Beware buy to let baloney

Two articles in the Observer today, which you can read here and here show that there are still people out there making money out of other people's greed. Companies such as those featured in the articles, feed off people's desire to get 'something for nothing' and willingness to believe that they can have this with buy-to-let properties.

However although there is no doubt that some people have made huge sums from buy to let, these are invariably people who have done an enormous amount of homework on investing and the property market, and really know what they are doing. It is very easy to go horribly wrong if you buy the wrong property, and one buy-to-let investment course (however expensive it is) will not necessary prevent this happening.

Plus with the new regulations coming into force on houses in multiple occupation, landlords who let to more than two unrelated tenants will have to comply with more onerous management duties from 6 April, and if their property has more than two storeys (including habitable attics and basements) may need to get a license from their Local Authority or face fines of up to £20,000.

Nice try

You can’t keep a devious tenant down. I read in one of my legal journals of a tenant who issued legal proceedings against his landlord and gave as the landlord address for service of the court paperwork, the building where his own flat was. When the landlord failed to respond to the proceedings (because, surprise surprise, he had not received them), the tenant obtained a ‘default judgment’ (which is a procedure for obtaining a court judgment on the basis that the defendant has not responded to the claim).

When the judgment was challenged (when the landlord finally found out about it), the tenant said that he was justified in giving the building where he lived as the landlords address, as the landlord went there to collect rent and it was therefore a ‘place of business’ within the meaning of the court rules. The Court of Appeal however did not agree. Letting a property, they said, was not capable of converting that property into a place of business, as the landlord only has limited power to enter it. The judgment was set aside.

For those interested, the case is O’Hara v. McDougal [2005].

Stranger than fiction

We are buying a new car (well new to us). We drove out to test drive it, but when we arrived the salesman couldn’t believe his eyes. We were driving his old car! He had been the previous owner before us.

If that sort of thing happened in a novel you would say it was impossible. Sometimes life is very strange.

The Scarman Lecture - Scarman's great legacy

Looking at the Law Commission’s web-site recently (as you do) I noticed that they had published the text of a recent lecture (20/02/05) – Law Reform and Human Rights – Scarman’s Great Legacy, by the Hon Justice Kirby (an Australian Judge). So in rash moment I downloaded it and printed it out.

It was most interesting. Kirby compares Lord Scarman to Lord Denning as typifying two different judicial approaches – Scarman judging very much by the letter of the law on the basis that change should come about by Parliament amending the law, as opposed to Denning’s view that Judges had made the common law in the past and could make and remould it for the present and for the future.

However Scarman was not just a boring Judge, judging only by the letter of the law. He accepted that in many aspects the law is deficient and worked to improve this. The lecture looks at two great initiatives championed by him.

The first is the Law Commission. This was set up in 1965 as an independent body to continually review, reform and codify the law, and Scarman was its first chairman. The Law Commission is of course very active today and does excellent work (in my own field it has been looking to review housing law). However there are problems, identified by Kirby. One is the sheer volume of published law nowadays, and the fact that there that there is no guarantee that the carefully considered proposals for reform will actually make it onto the statute book. Another is that powerful ministers often like to have control over the law making process themselves.

The other great reform, championed by Scarman, was an enforceable statement in English law of fundamental human rights. This finally came to fruition as the Human Rights Act in 1988. Judges can now use this to help them ‘attend to injustices that Parliament have created thoughtlessly or overlooked’. However unlike the Denning approach, this is one enshrined in statute.

This is a ridiculously brief overview of an extremely erudite lecture which runs to some 64 pages. However if you have found it interesting I would suggest you read the lecture for yourself, which can easily be downloaded from the Law Commission home page. It is written clearly in an approachable style and will be particularly interesting for anyone interested in Law Reform and its history.

A can of worms, by design

Doing the research for an article for my website today, I read for the first time the new HMO Management Regulations, which I mentioned briefly in a previous post.

It looks like life is going to get tougher for landlords, particularly those whose properties are not up to scratch. These new regulations impose new obligations, for example to have electrical checks done at least every five years (plus landlords will be obliged to provide copies of certificates for this and their gas certificates to the Local Authority on demand within 7 days), plus properties will have to be safe, not only with respect to their fire safety and structural condition, but also by reason of their design. Does this mean, I wonder, that ill designed properties will become effectively impossible to rent out? That sounds like a can of worms to me.

Because these regulations are important. Because they will apply to far more properties than the old regulations. Because as a result of the new HMO definition in the Housing Act 2004, far more properties are likely to be HMO’s.

So I would strongly recommend all you landlords of properties with more than two people who are not family members sharing, to check these regulations carefully to see that you are compliant. Because you may find that they apply to your properties.

