Buying To Let: Expert Landlords’ Letting Experience & Instruction
If you own or purchase a property where the tenants have been in occupation since before 15th January 1989, then the tenant’s tenancy will be regulated by the Rent Act 1977. These tenancies, depending on the circumstances or context, are known as ‘protected tenants’, ‘statutory tenancies’ or ‘regulated tenancies’. However, I will refer to them all as ‘Rent Act’ tenancies.
The Rent Act 1977 consolidated the various acts that came before, so happily we do not need to go back any further than this. The Act was very unpopular with landlords, as it not only imposed the infamous ‘fair rent’ system, but also made it almost impossible to evict anyone. It was described to me by one of my landlord clients as ‘expropriation without compensation’ and I think a lot of landlords will agree with that.
It is arguable that The Rent Act 1977 and the previous acts upon which it was based were largely responsible for the massive decline in the availability of private rented accommodation, from 89% in 1914 down to about 10% now.
A tenancy comes under the jurisdiction of the Act if it is for a ‘dwelling house’ let as a separate unit, and which does not come within one of the exceptions set out in Part 1 of the Act. The exceptions include properties which had a high rateable value, or a very low rateable value, where the tenant made a payment for ‘board or attendance,’ lettings to students, holiday lettings, and resident landlords. However, as no new Rent Act tenancies will have been created for many years, most tenants will now know whether their tenancy is protected under the Act or not. The Rent Act also makes provision for ‘restricted contracts’ where occupiers who cannot claim full protection under the Act nevertheless have some protection. However, these are not considered in this article, as it is unlikely that there are many of these left in existence.
Rent Act tenancies are subject to rent control. A landlord could set whatever rent he liked initially; however, a tenant (or the landlord) always has the right to apply to the Rent Officer for a ‘Fair Rent’ to be registered. Once this is done, the fair rent is the only rent that can be charged, and the landlord can only increase it by applying to the Rent Officer, which can only be done every two years. The only exception to this is where the property is substantially improved, when the landlord can make an earlier application for a new fair rent to reflect the improvements made by him (note that this must be improvements, not repairs).
Towards the end of the 1980’s the registered rents were extremely low, partly because the Rent Officers did not have any ‘market rents’ to refer to when setting the ‘fair rent’. However, after 1989 landlords had greater freedom to set rents for new tenancies created after that date. This had a ‘knock on’ effect on the fair rents set, which started to increase drastically. As the majority of Rent Act tenants nowadays are older people on fixed incomes, many of whom who were suffering hardship as a result of this, the Rent Acts (Maximum Fair Rent) Order 1999 was passed, which limited the increases that could be made to fair rents. This order was challenged in the courts by the series of cases brought by Spath Holme Ltd. However, although this went all the way up to the House of Lords and the European Court, the claim was eventually unsuccessful and the Maximum Fair Rent Order stands.
Landlords who have Rent Act tenants (perhaps tenants in situ when properties have been bought from auction) should therefore be careful to apply regularly for rent increases whenever they can, as otherwise they may fall foul of this order and be unable to increase their tenant’s rent to the proper level.
Security of Tenure
The other main problem for landlords is that it is extremely difficult to evict a tenant who has a tenancy regulated by the Act. It is generally necessary to be able to cite one of the ‘cases’ set out in Schedule 15 of the Act. Most of these are ‘discretionary’ i.e. the Judge has a discretion whether to make the order for possession or not. As Judges tend to be sympathetic towards tenants and generally do not wish to be seen to be the cause of their being made homeless, a landlord will always have an uphill struggle to obtain an order. Landlords should also note that tenants will often be able to obtain legal aid to defend these proceedings, and this will put the landlord at risk of paying their opponent’s legal costs if they lose. Possession proceedings against a Rent Act tenant should therefore be commenced with caution.
