While on leasehold issues, this has been floating around for a bit, but I don’t think it has had the attention and awareness it deserves (perhaps particularly from conveyancers). With all the fuss/scandal around leasehold houses and multiplying ground rent clauses, a more general issue with long leases and ground rent has been overlooked.
The simple issue is that any long lease commencing after Housing Act 1996 came into force is potentially an assured shorthold tenancy if:
a) the ground rent is over £250 per year (or £1000 per year in London); and
b) the property is the only or principal residence of the leaseholder.
There is nothing in Housing Act 1988 which sets a maximum term on an assured shorthold tenancy. So, if the conditions above are met, one could have a 999 year term AST.
This would also be the case where a ground rent clause in a lease triggers an increase in ground rent to over £250/£1000. The lease would become an AST, regardless of when it was entered into (as long as the property was and remains the only or principal residence of the leaseholder at the relevant time).
In some ways, this is wholly irrelevant. Section 21 would only come into play at the (distant) end of the fixed term, statutory rights to a lease extension still apply, there is unlikely to be a deposit, and so on. Though it also appears that a statutory periodic tenancy would arise on expiry of the lease term.
But there are two consequences that are important.
The Schedule 2 Housing Act 1988 grounds for possession would apply. Of particular concern is ground 8 – the mandatory rent arrears ground.
Both at the date of the service of the notice under section 8 of this Act relating to the proceedings for possession and at the date of the hearing—
(a) if rent is payable weekly or fortnightly, at least eight weeks’ rent is unpaid;
(b) if rent is payable monthly, at least two months’ rent is unpaid;
(c) if rent is payable quarterly, at least one quarter’s rent is more than three months in arrears; and
(d) if rent is payable yearly, at least three months’ rent is more than three months in arrears;
and for the purpose of this ground “rent” means rent lawfully due from the tenant.
As an example, take an annual ground rent payment of £1200, payable on 1 January. If at least £300 of that payment is not paid by 31 March, a section 8 notice can be served and then proceedings issued. If the £300 remains unpaid at date of court hearing, the court must make a possession order, ending the lease.
Under the usual long lease forfeiture provisions for rent arrears, the court had wide ranging powers to grant relief from forfeiture if arrears are paid off, even after a possession order has been made. Ground 8, however, admits no such discretion.
While a mortgage lender (if there is one) will usually step in on arrears cases to preserve its security, the relative speed and unfamiliarity of ground 8 proceedings present a risk.
The second issue is the ‘right of first refusal’ under Landlord and Tenant Act 1987. S.3(1)(d) states that an assured tenancy under Housing Act 1988 is not a qualifying tenancy for the purposes of s.1. So leases that are an AST a) do not have to be notified of intended sale of whole or part of the building, and b) do not count towards the 50% of total premises required to trigger the ‘first refusal’ obligation.
However, lease extension, enfranchisement and right to manage rights are not affected, as they use a different definition of ‘qualifying tenant’ (Leasehold Reform, Housing and Urban Development Act 1993 – s.5).
As if this wasn’t enough, and because landlord and tenant law is nothing if not clear and consistent, how can one actually tell if a lease is an AST? While the initial criteria – as set out above – are relatively straightforward, it also all depends if the leaseholder has continued to occupy the property as their only or principal home. If at any point after the lease commenced as, or became an, AST, the leaseholder let out the whole property to a sub-tenant, or otherwise ceased to occupy it as their only or principal home, then it ceases to be an assured (shorthold) tenancy.
It does not matter if the leaseholder subsequently again occupies the property as their only or principal home, as assured status cannot be ‘revived’. However, the leaseholder returning to the property as primary residence would revive ‘assured’ tenant status and so the AST.
So, the lease may or may not be an AST, there may or may not be decreased security against possession, there may or may not be an obligation to notify the leaseholder of a relevant disposal by the freeholder and there may or may not be an obligation to offer the leaseholders first refusal on a disposal. It all depends.
This would also apply to shared ownership. Meaning that someone who has sublet the whole of their property, in breach of lease, might actually be in a better position as regards possession proceedings than someone in rent arrears.
Section 7(6) Housing Act 1988 would apply where the lease is an AST, meaning that forfeiture would not be an option for the freeholder, it would have to be possession on Schedule 2 grounds.