Should I sell or risk tenants buying at undervalue price?9:08 AM, 25th September 2019
About 3 weeks ago 48
Landlords are concerned that the Government has announced it will abolish section 21. Labour and Liberal Democrats are also in favour. I may written elsewhere about why abolition is a very bad idea: ‘Removal of Section 21 Housing Act 1988‘
The fear of it is already causing landlords to pull out of the market. What may will be unaware of is the announced intention to “bring forward” to section 8 claims some of the same obstacles to a claim as currently apply to s21 claims. This will lead to great injustice for landlords. We have not seen the draft legislation, but given the recent trend (and in particular how Draconian the Tenant Fees Act is) I fear the worst. Below are two scenarios that I hope never arise, but fear might. Please lobby your MPs to ensure any legislation does not permit such absurd results.
Larry has let his property to Tony at a rent of £1000 a month. In 2020, Tony is a month late paying his rent. He says he was moving jobs and had temporary cash flow problems. Larry charges a month’s interest for the arrears. Bank Base Rate is 3/4% and so the maximum interest rate allowed is 3% above that, namely 3¾%pa. 31 days divided by 365 x £1000 x 3 ¾% is £3.18. Larry sends a bill for this and Tony pays it.
Some time later Tony stops paying rent. Tony tells Larry he has lost his job and expects to start a new one shortly. No rent is paid and after the third missed payment, Larry takes legal action and issues a claim under section 8. There is a backlog of cases at the court and by the time the case is heard, Tony is still without a job but now 10 months in arrears. The case should be open and shut. Tony owes £10,000 and has been persistently late paying rent. However, on the day of the hearing Tony points out that when he was a month late paying in 2020 it was June and there are only 30 days in June so the interest for late payment should have been £3.08. Larry overcharged him by ten pence.
Under the Tenant Fees Act 2019 that ten pence is a “prohibited” payment. Section 17(3) of that Act (which let us assume now applies also to section 8 claims) says that no claim “may be given in relation to the tenancy so long as all or part of the prohibited payment” has not been repaid. Larry protests that Tony’s debt is 100,000 times the amount of the prohibited payment. However, the judge has no discretion and throws Larry’s case out. He also draws attention to the fact that Larry may be fined up to £5000 by the Council for having taken a prohibited payment or up to £30,000 if he has committed a previous breach of the Act in the past 5 years.
Lenny agrees to rent a house to Theo at £1000 a month with a £1000 tenancy deposit. He takes a holding deposit of £200. The tenancy goes ahead and Lenny sends Theo a completion statement:
|Rent for month||£1,000|
|Balance to pay||£1,800|
Theo pays the £1800. He continues to pay rent regularly, but Lenny receives complaints from the neighbours about “goings-on” at the house. There are a lot of people entering and leaving most days. Two burly looking men who are regular visitors have Dobermann dogs with them and they look menacingly at the neighbours as they pass. The neighbours’ children are terrified by the dogs. Car doors are slammed at night and the front garden is strewn with rubbish. One neighbour tells Lenny that when she called at the house to speak to the tenant she was told to “F*** off and mind your own f***ing business.”
Lenny decides to visit the property. It is now winter and Lenny notices that whilst the roofs of other houses are covered in snow, the roof of his house is clear. Lenny knocks at the door which is answered by one of the burly men who has a large dog on a leash. Lenny asks to come in but the man tells him that he can’t let anyone in without Theo’s permission. “Where is Theo?” asks Lenny. “I dunno. I expect he is sunning himself somewhere warm. Now go away. Goodbye.” He closes the door. Tony notices a sweet smell emanating from the house. The neighbours confirm they have noticed it too. Lenny suspects the house is being used as a cannabis factory. He leaves and then decides to bring a claim under section 8.
Although the neighbour says she is scared she agrees to give evidence. The case gets to court. Lenny is surprised to find that Theo, though absent, is represented by a barrister, Tarquin, who immediately applies for the case to be dismissed. “On what grounds?” asks the judge. “Under paragraph 3(a) of Schedule 2 of the Tenant Fees Act the holding deposit was supposed to be repaid to Theo within 7 days of the parties entering into the tenancy agreement” says Tarquin. Lenny points out paragraph 6 of Schedule 2 and says that he gave credit for the holding deposit. He produces the completion statement. Tarquin draws the judge’s attention to the precise wording of paragraph 6:
Paragraph 3(a) does not apply if or to the extent that the amount of the deposit is applied, with the consent of the person by whom it was paid—
(a) towards the first payment of rent under the tenancy, or
(b) towards the payment of the tenancy deposit in respect of the tenancy.
Tarquin explains that para 3(a) is only disapplied if Theo had consented to the holding deposit being applied towards the rent/tenancy deposit. Without that consent Lenny has taken a prohibited payment. Lenny must repay the £200 to Theo. Lenny argues that Theo must have consented but the judge points out that silence does not equal consent and that if consent were to be implied the words of the statute would be otiose.
“Nugatory, even” Tarquin chips in, helpfully.
Lenny doesn’t know what those words mean and feels out of his depth. However, things don’t seem right and so he plays his final card. “But as soon as I repay the £200, Theo will then owe me £200!” protests Lenny. “True” says Tarquin “and Theo will gladly repay it – my client is a very successful businessman – but in the meantime, your honour, you must throw out Lenny’s claim. The Tenant Fees Act does not allow for exceptions. Lenny may also be fined up to £5000 by the Council for having taken a prohibited payment.“
“That’s absurd” says Lenny. “No” replies the judge “I am afraid it’s the law of England. Case dismissed.”
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