The new regulations come into force on 6 April 2006.

Observations on the Observer

Today being Sunday, one of the main activities of the day is reading the Sunday papers. We used to get both the Observer and the Sunday Times, but it was a bit much to read, so as my husband dislikes the Sunday Times it had to be the Observer. Which I like, but don't you think its diminished somewhat since it changed its size?

For a start, it used to have several property pages in the Cash section, but there is now no separate Cash section, just the Business section of which Property is only one page. Then the magazines are smaller, and the whole lot just seems to be so much lighter when I carry it from the front door into the sitting room of a morning. Of course if they really are packing in the same content on less paper then this is good for the environment, but are they? There has, I note, been no commensurate reduction in price.

The most important problem of this new size however is that I can no longer use it for wrapping up the ash from my coal fire in the office, forcing me to develop a new system of using tabloid sized newspaper in a plastic bag.

The Ob does have some excellent content however. For example there was a very interesting article this week, on the increasing importance of the internet. I like articles on the importance of the internet as I run an internet business and therefore have a vested interest in its continuing success. Long may it continue!

ASBOs made against anti-social landlords

Local authorities and the police are starting to get tough against bad landlords. In Manchester an ASBO was made against landlord Mansha Shaheen in November 2005 preventing him from using or threatening violence against his tenants. Reported in the local press.

A similar order was made against a large private landlord, Steven Dickens, in Conwy, Wales in January. Interestingly this order not only prohibits him from using abusive behaviour against his tenants and withdrawing services, but also from approaching Conwy County Borough housing staff without an appointment. Apparently he made threats against staff when asked by them to effect repairs to his properties. He sounds like a nice man – he subsequently breached the ASBO order and has had his passport confiscated pending a criminal prosecution for mortgage fraud. Read all about it here.

HHSRS guidance published late

I read in the excellent Legal Action magazine that the government is late in publishing guidance to Local Authorities on the new Housing Health and Safety Rating System ("HHSRS"), which comes into force on 6 April. The Governments own published program provided for it to be distributed in January. Legal Action say it is not published but looking on the ODPM web-site, I see that guidance went online on 27 and 28 February, presumably after Legal Action went to press.

Still, not really good enough is it? The Local Authority officers have to go live with this stuff on 6 April, which is not long off. I wish them the best of luck!

Tie the Judge down with a mandatory ground

I always say that you should only ever apply for a possession order if you have a mandatory ground, but it is only when you see what can happen if you don't, that you realise how very important it is.

What do I mean? When you go to court for a possession order, your claim has to be based on a legal ground (or reason). There are two types, discretionary and mandatory. As you would imagine, a discretionary ground is where the Judge does not have to make an order if he does not think it right. So if you want certainty, go for the mandatory ground.

However there is another reason. If you have a discretionary ground, even if he grants you an order for possession, the judge can put off the date when the tenant is supposed to go (called a stay or suspension), for as long as he considers fit. But if the order is based on a mandatory ground he cannot delay the possession date by more than six weeks.

You can see the sort of thing that can happen by looking at some of the claims made against social tenants where mandatory grounds are not available. In a recent case involving a tenant with a bad history of rent arrears (Richardson -v- Ealing London Borough Council [2005]) , eight attempts (eight!) were made by the Council to send in the bailiffs, and every time the tenant had been able to persuade the Judge to grant another stay. On the ninth occasion the Council decided that enough is enough, and appealed the decision to grant yet another stay. However the Court of Appeal upheld the original decision saying that although it was very generous, the decision was not outside the ambit of District Judge’s discretion. The Council officers must have been tearing their hair out!

Moral – Judges do not like evicting tenants, and the only way to be sure to get them out is to use a mandatory ground where the Judges hands are tied.

Rent review clauses - be careful, be very careful ...

Landlords, be very careful when increasing rent using a rent review clause in your tenancy agreement. Registered Social Landlord Riverside came a cropper a while back when tenants challenged the validity of four sucessive rent increases they had made under a rent review clause, because they had not used the rent review date given in the tenancy agreement.

The Court of Appeal agreed with the tenants, reluctantly, that the 'rent increases' were invalid and Riverside lost the claim they were bringing for possession based on rent arrears. Because most of the arrears were attributable to the invalid increases and therefore not payable.

It looks as if this decision is set for review by the House of Lords. But I suspect that their Lordships will still expect landlords to follow the wording of their rent review clauses to the letter, and if the Riverside decision is set aside it will be on the basis of some other special reason (such as that full consultation was carried out with tenants groups, they otherwise followed proper procedure and acted in good faith, it is going to cost them £7 million odd if the decision is not overturned ...) Which will not apply to private landlords.

