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You are here: BAILII >> Databases >> The Law Commission >> Renting Homes (Report) [2006] EWLC 297(1) (May 2006) URL: http://www.bailii.org/ew/other/EWLC/2006/297(1).html Cite as: [2006] EWLC 297(1) |
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(1) to provide choice for those who want to rent;
(2) to meet social need by providing housing for those who cannot afford to buy;
(3) to increase flexibility in the accommodation and labour markets by enabling people to move quickly to take up job opportunities or to explore new housing options.
1.3 At the heart of our recommendations the result of one of the largest consultation exercises ever undertaken by the Law Commission[1] - are two radical changes to the legislative approach to the regulation of rented housing. These recommendations are encapsulated in the Rented Homes Bill which we are publishing alongside this Report.
1.6 The terms of the contract, underpinned by our statutory scheme, will be set out in model contracts that we anticipate will be free and easily downloadable.[2] They will benefit landlords by explaining their rights and obligations, thus reducing the ignorance many landlords have about their responsibilities. They will benefit occupiers who will also have a clear statement of their rights and obligations, which sets out the basis on which they occupy accommodation, and the circumstances in which their rights to occupy may come to an end.
TERMS OF REFERENCE1.7 Our original terms of reference were:
To consider the law relating to the existing forms of housing tenancies in the rented sector and their creation, terms and termination, with a view to its simplification and reform; and in particular to review the law on
(1) the forms of housing tenancy let by:
(a) local authorities and other social landlords, and
(b) private landlords,
with a view to providing a simple and flexible statutory regime for both the social and the private housing sectors;
(2) the remedies available in respect of harassment and unlawful eviction;
(3) tenants' statutory rights of succession; and
(4) such other aspects of Housing Law as may be agreed between the Law Commission, the Department of the Environment, Transport and the Regions and the Lord Chancellor's Department.[3]OUR GENERAL APPROACH
1.9 In carrying out our work, the Commission has had three principal objectives in mind:
(1) simplification;
(2) increased comprehensibility;
(3) flexibility.Simplification
1.11 In this country, there is widespread agreement that the current law regulating rented housing is too complicated. This has significant drawbacks. A legal framework that is too complicated cannot achieve its policy objectives.[4] Those whom the law is designed to protect cannot use its protection. Those whose behaviour is sought to be regulated are not influenced by what they cannot understand.
1.12 The Better Regulation Task Force[5] says simplification includes three elements:
(1) "Deregulation" removing regulations from the statute book, leading to greater liberalisation of previously regulated regimes;
(2) "Consolidation" bringing together different regulations into a more manageable form and restating the law more clearly. By improving transparency and understanding, it should reduce compliance costs;
(3) "Rationalisation" using "horizontal" legislation to replace a variety of sector specific "vertical" regulations.
1.13 Our Bill achieves all these objectives. It offers a fundamental restatement of the law that significantly improves transparency and understanding particularly through the use of model contracts.[6] It rationalises sector-specific rules (for example current legal distinctions between local authorities and housing associations, and between the public sector and private sector) to eliminate unnecessary differences between them. This enables both the social and private sectors of the rental housing market to operate with greater freedom. Although our draft Bill does not include schedules of repeals, enactment will result in the repeal of a great deal of existing legislation.
Increased comprehensibility1.15 The impact of our approach can be seen in the illustrative model contracts we have provided. In just over twenty pages we have shown that is it possible to set out a statement of rights and obligations that reflects the legal relationship as regulated by Parliament between landlord and occupier. These will be supplemented by guidance which explains those matters which it is hard to summarise in the contract or which do not readily fit into it. Many local authorities and registered social landlords already adopt this practice; and, for the private sector, there is already a good range of guidance booklets available from the Office of the Deputy Prime Minister.[7] Such publications can be adapted to the scheme we recommend. Thus the recommended scheme will ensure that all occupiers benefit from the provision of this information.
Flexibility1.18 Our approach has a number of important outcomes.
(1) Technical legal distinctions between those who rent from local authorities and those who rent from housing associations are removed.
(2) Opportunities for local authorities and housing associations to enter new partnerships and other forms of agreement for the development and management of social housing are increased.
(3) Community landlords are able to manage their housing assets more satisfactorily, while protecting the fundamental interests of those who live in social housing. This results in the better use of publicly funded investments.
