I’ve only has a cursory read so far but as far as I can see there’s nothing remarkable in any of its findings or recommendations. Direct payments will continue to be paid to tenants although the Committee did acknowledge that the system needs to be improved and urges the DWP and Councils to work harder with landlords and tenants to make the scheme’s administration simpler and more universally applied.

Here’s 3 paragraphs which might be of most interest to members of LandlordZONE.

LHA Direct – First payment to Landlord

72. In terms of the first payment of LHA paid in arrears, Mr Irvine of the Scottish Landlords Association suggested it would increase landlords’ confidence if “the [first] Cheque could be made payable to the landlord, given to the tenant. If that was to happen, it would reduce a lot of the arrears that currently happen. For some reason, this does not happen”.

72 The Minister told us that “in Leeds the first benefit cheque is made out to the landlord, but given to the tenant and that means that their systems work much better than in places where the first cheque is also made out to the tenant, but again that is a question of the local authorities’ administrative capacity”.73

Committee Recommendation

73. The fact that the first LHA payment is paid in arrears makes it difficult for some to manage their finances and has been the subject of concern to some landlords. We recommend that it should be standard practice for local authorities to give the first cheque to the tenants, payable to the landlord. We believe this will give the tenant time to get used to the new scheme and provide the landlord with some confidence in receiving the payment.

Committee’s – 8 Weeks Rule Recommendation

104. The evidence on the eight week safeguard rule suggests that it is not fully
understood and that implementation varies across local authorities. We strongly believe that it is the Department’s responsibility to ensure that local authorities understand the rules and implement them correctly. The rules need not change if eight weeks arrears remains the upper limit for when payments must go to the landlord and include the first payment, which is usually paid in arrears. However, local authorities should liaise with landlords and financial advice services to identify those clients at an early stage who are likely to run into arrears and put safeguards in place.

Full Conclusions & Recommendations here:

http://www.publications.parliament.uk/pa/cm200910/cmselect/cmworpen/235/23511.htm

Article provided by Bill Irving of  www.hbadvice.co.uk

In December 2008, the housing fire safety steering group met to discuss feedback
on the new guidance. The steering group agreed that the guidance had been well
received and was providing valuable assistance to landlords, property managers,
local councils and fire and rescue authorities. All parties agreed that the guidance
should remain fundamentally unchanged. However, the group also agreed that
written clarification should be issued on a few specific points. This paper aims to
provide that clarification and to assist all parties in adopting an appropriate risk
based approach to fire safety.

1. Defining risk

Prescriptive definitions of “low” and “high” risk properties are not included in the
guidance. This is because risk is a relative concept and something that will be
influenced by a wide range of factors. Generally, factors influencing the level of risk
include the size, layout and condition of the property, construction standards, the level of
existing fire precautions, the number and type of occupants, standard of property
management, etc. Some examples are given in the guidance to help with assessment of
specific cases.

In general terms the guidance recognises that the risk level will often be lower in single
family properties and some shared houses (see item 2 below).

More prescriptive definitions of low risk and high risk are not possible under current
legislation. Where fire precautions are being required by a local council or fire and
rescue authority, the works must be necessary and appropriate and based an
assessment of the risk presented. It is important that enforcement officers understand
the range of factors that will influence the level of risk and apply fire safety precautions
accordingly. We believe the new national guidance provides a useful framework to
assist both landlords and enforcement officers in this respect.

2. Shared Houses

Some discussion has occurred around the inclusion of the term “shared house” in the
guidance. Shared houses, as described in paragraph 35.2 of the guidance, fall squarely
within the Housing Act 2004 definition of House in Multiple Occupation (HMO). The
guidance recognises this. However, when considering risk it is clear that certain types of
shared house HMOs can present a lower risk than say, a bedsit type HMO. Consider
two examples:

1. A two storey house occupied by a small group of friends, work colleagues, etc, who
occupy the property on a single tenancy, who exhibit no unusual high risk factors
(see section 1 above) and who live together very much like a family. This property
would be defined as an HMO under the Housing Act 2004. However this
arrangement may present no significantly higher risk than an adjacent similar single
family house which is not an HMO.

