Section 21 Notices

Perhaps now is an opportune time to review the process of using section 21 notices as a recent court decision (Spencer v Taylor 2013), after 25 years of use of these notices, could be a real game changer.

Section 21 of the Housing Act 1988 provides a no blame eviction process where the landlord does not need to give any reason for requiring possession. The downside to s21 (as opposed to section 8) is that it cannot be used during the fixed term, which in turn cannot be for less than 6 months, and the notice period is long – a minimum of 2 months.

There is no prescribed form for the s21 notice except that certain information must be provided. Providing the landlord or agent has made no technical errors in the process, which would give the tenant a defence, the judge must make out a possession order.

This latter point is a huge advantage to s21 over s8 as the tenant cannot bring a counter claim against the landlord, sometimes brought on spurious grounds, a process which usually becomes very time consuming and expensive.

There are two different notices under section 21: (1) s21(1)(b) the fixed-term notice and (2) s21(4)(a) the periodic notice.

The fixed term notice can be served at any time during the fixed-term, up to and including the last day of the term and cannot expire before the term comes to an end. In theory, once a fixed-term notice has been served during the fixed-term, it need not be served again when the tenancy has become periodic and even when it has been periodic for a prolonged period.

The periodic notice is different: this 2-month notice must expire on the last day of a tenancy period, on a specific date, which is a minimum of 2 months hence. Therefore the notice period can be nearly 3 months in some cases, and getting the end date correct is crucial.

Some useful case law in Ferndanez v McDonald, Lower Street Properties v Jones, Elias V Spencer has clarified the position regarding dates and mistakes, and introduced a concept known as the “saving clause”. This is a brief statement in the notice which allows the recipient to work out the correct date, even if the date is wrong. Usefully, Spencer v Taylor confirms that the statement always takes precedent over a wrong date.

The usual wording of the saving clause goes something like: The landlord seeks possession after [date] or, “if this notice would otherwise be ineffective, after a date which is the earliest date, being no earlier than two months after the date of service upon you of this notice, when a period of your tenancy ends”.

Enter Spencer v Taylor: here the appeal court judge’s interpretation of section 21 is such that s21(1)(b), the 2-month notice, is the only notice needed, even when the tenancy has become periodic.

Following this ruling, the s21(4)(a) notice (which requires an end date and potentially an extended notice period) is needed only when the tenancy has been a periodic one for the start – quite a rare situation.

It is really surprising that such an interpretation should emerge so long after the original legislation was introduced, throwing into doubt long custom and practice in the industry.

However, there are some provisos to this: although the appeal court ruling is sound as it stands, it may well be appealed to a higher level – the Supreme Court, which in theory could change it again.

Secondly, if you decide to rely on this judgement and change the way you serve notices for those tenancies whose started life as fixed-term, and have now lapsed into statutory periodic tenancies, you could come up against a judge who is not aware of Spencer v Taylor – it takes time for knowledge to filter down to 1st level courts. You may not convince the judge, so is it worth that risk?

The Superstrike Limited v Marino Rodrigues 2013 case has shown us that a statutory periodic tenancy is in fact a new tenancy, rather than a continuation of the existing tenancy as most people thought, therefore necessitating the re-protecting and re-serving of deposit prescribed information under s213 (HA2004)

Following this case some are using agreements which specify a contractual periodic tenancy, obviating the need to re-protect a deposit when the tenancy becomes periodic.

Therefore the periodic s21(4)(a) notice will still apply to any tenancy which has been periodic from day one, and for those tenancies which have provision for the tenancy to continue as a contractual periodic tenancy.

The best advice perhaps is to continue to use both notices as before until this law becomes settled, or is indeed overturned in the next year or two.

UPDATE: July 2014

Further developments on this reveal that the legality of using the s21(1)(b) notice for both types of tenancy has been confirmed.

