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You are here: BAILII >> Databases >> The Law Commission >> RENTING HOMES 2: CO-OCCUPATION, TRANSFER AND SUCCESSION (A Consultation Paper) [2002] EWLC 168(8) (22 August 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/168(8).html Cite as: [2002] EWLC 168(8) |
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Part VIII
Occupation agreements and third parties: Transfers of landlord’s rights and other matters
8.1 One of the principal features of the scheme we have proposed is that all occupation agreements within its scope should be treated in the same way, irrespective of whether – under ordinary principles of law – they would be classified as leases or licences.[1]
(1) that licensees covered by our new scheme should be capable of being subject to the same terms as tenants in relation to eviction and minimum rights, such as fitness for human habitation;[2]
(2) that licensees, even if they do not have exclusive possession, should benefit from an appropriately modified version of the covenant of quiet enjoyment under which their landlords would not be allowed to harass them, and should be burdened by an appropriately modified version of the duty to behave in a tenant-like manner;[3] and
(3) that, as we have discussed in the preceding parts of this paper, our new scheme should similarly regulate dealings with joint occupiers, sub-occupiers and other members of an occupier’s household or family, irrespective of whether the agreement constituted a lease or a licence.
(1) First we ask whether principles of land law, in particular the law of landlord and tenant, should be used to determine issues affecting third parties.
(2) Secondly, we consider certain consequences of the outcome of that discussion on cases where landlords assign their interests in properties which are subject to occupation agreements to others.
(3) Thirdly we discuss the scope of the legal responsibilities of a person who has acquired title to the premises in question in circumstances where they become the new landlord.
(4) Finally we consider a number of special circumstances in which occupiers may have rights to restrict the freedom of their landlords to dispose of their property interests.
8.6 The issue may be illustrated by considering the case where a landlord wishes to sell their interest in a property to another. Historically landlords have been left largely free to deal with their property interests without any such dealing directly affecting tenants. They can usually do what they want without their tenants’ consent.[4]
8.11 Many of these statutory rules have applied equally to licences as well as tenancies.[5] While the Rent Act 1977 and its predecessors used the concept of “statutory tenancies”, this was held judicially not to amount to an actual tenancy. Statutory tenancies do not create a leasehold estate in the land, but merely a “status of irremovability”.[6] Much housing law has not been dependent on the lease/licence distinction, but rather on the operation of specific statutory rules operating outside or in parallel with land law.
8.12 Set against this, the policy of land law has been to ensure that, so far as possible, notice of interests attaching to land is registered at HM Land Registry and thus clear to those purchasing interests in property.[7] Thus the policy behind the development of land law has been to limit the number of types of estates and interests in land, and with the development of land registration, to ensure the land register is as comprehensive as possible. Much of the policy behind the Land Registration Act 2002 was to move yet further towards a comprehensive register, in particular to aid electronic conveyancing, but generally to make the system of land registration more effective for those dealing in property.
8.13 It has always been accepted that some interests in land will not – for practical reasons – appear on the register. But the aim has been to restrict their number as far as possible. The scheme of land registration accepts that there should be certain categories of “overriding interest”, which have binding effect but which do not have to be registered in the Land Registry. Again, however, the policy is to reduce and simplify the number of overriding interests that can exist. The general approach is that overriding interests should be limited to those that are necessary, and can reasonably be discovered by inspection of the property. A suggestion for the creation of a new category of “general burdens”[8] which could be protected without being registered was rejected.
8.14 The purpose of these policies is to ensure that the conveyancing market should operate as smoothly as possible. Conveyancers should not be unnecessarily burdened by the need to inspect premises, in order to check on matters not recorded on the register. These policies are reflected in Land Registration Act 1925, section 5. This provides that the owner holds “free from all other estates and interests whatsoever”, other than those protected under the Act.[9]
8.15 Licences present a dual challenge to the land registration system.
(1) They are often created informally, and are therefore hard for a scheme of registration to “capture”.[10]
(2) More fundamentally, they do not create interests in land which can be the subject of registration. It follows that if licences covered by our scheme were to be treated as binding on successors in title to the landlord, without their being registered, this would involve making a significant change to the scope of the land registration scheme.
8.17 The land registration system has in the past been amended to give protection to socially important statutory rights not normally recognised by land law, notably in the case of matrimonial home rights.[11]
8.18 The Mobile Homes Act 1983, section 3(1) provides that “An agreement to which this Act applies shall be binding on and ensure for the benefit of any successor in title of the owner and any person claiming through or under the owner or any such successor.” This is supplemented by the definition in section 5(1) of “owner” as “the person who, by virtue of an estate or interest held by him, is entitled to possession of the site or would be so entitled but for the rights of any persons to station mobile homes on land forming part of the site”. In other words agreements relating to mobile homes bind the land despite not creating leasehold estates in that land. They do so simply on the basis that the statute requires that they should.[12]
8.19 Statutory tenancies arising under the Rent Acts appear to have received special treatment, though despite many years of case-law, there is no clear answer to the question why, in land law terms, a Rent Act 1977 statutory tenancy is treated as binding on a new landlord, when it is not treated as a “tenancy” in the sense of creating a leasehold estate in land. Little of the extensive writing on the Rent Acts deals directly with this question.[13]
8.20 It remains the case that Mobile Homes Act licences and Rent Act 1977 statutory tenancies will survive as burdens on land even after the coming into force of the Land Registration Act 2002. However, apart from the Mobile Homes Act, neither the Rent Act 1977 nor any other housing legislation specifically provides that the landlord’s successors in title will be bound by agreements covered by the legislation.[14]
8.22 There could be some advantage to this bold approach, going beyond questions relating to conveyancing. For example under the current law, if a neighbouring landowner commits the tort of nuisance in relation to property which is subject to an occupation agreement, only persons with a legal estate or interest in the affected land will be able to sue.[15] The parties therefore have to look to land law principles to work out whether the occupier is a tenant, who can sue for nuisance, or a licensee, who cannot and will have to ask the landlord to do so instead.[16] Similarly, if a stranger trespasses on the land, an occupier who is a tenant will be able to take action, whereas a licensee will not.[17]
8.28 Another initially attractive idea might be to deem such licenses to be rights which could be protected as overriding interests by actual occupation under Land Registration Act 1925, section 70(1)(g). However, problems might then arise as the requirements for occupation in that subsection are very different from those in our scheme.[18] Not all licences covered by our new scheme would be protected under section 70(1)(g), whereas all legal leases would fall under section 70(1)(k). The objective of parity of treatment for all occupation agreements would still not be achieved as there would remain differences in treatment as between leases and licences.