2. A two storey house which has been divided into bedsit rooms occupied by
unconnected individuals who live completely separate lives with no knowledge of
who is around them in the house. The bedsit rooms each have individual cooking
facilities, a lack of storage space and an inadequate numbers of electric sockets
leading to overloading and trailing leads.

The shared house HMO in example 1 will almost certainly present a lower risk than the
bedsit HMO in example 2. It would not therefore be appropriate to apply the same fire
precautions to both, as the level of risk is entirely different.

Conversely, some shared houses may present a higher risk even when they are let on a
single tenancy. For example, shared houses with high occupancy levels, those let to
groups with drug or alcohol dependency, with unusual or highly complex layouts, or with
other high risk factors present.

In short, the issue is no longer about what does and does not constitute an HMO
(Sheffield v Barnes), it is about assessing the level of fire risk having regard to the mode
of occupation. Some shared houses may be considered high risk for a variety of reasons
and may require more extensive fire precautions. The exact arrangements will vary from
house to house and so each case needs to be considered on its merits.

3. Protected routes

General

The guidance acknowledges that a 30 minute protected route is the ideal standard in all
multiple occupied accommodation. The question is whether a council can always insist
on a 30 minute protected route under Part 1 Housing Act 2004 (HHSRS). Sound
conventional construction and good standard, sound, traditional doors will provide some
level of fire separation and although it will not meet the ideal standard, it may be
considered adequate in a small, low risk property.

Paragraph 9.7 of the guidance sets down circumstances in which it may be appropriate
to accept sound, conventional construction throughout the escape route and close-fitting
doors of conventional construction (excluding light-weight doors and doors with very thin
panels) to risk rooms. It is envisaged this relaxed standard would apply to single
household properties and lower risk 2 storey shared houses (subject to Part D, Case
study D5, note 8 – see below). It would not apply to bedsit-type accommodation or to
larger, higher risk shared houses. This relaxed standard would not be conditional on the
installation of escape windows.

Three storey shared houses

The guidance recognises that the ideal solution for a 3 storey shared house is a 30
minute protected route with FD30 fire doors throughout. However, in a low risk 3 storey
shared house where there is sound conventional construction and doors opening onto
the escape route which are of sound, solid construction, close fitting and self closing
then 20 minutes fire resistance can often be achieved. Subject to the absence of any
high risk factors and the inclusion of all other relevant fire safety precautions
recommended in the guidance this arrangement may be accepted. This is explained in
Part D, Case Study D5, Note 8.

The alternative of stripping out all the partitions, ceilings and doors and replacing them
throughout cannot usually be justified on a risk assessment basis in such situations.
However, where full refurbishment of such a property is planned then it may be
appropriate to provide the full 30 minute protection.

4. Escape windows

Escape windows do not provide an ideal solution and in practice, even when available,
they will only be used if occupants find that the main escape route (down the stairs) is
blocked. Building Regulations permit the installation of escape windows in new build
properties and so their use must be considered. In practice, an escape window may
provide the only available option for some inner rooms (see section 12 of the guidance).

Escape windows should only be permitted if they meet all the criteria listed in section 14
of the guidance including in particular, that the occupiers are able bodied individuals
who can reasonably be expected to exit via the window unaided. Where they are
accepted, an escape window from each habitable room would be the preferred solution.

Any exceptions to this rule would need to be considered on a risk assessment basis. For
example, there must be unrestricted access to the room containing the escape window
via an unlocked door and a protected route may be required to enable occupants to
reach the room without the communal areas becoming blocked by smoke. An
appropriate fire detection and warning system will always be required (see section 22 of
the guidance). In practice, an internal escape route may often provide a more
appropriate and practical solution.

If escape windows are provided in full compliance with the guidance and with direct
access from each habitable room then there will be no need to require additional
protection to the internal escape route.

