Focus on Housing - November 2015

Welcome to our new 'Focus on Housing' series, in which our experienced teams bring you their insights into the many aspects of the ever-changing housing sector.

Voluntary right to buy: first things first

To sell or not to sell?

Much has been written recently about the extension of the Right to Buy (RTB) to tenants of registered providers of social housing (RPs) who do not currently have the preserved RTB. Following the recent 'voluntary' scheme brokered by the National Housing Federation (NHF), some of the mist around the details of the extended scheme is beginning to clear. So what exactly are:

• the likely differences between the 'front end' of the voluntary scheme and the existing statutory RTB scheme; and
• the practical implications of the sales process for RPs?

Which properties?

Under the voluntary scheme, the starting point is that there will be a presumption that tenants of RPs who live in a social or affordable rented home will have the right to buy the home in which they live, with the benefit of discounts. RPs will have the discretion not to sell the home in which the tenant lives in certain circumstances. These circumstances will be wider than the exclusions currently permitted under the statutory RTB (e.g. to include properties built with exclusively charitable resources prior to the RP becoming a registered housing association).

The aim is to enable RPs to have some degree of control in relation to the management of their business and where relevant, to have proper regard to their charitable objectives.

Be prepared

Although subject to further fine tuning, there is much that RPs can do to prepare for the scheme:

• Policies

  RPs will not necessarily be legally prevented from selling a property which falls within one of the potential exclusions. Therefore, RPs should develop policies around how they will exercise the discretion about whether to sell such a property, not least because the voluntary scheme will include a right for the tenant to appeal to the Regulator against the RPs decision. RPs will be much better placed to defend such an appeal (and any potential public law challenge) if they can demonstrate that a robust decision-making process is in place.

• Clear procedures for identifying alternative properties or RTB buddies

  Unlike the statutory RTB, if the RP exercises its discretion not to sell the property in which the tenant lives, this is not the end of the story. The RP will then have to offer an alternative property to the tenant, either from its own stock, or that of another RP. This might include a situation in which a tenant cannot afford their current home but could afford an alternative property using the 'portable discount'. If the tenant is unhappy with the alternative property offered, there will again be a right to appeal to the Regulator. Therefore, RPs of sufficient scale could start to develop procedures now to enable them to identify suitable alternative properties as quickly and efficiently as possible. Those RPs which will find identifying alternative properties challenging because of stock constraints will no doubt start discussions with neighbouring RPs which may be prepared to enter into 'RTB Buddy' arrangements.

• Streamline internal processes

  Unlike the statutory RTB, the voluntary scheme envisages that the tenant will have to pay an up-front valuation fee (refundable on completion of their purchase). This may help to discourage purely speculative initial enquires. The possibility of a role for agents to deal with initial enquiries is also raised.

  However, in our view this is unlikely to substantially reduce the potential administrative burden for RPs in processing voluntary RTB applications, and we know that many RPs have already been experiencing a substantially increased level of enquiry for many months. Particularly for those RPs which have not dealt with substantial numbers of preserved RTB or Right to Acquire (RTA) applications, this will be uncharted territory.

  Streamlined internal processes (including the calculation cost of floor figures and obtaining outstanding debt information) will be essential. The information required to calculate the offer made to the tenant requires input from several parts of the business and the voluntary scheme will include a right for tenants to appeal to the Regulator if the process is moving too slowly. RPs will be keen to avoid the additional administrative burden of such an appeal, or of incurring the wrath of the Regulator!

  There is likely to be an annual cap on the cost to Government of RTB discounts overall. Watch this space as to how that might work in practice! Does it mean that some sales might be 'suspended' if the cap is reached part way through the year? Will RPs then be at risk of a claim by a frustrated tenant who argues that they would have been able to buy their property that year if only their landlord had dealt with their application more quickly?

• Ex-council stock? No room for complacency

  The NFH has given assurances that the voluntary scheme is based on the principles that:

  • RPs will keep all receipts that arise from sales through the voluntary scheme; and
  • it will be entirely separate from the preserved RTB and RTA.

  However, we recommend that RPs with ex-council stock subject to clawback arrangements and/or RTB sharing agreements, should get those out of the drawer now and analyse any potential impact of the voluntary scheme on those arrangements.