Where a fixed term tenancy becomes a statutory periodic one S.21(2) the 1988 Housing Act provides that a notice under s.21(1)(b) “may be given before or on the day on which the tenancy comes to an end”

In other words, S21(1)(b) applies at any time in the life of a Fixed term AST, even if it has become Statutory Periodic. (Spencer v Taylor)

Remember though, if your tenancy was periodic from day one, or it is written into your contract that the tenancy continues on a periodic basis after the fixed term (contractual periodic tenancies) a Section 21(4)(a) would then be required.

Contractual Periodic tenancies obviate the need to renew deposit protection as per the Superstrike case, when a fixed term tenancy becomes a statutory periodic one, but this will mean that you need to use the more complicated Section 21(4)(a) notice should you need to evict.

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Winning Deposit Disputes

Landlords take deposits to give them financial security should tenants: (1) cause damage in the property, (2) leave the place needing extensive cleaning, (3) leave possessions in the property which need expensive removal, or (3) leave owing rent.

Landlords / Agents should ensure that the letting agreement (contract) provides for all these reasons for retaining a deposit.

Landlords / Agents should also be aware that deposits should not exceed 2 month’s rent. If they do under the provisions of the Housing Act 1988 it is possible to argue that the landlord took a “rent premium”, in which case it may be possible for a tenant to legally assign its tenancy without the landlord’s consent.

In April 2007 the government introduced, by way of the Housing Act 2004, the Tenancy Deposit Protection (TDP) Scheme.

This provides for deposits taken by landlords and agents to be either placed in a custodial scheme or alternatively held by the landlord / agent in a ring fenced account and protected by insurance backed TDP scheme.

The legislation was since amended by the Localism Act 2011 and at the time of writing is due for further amendment by the Deregulation Bill following the confusion caused by the Superstrike case.

Landlords and agents taking a deposit from an assured shorthold tenancy (AST) tenant must now protect the deposit in one of the approved schemes within 30 days of taking it. They are also obliged to serve on the tenant a set of statutory information regarding the scheme in question. This information and documentation (s213 notice) is available for download from the appropriate scheme’s website.

Landlords and agents are advised to get proof of service of this documentation on their tenant as failure to comply with any of the TDP rules will invalidate any accelerated possession (s21) claim.

Superstike raised the prospect of landlords having to re-protect the deposit and re-serve the statutory notice (s213) when a tenancy becomes a statutory periodic one from a fixed term tenancy. This is likely to change with any amendment but in the meantime landlords and agents should comply.

When a tenancy deposit or part thereof is supplied by someone other than the tenant, the s213 notice should be served on them, as well as the tenant.

Deposit Disputes and that Crucial Evidence

Most tenancies end amicably and the landlord or agent will agree to either refund the full deposit or an agreement between them and the tenant will be reached, such that all or a part of the deposit is retained to cover the issues mentioned above.

However, it is sometimes not possible to reach agreement and therefore the deposit amount in dispute is put into an arbitration process, which is handled by the DTP scheme in question at no cost to the parties involved. In some cases, where complications arise, the dispute will be transferred to the county court for settlement, in which case fees and costs will be involved, and normally the losing side pays these.

A deposit amounts in dispute will be released from the scheme when the parties agree to this. Otherwise the scheme adjudicators will decide on the evidence presented to them who receives the money.

It is crucial therefore that landlords and agents during the courses of letting build up sufficient documentary evidence to win a deposit dispute claim: a good inventory (preferably done by an independent inventory clerk) with check-in and check-out reports, including photos and tenants signature, is now essential.

Further evidence would include estimates and invoices for repairs and renewals, cleaning and removal costs, rent schedules where there are arrears etc. It is not possible to claim for work that landlords (DIY) do themselves.

Fair Wear and Tear

The contract between a landlord and a residential tenant has an implied term which means dilapidations to the property due to fair wear and tear are acceptable and cannot be claimed against the deposit.

What is fair wear and tear is a matter of subjective judgement to some extent but is informed by the experience of the landlord, agent or inventory clerk, and when in dispute will be decided by the scheme’s adjudicator.

These requirements contrast with commercial tenancies where the lease usually requires the tenant to put back the property into a tenantable state, which usually means complete redecoration, and can even mean major structural repairs as well.