5. Bedsit-type HMO and Shared House descriptions

There are no legal definitions for these types of occupation – they are all HMOs under
the Housing Act 2004 definition. For the purpose of the guidance and in order to
differentiate risk, the term shared house has been described in paragraph 35.2 and the
term Bedsit HMO has been described in the Glossary. Where properties deviate from
these descriptions, the inspecting officer would need to decide what impact this may
have on the level of risk.

6. Fire extinguishers

The positioning of portable fire extinguishers in the communal areas is deemed
appropriate in order to help occupiers deal with small scale fires in their early stages and
to aid their escape from the building. Their location in communal areas will also assist
with regular maintenance inspections. The guidance does not define ‘simple multipurpose
extinguisher’ and we do not propose to do so. Councils and fire and rescue
authorities could develop local guidance on this point. The suitability of existing
extinguishers would need careful consideration before taking enforcement action to
require the installation of a different type of extinguisher.

7. Case studies

It is important to view the guidance as a whole and to appreciate that the guidance does
not set down any prescriptive requirements. Part C explores the general principles of fire
risk reduction whereas Part D contains example case studies as to how these principles
might be applied to different property types, based on various assumptions. It is
important to refer to the Part D Introduction (see section 33 of the guidance) which helps
to put the case studies in context and to read the case studies in close connection with
the principles in Part C as there may be alternative solutions. In practice, when carrying
out an HHSRS assessment under Part 1 of the Housing Act 2004, the inspecting officer
must have regard to all relevant factors before deciding what, if any remedial works may
be required.

8. Single family houses

Concern has been expressed that some councils are using the case studies in Part D as
prescriptive standards that must be enforced, rather than simply examples of what might
provide adequate fire precautions based on certain assumptions outlined in the
introduction to Part D.

For example, Case study D1 is a two storey single family house and suggests that a
Grade D, LD3 alarm system is appropriate. This is the ideal solution and where no
detection currently exists within such a house this would be the appropriate standard to
install. From an HHSRS enforcement perspective though, if the property already has
operational battery smoke detectors in the escape route and no particular high risk
factors, it is unlikely the property would have a category 1 or high level category 2 fire
hazard. As such, it is unlikely that any enforcement action would be appropriate at this
time. However, when the landlord schedules major renovation or improvement works
he/she should be advised to install a Grade D LD3 system as part of those works.

Conclusion

This briefing note is not intended to over-rule or contradict anything contained in the
national fire safety guidance. It simply provides additional clarification on a few specific
issues.

Any comments or enquiries should be addressed to LACORS at
housing@lacors.gov.uk. Please note that LACORS is unable to respond to queries from
individual landlords and managing agents. Landlords with fire safety queries should
contact their local council, fire and rescue authority or their trade association.

Published March 2009

A guidance booklet is available from the DTI and will be sent to you free of charge or you can download

URN 04/606 Better payment practice: your guide to paying and being paid on time. It can be found here:

http://www.payontime.co.uk/downloads/DTI_BPP_brochure.pdf

The late payment legislation does not prevent businesses from setting, and agreeing with customers, their own terms of business including the level of interest to be charged on late payment.
Where payment is proving difficult or the other party disputes the amount due, businesses should obtain legal advice or seek help from a professional debt recovery service. This does not necessarily mean going to court.

The Lord Chancellors Department publication Resolving Disputes Without Going to Court sets out the options available. This can be obtained from county courts, public libraries or your local Business Link.

Leaflets providing guidance on all aspects of recovering debts through the courts are available from the Court Service or from county courts.

The Law Society operates the “Lawyers For Your Business” scheme, offering a free consultation with a solicitor. Details of the scheme and the 1,700 legal practices involved in this scheme nation wide area available from the Law Society web site.

Landlords with commercial leases (the act does not apply to residential agreements (consumer) contracts) should consider changing the interest on late payments clause to incorporate the provisions of this legislation. This simplifies matters considerably when calculating and claiming interest in court.