  This potential issue may be dealt with by the Secretary of State under powers granted under Part 4 of the Housing and Planning Act when it is enacted, but no details have yet been announced and forewarned is forearmed. Local authorities, already unhappy with the proposed method of funding the extended RTB discounts, may not be in the mood to negotiate!

Whether or not extending the right to buy is "economically illiterate and morally wrong"^[1], as some commentators believe, remains to be seen. What is certain is that it will provide some challenges to RPs going forward.

Serving notice? Model landlords only need apply

Landlords of residential properties must now adapt to changes made to Section 21 of the Housing Act 1988, designed to curb a landlord's discretion as to the timing of service of a Section 21 Notice (Notice) and commencement of proceedings to recover possession.

Why the change?

The policy rationale of the changes is to ensure that landlords comply with their existing legal obligations to tenants. In particular, that properties are maintained to a decent condition and to prevent tenants from feeling unable to complain about poor property conditions for fear of eviction.

A landlord's failure to respond to complaints of poor property conditions and failure to comply with prescribed legal requirements, or provide prescribed information, will prevent a landlord from serving a valid Notice.

Other changes introduced are to standardise the timing of service of Notices and commencement of possession proceedings so that tenants do not have the threat of eviction "hanging over their heads".

The changes only apply to Assured Shorthold Tenancies (ASTs) granted in England and those granted on or after 1 October 2015 (but will apply to all ASTs existing as at 1 October 2018).

So what are the changes?

Prevention of "retaliation" evictions

•  A Notice will be invalid if prior to its service:
  • The tenant has made a complaint in writing to the landlord regarding the condition of the property (including the common parts where the tenant's enjoyment of the property is affected); and
  • The landlord did not provide within 14 days of the complaint, a written response to the tenant setting out the action that the landlord intends to take in respect of the condition of the premises and a reasonable timescale for doing so.
  • Upon complaint from the tenant, the local authority served on the landlord a relevant notice. A relevant notice is an improvement notice served under sections 11 or 12 of the Housing Act 2004, or an emergency remedial notice served under section 40(7) of the Housing Act 2004.
• The Notice will also be invalid if served on the tenant after the tenant's complaint to the local authority but prior to a relevant notice being served on the landlord.
• Where a local authority has served a relevant notice, a Notice can then only be served six months after service of the relevant notice or where operation of a relevant notice has been suspended, six months after the end of the suspension period.

Private Registered Providers are exempt from the "retaliation" eviction provisions.

Prescribed legal requirements and information

• A Notice will be invalid where the landlord has not provided the tenant with an Energy Performance Certificate and current Gas Safety Certificate.
• A Notice will also be invalid where the landlord has not provided the tenant with the "How to Rent" checklist published by the Department for Communities and Local Government.

Private Registered Providers are exempt from the requirement to provide the "How to rent" checklist.

Other important changes

• A prescribed form must now be used for all ASTs granted on or after 1 October 2015 but may be used for all ASTs.
• It is with some relief that for periodic tenancies, the date given in the notice does not have to be the last day of a period of the tenancy but cannot be earlier than a period of the tenancy. However, there has been some debate as to whether this only applies to periodic tenancies granted on or after 1 October 2015 as the Act provides. The note on the prescribed form which states that it can be used for any AST has the potential to cause confusion. It is therefore advisable to use the "old style" Section 21 notice for periodic tenancies granted before 1 October 2015.
• Possession proceedings must be commenced within six months of issue of the notice or within four months where a notice period longer than two months is required.

Comment

Landlords will need to ensure that their procedures are adapted so that prescribed information is provided and vital timings are not missed - a fresh notice period of at least two months is a long delay. Invariably some tenants will deny receipt of prescribed information and the burden of proof will rest with the landlord. It may therefore be prudent to have tenants sign for receipt of the prescribed information or consent to it being received by e-mail.

Managing Pensions Liabilities: where do we go from here?

Many housing associations participate in the Social Housing Pension Scheme (SHPS), an industry wide pension scheme for non-associated employers. By participating in SHPS, housing associations can offer their employees membership of a good quality pension scheme, which avoids the need for the housing association to set up and run its own scheme. Instead the costs are shared across all the participating employers.

