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You are here: BAILII >> Databases >> The Law Commission >> Renting Homes (Report) [2003] EWLC 284(7) (15 November 2003) URL: http://www.bailii.org/ew/other/EWLC/2003/284(7).html Cite as: [2003] EWLC 284(7) |
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PART VII
THE WRITTEN AGREEMENT
7.1 We have already discussed the implications of our adoption of a "consumer approach" to this project.[1] We consider that this approach requires that:Introduction
(1) there must be an agreement between the landlord and the occupier;
(2) the new Act should ensure that the agreement is as transparent as possible; it should both say what it means and mean what it says; and
(3) the landlord and occupier should be able to understand their respective rights and obligations from the agreement.
7.2 To implement the consumer approach:Principles for occupation agreements
(1) landlords should be required to put agreements into writing;
(2) this requirement should be backed up by appropriate sanctions;
(3) the written agreement should contain a full and clear statement of the landlord's and the occupier's contractual rights and obligations to each other;
(4) the written agreement should also contain other information which, as a matter of public policy, it is desirable for landlords and occupiers to have (for example, the requirement on the landlord to provide an address in this country);
(5) agreements should be in plain language and clearly laid out;
(6) the Secretary of State should be required to provide, by statutory instrument, model agreements which will assist those drafting written agreements and will operate as a default where a landlord fails to meet the requirements to put an agreement into writing;[2]
(7) statutory regulation of the landlord-occupier relationship should as far as possible be achieved by the incorporation of appropriate terms in the written agreement; as little as possible should be in separate statutory provisions which take effect independently of the contract;
(8) the written agreement should contain basic explanations of the effect of any essential but non-contractual statutory provisions, or reference to the provisions and the nature of their subject matter;
(9) the law governing the agreement should as far as possible be found in the new Act, supplemented by consumer legislation and the common law of contract;
(10) as far as possible the occupier's statutory status[3] should be linked to the occupation agreement; it should not be possible to terminate one without terminating the other;
(11) nor, as far as possible, should the occupier's statutory status be able to be altered without a variation of the agreement; and
(12) as far as possible all the terms of an agreement should be "fair" and "transparent" in accordance with the principles the UTCCR;[4] and these principles should be applied to occupation agreements entered into before, as well as since, 1995.
7.3 As already stated, the primary objective of this project is to create a scheme which can easily be used by ordinary people. In deciding whether or not an occupation agreement has been made, we are anxious to avoid the imposition of formal procedural steps that must be completed. While these may be appropriate in some circumstances, for example when buying or selling a house, we do not think they are needed for what are often fairly informal arrangements. We therefore think that the formation of the agreement should be determined by application of the normal principles of contract law. For there to be a contract, there must be an offer to enter the contract; the offer must have been accepted; and there must be some consideration.Formation of the contract
7.4 Formation of the occupation agreement should not be related to land law rules on formalities for the creation of leases. The agreement should not be rendered invalid for lack of writing.[5]
7.5 Notwithstanding our approach to the question of how an agreement is made, it is fundamental to the scheme that the landlord should be required to provide the occupier with a written statement of the agreement. There was some opposition to this idea, particularly from small landlords.[6] But most respondents accepted that this requirement was an essential part of the new scheme. Thus we recommend that the landlord must put the agreement in writing and give a written version to the occupier. The use of electronic,[7] rather than paper, copies should be permitted where the occupier has expressly agreed to this.The requirement for a written agreement
7.6 The Act should not require any specific number of copies, or counter-parts, to be produced (save the one to be given to the occupier), nor should it require signatures by either party. While we would expect landlords to obtain a signature for receipt of the written agreement, and to keep a copy of the agreement for themselves,[8] this will not be a statutory requirement. If they do not obtain a receipt and court proceedings ensue, receipt will have to be proved on the normal civil burden of proof.
7.7 The prudent landlord will also ensure that the agreement is signed before the occupier moves in, with the occupier being allowed enough time to understand the agreement before signing it, but again we would not wish the new Act to require this.[9]
7.8 We shall not recommend that the landlord should be prohibited from making a charge for providing a written statement of the agreement. We anticipate that, in most cases, landlords will wish to use the model agreements, which will be widely and readily available and will suit most purposes. They will be very cheap to acquire.