Usefull web sites

www.PayonTime.co.uk

Some landlords like to keep their distance and remain anonymous as far as their tenants are concerned and they do this by having a property agent or even their solicitor or accountant take care of their lettings.

This can be achieved to some extent providing you comply with the legal requirements, but if the tenant insists on knowing the identity and address of their landlord the laws says otherwise.

An important aspect of residential letting in England & Wales is the necessity to supply the tenant with an address for service of notices, the payment of rent and service charges and for the reporting of defects and repairs etc.

Under the requirements of section 48 of the Landlord & Tenant Act 1987 rent or service charges are not lawfully due unless the tenant has been given, in writing, an address in England and Wales at which notices can be served.

It is usual that the tenancy agreement clearly states such an address for service of notices.
Where the tenancy agreement clearly states the landlord’s address, then there is no need for the serving of a separate notice containing these details and this therefore eliminates future problems with proof of service.

The address supplied need not necessarily be the landlord’s residence, so your tenant is only partly correct. The address supplied can be that of the landlord’s agent, for example: a solicitor, an accountant or a managing agent.

Where the landlord resides abroad, then the landlord is obliged to supply an address, for example an agent, in England & Wales.

However, under the provisions of the Landlord and Tenant Act 1985 a tenant can demand, from the last person receiving rent, or the landlord’s agent, a written statement of the landlord’s name and address.

These details must be supplied within 21 days. Failure to comply on the part of the agent or landlord is a summary offence subject to a fine.

This article by Tom Entwistle first appeared in Landlord Magazine Nov/Dec 2008

My tenant entered the property last month and she promised to sign the agreement later. Despite several attempts, I have still not got her to sign 3 weeks later. What can I do?

I never cease to be amazed at the number of times this happens. Some landlords (and I must say most of these are new to landlording) are so trusting and are willing to create a legal tenancy on the most casual of bases.

An agreement that’s not signed is pretty much the same as a verbal agreement when it comes to enforcement – both are virtually useless. One man’s word against another, who is the judge likely to believe?

Any landlord without a written tenancy agreement is in a very weak position if a dispute arises. For a start, the landlord cannot use the Accelerated Possession procedure – he must go to court and explain.

But how do you explain that your tenant is in breach of the contract terms when in effect there are no contract terms? How do you prove when the tenancy started, how long the fixed-term is or what the rent payments should be?

Once a tenant enters a property a legal tenancy is created purely by the action of the parties – keys handed over and rent/deposit accepted. There does not have to be a written tenancy agreement to give that tenant security of tenure. Getting an agreement signed later is, more often than not, impossible.

Experienced landlords / agents know how important it is to get signatures BEFORE the tenant is allowed access to the property.

The process should start with a signature on a comprehensive Tenancy Application form. This gives you all the information you need about your tenant, it confirms that the tenant is aware of the basic tenancy terms, and gives you written authority to carry out credit checks. Also, any false statements made can later help you regain possession quickly, if necessary – ground 17 Housing Acts 1988/96

The agreement itself should always be signed before entry. A witness is not strictly necessary for an Assured Shorthold Tenancy, but if you have one (not a family member) so much the better. However, a witness IS required for a deed of guarantee (agreement for a guarantor) and on a lease for a commercial property.

Other tenant signatures needed (which may seem pedantic at the time but so important later) are on each page of the inventory, plus a tenant signature and date on the reverse of every inventory photograph. This is even more important now with the Deposit Schemes.

Act in haste, repent at leisure!

This article by Tom Entwistle first appeared in Landlord Magazine Nov/Dec 2008 – Subscription is free.

Furnished or Unfurnished? What is the legal definition? My tenant claims I have not provided what I should have done.

In fact there is no legal definition of furnished, unfurnished or even part-furnished in the UK – these are terms which have come about through custom and practice - in reality they have no industry standard so legally the tenant accepts things as they are when he signs the contract.

What is defined in law is that all furniture and furnishings supplied must meet fire safety standards and it’s in your interest as a landlord to check that they all comply with fire resistance specifications. Electrical and Gas appliances should also be checked.

