Uncategorized Archives - Ellery Tonner Law

How to Guide: Possession Claims and what a Lender needs to know

27 October 2021

If a borrower defaults on a regulated or unregulated loan that is secured against their property, a lender can enforce that security by obtaining a possession order and ultimately selling the property.

How then, does a lender get possession of the property?

We know you are very busy people, and this is why we have broken the process down into 12 clear steps in this guide.

The 12 Steps

The first step is that the lender must write to the borrower and tell them (i) how much the arrears are, (ii) the total amount outstanding under the mortgage and (iii) details of the interest or charges to be added. The lender should also advise the borrower to contact the Local Authority Housing Department or refer them to take independent debt advice.

If the borrower makes any proposal for payment, the lender must respond to it promptly and if the proposal is rejected, the lender must give written reasons within 10 days.

The lender can make a proposal to the borrower and, if it does, the proposal must be clear and give the borrower a reasonable period to consider the offer.

If the borrower decides to press on with the start of the possession claim, it must tell the borrower the reasons why at least 5 business days before starting proceedings.

Alternatively, if the borrower and the lender have agreed terms for a repayment agreement but this is breached by the borrower, the lender must warn the borrower with 15 business days’ notice that it intends to start a possession claim unless the borrower remedies the breach.

Generally, the claim must be started in the County Court for the district in which the property is located unless there are exceptional circumstances, in which case, it can be started in the High Court. The claim is started by sending the Claim Form and Particulars of Claim to the Court.

The Particulars of Claim must include:

Details of any other persons who are known to be claiming a right to occupy the property such as a spouse or any other person who has a beneficial interest in the property.

The state of the account including, (i) the amount of the advance, (ii) periodic payments and interest, (iii) the amount required to redeem the loan including solicitors’ costs and any administration charges and (iv) the rate of interest payable.

If the lender is aware that any other person says they have an independent right to occupy the property, they should be joined into the proceedings a defendant.

Once the claim form and particulars of claim are filed with the Court, the Court will issue the claim and allocate a claim number to the case and send a copy of the sealed documents back to the lender’s solicitor. At the same time, it will list a hearing date in a document called a Notice of Hearing. The lender’s solicitors must serve the sealed claim form, particulars of claim and Notice of Hearing on the borrower (and any other person joined in as a defendant) within 5 days of receiving the Notice of Hearing and 21 days before the hearing.

At the hearing, lender must produce a copy of the letter in step 9 along with evidence that it has been served on the borrower (and any other defendant) at the hearing.

The lender should file a witness statement with the Court shortly before the hearing and serve a copy on the borrower (and any other defendant). That witness statement should cover the following points:

The arrears, interest and sum required to redeem the loan as at the date the statement is produced and at the date of the hearing.

Attach a copy of the Mortgage Deed/Facility Agreement and any other terms of conditions.

Attach a copy of the default letter sent to the borrower.

Attach a copy of the searches carried out at Land Registry.

Confirm that the notice to occupiers has been sent and attach a copy of the notice.

At the hearing, the Court will consider the evidence presented by the lender and any defence raised by the borrower and reach a decision. The Court has discretion regarding the orders it can make which are:

Grant the possession order to the lender

Adjourn the hearing to another date if the borrower or any other defendant persuades the Judge, they need further time or if the lender has failed to comply with any of the requirements (at steps 1 to 11). The Court can order further directions required to manage the case to the next hearing date.

Grant a suspended possession order if the borrower can persuade the Court that it can make payments to clear the arrears and satisfy any other monetary obligation by the loan within a reasonable period.

The Pre-Action Protocol for Possession Claims based on Mortgage or Home Plan Arrears in Respect of Residential Property can be found here

If you need help starting possession proceedings against a borrower, do get in touch with our dispute resolution expert, Kelly Ellery.

Time to pay up: is your settlement agreement unenforceable?

26 October 2021.

According to a decision by the Court of Appeal, potentially, yes it could be.

The case of CFL Finance Limited v Laser Trust and Gertner [2021] EWCA Civ 228 raises a host of potential headaches for unregulated lenders pursuing the recovery of a debt from debtor where settlement terms have been agreed.

Why is this case a problem? you ask. Well, if by the settlement agreement the debtor is given more time to pay the undisputed debt across installments together with interest on what they owe, this could be caught by the definition of what amounts to “a consumer credit agreement” of the Consumer Credit Act 1974 (“the Act”). It becomes a serious problem if the lender does not have authorisation from the Financial Conduct Authority to provide credit and if the lender does not comply with the documentary requirements of the Act. If this is the case, then it is unlikely that the terms of the settlement can be enforced against the debtor. This can result in huge losses for the lender.

Therefore, careful thought should be given to the drafting of any settlement agreement to avoid the risk of it being caught by the Act.

How did this situation happen in the first place?

The case has a long history, dating back to 2008. Here is how it all happened.

CFL advanced £3.5m to Lanza Holdings under a facility agreement in June 2008. Mr. Gertner (“Mr. G”), whose family, owned Lanza Holdings, signed a guarantee, and guaranteed Lanza’s obligations to CFL.

Lanza defaulted.

CFL issued proceedings for £1.7m plus interest. At this point, £1.8m was owed in interest.

The interest continued to accrue on a compound basis at 2.25% per month

The litigation was settled on agreed terms between CFL and Mr. G.

Mr. G agreed to pay £2m to CFL across 8 quarterly installments and the dates that each of those payments was due was stated in the agreement.

A default clause was put into the agreement which said that if Mr. G failed to pay the quarterly installments, then the £1.7m capital sum would be due immediately together with simple interest on £3.5m and £1.7m. Compound interest was payable on the outstanding balance up to the date of payment.

Mr. G paid a little over £1.5m but did not pay anything else.

