01/03/2020

Leasehold ASTs redux

Following on from yesterday’s post by J on the CMA report (with its approach to the ‘AST Trap’) and from someone helpfully pointing out something that should have been completely obvious to me in the first place, I’ve re-written my old post on the leasehold assured shorthold tenancy issue. The key change is on the impact of s.7(6)(b) Housing Act 1988, which requires the tenancy agreement (here the lease) to specify the grounds of possession which may be relied upon to terminate a fixed term assured tenancy.

The upshot is as follows:

The key question is whether the lease specifies the schedule 2 grounds. For most ‘accidental’ ASTs, where a provision for increasing the ground rent has taken it above the AST threshold, this seems highly unlikely to be present. It is also not at all clear whether this was understood by those drafting leases for new sales where the ground rent is or would become over the AST threshold either, so new leases may or may not contain the reference to the schedule 2 grounds. But caution is needed – Artesian Residential Investments Ltd v Beck [1999] EWCA Civ 1033 held that a clause permitting forfeiture by re-entry on rent arrears of 14 days was sufficient for ground 8 to be relied upon, and such a clause is very common indeed.

If the lease does not specify that it may be ended on one or more of the Schedule 2 grounds (with regard to Artesian), the landlord is largely, to coin a phrase, stuffed. Forfeiture is not available, but nor are the Schedule 2 grounds. For arrears of ground rent and service charge, the only option is a money claim (which may eventually result in a charging order and order for sale). For other breaches of lease, a damages claim in breach of contract, and/or injunction may be an option but only where the landlord has been caused some form of loss, with no subsequent threat of forfeiture being possible. The leaseholder’s tenure is about as secure as one could possibly get – more secure than a usual long lease.

If the lease does specify the schedule 2 grounds (or a clause sufficient to engage the ground, as per Artesian), however, the leaseholder’s tenure is far less secure than a usual long lease and, with the mandatory grounds, there is no possibility of relief from forfeiture. On the discretionary grounds, technically there is no relief from forfeiture, but the court has a discretion on whether to make an order and the terms of such an order.

But – and it is a huge but – all of this only applies where the situation satisfies the requirements of an AST. That is not just the rent level, but that the tenant occupies the property as their only or principal home. This status can come and go. A leaseholder who sub-lets for a while will lose AST status for that time, but the lease will again become an AST if they move back in. For the time the lease is not an AST, all the usual rules and risks of forfeiture apply.

This is a mess.

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

6 Comments

  1. Michael Hall

    Giles

    I am reposting this on your article today as people may not click through to the comments made two years ago on your original article.

    Thank you for your new article on this and I see that the points that occurred to me in response today are largely already included in my comments dated 30/09/2018. I would just add that it is not necessary to obtain a declaration of incompatibility if the provisions can be “read down” in accordance with section 3 of the Human Rights Act 1998, and I submit that they can and must be “read down”. This is because the court itself is bound by the 1998 Act and cannot take away people’s property rights in breach of Article 1 of the 1st Protocol. I agree with the submissions made by Jan Luba in the Court of Appeal in Artesan Residential Apartments Ltd v Beck [1999] EWCA Civ 1033 and I believe the reason why the Court of Appeal did not accept his submissions on the correct interpretation of the Housing Act 1988 was that it was not required to interpret the Act in a manner compatible with convention rights (as the HRA was not in operation at the time). In that limbo period some judges applied the Act even though it was not in force, so it is surprising this was not done in this case. Section 45(4) of the 1988 Act has been referred to above and while I respect the views of Shelter, and section 45(4) is expressed to be “for the avoidance of doubt”, it is in fact to me, as clear as mud.

    What it may mean is that, as Jan Luba suggested, if I have understood correctly, there are two hurdles for a landlord to overcome in seeking an order for possession, the tenancy must be determined as provided for in the 1988 Act, and there must be a provision for forfeiture and the tenancy must be forfeit as a matter of common law (and having regard to the principles of equity). Section 45 means that a claim for forfeiture is not enough, it is also necessary for the landlord to determine the tenancy by serving a section 8 notice, and obtain a possession order. Section 138 of the County Courts Act 1984 has not been modified to exclude cases where the court must make a possession order under the 1988 Act, so it still applies in all cases. It enables the tenant to obtain automatic relief from forfeiture on the grounds of non-payment of rent, by paying the rent and costs into court not less than 5 days before the return day. The action for forfeiture shall then cease, and that provision is mandatory also, so there is conflict between the two statutes. Section 45 says that any reference to determination of the tenancy does not include a reference to forfeiture, which can be explained by saying that where the landlord must forfeit the lease at common law as well as determining the statutory tenancy. In other words the 1988 Act does not affect the law on forfeiture. If the landlord has re-entered without a court order and six months have passed, the tenant must apply to the High Court for relief, as the county court has no jurisdiction to grant relief after six months have passed. Presumably the costs that have to be paid into court are the court fee and fixed costs claimed in the claim form. The landlord cannot expect the tenant to pay into court an unascertained amount of additional costs.