Fair wear and tear has been defined by the House of Lords as:
“Reasonable use of the premises by the Tenant and the ordinary operation of natural forces”

This statement is not all that helpful when it comes to the task of deciding what is fair wear and tear and what goes beyond that?

Reaching a decision means making an allowance for:
– The original age, quality and condition of any item at the start of the tenancy
– The average useful lifespan to value ratio (depreciation) of the item
– The reasonable expected life time usage of such an item
– The number and type of occupants in the property
– The length of the tenants’ occupancy

It follows therefore from established legal practice that a landlord cannot charge its tenants the full cost of having any part of a property, or any fixture or fitting, returned to its original condition, as it was in at the start of the tenancy.

When it is not possible to effect repairs, any compensation when a new for old replacement is made will therefore involve an allowance for age, quality and fair wear and tear.

Further, a duty is placed on landlords and agents to adopt the most reasonable, practical and appropriate approach to achieving a remedy.

Appropriate remedies might include:

Only replacing items where it is so severely and extensively damaged it is now beyond economic repair or, it has become unusable. Here, the most economic repair would be expected.

Small stains on carpets for example may be put down to fair wear and tear, whereas more extensive mark and staining or burns would not.

However, depending on their position it may be possible to cover them with strategically placed rugs and mats and the adjudicator may insist on that.

Otherwise where a replacement carpet is deemed acceptable, any compensation by the tenant would need to take into account: its appropriateness for use in a rental (e.g. colour), quality, its age and expected lifespan. Therefore in these cases the tenant would be asked for a contribution to the cost, new and old.

Repairs or Cleaning

What is clean to one person is sometimes downright filthy to another.

Cleaning is the most common cause of a deposit disputes between a tenant and a landlord, with nearly a quarter of all dispute cases being attributed to issues of cleanliness.

Therefore any adjudicator’s decision will depend on the evidence submitted and how reasonable is the amount being claimed.

Questions the adjudicator may ask:
– Who says it needs cleaning? Is this opinion independent and impartial, e.g. an inventory clerk or agent?
– Did the tenant agree to condition and cleanliness at the start of the tenancy and was it made aware of potential costs of not complying – e.g., a specific clause in the agreement?
– Was the property professionally or DIY domestically cleaned at the start of the tenancy?
– What evidence have you got that shows deterioration, start to end?

Photo & Video Evidence

Photo and video inventories (ideally produced independently) are useful for recording the condition of the property at the start and end of the tenancy and when done properly will provide a clear record of the property prior to its occupation.

You need to make sure all photographs and video evidence is clearly dated and signed and agreed by both parties. This is much easier to achieve when an independent inventory clerk completes the task.

Always make sure the tenant is given a copy at Check-in/Check-out stage, and get a signature to say they agree and understand all the implications after viewing and discussing.

The end result of adjudication will always hinge on the quality of the paper documentation you present, so good quality photo evidence, signed by both parties will add considerably to the weight of a landlord’s case.

Preparing a Claim

Preparation for a deposit dispute claim starts pre-tenancy. If you have not planned your management process: agreement wording, quality inventories, check-ins and check-outs, communicating to tenants your expectations, interim inspections if necessary etc., then your chances of successfully claiming against a deposit are pretty low indeed.

Putting together a good claim is time consuming and evidence heavy – the adjudicator can make a decision only on the evidence presented in document form. Furthermore, there is no appeal once the adjudicator makes a decision. You cannot challenge an adjudication decision unless it is via a court of law. The more evidence you can produce and the more transparent you are with the whole process the better your chance of success.

As a landlord or agent you need to weigh the costs of putting forward a good claim against the amount of money involved. It the one outweighs the other it is sometimes better to return the deposit to the tenants and “bite the bullet” as cost of regards re-instatement.

This can sometime be an act of good will and will prevent any chance of retaliatory action by the tenant – it would not be the first time a landlord had a brick through the window of its rental property because the tenant felt hard done by losing its deposit.