7.9 Instead we recommend that agreements should contain a default term providing that the written statement will be provided free of charge to the occupier. Should a landlord wish to make a charge, it would have to be by way of a departure from the default term; this will therefore have to be properly justified if it is to satisfy the fairness requirements of the UTCCR. If the occupier loses the copy initially supplied, the landlord should be able to charge a reasonable fee for issuing a replacement.
7.10 Given the importance to the scheme of the landlord providing the written statement, we recommend that once agreement has been reached, the landlord must provide it, notwithstanding any failure by the occupier to comply with the terms of the agreement.
7.11 The requirement to provide a written statement of the agreement will apply to all agreements entered into on or after the date on which the Act comes into force.
7.12 In the case of agreements already in existence on that date, landlords should have had an adequate lead-in time, and we hope that Government will allocate appropriate resources to ensuring that landlords are aware of and prepared for the introduction of the new scheme. In these circumstances, we think that it is right to expect landlords to provide a written statement of the new form of the agreement, as it has been converted under the scheme.[10]
7.13 The scheme needs to take account of a number of practical matters which may arise in the process of putting an oral occupation agreement into written form.Practical issues
7.14 Notwithstanding our assumption that in most cases the agreement will be put into writing before the occupier goes into occupation, it should be possible for a landlord and occupier to enter an occupation agreement, for that agreement to be put into writing, and for the occupier to go into occupation, all on the same day, with the agreement being binding on both sides from that day. In this situation, both parties would be fully bound by the lawful terms of the written agreement.Putting an agreement into immediate effect.
Reaching an agreement for occupation at a future date
7.15 Frequently, an occupation agreement will be made and put into writing well in advance of the date on which the occupier is due to go into occupation. For example, parties may agree in July that a flat may be occupied as a home starting in September. In accordance with the principles set out above, both parties would be fully bound by the contract.Agreements put into writing
7.16 The compulsory-minimum terms should make clear which terms come into effect immediately upon the contract being put into written form and those which have effect only when the occupier becomes entitled to go into occupation.
7.17 In this context, we consider that the terms relating to security of tenure (thus requiring the obtaining of a court order for possession) should only come into effect once the occupier becomes entitled to go into occupation of the home. Any termination of the agreement prior to that date will depend upon the contract.
7.18 We do not intend to specify any compulsory-minimum terms, or recommend any default terms to the Secretary of State, to govern the termination of the contract prior to the date on which the occupier is entitled to enter into occupation for the first time.
7.19 We want to encourage landlords to put the agreement into writing as soon as possible, particularly if they are contracting in advance of a start date. We also want to ensure that, if there is a dispute about the terms, they are clarified before the occupier is due to move in. We accept, however, that this will not always happen.Agreements not put into writing
7.20 In order to provide an incentive to landlords to put the terms of the agreement into writing, we recommend that if there is a delay between the agreement being orally entered into and the start of the occupier's occupation, then the agreement should bind the landlord immediately. However, the intended occupier should not be bound until either a written statement of the agreement is issued or the date for occupation arrives, whichever is the earlier.
7.21 During any period when the agreement is not binding on an intended occupier, he or she should be able to notify the landlord that he or she is treating the contract as cancelled without loss, and have any deposit or advance payments of rent returned to him or her.[11] This will provide an appropriate incentive to the landlord to put the agreement into writing as quickly as possible.
7.22 We do not think landlords should be subject to the full range of sanctions set out below if they fail to issue a written statement of the agreement before the date on which the occupier actually goes into occupation.
7.23 We want landlords to provide occupiers with their written statement of the agreement at least from the start-date of the agreement, that is, the date on which the occupier is entitled to take occupation. Even here, we think that a further period of grace of two weeks should be allowed for the landlord to put the agreement in writing. After the expiry of that period, we recommend that two consequences should follow:Failure to provide a written copy of the agreement after the occupier goes into occupation
(1) First the statutory default terms in the agreement should be applied in lieu of any terms that may have been orally agreed by the parties. The application of the default terms in this way is designed to provide certainty and act as an incentive to issue written agreements for landlords who seek to use terms which are more favourable to them than the default terms.
(2) Secondly, there should be sanction on the landlord for their failure to provide a copy of the agreement. We discuss the sanctions in paragraphs 7.35 to 7.53 below.
