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Farrer & Co | More Regulation for Residential Tenancies

The government’s agenda to protect residential tenants is continuing without pause despite a certain parliamentary distraction. This indicates exactly how much of a priority it has become.

Fitness for Human Habitation

The Homes (Fitness for Human Habitation) Act 2018 (the 2018 Act) came into force on 20 March. It implies into certain residential tenancies a landlord’s covenant that the property – including any common areas – will be fit for human habitation, both at the time of grant (or, if later, the start of the term) and throughout the term of the tenancy. If there is a breach of this covenant, the tenant would be able to sue the landlord for compensation or for ‘specific performance’ (a court order requiring the problem to be remedied).

The effect of this legislation in practice is to allow the tenant to pursue the landlord directly for certain issues about which they might previously have had to complain to the local authority, and in doing so the tenant no longer needs to prove ‘disrepair’.

What does fitness for human habitation mean?

‘Fitness for human habitation’ is defined partly by referring to the hazards within the Housing Health and Safety Rating System (HHSRS), under which the local authority can serve notices on a landlord or carry out works if certain problems are identified. The list of hazards is long (there is government guidance outlining them all) but they include damp and mould growth, excess cold or heat, asbestos, carbon monoxide, electrical hazards, fire, drainage, water supply and the risk of falls.

Added to these hazards are some additional matters, which will cause a breach of the landlord’s implied covenant if the property is so far defective that it is not reasonably suitable for occupation in that condition. These matters are repair, stability, freedom from damp, internal arrangement, space, natural lighting, ventilation, water supply, drainage and sanitary conveniences, and facilities for preparing and cooking food and for water disposal.

What tenancies does it apply to?

The 2018 Act applies to all tenancies of a dwelling let 'wholly or mainly for human habitation' for less than 7 years, granted in England on or after 20 March 2019 (including renewals and new periodic tenancies, such as those arising after an AST fixed term). This includes assured tenancies, assured shorthold tenancies and Rent Act 1977 tenancies.

In addition to purely residential tenancies, the 2018 Act applies to agricultural occupancies which are ‘assured’ under the Housing Act 1988, and ‘protected’ or ‘statutory’ under the Rent (Agriculture) Act 1976.

In general, the 2018 Act does not apply to licences or lodger arrangements. The one exception to this is properties occupied by agricultural workers as part of their employment, even if there is no tenancy in place; the legislation expressly includes these.

Farm business tenancies and Agricultural Holdings Act 1986 tenancies are not affected by the 2018 Act, but residential sub-tenancies out of those leases are.

What does the landlord need to do?

In reality, this new legislation does not impose on landlords any greater obligations than they should already be fulfilling as part of good estate management. It could, however, encourage some tenants to use the phrase 'fitness for human habitation' in an emotive way as they pursue the landlord for issues which might previously have been directed solely to the local authority.

In terms of practical tips, landlords should (if they are not already):

  • Inspect the property before any new letting and regularly during the tenancy. The tenant must allow the landlord access at reasonable times on 24 hours’ notice, and the landlord has an implied right to enter the property to carry out any necessary works. Certain works need not be done, for example where the problem is the tenant's fault.
  • Use reasonable endeavours to obtain any required third party consents for works (such as from a superior landlord, neighbour, lender or local authority). If the third party does not grant consent despite those efforts, the landlord does not need to do the works.
  • Keep accurate records of inspections, works and attempts to obtain third party consent, to help demonstrate compliance if there is ever a dispute.
  • Engage constructively with tenants about any repair complaints. If a tenant feels that a landlord has not dealt 'adequately' with a complaint, and the tenant also complains to the local authority under the HHSRS, the ‘retaliatory eviction’ legislation could be engaged. This means a section 21 notice to terminate the tenancy could be invalid in certain circumstances.
  • Not attempt to exclude the operation of the 2018 Act in tenancy agreements, because any such clauses will be void.

Tenant Fees

From 1 June 2019, the payments that landlords and agents can require from certain tenants (and their guarantors) in return for the grant, renewal, variation or termination of the tenancy will be only those permitted by the Tenant Fees Act 2019 (the 2019 Act). This applies to assured shorthold tenancies, student accommodation and residential licences in England only. ‘Licences’ here includes lodging arrangements but excludes holiday lets. There are also exclusions for licences where the licensee cares for the licensor, and where a charity assists the licensee with the licence.

Initially the Act will only apply to new and renewal tenancies and licences (excluding periodic tenancies) but after one year they will apply to all existing tenancies and licences.

Rent deposits are possibly the most significant payments to be curtailed. If the annual rent is less than £50,000, the 2019 Act states that the rent deposit must not exceed five weeks’ rent. If the rent is £50,000 or more per year, it must not exceed 6 weeks’ rent. Landlords must not increase the rent and then reduce it to recoup these costs indirectly (unless the tenant agrees).

Holding deposits are permitted but cannot exceed one weeks’ rent and must be fully repaid, unless they are allocated to rent or a tenancy deposit, with the tenant’s consent. There are very limited circumstances in which a holding deposit need not be repaid, such as if the tenant provides false information or the landlord cannot let to that tenant because they have no ‘right to rent’ (and the landlord could not reasonably have known).

There are other permitted charges for the following, mostly limited to actual or reasonable costs:

  • Loss of keys;
  • Late payment of rent;
  • Variation, assignment or novation of the tenancy at the tenant’s request;
  • Early termination by the tenant;
  • Council tax and utilities.

In addition, landlords and agents cannot require tenants to make loans or enter into contracts for services or insurance, except contracts for utilities and communications.

Any tenancy terms which breach these restrictions will not bind the tenant or licensee, and for a breach the landlord or agent could face a find of up to £5,000. A second breach within 5 years will be a criminal offence and could mean a fine and a banning order for the landlord or agent, preventing them from letting properties for a minimum of 12 months. The commission of such an offence could alternatively mean a civil penalty of up to £30,000.

In addition, tenants and licensees will be able to pursue the landlord or agent for any amounts paid (plus interest), and landlords will be unable to serve section 21 notices to terminate tenancies while they are holding prohibited payments.

Constraints on Serving Section 21 notices

There is undoubtedly a pattern emerging in recent legislation affecting residential tenancies: that breaches will mean a section 21 notice is not valid.

This trend is appearing not just in legislation but also in county court cases, where tenants have been challenging landlords' attempts to terminate tenancies by alleging breaches of tenancy deposit scheme provisions and other requirements. The situation is particularly acute in relation to gas safety, where judges have held that it is not possible to remedy a breach where the landlord has failed to serve a gas safety notice on a new tenant before they move in (the effect of these decisions would appear to mean the tenant in effect enjoys an assured tenancy).

It remains to be seen whether future legislation affecting residential tenancies – such as the proposal for electrical testing every 5 years which was announced by the government in January – will curtail section 21 notices in the same way. Nevertheless, landlords will need to be mindful of the need to comply with more requirements as they reach the statute books.

If you require further information about anything covered in this briefing note, please contact Shona Ray Ferguson, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2019

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