8.31 First, the scheme already excludes many situations in which licences may commonly be used, including
(1) non-contractual arrangements,
(2) agreements for use of premises other than as a home,
(3) agreements to share living accommodation with the landlord, and
(4) certain categories of supported accommodation.
8.33 Thirdly, most occupation agreements will be classified in law as tenancies. Only a comparatively small number of licences are likely to fall within our scheme.[19] These may include the following.
(1) Accommodation which is tied to employment. Such arrangements may constitute licences even where exclusive possession is given.[20]
(2) Accommodation where the nature of the provision is not that of a tenancy. This may arise where accommodation is provided by a charity, as an act of charity.
(3) Accommodation where the occupier has at least one room which is not shared with any other contracting occupier or the landlord, but where the landlord exercises such a degree of control over that room that the occupier does not have exclusive possession of it.
8.35 This was the situation considered in AG Securities v Vaughan.[21] It was held that a genuine “non-exclusive occupation agreement” arises where there is not a joint tenancy of the whole house, nor separate tenancies of individual rooms with exclusive possession within the house, nor one tenant of the whole who then sub-lets to the others. Instead each occupier has a separate agreement direct with the landlord, whereby the occupiers can be moved around from room to room, and certain facilities were shared in common.
8.36 In such circumstances, a real issue will arise if the landlord chooses to transfer his interest. If the landlord were to use a periodic type II agreements in such circumstances, it is likely that he or she would in practice terminate the agreement so as to obtain vacant possession before any sale. Any difficulties are therefore likely to be confined to fixed term type II agreements. Our understanding is that these are relatively common in the student market where landlords want to keep their properties occupied for a full academic year, or for the duration of a course. Problems could, therefore, arise where the landlord’s title to the property is transferred to another during the period of the agreement.[22]
8.38 First, there is no reason why licensees could not be protected to a considerable degree by the terms of their occupation agreement. It would be possible to propose a default term that the landlord guarantees that on an assignment of their reversion, the assignee would enter into a new occupation agreement.[23] Thus licensees could have grounds for action in contract against their original landlord[24] if they are forced to leave the premises because the landlord’s interest has fallen into other hands.
8.43 This still leaves the question of how, if the matter is left to land law, existing Rent Act 1977 statutory tenancies will bind purchasers of the landlord’s interest if those tenancies are converted to type I agreements on the coming into force of our new scheme. It is essential that Rent Act tenancies, virtually all of which will by now be statutory tenancies,[25] should continue to bind successors in title to their landlords. However, it is obviously undesirable that the basis for this should continue to be obscure, rather than an express, and preferably consistent, part of the new legislation.[26]
8.44 This could be achieved by deeming Rent Act statutory tenants, on conversion to type I agreements, to acquire a tenancy. This would not give them any special status above other type I agreements which are tenancies, but would ensure that they were treated in the same way in relation to successors to the landlord’s title. It would also give a clear basis for saying they have rights “against the world”.[27] This could be justified as correcting the anomaly that currently there is no clear basis for such rights.
8.49 We now discuss further the implications of the adoption of the land law approach.
8.50 At present, only leases for a fixed term of over twenty-one years must be registered.[28] Our scheme will not apply to such leases.[29] Licences are not registrable, even in the rare event of being for long fixed terms. Therefore at present there are no land registration requirements for agreements covered by our new scheme.
8.51 However, when Land Registration Act 2002, section 4(1)(c) comes into force all fixed term leases of over seven years will have to be registered. Under section 33(b) leases of over three years (and up to seven) will be registrable voluntarily. There is a power in section 118 for the Lord Chancellor to reduce the boundary for compulsory registration from seven years.
8.52 While periodic agreements will remain outside the scope of land registration, some fixed-term agreements covered by our new scheme, provided they are classified in law as leases, will be registrable. Most agreements for a fixed period of over seven years would be classified as a tenancy, rather than a licence. It may be that there could be more room for argument in relation to three year fixed term occupation agreements. We fully expect that the effects on residential occupation agreements will be taken into account in any decision to make any reduction in the time period which will trigger compulsory registration requirements. We therefore conclude that this possibility should not pose a significant problem for the operation of our scheme.
8.53 Legal leases which are too short to require registration in their own right are nevertheless protected as overriding interests under Land Registration Act 1925, section 70(1)(k).[30] Licences are not covered by section 70(1)(k). Given that they are personal and cannot affect successors in title to the landlord, they are not capable of qualifying as overriding interests under section 70(1)(g) as rights capable of protection by “actual occupation of the land”.[31] The law on registration will therefore not affect the basic proposition that the landlords’ successors in title will only be bound by those of our new agreements which count as leases rather than licences.