(4) Private sector landlords who wish to do so can let on exactly the same terms as social landlords.[8]
(5) Private landlords are able to respond even more flexibly to different demands for rented accommodation at market rents.
(6) Registered social landlords are able to provide housing at market, or sub-market, rents in those areas where this is needed, to provide accommodation for key workers.
(7) Occupiers of rented housing have clearer information about their rights and obligations, what they can expect from their landlords, and the circumstances in which contracts may be brought to an end.
(8) For the first time, there is a legal structure designed to assist the most socially excluded to move from supported housing to housing independence, while giving the providers of such housing a practical legal framework to achieve this goal.
(9) Generally, the provisions in the Bill increase the options available for ensuring that the rental sector plays its proper role in the creation and maintenance of sustainable communities.
1.19 These objectives were strongly endorsed by those who responded to our consultation.
TWO KEY FEATURES Landlord-neutrality1.21 At present local authorities can only let on secure tenancies;[9] registered social landlords can only let on assured tenancies.[10] Both play a similar role in the housing market, but the regulatory framework is quite different. Our recommendations break the link between the identity of the landlord and the statutory rules that apply to agreements entered into by that landlord.
1.22 Under our scheme, both local authority and registered social landlords (and private landlords) are able to enter occupation contracts on identical terms. This enables the interface between local authorities, arms-length management organisations, and other social landlords whether registered or unregistered to become much more permeable. It facilitates the development of new partnerships between social sector and private sector landlords in the provision of social rented housing.[11]
Consumer protection approach[12]1.25 The consumer protection approach[13] is designed to ensure that all landlords and occupiers have a written statement of their contract, setting out the rights and obligations of the parties.
1.27 Our approach has a number of practical consequences.
(1) The regulatory framework governing the relationship between landlord and occupier applies wherever there is a contract (other than an excepted contract) giving the right to occupy premises as a home.
(2) The principles underlying the Unfair Terms in Consumer Contracts Regulations 1999[14] are extended to all landlords and occupiers.
(3) Fundamental terms, and supplementary terms which incorporate supplementary provisions without modification, reflect mandatory statutory provisions and as such are not subject to the Unfair Terms in Consumer Contracts Regulations.[15] Terms relating to key matters will not be subject to the regulations so long as they are in plain intelligible language.[16]
1.28 In addition to fairness and transparency, this approach has other benefits. In particular, the recommended scheme encourages a new professionalism amongst private landlords and their agents, not only those with substantial property portfolios, but also small "hobby" landlords. By emphasising the mutual recognition of each party's rights and responsibilities,[17] our recommendations provide a foundation for improving relationships between occupiers and landlords. While there may be some initial start-up costs, overall costs should quickly reduce. There should be significantly reduced compliance costs.
Provisions and terms1.32 The appropriate authority (the Secretary of State or the National Assembly for Wales) has power to prescribe further provisions for incorporation as terms of occupation contracts. We intend this power to be used to deal with issues which are of less crucial importance than those dealt with in the fundamental provisions, but which need to be addressed to make the contracts work.[18]
Relationship of the scheme to consumer protection law1.35 Our adoption of the consumer protection approach is based on the fact that, from 1999, the Unfair Terms in Consumer Contracts Regulations 1999[19] applied to tenancy agreements. In Renting Homes we said that we wanted to extend the principles contained in those regulations to all occupation contracts.[20] Those principles should apply across the board, not just to those who under the 1999 regulations are "suppliers" and "consumers".[21]
1.36 Details of how these principles are to be put into effect will appear in regulations. The Bill gives the Secretary of State power to make regulations relating to unfair terms in occupation contracts.[22] In particular, regulations may make provision for the parties to whom and the occupation contracts to which the unfair terms regulations may apply. This enables the Secretary of State to ensure that the regulations apply to all landlords and all contract-holders.[23] In the Bill, the general term "unfair terms regulations" is used to refer to both the existing 1999 regulations and these Rented Homes-specific regulations.[24] We follow that usage in this report.