There are a few ‘mandatory’ cases in the schedule where the Judge has no discretion. The most important of these was the owner-occupier ground, where the landlord was someone who had lived in the property as his home. However, it is probable that there are few of these tenancies now remaining. The two most significant used now are the ‘rent arrears ground’ and the ‘suitable alternative accommodation ground’.
Rent arrears – although this is a discretionary ground (unlike in the Housing Act 1988 where rent arrears of more than two months is a mandatory ground), a landlord will eventually be able to evict a tenant who is failing to pay his rent. It is normal, however, for the Judge to, at least initially, make a ‘suspended possession order ’ whereby a tenant is allowed to stay in the property if he makes regular payments off the arrears as well as his current rent. I have known cases where tenants have made numerous defaults on payment but the court has still re-instated the suspended possession order on application by the tenants (to the intense frustration of the landlord). However, there is no doubt that had the tenants failed to pay any rent at all they would have been evicted.
Note that if a property is in poor repair, a tenant will be able to counter-claim for damages to compensate him for this, which can then be offset against the rent arrears due. Rent arrears claims against Rent Act tenants should only be commenced, therefore, if the property is in good condition and after any claim made by the tenant in respect of repairing problems has been resolved. This often seems very unfair to landlords who complain that they cannot afford to put the property in repair without the rent from the tenants.
Suitable alternative accommodation – this remains the only ground which a landlord can use to recover his property where the tenant is paying his rent and generally complying with his covenants.* The accommodation must be ‘suitable for the needs of the tenant and his family’, so it should be in the same local area, and be of a similar character as the original property. However, it does not have to be exactly the same. For example, a middle-aged couple with no children living in a six-bedroomed property with extensive outbuildings cannot expect to be re-housed in a property of similar size, but only one which is necessary for their needs. Judges are more willing to make orders on this ground as they know that the tenants are not going to be rendered homeless by their order. However, any landlord seeking to evict a tenant under this ground must seek legal advice and proceed with great caution. There is a long string of relevant case law which must be taken into account when choosing the alternative property which you will be seeking to move the tenant to.
*Note that there is a ground providing for a landlord to recover a property for his own use (case 9). However, it is very difficult to succeed under this ground, as the Judge’s discretion is usually exercised in the tenant’s favour. Also, this ground cannot be used by a landlord by purchase.
Proceedings for possession can either be brought on the basis of forfeiture proceedings (if the tenant is failing to pay rent, for example) or after the service of a Notice to Quit, which must be in the proper form. The legal effect of serving a notice to quit is that it converts the contractual ‘protected tenancy’ to a ‘statutory tenancy’. However, all the tenant’s rights are retained by them.
When a tenant dies, their tenancy does not necessarily die with them. If they are a ‘joint tenant’, their co-tenant will then become the sole tenant. In the case of a sole tenant, if they have a spouse, then the spouse can stay in the property as a statutory Rent Act tenant, provided that the deceased tenant was the original tenant and not a tenant by succession. After a landmark case last year, ‘spouse’ can now include a same-sex partner. If there is no surviving spouse, or if the deceased tenant was a tenant by succession, there can be a second succession to a ‘family member ’ if that family member (who must be a family member of the original tenant, also in the case of a second succession) was living in the property at the time of the tenant’s death and for at least two years beforehand. This family member is then entitled to succeed to an assured tenancy under the Housing Act 1988.
A landlord is extremely circumscribed in what he can do with a Rent Act tenancy. Properties containing tenants regulated by the Rent Act should, therefore, be purchased with great caution, as a landlord may be making himself liable for expensive repairs under the landlords’ repairing obligations (as set out in the Landlord and Tenant Act 1985) with only limited powers to increase the rent. However, investment landlords may be prepared to carry this for the lifetime of the tenant, particularly if the tenant has no family to succeed, as the property will increase greatly in value after the death of the sitting tenant (and will sell for less at auction). Landlords who own suitable other property nearby may also wish to consider moving the tenant under the ‘suitable alternative accommodation’ ground, in order to release the property for development.