Welsh landlords and a BIG problem with electrical condition reports

As most readers will know, housing law in Wales was changed on 1 December 2022 when the Renting Homes (Wales) Act 2016 and various associated regulations came into force.

There is not a lot of case law yet on the details of the new rules, but on 8 November, a new judgement was published in the case of Coastal Housing Grup Ltd v. Mitchell & Anor.

Although there were a lot of parties in the case – Coastal Housing Group were not the only landlords involved.

The case is about the consequence of local housing associations’ failure to serve a copy of their electrical condition reports on their contract holders. Most of whom were existing tenants as at 1 December 2022.

The legislation

The problem comes with the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022 which provide at regulation 6 that:

6 (1) The landlord must ensure that there is a valid electrical condition report in respect of the dwelling during each period of occupation.

And that a copy of this must be provided to contract holders before the occupation date, or if the report is prepared later, ‘before the end of the period of 14 days starting with the day on which the inspection was completed’.

The killer clause, though, is subsection 6, which says

(6) A dwelling is to be treated as unfit for human habitation at a time when the landlord is not in compliance with a requirement imposed by this regulation.

This is made worse by the supplementary term (“Term 2”), which many landlords will have included in their contracts (as it is part of the model contract):

2. You are not required to pay the rent in respect of any day or part day during which the dwelling is unfit for human habitation

So, for contracts which include Term 2 (and it can be removed as it is a supplementary clause, not a fundamental one) tenants don’t have to pay rent if the landlord has not given them the electrical condition report.

Note that most professionally drafted contracts will have deleted this clause, including (I am happy to say) the Landlord Law Welsh occupation contracts.

However, all of the housing associations in the Coastal Housing case had Term 2 in their contracts.

The problem: non-service of the electrical condition report

The problem faced by all the landlords in this case is that although their electrical condition reports were commissioned and obtained, they were never served on the contract holders.

So, although the properties were actually in good repair and fit for habitation, the court held that because of the legislation and Term 2:

• The properties were deemed to be unfit for human habitation, and
• The tenants were under no obligation to pay the rent.

This case is going to have a massive impact on the Welsh housing sector as (not surprisingly) those contract holders who paid their rent want to have their money back. Millions are at stake.

The contract holders have now counterclaimed to be repaid, and these counterclaims are due to be considered by the court sometime in 2025.

What about landlords whose occupation contracts exclude Term 2?

For example, landlords who use the Landlord Law contract and (I understand) the NRLA contract. And no doubt many other professionally drafted contracts.  In those cases, the rent will have been due. So, they are in a better position than the hapless landlords in the Coastal Housing case.

However, if the landlord fails to serve their Electrical Condition certificate by the proper date, then while the certificate is unserved, the property will be deemed to be unfit, and the contract holders can claim compensation.

Bearing in mind that the normal level of compensation for unfit properties is 100% of the rent, landlords whose tenants decide to bring a claim, will be no better off.

If you are a landlord of a property in Wales

If you have not served your electrical condition report on your contract holders yet – serve it now!

In fact, even if you have served it previously but did not retain proof of this, you should serve it again. Making it clear that it was served previously.

You should also take enormous care in future that your certificates are always served on your contract holders within 14 days.

Thoughts on the case

Many Welsh landlords will be outraged to learn that just by forgetting to give the tenants the certificate, their tenants will be able to live in their property rent-free until the certificate is provided.

It is a case of legislation stating that black is white. Reminiscent of Rishi Sunak’s attempt to provide through legislation that Rwanda is a safe country when the courts had previously found that it wasn’t.

Is legislation providing that dwellings are unfit for habitation in circumstances where they clearly are fit, any different? And is this really something that legislation can do?

There is also a human rights issue as the legislation is potentially unfairly interfering with a landlord’s property rights. Landlords can also claim that the legislation will ‘unjustly enrich’ the contract holders.

These issues were raised during the case but the Court decided that it was something best decided after the Counterclaims for rent have been heard.

Turning to social landlords generally, if they have to repay millions of pounds worth of rent to tenants simply because of a clerical error in failing to provide a document, this will cause them major financial problems.

It will mean that they may not be able to afford proper repair work. Some may even become insolvent.

Something the Welsh government may want to rectify, if they want to have a vibrant social housing sector.

And finally

This is yet another reason why landlords should NEVER use the Welsh government’s model contracts as drafted.  You will find another 17 reasons in this post.