Law and the courts system has never had the appeal of the NHS or education in the public affections.

Stories of the underfunding of the courts system will, in most cases, be met with a shrug and the comment ‘so what?’.

The lawyers keep going on about how dreadful it all is, but then they would, wouldn’t they?

Why the courts are important for landlords

However landlords need the courts. As the RLA pointed out recently in their campaign to stop the court closures, if landlords have a bad tenant, their only real option is to go to the courts for a possession order. If the tenants are not paying rent, then delayed court claims mean bigger financial losses for the landlord.

It is rare indeed for a landlord to get his rent paid when a tenant is evicted for rent arrears. I have done many rent arrears evictions and I can probably count on the fingers of one (or possibly two) hands, the times when we have been able to recover all the money.

The only thing to do is to minimise your losses by getting the case to court as quickly as possible so a possession order can be made.

The effect of cuts in family law legal aid

So when I read an article in the Law Society Gazette  by a District Judge about the effect that the legal aid cuts in family law are going to have on the time it takes to hear the cases, my first thought was “this is not going to be good for landlords”.

The government, it seems, thinks that ordinary people are able to deal with their divorce and family settlements without the help of lawyers.

District Judge Peter Glover however, begs to differ. And as he, and his fellow co Judges are the ones at the coal face hearing the cases, I would suggest that he knows what he is talking about.

Here are some of his comments on why some litigants struggle:

• Many do not cope well with the written word
• Many are unable to organise their paperwork
• Poor numeracy skills are commonplace and many are financially illiterate
• They do not understand credit and debt ‘save to the effect that they have taken it and are in it’
• They often lack any psychological empathy with their opponent and are unable to see the other parties point of view
• They often have strong emotions about the case
• They have a fear of being involved in court proceedings (understandable, courts, for non lawyers, can be very scary places – indeed they are also scary for many lawyers)
• Most have no understanding or concept of the legal process, and
• Many have a subjective certainty in the justice of their own case

In the light of all this, says the Judge, “the opportunity for negotiated settlement is reduced”. An understatement if ever I heard one.

Later on in the article he paints a vivid picture of dealing with an FDR (financial dispute resolution) hearing

with two individuals who continually produce new documents from plastic bags, who will not listen to each other, and who are unable, emotionally, to compromise.

In this context, the Judge’s suggestion that

the virtual elimination of publicly funded professionals from family cases in the County Court threatens its collapse under the weight of misplaced expectations

makes perfect sense.  The Judge sums up his article as follows:

In recent years, the county court has tried – and, with the hard work and goodwill of its staff and judges – made a reasonable pretence of getting a quart into a pint pot. This time the overflow will be all too apparent.

So why am I banging on about family law cases in a landlord law blog? Because the pint pot includes the court’s housing jurisdiction.

Long delays mean more rent arrears

Many people have criticised the length of time it takes to get a possession claim to trial.

However given a choice between hearing a case where the future well being of children is at stake and a case which, if adjourned will ‘only’ result in a landlord loosing another months rent, I think you know which one the Courts are going to favour when listing.

All things are connected. As Donne rightly said “no man is an Island’. No more money is going to the Courts, that is clear. If Judges are having to spend more time dealing with family law cases which are taking twice as long as they should, because all the parties are litigants in person, what is going to happen to the housing cases?

You tell me.

You can read DJ Glover’s article in the Gazette >> here.

County Court picture by Ken Brown

The report considers what seems to be a permanent trend – the decline in home ownership in this country.  Together with the worrying fact that this does not appear to be relected in government policy, which is still based on the idea of increasing home ownership.

Decline in home ownership

The peak of home ownership it seems was in 2003 with 70.9%. It has now slid down to 67.4% in 2009/10.

There are a number of reasons for this:

• property prices are high meaning that it is beyond the reach of most people
• Greater personal debt, in particular
• young people leaving full time education having to pay off loans taken out to pay for tuition and other expenses
• Since the financial crises mortgages have been harder to obtain, and
• Changing work patterns and increased mobility make renting more attractive

Problems for government

Heywood states that the English population is set to increase by about 30% in the next 25 years which equates to some 250,000 households per year. With house building at an all time low, this is worrying.

