The Deregulation Act 2015 (the Act) gained Royal Asset in the last Parliament. It contains a number of changes which will affect LPA Receivers who grant a new assured shorthold tenancy (AST) or take conduct of an existing AST granted by the Receivers’ principal.
The following update anticipates a scenario whereby secured lenders require vacant possession of a property occupied by authorised tenants. In this event, the lender usually appoints Law of Property Act 1925 (LPA) Receivers to manage out the authorised tenants. The update considers how the Act will affect the LPA Receivers.
Section 21 Notices
The Act will prevent a landlord from relying on a Section 21 Notice which has been served after a tenant raises a complaint (typically a disrepair allegation) absent of a sufficient response. The tenant will be able to prevent enforcement of the notice by contacting the Local Housing Authority, who may, depending upon the severity of the disrepair, serve an enforcement notice compelling rectification. The landlord would then be unable to serve a new Section 21 Notice within six months of the enforcement notice.
Impact for Receivers
Currently, the only defences to a Section 21 Notice are non-service or unprotected deposit issues. This amendment is clearly designed to prevent unscrupulous landlords from using retaliatory notices to silence complaining tenants.
We do not anticipate that this will adversely impact upon the Receivers’ ability to serve Section 21 Notices when vacant possession is required. Typically Receivers would have already addressed genuine disrepair allegations and responded to frivolous complaints, which would then clear the way for a valid notice to be served. However, Receivers may see an increase in defences raised in fast track proceedings (especially if the disrepair allegation was made to the borrower and not the Receivers), therefore it is essential that disrepair correspondence is well-documented and disclosed to the Receivers' solicitors prior to a Section 21 Notice being drafted.
Receivers may also want to consider tenants' conduct in the six months leading up to the appointment to see whether any complaints have been raised and if so that they have been properly dealt with.
Service of Section 21 Notice at start of an AST, notice expiry and prescribed form
The Act will prevent a landlord from serving a Section 21 Notice at the start of the AST. The earliest a Section 21 Notice could be served is four months after the start of the AST.
The Act will prevent a landlord from bringing a fast track possession claim six months after the date of service of the notice.
Further a Section 21 Notice will need to be completed in a prescribed form, with no need to specify a termination date coinciding with the last day of a rent period.
Impact for Receivers
It is not anticipated that this amendment will adversely affect Receivers who usually take carriage of existing ASTs or will grant ASTs for a typical minimum term of six months. Receivers are already used to working within the time periods set out in the current legislation. Whilst under the proposed legislation a Section 21 Notice could not be served as a matter of course when tenancy agreements are signed, the date when the notice could be served is easily diarised.
However, Receivers can no longer rely on a six month expired Section 21 Notice. This should not have wide ranging implications as it is good practice to issue proceedings close to the time the Section 21 Notice has expired in any event.
The introduction of a prescribed form can only minimise some of the errors associated with bespoke notices and incorrectly cited expiry dates and so is likely to be in the Receivers’ favour.
The Act also introduces various clarifications of the Tenancy Deposit Scheme (TDS):
- Where a deposit was paid in respect of a fixed term AST before 6 April 2007 and then became a statutory periodic AST after 6 April 2007, the landlord will not be jeopardised if it protects the deposit and provides the relevant prescribed information within 90 days of the Act coming into force.
- Where a deposit was paid after 6 April 2007 and placed in a TDS and the prescribed information served, then upon that AST becoming a statutory periodic tenancy the landlord's compliance with the TDS legislation in respect of the original AST will suffice for the purposes of the statutory periodic tenancy. These amendments confer no protection on those landlords who never protected the deposit during the original tenancy.
- A landlord of a tenancy that became periodic before the tenancy deposit scheme came into force on 6 April 2007 should protect those deposits. The legislation confirms that there is no financial penalty for failure to do so.
- It is acceptable to give the details, in the prescribed information, of an agent who protected the deposit for the landlord, instead of the landlord itself.
Currently where a landlord has complied with AST deposit statutory requirements, the landlord is able to serve a Section 21 Notice. In the event, of non-compliance (or no notice of compliance), the recommended strategy is to reconstitute and refund the deposit to the tenant, thereby enabling a Section 21 Notice to be served.
The above amendment to the deposit scheme will not impact post-April 2007 ASTs, which will form the majority of the Receiver’s AST portfolio. However, care should be taken if taking carriage of an AST created pre-April 2007 to check the new requirements regarding the deposit.
Suspending the eviction
Under the Act, eviction of a tenant can be suspended where the landlord has failed to comply with certain legal obligations including failure to comply with requirements relating to Energy Performance Certificates and Gas Safety Certificates. Typically, Receivers would have already addressed this.
Landlord obliged to provide information
The Act states that the landlord would be obliged to provide information about the respective rights and responsibilities of both the landlord and the tenant under an AST. Receivers should seek legal advice as a review of current AST templates may be required.
Claim repayment of rent
There is now a procedure for a tenant to claim back rent paid in advance in respect of a period falling after a Section 21 Notice brings the tenancy to an end under the proposed legislation.