1.37 There is also power to define circumstances in which the unfair terms regulations do not apply to a term of an occupation contract, or where the landlord may not rely on the terms of the occupation contract. In these cases, the regulations may also provide for the terms which are to apply in those circumstances.[25]
1.38 Fundamental provisions incorporated as terms of the occupation contract, and supplementary provisions incorporated as terms without modification, cannot be challenged under the unfair terms regulations as unfair.[26] Only additional terms or supplementary provisions which are incorporated as terms with modifications, will be subject to challenge as being unfair. These recommendations address concerns expressed to us by many landlords that they did not know exactly where they stood in relation to the Unfair Terms in Consumer Contracts Regulations 1999 and the interpretation of those regulations, in particular by the Office of Fair Trading.[27]
DEVELOPING THE SCHEME: CONSENSUS AND CONTROVERSY1.40 As with all Law Commission projects, we consulted widely in developing our recommendations. We received over four hundred written submissions to our two Consultation Papers; and we spoke at numerous public meetings with landlords and tenants, lawyers and advisers, policy makers and administrators, and others interested in this area of housing policy.[28] We wanted to build as much agreement as possible about both the approach and the detail of our recommendations. Analyses of the responses to our two Consultation Papers will be made available to the Office of the Deputy Prime Minister, and published on the Law Commission website.
The recommended abolition of ground 8 in the social rented sector1.44 Registered social landlords let on assured tenancies. Many, as a matter of policy, refuse to take advantage of ground 8 on the basis that use of ground 8 is not appropriate for social landlords. Where registered social landlords have acquired housing stock as the result of a large scale voluntary transfer, they undertake not to use ground 8. But some do use ground 8 and have expressed considerable concern about our recommendation to abolish it. They also draw attention to current proposals for the reform of housing benefit, which are intended to place much greater responsibility on renters for paying the rent themselves.[29] If housing benefit is to be paid to tenants, rather than directly to landlords, registered social landlords are worried that housing benefit payments may be diverted to other items of household or personal expenditure. They are concerned that this could lead to an increase in rent arrears. Some would therefore like to retain ground 8 as a deterrent to tenants who might otherwise divert housing benefit payments to non-housing expenditure.
1.47 We have heard it suggested that use of ground 8 by registered social landlords is on the increase. We have found no hard empirical data to substantiate the claim. Such evidence as we do have suggests that use of ground 8 is, in fact, still relatively modest. But whether or not use of ground 8 is widespread, there is still the policy question whether its use is appropriate for landlords in the social sector.[30]
The recommended abolition of the six-month moratorium1.51 A second issue on which there is still controversy is the recommendation to abolish the rule which we describe as the six-month moratorium - that forbids a court to order possession of a private sector assured shorthold tenancy before the end of the first six months of the agreement. This arises where a landlord seeks possession on the "notice-only" ground for possession,[31] where the landlord does not have to prove that the tenant is in any way at fault. In our recommended scheme, standard contracts will replace assured shorthold tenancies.
1.54 In a recent report,[32] Shelter argues the case for increased security of tenure in the private rented sector. Insofar as the private rented sector is used to house the disadvantaged lone parents, the elderly this is clearly an important policy consideration. But the private rented sector also houses many more who do not fall into these groups. Indeed, the private rented sector is far more diverse than the social rented sector. Although ultimately a question for the Government, we do not think that a blanket extension of statutory security to the whole of the private rented sector will achieve the goal to which Shelter aspires. It will introduce inflexibility into this sector of the market which, in many cases occupiers do not want any more than landlords. This will in turn reduce the number of units of accommodation available for renting.
1.55 We acknowledge that security of tenure is an important issue. But we think it best addressed by focussing on the contractual rights between the parties (which are at the heart of our recommendations) rather than statutory rights. A number of local authorities, for example, are entering agreements with private landlords to provide housing for longer contractual periods. These could be, for example, for a fixed term;[33] or until any children in the household reach the age of 16, or school-leaving age. All these options are possible under our scheme. They give flexibility in the use of contracts for particular classes of user of the private rented sector without affecting other groups who want to take advantage of the private rented sector. The private rented sector offers people choice and flexibility that the social sector cannot. To seek to make the private rented sector more like the social rented sector would only serve to remove the very things that make the private rented sector attractive in the first place.
Conclusion CHANGES IN THE LEGISLATIVE CONTEXT Anti-social behaviour1.59 Our original Consultation Paper[34] contained a number of detailed proposals relating to anti-social behaviour. Some of these, in particular the concept of demotion, were taken up by Government and put into their own proposals. Our proposals were the subject of considerable criticism during consultation. But, in view of the other changes that have occurred, our recommendations in relation to anti-social behaviour are now limited to tidying up one or two procedural matters that arise where the anti-social behaviour impacts on an occupier's housing rights and obligations, and are designed to make the law operate more effectively. These are discussed below in Part 9.