8.54 We have also considered whether our proposed requirements for writing[32] might lead to landlords neglecting the formalities for the creation of leases. This could lead to problems when the landlord’s interest subsequently passes, if the successor in title claims the informal leases are not binding.
8.55 In many situations the occupier will obtain a legal lease by operation of law on taking possession, notwithstanding the failure to complete the proper formalities for the creation of a tenancy.[33] The agreement will thus still operate as a lease for the purposes of binding third parties in unregistered land and counting as an overriding interest in registered land. However, the implied legal lease obtained on taking possession is a periodic lease, even if what had been agreed but not adequately formalised was a fixed term.[34]
8.56 In cases where this does not happen, the rights of a person with an equitable lease will nonetheless have those rights protected as overriding interest where they are in actual occupation of the property.[35] We therefore do not believe that leases which fail to satisfy the formal legal requirements for a legal interest will cause a significant problem.
8.57 We suggest below, at paragraphs 8.74 to 8.104, that while land law should deal with the question of what agreements are binding on the successor, the question of the extent of the rights and obligations to which the successor in title is bound should be left to the agreement under our scheme.
8.58 Mortgagees are generally not bound by licences entered into by mortgagors, whether the licence pre-dates or post-dates the mortgage, and whether the mortgagee knew and approved of it or not.
8.59 First mortgages usually pre-date the creation of any tenancy, as they will have been used to buy the property before it was let. In practice the mortgage deed is likely to require the consent of the mortgagee for any subsequent letting. If a tenancy is granted in breach of such a requirement it will not bind the mortgagee on repossessing against the mortgagor-landlord. This can be a significant social problem, particularly at times when repossession rates rise, because so many private landlords with prior mortgages do not seek consent for their lettings and their tenants do not find out until it is too late.
8.60 The problem is that it is hard to envisage effective sanctions against borrowers. The tenant will theoretically be able to claim damages for breach of the covenant for quiet enjoyment (and occupiers under our scheme will be able to claim for breach of the equivalent term). However, in mortgage repossessions the equity in the house commonly goes to the lender and the borrower is not worth suing as they are by definition in financial difficulties. It is also hard to see how a mortgage system could work if lenders risked being bound by tenancies to which they had not given consent.
8.61 In some cases where the creation of a tenancy pre-dates a mortgage then the tenancy will have priority, whether the mortgagee knew about it or not. In practice this would normally only be the case on second mortgages. We can understand that mortgagees would not want to have to check for the existence of licences as well as tenancies before granting second mortgages, and that they would not want to see any increase, even a small one, in the risk of being bound by them. We do not in fact believe there would be much more risk. In practice the same checks will have to be made as to whether anyone (other than the mortgagor) is paying to live there. It will be easier to check whether there is an agreement covered by our scheme than it is to check whether there is a tenancy or a licence. We do not believe a sensible mortgagee would feel they could lend safely on the strength of a belief that someone covered by our new scheme was a licensee rather than a tenant. Any problems would therefore be confined to cases where the mortgagor has concealed the existence of the occupation agreement.
8.62 In other cases, particularly “buy-to-let” schemes, the mortgage will pre-date the occupation agreement, but the mortgagee will have given consent to the letting. On repossessing against the mortgagor, the mortgagee will be bound by the agreement only if it counts as a tenancy and not as a licence. Assuming that the mortgagee will only have consented to the granting of a type II agreement, it will be possible to regain vacant possession of the premises speedily. In this case it is difficult to see, in housing law terms, why a mortgagee should not be similarly bound if they have consented to a type II agreement which happens to constitute one of the few kinds of licence which will be covered by our new scheme.
8.63 However, we can see that any mechanism for imposing the protection of such licensees onto mortgagees would be open to the same objections as those relating to other successors to the landlord’s title, discussed above. In any event the difference in the level of protection is marginal. They would have had at least fourteen days warning of any repossession hearing.[36] Indeed, repossession against licensees may well be slower than against tenants. If the licensees claim in fact to be tenants, then a court hearing will be needed to determine the issue, and will have to cover the complex distinctions between the two. If the mortgagee assumes the occupiers are tenants, and therefore binding, it will be able to take accelerated possession proceedings on the notice-only basis, with no need for listing of a court hearing. Accordingly we do not believe that the discrepancy of treatment between licensees and tenants will cause disproportionate hardship.
8.64 Here we consider the situation where a lessee (“the mesne landlord”) under a long lease, not covered by our new scheme, enters an occupation agreement which is covered by our scheme (for instance, if A grants a 99 year lease to B and then B agrees to allow C into occupation as a periodic tenant, the agreement between A and B is not covered by our scheme, whereas that between B and C is).[37] The key issue is whether the head landlord will become bound by the agreement on termination of the head lease. We believe that this issue should be determined solely by the rules of general landlord and tenant law. We do not believe our scheme should reproduce current rules in housing legislation which add to the circumstances in which the sub-occupier is imposed on the head landlord.
8.65 Currently there are situations where landlord and tenant law may impose a sub-tenant, but not a sub-licensee, on the head landlord (that is, C, the sub-tenant, becomes a tenant directly of A). The general principle is that on termination of the head lease all interests granted out of it fall as well. There are two exceptions to this general rule. Both exceptions only apply to leases, and not to licences, but both apply irrespective of whether the sub-letting was lawful or unlawful. The first is where the head lease is surrendered or merged.[38] The other is where the court imposes a tenancy between the head landlord and sub-tenant on the sub-tenants’ application for relief against forfeiture of the head lease.[39] Whatever the logic of these provisions, it is beyond the scope of this project to suggest changes to this area of law.
