UPDATED legal issue: enforceability of letting contracts

admin    Uncategorized     agents

Occasionally, tenants or landlords will agree to a tenancy, either verbally or by signing a tenancy agreement and then change their mind. If they subsequently decide not to follow through with the letting, where does that leave the landlord or the tenant?

The answer is, a rental agreement is just like any other contract in law. It is binding and the courts will enforce it, whether or not the tenant moved in. So this is binding, on bother landlord and tenant, and neither party can back out of the tenancy until the contract fixed term, or in the case of a AST, at lease six months, has expired.

Verbal or written agreement

If this is purely a verbal agreement to create a tenancy, which is perfectly legal, then it leaves the landlord in a weak position as unless their are reliable witnesses, proving the parties intended to enter into a contractual arrangement where offer, acceptance and consideration is satisfied, will be difficult.

The written agreement should be drawn up and signed by both landlord and tenant. Section 52 of the Law of Property Act 1925 says that a fixed-term tenancy of more than three years must be signed as a deed. This simply means the wording at the end of agreement must make it clear this is being signed as a DEED, and the party’s signatures must be witnessed by an independent third party.

To enforce such a contract it’s important to show that the parties reached agreement on the essential terms of the letting or they can easily be “worked out” with some certainty. In other words there must be both “certainty of subject matter”, the property to be occupied for example, and “certainty of interest”, for example the details of the letting, its start date, length and rent payable.

So a standard written tenancy agreement offered by the landlord, even if the landlord had not signed it, will meet both of these legal tests and will be binding on the tenant and landlord. Neither party can then cancel it, though a landlord should ask itself: is it wise to force a tenant to a tenancy against its will?

The other issue which arises with a tenancy contract is: can a tenant or landlord repudiate it for other reasons, because they simply change their mind? Or because in the legal jargon, it is “frustrated”?

What is frustration in relation to contracts?

Frustration occurs when an unforeseen event occurs after a contract is agreed between the parties and entered into. Subsequently an unforeseen event, one which is not incorporated into the contract, and one which is outside the control of the parties, makes the contract either: physically or commercially impossible to perform or continue with.

It would not be enough that performance is made more costly or more difficult, the frustrating event or change in circumstance needs to be so fundamental to the agreement and completely beyond what was contemplated by the parties when they entered into the contract.

However, frustration of a contract under English law can be difficult to establish. If it can be established then one of the parties is able to walk away from the contract with no further ties, but complications arise when the contract contains a force majeure clause. This clause however must be specific and relevant to the particular ‘event’.

Before considering a challenge, a party to a contract should read the small print to determine if:

• there is a force majeure clause which covers the event
• if there is no force majeure clause, whether the event was truly unforeseeable
• if the event made the obligation to perform impossible, illegal or radically different
• If it would be impossible to continue under re-negotiated terms.

Any court, when considering a challenge of frustration, will consider the specific contract terms, the full background facts, the status and abilities of the parties and their ability to perform the contract in light of the event changes.

It is difficult to define what is truly unforeseeable, for example during the Covid pandemic it could have been argued that such an event would be foreseeable, but what may truly frustrate a contract could be the actions of government, bringing far-reaching restrictions which would render proceeding illegal.

Where money has been paid or pre-paid the 1943 Law Reform (Frustrated Contracts) Act allows for the recovery of sums under contracts when it can be shown that it has been frustrated.

Example Case

An example of a frustration case, one which failed, would be Gold Group Properties Limited v BDW Trading Limited (formerly known as Barratt Homes Limited) (2010)

In this case a dispute arose between the parties because of a change in the circumstances relating to an agreement for a substantial residential development where the properties were to be sold, on long leases.

Gold Group Properties, the claimant, was the freeholder and the defendant Barratt’s was to build out the development, sharing the sales revenue.

However, with a sharp fall in the property market it transpired that the minimum sale prices that had been agreed in the contract were no longer attainable. Barratt refused to begin the building works.