Housing Act 2004 Housing conditions Licensing of houses in multiple occupation Selective licensing Other control provisions relating to residential accommodation Tenancy deposit schemes Overcrowding1.66 If the powers to redefine overcrowding[35] are implemented, these can be directly communicated to landlords and occupiers through amendments to the terms of the occupation contract.
Energy efficiency Grants to bodies other than registered social landlords1.68 Our scheme makes clear that secure contracts can be entered into by any landlord who so wishes. All secure contracts have identical statutory underpinning.[36] It would be straightforward to adapt these new powers to ensure that grants were made for investment in the provision of accommodation to be rented under secure contracts.
IMPLEMENTATION IN WALES1.72 We must, therefore, consider the issue of legislative competence for the Assembly. First, we recognise that there are significant differences in housing between England and Wales. We pointed to some of these in the first Renting Homes Consultation Paper.[37] The Welsh Assembly Government and the National Assembly are of course in a better position than the UK Government to take account of these in relation to Wales when implementing policy.
REGULATORY IMPACT(1) Local authorities and registered social landlords have concerns about the initial costs of preparing new occupation contracts.
(2) Private landlords have anxieties about the costs of implementation.
(3) There was agreement on the need for a generous budget for publicity and training, prior to the introduction of any new scheme (The importance of not forgetting private landlords and occupiers was stressed.)
(4) There was agreement on the need for adequate resources to enable proper advice to be given, both at the start of the new scheme and on a continuing basis, both to landlords and to occupiers.Notwithstanding these matters, consultees broadly supported our proposals, which they considered carried substantial public benefit.
(1) the creation of model contracts, reducing the need for individually drafted agreements;
(2) better use of IT enabling much of the present cost (for example, posting copies of the agreement) to be significantly reduced;
(3) the standardisation of agreements, allowing advisors to deal with issues more easily;
(4) added clarity, enabling occupiers and landlords to discover their legal position more readily without the need to obtain costly advice; and more generally
(5) the commercial opportunities for investment in housing that follow from the creation of a more flexible regulatory regime.OUTLINE OF THE REPORT AND BILL
(1) the right to buy, a free-standing right exercisable by local authority tenants;
(2) the right to acquire, which is exercisable by tenants of registered social landlords;
(3) certain rights provided for in the Housing Act 1985, which derive from the "Tenants' Charter" such as council tenants' right to improve their homes;
(4) the right of council tenants (but not tenants of registered social landlords) under the Housing Act 1985 to insist on the management of their housing being contracted to a tenant management organisation; and
(5) agricultural occupancies.We have not included provision in our Bill to translate these schemes into renting homes terms. In respect of (1), (2), (3) and (5) above, we think the Government will want to consider how the underlying policies should be adapted to reflect the renting homes scheme.
1.83 As regards the right to manage, we repeat the recommendations we made in Renting Homes:[38]
(1) the existing right to manage should be retained for local authority secure contract-holders;
(2) the appropriate authority should have power to bring defined registered social landlord housing within the right to manage, as if the landlord were a local authority;
(3) that registered social landlords could voluntarily opt-in to the right to manage; and
(4) that the appropriate authority be given a broad power to either create a single scheme for both local authorities and registered social landlords; or to create different schemes for each.