8.66 In addition, housing legislation may impose a sub-tenant on the head landlord in other circumstances where landlord and tenant law would not do so.[40] These provisions are notoriously complex and of limited application in practice. They both apply only to lawful sub-lettings. The Housing Act 1988, section 18 is the clearer of the two. It operates to burden a head landlord (A) with an assured sub-tenancy (for C) on the termination of the head tenancy (to B), irrespective of how the head tenancy came to an end and irrespective of whether the head tenancy is governed by any other statutory or common law rules.
8.67 We have asked whether our new scheme should reproduce provisions similar to those of existing housing legislation, to supplement the number of situations in which landlord and tenant law would require head landlords to take over occupiers under agreements covered by our new scheme.
8.68 In favour, it may be argued that it would ensure the continuation of the agreement despite any fault of the mesne landlord, and that it could protect agreements from premature termination without introducing distinctions as to whether they counted as leases or licences.
8.69 The problem with this approach is that the logic of protecting the innocent occupier would apply much more often in cases where the landlord is in breach of mortgage conditions, but in such circumstances the innocent (albeit unlawful) occupiers remain vulnerable.
8.70 We are also concerned that head landlords, whose primary interest is in commercial leases, not residential, do not become enmeshed in rules relating to residential lettings which they might reasonably assume do not apply to them.[41] Many of those landlords would be familiar with the general rules of landlord and tenant law which would apply to their head lease, under which they would not expect to be bound by their tenant’s licences. They might thus agree to a residential sub-licence agreement in ignorance of the fact that licences are covered by our new scheme.
8.71 Another reason for suggesting that the head landlord should take over occupiers under agreements created by mesne landlords is to avoid sham arrangements designed to avoid the force of our scheme. It is probable such anti avoidance considerations were the motivation behind Rent Act 1977, section 137 and Housing Act 1988, section 18. However, since the creation of the assured shorthold tenancy, which we propose should be embraced by our type II agreement, sham arrangements seem largely to have died out.
8.72 We have therefore concluded that there is now no need for our new scheme to make special provisions to ensure that head landlords, under leases not covered by our scheme, are bound by occupation agreements created by mesne landlords, in cases where they would not be so bound by the general law of landlord and tenant.
8.73 We provisionally propose that our scheme should not make any special provision, above that imposed by general landlord and tenant law, for head landlords, whose leases fall outside our scheme, to be bound by occupation agreements covered by our scheme which are created by mesne landlords.
8.74 Where the successor in title is bound by a pre-existing occupation agreement, the next question is what should be the extent of the new landlord’s rights and duties.[42]
8.75 Currently under contract law the benefit of a contract can be assigned to third parties, or made available to them through the Contracts (Rights of Third Parties) Act 1999. However, third parties cannot be bound by the burden of a contract by purely contractual means. Furthermore, the parties to the original contract will remain bound by the terms of the contract unless the law otherwise provides, even though they may have assigned their rights under the contract to another.
8.76 In order to pass both the benefit and burden of the lease to a new landlord, land law principles operate. Under these principles, the doctrine of “privity of estate” applies to pre-1996 tenancies. [43] The principal difficulty with the doctrine of privity of estate is that is relates only to covenants which “touch and concern the land”.
8.77 The Landlord and Tenant (Covenants) Act 1995 applies, primarily, to tenancies created on or after 1st January 1996.[44] It has three primary objectives.
(1) First, it provides that on lawful assignment of the lease, a tenant is released from those covenants in the tenancy that apply to the tenant.[45]
(2) Secondly, both the benefit and burden of covenants are passed to the new landlord (the assignee), irrespective of whether or not they touch and concern the land.[46]
(3) Thirdly, on assignment of the reversion, the original landlord, the assignor, is not released from their obligations under the tenancy, unless they go through a prescribed procedure. [47]
8.78 In addition to these primary objectives, the Act also deals with other issues that can arise. These include questions of apportionment of liability as between assignor and assignee;[48] the effect of covenants with third parties, for instance management companies;[49] and joint liability.[50]
8.79 There are also provisions dealing with the position of a former tenant after an assignment.[51]
8.80 We have considered whether it would be preferable for our scheme to impose its own requirements on the rights and obligations of the parties following an assignment, rather than relying on the Landlord and Tenant (Covenants) Act 1995.
8.81 Our view is that the broad policy which underpins the Act is sensible. Tenants are released from their obligations to the original landlord, from the time of the assignment. Former landlords, however, are not released unless the tenant consents.
8.82 We perceive three particular difficulties for the direct application of the Act in the context of residential occupation agreements.
(1) First, the statute is a complex one, which requires considerable legal expertise to understand. Clearly, it was drafted with assignments of business leases or long leasehold interests in mind, where it could be expected that the relevant parties would be seeking and obtaining appropriate professional advice and assistance.
(2) Secondly, it was not made retrospective. Thus, apart from a small number of provisions that apply to all tenancies,[52] it only applies to tenancies created since 1996.
(3) Third, the provisions dealing with the position of former tenants are, arguably, not required, given the proposals we have made on this matter, above in Part VI, paras 6.94–6.100.
8.83 We suggest that in relation to the first of these issues, assignments of the landlord’s interest will rarely occur without legal advice. Although the legislation is complex, it is reasonable to assume that parties to assignments will be advised on it.