CFL served a statutory demand on Mr. G for £11m. He failed to pay and CFL commenced bankruptcy proceedings against him. The Insolvency Court declared Mr. G bankrupt.

Mr. G appealed to the High Court. He argued that the bankruptcy proceedings should have been stayed to allow Mr. G’s creditors to consider a voluntary arrangement (“IVA”) and, in addition, the settlement provided credit to Mr. G which meant that it was a regulated credit agreement which fell within the Consumer Credit Act 1974 (“the Act”). He said that the agreement was “unfair” because CFL did not have a licence from the Office of Fair Trading (as required under the Act at that time) and that CFL did not comply with the documentary requirements of the Act. Therefore, as the agreement was unfair, it followed that it was unenforceable.

The High Court agreed with Mr. G about the bankruptcy order and set it aside. However, the Court did not accept Mr. G’s arguments that the settlement agreement was “unfair”.

CFL appealed the decision to set the bankruptcy order aside. Mr. G cross appealed. He repeated his arguments that the settlement was a regulated credit agreement under the Act, and it was unfair because CFL had not complied with the requirements of the Act.

The Court of Appeal decided that because the settlement agreement provided for future payment of a debt that was owed, this did confer “credit” to Mr. G therefore it was caught by the Act. CFL did not have a licence from the Office of Fair Trading and, it had failed to issue the required documents to comply with the Act. As a result, the Court said that the settlement agreement was unfair and therefore it was unenforceable.

Here comes the legal bit

What does the Act say about consumer credit agreements?

Section 8 of the Act says that a consumer credit agreement is an agreement between an individual (“the debtor”) and any other person (“the creditor”) by which the creditor provides the debtor with credit of any amount. The key term “credit” is defined in Section 9 as including a cash loan or any other form of “financial accommodation”

All agreements that satisfy this definition are automatically treated as regulated credit agreements under the Act unless an exemption applies.

What are the documentary requirements under the Act that a lender must comply with?

In short, they are as follows:

The agreement must be in the prescribed form by the Act, containing all the prescribed terms.

It must be signed in the prescribed manner both by the debtor and the creditor

The creditor must supply a copy of the regulated credit agreement to the debtor

The creditor must give notice of cancellation rights to the debtor

Upon request by the debtor, the creditor must give the debtor a copy of the signed agreement and any other document referred to it, including a statement signed by the creditor which shows:

The total sum paid under the agreement
The total sum which remains unpaid

The total sum which is to become payable under the agreement by the debtor

The creditor must give the debtor statements which relate to consecutive periods about the debt owed. The statements must be issued annually.

The credit is obliged to give the debtor a notice of arrears if the payment(s) by the debtor is less than the total sum which should have been paid.

How does an agreement become unenforceable under the Act?

Section 140A says that a Court may order a creditor to reduce, discharge or repay a longer under a credit agreement if it decides that the relationship between the creditor and the debtor is unfair to the debtor because of one or more of the following:

Any of the terms of the agreement.

The way in which the creditor has carried out or enforced any of its rights under the agreement.

Any other thing done or not done by the creditor either before or after the agreement.

How can you stop your settlement agreement becoming

unenforceable against the debtor?

Check whether any of the exemptions under the Financial Services and Markets Act 2000 (“FSMA”) apply such as where the credit exceeds £25,000 and it is wholly or predominantly for the purposes of the debtor’s business. However, a note of caution here, it is important that the business purposes declaration is contained in the agreement. This is intended to help lenders discharge the burden of providing whether a credit agreement is exempt or not. The inclusion of the declaration (which must comply with all the formalities) creates a presumption that the agreement was entered into wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the debtor

If the period of credit to be given to the debtor in the settlement agreement will be over 12 monthly payments and interest is charged, the lender must ensure that it complies with all the requirements of the Act. This relates to all the pre-contractual information that must be given to the debtor, in the prescribed form and content of the agreement and that all the post agreement notices and statements are provided. Whilst this does create more of an administrative burden for the lender, it reduces the scope for the debtor to raise arguments that the documentary requirements of the Act have not been complied with. In most cases, it will be worthwhile the lender taking these additional steps when compared against the risk of the debt either being varied or discharged by the Court.

If, as a lender, your business enters lots of settlement agreements to avoid the significant costs of litigation, then it may be in your interests to consider obtaining authorisation from the Financial Conduct Authority.

If, upon reflection, the settlement agreement is likely to be construed as a consumer credit agreement, the lender will need to reconsider its original claim against the debtor either by issuing proceedings afresh or, where appropriate, re-commencing the legal proceedings. The downside to this approach, is that there will be cost consequences.

What next then for the future of these types of settlement

agreements?

There has been a lot of legal commentary about the consequences of this case in that it may possibly discourage lenders from agreeing settlement with the debtor and instead pursue the terms of the existing agreement through to Court. Not only is this option more expensive for lenders, but it also goes against the Court’s expectation and active encouragement to all litigants that they should try to settle their disputes wherever possible, and that litigation is a last resort.

CFL v Mr. G is currently being appealed to the Supreme Court which is the highest Court in England and Wales. We will have to wait and see what the Supreme Court makes of it all.

If you have any existing settlement agreements or you are considering settlement with debtors and you are worried about whether those agreements will be caught by the Consumer Credit Act 1974, get in touch with our dispute resolution expert, Kelly Ellery.

The Commercial Rent (Coronavirus) Bill and new Code of Practice for Commercial Property Relationships following the Covid-19 pandemic

The Commercial Rent (Coronavirus) Bill and new Code of Practice for Commercial Property Relationships following the Covid-19 pandemic

www.ellerytonnerlaw.co.uk

17 November 2021

The Bill

The Government has recently introduced a bill into Parliament, The Commercial Rent (Coronavirus) Bill (“the Bill”) with the intention of passing it by 25 March 2022 once it has been approved by Parliament.

