Some much needed good news for landlords from the leasehold market consultation

 

 Section 8 of the Housing Act 1988 (as amended) (“the Act”) offers a mechanism for landlords to regain possession of a property let on an assured tenancy basis on occurrence of one or more of the grounds as set out in Schedule 2 of the Act. The relevant ground for the purpose of this article is the mandatory ground 8, which requires for a court to grant mandatory possession order for a property on there existing at least three months’ worth of rent arrears (if rent is payable annually). According to schedule 1 of the Act, a tenancy of a dwelling house is considered ‘assured’ if the rent exceeds £1,000.00 per annum if located in Greater London, or rent exceeding £250.00 per annum elsewhere. 

It is arguable, and raised as a substantial point for debate within the Department for Communities and Local Government consultation paper titled ‘Tackling unfair practices in the leasehold market’ (published July 2017) that properties which do exceed this rent threshold could be successfully subject to a claim for possession by a landlord not wishing to take the more procedurally complex and time consuming route of exercising forfeiture or re-entry. 

Historically, rents for long leasehold properties had been either a peppercorn or of a similarly low amount, although increasing more recently with rent review clauses often permitting further periodic increases. This now means that a large number of long leases could be considered to be assured tenancies and thus fall to be dealt with under the provisions of the Act. Furthermore it may be argued that if a long lease is determined to be an assured tenancy then the remedy of forfeiture may potential not be available because of the provisions of s45(4) of the Act. These are without doubt unintended consequences of the legislation taking in to account the modern levels at which ground rents are set. These issues have been picked up in recent times by both lessees and their lenders who are worried that the shorter process involved in a Section 8 claim as opposed to a forfeiture claim and the lack of potential relief from forfeiture which the lessee of their lender may seek. Such interested parties when dealing with leases are now seeking to deal with these issues by seeking to vary the remedies available to landlords. At this time the appropriate remedy is not clear as both forfeiture or a section 8 claim may be the appropriate method. Seeking to blunt either or both remedies is of course not in the landlord’s interest. 

Paul Smith, Solicitor of the Real Estate at JB Leitch comments: “Thankfully Question 19 within the consultation paper seeks input in order to clarify whether the Act should be amended in order that it strictly prevents landlords from applying for possession under section 8 in circumstances that would otherwise require a claim for forfeiture. I look forward to the outcome of this debate, I cannot accept that it could ever have been the intention of those drafting the Act that it would apply to the rent arrears on long leases and it seems to be in all stakeholders’ interests to have these issues clarified once and for all so all parties know the correct clear position.” 

Article by Rob Denman Senior Associate at JB Leitch, Associate Founding Members of TAF