8.84 The second difficulty can be met, we suggest, by proposing that, on the coming into effect of our scheme, the process of converting existing tenancies into occupation agreements should be deemed to be the creation of a “new tenancy” within the provisions of the Landlord and Tenant (Covenant) Act 1995.
8.85 The third issue will be considered in the light of responses to the relevant proposals in Part VI.
8.86 We provisionally propose that the process of converting an existing tenancy into an occupation agreement within our scheme should be deemed to be the creation of a “new tenancy” for the purposes of the Landlord and Tenant (Covenants) Act 1995.
8.87 We further provisionally propose that, save for sections 16 to 20, the provisions of the Act of 1995 which deal with the rights and obligations of assignors and assignees should apply to transfers of occupation agreements, classified in law as tenancies, within the scope of our scheme.
8.88 A specific difficulty relates to notices of disrepair required by Landlord and Tenant Act 1985, section 11.[53] Arguably an occupier should only have to give notice of disrepair once, so that a new landlord would be fixed with any notice given to the old landlord. The new landlord would thus become liable under the provisions of section 11 from the date of acquisition of the interest in the property. Otherwise it would be hard on an occupier who did not know of the change of landlord and as a result lost out.
8.89 Although our terms of reference do not specifically extend to repairing covenants, we think that there should be a compulsory term in the new agreements that provides that notice of disrepair given to the old landlord would be effective as if given to the new landlord.
8.90 We provisionally propose that any notice of disrepair given to a landlord should be effective as notice to a new landlord, though the new landlord’s liability should only start to run from the date of acquisition of their interest in the property.
8.91 Problems can also arise with deposits held by the former landlord. It is beyond the scope of our project to deal with the regulation of deposits.[54] We can see the force of the argument that the law should provide that any deposits held by the former landlord should be transferred to the new landlord who will take over their administration.
8.92 In CP162 we provisionally proposed, that the “core” terms in any occupation agreement should include specific requirements for landlords to provide occupiers with information about the landlord’s identity (and those of any agents) and a place of business as an address for service.[55] The landlord’s successor in title will certainly be bound by agreements with tenants, if not licensees, and will become their new landlord. We think the new landlord must give the occupier the same information and a name and address for service, as the original landlord gave.
8.93 The question arises what the extent of this requirement should be. There are three options.
(1) The new landlord could be required only to provide written notification of their name, address and status.
(2) The new landlord could be required to provide a new agreement with the core term changed.
(3) The notification of the new name and address could be treated in the same way as a variation of the agreement. The new landlord would be required to provide written notification only of the changed element, but the occupier would then have the right to require the new landlord to provide a revised copy of the whole agreement.
8.94 The first option is clearly the least burdensome. The risk with the second is that is may fuel misunderstandings by occupiers, who will not be familiar with distinctions between tenants and licensees, as they may think the landlord is not obliged to keep them as occupiers. The advantage of the second option is that it would help to ensure that the new landlord quickly became aware that they needed to obtain a copy of the agreement from the former landlord. Currently new landlords may not have copies of the original paperwork and may be unaware that they are bound by it or ignorant of the detail of their responsibilities. The third option provides a compromise between the other two options.
8.95 We provisionally propose that the new landlord should have to serve written notice on the occupiers of a name and address for service for themselves and any agents (matching the requirements of the core term in the original agreement).
8.96 We provisionally propose that on receipt of this notification the occupier should be entitled to require the new landlord to supply a revised copy of the agreement, as happens on a variation of the agreement.
8.97 If the new landlord does not comply with these requirements there should be some sanction. Under the current law there are criminal sanctions.[56] There is a time limit for compliance – when the rent is next due or two months from the assignment, which ever is the sooner.
8.98 In CP 162 we provisionally proposed that rent sanctions should apply where original landlords did not give their names and addresses in the core term of the agreement.
8.99 We also suggested that there was a stronger argument in this area than others for retaining criminal sanctions, but asked whether such sanctions would really constitute a useful spur to compliance, given prosecutions are so rarely taken.
8.100 We believe the same principles should apply to the new landlord. They should face the same rent sanction if they fail to give notice. They should also face a criminal sanction if consultees feel that criminal sanctions should be retained despite the lack of prosecutions. We would be interested in whether consultees feel it would be worth reproducing the current time limit. We feel it would be simpler if the time limit was the same as for the original agreement, so that there would only be a period of grace of two weeks before the rent sanction bites and two months before any criminal sanction. These would run from date of the assignment instead of from the original agreement.
8.101 We provisionally propose that if the new landlord fails to give the prescribed information to the occupier within two weeks of the assignment, the new landlord should be liable to an equivalent rent sanction as applies in the case of the original agreements. He or she should be deemed to owe the occupier the equivalent of one day’s rent for each day’s delay, starting with the date of the assignment, up to the date of notification or two months from the assignment, whichever is the shorter.
8.102 We seek consultees’ views as to whether an ongoing sanction is required for cases where new landlords still fail to provide notification, despite the loss of rent. Do consultees feel that it would be useful and appropriate to create, in addition, a continuing criminal offence of failure to provide notification by the end of the first two months after the assignment?
8.103 Further encouragement of compliance is currently found in Landlord and Tenant Act 1985, sections 3(3A) to (3B)[57] which provides that a former landlord remains liable for the new landlord’s breaches until notice is given to the tenant of the change of landlord. As the former landlord remains liable jointly with the landlord for any post-assignment breaches of the agreement until the notification is given to the tenant, it is in the former landlord’s interest that the new landlord complies. This would appear to be a sensible provision to reproduce in our new scheme.