Plus of course the Court of Appeal decision has not as yet been overruled.

Small landlords dominate PRS

Reading an article in the Landlord press, I was interested to see that the median number of properties owned by private residential landlords is 4, and that some 30% have just a single property. The private rented sector, which makes up around 10% of the housing market, is dominated by small scale private individuals who rent property as a sideline activity. Apparently only about 15% of these belong to any trade or professional body.

No doubt it is partly as a result of this, that increasing regulation is being introduced, starting with the mandatory licensing for HMOs mentioned in yesterdays post, with more to follow in due course. Landlords need to be aware of these developments or they could find themselves in difficulties.

SIs change HMO laws

Most lawyers think that the 2004 Housing Act is all about HIPS (Home Information Packs), but well informed landlords know different. It is also about the mandatory licensing of and new standards in HMOs (Houses in Multiple Occupation), and the dreaded tenancy deposit scheme, a monstrous slur on the integrity of honest landlords.

Some of these new measures came one step nearer yesterday, I am reliably informed by the government's 'alerts' service, when statutory instruments were laid in parliament.

"What is this?" I hear you say. "What instruments? What does this mean?" Well the passing of an act of Parliament is not the end but rather the beginning of a what is often very long process. The Act is rather like a statement of intent, as it frequently does not actually come into force until some time after it has been passed, after numerous consultations on how it should be implemented have been carried out, and until further secondary legislation has been passed setting out exactly how things will be done. Although there may be a big fanfare when the Act is passed (all the excitement of those three line whips), statutory instruments often sneak in unnoticed. This can cause problems as sometimes people do not know when the law has changed and unwittingly break it by carrying on with the old procedure. "Statutory instruments being laid in parliament" is not really exciting enough to get into the news, not when compared with shrines being blown up in Iraq and massive currency robberies in Kent.

What these (Housing Act 2004) statutory instruments will mean is that if you rent out HMOs, which "comprise 3 or more storeys and are occupied by 5 or more occupiers in 2 or more households" you will have to ensure that they are licensed by your Local Authority or face a huge fine and be unable to recover possession from your tenants under the section 21 procedure. They also replace the current management regulations for HMOs with new regulations, and provide powers to Local Authorities to take over the management of rented properties where there are anti-social behavior problems. SIs were also laid to allow Local Authorities to take over the management of empty properties. So now you know.

All these new measures are due to come into force on 6 April, with the dreaded tenancy deposit scheme scheduled for October. You read about it first here, but you can read more on the massive ODPM web-site here.

Murphys law

My client I wrote about yesterday contacted me today. It looks as if the tenants are moving out after all. Too late though to save him the cost of my drafting up his paperwork. But of course if we had waited, they would have stayed there forever and he would never have got his property back.

The Abandonment problem

Its tough on landlords. They provide the property, for which they are normally still making mortgage and other payments, and they are responsible for its upkeep and maintenance (for which they can be sued if they fail to comply), but what can they do if the tenant fails to keep his part of the bargain and pay rent? The answer is, incur lawyers fees for proceedings for possession and wait several months for the court case to be concluded, while the rent arrears mount up and up. Nice for the lawyers of course, but a bit unfair on the landlord.

Of course it is even more frustrating if you think that the tenant may actually have gone. But if the keys have not been returned and at least some of the tenants possessions are still in the property, you cannot count on this. If the landlord goes in and changes the locks when the tenant has not really left, then not only is he liable for prosecution, but also the tenant can sue him for unlawful eviction. And claim compensation. A nice way to wipe out those rent arrears.

I mention all this because I was discussing this very problem with one of my clients this morning. Sadly (for him that is) the keys have not been returned and the tenants still have clothes and other stuff inside. We decided that it was really too risky for him to even consider going in, so I have now drafted up the paperwork for the court claim and we will be issuing shortly. But its such a waste if the tenant really has gone after all. Not only of my clients time and money, a property left vacant when someone else could be living there (he has tenants waiting to go in), but also a waste of court time which could probably be better used for something else.

The Law Commission have been reviewing housing law generally, and I understand that it is planned to bring in a new procedure to cover cases of abandonment, similar to that currently used in Scotland. But the promised reforms are taking a long time (the Law Commission were due to bring out a final report and draft bill last summer) and in the meantime landlords are faced with a choice between bringing time consuming court proceedings or risk being sued for unlawful eviction.

Still, looking on the bright side, its all more work for me.

Legal bloggers unite

Many thanks to my legal blogger comrades from Family Lore, Human Law, and Infolaw (to visit them see links to the right) for their kind comments yesterday. Plus also I would not be blogging now had it not been for their inspiration. Blog on!