However government seems to be turning a blind eye. The coalition has affirmed its commitment to extending home ownership, for example  Grant Shapps ‘Age of Aspiration’ speech. To quote from the paper

Much government policy and activity is predicated on high and rising levels of home ownership. This includes economic policy, asset-based welfare policies such as elderly care in the community, revenue from taxation including stamp duty land tax, and a range of other services.

Asset based welfare policies are those which provide service on the basis that they will be paid back by the recipients from their assets – in most cases the family home.  However if people are living in rented accommodation this will not be possible – meaning in most cases that government will not get repaid.

Pluses and minuses

However it is not all bad news. Here are some positive points on a declining home ownership:

• the private rented sector is more suitable for a more mobile work force which may be needed in future.

• a contracting housing market may be less prone to ‘bubbles’ and if less volatile this may  help improve economic performance

• if less personal wealth is locked up in housing this may result in a different pattern of saving which could benefit other parts of the economy such as manufacturing

On the other hand:

• would the fact that fewer people will have access to the equity in their properties to fund purchases result in a lower level of consumption, and

• would a lower consumption in owner occupier related expenditure such as DIY products have a negative effect?

Social housing

Turning to social housing providers, Heywood makes the point that falling home ownership levels (and an increasing population) will only exacerbate the current problems of finding affordable housing for those unable to buy.

If the government wants housing to be available at ‘affordable’ sub market rates, then government is going to have to get involved.  It is not reasonable or realistic to expect the private sector to provide this. However the current government does not seem poised to take any significant action.

Conclusions

I have only been able to skim through the report and it really needs a more careful analysis than I am able to provide. However some of the main concluding points are:

• Government must come to terms with the fact that its current policy of extending home ownership is unrealistic unless it is able to provide substantial investment – which we all know is not going to happen

• It must also look at how to bring in institutional investment and expand the corporate landlord sector. Bearing in mind that a large proportion of current landlords in the private rented sector are private individuals with only few properties.

• There is also the huge problem of how to increase housing supply from its current catastrophic levels.

• Plus there are also implications for other government activities as the assumption of high and rising levels of owner occupation are embedded in policies.

The report concludes as follows

In considering a strategic response to what could prove a continuing shift in the balance of tenures, the issue of an alternative social vision will therefore inevitably be raised. Such a vision will have to encompass the role of the state, the funding of welfare, and the relationship between housing tenure and the culture of citizenship. It will involve developing new concepts, but it will also involve a clear-sighted application of those new concepts across the full breadth of public policy formation.

You will find the report online here.  What do you think about this?  Do you think Heywood is right?  What action do you think government  should take in view of falling home ownership levels?

It is about the interpretation of s1(b) of the Housing Act 1988, which defines an assured tenancy (and therefore also an assured shorthold tenancy) as being a tenancy where

(b) the tenant or, as the case may be, at least one of the joint tenants occupies the dwelling-house as his only or principal home …

Let me tell you a story …

The problem with this is perhaps best illustrated by a story.

Sally works as a software developer for Cyberwidgets Ltd. She lives in London in a flat which she rents under an assured shorthold tenancy. However she has always loved the country so she rents a small cottage in Kent which she uses at the weekends. This cottage is also rented under an assured shorthold tenancy agreement.

Here both properties are rented as ASTs – but the wording of the statute appears to assume that a tenant can only have one ‘only or principal home’. If this is the case, then it would seem at this stage that Sally’s principal home is the London flat where she lives during the week and for some weekends.

In January Sally meets Bob and they fall in love. They decide to live together but as Bob works in Kent he stays in the Kent cottage for most of the time, and only joins Sally occasionally in the London flat, for example if they go to a show.

