Welcome to the second in our 'Focus on Housing' series, in which our experienced teams bring you their insights into the many aspects of the ever-changing housing sector.
Here, Claire Williams, Annabel Heath and Jan Hebblethwaite consider the following:
Beyond the break...
A Supreme Court decision means that tenants paying a full quarter's rent in advance to ensure that they validly serve a break notice will not be entitled to a refund for the period after the break in relation to which they are not in occupation - unless, of course, the lease provides for it.
Having served notice on the landlord pursuant to a break clause to determine the lease on 24 January 2012, the tenant paid the rent due for the full December 2011 to March 2012 quarter. About a week prior to the break date, the tenant paid an additional specified sum required as a condition of the break. The break conditions having been satisfied, the lease term ended on 24 January 2012. The tenant then sought repayment of the monies paid in advance, insofar as these related to the period after the break date.
Following conflicting decisions in the High Court and Court of Appeal, the Supreme Court ultimately decided in favour of the landlord.
Unwelcome news for tenants
The Supreme Court held that a term requiring a landlord to repay rent paid in advance, in respect of a period beyond the date of termination following the exercise of a break clause, would not be implied into the lease in question.
In terms of the law relating to implied terms, the court held that:
- The test for an implication of a term remains whether or not it is necessary to give business efficacy to the contract;
- A term will only be implied if it satisfied the test of business necessity or it is so obvious that it goes without saying;
- The phrase "necessary" in this context means whether or not the contract would lack commercial or practical coherence without the implied term;
- A term will not be implied into a contract where it "lies uneasily" with the express terms of the contract;
- The law on apportionment was confirmed, such that rent payable in advance is not apportionable under the Apportionment Act 1870.
The Supreme Court decision preserves and restates fundamental principles of property law in relation to break clauses in commercial leases as well as clarifying the legal position regarding implied terms in contracts.
This clear statement of the law and the certainty it brings will be welcomed by the landlord community, as it will prevent tenant challenge to the many breaks that have been exercised over past few years.
The case has also highlighted the need for clear and carefully worded contracts. The test for the introduction of an implied term into a contract is not easy to fulfil. Unless a term is so obvious that it goes without saying, it is best to include it within the contract.
The Right to Rent
Following a pilot scheme run in the West Midlands from 2014 which launched measures under the Immigration Act 2014 (the Act) the new law now applies to all private landlords across England granting tenancies on or after 1 February 2016.
Purpose of the Act
The Act aims to tackle illegal immigration in privately rented accommodation through compulsory document checks on an occupier's identity and immigration status by landlords or agents. A contravention of the regulations without one of the statutory excuses may result in a civil penalty.
Landlords and agents need to be aware of the nature of a residential tenancy agreement as defined in the Act. It is an agreement that grants a right to occupation of premises for residential use as a main or principal home and includes an agreement to enter into a tenancy. A "tenancy" includes sub-tenancies, licences and leases for a term of less than seven years.
Those tenancies which will not be caught by the new provisions include, among others: care homes; student accommodation; mobile homes; and social housing where occupiers are nominated by local authorities or through other arrangements.
A person disqualified by their immigration status is a person who is not:
- a relevant national, i.e., is not a British citizen;
- a national of an EEA State; and
- a national of Switzerland.
A person may have a time limited right to rent if they have been granted leave to enter or remain in the UK for a limited period.
How to avoid falling foul of the new regulations
To avoid contravention of the regulations a landlord or agent must carry out pre-grant checks on all adult occupants by obtaining the prescribed documents. Where an occupier has a time limited right to rent follow up checks must be undertaken before the time limited right expires or once 12 months has passed. If the occupiers are unable to re-establish the right to remain the landlord must make a report to the Home Office.
Where there has been a contravention the landlord or agent may receive a penalty notice from the Secretary of State carrying a fine of up to £3,000.00 for each adult occupier who is a disqualified person.
Landlords and agents can avoid a penalty by establishing that they carried out the necessary checks and notified the Home Office where applicable.
Landlords and agents need to remember that:
- the regulations apply to all adult occupants of the premises and accordingly checks need to be carried out on all;
- A landlord can shift the burden of checks to an agent only where there is an agreement in writing and the agent is acting in the course of a business;
- Refusing to let to a person on the grounds of colour, ethnic or national origins to avoid the pre-grant checks will be directly discriminating on the grounds of race and may be unlawful.