Letting fully furnished, part-furnished or unfurnished no longer has any implications regarding security of tenure for the tenant or for taxation. However, Council Tax and the 10% Depreciation Allowance may be affected – you don’t pay Council Tax during voids if let unfurnished, but if you do this you cannot then claim the 10% Depreciation

The inventory records the items actually provided and their condition. It is then signed by both parties preventing later disagreements. The tenancy is therefore based on those items actually provided and accepted as part of the contract.

The tenant therefore accepts the accommodation “as is and as described” and cannot complain later if more furniture, furnishings or appliances were desired.

As a guide:

Unfurnished – many tenants these days prefer unfurnished (or part furnished) as, being mobile, they bring their own furniture and prefer to use their own items, particularly beds. Even when unfurnished it generally means that carpets, curtains and some white goods (i.e. fridge, cooker) are included.

Part-furnished – here you would expect to see the basics as above, but perhaps the addition of items such as wardrobes, dining table and chairs etc, but not beds, 3-piece suites, TV, dish washers, washing machines etc.

Furnished or Fully Furnished – it’s to the landlord’s discretion and to some extend open to negotiation as to the standard and amount of furniture provided, depending upon the type of tenant you are targeting.

In a fully furnished letting you would expect to see similar to above with the addition of beds, 3-piece suites – in fact everything needed to make a comfortable living home.

Item such as crockery, cutlery, towels, bedding etc., while expected in the high-end lettings may be subject to negotiation and not always provided.

When you have viewings of a property, while still tenanted, point out to the new tenants exactly what is to be included and excluded and discuss requirements then.

If you are willing to be flexible as a landlord, for example removing and storing unwanted items or adding additional items as required, you will increase your chances of letting quickly and increasing your annual rental income.

Tom Entwistle is a founding director and Editor of LandlordZONEâ He has been a private investor in residential and commercial property for over 25 years.

This article first appeared in Landlord Magazine – Subscribe to this FREE Landlord Magazine

]]> http://www.landlordzone.co.uk/blog/legal-briefing/should-i-let-furnished-or-unfurnished/feed 0 http://www.landlordzone.co.uk/blog/legal-briefing/squatters-in-my-property-what-can-i-do http://www.landlordzone.co.uk/blog/legal-briefing/squatters-in-my-property-what-can-i-do#comments Thu, 11 Sep 2008 07:45:16 +0000 site admin http://www.landlordzone.co.uk/blog/?p=634

Squatters – my property has been unoccupied for only a short time and I have discovered that squatters have moved in. What can I do?

This is a question that comes up quite often. Most landlords are surprised to learn that squatting in itself is not a crime. Occupying a property without the owner’s consent is technically known as trespassing but you as landlord cannot use force to effect an eviction without yourself committing a crime.

However, waiting until the property is unoccupied and then changing locks is not a crime either, though you are obliged to take care of belongings.

Fortunately, it is quite straightforward for owners to evict trespassers legally if they follow the correct procedure. The owner will need to apply to the local County Court or the High Court for a possession order using the special procedure for squatters. You don’t need to know the name of the squatters to use this procedure.

If you can show that the occupiers are in fact trespassing you should receive a possession order within a couple of weeks, which may be delayed further depending on if the occupiers defend their position or ask for more time to find alternative accommodation, which may cause delay in the leaving date.

If the occupiers refuse to leave voluntarily once you have the order, you will need to use the services of the court bailiffs, which may cause a further delay of up to two weeks.

The Criminal Justice Act 1994 introduced an even faster procedure which allows landlords to serve a Notice of Possession on squatters of less than 28 days, which should result in an Interim Possession Order from the court. This gives trespassers just 24 hours to leave or face arrest.

Where squatters (trespassers) displace rightful occupiers (occupying tenants or owners) they commit a criminal offense if they stay when asked to leave. In this case rightful occupiers (not landlords) must present the trespasser with a sworn statement that they are the rightful occupier, or in the case of tenants, a statement from their landlord.

