, more significantly, because Family Mosaic is a very big player in the social rented sector.

According to its website: ‘We have over 25,000 homes for rent and we serve more than 45,000 people: we’re one of the largest housing providers in London,Essex and the Southeast.'(2) Presumably, given the size of its stock, Family Mosaic brings a significant number of rent arrears possession claims against its tenants, many of which may rest on quite incorrect assumptions about the amount of rent lawfully due.

One can readily understand why, in such circumstances, a large landlord would wish to settle the claim or even have it dismissed.

If the point taken in the defence was held to be correct by a higher court, the systemic consequences for the landlord’s finances could be catastrophic. Far better, one might think, to avoid that risk by hushing up the occasional case that does come to court and meet the defence by discontinuing the claim or settling on mutually acceptable terms, and pressing on with rent arrears claims en masse in the expectation that very few defendants will actually identify and plead the point. BPHA presumably took the view that such actions would be ethically problematic and put a moratorium on rent arrears actions.

It will be interesting to see if, following publication of this article, Family Mosaic adopts the same position. Its latest annual report announces (on p5), inter alia, that Family Mosaic has the ‘courage to do the right thing’.(3)

One wonders what the ‘right thing’ might be on this particular issue.

(1) The provisions of the rent increase mechanism, in HA 1988 s13 – which do allow for 52-week rises – would not apply when there is such a term in the tenancy agreement as the term would amount to a ‘provision’ for s13 purposes and s13 applies only when there is no such provision in the tenancy agreement (see Contour Homes Ltd v Rowen [2007] EWCA Civ 842; [2007] 1 WLR 2982).

(2) www.familymosaic.co.uk/about-us/index.html

(3) www.familymosaic.co.uk/userfiles/Documents/Annual_reports_and_ accounts/FM_Tenant_Annual_Review_ 2015_web.pdf

The defence
3 Para 3 of the Particulars of Claim is denied. The current rent lawfully due is (at most) £113.12 pw.

Particulars

1  The tenancy agreement provides (cl.1 GENERAL TERMS) as to the rent lawfully due that: ‘no increase may take effect less than one year after the date that the last increase took effect’.

2 Cl. 1 of the GENERAL TERMS contains a provision as to the increase of rent for the purposes of the Housing Act 1988 s.13, such that the default statutory provisions as to the increase of rent provided for in s.13 are not applicable to this tenancy.

3  Since at least 2008 the Claimant has breached this term of the agreement because it has frequently purported to raise the rent at intervals of less than a year. The Defendant does not presently have copies of her rent account from the start of the tenancy and reserves the right to aver that such breaches also occurred prior to 2008.

Dates are date of increase

02.06.2008

Old rent (OR) 113.12

New rent (NR) 118.73

(Less than a year to) 01.06.2009

(OR) 118.73

(NR) 127.26

(More than a year to) 07.06.2010

(OR) 127.26

(NR) 128.11

(Less than a year to) 06.06.2011

(OR) 128.11

(NR) 136.64

(Less than a year to) 04.06.2012

(OR) 136.64

(NR) 146.98

(Less than a year to) 03.06.2013

(OR) 146.98

(NR) 153.54

(Less than a year to) 02.06.2014

(OR) 153.54

(NR) 159.34

(Less than a year to) 01.06.2015

(OR) 159.34

(NR) 162.85

4  In consequence (and reserving the right averred at para 3 (above)), since 02.06.2008 the rent lawfully due on the premises has been at most £113.12 pw.

5 The rent account therefore overstates the amount lawfully due by the following amounts.

Year                Annual overcharge          Cumulative overcharge

2008-2009 £5.61 × 52 = £291.72

2009-2010 £14.14 × 52 = £735.28            £1027

2010-2011 £14.99 × 53 = £794.47             £1821.47

2011-2012 £23.52 × 52 = £1223.04          £3044.51

2012-2013 £33.86 × 52 = £1760.72          £4805.23

2013-2014 £40.42 × 52 = £2101.84          £6907.07

2014-2015 £46.22 × 52 = £2403.44         £9310.51

2015-2016 £49.73 × 39* = £1939.47        £11249.98

• To 01.02.2016

6 Thus as of 01.02.2016, while the rent account shows a deficit of £7789.86, the account has in fact been overpaid since 2008 by £11249.98. The Defendant is thus in credit to the sum of £3460.12.