Deregulation Act 2015 - impact on residential landlords and tenants

The Deregulation Act 2015 (DA) was passed on 26 March 2015 and covers various points which will be of interest to landlords and those appointed to deal with residential properties.

Below is a brief summary of those points and the practical implications. Certain provisions of the DA only apply to property in England ONLY and these provisions have been highlighted accordingly. 

Tenancy Deposit Schemes – provisions in force from 26 March 2015

Since the Tenancy Deposit Scheme (TDS) legislation came into force on 6 April 2007, there have been a number of cases before the courts in which the wording of the legislation has been under scrutiny. The outcome of these cases left landlords taking a cautious approach to the legislation to ensure that they would be able to serve a valid notice to end an assured shorthold tenancy (AST) under section 21 of the Housing Act 1988 (Section 21 notice). 

The DA provides welcome clarification on the steps that a landlord must take to comply with the TDS legislation.

• What happens if the original fixed term was granted prior to 6 April 2007 but a statutory periodic tenancy arose after 6 April 2007? The Court of Appeal decided in the Superstrike Ltd v Rodrigues case in 2013 that, where a fixed term (which was granted prior to 6 April 2007) ends and the tenant continues to rent the property under a statutory periodic tenancy agreement (which arose after 6 April 2007), a "new" tenancy is created. As this new statutory periodic tenancy arose after the TDS legislation came into effect, the deposit must be protected in a TDS and the tenant served with the prescribed information. If the landlord failed to do so, before it could validly serve a Section 21 notice, it would need to return the deposit to the tenant. The landlord could, however, still be liable for a financial penalty for failing to comply with its obligations.  
• What if the original fixed term was granted prior to 6 April 2007 and the statutory periodic tenancy arose before 6 April 2007? This was the situation in the case of Charalambous and another v Maureen Rosairie Ng and another in 2014. The tenants had paid a deposit to the landlord in 2002 and the tenancy was renewed twice. Each time the deposit was carried over to the new tenancy. The fixed term ended on 17 August 2005 and a statutory periodic tenancy arose. The Court of Appeal held that there was no obligation on the landlord to protect the deposit as the deposit was received before the TDS legislation came into force. However, as the legislation provided that no Section 21 notice may be given in relation to a tenancy agreement at a time when the deposit is not being held in a TDS, in order to serve a valid Section 21 notice, the landlord had to either protect the deposit or return it to the tenants.

The DA has clarified what should be done in both of the above situations and gives landlords (in most cases) a period of 90 days from 26 March 2015 to comply with their TDS obligations where, on 26 March 2015 a periodic tenancy is in existence and the landlord is holding a deposit in relation to that tenancy. Steps to protect those deposits must be taken now! 

Where you have a periodic tenancy which arose prior to the 6 April 2007 and the deposit is unprotected, in order to serve a valid Section 21 notice at any point in the future, it must be protected by 23 June 2015 and the prescribed information served on the tenant. However there are no penalties for landlords who choose not to protect these deposits in these circumstances. 

Where the periodic tenancy arose on or after 6 April 2007 and the deposit is unprotected, again the deposit must be protected by 23 June 2015 and the prescribed information served on the tenant. In these circumstances, the financial penalties will apply to any landlords who fail to comply.

What if the fixed term commenced after 6 April 2007, the deposit was protected at that time and a statutory periodic tenancy subsequently arose?

The logical view would be that if a landlord has protected the tenant's deposit in a TDS and served the prescribed information upon commencement of the fixed term tenancy, there would be no need to repeat the procedure in the event that the fixed term came to an end and a statutory periodic tenancy arose. After all, the deposit is being held in a TDS and the tenant has been provided with the required information in respect of this.

However, Deputy District Judge Davies, sitting in Birmingham County Court in the case of Gardner v McCusker in May 2014 interpreted the Court of Appeal's decision in Superstrike v Rodrigues as meaning that where a statutory periodic tenancy arises, the prescribed information has to be served, even in circumstances where this was done in respect of the original fixed term tenancy. This placed an unduly onerous obligation on landlords who have already complied with their obligations. 

Thankfully the DA has addressed this and amended the Housing Act 1988 so that where the landlord has complied with its TDS obligations once; they will not need to repeat them for a replacement/periodic tenancy. 