The Bill applies to commercial rent arrears that were accrued by tenants when their businesses were forced to shut during the height of the pandemic when the national lockdown was imposed.

The Bill is going to establish a statutory arbitration process for commercial landlords and tenants in England and Wales. The new statutory arbitration process will apply to those landlords and tenants who have not already reached an agreement in relation to the rent arrears in the context of a business tenancy. The Bill will not affect any pre-existing agreements.

The Bill is intended to include rent, service charges, insurance costs and any interest from 21 March 2020 to the date that the restrictions ended for the tenants’ specific area of business (“the Arrears”). Therefore, the latest dates when the restrictions ended would appear to be as follows:

In England: From 21 March 2020 to 18 July 2021

In Wales: From 21 March 2020 to 7 August 2021

Collectively referred to as the “Relevant Period”.

The Arrears which accrued during the Relevant Period will effectively be ringfenced. The Bill does not apply to any other type of accrued debts.

The Bill introduces a moratorium period for the statutory arbitration. The moratorium period will commence from the date that the Bill comes into force as an Act until:

6 months after the date of the Act if neither the landlord nor the tenant applies for arbitration in relation to the Arrears; or

The date after the arbitration has concluded or has been abandoned.

(“the Moratorium Period”)

The Bill, once it is passed into law, will prevent landlords from taking any enforcement action against tenants for the recovery of the Arrears during the Moratorium Period by any methods such as:

Commercial Rent Arrears Recovery (“CRAR”)

Presenting a winding up petition

Presenting a bankruptcy petition against individuals where the statutory demand

used to commence insolvency proceedings was served on or after 10 November 2021

Issuing proceedings for a debt claim

Forfeiture of the Lease

The purpose of the Moratorium Period is to place importance upon the arbitration process. Where debt claims have been issued in the court on or after 10 November 2021 but before the Bill is enacted as legislation, if either the landlord or the tenant applies for a stay, the proceedings will be stayed to enable a resolution by arbitration.

Where a landlord has obtained a County Court Judgment or High Court Judgment against a tenant in relation to the Arrears accrued during the Relevant Period, enforcement action will be stayed to enable arbitration.

In relation to any bankruptcy order made against a tenant in relation to the Arrears on or after 10 November 2021 but before the Bill comes into force as an Act, that order will be void.

In addition to the above, a landlord may not use the rent which tenants are currently paying towards settling the Arrears. Landlords are also prohibited on being able to draw down on any rent deposit and use it towards the Arrears accrued during the Relevant Period. If a landlord has drawn down on a rent deposit, they cannot then oblige the tenant to top the rent deposit back up during the Moratorium Period.

The New Code

The New Code replaces the Code of Practice for Commercial Property Relationships during the Covid 19 Pandemic which was published on 19 June 2020. The New Code is intended to complement the Bill.

At Annex C, the New Code explains the stages that the binding arbitration process will have. We set those stages out in the flow chart below so that they are easy to see:

The decision of the arbitrator will be legally binding. There may be grounds for appeal in limited cases.

Arbitration bodies will have to show that they are competent to supply arbitration services. The criteria are they meet standards such as impartiality, monitoring and training of their arbitrators and, in the event of complaints made against their arbitrators, that there is a robust appeals system in place. More importantly, it is a requirement that arbitrators are experienced in business finances and commercial negotiations.

Conclusion

It is clear that the government’s priority at present is to safeguard tenants’ interests.

As with any Bill, it is subject to change before it is approved by Parliament and enacted into legislation.

We will monitor the position and issue guidance on any further updates as they become available.

If you have any questions on this issue or need help, please contact our dispute resolution experts.

The 7 Steps of a Terminal Dilapidations Claim

The 7 Steps of a Terminal Dilapidations Claim

www.ellerytonnerlaw.co.uk

19 November 2021

Check the Lease

Check the lease in plenty of time before it is due to end to see what this says about the tenant’s obligations regarding repair, reinstatement, redecoration and giving the property back to you.

You should also check through your records for a copy of any licence to alter, deed of variation and schedule of condition that you may have granted during the term. If you did, it is important that you check these documents so that you can be certain of the extent of the tenant’s obligations in relation to dilapidations.

The wording of the repair clause is important because this dictates the extent of the tenant’s obligation. If there is a term which says “full repairing lease” then it means that the tenant has full responsibility for the repair of the whole property which may include the structure, exterior and common parts.

Inspect the Property

Both you and your surveyor are going to need access to the property before the end of the term. This is so that you can assess the condition of the property and the extent of any dilapidations.

Check the terms of the lease as this will state what your rights of entry are and how you must exercise the rights. It is likely that you will be obliged to provide your tenant with notice of your intention to inspect.

Timing is everything

Once the existing lease has ended, your priority will be the ability to re-let it as soon as possible. Therefore, you will need to give some thought to the issue of dilapidations in plenty of time before the lease ends. Otherwise, there may be a delay in re-letting the property whilst you are still dealing with the dilapidations.

Here are some things you need to consider:

Does the lease state when you must serve a schedule of dilapidations on the tenant? If there is a deadline, it is crucial you comply with it otherwise your rights may be lost.

Be mindful of the Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (“the Protocol”). The Protocol stipulates that a landlord must serve the schedule of dilapidations on the tenant within a reasonable time. This is not more than 56 days after the lease has ended.

The lease may have a clause which allows you to require the tenant to reinstate any alterations or remove their fixtures only if you have served a notice requiring the tenant to do this by a certain date. Therefore, note any deadlines regarding notice and ensure that the notices and prepared and served on the tenant in sufficient time.

Check if there is a clause in the lease which stipulates that you may only recover the costs you have incurred in connection with the preparation and service of a schedule of dilapidations if you serve it by a certain date.

