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Archive for May, 2015

Less Red Tape – really? Real Estate Aspects of the Deregulation Act 2015

08/05/2015 | Caroline DeLaney
The Deregulation Act of 2015 came into force on 26 March 2015 as part of the Conservative government’s commitment to reducing the burden of red tape on businesses and individuals. Tucked away in a

The Deregulation Act of 2015 came into force on 26 March 2015 as part of the Conservative government’s commitment to reducing the burden of red tape on businesses and individuals. Tucked away in a mixed bag of reforms covering areas as diverse as alcohol, sport and entertainment, child trust funds and transport are a number of provisions that have real estate implications. They include changes to the resolution of agricultural tenancy disputes, amendments to the protection of public rights of way and the extension of the “right to buy”.

Here, we look at key changes directed at the private residential letting sector.

1. London Residential Accommodation – Short term use

The 2012 London Olympic Games highlighted a letting restriction imposed by the Greater London Council (General Powers) Act 1973 (as amended) that prohibits the use of property as “temporary sleeping accommodation” for less than 90 days without planning permission. This restriction was most immediately felt by some Londoners wanting to let out their property to Olympic visitors. Although some London Boroughs take a relaxed approach to this legislation – for instance Merton are happy to accommodate Wimbledon short-lets, others – for instance the City of Westminster and LB Kensington & Chelsea – strictly enforce these provisions. Their argument is that short term letting undermines their long term strategy of encouraging an increase of residential occupancy and also has an adverse impact on the amenity of permanent residents.

The Deregulation Act relaxes those restrictions so as to permit short-term letting of residential premises in London for up to 90 days per calendar year. The person providing the accommodation must be liable for Council Tax and so this ensures that the relaxation only applies to residential, not commercial premises.

The Secretary of State or the Local Planning Authority (with the Secretary of State’s consent) can make a direction that this relaxation shall not apply to particular residential premises if it is considered necessary to protect the amenity of a locality.

These provisions come into force on 26 May 2015.

2. Tenancy Deposits

Since the introduction of legislation in 2007 requiring the protection of tenant’s deposits by a system of information–giving and registration in an approved deposit scheme, there have been a number of cases which have highlighted problems with the legislative scheme. If landlords fail to comply with the tenant deposit requirements, they are unable to seek possession of the premises on the expiry of a tenancy unless the deposit is returned or the matter has been before a court. In addition, they face a penalty of up to three-times the value of the deposit. The Deregulation Act seeks to address a number of the problems with the tenancy deposit scheme.

The 2007 legislation expressly applies to all assured shorthold tenancies (or ASTs) created on or after 6 April 2007. The Court of Appeal case of Superstrike Ltd -v-Marino Rodrigues [2013] EWCA Civ 669 ruled that this extended to tenancies entered into before that date but where the fixed term expired after that date. Charalambolous- v- Ng [2014] EWCA Civ 1604 ruled that this extended to tenancies both created and becoming periodic before this date.

The Act has introduced a number of practical changes.

–          It addresses the Superstrike problem by giving landlords a 90- day amnesty to properly provide the prescribed information and to register deposits received before 6 April 2007 where the tenancy has become periodic after that date. The amnesty applies until 23 June 2015 unless court proceedings are already on foot. In those cases the deposit has to be registered and the information given before the court hears the case. Unfortunately the Charalambolous problem is not corrected and non-compliance remains a problem for these tenancies;

–          It provides that there is no need to re-register a deposit or re-serve the statutory information on the creation of a periodic tenancy or the granting of a new tenancy when the exercise has been undertaken correctly at the beginning of the initial fixed term; and

–          It clarifies that an agent can sign and serve the prescribed information.

These provisions came into force on 26 March 2015.

3. Termination of Assured Shorthold Tenancies

The Deregulation Act makes a number of changes to section 21 notices which are the notices served by landlords to terminate ASTs. Some of these are sensible, but some result in unnecessary complexity suggesting that the government has forgotten its objective of streamlining the legislative burden.

Generally speaking these provisions only apply to ASTs granted after these provisions come into force. There will be a period where the old and the new regimes run side by side. After 3 years, the provisions will apply to all ASTs.

