Is the section 21 notice now a risk?

by Paula Hebberd

10:39 AM, 19th August 2013
About 7 years ago

Is the section 21 notice now a risk?

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Is the section 21 notice now a risk?

Under Section 21 of the Housing Act 1988, once an Assured Shorthold Tenancy (AST) agreement has come to an end, a landlord has the legal right to recover possession of their property should they wish. Is the section 21 notice now a risk?

A landlord wishing to re-gain possession of a property is required to serve a Section 21 Notice to tenants. They do not have to give any reason for ending the tenancy.

There are strict rules for landlords to follow when evicting tenants. Under an AST, they must ensure that the tenancy has run for at least six months and that the initial contract term has finished. Landlords have a duty to protect deposits in a suitable holding scheme and to serve the correct notices using Section 21. There are two types of Section 21 Notice and it is important the right one is issued. If the tenancy is still within the contracted fixed term, the S.21 (1)(b) Notice should be served. Where the fixed term has ended and the tenancy has become a periodic agreement, the S.21 (4)(a) Notice is used. Landlords must give at least two months notice before evicting tenants. If the tenant does not vacate within the timescale, a court possession order can be obtained. Following this, if occupants still won’t leave, the landlord can apply again to the court for bailiffs to assist in tenant eviction.

Before going to court it is imperative that protocols have been followed properly. The appropriate notices need to have been served correctly and in a timely manner. According to the Chairman of the London Association of District Judges, a high percentage of eviction notices are being dismissed out of court due to mistakes made in their issue.

Previously, properly served Section 21 Notices have usually proved effective. Wishing to avoid the issue of going to court, tenants nearly always left within the requisite two months. However, it has recently become popular for councils to refuse a Section 21 notice as evidence of tenant eviction. They prefer to wait until the case has been brought to court and a possession order granted before re-homing individuals. As this process can take several weeks or months, it gives councils additional time to relocate tenants. However, it can be financially devastating for landlords, especially if the tenant is not paying rent.

The new Universal Credit system is also causing concern for both landlords and tenants. Previously, benefits were paid to claimants in separate instalments and rent paid directly to landlords, but tenants will now receive one payment, including housing benefit, from which they will need to pay their rent. Only a small percentage of tenants fail to pass rent on to their landlords. However, the new system could potentially see more individuals struggling to manage their finances effectively and the risk of rent arrears will increase. In addition, there is apprehension over proposals to recover arrears by reducing payments to the claimant and paying a percentage directly to the landlord. This could place tenants in an even more vulnerable position and the landlords will only recoup lost rent over very long periods of time and risk further arrears in the future.

It seems inevitable that the long-term result will be more landlords withdrawing from the social-housing sector, with the gap between supply and demand only increasing.


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Comments

Mark Alexander

11:15 AM, 19th August 2013
About 7 years ago

Hi Paul

Great article and much food for thought and discussion.

The two points which immediately spring to mind are what can be done to minimise the risks of taking on bad tenants in the first place and what can be done to minimise the time taken to evict bad tenants.

I am an advocate of serving section 21 (1) b early into a tenancy. Landlords who adopt this strategy often debate when is the best time. Some say as soon after the the deposit protection and prescribed information has been served, others say after three or four months. In truth, it doesn't really make a lot of difference and that aspect of timing is down to personal discretion. Personally, I like to serve as soon as possible. I have recently come across a tenant welcome letter which serves as a very user friendly section 21 notice and has been tested in court. watch this space for an article about that in due course.

Together with several other established landlords I have explained my logic for serving a section 21 (1) b before 4 months in the my response to this readers question >>> http://www.property118.com/serving-a-section-21-notice-after-tenancy-agreement-has-just-started/41878/

In summary, if you serve before the end of the fixed period you have less problems to run into in respect of dates of service. Also, if you serve before the end of the fourth month then you can immediately apply for a court order for possession the day after the expiry of the fixed period. If you don't serve during the fixed period then you will have to wait until the day before the next rent due date to serve a section 21 (4) a notice and then wait a further two months before being able to apply for possession. Therefore, service the section 21 (1) b within the first 4 months could save up to 3 months of additional waiting time.

Obviously prevention is better than cure. Letting to the right tenant in the first place will significantly reduce problems and the need to evict. Some landlords believe that referencing and RGI "Rent Guarantee Insurance" is the only way to go. I disagree!

I would only ever consider referencing a tenant if I had already seen their bank statements, proof of ID, proof of residence and visited their current home. Some would say that's invasive but I just consider it to be prudent. I advertise my properties at a fair price to attract high demand and I am, therefore, in a position to be picky. I always take the view that if prospective tenants want my property but don't want me to see their bank statements and/or their current home then they might be hiding something. I appreciate that some people don't agree to this on principle and that's fine, they have their principle, I have mine. Some will, some won't, so what, who's next!

I will consider pets if the existing property is well cared for. I look for scratch marks on the backs of door, I consider the state of the garden and the smell of the house amongst other things.

Bank statements tell me how they manage their affairs. I don't care whether they have an overdraft, just so long as all bills are paid on time and they operate their banking within agreed limits.

If I'm satisfied with all of the above I proceed to referencing. If they fail I will consider guarantors.