If you do not want to do the repair work yourself but your tenant does, then the tenant will need enough time to complete them before the lease ends. Otherwise, they will not be authorised to enter the property. If this happens, then it may be necessary to grant the tenant a licence.

Prepare the Schedule and Quantified Demand

Once you or your surveyor has inspected the property, your surveyor should put together the schedule of dilapidations (“Schedule”) together with a quantified demand (“QD”)

The Schedule should set out each breach of the tenant’s covenants in the lease by reference to the actual covenant in the lease which has been breached, how it has been breached and what work is going to be required to remedy the breach.

The Schedule must be costed in detail, and it must be in prescribed form. The prescribed form is contained at Annex B or C to the Protocol.

If you intend to prepare the Schedule yourself, then you should prepare the schedule using the prescribed form at Annex C. If you have instructed a surveyor, then they should use Annex C.

Once the Schedule has been prepared, it should be scrutinised thoroughly to make sure that it contains the correct information and to be certain that the tenant is in breach of the clauses that have been referenced.

The QD must set out all aspects of your claim and support the damages that you are claiming in the Schedule. If your claim is based on the costs of the repair works, then each item must be supported with a detailed estimate.

The figures in the QD must be restricted to your likely loss. This may not be the same of the costs of works to remedy the breaches.

The QD must comply with the requirements of the Protocol it should not include any items of works which are going to be superseded by something else that you intend to do with the property.

Serve the Schedule and the Quantified Demand

Once you are satisfied that the Schedule and the QD is accurate, it should be finalised, and a copy served on the tenant.

The lease may contain a provision which relates to how documents are to be served. Make sure you comply with this provision and serve the schedule and the quantified demand by the method stated in the lease and by the timescales specified.

In addition to what the lease states about service, you should also serve a copy of the Schedule and QD electronically. The Protocol says that you should do this wherever possible so that the tenant can respond and provide their comments using the one document. The purpose of this is to make it easier for both parties.

If there is a guarantor of the lease, then a copy of the Schedule and QD should also be served on that party at the same time you send it out to the tenant.

The Tenant’s Response

The tenant should respond to the Schedule and the QD within a reasonable timeframe. This is usually within 56 days of you serving the Schedule and QD.

Where possible the tenant should respond to the claim using the Schedule and QD that you have provided. The tenant’s response should provide enough detail so that you can understand what the tenant’s views are in relation to each item claimed.

The tenant’s response must comply with the requirements of the Protocol

Within 28 days of the tenant serving their response to the Schedule and QD upon you, it is advisable for you and the tenant (or your respective surveyors) to meet on a without prejudice basis to try and resolve the claim.

Working out the loss

If it is not possible to reach an agreement with the tenant regarding your claim for dilapidations, then you will require the assistance of the court to resolve the matter by issuing proceedings.

However, before you take the step of issuing your claim at court, you will be obliged to quantify your loss and provide a breakdown of that to the tenant. This is a requirement of the Protocol.

Your loss will be based on a formal diminution valuation prepared by a surveyor or information relating to your actual expenditure.

The process of valuing diminution involves a comparison of the value of the property in the state of the repair as stipulated by the lease and the value of the property in its actual state. The date of the valuation is the date that the lease ends.

It is important that you obtain evidence of any diminution in value if you do not intend to do any of the works to the property yourself. In the absence of a diminution valuation, there is a risk that the court will reduce any final award it may grant to you. Some of the cases that have been decided by the court suggest that the reduction to a landlord’s claim may be severe where there is no expert evidence presented regarding diminution valuation.

If you need help with your dilapidations claim then do contact our dispute resolution expert, Kelly Ellery.

How to end an Assured Shorthold Tenancy by serving a Section 21 Notice on a Tenant

How to end an Assured Shorthold Tenancy by serving a Section 21 Notice on a Tenant

www.ellerytonnerlaw.co.uk.

16 November 2021

Since the start of the Covid-19 pandemic there have been lots of changes to the notice periods which a landlord of a residential property has to give a tenant to recover possession of the property. Understandably, it has caused a great deal of confusion. This note concentrates on the position in England and since 1 October 2021 and is correct as at the date of publication in relation to properties let on an Assured Shorthold Tenancy (“AST”).

Section 21 of the Housing Act 1988 (“the HA”) allows a landlord to serve notice upon a tenant of a residential property to recover possession provided that certain conditions and legal criteria are met.

The landlord must use a proforma document, namely Form 6A, which is published by the Department for Levelling up, Housing and Communities or use a letter which contains all of the prescribed information. A minimum of 2 months’ notice must be given to the tenant to leave the property.

A Section 21 Notice is regarded as a “no fault” eviction. In other words, the landlord does not have to prove that the tenant is in breach of the tenancy agreement to obtain possession of the property. The crucial point is that the landlord has followed the correct procedure and that all the legal requirements have been complied with.

If the tenant does not leave the property once the 2 months’ notice has passed, a landlord cannot evict the tenant without a court order. It is illegal to evict a tenant from a residential property in the absence of a court order because of the provisions of the Protection from Eviction Act 1977.

The court has discretion whether to grant a possession order and may do so only if it is satisfied that it is reasonable to order possession be given to the landlord based upon the evidence presented by the landlord, and that all legal requirements have been satisfied. Therefore, the burden rests with the landlord to show that they have complied with the law and persuade the court to allow them to recover possession of the property.

What are the legal requirements that a landlord must comply with?

There is a lot of legislation which a landlord is obliged to consider and comply with when renting their property out to a tenant. Below, we shall explain specifically which legislation a landlord has to ensure they comply with to ensure that the Section 21 Notice is valid when it is served.

The Deregulation Act 2015 (“the DA”)

The DA brought in rules for the way a tenancy can be ended by a landlord.