8.104 We provisionally propose that a compulsory term in occupation agreements should require the original landlord, on disposing of their interest to a new landlord, to give the occupier notice of the new landlord’s identity and address for service, or ensure that the new landlord does so. The term should render the former landlord liable for any breaches by the new landlord until either the former or new landlord gives the occupier the required notice.
8.105 Finally we consider whether our new scheme should contain any rights for occupiers to restrain landlords from selling or otherwise disposing of the landlord’s interest.
8.106 Generally the position under the current law is that neither a licensee nor a tenant is given powers to prevent a disposal by the landlord.[58] In the case of a licensee this is because the license is only a personal right. In the case of a tenant it is because the landlord’s purchaser will simply step into the shoes of the old landlord and the tenancy will continue as before. However, there are important statutory exceptions to this principle which differ as between social landlords and private landlords.
8.107 Secure tenants of local authorities usually have a “right to buy”. Many assured tenants of registered social landlords have the “right to acquire”. These are exercisable as soon as the tenant qualifies and do not depend on waiting for the landlord to propose disposing of their interest. Neither right applies to licensees, even those deemed to be secure tenancies under the Housing Act 1985. Such rights will be preserved separately for those who would qualify for them if our new scheme had not been introduced.
8.108 In addition, various consultation and balloting rights are available for secure tenants and licensees of social landlords when their landlord proposes selling the reversion. The main legislative provision is Housing Act 1985, section 106A and Schedule 3A which imposes consultation requirements for “large scale voluntary transfers” under section 32 of that Act. Although there is no express requirement for a ballot, in practice one must be held because the Secretary of State may not give consent if a majority of the relevant tenants are against the disposal, and a ballot is the best evidence of this. There are similar provisions for consultation on other types of disposal,[59] and on issues of housing management generally.[60]
8.109 When local authorities dispose of their properties to registered social landlords, there is currently an effect on the tenancies, because they change from secure to assured. Under our proposals occupiers would all have type I agreements, so that the occupier’s status will not change with a change of landlord. However, there will still be a need for consultation. One reason is that it is publicly owned or funded land which is being disposed of. Also there are general requirements for consultation of social tenants[61] which we do not think should be disturbed.
8.110 At present, the participation rights of registered social landlord assured tenants are contractual, or in guidance, rather than statutory. Our approach to incorporating statutory provisions into the contract may help with this.
8.111 We provisionally propose that current rights for occupiers of social landlords to consultation and participation, including those on disposals of the landlord’s interest, should be retained in our new scheme for those occupiers by being incorporated as a compulsory term in the occupation agreement.
8.112 Under Part I of the Landlord and Tenant Act 1987,[62] where landlords propose to dispose of their interest, certain of their leaseholders, mainly those under long leases, will have the right of first refusal. Other than long leaseholders, this right currently only applies to Rent Act 1977 tenants. It does not apply to Housing Act 1988 assured tenants.[63] While the policy reasons why this right does not apply to tenants of social landlords are clear, as many have the right to acquire, with private landlords there is no apparent logic to the distinction between the rights of protected and assured tenants. However to cure this anomaly involves policy issues which put the matter outside the scope of our project.
8.113 Nonetheless, the right of first refusal is clearly an important right which should not be taken away from existing Rent Act 1977 tenants. It should therefore be preserved like the right to a “fair rent”.
8.114 We provisionally propose that Landlord and Tenant Act 1987, section 3(1) should be amended so as to continue to apply the right of first refusal to those type I agreement occupiers who were formerly Rent Act 1977 protected tenants.
[1]Agreements which would fall outside the scope of our scheme are discussed in CP 162, Part IX.
[2]See CP 162, paras 9.21 to 9.42 and 6.108 to 6.109.
[3]See CP 162, para 6.108.
[4]A lease could in theory include a prohibition against the landlord assigning, but in practice never does. Nor is “attornment” (recognition by the tenant of the new landlord) now necessary since Law of Property Act 1925, s 151(1).
[5]Rent Act 1977, s 19 dealt with the concept of the “restricted contract” which applied to contractual licences as well as tenancies. Protection from Eviction Act 1977, ss 1(1), 3(2b), 3A and 5(1A); Housing Act 1985, s 79(3); and Housing Act 1996, s 126 all apply to licences as well as tenancies.
[6]See R E Megarry, The Rent Acts (11th ed 1988) at pp 251 to 255.
[7]The same broad principle underpins transactions in land that still fall outside the scope of registered land conveyancing.
[8]See note 14 below.
[9]The same wording is used in s 20 on registration of dispositions. Similarly under Land Registration Act 2002, s 11(4) the effect of registration of the freehold will be that the registered owner’s “estate is vested in the proprietor subject only to the following interests”, and under s 29 registration of dispositions for valuable consideration has the effect of postponing any unprotected interests.
[10]Although we require a written agreement to be given in leases and licences covered by our new scheme, we do not propose that the agreement should be rendered invalid for failure to comply with that requirement. We hope that very few agreements will not be put in writing, but it is possible that a higher proportion of licences, than of tenancies, will fail to comply with the requirement for writing.
[11]Now under Family Law Act 1996, s 31 – see S Bright “Of Estates and Interests: A Tale of Ownership and Property Rights” in S Bright and J Dewar (eds) Land Law: Themes and Perspectives (1998) p 529.
[12]See now Charlton v Howard [2002] EWCA Civ 1086; [2002] All ER (D) 367.
