The Deregulation Act 2015
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 tenant–like 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.