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Tenancy Deposit Schemes

Letting a property can be financially worthwhile, and in today’s property market renting is becoming the favoured option for an increasing number of people. The latest development is the introduction of Tenancy Deposit Schemes.

 

If you are considering becoming a landlord or tenant, it is more important than ever to take expert legal advice before proceeding. Here are answers to some of the frequently asked questions about the new system to help you make an informed decision:

When did TDS’s come into effect?

Tenancy Deposit Schemes (TDSs) became compulsory under the Housing Act 2004 for all residential Assured Shorthold Tenancies created on or after 6th April 2007.

What are they for?

To protect a tenant’s deposit, and to resolve disputes before they reach the courts.

Do I have a choice?

Landlords can choose between a ‘custodial’ or an ‘insurance’ TDS. Under a custodial TDS the landlord is required to pay its tenant’s deposit to a Scheme Administrator within 14 days of receipt from the tenant who holds the deposit until the end of the tenancy. Under an insurance TDS the landlord retains the deposit but secures it by paying a fee and insurance premium to the Scheme Administrator. The Scheme Administrator will use the premiums to pay the tenant should the landlord default on the deposit.

Are there any other rules I should know about?

For landlords there are several new rules. ‘Prescribed information’ has to be given to both the tenant and to any relevant person – for example, a parent who pays rent on a property to be occupied by a son or daughter. This includes details of the Scheme Administrator and the procedure for repaying the deposit. The actual rules are complicated and require detailed legal advice.

The landlord also has to sign a certificate confirming that the information provided is accurate and that the landlord has given the tenant an opportunity to sign any document containing the prescribed information.

If I own a property in the UK but live overseas do I need a TDS?

Yes, if the property is let on an Assured Shorthold Tenancy in the UK.

What if I let the Assured Shorthold Tenancy before 6th April 2007 for six months and intend to let the same tenant stay?

If you create a new tenancy after 6th April 2007 on substantially the same basis as the previous tenancy, then the initial deposit that was paid before 6th April 2007 must be safeguarded through a TDS. If however you let the old tenancy continue on a periodical basis from month to month with no new agreement, then you will not need a TDS.

 

What if damage has been caused at the property?

A TDS will have a scheme to be used when there is a dispute. It is good practice for a landlord at the start of the tenancy to create an inventory, including a schedule of the condition of fixtures and fittings, in case a dispute arises over the return of the deposit.

 

What if I don’t use a TDS?

The landlord may be prevented from recovering possession of the property and may have to repay to the tenant or any relevant person, three times the amount of the deposit.

 

For further information on the approved schemes, please contact:

 

1. Custodial scheme

The Deposit Protection Service

www.depositprotection.com Tel: 0870-70171707

 

2. Insurance-based schemes

Tenancy Deposit Solutions Limited

www.mydeposits.co.uk Tel: 0871-7030552

The Tenancy Deposit Scheme

www.tds.gb.com Tel: 0845-2267837

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Checking Tenants In & Out

When you rent out a property two vital stages in the process are when you check-in your tenants at the start of the tenancy and check-out at the end.

Preparation is the key to a trouble free let. When you prepare properly you are carrying out management processes so that nothing is left to chance or forgotten and you are building up a set of documentary evidence in case things go wrong.

There’s a lot to remember at check-in, so without a proper checklist you are almost certain to overlook something important. Once the tenant is in the property it’s often too late – you don’t get a second chance, so you must get everything right first time.

You should always try to complete the check-in and check-out process at the rental property with the tenant/s present. That way everything can be agreed on the spot and all the documentation completed and signed there and then.

Make sure the property has been properly prepared and that nothing is left still to be done, which would give tenants an excuse not to sign the inventory. Make sure all alarms are working and any batteries have been replaced as necessary.

Never allow tenants into a property (hand over keys) until everything is signed-up and completed, and the deposit and the first month’s rent has been paid.

The Inventory

Either before or at the check-in an inventory must be prepared and agreed between the parties. Whether this is done by the landlord, the agent or an independent inventory clerk (the preferred option) it must be comprehensive, unbiased and to a good professional standard.