The DA protects tenants from retaliatory eviction where they have raised a legitimate complaint about the condition of the property. Once the tenant notifies the landlord of their complaint, the landlord has time within which to respond and address the complaint and, remedy the disrepair to the property.

If the tenant refers the matter to the local housing authority and the housing authority subsequently serves a notice on the landlord in relation to health and safety conditions to be rectified, this means that the landlord cannot serve a Section 21 Notice until these issues are remedied.

A Section 21 Notice cannot be served within the first 4 months of the tenancy starting.

The prescribed form of Section 21 Notice, Form 6A, must be used to bring the tenancy to an end.

A Section 21 Notice cannot be served unless the landlord has obtained (and given to the tenant) a copy of the annual Gas Safety Certificate and the most up to date Energy Performance Certificate (“the EPC”).

At the start of the tenancy, the landlord must provide the tenant with information relating to the responsibilities of the landlord and tenant under a tenancy agreement as contained in the “How to rent: The checklist for renting in England”.

If the landlord has not complied with the above requirements, then it means that a Section 21 Notice cannot be given by the landlord. This is specifically stated in section 38 of the DA.

The Tenant Fees Act 2019 (“the TFA”)

The TFA contains rules relating to tenancies that were entered into by a landlord and a tenant after 1 June 2019. Amongst other matters, the TFA:

Prohibits all payments in connection with a tenancy except payments that are expressly permitted. The payments that are permitted are described within Schedule 1 of the TFA.

Bans most letting fees and it also caps tenancy deposits that a tenant pays.

Sets out that a landlord or their letting agent is prohibited from requiring tenants to make a payment as a deposit which exceeds 5 weeks’ rent where the annual rent is less than £50,000 or 6 weeks’ rent where the annual rent is more than £50,000.

States that a holding deposit to secure a property is capped at 1 weeks’ rent.

Where a landlord is in breach of any of the above provisions, the landlord will be unable to serve a Section 21 Notice. If the landlord attempts to do so, then the Section 21 Notice will be deemed invalid.

The Housing Act 2004 (“HA 2004”)

Since 6 April 2007 by the provisions of the HA 2004, it has been mandatory for a landlord to join a Tenancy Deposit Scheme (“TDS”) upon entering a new tenancy where a deposit is paid by the tenant at the start of the tenancy. The landlord must comply with the requirements of the TDS and give prescribed information to the tenant

Within 30 days of receiving the deposit from the tenant, the landlord must tell the tenant:

The address of the rented property
The amount of deposit paid
How the deposit is protected
The name and contact details of the TDS
The landlord / or the letting agency’s name and contact details
The reasons why the landlord would keep some or all the deposit
How to apply to get the deposit back
What to do if the tenant cannot get hold of the landlord at the end of the tenancy
What to do if there is a dispute over the deposit

If the landlord fails to protect the deposit in the TDS and provide information to the tenant, the landlord cannot serve a Section 21 Notice.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“the DRR”)

The DRR create some protections for individuals who have obtained a breathing space moratorium or mental health crisis moratorium. Once the protections are in place, it restricts a creditor’s ability to take enforcement action in relation to a moratorium debt during the moratorium.

A moratorium debt is any qualifying debt owed by an individual at the time they apply for the moratorium, the details of which they have given to the Insolvency Service. Qualifying debts include arrears of rent and other sums due to a landlord under a lease.

A landlord is likely to encounter the DRR if one of their tenants has financial problems and has obtained a moratorium. The Insolvency Service maintains a register of individuals who have obtained a moratorium and will notify all the creditors that the moratorium has started.

A Breathing Space Moratorium protects an individual from enforcement action by a creditor in relation to a moratorium debt for up to 60 days or until the moratorium is cancelled.

A Mental Health Moratorium Crisis is available to a person who is receiving mental health crisis treatment. It lasts until 30 days after the person stops receiving mental health crisis treatment or the moratorium is cancelled.

If a tenant has obtained a moratorium, this does not stop a landlord from serving a Section 21 Notice on the tenant and then commencing possession proceedings. However, if the landlord intends to also include a claim for rent arrears regarding a moratorium debt, then it may be the case that the DRR prohibit the enforcement of any order that may be granted by the court for rental arrears.

The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 (the “ESSR”)

The ESSR came into force on 1 June 2020 and require landlords to ensure that the fixed electrical installations in their properties are safe. The national standards for electrical safety must be met. These are currently set out in the 18^th edition of the Wiring Regulations published as British Standard 7671.

Landlords are obliged to:

Ensure the electrical installations are inspection and tested by a qualified person at least once every 5 years.

Obtain a report from the person conducting the inspection and test which provides the

results and sets a date for the next inspection and test.

Supply a copy of the report to the existing tenant within 28 days of the inspection and test.

Supply a copy of the report to a new tenant before they occupy the property.

Where the report says that repair work or further investigations are necessary, the work must be completed within 28 days or sooner if specified in the report.

Supply to the tenant and the local authority written confirmation of the completion of

the repair works from the electrician within 28 days of completion.

Section 38 of the DA stipulates that where a landlord is in breach of a prescribed requirement, then a Section 21 Notice may not be given. The “prescribed requirements” are requirements imposed on landlords by any law which relate to:

The condition of the property (or the common parts)
The health and safety of occupiers of the property
The energy performance of the house.

There is an argument that the ESSR is a piece of legislation that relates to the health and safety of a tenant as occupier of the property, therefore, should a landlord fail to comply with the requirements, then there is a risk that the court will decide that any Section 21 Notice served upon the tenant is invalid and will not grant possession of the property back to the landlord.

Obtaining a possession order from the court

If, once the Section 21 Notice has been served, the tenant does not leave the property at the end of the 2-month notice period, then the landlord must issue possession proceedings to obtain a court order to evict the tenant. This action must be taken within 6 months of the date the Section 21 Notice was served.