Note 1 We published two Consultation Papers: Renting Homes 1: Status and Security (2002) Law Commission Consultation Paper No 162, in April 2002, http://www.lawcom.gov.uk/docs/cp162.pdf; Renting Homes 2: Co-occupation, Transfer and Succession (2002) Law Commission Consultation Paper No 168, in September 2002, http://www.lawcom.gov.uk/docs/cp168.pdf (last visited 15 March 2006). We addressed over 70 public events; we received over 400 written responses to the Consultation Papers. The essential contribution made by consultees was acknowledged in our Report Renting Homes (2003) Law Com No 284, at Annex D. [Back] Note 2 Two sample model contracts appear at the end of this Report (Appendix B). [Back] Note 3 Now the Office of the Deputy Prime Minister and the Department for Constitutional Affairs, respectively. [Back] Note 4 An early comment on the effects of excessive complexity in housing law is to be found in Parry v Harding [1925] 1 KB 111. Lord Hewart CJ observed (at p 114): It is deplorable that in dealing with such a matter as this, a Court, and still more a private individual, and most of all a private individual who lives in a small tenement, should have to make some sort of path through the labyrinth and jungle of these sections and schedules. One would have thought that this was a matter above all others which the Legislature would take pains to make abundantly clear. [Back] Note 5 Regulation Less is More: Reducing Burdens, Improving Outcomes (March 2005). [Back] Note 6 Model contracts are considered below in Part 3. [Back] Note 7 For booklets for landlords and tenants renting privately, see the Office of the Deputy Prime Minister website at http://www.odpm.gov.uk/index.asp?id=1151894, and for booklets on social renting see http://www.odpm.gov.uk/index.asp?id=1152108 (last visited 15 March 2006). [Back] Note 8 This is subject to one exception, namely the right of secure contract-holders of community landlords to transfer the contract to another secure contract-holder of a community landlord. [Back] Note 9 Housing Act 1985. [Back] Note 10 Housing Act 1988. [Back] Note 11 For example, it could be a condition of the receipt publicly funded grants that private sector landlords would have to enter contracts on the same terms as other social landlords. [Back] Note 12 For further background on the consumer protection approach, see Renting Homes (2003) Law Com No 284 Part 4. [Back] Note 13 This builds on the fact that the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) already apply to tenancy agreements. [Back] Note 14 SI 1999 No 2083. [Back] Note 15 Cls 13 and 23(1), and Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) reg 4(2). [Back] Note 16 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083), reg 6(2). [Back] Note 17 Adoption of many of the ideas floated in The Joseph Rowntree Foundation Shelter Commission on the Private Rented Sector, Private Renting: A new settlement: A commission on standards and supply (Shelter, 2002) would be greatly facilitated by the introduction of the scheme recommended here. [Back] Note 18 We set out in Appendix A our recommendations on the terms that should be included as supplementary terms. [Back] Note 19 SI 1999 No 2083. [Back] Note 20 (2003) Law Com No 284. [Back] Note 21 Compare with the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) reg 4(1). [Back] Note 23 Cls 205(1) and (2)(a). [Back] Note 25 Cls 205(2)(b) to (d). [Back] Note 26 See below, at paras 3.44 and 3.46. [Back] Note 27 The uncertainties currently facing many landlords are revealed in the Office of Fair Trading Report Guidance in Unfair Terms in Tenancy Agreements Revised ed. Sept 2005. [Back] Note 28 See Renting Homes (2003) Law Com No 284, Annexes C and D at http://www.lawcom.gov.uk/docs/lc284.pdf and above n 1. [Back] Note 29 Recent press reports suggest that the Government may not proceed with these reforms at least in relation to the social rented sector: see the article by Keith Cooper, "U-turn on direct payment" (28 October 2005) Inside Housing p 1. [Back] Note 30 One likely procedural change is the development of a new Possession Protocol, drafted by the Housing Committee of the Civil Justice Council. If adopted, this will require social landlords to demonstrate that all housing benefit problems have been sorted out before any court proceedings are started. Judges find it particularly hard to order possession against a tenant in rent arrears through no fault of theirs, but simply inefficient administration of housing benefit. [Back] Note 31 Housing Act 1988, s 21(5) as inserted by Housing Act 1996, s 99. [Back] Note 32 Safe and Secure? The private rented sector and security of tenure (Shelter, 2005) [Back] Note 33 Changes to the rules relating to the provision of accommodation by private landlords to the homeless are an example of this principle in practice: Housing Act 1996, s 193 (amended by the Homelessness Act 2002). This principle could apply more generally. [Back] Note 34 Renting Homes 1: Status and Security (CP 162) in April 2002 http://www.lawcom.gov.uk/docs/cp162.pdf. [Back] Note 35 Housing Act 2004, s 216. [Back] Note 36 Other than the right to transfer to another secure contract-holder which applies only to secure contracts with community landlords. [Back] Note 37 See Renting Homes 1: Status and Security (CP 162) April 2002, paras 1.74 to 1.77 http://www.lawcom.gov.uk/docs/cp162.pdf. [Back] Note 38 (2003) Law Com No 284. [Back]
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