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Article: In Brief
Property law in England and Wales has its roots in
antiquity.
Modern property law involves two elements: common law
or judge-made law and statutory law or Acts of Parliament.
Years of case law and numerous acts make the whole area
quite complex.
Renting (or letting) is a contractual arrangement
whereby a tenant occupies and gains a legal interest in land exclusively
for a specified period of time in return for the payment of rent.
Before WW1 most people in Britain rented their homes, farms and business property. This situation
changed dramatically for housing over the course of the
20th century until only about 7% rented their homes in
1991.
Whilst business lettings remained largely unaffected,
housing was influenced among other things by social
legislation and public sector housing provision.
The poor image of landlords, total security of tenure
for tenants, and the consequently low returns, made
letting residential property unpopular until just a few
years ago.
The change was mainly brought about by a rebalancing
of the rights between landlord and tenant in the 1988
and 1996 Housing Acts.
Investment returns have become
economically viable again, which has
encouraged home owners, small landlords and investors to enter the lettings market.
The legislative changes have coincided with shifts in
the modern lifestyle which have begun to favour renting
for its flexibility.
Low interest rates and a volatile stock market have
resulted in a buoyant housing market and more and
more people looking to buy-to-let.
How
"Landlording" Started
Property matters in
England (and indeed in much of the English speaking
world) stem from well over 1000 years of English and
European history.
The manorial system (seignorialism),
begun under the Roman Empire, became common from around
the 5th century onwards in England and much of Europe.
Peasants became bound to the land and dependent on their
landlords for protection and a basic form of justice.
Later, feudalism, which
lasted until around the 15th century, became widespread.
This was a contractual system
of military and political relationships existing among
the nobility of Western Europe. It was a system whereby
fiefs (land and labour) were granted in return for
political and military services. This was based on a
form of contractual
relationship sealed by oaths and fealty (fidelity).
Lords provided knights for their
king by dividing their
estates into smaller parcels known as "knights'
fees" which they allocated to tenants able
to serve as knights. These knights in their turn would
grant plots of land to their own tenants (villeins) in return for their services. In
effect a feudal pyramid developed, akin to the modern
landlord-tenant and sub-tenant relationships.
Lords had few if any rights from
their king, and likewise knights (tenants) had few if
any rights from their Lords. The system was open to
extortion and abuse if not benevolently applied and not
until the signing of Magna Carta in 1215 did England see
any statutory rules on human and property rights.
The statute of Quia Emptores (1290) was a major turning point
which allowed the purchase and sale of land, removing
the importance of the personal relationship between lord
and tenant as being basic to land tenure. The legal
principles of this statute still regulate the transfer
of land in England and Wales to this day.
Land
Tenure
Today, ultimately, all land in England
and Wales is owned by the state,
land being merely "held" on tenure
(freehold) reverting back to the state in the absence of rightful heirs. To all intents and
purposes a freeholder (fee simple absolute in
possession) is the owner of property for life.
The
Law of Property Act 1925 defines these ancient legal
concepts, "fee" as heritability of the tenancy and "simple"
meaning no restrictions as to inheritance,
"absolute" being everlasting
(except where the freeholder dies without heir) and
"in possession" either personal
occupation or the right to take rents or
profits.
The Law of Landlord & Tenant deals
with leases, which are contractual agreements permitting tenants
(lessees) to
occupy land and premises exclusively for a period of
time in return for regular rent payments. On expiry of
the lease, at common law, the freeholder (lessor or
landlord) is entitled to resume
possession.
Modern
Property Law
Landlord and Tenant law
now has a dual nature and is rather
complex. On the one hand it is based on common law
contract or judge-made law which has evolved over the
centuries.
However, Parliament interferes with and distorts common law and equitable principles through the
passing of statutory codes and regulations, The Law of
Property Act and the Rent and Housing Acts
being examples. Increasingly, European Law, Acts of Parliament, codes of conduct,
and statutory or non-statutory rules and regulations of
many kinds are all affecting the letting of
property.
The whole process is
slowly changing and evolving as new legislation comes
along and courts set new precedents as they interpret
both common law principles and statutes vis-à-vis
individual cases.
Lawyers and property
professionals keep up-to-date with the interpretation of
the law by studying recent case decisions. Every now and
then a landmark case decision sets a precedent which
becomes a guiding principle, until such time as it may
be further challenged.
A business
tenancy is a contractual arrangement between landlord
and tenant governed by common law for the period of the lease term.
The main landlord tenant legislation comes in when disputes
arise at the end of business tenancies regarding
security of tenure and grounds for possession.
Business tenancies are covered in the main by the
Landlord and Tenant Act 1954 Part II, unless both
parties have agreed before the agreement to contract out
of the Act.