Sally still spends all the week days in London but now spends all of her weekends in Kent, and sometimes goes down there to stay overnight during the week. Bob never signs a tenancy agreement for the Kent cottage (and therefore is not a joint tenant of the property), however the landlord confirms that he does not object to him living there.

It is now more difficult to say which of the two properties is Sally’s principal home. She may still spend more time in the London flat, but if so it is by a narrow margin.

Sally becomes unhappy at the amont of time she is spending away from Bob. She arranges for the cottage to have fast broadband connected and in August, asks her boss, Raymond at Cyberwidgets, if she can work from home.

Raymond agrees but says that she will need to attend the weekly departmental meeting every Tuesday, as well as having regular meetings with him to discuss her work. Sally therefore keeps on the London flat but now generally only stays there for one night per week and some weeks is able to avoid staying there altogether.

Now Sallys ‘principal home’ is almost certainly the cottage in Kent where she spends most of her time.

However if one property is an AST and the other is a common law tenancy, which one is which? Bearing in mind that before January Sally was spending most of her time in the London flat, and from August was spending most of her time in the Kent Cottage.

If, for example, the landlord of the London property were to serve a section 21 notice on her, and then issue accelerated possession proceedings, would she be able to defend on the basis that it was not her only or principal home, and that a section 21 notice was therefore inappropriate and he should have used a notice to quit?

What do you think?

But this is a mistake.

The rules say that the money must be protected within 14 days after receipt. This does not change just because you have not got the whole deposit sum. You must protect the money you have. So how does this work out with the three schemes?

Using the DPS

For a start, if you use the DPS you will have to make up the difference in the deposit amount yourself and then collect it from the tenant. This is what the DPS say on their webs-site FAQ:

If deposits are being secured with The DPS they must be for the full amount as stated in the contract (AST). If you are accepting the deposit in instalments from the tenant, then you should either submit the entire deposit yourself and recover it from the tenant over the course of the tenancy or use one of the insurance schemes.

Stop Press – this situation has now changed and the DPS CAN accept deposits by instalments.

My deposits

My deposits make it very clear in their terms and conditions that landlords must protect deposit money within 14 days and failure to do this will put your membership of the scheme at risk. If you are going to change the  amount – ie if you get paid more deposit money later, the rules have this to say about it:

Any change to the amount of the Protected Deposit will require the original Deposit to be Un-Protected and a new Protection to be purchased.

So firstly this will involve you in a lot of administration (which presumably you won’t want). Secondly it could prove expensive as protecting a deposit will cost £30 (or £17.50 for deposits of under £300 where the deposit is protected online).

TDS

The TDS scheme run by the Dispute Service operates differently. Here the member pays an annual fee and all the deposits held by the agent (the vast majority of TDS members are agents) are then protected.

However I don’t think that this will make it any easier for agents to accept deposits by installments as the agent must record data on the TDS database within 14 days of receipt of the deposit, and this information includes the total value of the deposit and the date on which deposit is paid to the Member.

The rules allow the member to record changes in the tenancy on the TDS database but these do not appear to include a change in the deposit amount (eg by the tenant paying a bit more of the agreed deposit sum).

If anyone has any further information about how TDS treats partial payment of deposits please can you put this in a comment?

Summary

It looks therefore, as if the only way you can accept partial deposits is either if you are prepared to pay the full amount yourself and then get this repaid by the tenant, or if you use My Deposits and are willing to protect and re-protect at £30/£17.50 a time.

The naughty option

There is always of course the option to refrain from protecting the deposit at all until it is all paid. If you do this, you will have to use the DPS as failing to protect within the 14 day time limit will get you into problems under the rules of both My Deposits and TDS.

As the law seems to stand at the moment, per the case of Tiensia v. Vision Enterprises Ltd, a landlord can protect a deposit very late (even up to the day before a court hearing) and avoid having to pay the penalty payment of three times the deposit sum.

