Our very grateful thanks to our Wales contributor, Mike Norman of Harrow Law Centre, for the following excellent post on Coastal Housing Group Ltd v Mitchell & Anor (2024) EWHC 2831 (Ch) – a very significant decision indeed for landlords in Wales.

(This is also a point to note that Professor Dave Cowan of Cardiff University (and old friend of the blog) has started a site dedicated to housing law and policy updates in Wales, which is an immediate must read for anyone with any doings with Wales, and indeed the rest of us.)

There can be little doubt that the High Court decision in Coastal Housing Group v Mitchell and Ors will have wide repercussions in Wales.

This was a combination of three cases, involving four Registered Social Landlords (RSLs) against longstanding occupiers, who had agreed to be part of this test case. A further two RSLs and the Welsh Ministers intervened in what is the first significant consideration of the new landlord and contract-holder regime

Background

As reported in the blog here, December 2022 brought a ‘big bang’ of new housing rights, due to the Renting Homes (Wales) Act 2016 finally being implemented.

As noted then, one such change was that this was the first time in Wales that a property is required to be ‘fit for human habitation’ (having lagged behind England’s Fitness for Human Habitation legislation).

The potential sanctions if the standard isn’t met are significant. Put briefly, if the relevant provision is incorporated into the contract, then a contract-holder (occupier) is “not required to pay rent in respect of any day where the property is not fit for human habitation”.

 Yes, you read that right; in practice,100% diminution.

The Welsh fitness for human habitation regulations put more meat on the bone, identifying when a property is unfit. Schedule 1 identifies ‘matters and circumstances’ which a Court can consider as making a property unfit, but some regulations go further and mandate that specific breaches will automatically render a property unfit.

This includes requiring (i) a valid electrical condition report (ECR) for the property and (ii) that the report is provided to the occupier within 14 days of the occupation date.

For ‘converted contracts’ (i.e. the occupier had been in since before implementation of the Act on 1 December 2022, so the contract “converted” at that point), some requirements did not apply for 12 months, (e.g. ECR provision, as outlined here and smoke alarms were covered by  this “grace period”; carbon monoxide alarms were not).

In the instant cases, the Claimant landlords had obtained the Electrical Condition Report. All occupation contracts were “converted contracts”, so benefitted from the grace period. Nevertheless, the Claimants failed to provide the report to the contract-holder by the extended 14^th December 2023 deadline. This meant they found themselves in a big and potentially expensive pickle.

This led to the current High Court proceedings, where the Court was asked to address the question of what, if anything, the apparent breaches meant for the question of fitness and, specifically, the issue of the rent provision (it’s worth mentioning here that none of the occupiers involved in the case had in fact withheld any rent, and although there were originally counterclaims brought for its return, the parties asked the Court not to determine those claims at this stage).

The Claimants argued that their contracts did not include an agreement that rent would not be required when the premises were unfit, simply by being deemed so by the regulation (rather than being objectively unfit for human habitation).  On their case, simply failing to provide the report should not carry the same.

The Court disagreed.

Issues before the Court

The Court had 5 issues before it (see paras 40-47),

1A. Whether obtaining of the Electrical Condition Reports was enough to avoid the rent penalty, rather than a landlord having to provider the report to the occupier as well

1B. If not, whether the rent not being ‘required’ was akin to rent not being ‘lawfully due’ such that the occupier could ask for the paid rent back, or whether an occupier’s factual payment of the rent meant that they’d forfeited the ‘not required’ element

2. Whether late landlord compliance with the provisions could mean they were retrospectively satisfied and a penalty could be avoided
3. Whether electrical condition reports have to cover appliances in common areas as well as defendant’s own living accommodation
4. In respect of the Electrical Condition regulation, how the ‘occupation date’ (i.e. when the obligations start) is defined: how far back landlords have to go in respect of providing a copy of the ECR, and when obligations to provide written confirmation of any investigatory/remedial works to an Electrical Service installation in the property arise
5. If the Claimants were not successful on issues 1 and 2, whether the legislation is incompatible with article 1, protocol 1 of the ECHR i.e. it unjustifiably interferes with the Claimant’s ‘property’ (in this context, rent being the property in question).

The Court’s decision

Despite the facts being probably about as favourable as they could possibly be in respect of the Claimant’s testing the law (particularly the selection of occupiers who were not in arrears), it was the Defendants who won on each decided point (issues 3 and 5 were not decided)

There can be no doubt that the Court will have been very aware of the wider consequences of this claim. Whilst the proceedings were brought by RSL Claimants proactively engaging with legal process, the issues could cover far less amicable situations and with potentially far less scrupulous protagonists (or antagonists, as the case may be).

Was obtaining the ECR enough? (Issue 1A)

 The Court rejected the alleged sharp distinction between ‘actual’ and ‘deemed’ unfitness. Contract-holders are entitled not only to live with electrical installations which are safe, but to know they are safe, as the people with the strongest possible interest in this information. If the ‘deeming provision’ of the fitness regs were not linked to the ‘rent not required’ regs, the protection would be weakened for no good reason. Likewise, the Court was not persuaded of a difference in outcome between a statutory versus a contractual construction, because the contracts and legislation are so closely bound up.