[13]A footnote in a Law Commission report published in 1987 (Third Report on Land Registration (1987) Law Com No 158, p 12, fn 71) outlined the history of this oddity. It pointed out that the binding nature of Rent Act statutory tenancies cannot derive from any protection by actual occupation under Land Registration Act 1925, s 70(1)(g), because the Rent Acts do not always require “actual occupation”. Instead it was suggested that they survive as statutory “burdens”, which operate outside the Land Registration Acts because they are not “interests” or “estates”, so the purchaser does not take free of them under the relevant provisions of the Land Registration Act 1925. It was further suggested that the statutory burden is imposed because the Rent Act 1977 limits the grounds on which possession can be obtained. The restriction on the ability of the landlord to seek possession is a burden which binds a new landlord.
[14]The only reference is in definition sections which refer to “landlord” as including successors in title. However, this does not directly answer the question of which arrangements covered by any Act were intended to bind successors – such gaps are not unusual in housing legislation. The other obvious one is that no housing legislation includes specific provision against contracting out of security, so the courts have effectively supplied it in the jurisprudence on “shams”.
[15]See, eg Khorasandijan v Bush [1993] QB 727; Hunter v Canary Wharf [1997] AC 655.
[16]Under the current law a tenant and a licensee could both have the same status as secure under Housing Act 1985 or introductory under Housing Act 1996, but would not have the same rights in respect of nuisance from neighbouring land.
[17]Currently tenants, but not licensees, may use claims in trespass to take action against a landlord who has illegally evicted them and is occupying the property. If the next stage of this project is authorised, we are likely to be asked to consider how to modernise and simplify the law relating to illegal eviction and harassment. We will consider this issue further there.
[18]Also the Land Registration Act 2002 will no longer protect those who receive rents rather than occupying, so there would be problems if a licensee had entered a sub-agreement for the whole property.
[19]See CP 162, Part IX for discussion of the bases for exclusion from and inclusion in our new scheme.
[20]See Westminster v Clarke [1992] 2 AC 288 on licences with exclusive possession.
[21]AG Securities v Vaughan, Antoniades v Villiers [1990] 1 AC 417.
[22]Currently many landlords outside the student market are still, apparently as a matter of habit, granting six month fixed terms in assured shorthold tenancies, even though the requirement to do so was ended by Housing Act 1996, s 96. We would expect our new scheme to lead to this habit being replaced by decisions on use of fixed terms which are based on the demand in the market and the need to guarantee the income stream.
[23]Under the present law, there are also criminal offences (Protection from Eviction Act 1977, s 1) of illegal eviction and harassment, and enhanced rights to damages for unlawful eviction, based on the value of the property, rather than the loss to the occupier (under Housing Act 1988, ss 27 and 28). Each of these applies to a “residential occupier” (as defined Protection from Eviction Act 1977, in s 1(1)) who can be a tenant or a licensee. They each apply where the eviction was “unlawful”, but without further defining what is unlawful for these purposes. In the next stage of this project we hope to consider how to modernise and simplify the law relating to illegal eviction and harassment. It would be possible, though we cannot prejudge the issue now, to define unlawful eviction so as to include cases where the landlord terminates the right to occupy, in breach of the agreement, by passing on their interest in the property without ensuring that the new owner of that interest would grant new agreements to existing licensees covered by our scheme. There could therefore be a strong incentive on landlords to ensure that, where they cannot terminate the agreement in advance, the person who takes on their interest issues fresh agreements.
[24]We continue here our practice from CP 162 of using the word “landlord” to include “licensor”.
[25]Because all surviving Rent Act tenancies are likely to have registered rents, and under Rent Act 1977, s 49(4) a statutory notice of increase of rent will convert the tenancy into a statutory tenancy.
[26]See para 8.19 and note 14 above.
[27]See Jessamine Investment Co v Schwartz [1978] QB 264.
[28]Land Registration Act 1925 s 8(1).
[29]See CP 162, para 9.18.
[30]Equivalent provisions will operate in Land Registration Act 2002, Sched 1, para 1 and Sched 3, para 1.
[31]There has in the past been argument, mainly promoted by Lord Denning, starting with Errington v Errington and Woods [1952] 1 KB 290, that some contractual licences are interests in land which can bind purchasers of unregistered land, and could be overriding interests protected by actual occupation under Land Registration Act 1925, s 70(1)(g) in registered land. It is now mostly accepted that the tide of opinion has moved back to orthodoxy and a line of cases considered on full argument, although obiter, by the Court of Appeal in Ashburn Anstalt v Arnold and Another [1989] Ch 1 is now commonly taken as authority ending the “heresy” that contractual occupation licences could confer interests in land capable of binding third parties and being overriding interests protected by actual occupation. See for example C Harpum, Megarry and Wade: The Law of Real Property (6th ed 2000) at 17–019, and Gray and Gray, Elements of Land Law (3rd ed 2000), pp 1127 to 1130.
[32]Which are not necessarily enough to create a lease – see CP 162, paras 6.63 to 6.71.
[33]See generally, C Harpum, Megarry and Wade: The Law of Real Property (6th ed 2000), 14–039 and CP 162, para 6.67.
[34]See Susan Bright’s commentary on Long v Tower Hamlets London Borough Council [1999] Ch 197 at [1998] 62 Conv 229, which points out that tenancy agreements signed in advance of the tenancy without using a deed, would be periodic irrespective of the terms of the agreement, and would therefore have failed to qualify as shortholds under the Housing Act 1988 until that Act was amended by the Housing Act 1996.
[35]Land Registration Act 1925, s 70(1)(g), to be replaced, when brought into force, by Land Registration Act 2002, Sched 1, para 2 and Sched 2, para 2.