7.24 In our detailed proposals relating to the content of occupation agreements[12] we recommend that some terms must be included in the agreement. We call these "compulsory-minimum terms". In addition, we recommend that there are certain issues which must be dealt with in the agreement, but in relation to which the parties to the agreement may negotiate their own terms. Default terms dealing with these issues will be in the model agreements. We call these "default" terms. Where the parties agree their own terms instead, they will be binding on the parties, provided that they comply with the standards of the UTCCR. We call these "substitute" terms.Default terms
7.25 If one of the matters in the "default" category is not actually contained in a particular agreement, we recommend that the relevant default term in the model agreement should operate to fill the gap.[13]
7.26 Similarly, if a term has been negotiated but is found not to comply with the UTCCR, the relevant default term will fill the gap. This same principle will also apply if a term is found, under normal rules of the law of contract, to be void because it is uncertain; or if a term is invalid in some other way, for example because it offends anti-discrimination law.
7.27 These matters will be avoided if the parties decide to use one of the statutorily prescribed model agreements, which – by definition – will address all the issues that the agreement must address, and will be UTCCR compliant.
7.28 In CP 162, we asked whether, if there was a dispute as to the terms of the agreement, should there be a procedure for amending the agreement. We invited views on whether this should be undertaken by the county court, or by Rent Assessment Committees. Some respondents supported the latter suggestion. The Independent Housing Ombudsman suggested it was a task his service could take on. But the clear general view was that this should be a matter for the court.The powers of the court
7.29 We recommend that the court should have jurisdiction to make a declaration as to the terms of the agreement, and to issue a correct and complete written statement of the agreement or to order the landlord to do so. This should be available where no written agreement has been issued or it has been issued but is incomplete, or where it does not accurately set out the compulsory-minimum terms or reflect the expressly agreed key terms.
7.30 There are now a number of situations where consumer law imposes a cooling off period to allow the consumer time to back out of an agreement. Examples include legislation relating to consumer credit agreements,[14] timeshare agreements,[15] and long-term insurance contracts.[16] We have considered whether our requirement for a written agreement could be married with a cooling off period to give occupiers the opportunity to withdraw from an occupation agreement once made. We have concluded that such a step would not work, given the practicalities of the rented housing market.Cooling off
7.31 In the social rented sector, the legislation and policies relating to allocation act to limit the number of times a prospective occupier can refuse to accept an offer of a home. It would be confusing and counter to the realities of social housing also to give occupiers a formal, legal, right to withdraw from an offer they have already (in allocations' terms) accepted. And it would be unnecessary, because the occupier under a type I agreement can terminate it on one months' notice.
7.32 In the private sector, as a general rule most homes are rented on a short term basis, on six month fixed terms or periodic tenancies. This would continue to be so under our scheme. The argument for a cooling off period is clearly less forceful where the occupier is able to withdraw from the agreement within a reasonably short timescale. In any event, we do not consider it practicable, or fair to landlords, to allow an occupier to exercise a right to withdraw during a cooling off period once they have already gone into occupation (even if there was provision for payment of the equivalent of rent for the relevant period). It would, if it were used to any degree by occupiers, seriously disrupt landlords' ability to manage their properties and result in properties remaining un-let for longer.
7.33 If a cooling off period was reserved for agreements made in advance of the occupier going into occupation, it would provide an incentive for landlords to delay concluding an agreement (and thus falling under the obligation to produce a written statement of the agreement) until the occupier went into occupation. This would clearly be undesirable, and would reduce rather than increase the effective rights of occupiers.
7.34 More generally, there is something in the argument that providing homes is not like the provision of other consumer products. Particularly in areas of high demand for housing, unlike consumer goods or services, it will very often be the case that there is no real alternative for an occupier, so a right of withdrawal would prove a somewhat illusory safeguard. In this context, the occupier's position is best safeguarded by having a fair agreement that guarantees his or her basic rights. That is what our agreements aim to provide. We have therefore come to the conclusion that a cooling off period is not appropriate.
7.35 For these requirements relating to writing to work there will have to be sanctions against landlords who do not provide a written statement of the agreement. We are concerned that sanctions should still be effective even where there is ongoing non-compliance designed to frustrate the purpose of the legislative requirement. At the same time, we are anxious that sanctions should be proportionate, particularly against an inexperienced first time small landlord who is not deliberately evading the writing requirements and who, indeed, may be dealing with an occupier who is seeking to exploit the rules.Sanctions
7.36 We think that use of criminal law sanctions in this context is inappropriate. Under the present law, there are a number of criminal sanctions which can theoretically apply to landlords who fail to provide defined types of information. But we have no evidence that these are significantly used in practice.[17] In any event, we do not think that failure to provide a written statement of an occupation agreement is a matter that warrants criminal liability.