In normal squatting situations the police will normally refuse to assist as there is no crime – it’s a civil matter. In the latter case the police may be willing to assist as the occupiers are committing a crime.

Useful Links: http://www.landlordzone.co.uk/squatters.htm

Tom Entwistle is a founding director and Editor of LandlordZONEâ He has been a private investor in residential and commercial property for over 25 years.

This article first appeared in Landlord Magazine – Subscribe to this FREE Landlord Magazine

]]> http://www.landlordzone.co.uk/blog/legal-briefing/squatters-in-my-property-what-can-i-do/feed 0 http://www.landlordzone.co.uk/blog/legal-briefing/license-or-lease http://www.landlordzone.co.uk/blog/legal-briefing/license-or-lease#comments Wed, 10 Sep 2008 16:44:52 +0000 site admin http://www.landlordzone.co.uk/blog/?p=632 I understand that if I let on a license my tenant has fewer rights under the law. Can I simply call my agreement a license instead of a tenancy agreement?

Landlords would often prefer to let under a license as it does indeed give the tenant fewer rights under the law.

However, this is far from a straightforward issue and there have been many legal cases fought over the distinction between a license and a lease (tenancy agreement).

Property can be occupied but not necessarily “possessed”. The distinction is a subtle and elusive one but nevertheless very important. Occupation of property comes under four main headings in English law: Freehold (owner), Leasehold (tenant), License (authorised occupier) and trespasser (squatter).

A license allows occupation but does not give the occupier legal title in land, as does a tenancy. So, a guest in a hotel has a license to occupy, as does a lodger in a property where the landlord is in occupation, and as does a company which occupies a serviced office or workshop space.

The big advantage to a landlord is that the licensed occupier can be removed (subject to the notice period in any agreement) without too much trouble – they have no legal protection.

Had the occupier been granted a tenancy, then they would have legal protection (security of tenure) either under the Housing Acts (1988 & 1996) for a residential tenancy, or under the Landlord & Tenant Act 1954, in the case of a commercial tenancy.

The crucial distinction between the two – license or tenancy – is the terms “exclusive possession” and “control”. So, where a tenant can exclude all others, including the landlord, he has a tenancy, regardless of what the landlord may title his agreement.

On the other hand, generally, where the landlord can exercise control (usually living on or occupying the same premises, or providing management or cleaning services) and where the tenant cannot exclude all others (lodgers and serviced office occupiers share facilities) then a license situation exists, even if the agreement says tenancy.

In the famous 1985 case (Street v Mountford) the House of Lords held that it is a matter of fact (the situation) that counts, not form (the wording) of the agreement.

So, a landlord granting exclusive possession of premises, or a part thereof (land in legal terms), for a fixed term, will create a tenancy, regardless of what title the parties attach to the agreement.

In the case of residential occupation there’s a peculiar “grey” area of the law sitting somewhere between the lease and the license. This is the situation where a landlord lives in the building but where the occupiers do not share facilities – they have their own.
This is known as an “occupier with basic protection”, someone who does not have the full rights and protection that a tenant would have. Nevertheless, to be certain of being fully lawful when seeking challenged possession, the landlord should apply through the courts for a possession order.

In the case of a commercial tenancy, the landlord has always had the traditional remedy of forfeiture, where a tenant is in breach of his contract. This is so whether lease or license, but great care should be used in applying this remedy – seek legal advice in every case.

Tom Entwistle is a founding director and Editor of LandlordZONEâ He has been a private investor in residential and commercial property for over 25 years.

This article first appeared in Landlord Magazine – Summer 2008 – Subscribe to this FREE Landlord Magazine

The legal term for this is abandonment.

The major problem for the landlord in this situation is that legally there is no conclusive evidence that the tenant intended to surrender the tenancy, which is valid until the end of the fixed-term.

The fact that all the possessions are still present appears to support that view.

Even though the tenant appears to have left owing 2 months’ rent it does not give the landlord the right even to enter the property, let alone take it over and re-let.