“Rent not required” (Issue 1B)

On the sole issue on which the Welsh Ministers supported the Claimants rather than the Defendants, the Court nevertheless found for the Defendants. ‘Not required’ is a more modern form of the expression ‘not lawfully due’ and rent having in fact been paid doesn’t change that.

In respect of any distinction between a ‘fully informed’ payment, i.e. one paid rent knowing the property was unfit, as compared with one making payment without knowing this (presumably, ‘not fully informed’) these would be relevant matters for the counterclaims, which the parties had asked to stay. Unsurprisingly therefore, the Court decided to express no view on this… yet.

Retrospective compliance (Issue 2)

The Court considered that the words ‘from the time’ in the relevant regulation meant that compliance was achieved at the point the reports were given to the occupier and not before. There is nothing in the wording of the regulations to suggest compliance can be retrospective

Analogies were drawn with the Trecarrell litigation in respect of gas safety in England, and with s48 Landlord and Tenant Act 1987 – which doesn’t seem to have been repealed in Wales, even though there is replacement legislation being section 39 of the Renting Homes (Wales) Act 2016.

The Landlord and Tenant Act 1987 analogy did not avail the Claimant, as there is no equivalent wording in the Welsh legislation to the late-compliance provision that ‘any rent otherwise due from the tenant to the landlord shall … be treated as not being due at any time before the landlord does comply….’ “

On the Trecarrell analogy, the Court noted that those gas safety provisions also had a criminal sanction for landlords in breach, accordingly there was another penalty existed for non compliance. Failure to provide ECR in Wales however has no criminal sanction. To that end, to revive with retrospective effect the requirement to pay rent, would render the regulation toothless.

When each obligation arises (Issue 4)

The Claimants argued for an interpretation of the regulations which meant that the 12 month moratorium for converted contracts covered not only the ECR, but also reporting on any investigatory or remedial work (whether arising from the ECR or elsewhere e.g. occupier reporting a fault).

The Court was not persuaded. The moratorium did not apply in respect of reporting investigative or remedial work. The requirement therefore is that any such work after 1^st December 2022 has to be done within 14 days from when the landlord got the confirmation of the outcome of any works, even if the contract was ‘converted.’

The Court saw no reason to treat converted contract-holders less favourably compared to ‘new’ contract-holders on the specific point of investigative or remedial works.

The things left unsaid

Perhaps equally as interesting for the future as the issues decided, is the biggest issue it did not, being the Claimants’ argument that if they lost on issues 1 and 2 (which they did), that the legislation breached Article 1 of Protocol 1 to the European Convention on Human Rights, being the right to peaceful enjoyment of possession (rent being the possession). The Claimant proposed several alternatives for a declaration to that effect and even an alternate reading of regulation 11 (the ‘rent not required’ provision) itself.

This was not part of the original Claimant’s case, but an issued raised by two RSL intervenors, 16 days before the hearing and then adopted by the Claimants, causing a storm of applications, submissions and responses and, it seems, some confusion.

A one point, it seemed like the Welsh Ministers might have conceded the breach, but unsurprisingly they swiftly disassociated themselves with that alleged position. The Court noted the ministers arguments had assumed the Defendants would lose issue 1B (they didn’t). In the end, the Court declined to decide the matter. First, the Court would have wanted to hear fuller submissions on the relevant point from the Welsh ministers, as it was their legislation. In addition, for A1P1 arguments to have been engaged, the Claimants would need to have lost on the counterclaim. The counterclaims, of course weren’t decided. The Claimants and RSL Intervenors submitted it would be wrong to decide the issue after all, and the court agreed.

It’s worth remembering that Article 1 protocol 1 has been vexing the Welsh Government for some time across a range of housing issues (I seem to recall the then-generous Welsh notice periods during COVID had attracted discussion about this, and why evictions weren’t just cancelled completely).

Summary

This dispute is of potentially colossal significance across the housing sector in Wales. As referred to in the judgement, the Claimants have around 25,000 homes between them, being 15% of the Welsh RSL housing stock. They submitted that the financial impact of rent not being required and occupier counterclaims to be worth somewhere between just under £46.4 million and just under £50.9 million, excluding interest, legal costs and fees.

Add to that the equivalent cost of any other type of landlord making a similar error where the rent provision is incorporated. It is capable of applying to ‘new’ contracts’ postdating 1.12.22 at an earlier stage in the contract, as these don’t have moratorium protection. Private sector landlords may also be caught.  Small fry, this is not.

Anecdotally, I understand that a number of current or potential possession claims based on rent arrears at County Court level are stayed pending senior court consideration of these issues.  Intuitively, it seems a greater number of human habitation defences would/should be made. It might even be the case that claims for possession are not brought, or at least are more cautiously progressed, if Claimants are concerned about testing the law further on unfavourable facts.