7.37 We recommend that there should be two sanctions (apart from the imposition of default terms):
(1) the rent sanction; and
(2) the civil procedural sanction.
7.38 Under the present law,[18] rent is not "lawfully due" until certain defined information is available to the tenant. Often this does not, in the end, benefit the tenant since, once the relevant information is provided, the tenant remains liable for the whole amount which then becomes lawfully due. The ignorant or ill-advised tenant may incorrectly assume that they will never have to pay any sum which is said to be not "lawfully due".The rent sanction
7.39 We have decided to develop this basic idea by giving the occupier the equivalent of limited relief from liability for the rent. We recommend that after the expiry of the two weeks' period of grace, the landlord should be deemed to owe the occupier an amount equivalent to one day's rent for each day's delay.
7.40 The period upon which the calculation is made will start with the date of entry into possession (not the end of the period of grace). It will end on the date the written statement of the agreement was actually provided. Thus the minimum amount owed to the occupier will be a sum equivalent to 15 days rent. This will be subject to an upper limit of the equivalent of two months' rent.
7.41 This amount will be owed as a debt, rather than as a refund or suspension of rent.[19] There will be specific provision to enable the occupier to withhold future rent as one way of recovering the amount.
7.42 This sanction in itself will not provide an ongoing sanction against a landlord who still refuses to provide a written statement of the agreement after the first two months of delay. Some pressure will be maintained on the landlord by the fact that, on ordinary principles, he or she will be liable for interest on the rent sanction.[20]
7.43 In addition, we recommend that in the case of on-going delay, the court should have the power, on the occupier's application, to increase the rent-sanction by up to one hundred per cent. This power to double the debt will be available where the court has accepted that the default by the landlord was "wilful".
7.44 In relation to type II agreements, where notice-only repossession is available under an accelerated possession procedure, we recommend that there should be a further procedural sanction.The procedural sanction
7.45 Where the landlord has been asked[21] to put the agreement in writing, whether by the occupier or someone on their behalf,[22] and has failed to do so within the first two months of the occupier entering into occupation, then the period of notice of intention to take possession proceedings under the notice-only procedure should be extended from its normal minimum of two months to a minimum of six months.
7.46 Furthermore, the period of notice should not be able to expire before six months from the date on which the requirement for writing has finally been fully complied with, unless the court is satisfied it would be just and equitable[23] to shorten this period.
7.47 If the landlord has provided a written statement of the agreement, but it is not complete or it is inaccurate, we recommend that the court should have discretion as to whether to impose any or all of the sanctions at the same time as it considers any application to correct it. In minor cases of breach no sanction might be imposed. Conversely, the full range of sanctions could be imposed where the landlord was deliberately attempting to prevent occupiers obtaining a full and proper statement of their rights under the agreement.[24]Court's discretion in the case of incompleteness or inaccuracy
7.48 Similarly, the sanctions should be available, but only at the court's discretion, where the agreement is varied, whether by agreement or through a variation clause, and the landlord fails either to notify the occupier in writing of the varied term. (The issue of variation of the agreement is discussed further below at paragraphs 8.89 – 8.120.)
7.49 A possible problem with this approach is that the landlord who ignorantly, rather than maliciously, omits a compulsory-minimum term from the agreement will be subjected to the rent sanction, whereas the landlord who deliberately but maliciously includes a term which purports to give the occupier fewer rights than the compulsory-minimum term will escape it.Sanctions for positively misleading occupiers
7.50 For example, a term providing that only one month's notice has to be given for a notice-only eviction (whereas the legal minimum is two months) will not be valid, but it will be in the landlord's interest to try to use it if most occupiers are unaware of their rights and believe what is in the agreement without challenging it.
7.51 The purpose of the requirement for writing is to ensure all parties are aware of their rights and responsibilities. This will be undermined if there is no disincentive to counter-balance the benefits of deceiving occupiers. We considered whether the sanctions set out above would be appropriate for wilful abuse consisting of attempting to mislead an occupier by the inclusion of a term which was known not to meet the requirements of a compulsory-minimum term. However, we have concluded that this would lead to confusion over when the basic sanction was applicable.