SHPS: not all plain sailing

There is a downside, however, housing associations who participate in the defined benefit sections of the SHPS can find that their options are limited when they look to leave the scheme: either as a result of a group restructuring, or simply because the association has decided it would like to offer different types of pension scheme benefits in the future.

This is because when a participating employer stops employing active members of a defined benefit pension scheme - at a time when other employers still participate, and the scheme is in deficit on a funding basis - a debt is immediately triggered against that exiting employer and owed to the trustee of the scheme in question. The debt is calculated on a conservative "buy-out" basis; that is, the cost of securing all the pension liabilities in respect of that exiting employer with an insurance broker.

As a result, these kinds of debts are invariably something which employers are keen to avoid. This can be a particular problem for housing associations looking to reorganise their group structures, but which may be landed with a significant (and sometimes unexpected) debt as a result.

Is there a solution?

Earlier this year the Department for Work and Pensions (DWP) issued a call for evidence in relation to defined benefit, non-associated multi-employer schemes, such as SHPS. The call for evidence focused on how the employer debt regime operates and whether and how it could be made more flexible.

The DWP is considering changing the existing legislation so that it is easier for employers participating in such schemes to make changes which might include rationalising their pensions costs, without being subject to an employer debt in the same way as is currently the case.

What are the proposals?

The DWP sought views concerning whether or not the existing employer debt regime should be changed to introduce flexibilities for employers who stop employing active members of a non-associated multi-employer pension scheme, such as SHPS. This is in response to concerns that the existing law is too demanding for employers who are seeking to rationalise their pension costs.

There is some tension inherent in this question.

On the one hand, the DWP's policy intention is that the existing employer debt regime should protect schemes and their members. This is particularly important in the context of schemes such as SHPS where non-associated employers participate alongside each other, even where they might compete commercially, and are required under the existing regime to pick up the cost of other employers' liabilities (for example, if one walks away from the scheme).

On the other hand, the DWP is seeking to address concerns that the current legislation is potentially driving smaller and less financially robust employers out of business unnecessarily. Arguably, the existing employer debt regime does not strike an appropriate balance between the needs of the scheme and those of the employers who participate in the scheme.

Do the existing easements help employers manage employer debt?

There is already some flexibility contained in the legislation which can assist employers. For example, a housing association or other employer seeking to manage its debts in relation to SHPS could consider:

• Withdrawal arrangements - where, once a debt has been triggered, the departing employer pays an amount to the scheme based on scheme funding levels, but a guarantor (usually a related company) guarantees to pay the balance to buy-out level at an agreed later date or if certain trigger events happen (such as the insolvency of the exiting employer);
• Approved withdrawal arrangements - where, once a debt has been triggered, the exiting employer pays an amount to the scheme but lower than scheme funding levels. A guarantor (again, usually a related company) agrees to pay the balance to buy-out level. Approval is required from the Pensions Regulator;
• Period of grace - where an employer who has stopped employing any active members of a multi-employer scheme gives notice to the trustee that it intends to employ an active member within the next 12 months (can be extended to 36 months with trustee agreement). Essentially, this allows the employer to freeze its debt obligations during the period of grace; and
• Apportionment arrangements - where an employer apportions its debt in relation to the scheme to another (usually associated) participating employer.

The DWP wants to know how well these easements work in practice, for both employers and for schemes.

It's a good question in relation to housing associations. While these easements are commonly used in the private sector, for many housing associations, the options listed above are neither attractive nor realistic. Not least because they would require the housing association to find a guarantor (in the case of a withdrawal arrangement), which may be beyond the association's powers; or to apportion the debt to another remaining employer, which is also unlikely, when the other participants in the non-associated pension scheme are likely to be competitors of the association.

In our experience, many housing associations are faced with undertaking complex arrangements when restructuring their group structures in order to avoid triggering expensive employer debts.

Are there any alternatives?