Landlords and agent can obtain guidance on understanding their obligations and duties from the Home Office.
In a further move, the recently passed Immigration Act 2016 proposes controversial measures to criminalise landlords and agents for failing to carry out rent checks and to take steps to remove illegal migrants from their property. The Act also sees a considerable expansion of official powers to deal with illegal immigration. The government's message is clear: if migrants are here illegally, they will not be entitled to the same benefits and services as those who are not.
Registered provider - public body, or not?
The latest decision on whether or not a registered provider (RP) should be subject to judicial review, Macleod v The Governors of the Peabody Trust, sits in harmony with the most significant case on this issue, Weaver v London & Quadrant Housing Trust but reaches a different conclusion on its facts. In this instance Peabody was not amenable to a judicial review and by extension not susceptible to a human rights challenge.
Weaver did not make a blanket decision that all RPs are public bodies in all circumstances of the provision of housing, rather, a distinction was made for the provision of social housing. The court highlighted the following factors which, when considered cumulatively, establish sufficient public flavour to bring the provision of housing within the concept of a public function, ie. social housing:
- a significant reliance on public finance through grants
- working closely with local government assisting it to achieve the authority's statutory duties and objectives;
- the provision of subsidised housing rather than the provision of housing itself;
- acting in the public interest with charitable objectives;
- subject to intrusive regulation on allocation and management
Mr Macleod was the assured tenant of the Crown Estate Commissioners (CEC). The accommodation was reserved for "key workers", being those employed in the public sector. The rental charge was not a social housing rent but an intermediate sum at no more than 60% of market rent.
It was a term of the tenancy relating to assignment that Mr Macleod would not assign, sublet or part with possession of whole of any part of the premises.
In February 2011 CEC transferred a number of properties to Peabody. The transfer was subject to a Nominations Agreement which restricted Peabody to letting the properties to key workers at a sub-market rent and to accept nomination rights from CEC on any vacant property to provide accommodation to key workers.
In July 2015 Mr Macleod applied to exchange his tenancy with a tenant of another landlord in Edinburgh. Peabody declined the application on the basis that Mr Macleod was not a social tenant and had no contractual entitlement to a mutual exchange.
Mr Macleod sought judicial review of Peabody's decision in declining his application. Among other things Mr Macleod was required to show that Peabody was exercising a public function when it refused to approve the mutual exchange and that the decision itself was not a private law decision. The issue then, was whether Mr Macleod occupied social housing.
Mr Macleod argued that:
- as CEC was and is a public body, Peabody was in the same position as any RP which takes a large-scale transfer of public housing stock;
- Peabody is regulated as private registered provider of social housing and has statutory powers over and above the powers available to private landlords;
- Peabody received state subsidy by way of grants and to separate the properties transferred from CEC is to ignore the realities of the situation;
- Peabody has a charitable status.
The court rejected the above arguments and in applying the principals in Weaver, found that the cumulative effect of the following factors did not have the sufficiency of public flavour for social housing
- Peabody purchased the properties from CEC using funds raised on the open market, not through grants;
- Although the properties were not at full market rent, the provision of below market rent properties for key workers does not fall within the definition of social housing in the Housing and Regeneration Act 2008;
- Peabody had no allocation relationship with any local authority and was not assisting local government in carryout its public functions;
- Rents for the properties transferred from CEC are not subject to the same level of statutory regulation as social housing in general.
Given the finding in Weaver that not all tenants of an RP are social housing tenants and will not have human rights protection this decision is not surprising. However, it does highlight the permeations of circumstances where an RP may or may not be acting as a public body and reinforces the position that this issue is fact specific. Tenants whose landlords are RPs but are not in social housing may now more often fall at the first hurdle.
Planning: Changes of use from offices to residential - permanent change could aid development
A material change of use qualifies as development under the Town and Country Planning Act 1990 and therefore requires planning permission. The Town and Country Planning Use Classes Order 1987 (as heavily amended) sets out various types of use where a change does not amount to development. For instance, a retail use in Class A1 would not require permission to change to a different retail use within the same class. Therefore no planning permission is needed.
The General Permitted Development Order (GPDO) 2015 contains various classes of development for which planning permission is granted and includes a number of changes of use which would otherwise require express permission. The GPDO Amendment 2016 makes some changes to the classes relating to the change from offices, warehouse and light industrial premises to residential purposes.