    I appreciate that the decision in Beck has been quoted in the Court of Appeal subsequently but it has not been considered again in a case on the same issue.

    As you have said, it is very unlikely that a long lease for which a large capital sum has been paid, would contain a provision referring to the right of a landlord to determine the tenancy under the Housing Act 1988, so this is quite academic in any event.

    Nevertheless I agree entirely that the law needs to be clarified as there are incompatibilities between statutes and not only with the HRA. Under section 138 the action shall cease, so the court has no power to make any order, in that situation. I do not think the courts would lightly decide to ignore the reference to the Human Rights Act defences contained in section 7(3) of the Housing Act 1988 Act, which was added later by the HRA, and not contained in the 1988 Act when the Court of Appeal made its decision in Beck. Also the courts would not readily infer that Parliament intended to abolish equitable principles which have been our bulwark against the rigour of the common law for centuries. Section 7(3) was surely designed to ensure that the Act is interpreted in a way compatible with the HRA and the courts would not readily conclude that it is ineffective in doing that.

    Reply
    • Giles Peaker

      Michael, it didn’t need posting twice, so I’ve deleted the version on the previous post.

      What you are saying was effectively part of the argument run in Richardson v Midland Heart in 2007. It lost.

      So, anyone even entertaining this argument has to be prepared to go to the Court of Appeal at least.

      And no, it can’t be ‘read down’. It is a piece of primary legislation that in express terms excludes any other form of possession claim other than those provided for in the statute. If there is no forfeiture, there is no relief from forfeiture. Section 7(6) and section 45(4) are perfectly clear.

      Reply
  2. Michael Hall

    Thank you for letting me know. I have now found your posting on the Richardson v Midland Heart case
    https://nearlylegal.co.uk/2008/09/shared-ownership-midland-heart-with-benefit-of-transcript/
    You mentioned that an appeal was pending but this was updated
    https://nearlylegal.co.uk/2010/03/richardson-v-midland-heart-appeal-is-no-more/
    when the appeal was discontinued. What a shame.
    I have checked on BAILII and this case is not reported there unfortunately. It is a terrible indictment of our courts and Parliament (I do not entirely blame the judges, the advocates are also partly responsible) that they are not applying the Human Rights Act effectively. The people who threatened Ms Richardson, forcing her out of her home, should have been prosecuted and she can claim the money she lost from them. It would help if County Courts had the power to make declarations of incompatibility. As many High Court cases are now decided by deputies who may not even be full time judges at all, it seems wrong that Circuit Judges sitting in County Courts cannot make such declarations. Arguably District Judges should also be able to make such a declaration in consultation with a Circuit Judge.

    Reply
    • Giles Peaker

      Note that I’ve updated the post to take into account Artesian v Beck – a forfeiture clause for rent arrears is sufficient for ground 8 Schedule 2 Housing Act 1988 to be exercised. So it is actually highly likely that an ‘AST’ lease will be at risk of ground 8, as virtually every lease will include a ‘forfeiture for rent arrears’ clause.

      A1P1 is not an absolute right. And would not apply as against a private landlord. A1P1 arguments against forfeiture have been run in the past and failed.

      Reply
  3. Wendy Hewstone

    Giles, in conveyancing our Lenders are insisting on either a variation to a lease or insurance when a long lease has ground rent of more than £250 (we are not in London). Can pressure at least be put on to increase the rent that is relevant, it surely was never meant to apply to long leases.

    Reply
    • Giles Peaker

      Developers have rather shot themselves in the foot (though the leaseholders suffer). The govt proposal is to ban ground rents in new leases (though no sign of legislation yet). There will be a housing bill in the future as well, which might change the relevant rent levels for ASTs.

      Reply

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