Gold Group applied to the court for summary judgment to be entered in their favour for damages, due to Barratt’s refusal to commence the building works.

In its defence, Barratt argued that the agreed minimum sale prices operated as conditions to the contract and therefore they were not obliged to start works and the contract was frustrated. Gold Group argued that the minimum sale prices were only included to guarantee Gold’s recovery on sales, not to protect Barratt, and that Barratt’s failure to develop the property amounted to breach of contract.

Did the sharp fall in projected sale proceeds frustrate the contract? That was the issue the judge had to decide.

The judge Coulson LJ found that the contract was not frustrated. First off, the change in the economic climate did not constitute an unforeseen event. The contract had been drafted with the risk of a possible fall in the market in mind. It provided a sufficient mechanism for the minimum sale prices to be renegotiated or determined by an expert in the absence of agreement between the parties.

The decision in this case shows that the court will not allow claims to succeed based on frustration due to changes in economic conditions alone. The minimum prices scheduled were held not to be a condition precedent to the carrying out by Barratt of the building works themselves.

There was no express term to that effect anywhere in the contract. The possibility that prices would drop was within the anticipation of the parties, and not having made provision for it, they undertook the associated commercial risk.

Conclusion

The parties to a contact, whether consciously or not, accept there is a risk from future events. Where a contract is frustrated, for example where a property becomes unfit for habitation through a catastrophic building failure, one party would be better off walking away from their obligations, whereas the other would be worse off if the deal is not made legally binding by the contract.

To achieve judgement, it is not just an unforeseen event that qualifies to frustrate a contract; a change of circumstances must be so dramatic that the new circumstances must be completely outside of the contemplation of the parties at the time the contract was made.

To achieve a just and equitable result between the parties “frustration” recognises that events, significant changes in circumstances, can and do interfere with contractual performance, warranting the cancellation of a contract.

So, anything that under normal circumstances could have been foreseen by, for example a tenant, who will usually have inspected the premises prior to agreement, will not be seen as frustration.

View Full Article: UPDATED legal issue: enforceability of letting contracts

Tax-Efficient Ownership Structures: Mitigating Risk for Business Owners and Financiers

admin    Uncategorized     agents

Managing risk is a fundamental concern for both business owners and financiers. A well-thought-out ownership structure can significantly reduce risk and enhance financial stability. One key element in this risk management strategy is adopting a tax-efficient ownership structure. In this blog post

View Full Article: Tax-Efficient Ownership Structures: Mitigating Risk for Business Owners and Financiers

Big city council doing ‘very little’ to police landlords who ignore repair requests

admin    Uncategorized     agents

Councils across Greater Manchester are failing to enforce disrepair in the PRS, putting tenants at the mercy of a potential postcode lottery – and highlighting the huge gap in most local authority’s ability to police landlords.

Research by Housing Justice Network partners, the Greater Manchester Law Centre and Greater Manchester Tenants Union, reveals that councils received 2,283 reports from private tenants seeking help for disrepair in the year to February, but only served 90 improvement notices – representing 3.9%. Prohibition Notices were only served 26 times (1.1%).

Their report – Tackling disrepair: why enforcement matters – counted 55 staff across Greater Manchester dealing with enforcement and repairs, for a tenant population of more than 1.2 million.

The average number of staff was six, based on Freedom of Information requests to Bolton, Rochdale, Oldham, Salford, Wigan, Bury, Tameside, Manchester, Trafford and Stockport Councils.

Held to account

Housing Justice Network says it is unhelpful that many councils either do not have a policy on how to enforce disrepair, or don’t make their policy public, meaning tenants would struggle to hold them to account.

It says the unevenness of policies, enforcement practices and recording across the region illustrated the need for a more coordinated approach, otherwise enforcement risked becoming a postcode lottery.

“Where funding enforcement is difficult, authorities may be left with too few staff trying to handle growing caseloads. It also incentivises ‘gatekeeping’, where they try to reduce burdens on their services by making it harder to get in touch or access services.”