Norwegian blue

Computers are so fussy! I spent a large part of this morning drafting the landlord and tenant law newsletter I do for solicitors, only to find, after I had loaded it up to the email program on my web-site and sent out a test, that all sorts of weird things were happening, including part of the newsletter going blue (that’s colour blue, not the other blue, its not that sort of newsletter).

Anxious enquiries of my web designer, who put it through a validating program, brought forth the answer that I had been using the wrong kind of apostrophes. The wrong kind of apostrophes!! What kind of talk is that?

I think I have managed to find them all and replace them with a apostrophe in an acceptable format. But I think the newsletter can go out tomorrow now.

The legal aid disaster

I can remember, back in the early to mid 1990s when legal aid 'franchising' first came in, we were all told by 'them' that the changes were just to make things better for the firms who got the franchises. It was not going to result in lower fees, and we were certainly never going to have firms actually bidding against each other to bring the price down, oh no, no, no, no, no. It would all be better for the profession, better for the client.

Well I now read in the legal press that lawyers who do criminal defence work will be unable to get work at all if they continue to work as an independent 'sole practitioner', they will have to join up with one of a limited number of large firms who will be able to work more efficiently with 'economies of scale'. So not a lot of choice for the client there then.

In fact, dear reader, most lawyers have been leaving the legal aid scheme in droves because they simply don't see the point in such low paid time consuming work. A few public spirited solicitors struggle on, but they probably pay for this with stress related illnesses and the spectre of bankruptcy always before them.

We saw the writing on the wall in 1999 and pulled out. In the extra time gained by being released from all that form filling, I was able to set up and launch my online service Landlord-Law.

The real losers from all this are the public, though they little realise it until they try to find a legal aid firm. There is not much point in having legal rights, unless you can enforce them. And with the ever increasing complexity of the legal system, who can do this without the assistance of a trained lawyer?

Dealing with the opportunistic tenant defendant

You have to be so careful when drafting possession claims not to give any opportunity for the opposition to raise a defence.

I issued proceedings recently for a client using the accelerated procedure. The notice had been personally served by the clients managing agent by leaving it at the property, so I put in the claim form that it had been served by inserting it through the letter box of the property (as they often are). However the tenant then went and put in a defence saying that the property did not have a letter box so the notice could not have been served! So annoying, I will never mention letter boxes in my claim forms again! Of course it had been served, and he knew it. However as the defence had been raised, the Judge felt he could not make the order on the paperwork (as is normally done in this type of claim) and ordered a hearing.

However the tenant did not get away with it. Not only did I have my lady who had served the notice at the hearing to give evidence to the Judge, but I also served a schedule of costs. As a result of which, when the inevitable possession order was made, he was also ordered to pay over £500 legal costs. I doubt whether we will ever see it mind, but it made the point that if you raise silly defences which result in more work and inconveneince all round (ie an unnecessary court hearing) you will be expected to pay for it.

OFT squashes agents unfair contract term

For those who are interested in such things, the OFT (Office of Fair Trading, but OFT is easier to type) has published is quarterly report on cases on unfair terms (as per the Unfair Terms in Consumer Contracts Regulations 1999) for October to December 2005. One featured contract term, rightly squashed by the OFT, caught my eye, I quote:

“This term provided that, in the event of a sale of the property arising directly or indirectly out of the letting to the tenant, the landlord was liable to pay a commission to the agent. This was unfair for the following reasons. The future sale of the property was unlikely to be in the contemplation of the landlord at the time he entered into the agreement. If the landlord subsequently decided to sell the property to the tenant, he would have already paid for the services with which he had been provided. It was unfair to seek a bonus for a possible future event in circumstances where the agent had provided no correlative service.”

The creative use of contract terms to swell the coffers is a well known ploy, but landlords will be pleased to know that the OFT have put the kibosh on this one at least.

The ‘how changed’ section of the report goes on to say

“Now the agent merely offers an obligation free valuation of the property. The new term also states that sale of the property would be subject to terms and conditions of a new agreement.”

So now you can sell your property to your tenants, and not pay a penny to your agents. Well, probably.

That eight hours passed quickly ...

Looking at my first post, I see that I posted it at 2.09pm. Very odd, becuase looking at my clock it says about 10.20pm. So either time has gone very quickly indeed, or the software thinks I am in somewhere in America. But I am not, I am in England, UK (thats in Europe for our American readers - that funny little island off at the side), and it is not two o'clock in the afternoon, its gone ten o'clock at night. Disregard all future time notifications, they will all be wrong by about 8 hours. Unless of course I find some way to alter the display in this thing.