The DWP also wants to look at other possible easements, including:

• Introducing more flexibility around debt repayment - for example, allowing exiting employers from a multi-employer scheme to negotiate a long-term debt repayment plan with the trustees in order to avoid an up-front debt.
• Changing the law so that ceasing to employ active members does not trigger an employer debt - so that no employer debt would be triggered immediately but would be in the event of the employer's insolvency, or wind up of the scheme.
• Changing the way the employer's liability is calculated - for example, by calculating the debt on a technical provisions basis rather than (the generally more costly) buy-out basis, where that employer has a strong employer covenant.

More detail on all of these possible changes, including possible pros and cons of each, are contained in the consultation document.

Our Pension team submitted a response to the consultation and will monitor developments. Meanwhile, the team continues to give advice to housing associations and other employers who are looking to best manage their pension scheme liabilities, without triggering unexpected and costly pension scheme debts.

Equality in Action

A recent case has provided a good opportunity to take a look at a tenant's possible defence against possession proceedings in the context of discrimination. We also look at various ways in which social landlords can inadvertently fall foul of the Equality Act 2010 (2010 Act) - and how to avoid them!

Akerman-Livingstone v Aster 2015

The latest case creating a stir in housing legal circles is the Supreme Court decision in Akerman-Livingstone v Aster 2015.

The respondent Aster, had taken leases of flats to provide interim housing to people to whom the local authority owed a duty to house. Mr Akerman-Livingstone was owed just such a duty. After offering various alternative accommodation options which Mr Akerman-Livingstone refused, Aster considered that it had discharged its duty and sought possession of the temporary accommodation in which Mr Akerman-Livingstone was then housed.

Mr Akerman-Livingstone defended the claim on the basis that his eviction was a breach of his human rights, that he had been discriminated against on the basis of his disability and also that his eviction was in breach of the public sector equality duty.

The case raised the issue of whether a Defence to possession proceedings under the 2010 Act should be treated the same as a Human Rights Act Article 8 Defence and summarily assessed. The Supreme Court said a Defence under the 2010 Act was a more serious one - giving those with Protected Characteristics under the 2010 Act greater protection than the Human Rights Act, and that normally a full trial would be appropriate.

Nonetheless, a 2010 Act Defence can be summarily assessed and disposed of at first hearing provided:

1. The tenant had no real prospect of proving a disability as they had no medical evidence.
2. It was plain that a possession claim was not linked to the disability in any way.
3. That bringing the claim was plainly a proportionate means of pursuing a legitimate aim.

The decision matters as there is concern that it could prompt an increase in discrimination claims and make it more difficult for social landlords to evict disabled tenants. This makes it even more important for social landlords to employ robust measures in considering disability factors when granting a tenancy.

Defeating a 2010 Act Defence

If you are faced with a similar scenario, the definition of disability and protected characteristics in the 2010 Act require careful consideration. An individual must generally suffer from either a physical or mental impairment which has a substantial or long term adverse effect upon daily life. An addiction to alcohol and illegal drugs is not defined as a disability and is expressly excluded. It is for the tenant to prove they have a disability and that this is causing the breach of tenancy. Has discrimination under the 2010 Act been pleaded in detail and is it supported by consultant medical evidence?

The first stage in the journey seeking to defeat a 2010 Act Defence is to have a clear policy on areas relating to vulnerability: in relation to both physical and mental disability.

• Legal proceedings are always the last resort after other interventions such as support packages, warnings, mediation, home visits and Acceptable Behaviour Contracts have all failed. Employees should be asked to complete checklists detailing avenues explored and support offered to assist the tenant to sustain their tenancy. Internal and multi-agency case reviews are essential in disability cases. Keep the case under review right up until trial and continue to question its justification: if the tenant has refused both support packages and to engage in a review then question whether the tenant is entirely blameless?
•  Is the behaviour only linked to disability?
• Consider the medical report again as to whether there is a disability and a link between that disability to the behaviour or if it is self-inflicted due to substance abuse? The burden rests with the tenant.

If the case is justified, disability itself poses no bar to a claim. Once a link is established between disability and behaviour then the burden shifts to the social landlord to prove it acted proportionately in pursuing a legitimate aim. If the landlord properly considered early intervention, has followed a clear policy, has a completed checklist and has undertaken a case review, it will have little difficulty in proving proportionality and obtaining its Order.

How to avoid the Supreme Court altogether!

This case highlights the importance of considering discrimination right at the beginning of the housing process. So, what can you do to avoid ending up in the Supreme Court?