Good inventories usually include photographs, a full written report of condition (schedule of condition) and signed and agreed by landlord / agent and tenant/s. Without this your chances of a claim against the deposit are virtually nil.

A good inventory includes:

– Date and full names and addresses as per the letting agreement
– A thorough going list of interior and exterior condition: contents, décor, fixtures and fittings, all appliances.
– Meter readings, alarm checks and codes, equipment serial numbers, a full list of keys etc.
– Full report with either embedded photos or separate photos all referenced to the report sections, dated and signed on the back individually by the tenant/s.
– Inventory signed by all parties – and initialled on every page of the report.

See: Winning Deposit Disputes

The Check-In

By the time you get around to the check-in your will have completed a thorough tenant screening process: tenancy application form, credit checks and referencing and you will have prepared your AST letting Agreement.

All ingoing tenants should be present at the rental property for the check-in so that everything is agreed and signed at one go.

If the tenant cannot be present, it is important you go through the process with someone independent of the letting and allow the tenant/s to review the documentation, agree and sign it before handing over keys.

You should walk around the whole property, inside and outside with your tenant/s to make sure they agree with the inventory and condition statements and you can discuss anything which is not clear to them. You can explain the condition of items stated in the report and make sure the tenant/s is aware of what is expected of them during the tenancy.

Go through the checklist with the tenants making sure they understand and agree at every stage:

– Meter readings
– Test alarm settings, batteries and codes
– Keys and locks
– Stop taps, isolator switches and fuses
– All appliances working – make sure you supply all safety instructions
– Sign up the inventory and tenancy agreement and take the deposit and first month’s rent.

See our Check-in Check-out Checklist for a full list of items to check.

Your tenancy agreement should provide the tenant with details of the Tenancy Deposit Protection arrangements and confirm that the deposit will be protected within the 30 day statutory protection period in whichever scheme you have selected.

Make sure that your agreement spells out the reasons why a deposit may be withheld at the end of the tenancy, usually if tenants: (1) cause damage in the property, (2) leave the place needing extensive cleaning, (3) leave possessions in the property which need expensive removal, or (3) leave owing rent.

You should provide contact details so that the tenant can get in touch if they have any initial problems.

Mid Tenancy Inspections

The Mid-tenancy Inspection takes place at an agreed interval during the tenancy. This is usually after the first 3 months and then every 6 or 12 months after that.

Landlords and Agents find these interim inspection visits helpful to monitor the lifestyle of the tenants and the condition of the property and helps in deciding whether to offer an extension of a tenancy. Make sure you give at least 48 notice of a visit and visit at a convenient time for the tenant/s.

However, not all private landlords do this, preferring to keep the monitoring low key; after all tenants sometimes view these inspection visits as intrusive and patronising. Often inspection opportunities will arise naturally when tenants request minor repairs or visits for any other problems they may have.

It is still a good idea to monitor the tenancy carefully by keeping a careful observational watch out for any unauthorised occupiers and pets, rubbish build-up and garden maintenance.

The Check-Out

Once the tenant gives notice you should make sure you have this in writing. You should then write to your tenants with a Move Out Letter. This will spell out what is expected and the condition you require the property to be left in with reject to the inventory: clean and tidy, no items left behind, no piles of refuse etc.

Explain that a full check-out process will be followed and that the tenant/s should be present to sign this off.

Use the original Check-in, Check-out Checklist and the inventory to go through the property with the tenant/s making sure you assess and check everything.

Pay attention to cleanliness, damage, cleanliness, any missing items, paths and gardens, any items left behind, all keys and meter readings, taking into account fair wear and tear.

For more on fair wear and tear see this article:

Get the check-out report and any other documents signed and dated there and then.

If there are any problems, try to reach amicable agreement with the tenant any deductions you wish to make from the deposit: agreement at this stage can save a lot of trouble later. Get them to sign to this effect.

To reiterate: preparation and documentation and communication with your tenants are the keys to a trouble free let. When you prepare properly you are carrying out management processes so that nothing is left to chance or forgotten and you are building up a set of documentary evidence in case things go wrong.

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