[36]Under CPR, Pt 55, r 10 such warning must be given to anyone at the premises. It is to be hoped that Building Societies would voluntarily give more warning in these cases, or perhaps face costs penalties, given that they would have given consent to the licence and should know it is covered by our new scheme.
[37]There is a further issue as to what happens if the lessee-landlord assigns a head lease which is not covered by our new scheme. However, there does not appear to be any significant difference between this and the position where a landlord who is a freeholder disposes of the freehold. We deal with this above/below at paras 8.74 to 8.87.
[38]See Law of Property Act 1925, ss 139 and 150. In Pennell v Payne [1995] QB 192 and Barrett v Morgan [2000] 2 AC 264 the courts over-ruled previous case-law suggesting that tenants’ notices to quit, or landlords’ notices to quit which were served in collusion with the tenant, would have the same effect as surrender.
[39]See Law of Property Act 1925, ss 146(2) and 146(4), and Escalus Properties Ltd v Robinson [1996] QB 231. Under s 146(4) the court has a wide discretion in relation to the resulting tenancy, but that tenancy cannot be for a term longer than the sub-tenancy was.
[40]See Housing Act 1988, s 18 and Rent Act 1977 s 137.
[41]Such arrangements are actively promoted as a way to regenerate city centres by the national “Living Over The Shop” scheme. See: http://www.inlandrevenue.gov.uk/specialist/ flatsovershops.htm.
[42]Two of the relevant Housing Acts define “landlord” as including anyone deriving title under the landlord. See Housing Act 1988, s 45(1) and Rent Act 1977, s 152(1). There is no equivalent in the Housing Act 1985. This is a provision which will be necessary in our new statute.
[43]As modified by the Law of Property Act 1925, ss 141 and 142.
[44]The initial impetus of the Act was provided by the Law Commission Report, Landlord and Tenant Law: Privity of Contract and Estate (1988) Law Com No 174.
[45]Landlord and Tenant (Covenants) Act 1995, s 5.
[46]Ibid, s 3. Section 28 defines “covenant” for these purposes. In addition rights of re-entry are also transferred to the new landlord: s 4.
[47] Ibid, s 6. This involves giving notice to the tenant within four weeks either before or after the assignment has taken place. If the tenant fails to respond within four weeks from the giving of the notice, the consent of the tenant to the release is deemed to have been given. If the tenant objects, the landlord may take the matter to the county court. The court will release them from their obligation if the court thinks it reasonable to do so. The tenant may also withdraw his or her notice of objection; this also constitutes consent: s. 8. If a landlord fails to go through this procedure at the time of the original assignment, they may do so on any subsequent assignment: s 7.
[48] Ibid, ss 9 and 10.
[49] Ibid, s 12.
[50] Ibid, ss 13 and 14.
[51] Ibid, ss 16 to 20.
[52] Ibid, ss 17 to 20.
[53]Similar problems arise in the context of the Occupiers Liability Act 1957 and the Defective Premises Act 1972.
[54]Currently the subject of a Government pilot scheme run by the Independent Housing Ombudsman for holding and regulating return of deposits – see CP 162, para 1.85. Such systems are commonly associated with housing tribunals in Commonwealth jurisdictions – see CP 162, paras 4.70 to 4.73.
[55]See CP 162, paras 6.79 to 6.82. This would reproduce the effect of Landlord and Tenant Act 1985, s 1.
[56]A summary offence, punishable by fine, under Landlord and Tenant Act 1985, s 3(3).
[57]Inserted by Landlord and Tenant Act 1987, s 50 from 1st February 1988.
[58]Although leases could in theory include covenants against assignment, in practice they virtually never do.
[59]For “housing action trusts” there are rules on balloting in Housing Act 1988, s 61(3) on establishment of the trust, and in s 84 on notifying, and receiving representations from, secure and introductory tenants and licensees about a trust’s proposals to transfer the properties to landlords other than local authorities. There were formerly voting rules for the now defunct “tenants’ choice” under that Act. There are non-statutory rules for consultation of secure tenants and licensees before the Secretary of State approves a redevelopment scheme under which Housing Act 1985, Sched 2, ground 10A can be used for evictions so that the land can be disposed of with vacant possession.
[60]Local authorities must consult secure and introductory tenants and licensees on changes in housing management under Housing Act 1985, s 105 and Housing Act 1996, s 137. The Housing Corporation’s Regulatory Code and guidance, as set out in The way forward: Our approach to regulation(2002), at para 2.5 requires registered social landlords to consult with their tenants in ways similar to those for secure tenants. However, there is no specific reference to consulting tenants on a sale of the properties by the registered social landlord. Such sales are comparatively rare, but less so as registered social landlords have been engaging in mergers with each other.
[61]Housing Act 1985, s 105, and the “tenant participation compacts” required for “best value” under Local Government Act 1999, Part I. The Housing Corporation expects registered social landlords to consult their tenants similarly.
[62]As amended particularly by Housing Act 1996 and Leasehold and Commonhold Reform Act 2002.
[63]Qualifying tenants are defined (without inclusion of licensees) by s 3 as excluding assured tenancies (whether shorthold or not), and protected shorthold tenancies under Housing Act 1980, s 52 (along with business tenancies, tied accommodation and assured agricultural occupancies). Under s 58(1) various public sector landlords, including local authorities and registered social landlords, are exempt from the right of first refusal. Therefore the right will not apply to Housing Act 1985 secure tenants, nor introductory tenants under Housing Act 1996. By a process of elimination this leaves Rent Act 1977 protected tenancies.