The court has complete discretion in the context of a landlord seeking possession based upon a Section 21 Notice which means that it may grant an order for possession. There are no mandatory grounds.

A possession order will only be granted if the court is satisfied that the tenancy was ended correctly by the appropriate Section 21 Notice and that the landlord has complied with all legal requirements as discussed in this note.

If the court is willing to grant the possession order, they will usually order that possession be given to the landlord within 14 days. However, the court has power under the HA to postpone the possession order for a maximum of 14 days or, where the tenant can show exceptional hardship, up to 6 weeks.

If the court is not satisfied that the landlord has complied with all legal requirements or there has been a breach of any law, then the court will not grant the possession order, it is likely that the proceedings will be dismissed, and the landlord may be required to pay the tenants’ legal costs of the proceedings.

In view of the risks facing landlords, it is imperative to ensure their house is in order before taking steps to service a Section 21 Notice.

How to ensure that the Section 21 Notice will be valid before serving

Before serving the Section 21 Notice, a landlord should run through the checklist below to ensure that they have complied with all legal requirements and obligations.

The Checklist

Was the tenant given a copy of the “How to rent guide” at the start of the tenancy?

Has the deposit been placed into a TDS and the information given to the tenant within 30 days?

Has the tenant been given a copy of the Energy Performance Certificate?

Has a copy of the latest Gas Safety Certificate been given to the tenant and was it provided within the relevant timescales of the tenancy starting?

Has the Electrical Safety Report (and, where appropriate the subsequent confirmation of completion of repair works) been provided to the tenant?

Has the tenant made any complaints about disrepair? If so, have they been addressed? Has any referral been made to the local authority?

Has the tenant obtained a Breathing Space Moratorium or a Mental Health Crisis Moratorium.

Conclusion

If the landlord discovers that they are in breach of legislation then, they should take steps to remedy the position immediately. However, whether it is possible to remedy the breach and then proceed to serve the Section 21 Notice immediately depends upon the nature of the breach. It is recommended that legal advice should be sought in these circumstances.

Care should be taken when drafting and serving a Section 21 Notice upon a tenant because of the risks that the notice is invalid and that a possession order will not be granted by the court.

If you have any questions or need any help, please do get in touch with our dispute resolution expert, Kelly Ellery.

How Landlords can end a Tenancy Agreement by serving a Section 8 Notice

How Landlords can end a Tenancy Agreement by serving a Section 8 Notice

Ellery Tonner Law

10 November 2021

Ideally, a landlord wants to let their property out to tenants who pay their rent on time, keeps the property in repair and does not make a nuisance of themselves to the neighbours. Unfortunately, not all tenants play by the rules which can often cause landlords a whole lot of problems. What then, can a landlord do if they have a tenant who does not pay their rent, and breaches the terms of the tenancy agreement?

A landlord may terminate an Assured Shorthold Tenancy (“AST”) using the procedure under section 8 of the Housing Act 1988 (“the HA”) known as a “Section 8 Notice”.

The actual content of the Section 8 Notice is a proforma document, described as “Form 3” published by the Department for Levelling Up, Housing and Communities.

Form 3 was recently updated and came into effect from 1 October 2021. It is important to ensure that the correct version of the form is used otherwise it may not be possible to obtain a possession order.

During the Covid 19 pandemic, the ability of landlords to serve a Section 8 Notice and issue possession proceedings to recover the property back from a tenant has been restricted by the provisions of the Coronavirus Act 2020. This guide concentrates on the current position in England as at the date of publication.

There must be grounds for possession

The Section 8 Notice informs the tenant of the grounds the landlord is relying upon to bring the AST to an end and recover possession of the property.

The grounds for obtaining possession are set out in Schedule 2 to the HA.

There are some grounds that are mandatory, which mean that the court must grant an order for possession if the landlord can prove the ground. However, the other grounds are discretionary which means that if the landlord can prove the ground, the court has discretion over granting an order for possession or not. It all depends on what the court considers reasonable based upon the evidence.

A landlord must not attempt to or evict the tenant from the property without first obtaining a court order. It is illegal to do so because of the provisions of the Protection from Eviction Act 1977.

If the tenant does not leave the property by the date specified in the Section 8 Notice, the landlord must then commence possession proceedings to obtain an order from the court.

At the possession hearing, the court will look at the ground(s) the landlord is relying upon and assess if the landlord has proven the ground(s) based upon the evidence presented.

So then, what are the grounds that must be proven by a landlord?

Mandatory grounds for possession

The court must grant a possession order if the landlord can prove any of the grounds below.

No:	Description of Ground
1	The landlord occupied the property as their only/principal residence before the tenancy started or the landlord requires the property back to live in as their principle residence.
3	The tenancy is for a fixed term of no more than 8 months and was occupied as a holiday let during the 12 months before the tenancy started.
4	The tenancy is for a fixed term not exceeding 12 months and was let by an educational establishment during the 12 months before the tenancy started.
6	The landlord intends to demolish or reconstruct the whole or a substantial part of the property or carry out substantial works which cannot be carried out with the tenant there.
7	The previous tenant has died, and the tenancy has passed to a new tenant under a will or intestacy, but the new tenant is not entitled to the tenancy under the law of succession
7A	Any of the following conditions are met: The tenant, or a person residing in or visiting the property a. Has been convicted of a serious offence committed (i) wholly or in partly in or near the property (ii) against someone with a right to live in the vicinity of the property or (iii) elsewhere against the landlord. b. Has breached a provision of an injunction granted under section 1 of the Anti-Social Behaviour, Crime and Policing Act 2014 and the breach occurred (i) in the property (ii) elsewhere but the breach caused nuisance or annoyance to someone with a right to live in the property or in its locality or to the landlord. c. Has been convicted of an offence under section 30 of the Anti-Social Behaviour, Crime and Policing Act 2014. d. The property has been subject to a closure order under section 80 of the Anti-Social Behaviour, Crime and Policing Act 2014. e. The tenant or a person living in, or visiting the property, has been convicted of an offence under sections 80(4) or 82(8) of the Environmental Protection Act 1990 and the nuisance in question amounted to noise that constituted statutory nuisance.
7B	Both conditions are met: a. The Secretary of State has given a written notice to the landlord that the tenant, or any other adult occupier of the property is not entitled to do so as a result of their immigration status. b. The person or people named in the notice both of the following i. Is the tenant or other adult occupier of the property and ii. Is disqualified because of their immigration status from occupying the property
8	Rent is unpaid at the time of the service of the Section 8 Notice and at the date of the hearing: a. If rent is paid weekly or fortnightly, at least 8 weeks rent is unpaid b. If rent is payable monthly, at least 2 months’ rent is unpaid. c. If rent is payable quarterly, at least one quarter’s rent is more than 3 months in arrears. d. If rent is payable yearly, at least 3 months’ rent is more than 3 months in arrears.