• Avoiding discrimination in allocating housing

  A social landlord has a duty under the 2010 Act to try and eliminate discrimination, harassment and victimisation.

  The two most common reasons for a landlord to refuse housing are:

  • previous rent arrears; and
  • anti-social behaviour.

  A problem may arise, however, if the landlord is considered to have discriminated against a prospective tenant where the previous arrears were due to the individual lacking capacity to manage their finances or their anti-social behaviour caused by a disability. Landlords should consider looking into the tenant's history to ensure that this has not contributed to their lack of housing.

• Capacity to enter into a Tenancy Contract

  A fundamental requirement is that the tenant must have capacity to enter into a tenancy agreement.

  What happens, however, if a landlord questions a prospective tenant's capacity to enter into a legal contract? In those circumstances, the landlord must consider the following:

  • Will it be discrimination if a tenancy is not granted?
  • Should the prospective tenant be asked to sign the Tenancy?
  • Is there a risk the tenancy is deemed voidable?
  • Should a Power of Attorney or Court of Protection route be considered?
  • Does the landlord have a policy dealing with lack of capacity to sign, read or hear?
  • Where a tenant is unable to read, see or hear is the approach for serving legal notices adapted accordingly? Inability to read is clearly not a disability but will still be caught by reasonableness.

Ignore at your peril

These are all common scenarios which need addressing. While there are no easy answers, an effective approach to avoid having to justify your decisions in court is to ask your prospective tenant to complete a detailed questionnaire if they refer to having a disability in their housing application. Questions such as how their disability affects their daily life, medical details and duration of disability should be addressed. Beware that if a disability is mentioned in the application form the landlord is on notice of the disability and later claiming ignorance of it will be no defence in itself against a discrimination claim!

Conversion of offices to residential: good news for the housing crisis

As part of the Government's drive to deal with the housing crisis, a temporary "permitted development right" was introduced into the General Permitted Development Order (GPDO) in May 2013.

Whilst a change of use from offices to residential would normally require express planning permission, the GPDO provides a blanket permission for the change of use, subject to restrictions and conditions.

The original provision in 2013 allowed a change from offices within Use Class B(1)(a), that is (generally) offices which do not have a street frontage. The permission also includes any land within the curtilage of the building.

Original restrictions

The main restrictions on the permission were that:

• the building could not be in a National Park or within specified local authority areas in London;
• the building was not used as offices immediately before 30 May 2013 or was vacant on that date and was not used as offices when last in use; and
• the new use for residential purposes must commence before 30 May 2016.

The permission is subject to a condition that a determination by the local planning authority must be sought as to whether the prior approval of the authority is required in relation to transport and highway impacts, land contamination and flooding risks.

The GPDO was replaced on 15 April 2015. National Parks were removed from the list of restrictions, but the list of restricted areas in London was retained. Listed buildings were excluded but otherwise the permission remained the same.

The permission proved popular with almost 4,000 conversions between April 2014 and June 2015 (Government statistics) although a number of authorities were concerned that the stock of offices in their areas would be diminished, resulting in an impact on employment opportunities. However as the deadline date of 30 May 2016 approaches, developers are increasingly more and more cautious about using the permission, on the basis that they may not be able to convert buildings and arrange occupation by the deadline.

Certainty prevails: permission made permanent

On 12 October the Government announced that the permission will be made permanent. Brandon Lewis (Minister of State for Housing and Planning) announced that in addition, those conversions which have been through the prior approval process will have three years in which to complete the change of use.

The announcement also provides that the 17 local authorities with exemptions from the operation of the permission will have until May 2019 to make an Article 4 direction which will remove the right and require express permission for the change of use. After that date and in the absence of an Article 4 direction, there will be no restriction on the use of the permission.

Ring out the old: housing to replace offices

Of considerable interest will be the proposed new permitted development right to demolish existing offices and build new residential schemes, subject to the prior approval process.

There will need to be amendments to the GPDO in order to effect the changes, but on the basis that amendment orders are made within increasing frequency, the process should take a relatively short time and should certainly be in force before the deadline of May 2016.

Footnotes

[1] Telegraph 14/04/15