In the case of
residential tenancies they are governed by statutory
(parliament made) rules and regulations from day one of
the tenancy. Whilst the residential lease is still
a contractual relationship between two private parties
in law, much of the residential tenant/landlord
relationship is governed by acts of Parliament.
Private
Landlords
Up until about 1914 approximately 90 per cent of all
housing in Britain was privately rented. This compares
to only about 10 to 11 per cent at the end of the century,
though from a low point of about 7 per cent in 1991 there has been a steady increase
over the last few
years. It is now predicted that the privately
rented sector will reach 15 per cent of the total
housing market by 2002.
The trend of decline
in private renting throughout most of the 20th century
was due largely to social trends and legislation
designed to switch the balance of power away from the
landlord in favour of the tenant.
Examples of notoriously
harsh Victorian landlords entered the public psyche
through writers such as Dickens and Trollope, and the
process was exacerbated in the 1950s by the notoriety
and scandals of Peter Rachman et al. "Rachmanism"
has entered the language as a term used to describe the
activities of ruthless slum landlords and their exploitation
of hapless tenants.
The first Rent Act was passed during the First World
War (1915) as a "temporary" means of
preventing landlords from exploiting the increased wages
of munitions workers. This was the start of a whole
series of legislative acts designed to protect tenants,
the result of social legislation inspired by an extremely poor public image
caused by rouge landlords.
Security
of Tenure
Rent
controls and total security of tenure (Landlords unable
charge market rents or terminate tenancies, which even
passed on to successive generations) swung the balance
so much the other way that over the century the decline
in privately rented residential property was quite dramatic.
In effect, letting residential property
throughout much of the 20th century became uneconomic
for the private landlord. Too many landlords had their "figures
burned" through immoveable and
uneconomic tenants, so the national stock of private
residential housing virtually dried up.
Over the years several legislative attempts at
relaxing controls were made to stimulate supply, but none
was effective until the 1988 Housing Act brought in the
Assured Shorthold Tenancy. This was a turning point enabling
landlords to let at or near market rents with a
guarantee of getting their properties back.
The
Shorthold Tenancy
This Shorthold Tenancy
started
to stimulate supply again but it was, and still is, a
slow process particularly as the legislation did not
apply retrospectively, i.e., not to Rent Act tenancies created
before 15 January 1989.
Currently about 70% of UK housing stock is in owner
occupation. About 19% is in social (local council and
housing association) ownership, the the remaining 10/11% in
the hands of private landlords.
Owner occupation has
risen steadily with increasing affluence and the
influence of the Thatcher years policies of selling off
council properties. This process has continued to the
point where housing associations are becoming the main
owners of social housing.
The increasing wealth of UK professional and many working
families, with inherited family property and increasing
investment funds, has encouraged the move into rental
property as an investment alternative.
This, coupled
with the Assured Shorthold Tenancy and the buy-to-let mortgage
has resulted in a steady rise in the supply of
privately owned rented accommodation. We have a long way
to go to reach the levels of the European market, but
there is now a definite move in this direction.
Demand
for Renting
The other side if the
coin is the demand for rented housing. Demand has begun to
increase encouraging more supply.
The rapidly rising property prices in the hot spots, particularly
London and the south east, has resulted in first timers
being squeezed out of some areas as buyers, but not
necessarily as renters.
For the tenant, renting
has become a convenient alternative to buying and for
some it has become the only option:
- Job mobility, job insecurity and
short-term work contracts have meant that many are wary about
becoming locked-in to owning a property.
- Co-habitation prior to marriage,
again means that couples are often reluctant to become looked-in
to a property and a large mortgage, which may be difficult to unravel
if there is a split.
- Higher divorce rates and an
ageing population, with people in general living longer, has
increased demand for housing and particularly single
accommodation.
- In some high-priced areas first
time buyers have been priced out and renting has become the only
option.
The
Future of "Landlording" in the UK
For economic prosperity
the country needs a mobile and flexible workforce and
the fast-changing modern economy of Britain needs more
high quality private rented accommodation.
If business and
enterprise is to be encouraged, a UK government priority
in the 21st Century, then commercial premises also need
to be readily available for renting.
All the signs are that
the increasing demand for rented residential property
will continue to expand. The long-term trend with
commercial property is less clear but there will always
be demand for quality property in good locations.
Legislation now appears
to be striking a sensible balance between the rights of tenants
and landlords. If this can be sustained it will
encourage more enterprising landlords (part-time
investors as well as businesses) to offer improving
standards of residential accommodation.
There is also a role to
play for the small private landlord in providing
commercial premises for the many small businesses
needing accommodation on the high street and beyond.
In this way the private
landlord can make an increasing contribution to local
communities and the quality of life in the UK today.
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LandlordZONE® 2006 all
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