A recent decision provides useful clarification on the interpretation of the Housing (Wales) Act 2014 (the 2014 Act) where fixed charge receivers have been appointed over a property.

Receivership is an often misunderstood relationship and this decision not only looked at receivership, but importantly how this impacted on the 2014 Act. As lenders consider recovery strategy this case gives some comfort that the 2014 Act does not hinder the receivership process.

Judicial decisions regarding the application of the 2014 Act are few and far between and because of this, the case was transferred to be heard before His Honour Judge Jarman QC.Whilst the County Court decision is not binding, it will no doubt have persuasive effect upon other Judges in the Welsh circuit as they look for guidance on how the 2014 Act should be interpreted.

Background

The mortgagors let the property to Mr West (the Tenant) on an assured shorthold tenancy. The property was subject to a mortgage and pursuant to its legal charge, the mortgagee appointed Perrett and Pedrosa of Touchstone Property Management (Touchstone) as fixed charge receivers (the Receivers). The Receivers’ strategy was to obtain vacant possession and so they brought a claim in the name of the mortgagors, acting by the Receivers as is the standard process. A notice was served on the Tenant (the Notice) under section 8 and ground 2 schedule 2 of the Housing Act 1988 (the 1988 Act).

Ground 2 under the 1988 Act provides that either:

  1. the landlord must give written notice to the tenant, prior to the start of the tenancy, that possession may be recovered under that ground (the Prior Notice); or
  2. the court is satisfied that it is just and equitable to dispense with that requirement.

Part 1 of the 2014 Act sets out the registration and licencing requirements for dwellings subject to a domestic tenancy. In this case the mortgagors were not licenced or registered as landlords under the 2014 Act. However, the Receivers were registered as landlords of the property and Touchstone was licenced for letting and property management work as an agent.

The issue

The Tenant denied that the Receivers should be granted possession on the following grounds:

  1. The mortgagors were and are not registered landlords under the 2014 Act thus had no standing to serve or instruct the service of the Notice; and
  2. It is not just and equitable to dispense with the requirement that the Prior Notice be served.

The key issue in this case was who is considered to be the landlord, once Receivers have been appointed, for the following purposes:

  1. Effective service of the Notice; and
  2. Compliance with the registration and licencing requirements under the 2014 Act.

The judgment

Service of Notice

Jarman observed that the Notice had been signed by an employee of Touchstone “for and on behalf of” the mortgagors. The landlord’s name was given as the mortgagors acting by the Receivers and the address as care of Touchstone’s office address. Although the individual who signed the Notice was not one of the Receivers, the name and address provided was also that of Touchstone.

Jarman applied aspects of the reasoning used by Arden LJ in McDonald and another v McDonald [2014], including acknowledging that receivers may serve a notice by way of agency in order to enforce a security. Jarman held that the mortgagors continued to be the landlords for the purposes of the 1988 Act in relation to seeking possession and the Receivers, in taking steps to enforce the security, were acting as agents. The Notice set out the position clearly and so service was effective.

Registration and Licencing Requirements

Jarman highlighted the importance of the agency of receivers in determining who the landlord is in the circumstances. He commented that the following points from Lightman LJ’s judgment in Silven Properties Ltd v Royal Bank of Scotland plc [2003] are relevant:

  • the mortgagors could not give instructions to the Receivers concerning the management of the property;
  • the management is undertaken by the Receivers for the Bank’s benefit, not the mortgagors’;
  • the Receivers have a duty to try and ensure the debt is paid, likely by facilitating a sale; and
  • the Receivers must be active in the protection and preservation of the property.

Considering the nature of their position, Jarman commented that it would assist the purposes of the 2014 Act if the Receivers are regarded as landlords, particularly as it confirms to the tenant and others concerned in the management of the property with whom they should be dealing. Accordingly, Jarman held that the Receivers were the landlord for the purposes of the 2014 Act. He noted that the fact Rent Smart Wales registered them as such supported his conclusion.

Following his finding that the Notice had been effectively served and the registration and licencing requirements complied with, Jarman considered it just and equitable to dispense with the requirement for the Prior Notice to be served. Possession was granted in favour of Receivers.

Impact

As long as receivers and their related property management company are correctly registered and licenced in accordance with the 2014 Act requirements, the nature of the agency of their relationship allows for the mortgagors to not be so registered and/or licenced.