Repairs

It adds: “Many informal approaches by local authorities do not result in adequate repairs being completed by landlords, meaning that tenants are left living with disrepair and the risk of eviction for reporting.”

The report’s recommendations include more co-operation between authorities to identify landlords who may be breaching their obligations across different boroughs.

View Full Article: Big city council doing ‘very little’ to police landlords who ignore repair requests

‘Stop landlord bashing’ says renting sector chief as conference season starts

admin    Uncategorized     agents

Politicians should stop landlord bashing to prevent further damage to the private rented sector, says one property body boss.

Daniel Evans (main picture), chair of the Association of Independent Inventory Clerks, believes it’s time for a major re-think on tax policy – the main reason why landlords are quitting the sector – and hopes upcoming party conferences will provide a useful platform for discussion.

Landlords have been singled out and are now being hammered for tax and leaving in droves – despite rising rents.

“Their profits are all going to the tax man,” says Evans. “Every landlord is hit by other rising charges, like the cost of maintenance and repairs and the extra expense of new energy efficiency regulations, but it is the landlord tax policy which hurts them the most. No other business is taxed in this way.”

Conference season

The Liberal Democrats kick off the conference season in Bournemouth on 23rd September and have timetabled a debate on the housing crisis when proposals include the introduction of a national register and minimum landlord standards.

The Conservatives gather in Manchester on 1^st October, but Chancellor Jeremy Hunt has already said his Autumn Statement won’t contain tax cuts if inflation remains high.

The Labour Party meets in Liverpool in October while Shadow Chancellor Rachel Reeves (pictured) has ruled out any increase in Capital Gains Tax should they win the next election, while also rejecting a ‘mansion tax’, wealth tax or income tax rise.

“Our senior politicians have to understand that the PRS is in crisis right now and it is a special case,” adds Evans. “There is a chronic undersupply of homes all over the UK and landlords continue to sell up which will only serve to make the situation worse for tenants.”

View Full Article: ‘Stop landlord bashing’ says renting sector chief as conference season starts

WATCH: The five main ways to evict a tenant after reform bill becomes law

admin    Uncategorized     agents

Two experts have spelled out the challenges landlords will face when evicting tenants once the Government’s plans to reform the private rented sector become law, most likely late next year.

This will include, crucially, Section 21 ‘no fault’ evictions being scrapped.

Landlord Action chiefs Paul Shamplina and Paul Sowerbutts (main picture, LtoR) told a packed webinar that landlords and letting agents removing tenants from properties will have just five tools at their disposal once the Renters Reform Bill becomes law, one of which will be somewhat surprising for some landlords – see below.

Sowerbutts told the webinar that although there will be 33 grounds for evicting a tenant, including 22 mandatory ones, only five will be used by most private sector landlords in practice.

For those unfamiliar with the arcane language of the courts, a ‘mandatory’ ground is where a judge will be compelled to issue a possession warrant as long as the evidence shows the ground or grounds to be valid.

Discretionary grounds are where a judge is given more latitude in deciding whether an eviction take go ahead or not.

The five mandatory grounds will be (please note these are proposals and not yet law):

Grounds 1 and 1a:  Selling or moving back into a property.

“You won’t be able to just say you want to sell a property or move in as you can at the moment with Section 21 notices – a landlord will have to provide the court with proof that at least they’ve instructed an agent to sell the property,” said Shamplina.

Sowerbutts added: “On the upside, under Grounds 1 and 1A as they will be known, you won’t have to give ‘prior notice’ of selling the property as you do with Ground 1 now, but on the other hand you won’t be able to evict until the tenancy has run for six months.

“Also, if you sell or move back into the property, you won’t be able to re-let it for three months, although it’s unlikely councils will have the resources to police this aspect of the new legislation – nevertheless there will be a fine of up to £5,000 if you are caught.”

Section 8 – Rent Arrears

“Under the proposals, if a tenant gets into arrears more than three times in three years then a landlord will be able to claim a ‘mandatory ground’ for eviction,” said Shamplina.