Had the tenant handed back the keys, given notice of intention to surrender, or indeed had a removal van round to remove possessions, then the case would be a straightforward one and the landlord could safely take-over again.

As it is the tenant may be on an extended holiday, in hospital, unavoidably delayed somewhere or even in prison – the landlord takes over at his peril.

A landlord cannot bring a tenancy to an end, according to the Housing Act 1988 (S5(2) without “(a) an order of the court, or (b) a surrender or other action on the part of the tenant.”

Where it is not clear that a tenancy has ended, even though the tenant appears to have left, great care is needed on the part of the landlord to avoid being accused of illegal eviction – a serious offence which could result in a criminal record for the landlord.

Under section 2(b) “other action” could be an unequivocal act of abandonment, but you must make every effort to establish this as fact – you could be asked to justify your action in court later, if you do take-over.
Particularly when furniture is left there is a real risk with taking possession, if you don’t have a court order.

You need to make every effort to contact the tenant and only take possession after posting an abandonment notice, if you truly believe the tenant has abandoned.

If your tenant completed a comprehensive Tenancy Application Form you should have emergency contacts (next of kin) and employers etc. There’s also neighbours, who may be able to help you contact friends and acquaintances.

Post an abandonment notice on the inside of the door, providing you can get access. Posting outside may attract vandals or squatters.

If you need to remove furniture you need to be aware of the requirements of the Torts (Interference with Goods) Act 1977. A landlord is responsible for safeguarding a tenant’s property – he acts here as bailee of the goods.

You should have a clause in your tenancy agreement outlining what will happen to tenant’s goods in cases of abandonment – how notice will be served, how long they will be kept and how they will be disposed of, in accordance with the legislation.

Tom Entwistle is a founding director and Editor of LandlordZONE He has been a private investor in residential and commercial property for over 25 years.

This article first appeared in Landlord Magazine – Summer 2008 – Subscribe to this FREE Landlord Magazine

An important case decided in the Court of Appeal last week (note to eds: July 23rd 2008) has sounded a wake up call to landlords and agents. Simply stated it means it is vitally important they fully follow the language of leases in order to recover service charges. Failure to do so led to landlord Leonora Investment losing a claim for £263,117 plus costs because it did not follow the prescribed procedure.

The decision in Leonara Investment Co Ltd v Mott Macdonald Ltd [2008] EWCA civ 857 is vital because it concerned a set of leases whose provisions as to service charges were structured in a familiar way.

The brief facts were as follows. Leonora was the landlord of a 13-storey office block in Croydon. In July 2000 it demised four floors of that building, by four separate but very similar leases, to engineering consultancy Mott MacDonald.

The leases provided for the payment of a Service Charge defined as “the sum payable by the Tenant in accordance with Part 2 of the SCHEDULE OF SERVICES hereto”.

The first three paragraphs of the Schedule of Services were the key ones when considering liability.

Paragraph 1 decreed that the Service Charge was to be “such fair proportion … of the actual or anticipated Service Cost for each Service Charge Year which shall be assessed by the Landlord or its surveyor according to a reasonable and proper basis for apportionment applicable from time to time to the Premises”.

Paragraph 2 decreed that the Landlord might send to the Tenant a notice including the Landlord’s estimate of the “anticipated Service Costs” and if so the Tenant would pay one-quarter of this estimate on the usual quarter days. The language of paragraph 3 was the focus of legal argument. It stated as follows:

“The Landlord will (unless prevented by causes beyond its control) prepare and send to the Tenant a statement of actual Service Costs and Service Charge for each Service Charge Year as soon as practicable after the end of such year and in the event of the Service Charge for the Premises exceeding the aggregate amount paid by the Tenant for such year the Tenant will pay the balance due to the Landlord within 14 days of demand and in the event of the aggregate amount being greater the excess will be credited by the Landlord by way of a set-off against the next instalment of Service Charge due from the Tenant …”.