Discretionary grounds for possession

If the landlord can prove any of the grounds below, the court may grant a possession order

No:	Description of Ground
9	Suitable alternative accommodation is or will be available for the tenant when the possession order is granted.
10	Some rent was unpaid by the tenant when the Section 8 Notice was served and has not been paid by the time the possession proceedings are begun.
11	The tenant has persistently delayed paying rent.
12	Any obligation of the tenancy (apart from non-payment of rent) has been breached or not performed.
13	The tenant, or anyone living with the tenant has allowed the property to deteriorate.
14	The tenant or any other occupier at the property with the tenant has caused a nuisance to neighbours or the landlord, or has been convicted of using or allowing the property to be used for immoral or illegal purposes or has been convicted of an arrestable offence which was committed around the property.
14ZA	The tenant or any adult living at the property has been convicted of an indictable offence which took place at a riot in the UK
14A	The property was occupied by a couple who were living together as a married couple or civil partners and: a. One (or both) is a tenant b. The landlord is a social or charitable housing landlord c. One partner has left the property because of violence or threatened violence by the other towards that partner or a member of the family who was living with that partner, and d. The court is satisfied that the partner who has left is unlikely to return
15	The condition of any furniture at the property has deteriorated due to ill treatment by the tenant
16	The property was let to the tenant as part of their employment with the landlord and is no longer employed by the landlord
17	The landlord was induced to grant the tenancy by a false statement made knowingly or recklessly by the tenant

What landlords need to watch out for

Notice before the tenancy starts

If a landlord wishes to rely on grounds 1, 3 and 4, the landlord must service prior notice upon the tenant. It does not have to be in any specific format so long as it is in writing. However, if the court considers that it is reasonable based on the circumstances, it can dispense with the notice requirement in relation to ground 1.

The Debt Respite Scheme Regulations

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020 (SI 2020/1311) provide a various amount of protection for people with debt who obtain a breathing space moratorium or a mental health crisis moratorium. This limits the ability of the person to whom money is owed (“a creditor”) from taking enforcement action in relation to the debt that accrues during the moratorium.

Where a tenant has obtained a moratorium, the landlord is prevented from serving a Section 8 Notice based on grounds 8, 10 or 11 in relation to any rent that is classed as “moratorium debt”. This means rent that was owed at the time the tenant applied for the moratorium.

If a Section 8 Notice was served on the tenant on grounds 8, 10 or 11 before the moratorium started but the tenant subsequently applies for a moratorium, the landlord cannot commence possession proceedings until the moratorium ends.

If possession proceedings had already been commenced and the tenant subsequently obtains a moratorium, the landlord must tell the court that there is a moratorium in place. Although this will not stop the possession proceedings, the court will not allow any action to enforce an order or judgment concerning a moratorium debt whilst the moratorium remains in place. Therefore, although a possession order can be granted by the court it will not be possible to enforce it by instructing bailiffs to evict a tenant until the moratorium ends.

The tenant is still obliged to pay rent during the moratorium period and, if they fail to do so, then there is a risk that the moratorium may be cancelled.

How much notice must be given to the tenant to leave the property

The amount of notice that a landlord must give to a tenant depends upon which ground is being relied upon. The table below sets out the notice period required for each ground.

Ground being relied upon

Notice Period

Mandatory Grounds

1, 5, 6 and 7

3, 4, 8 and 7B

2 months

2 weeks

1 month

Discretionary Grounds

9, 16

10, 11, 12, 13, 14ZA, 14A, 15 and 17

2 months

2 weeks

Proceedings can be issued as soon as notice has been served

Possession proceedings cannot be issued any earlier than the notice period stated in the Section 8 Notice in accordance with the above.

If any part of the Section 8 Notice is wrong, potentially, it means that it is invalid and it is unlikely that the court will grant a possession order. If the court refuses to grant a possession order then the tenancy will continue and, if the landlord still wishes to evict the tenant, then the landlord will have to serve a fresh Section 8 Notice and begin the process again from the start.

In conclusion

Before serving any notice upon the tenant, the landlord must first check whether there are grounds to do so, ensure that the correct version of Form 3 is used and also the correct notice period is given. It is also worth considering instructing a process server to personally serve the Section 8 notice upon the tenant.

If you need help preparing a Section 8 Notice, do get in touch with our dispute resolution experts.

10 Data Protection Tips for Landlords: Compliance with UK GDPR

10 Data Protection Tips for Landlords: Compliance with UK GDPR

www.ellerytonnerlaw.co.uk

4 November 2021

UK GDPR can be a minefield to understand and navigate. It can be tricky to gets to grips with how it should be applied in practice to certain sectors. We have put together these tips to help landlords stay on the straight and narrow when it comes to processing personal data.