This is one of the Government's proposals to meet its objectives to improve housing provision quickly.
The interest in the "offices to residential" permission was keen at the beginning of the period, especially in London where there may be an oversupply of older office floorspace. However, interest waned as it became apparent that the end date for completion of the conversion (30 May 2016) was fast approaching. There was a Ministerial statement last autumn in which it was announced that the change would be made permanent, but until 14 March, there had been no sign of the new Order which would bring this into force.
It is interesting that several authorities (notably London Boroughs) used their powers to make directions under Article 4 of the GPDO which removed the right to make these changes. Some of these were successful and it is notable that the Order restricts the right to apply for prior approval in some areas until after 2019.
It is also worthy of note that the conversions must be completed within three years. As a general principle local authorities are not able to impose a condition requiring development to be completed. However, on the basis that the relaxation was introduced in order to improve housing supply, it is reasonable to impose a completion requirement.
The other changes to residential use remain as temporary rights. It remains to be seen how successful a change from B8 or light industry might be.
Courtesy of PlanningResource, we know that last year the planning minister confirmed that the government intended to amend the permitted development right to allow demolition and rebuilding of existing offices.
The recent changes to the Order do not contain this provision, but PlanningResource understands that it is still the intention of the Department of Communities and Local Government to make a further change to allow the demolition of offices and replacement as residential use on a like-for like basis. There has been some opposition to this proposal, as some authorities fear that their stock of office floorspace would be seriously undermined.
The GPDO Amendment Order 2016 took effect on 1 April 2016 and made the change of use from office to residential purposes permanent. There are a few changes to the operation of the provision and the addition of a new authorised change from light industrial premises to residential.
This permits a change of use from offices within Use Class B(1)(a) to residential purposes with restrictions. The building:
- must have been in use as an office on 29 May 2013, or if it was vacant, its last use before that date must have been as an office;
- cannot be in a safety hazard area, or in a military explosives storage area;
- cannot be a listed building, within the curtilage of a listed building, or contain a scheduled monument;
- cannot be within a list of areas specified in the Order, until after 30 May 2019. These areas are within specified areas within some London Boroughs, City of London, Vale of White Horse, Stevenage, Sevenoaks, Ashford and East Hampshire.
The permission is subject to conditions:-
- Before making the change, the developer must apply to the planning authority for a determination as to whether prior approval will be required relating to:
- Transport and highways impacts;
- Contamination and/or flooding risks;
- Impact of noise from commercial premises on the intended residents.
- Development permitted under Class O must be completed within three years starting with the prior approval date.
This permits a change of use from Class B8 (storage and distribution) to residential purposes. It is unchanged by the 2016 Amendment Order and remains temporary. The residential use must begin before 15 April 2018.
The restrictions and conditions are more onerous than those relating to the change from office to residential, requiring that the applicant provides evidence of use of the building for B8 purposes on 19 March 2014 and for four years previously. The planning authority may also take account of the importance of B8 provision in their area.
This is a new class introduced by the 2016 Amendment Order. It permits a change of use from Class B1(c) (light industry) to residential.
The permission is temporary and an application for prior approval must be made before 30 September 2017. The following restrictions apply. The building:
- must have been in use for B1(c) purposes on 19 March 2014, or if vacant, when it was last used;
- The prior approval date must be before 1 October 2020;
- the gross floorspace of the building must be 500 square metres or less;
- the site cannot have been occupied under an agricultural tenancy, unless both the tenant and the landlord agree.
- An agricultural tenancy of the land was not terminated within the preceding 12 months for the purpose of development under this Class unless both landlord and tenant agree that the building is no longer needed for agricultural purposes;
- Must be in accordance with the four bullet points above for Class O.
The conditions attached to the permission are as for Class O with the added requirement that the planning authority may take into account the need for B8 provision in its area. The change of use must be completed within three years of the prior approval date.
Town and Country Planning Use Classes Order 1987
Town and Country Planning (General Permitted Development) (England) Order 2015
Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2016
Languages in a diverse workforce
If you haven't already seen this discussion around whether or not it is appropriate to require workers to speak only English during working hours, or to stop them speaking their native language at work, see Vivienne Reeves' recently published update, "Languages in a diverse workforce".