The Following Regulations apply to ENGLAND ONLY

Retaliatory evictions – Provisions to be in force from 1 October 2015 

The DA introduces new provisions which will come into force on 1 October 2015, to protect tenants from eviction in England only. 

These provisions restrict a landlord's ability to serve a Section 21 notice in circumstances where the tenant has complained about the condition of the premises or the common parts of a building of which the premises form part, and the landlord either did not respond within 14 days, provided an inadequate response or responded by serving a Section 21 notice.
  

The tenant can then complain to the housing authority which may serve various types of enforcement notice on the landlord. If the housing authority does this, the landlord cannot serve a Section 21 notice within six months of the date of service of the enforcement notice (or, if the operation of the notice has been suspended, within six months of the date on which the suspension ends).

Although the provisions state that the tenant's complaint must be in writing, they go on to say that they will still apply if the tenant did not know the landlord's email or postal address or if the tenant made reasonable efforts to contact the landlord to make the complaint, but was unable to do so. Landlords should, therefore, ensure that tenants have adequate means of contacting them.

There are various circumstances in which a tenant will not be assisted by the new provisions, including:

• where the condition of the dwelling house or common parts which gave rise to the service of the notice is due to a breach of the tenant's duty to use the premises in a tenant like manner;
• where, at the time of service of the Section 21 notice, the dwelling house is genuinely on the market for sale;
• where the landlord is a private registered provider of social housing; and
• where the dwelling house is subject to a mortgage which was granted before the beginning of the tenancy, the mortgagee (which includes a receiver appointed by the mortgagee under the terms of the mortgage or in accordance with the LPA 1925) is entitled to exercise a power of sale under the mortgage or under section 101 of the LPA 1925, and at the time the Section 21 notice is given the mortgagee requires possession of the dwelling house for the purpose of disposing of it with vacant possession in exercise of that power.

These new provisions will apply to ASTs granted on or after 1 October 2015. They will not apply to a fixed term AST granted prior to that date even if, after 1 October 2015, the fixed term AST becomes a statutory periodic tenancy. The position changes, however, after the end of the period of three years, at which point the provisions will apply to any AST in existence. 

Practically this raises a number of points for landlords and fixed charge receivers:

• The importance of adequately responding to any complaints about maintenance or the condition of the property from the tenant within 14 days;
• Before serving a Section 21 notice, consider why it is being served. If the strategy is to recover possession in order for the lender to exercise a power of sale, this strategy should be confirmed in writing before service of the Section 21 notice.

Section 21 Notices – Provisions in force from 1 July and 1 October 2015

The DA tidies up various aspects of the procedure whereby a landlord obtains possession under Section 21 of the Housing Act 1988.

From 1 July 2015 in England

• The Secretary of State will be able to make regulations prescribing the form of Section 21 notice to be served. Once these regulations have been passed, the procedure for serving a Section 21 notice should be much simpler and clearer.
• A landlord will not be able to serve a Section 21 notice if the landlord is in breach of a "prescribed requirement". The prescribed requirements will be set out in regulations and will relate to the condition of dwelling houses and their common parts, the health and safety of occupiers of dwelling houses, and the energy performance of dwelling houses. As such, they could be quite wide and may impose onerous obligations on landlords to ensure compliance prior to serving a notice.
• The Secretary of State will be able to make regulations requiring a landlord to provide prescribed information about the rights and responsibilities of the landlord and tenant under the AST. The landlord will not be able to serve a Section 21 notice if it is in breach of this requirement.

From 1 October 2015 in England

• There will be no requirement for the date specified in the Section 21 notice to be the last day of a period of the tenancy.
• A landlord will not be able to serve a Section 21 notice within the first four months of the tenancy. This will, therefore, limit the landlord's ability to serve notice at the start of the AST.
• There will be a statutory right for the tenant to claim back rent paid in advance (calculated on a daily basis) where a Section 21 notice brings the tenancy to an end before the end of a payment period.

The new rules will apply to ASTs granted on or after the date on which the relevant provision (as set out above) comes into force. They will not apply to a fixed term AST granted prior to that date even if, after the relevant date, the fixed term AST becomes a statutory periodic tenancy. 

The position changes, however, (in respect of all of the above provisions except the requirement for the landlord to provide prescribed information about the rights and responsibilities of the landlord and tenant under the AST) after the end of the period of three years from the date on which the provision came into force, at which point it applies to any AST in existence.