So at present this is an option available to you. But …

Why its best to obey the law

The penalty award of three times the tenancy deposit sum is not the only penalty for non protection of the deposit set out in the regulations. Unless you protect your deposit you cannot serve a valid section 21 notice or evict your tenant using the no fault ground in section 21.

Also our present understanding of the law is per the Court of Appeal decision in the Tiensia case. It is always possible that this decision will be overturned by another case on similar facts being decided in a different way by the Supreme Court. There are several cases working their way up the system which could eventually reach the Supreme Court on this point.

Then landlords who have not protected, might suddenly find that they are vulnerable to a claim by their tenants for the penalty, with no defence available to them.

Even worse – if the dissenting Judgment of Lord Justice Sedley is upheld (discussed in my blog post), landlords who have not protected within the time limit may also find that they are permanently locked out of being able to recover possession under section 21.

There is also the likelihood that changes to the regulations will be brought in under the Localism Bill. We don’t know what those changes are going to be at the moment, and hopefully they will not be retrospective, but all in all, landlords are best advised to be compliant now. Then they will not have any problems.

So how do you deal with a tenant who can’t afford to pay the whole deposit and wants to pay by installments?

Say no.

Photo by Globalism pictures

Here are a few points I have picked up from the report

Reduced rent levels and the discretionary housing benefit safety net

The government expect the housing benefit cuts to have a knock on effect and reduce rent levels in the private sector.

They appreciate that many people will have to move and are providing additional money for discretionary housing benefits for this. You may want to read their response to this point in full:

The Government acknowledges that the caps will result in some tenants moving from the more expensive areas. However there is already a substantial annual turnover rate of about 40% in the private rented sector, and some of those who will need to move would have done so in any case. In all but three of the most central areas of London at least 30% of properties will still be affordable within Local Housing Allowance rates.

The maximum weekly rates of Local Housing Allowance provide a generous level of support. The maximum rate payable will be £400 a week which equates to annual support for housing costs at over £20,000 a year. A family paying an average proportion of their income in rent would require an income of at least £80,000 a year to be able to afford to pay this level of housing costs.

Still researching

The question which follows this points out that a few highly publicised cases have rather distorted the public perception of the situation and seems to be  ‘driving policy changes which affect a much wider range of people’.   The committee also express concern that there will be a disproportionate effect on ethnic minority groups and disabled people.

The Government’s response to this is, more or less, that they are still doing research on it. Not a very satisfactory answer in the circumstances.

Concerns about the effect on retired people are answered by saying that the Discretionary Housing payments fund is being increased.

Increased evictions and homelessness

There is quite a long answer on the concerns raised about the possibilities of increased evictions and homelessness which the committee think may be greater than the government think. The government answer this by saying:

• They don’t agree

• They are putting in place extra measures and funding

• If landlords would only reduce their rent by £10 per week everything would be a lot better

• Local authorities will be able to pay rent direct to landlords (something they have been asking for, for a long time) if they agree to reduce rent to an ‘affordable level’

• The Localism Bill will allow Local Authorities to put people in priority need in accommodation in the private sector, even if they don’t agree to this (or rather if they refuse to agree, the Local Authority will not be obliged to find them somewhere else)

Comments expressing concern about the availability of accommodation in the private sector to meet the demand in the context of a shortage of social housing and high demand for rental accommodation are met, more or less, with the answer that they are working on it.

Conclusion

Those are the main points which jumped out at me. You may pick up on other points (you can read the response in full here).

It is clear however that great reliance is going to be put on the discretionary housing benefit. In this context you may want to look at the good practice guide which has now been issued and which you can see here.

Their other strategies appear to be:

• A belief that rents will go down to match the lower benefit rates
• Landlords will also reduce rent in return for getting paid benefit direct
• Hope

I am not entirely convinced that landlords will be willing to reduce rents in a time of housing scarcity, but I could be wrong. What do you think?

Note that I will be talking to my March podcast guest Steve Perrons shortly about renting to housing benefit tenants. If you have any questions you would like me to ask him, please use the form on this page.