For the first two years of the Lease the Landlord sought quarterly advance payments for Service Charges, which were paid. In the first two years, 2000 and 2001, the Landlord also provided statements in accordance with paragraph 3 and the Tenant paid the balance due.
Between about May and September 2002 the Landlord carried out significant works to the 4 floors of the office block that were occupied by Mott MacDonald.

The Landlord’s agent took the view that the cost of these works “were regarded as extra and outside the “normal” Service Costs” and in a witness statement he stated “we also intended to invoice for them separately”. So these costs did not feature in the demands for quarterly, on account, service charges.

On 15th January 2003 the Landlord wrote to the Tenant referring to the refurbishment of the common parts. A breakdown of these costs was provided, together with an invoice for a lump sum of £263,117. The Tenant never paid this invoice and there followed desultory correspondence, over several years.

Eventually the Landlord sued upon the invoice and a preliminary issue was directed, relating to whether the Tenant had any liability to the landlord pursuant to the terms of the Lease in respect of the sum claimed in the invoice.

At the trial of the preliminary issue the Landlord stressed that the monies claimed in the invoice were indeed Service Charges and it would be wrong for the Tenant to avoid liability because of the method chosen to demand them. Particular reliance was placed upon the earlier Court of Appeal decision in Universities Superannuation Scheme Ltd v. Marks & Spencer plc [1999] 1 EGLR 13 .

In that case Marks & Spencer was a tenant of premises at the Telford Town Shopping Centre. The structure of its lease required the landlord to provide an annual certificate showing the amount of the service charge.

The certificate contained a summary of the landlord’s expenses and then a calculation of the proportion of those expenses due from the tenant. This proportion involved a comparison of the rateable value of the tenant’s premises to the rateable value of the whole shopping centre. The landlord provided a certificate and the tenant paid the amount claimed. However, subsequently, the landlord discovered that it had wrongly calculated the tenant’s proportion.

The trial judge dismissed the landlord’s claim for the balance of the service charges due. The Court of Appeal reversed this decision. They said that the certificate was not conclusive. The tenant had to pay the sum due in accordance with the provisions of the lease.

These provisions referred to a set percentage based on rateable values. Since it was accepted that the landlord’s original calculation or rateable values was erroneous, and since there was no question of estoppel, the tenant had to pay the extra sum claimed.

It is noteworthy that in the USS case there was an error in the original certificate. The position in Leonora was different. There was no error. The Landlord never sought to reopen any of its earlier demands. It sought to pursue a demand made in a different way.

Having lost at first instance, Leonora appealed. Although the USS case featured in its written argument before the Court of Appeal, that case was not relied upon by the Landlord in oral argument. Instead a new, and subtle, argument was developed.

This contended that the statement referred to in the first part of paragraph 3 was only concerned with a situation where the Landlord had made a demand for the monies on account, pursuant to paragraph 2. If there were Service Charges which had not been included in the preceding year’s estimate, then these Service Charges fell outside the Service Charge structure and could be demanded in a different way.

Since there was no express machinery for recovery of these Service Charges they were simply repayable on demand.

The Court of Appeal rejected the Landlord’s revised way of putting its case. The principal judgment was delivered by Tuckey LJ. Having examined the machinery for the recovery of Service Charges in the Leases, he was not satisfied that there was any lacuna. Any end of year demand had to involve
Service Costs that featured in the statement that the Landlord served upon the Tenant pursuant to paragraph 3 . Tuckey LJ, at paragraph 17, said:

The simple question: what does the Lease say has to happen before the Tenant is obliged to pay Service Charge?”

Having examined paragraphs 1 to 3 of the Schedule dealing with Service Charges, he said:
“They prescribe the contractual route down which the Landlord must travel to be entitled to payment”.

Since the Landlord had not travelled down that contractual route it lost.

The plain and obvious lesson arising from Leonora for all landlords is: follow the language of the Lease. Do not attempt to be creative. If you seek to do so, the result may be a disaster. Leonora picked the wrong contractual route. The route did not lead to a destination marked “recovery”. Instead it arrived at a destination marked “failure”.

Mark Warwick
Selborne Chambers
28 July 2008