7.52 Instead we have concluded that the UTCCR should be relied on to remove such clauses from agreements. The OFT has power to order landlords to stop using such terms in all current and future agreements, thereby reducing the scope for abuse by landlords.
7.53 We believe the issue of penalties should be dealt with by the law of fraud. The Law Commission has made proposals for the reform of the law on fraud.[25] Under clause 2 of the proposed Fraud Bill, a landlord could be criminally liable if he 'dishonestly makes a false representation', namely as to what the terms of the agreement are, intending "to cause loss to another or to expose another to a risk of loss" where that other person was the occupier. We feel that the issue should properly be addressed by the law on fraud, rather than by specific provision in housing law.
Note 1 See above Part IV. [Back] Note 2 Although the compulsory and default terms set out in statutory instruments will be exempt from challenge under the UTCCR (see UTCCR Reg 4(2)(a)), they should be drafted to be fair and transparent in the first place. [Back] Note 3 The status of being a type I agreement occupier, a type II agreement occupier or an excluded occupier. [Back] Note 4 See also the Office of Fair Trading, Guidance on Unfair Terms in Tenancy Agreements (November 2001). [Back] Note 5 Although we propose that, before a written agreement is provided by the landlord, the agreement would not be binding on the occupier: see para 7.21 below. [Back] Note 6 The ready availability of model agreements will make it easy for landlords to participate in the scheme. [Back] Note 7 By whatever appropriate means such as by email, by downloading from the World Wide Web or an intranet, or by a disc. [Back] Note 8 They will need to do so in order to take any court action, for instance. [Back] Note 9 The giving of time to read the contract will help protect the landlord against challenges under the UTCCR. The preamble to the Directive on which the UTCCR are based states: “Whereas contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms and, if in doubt, the interpretation most favourable to the consumer should prevail”. Reg 7(1) requires that “any written term is expressed in plain, intelligible language”. [Back] Note 10 Our recommendations on how existing agreements should be treated under the new scheme are discussed in paras 6.61 – 6.62 above. [Back] Note 11 This principle will apply to payments relating to the agreement itself, such as a deposit or an advance payment of rent, rather than those for what the OFT currently calls “pre-tenancy agreements”. Those payments, for example a payment to be allowed to hold a place in a queue for consideration for being given an occupation agreement, should be governed by general contract law, the provisions of UTCCR and, where relevant, the Accommodation Agencies Act 1953, rather than by the provisions of the new Act. [Back] Note 12 Discussed in Part VIII. [Back] Note 13 If the missing term was expressly orally agreed, it would be open to either party to seek a declaration to have it included in the written terms: see para 7.29 below. [Back] Note 14 Consumer Credit Act 1974, s 68. [Back] Note 15 Timeshare Act 1992, ss 5 and 6. [Back] Note 16 Insurance Companies (Cancellation No. 2) Regulations 1993, SI 1993 No 1327, reg 70. [Back] Note 17 We recommend that the law on rent books, Landlord and Tenant Act 1985, ss 4 – 7, which adopts this approach, should be repealed. [Back] Note 18 Landlord and Tenant Act 1987,ss 47(2) and 48(2). [Back] Note 19 For those in receipt of housing benefit, it should be expressed to ensure that it is not treated as a reduction in the rent due for the purposes of calculating entitlement to housing benefit under the Housing Benefit (General) Regulations 1987, SI 1987 No 1971. [Back] Note 20 We will rely on the courts’ ordinary powers to apply interest, and to do so at the penalty rates available under the Civil Procedure Rules (particularly in cases of Part 36 offers). See CPR Rule 36.22. [Back] Note 21 Whether in writing or not, but subject to the occupier having the burden of proof as to whether the request was made. The request should not have to make reference to the Act. [Back] Note 22 Such as their adviser or solicitor, or an enforcement agency such as the local authority tenancy relations officer or the Office of Fair Trading. [Back] Note 23 “Just and equitable” is the current test for disregarding problems with notices; there will be similar provision for other problems with notices in the Bill. [Back] Note 24 In consumer law terms this would be equivalent to the criminal sanctions available under the Consumer Transactions (Restrictions on Statements) Order SI 1976 No 1813, for making written statements purporting to limit various statutory rights of consumers. [Back]