–          The landlord will no longer be able to serve a section 21 notice in the first four months of the contractual term. Many tenancies are only granted for the minimum six month fixed term. Some landlords have a practice of serving a section 21 notice as soon as the tenancy is granted in order to avoid tenants holding over under periodic tenancies, preferring to avoid the complexities of termination of a periodic tenancy and to allow them to easier facilitate rent increases. This practice will become trickier. This amendment means that the landlord will only have one day in which to serve a section 21 notice to terminate the AST on the expiry of the contractual term.

This comes into force on 1 October 2015.

–          In England only (not Wales), the section 21(4) notice which is used to terminate periodic ASTs will no longer have to end at the end “of a period of a tenancy”. This change is welcomed as it has unnecessarily trapped many unwary landlords and given tenants a technical defence to incorrectly worded section 21 notices. From now on the landlord will only have to give a simple two months’ written notice to quit. This provision gives statutory effect to the Court of Appeal decision of Spencer-v-Taylor [2013] EWCA Civ 1600

This comes into force on 1 October 2015.

–          The open-ended nature of a section 21 notice has been removed. Until now, once served a section 21 notice can be acted on at any time unless waived by the landlord. This led to uncertainty for tenants. The section 21 notice will now expire six months from the date served so that the landlords will have a four- month time window in which to commence possession proceedings. In doing so, the Act removes one technicality and replaces it with another. It will put landlords in the rather unfortunate position of having to resort to court proceedings at an earlier stage.

This comes into force on 1 October 2015.

–          There is now a power to prescribe the use of a form of section 21 notice.

This enabling power comes into force on 1 July 2015.

–          Furthermore, landlords will be required to comply with legislation relating to the condition of the premises and the common parts and health and safety obligations such as gas, safety and electrical testing as well as EPCs, otherwise a section 21 notice will be invalid.

This enabling power to make regulations comes into force on 1 July 2015 and it is expected that the regulations will come into force on 1 October 2015.

–          Similarly, the landlord will be required to supply the tenant with prescribed information about the rights and obligations of the landlord and tenant subject to the AST. Again the ability to serve a section 21 notice is dependent on the landlord having provided this information.

This enabling power to make regulations comes into force on 1 July 2015 and it is expected that the regulations will come into force on 1 October 2015.

4. Change of Prescribed Forms

A number of prescribed forms have been changed, most significantly the section 8 notice which is used to evict an assured tenants (including assured shorthold tenants) for breaches of the tenant’s obligations under the Housing Act. Again, this is an England-only amendment and does not include Wales.

This came into force on 6 April 2015.

5. Retaliatory Eviction

Finally, a landlord is restricted from serving notice under section 21 if a tenant has made a written complaint about the condition of the premises before the notice is given and the landlord has not responded to the complaint or its response is inadequate. These provisions do not apply in certain circumstances where, for instance, a tenant is in breach of its own duty to use the premises in a tenantlike manner or express provisions to the same effect such as repairing obligations or where premises are genuinely on the market.

This is a laudable change, but its practical effect may well be to feed another groundless defence for tenants wishing to fend off a claim for possession in exchange for a pay-off in the same way as the counter-claim for disrepair.

This comes into force on 1 October 2015.

Overall this hotchpotch of changes removes a number of unnecessary technical traps such as s21(4) notices and deposit registration, but in doing so the Deregulation Act introduces another set of traps for unwary landlords.

These traps will be particularly acute for the inexperienced residential landlord, for instance the amateur buy-to-let landlords or a commercial property-owner or developer who inherits a residential tenant as part of a mixed-use scheme and whose focus will be on the more lucrative commercial elements of the scheme. The complexities of dealing with seemingly innocuous residential units cannot be overlooked.