I do recommend RGI for smaller landlords as they tend to be more relent on rental income and don't tend to have reserves or the economies of scale to deal with a bad tenant which leads to an eviction. However, I have worked out that the premiums for me are greater than the risk, perhaps due to the way I do business as described above. I reached this decision by adding up the costs of the problems I have encountered over the years and comparing that to the amount I would have spent on RGI insurance. For me, the costs associated with problems came out lower than the cost of RGI which is why I decided to self insure.

I don't operate in the market for benefits tenants but if I did, I can't see that I would do much if anything any differently.

OK, well that's a lot of rambling from me but hopefully some readers will find this useful.

Mary Latham

11:32 AM, 19th August 2013
About 7 years ago

Mark you don't have to wait until the day before the rent due date to serve a S21 (4) (a) you can serve whenever you like so long at the deposit has been protected and the tenant has been served with the correct paperwork or the deposit has been returned. What you must do is ask for possession of the expiry of the last day of the tenancy period which may or may not be the rent due date. This is what can cost a landlord a lot of time.

The best way to avoid a S21 (4) (a) failing in court is to include what is known as a savings clause like this

"After (put in date Possession is required) or, if this notice would otherwise be ineffective, after the date being the earliest date not earlier than two months after the date of service of this notice when shall expire a period of the assured shorthold tenancy”

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mark Alexander

11:51 AM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mary Latham" at "19/08/2013 - 11:32":

You are quite right Mary, I can serve section 21 (4) a at any time during an SPT so long as the notice expires two months after the next rent day, that's actually what I meant to say. In other words, if the rent day is the first on January and I serve section 21 ($) a on the second of January the notice must not expire prior to 1st April. It's so easy to stumble with wording isn't it. Thank you for correcting me. No wonder so many landlords get it wrong!

I had a very interesting conversation with Dave Reany this morning. He has some very interesting legal documents which have been tested in court and which are a variations on the common themes. I mentioned one in my comment above, i.e. the friendly welcome letter which incorporates section 21 (1) b. Others include an Student Guarantee which limits a perents liability to that of their child as opposed to joint and several liability which is standard. another is a section 21 (4) a notice which is impossible for a tenant to legally dispute even if there was no tenancy agreement signed. Dave has agreed to write some articles about these and i'm sure that his wording will be far less clumsy than mine 🙂
.

Mary Latham

11:59 AM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mark Alexander" at "19/08/2013 - 11:51":

I look forward to seeing those Mark - worth adding to the arsenal.

I can see why parents don't want to guarantee other peoples kids -I have had that conversation many times. I am not sure where the landlord of a student HMO would stand on damages to common parts because no one ever owns up and it is only by having the joint and several responsibility/guarantee that we can recover our losses.

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mark Alexander

12:12 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mary Latham" at "19/08/2013 - 11:59":

Thanks Mary. A document library where landlords can read up on various notices and deeds and how to use them is long overdue on Property118. Dave has kindly agreed to produce a series of articles to create a "Landlords Legal Toolkit". The articles will be free to read and to ask questions and the document templates will be available to download for a small premium. Dave has kindly agreed to contribute 50% of the revenue generated from the sale of these documents templates to The GOOD Landlords Campaign. We are now working on the articles, mechanics for downloads and associated logistics. Watch this space 🙂
.

Mary Latham

12:45 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mark Alexander" at "19/08/2013 - 11:51":

Ooops I missed this, you said

"so long as the notice expires two months after the next rent day, that’s"

It must ask for possession on the expiry of the TENANCY PERIOD not the rent day.

For example

Tenancy starts on 10th of a month
Landlord want all his rents paid on 1st of the month
Tenant pays pro rata for the first month and on 1st of month thereafter
The rent period will end on the last day of each month
The tenancy period will end on the 9th day of each month

The S21 (4) (a) must ask for Possession on the expiry of the 9th of a month.

As you said no wonder landlords get it wrong and this is the reason that I serve at month 3 of the fixed term with a nice letter to explain why. This usually results in my knowing at month 3 whether or not the tenant intends to stay on longer than the first fixed term.

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mark Alexander

12:49 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mary Latham" at "19/08/2013 - 12:45":

Do landlords actually do that and if so why?

If a tenancy starts on the 10th of the month then the rent day is always the 10th of the month forever more, hence my choice of words.

I've never considered doing anything different, hence I've never run into the issue you are now raising.

Am I missing something here?
.

Mary Latham

13:00 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mark Alexander" at "19/08/2013 - 12:49":

I agree with you Mark but many landlords and letting agents have told me that they want all their rents to come in on the first of the month so that they can monitor any late payments more easily. I am also told that some tenants ask to pay on the first of the month after they have been paid.

If this happened to me I would simply agree to accept the rent on the 1st of the month but I would not change the AST and if the payment was late I would revert back to the contract.

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mark Alexander

13:05 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mary Latham" at "19/08/2013 - 13:00":

Intriguing, I don't recall ever having been asked that question. I wouldn't want all my rents to come in on the same day as it might make it harder to spot the woods from the trees and it would put a lot of pressure on me to reconcile and deal with any issues all on the same day.

Point taken though and well made for those it could affect.
.

andrew townshend

20:22 PM, 19th August 2013
About 7 years ago

Reply to the comment left by "Mark Alexander" at "19/08/2013 - 13:05":

sometimes it can be an advantage to time rent days to coincide with the tenants pay day, therefore tenancy ending date could be different to rent day, i have found this to work for me in some cases.

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