The difficulties with seeking possession under the section 21 regime.

A section 21 notice is served under section 21 of the Housing Act 1988 and is used to provide notice to the tenant(s) that the landlord is seeking possession of the property, either after the fixed term of the tenancy ends or during a tenancy with no fixed end date.  

The Deregulation Act 2015

The Deregulation Act 2015 imposed a series of requirements on landlords of Assured Shorthold Tenancies (ASTs) in England, restricting the ability of a landlord to serve a section 21 notice.

The Deregulation Act 2015 provisions apply to all ASTs of property located in England, regardless of whenever the AST was granted, from 1 October 2018.

What requirements are imposed by the Deregulation Act 2015?

The Deregulation Act imposed the following requirements:

• A prescribed form of section 21 notice – this is available from the Gov.UK website.
• It is not possible to serve a section 21 notice within the first 4 months of a fixed term AST.
• Possession proceedings must be commenced within 6 months of when the section 21 notice was given. If the tenancy requires more than 2 months’ notice to be given, then the possession proceedings must be brought within 4 months of the termination date.
• The landlord must provide the tenant with an energy performance certificate and a gas safety certificate – the landlord cannot validly serve a section 21 notice if these requirements have not been complied with.
• The landlord must also provide prescribed information to the tenant, set by the Government, which relates to the rights and responsibilities of the parties under the AST – again, a landlord cannot validly serve a section 21 notice if these requirements have not been complied with. This information is currently set out in the How to rent: the checklist for renting in England guide which is available for download from Gov.UK.
• The Landlord must also comply with the tenancy deposit scheme legislation and Houses of Multiple Occupation legislation.

Can the landlord remedy a failure to adhere to the requirements?

Following the introduction of these provisions, there have been cases in the County Court where the question as to whether landlords can comply with the obligations in relation to providing gas safety certificates and energy performance certificates to the tenant has been debated. Each respective court found that the issues could not be remedied late and therefore the landlords were precluded from serving a section 21 notice.

Binding authority from the senior courts is awaited on this point, although it cannot be taken that Parliament’s intention was to preclude a landlord from serving a section 21 notice in these circumstances, so further clarification is awaited on this point.

The Tenant Fees Act 2019

The Tenant Fees Act 2019 (TFA 2019) has also had a profound effect on the ability of landlords to seek possession under the section 21 regime. The Act introduced protections for most residential tenants in the private rented sector in England.

The TFA 2019:

• Restricts the type and amount of payments that landlords and letting agents can require from tenants of most assured shorthold tenancies, student accommodation and under licences to occupy.
• Restricts the amount of tenancy deposit.
• Restricts the amount of a holding deposit and sets a timetable for dealing with repayment of the same.
• Imposes non-compliance sanctions.

The provisions came into force on 1 June 2019 and apply immediately to the grant of new tenancies, with a grace period of one year for existing tenancies.

Which payments are prohibited?

Payments are prohibited under the TFA 2019 unless they are expressly listed as a “permitted payment”. These include:

• Rent payable.
• Tenancy deposit (limited to five weeks’ rent if the annual rent is less than £50,000, or six weeks’ rent if annual rent is over £50,000).
• Holding deposit (limited to one week’s rent).
• Payments on certain default events (loss of key/security device, a failure to pay rent or other reach of the tenancy).
• Fee for the variation, assignment or novation of the tenancy (limited to £50/reasonable costs).
• Payment due to early termination of the tenancy.
• Other payments including Council tax, Utilities, TV licence, landline phone, internet and cable/satellite TV.

What kind of tenancies do the restrictions apply to?

The tenancies included are Assured Shorthold Tenancies (not including social housing or long leases (i.e. more than 21 years)), student lettings and licences to occupy in relation to housing.

A landlord for the sake of TFA 2019 is a licensor and a person who is either proposing to be or ceased to be a landlord or licensor. A tenant for the sake of TFA 2019 includes a licensee and a person who is either proposing to be or ceased to be a tenant or licensee.

A letting agent for the sake of TFA 2019 encompasses a very wide definition and is a person who engages in letting agency work. This is defined as where, in the course of a business, a person acts on instructions from a landlord seeking to find someone to whom to let housing or from a tenant looking for housing to rent.

The prohibition

A landlord or letting agent must not require a tenant, a tenant’s guarantor or a person acting on behalf of the tenant to do any of the following actions “in connection with a tenancy”:

• Make a prohibited payment to the landlord or to a third party.
• Enter into a contract with a third party for the provision of a service or for insurance, other than a contract to provide a utility or communication service to the tenant.
• Make a loan to anyone.

‘In connection with a tenancy’ includes the following scenarios for landlords:

• In consideration of the grant, renewal, continuance, variation, assignment, novation or termination of a tenancy.
• Pursuant to a provision in a tenancy agreement that requires, or purports to require, them to do any of those things listed above:
  • in the event of an act or default of a relevant person; or
  • if the tenancy is varied, assigned, novated or terminated.
• On entry into a tenancy agreement that requires, or purports to require, them to do any of those things in any circumstances otherwise than in the event of an act or default of a relevant person or if the tenancy is varied, assigned, novated or terminated.
• As a result of an act or default by a relevant person relating to the tenancy or the housing which is let by the tenancy unless pursuant to, or for the breach of, a provision of a tenancy agreement.
• In consideration for provision of a housing reference for that person.

‘In connection with a tenancy’ include following situations for letting agents:

• In consideration of arranging the grant, renewal, continuance, variation, assignment, novation or termination of a tenancy.
• Pursuant to a provision of an agreement with the person relating to the tenancy in the event of an act or default by a relevant person, or if the tenancy is varied, assigned, novated or terminated.
• As a result of an act or default of a relevant person relating to the tenancy or the housing which is let by the tenancy unless pursuant to, or for the breach of, an agreement entered into before the act or default.
• In consideration for provision of a housing reference for that person.

Therefore, the definition of ‘in connection with a tenancy’ is widely drafted in respect of both landlords and letting agents.

What happens to a term in an agreement which breaches these rules?

A term in a tenancy agreement or letting agent agreement which breaches the prohibitions on requiring payments are not binding on the tenant, the tenant’s guarantor or anyone acting on behalf of the tenant. The rest of the agreement will continue to have effect so far as it is compatible.

What are the consequences?

A section 21 notice cannot validly given in respect of an AST if the landlord is in breach of the prohibitions applying to landlords and while a prohibited payment paid to the landlord or holding deposit held in breach of the prescribed terms has not been repaid to the relevant person, unless they have consented to the money being applied towards rent under the tenancy or towards the tenancy deposit.

Where a person has breached the prohibitions, repayment obligations or requirements for holding deposit monies, an enforcement authority can apply a financial penalty of up to £5,000 where they are satisfied beyond reasonable doubt. Usually the local trading standards authority is the appropriate enforcement authority, if not the local district council.

A landlord or letting agent is guilty of an offence if they commit a further breach of the prohibitions within five years of having had a financial penalty imposed or being convicted of an offence for an earlier breach. The penalty for the criminal offence is an unlimited fine and a banning order offence under the Housing and Planning Act 2016, meaning that these persons cannot make a transfer of an estate in land without the permission of the First Tier Tribunal.

As an alternative to prosecution, an enforcement authority can impose a financial penalty of up to £30,000 where it is satisfied beyond reasonable doubt that an offence has been committed.

This article is for general commentary only and does not constitute legal advice.  If you would like to discuss any of the issues discussed in this article, please contact Liam Meanwell – lmeanwell@cheyneygoulding.co.uk, or another member of our team.

Cheyney Goulding LLP, solicitors in Guildford, Surrey