Foundations of landlord and tenant law – part 11
A hundred years ago …
It would probably surprise many people to know that a hundred years ago, most people lived in private rented accommodation.
In 1918 figures show the private rented sector to be around 76%, with home ownership at just 23% and public housing at just 1%.
The last century is the story of the rise of homeownership, which at its peak in 2003 stood at about 70%. Private rented accommodation on the other hand slid down to about 8-9% in the late 1980’s after which it started to grow again.
Why did this happen? It is a complex story and has been told in more detail elsewhere (for example recently in a report from the Smith Institute). However one reason for the changes is increased regulation.
Background to the Rent Acts
Regulation was first introduced during the first world war. At that time government was concerned to protect the housing of workers needed for the war effort.
The rent protection and security of tenure measures introduced at that time were intended to just be a temporary measure.
However after the end of the war it became politically inexpedient to repeal them, and the legislation was eventually consolidated into the Rent Act 1977.
The Rent Act is one of the two main ‘Statutory codes’ which change the underlying common law. It applies to all tenancies created before 15 January 1989 so is still important today, although the number of Rent Act tenancies is declining annually.
The Rent Act – the basics
The act applies to all tenancies created before 15/01/1989 save for those types set out in the first part to the act. This was mainly lets to limited companies, resident landlords, lets with very high or low rents, and lettings governed by different legislation (such as business tenancies). These remain as ‘common law tenancies’. Tenancies regulated by the act are known as ‘protected tenancies’.
What the act does is change the underlying common law for the tenancies it applies to, in three main ways:
- It introduces rent regulation
- It introduces long term security of tenure, and
- It introduces new rules of ‘succession’ which change what happens to the tenancy after the tenant dies.
Lets take a quick look at these:
Rent Regulation – the myth of the ‘fair rent’
Under the Act, all protected tenants have a right to apply for a ‘fair rent’ to be registered. Once this is done, this rent is the ONLY rent which can be charged. The landlord can apply to have it reviewed every two years, but not otherwise, unless there are major improvement works carried out to the property or some other substantial change to the letting.
If no fair rent is registered, then tenants must be informed of their right to do this when the rent is increased otherwise the increase will be ineffective.
As time went by, the rents assessed by the Rent Officers, which were supposed to relate to the ‘market rent’ drifted down and down. Mainly because there were very few proper ‘market rents’ to compare them to.
After the Housing Act 1988 came into force though, things changed as once again there were real market rents around for comparison. This had a big impact on fair rents which started to go up. Often the increases were substantial, which caused great distress to the tenants, usually elderly people living on a fixed income.
After a labour government was elected in 1997 it was decided to do something about this and regulations were passed (The Rent Acts (Maximum Fair Rent) Order 1999) limiting the amount by which a fair rent could be increased.
This was bitterly resented by landlords who challenged them in a court case, claiming that the regulations were ultra vires, which went all the way up to the European Court. However the legislation was upheld and still applies today.
Security of tenure
A protected tenancy is initially a contractual tenancy, agreed between the landlord and the tenant. As with common law tenancies, once the fixed term has ended, this can be ended by a Notice to Quit. However the act then comes into play and provides that after the contractual tenancy has ended, a new ‘statutory’ tenancy will take its place.
This can only be ended, and the tenant evicted, as set out in the act.
Mandatory and discretionary ‘cases’
The legal reasons why a landlord can evict are set out in Schedule 15 of the Act and consist of some 20 ‘cases’. These are divided into ‘discretionary’ and ‘mandatory’ cases. The significance of this is that possession under the discretionary cases will only be granted if the Judge considers it reasonable to do so.
Generally Judges consider it preferable to make suspended possession orders and give the tenant a second chance, often many second chances, which infuriates landlords. There is no mandatory ground relating to rent arrears.
I can remember one case where the tenants were continually failing to pay their rent, thereby breaching their suspended possession order entitling the landlord to possession, but where the order was invariably re-instated by the Judge when asked to do so by the tenants in an application for a ‘stay of execution’.
The mandatory grounds (where the Judge does not have the legal power to give tenants a ‘second chance’) consisted mainly of the right of owner occupiers to recover possession of their own property, for example if they had let their house out while living abroad, or where owners had bought a property to retire to but rented it out in the meantime. For these grounds to apply a notice had to have been served on the tenant in advance warning him about them.
Suitable alternative accommodation
If no mandatory case is available, a landlords best chance of recovering possession is by providing suitable alternative accommodation (s98(1)(a). As the tenant is not going to be made homeless, a Judge (provided that the accommodation is really suitable) is more likely to consider the landlords claim reasonable and make the order for possession.
There is a long string of case law on suitable alternative accommodation claims and anyone seeking to evict a rent act protected tenant on this basis will need to do some research first.
Losing security of tenure
The tenant is only entitled to the protection of the act “if and so long as he occupies the dwelling-house as his residence”. So if he moves out and sub lets it to someone else this protection will be lost. The tenancy will become a common law one which the landlord can end by serving a notice to quit.
Landlords will also be entitled to possession if the tenant is guilty of the offence of overcrowding (s101).
Finally, even after the tenant dies, the landlord is generally unable to recover possession. The tenant’s spouse (and this now includes same sex partners) is entitled to stay on under a statutory tenancy. If there is no spouse, then a family member living with the tenant at the time of his death will be entitled to take over the tenancy but in this case as an assured tenant under the Housing Act 1988 (which amended these rules).
If it is the spouse which takes over the tenancy, then there can in some circumstances be a second succession, if there is a family member of the original tenant still living in the property.
The effect of the Rent Act
The Rent Act was exceedingly unpopular with landlords – one of my clients once described it to me as ‘expropriation without compensation”. The combination of being liable for repairs but being unable to charge a proper rent or evict the tenants resulted in many landlords selling up and investing their money elsewhere.
The very substantial difference in value between properties with and without protected tenants also led to some (e.g. criminal) landlords buying tenanted properties cheap and then intimidating the tenants into leaving so they could sell at a large profit.
As we will learn in the next part, most tenancies today fall under the Housing Act 1988. However there are still many thousands of protected tenants, although the number is getting less every year. Anyone who has a protected tenancy is not going to leave it voluntarily, as they will never again have a rented property with such strong security of tenure.
Property investors need to be aware of this, as often investment properties are available at a low prices because redevelopment is not possible as the tenants are protected and cannot be evicted.
Next time we look at the Housing Act 1988.