This bulletin should not be taken as definitive legal advice on any of the subjects covered. If you require legal advice on any of the subjects covered or on any Real Estate-Dispute Resolution matters please contact Caroline DeLaney on 020 7955 1423 or carolined@rosenblatt-law.co.uk

 

 

 

Ramsay’s Guarantee Nightmare

01/05/2015 | David Sachs
Gordon Ramsay recently tasted defeat in the High Court as he sought to challenge the validity of a personal guarantee signed by a “ghost writer” signing machine operated by his father-in-law (Chr

Gordon Ramsay recently tasted defeat in the High Court as he sought to challenge the validity of a personal guarantee signed by a “ghost writer” signing machine operated by his father-in-law (Christopher Hutchinson).  The case touched on some important points in relation to how the law adapts to new technology, in this case, how automatic signing machines are operated to sign documents, and a useful reminder on what steps you should take to ensure your guarantee is watertight.

The chef’s holding company, Gordon Ramsay Holdings Limited had been granted a lease by Northam Worldwide Limited over the York & Albany hotel in London. The payments under the lease had been guaranteed apparently by Gordon Ramsay personally. But, after Mr Love, the landlord, had acquired the reversion of the lease and called on the guarantee, Ramsay contested the demand claiming the guarantee was not valid. He argued that he had not known about the guarantee – it was after all signed by a machine operated by Christopher Hutchinson, his father-in-law, rather than his own fair hand – and that, in any case, Mr Hutchinson had not had authority to commit Ramsay to the guarantee obligation.

The court therefore had to consider whether it was likely that Ramsay did or did not know about the guarantee and whether Hutchinson had authority to use the machine to sign on the chef’s behalf, thereby making Ramsay liable under the guarantee.

Although it was acknowledged that Ramsay might not have known about the precise details of all his business arrangements, it was successfully argued that Ramsay did know at least about the existence of the lease. Moreover, under questioning, Ramsey admitted that it was not uncommon for such leases to require a personal guarantee from him. The Court concluded therefore that the personal guarantee would at least have been contemplated by Ramsay and that, importantly, had he been aware of the guarantee requirement, he would in any event have agreed to it.

Furthermore, Ramsay’s relationship with Hutchinson at the time showed that Ramsay entrusted his father-in-law with his general business dealings.   The court was able to look at what other arrangements and course of dealings Hutchinson had agreed to on Ramsay’s behalf and was able to conclude that he had ostensible authority, as Ramsay’s agent, to commit the chef to the guarantee in this instance.

The case highlights some interesting points for lawyers.

1. One of the consequences of modern technology, particularly with email and the speed of scanning documents, is that all parties’ completion signing meetings take place much less frequently. The use of such signing machines to execute documents is also becoming more commonplace. It is clear though, and both sides accepted as much in this case, that a person can be bound by the terms of an agreement, including a deed, signed by such machines.   Although the Statute of Frauds Act of 1677 provides that a guarantee must be evidenced in writing by a document signed by a guarantor, this exception only applies to guarantees where no indemnity is also given. As most guarantees nowadays routinely include an indemnity (and Ramsay’s did), such guarantees will also be held to be validly executed if signed using such machines. The fact that a document can now be properly executed and bind the signatory in this way is no doubt convenient for those too busy to wield a pen themselves but extra care should still be taken by all parties where such technology is used.

2. Whenever a person is signing a document on behalf of another, for example as agent, the counterparty should take all necessary steps to ensure that the signing party is properly authorised to sign such documents. This may seem obvious where, for example, an agency agreement has been or is being entered into, and there are agreed corporate approvals and resolutions confirming such authority, but where it is less clear, the relying counterparty should ensure that there is sufficient evidence to show authority, that the non-signing principal knows of, and has otherwise approved, the document and has expressly agreed that his agent may execute it on his behalf.

English case law relating to guarantees generally favours guarantors; this is why guarantee clauses are typically drafted so carefully – and extensively – by wary lawyers acting for beneficiaries. This case though is a reminder that the Courts will not simply allow guarantors to escape liability where there is insufficient evidence to support their claim. In any event, Ramsay will have plenty of time to chew on the decision as the guaranteed lease only expires in 2033.

This bulletin should not be taken as definitive legal advice on any of the subjects covered. If you require legal advice on any of the subjects covered or on any other banking or finance matters, please contact David Sachs on 0207 955 1447 or davids@rosenblatt-law.co.uk

 

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