Let us jump straight into the nitty gritty then!

Register with the Information Commissioner’s Office (“aka the ICO”)

As a landlord you will hold personal data about your tenants, and this is the case whether it is for just the 1 tenant or 100 tenants. That personal data will include information such as the tenant’s name, date of birth, occupation, contact telephone number, address, copies of their identification, credit check, references and their right to rent.

Therefore, as you are holding personal data, whether it is on physical paper or on an electronic device, you will be subject to UK data protection law as a data controller. This means you must register with the ICO otherwise, if you do not, you risk falling foul of the legislation and receiving a fine.

Check the reasons why the data is being processed

The key ingredients of the UK GDPR are that personal data must be processed lawfully, fairly and in a transparent manner.

Processing means using, storing, sharing or deleting information.

There are six lawful bases for processing personal data. Those which are likely to apply to landlords are:

Consent: The data subject has freely given consent for their information to be processed.

Legal Obligation: Processing is necessary to comply with the law.

Contract: Processing is necessary to fulfil a contract

Legitimate Interest: Processing is necessary to the legitimate interests of an organisation or third-party affiliate.

As there is a tenancy agreement (or lease) which is a contract, processing data is necessary under the terms of the contract. This will also apply in relation to guarantors who are entering into the agreement.

In relation to data held about other occupants of the property, other than the tenant, if this is required, then the appropriate grounds are the processing is necessary to your legitimate interests as the Landlord to know who is living at the property for health and safety purposes.

A note to the wary, if consent is the chosen basis to process the data, then there are extra obligations that you must adhere to such as giving the tenants (or other data subjects) the ongoing ability to revoke consent. Consent will be the basis for processing data if, for example, you need to speak with the local housing services or universal credit regarding rental payments.

Landlords are obliged to check if their tenants have the right to rent and, in some cases, must place any deposit into an appropriate Tenancy Deposit Scheme. Therefore, the data is being processed because there is a legal obligation on the Landlord to do so.

If you use tenant’s data to pass on to a contractor to conduct a repair, the data is being processed under the ground of contract fulfillment.

Document the processing activities

You must ensure that you document your processing activities and the bases under which the information falls under for processing purposes, i.e., legitimate interest, contract fulfillment, consent or legal obligation.

Your processes and policies should show what information you are holding about parties, who that data is shared with and how long the information is retained for.

Less is more

Assess all the data that you are holding and conduct regular audits to see where you can minimise the data. As a landlord, you will probably notice that you hold quite a lot of personal data about your tenants and third parties, such as guarantors and other occupants of the property.

Give some thought as to how long you really need to retain this information for and when it is legitimate to delete it.

If you have a managing agent who looks after your portfolio, consider whether you need to have any information over and above the tenants’ name and contact details. If your managing agents keeps detailed records of personal data relating to the tenants (and others) then there is no need for this information to be duplicated by you holding onto that same data.

Data minimisation is key to complying with UK GDPR.

Security

Another key part of UK GDPR is security. All personal data you are holding should be secured against any unauthorised access. This can be done through IT processes such as sufficient virus protections and firewalls.

If you employ staff then you should provide them with training so that they know how to keep the data secure, to look out for the latest phishing frauds and to ensure physical security in relation to devices that are holding the information such as laptops, mobile phones, USBs etc.

You are obliged to show your compliance with the security principle and have written documents and procedures in place around IT security, staff training relating to their responsibility to keep the data secure. These policies should be signposted, and copies given to all relevant people.

Privacy Notices

A good privacy notice will explain to tenants (and others) about all the many ways that you will collect, process and store data. Ensure that you provide a copy to all relevant persons or, if it is on your website (if you have one), direct them there.

The privacy notice should cover all stages of the tenancy, from pre-application, the credit and reference checks right through to the signed tenancy agreement stage.

Your tenants (and others) have the right to be forgotten about and so it is important that you explain when and how their data will be deleted. However, bear in mind that you will need to retain information about a tenant’s right to rent to ensure that you comply with your obligations under the Immigration Act 2014. Your privacy notice should detail this obligation and how you will continue to hold the data even once the tenancy has ended.

If there is any CCTV installed at any of your properties, the privacy notice should say how the data is recorded and stored. You will also need to include details about how long the information will be retained and when it will be deleted.

CCTV

Any CCTV installed at properties is likely to capture personal data about tenants and anyone else visiting a property, including tradesman. The use of CCTV, whether this is installed inside the property in communal areas or, to the exterior is going to subject to UK GDPR.

You should take steps to install signs in prominent positions so that anyone entering onto the property is fully aware that CCTV is in operation. You should make it clear you have a privacy policy in place.

Data Processing Agreements

If you use a managing agent to manage your properties, then, the managing agent will be regarded as a data processor because they will have access to the tenants’ data and, they are likely to pass that information on to third party contractors where necessary.

Therefore, considering that, it is important that the contract between you and your managing agent contains relevant clauses which cover the security of the data and how it will be processed. It is a requirement under UK GDPR to have such a written contract in place.

Subject Access Requests

Your tenant (and any other party that you hold personal data about) are entitled to ask you to provide them with a copy of all the personal data that you hold about them under a data subject access request.

If your tenant (or other party that you hold data about) makes a subject access request, you are obliged to respond to that request without delay and must do so within one month of receiving the request.

Data Breaches

If the worst should happen and you become aware of any incident which puts the personal data of your tenants at risk, you are obliged to report it to the ICO within 72 hours.

You must explain the nature of the breach, how many individuals have been affected and the consequences of the breach to the individuals concerned. You must also explain any steps you have taken to limit the effects of the breach.

For further information or help, contact our dispute resolution expert, Kelly Ellery.