Sowerbutts added: “I think this will be reduced to 18 months as the legislation passes through parliament – three years seems a little unfair on tenants who, for example, may have paid their rent consistently but go through a few life-changing events and have temporary financial difficulties”.

Shamplina added: “Remember that one rule that will go forward from Section 21 is that delayed Universal Credit payments will not count as arrears even though, for many landlords, that’s what they are”.

6a – Breach of regulations

Sowerbutts said: “This is a surprising one because it appears that if a landlord doesn’t run a property well and has been served a notice in regard to certain housing offices such as an improvement notices, banning orders or licencing transgressions, then they can evict a tenant.

“And it’s true, they will be able to – but the idea is not to help bad landlords, but to ensure tenants living in badly-run properties can be evicted promptly if their landlord is a rogue operator”.

Read a full guide to the reform bill.

Ground 14 – Anti-social behaviour

“The big change here is that the evidential base is going from ‘likely to cause nuisance’ to ‘capable of causing nuisance’ which, although it sounds subtle, will mean landlords will have to only gather evidence that a tenant ‘might’ behave badly rather than that they ‘have behaved badly’ during a tenancy”, said Sowerbutts.

Watch the webinar in full

View Full Article: WATCH: The five main ways to evict a tenant after reform bill becomes law

Landlords leaving in droves due to tax policies

admin    Uncategorized     agents

An industry body is urging all politicians to have an urgent re-think on tax policy for landlords.

The Association of Inventory Clerks claims the recent tax rule changes are a major reason why landlords are leaving the private rented rector.

View Full Article: Landlords leaving in droves due to tax policies

Paragon Bank cuts buy to let mortgage rates for landlords

admin    Uncategorized     agents

Paragon Bank has unveiled a major product refresh that has seen rates reduced across 22 buy to let mortgage products, with fixed deals now starting at 4.59%.

The rate cuts apply to a range of loan-to-value (LTV) bands for both portfolio –

View Full Article: Paragon Bank cuts buy to let mortgage rates for landlords

Landlords doubt Government’s planning reforms will deliver 1 million new homes

admin    Uncategorized     agents

After the government announced a review of permitted development rights in a bid to shake up planning rules and build one million new homes in England by the end of the current Parliament, landlords say they doubt the move will deliver the homes.

View Full Article: Landlords doubt Government’s planning reforms will deliver 1 million new homes

Planning reforms won’t solve housing crisis, landlords tell Gove

admin    Uncategorized     agents

The Government’s proposed planning reforms won’t help build the promised one million new homes in England, landlords have told a new survey.

Earlier this summer, Housing Secretary Michael Gove (main picture) announced a review of permitted development rights, setting out plans to make it easier to convert large shops and offices into homes. 

However, Mortgages for Business’s poll of several hundred buy-to-let landlords found only 7% believed the reforms would be successful, while 59% thought the results were “unlikely to scratch the surface”.

Another 19% thought the reforms could make the housing shortage worse, by focusing attention on building homes in cities.

“Britain needs more homes to fulfil more dreams of home ownership and increase choice for renters,” says MD Gavin Richardson (pictured, below).

“It’s great that these proposals mean that fewer empty shops or offices are left gathering dust while we have an urgent need for more homes. But on their own, a review of the rules around permitted development rights is not going to achieve very much.”

Brownfield

Gove also promised to create city development corporations with the power to buy up brownfield land and sell it on to housing developers. However, when asked if the country could tackle the housing crisis by building on brownfield sites alone, only 24% of landlords agreed.  

“Building in Birmingham, Manchester and Liverpool is not going to solve the housing shortage in the South East. To do that, we are going to have to build on London’s green belt. Until we accept the need for a ‘green and brown belt’ around London, the South East will continue to be short of homes, which will, of course, support the business plans of thousands of landlords,” adds Richardson.

View Full Article: Planning reforms won’t solve housing crisis, landlords tell Gove