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New rights for tenants and new obligations for landlords in the Scotland, England & Wales

publication date: Feb 12, 2007
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New rights for tenants and new obligations and responsibilities for landlords by Kerr Stirling, ARLA’s Honorary Solicitors in Scotland.

Last year was a bumper year for legislation in the residential letting sector. The Housing (Scotland) Act 2006 (the Act) is one of the largest and most complex pieces of legislation that the Scottish Executive has attempted. Although the Act received Royal Assent on the 6th of January 2006, full implementation will take place in stages throughout 2007 and 2008.

It is a socially ambitious piece of legislation, which touts its main aim as improving the condition and quality of private sector housing, which, when fully implemented, will have a significant impact on the management of properties in the private sector. This aim is to be achieved by the creation of new rights for tenants and new obligations and responsibilities for landlords. The Act introduces a new Repairing Standard for private rented housing, which goes far beyond that currently applicable (although there are additional requirements applicable to HMOs). It also allows for the creation of a Private Rented Housing Committee (PRHC), which will have the power to order repairs, issue determinations and carry out inspections where there are disputes between parties.

However, although the Act is now on the books, its full provisions have not yet commenced. In particular, the sections relating to the Repairing Standard have still to come into force. Indeed, the PRHC itself still requires to be set up even although several of the relevant parts of the Act have come into force to enable this to happen. Without the PRHC up and running, there is no mechanism for the enforcement of the Repairing Standard. It is anticipated that the PRHC will be set up early this year and the likelihood is that, when this occurs, the parts of the Act relating to the Repairing Standard are unlikely to follow far behind. What this will mean, on a day-to-day basis, is that, landlords, and therefore their agents, will require to ensure that repairs are carried out as soon as (reasonably) possible. If not, the tenant will be entitled to seek a determination from the PRHC who can then, where there is a failure by the landlord to deal with matters timeously, issue repairing standard enforcement orders (RSEO) to order that the repairs be carried out.

If a RSEO is not complied with, rent relief orders can be issued, which could be up to 90% of the total rent payable, and landlords may even be brought before the criminal courts and fined. If that happens, the relevant Local Authority can step in and carry out the repairs, at the Landlord’s cost. It should also be borne in mind that, properties with outstanding RSEOs will not be able to be re-let until all outstanding works are completed satisfactorily.

The following are the main provisions of the Act that will impact upon the management of properties: there is to be a Rent Deposit Scheme to hold deposits rather than them being paid direct to the landlord (not in force yet, and further consultation is required); additional rights are created for disabled persons to adapt private rented accommodation for use by them as well as rights for all tenants to install energy efficiency measures (in force from 4th December 2006); it formalises the licensing requirements for HMOs (currently in the Civic Government (Scotland) Act 1982) as well as allowing for some additional changes designed to promote consistency across Scotland. The Act also builds upon the landlord registration provisions already enacted under the Antisocial Behaviour etc (Scotland) Act 2004 by giving ministers the power to issue a Letting Code (not to be in place until late 2008, and after consultation). The terms of the code, as well as any agency relationship for the management of any property, will be taken into account by councils in assessing a landlord’s fitness to hold a licence to let properties.

Ultimately, the ability to enforcement these new obligations depends on the creation of the PRHC, which is expected some time early this year. Once this occurs and the full legislative provisions are in force, these new standards will become a day to day reality for landlords and their agents.

ENGLAND & WALES

Duty of Landlords to Mitigate Loss by David Smith - PainSmith Solicitors

It is a widely accepted principle of contract law that a party to a contract should seek to mitigate losses brought about by another party’s failure to fulfill their contract adequately (British Westinghouse Electric Coy v Underground Electric Railways Coy [1912] AC 673). It is usually assumed that this principle applies equally to landlords faced with a tenant who wishes to surrender his tenancy during the contractual term.

However, the Court of Appeal has recently decided that this is not the case. In the case of Reichman & Anor v Beveridge & Anor [2006] EWCA Civ 1659 the Court of Appeal held that a landlord had a choice whether to accept a tenant’s surrender during the fixed term of the tenancy and then to re-let the property or whether to simply refuse the surrender and sue the tenant for each installment of rent as it became due.

In Reichman the Defendants were a firm of solicitors and held a 5 year tenancy of a suite of offices in Hampshire beginning in 2000. In early 2003 they had ceased trading and therefore no longer needed the office space. They vacated the premises and ceased to pay the rent. The landlords claimed for the outstanding rent payments and the Defendants contested this on the basis that the landlords had failed to instruct agents to remarket the premises and had further failed to accept an offer from one of the Defendants to surrender the lease with a payment to the landlords. The preliminary issue of whether a landlord had a general duty to mitigate losses when seeking to recover arrears of rent was submitted to a District Judge. The Judge held that no such duty existed and it was an appeal of this issue that was brought before the Court of Appeal.

The Court of Appeal considered the question of damages and concerned itself as to whether it would be wholly unreasonable for the landlord to continue the tenancy and whether they should not in fact accept the surrender, mitigate their losses, and then sue the tenant for damages. Ultimately, the Court found that this was not an appropriate form of action as there is case law to suggest that a landlord cannot recover damages in respect of future rent. The upshot of this is that landlords and agents should think twice before accepting a surrender during the fixed term of the tenancy. The landlord is fully entitled to sit back and demand the rent from the tenant until such time as the tenant is able to find a suitable assignee for the tenancy. Of course this may not always be the most practical course of action and many landlords may wish to accept a surrender on terms and then re-let themselves. However, in some cases, particularly at quieter times of the year it may be more appropriate for the landlord to continue to demand the rent be paid until such time as it suits him to remarket the property.

It is important to understand that this ability to avoid mitigation applies only to fixed term tenancies where no break clause is available to the tenant and only to rental arrears. As this case relates to a commercial tenancy it is also not clear that the principle will apply to a residential tenancy although it would be a reasonable assumption that it should.

The full judgement can be found at http://www.bailii.org/ew/cases/EWCA/Civ/2006/1659.html or a (rather misleading) summary is available at http://www.timesonline.co.uk/article/0,,30589-2530902,00.html.

Dr David Smith is a trainee solicitor with PainSmith Solicitors.
He can be contacted on 01420 565310 or by email at david@painsmith.co.uk.

SOLICITOR SERVES INJUNCTION BY TEXT

A Liverpool property manager has possibly become the first person in the UK to have his assets frozen by text message, after disappearing owing hundreds of thousands of pounds to landlords.

His Honour Judge Hodge QC, sitting as a High Court judge and having granted a freezing injunction against Kevin Rose, took the unusual step of ordering that it be served by text message following submissions from the claimants’ solicitor Kevin Lee, a property litigation partner in the Liverpool office of DLA Piper. The judge conceded that he had never previously come across a case of an injunction being served by text message.

Mr Lee was acting for London-based investors, who owned 40 properties in the Merseyside area let to students through Mr Rose.

The injunction, granted on 12 October 2006, was served immediately and spread over five consecutive messages. It began with the warning: “Penal notice: if you, Kevin Rose, disobey this order you may be held to be in contempt of court and may be imprisoned, fined or have your assets seized.”

Any doubt as to whether an injunction had been successfully served by text message was removed by the action of Mr Rose in responding to the message by letter.

Solicitor Kevin Lee comments, “Steps had to be taken very quickly to preserve whatever assets were left. There was little point in our clients in spending good money on getting an injunction if it couldn’t be served,” he adds. “Common sense told us that it ought to be possible to serve an injunction by text message and His Honour Judge Hodge agreed.” Kevin Rose has now been made bankrupt and his affairs are being investigated by the official receiver.