Tenancy deposit roundup

A few matters on the subject of tenancy deposit protection which I have been meaning to comment on for a while.

The August issue of Legal Action Magazine has two cases on tenancy deposit claims, which go to support tenants claiming against landlords who breach the tenancy deposit regulations. If you want to read the full stories, this is set out in Nearly Legal. However just to summarise:

Woods v.Harrington
This case involved a landlord who protected the deposit so late it was after the tenancy agreement had ended. The Judge held that was 'not only contrary to the letter of the law but is contrary to the spirit of the law and the public policy considerations that Parliament was seeking'. The landlord lost and was ordered to pay the penalty fine of three times the deposit sum for being in breach of the tenancy deposit regulations.

Delicate v. Sandberg
Here the landlord served the s21 notice before the deposit was protected. However notwithstanding this, in the absence of the tenant in prison, they obtained an order for possession and possession of the property via the bailiffs. On being released from prison, the tenant re-entered. The Landlords applied for an order for restitution, but the Court held that the section 21 notice had been invalid, the possession order should be set aside.

The swarb forum
My client Alan (you know who you are) has also drawn my attention to two interesting posts on the www.swarb.co.uk forum:

1. This one says that a tenancy deposit case it to be taken to the Court of Appeal, funded by one of the landlords associations. If anyone has any more information about this, please leave a comment.

2. This one is an interesting post looking at the complexities of the TDPS legislation, pointing out that the wording appears to provide for the landlord to escape the penalty by paying the deposit at any time before the court hearing, and also discussing whether the legislation can apply to former tenants as well as current ones.

I will be doing a presentation on tenancy deposits for my talk for Professional Conferences in December, so would welcome any information readers may have about new cases and developments.

(Note - you can read all my other posts on tenancy deposits here)

A whole lot of talking

I seem to have quite a few events lined up for the rest of this year:

On 9 and 10 September I will be doing two seminars at the London Landlords Show, and running two sessions in the Landlord Clinic. Those attending my seminars will also be able to download information from an online support resource I am currently working on.

On 14 September I will be doing a CPD talk for the Norfolk and Norwich Law Society on using the internet and social media to promote your (legal) firm.

On 16 and 17 October I will be doing two seminars at the Landlord and Buy to Let Show in Birmingham, and probably some clinics as well.

On 21 October I will be taking part in the 12th Annual Residential Landlord & Tenant Update Conference 2009 with CLT, taking the 10.45 slot on possession proceedings

On 10 November I am pencilled in to speak at the Suffolk Coastal landlords forum (if we can overcome the transport problems), and

In December I am booked to speak at a conference with Pro Conferences (details available later)

Phew!

Women on top

There are several articles in the Observer today about a new report out which says what we all knew anyway. There are not many women on the boards of big companies.

Its not really surprising. These companies were mostly set up and developed during a time when women either did not work at all, or it was accepted that they did not work in senior positions. They were made by men, for men to work in, and not surprisingly their ethos is not female friendly, however enlightened individual men in the company may be. It is very difficult to change the ethos and culture of any large organisation, and even if those in charge are open to change, it will take a long time.

Personally I would hate to work in a large male dominated company. You read awful stories about women only getting on because they were willing to work harder than everyone else, put up with the sexist jokes, and go along with the lap dancing club culture. Not all companies are like this, but I am sure that many are, at least in part. Why should we have to put up with it? I don't want to, and I am sure that many, many women feel the same. They will do what I did - vote with their feet, and set up their own firms (although I should say here that the firms I have worked for in the past were on the whole pretty decent). Then they have control over their lives, and are able to spend more time with their families. If companies start out with a different way of working, this is much easier than changing one steeped in the male ethos.

Hopefully, in time, companies developed by women to suit themselves will become more significant in the economy, and things will start to change overall. Although I suspect that many women (again such as myself) when setting up their own firms, prefer them to be smaller and more flexible, and are not really interested in building large empires.

In particular, I would really like to see some women setting up and running new banks ...

Letting agents going bust - three top tips for landlords to protect your position

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:

1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.

If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.

For information, the main professional bodies are:

ARLA - the Association of Residential Letting Agents
RICS - the Royal Institute of Chartered Surveyors
NALS - the National Approved Letting Scheme
NAEA - the National Association of Estate Agents
The Guild of Letting & Management

2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a 'fine' of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.

Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.

The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.

3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:

• The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
  
• Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom

It would also be useful to have:

• Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
  
• Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).

If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.

Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.

My ten top posts on tenancy deposits (as @ 19/08/09)

I have done a lot of writing about the tenancy deposit protection scheme (TDPS) regulations and the problems they have thrown up. You can read them all of course by following the link to the tenancy agreements tag. But which ones are most worth reading? Here are ten suggestions:

1. Tenancy Deposit Protection - 62% failure

This has to be my most popular post ever. It was written over a year ago and still shows up in my stats as one of the most visited posts. It has an amazing 58 comments - people kept asking questions which I answered, until eventually I felt it was getting silly and stopped. If you ask a question there now I won't answer it, in fact it won't even get allowed in now, as the post is officially closed. It is still worth reading though, not so much for the post itself but for the questions and comments which follow.

2. Complaints about the DPS
This is another popular one in the stats, probably because of its title. Many people do have problems, with all the tenancy deposit companies, and this post (and the posts linked from it) gives some guidance on what you should do. In particular there are a few comments on using the Arbitration Act to challenge unfair decisions (a suggestion made by barrister Francis Davey). This post also features the fabulous DPS tea cosy.

If you have a complaint against your TDPS, you should also read:

3. Complaints against the DPS - the governments response
This reproduces a letter sent to one of my clients, who wrote to the Department of Communities and Local Government with a complaint about a DPS arbitration. With thanks to my client (you know who you are) for letting me reproduce the letter.

4. Deposit protection avoidance
This is another popular one and looks at ways landlords can avoid using the tenancy deposit protection schemes. It should be read in conjunction with:

5. Advance rent = deposit?
This looks at a case which throws doubt on the legality of the practice of taking two months rent in advance instead of one month and a deposit. This course of action is not recommended by me now (although before this case I thought, along with many others, that it was acceptable).

6. Landlords out of pocket for deposits - DPS may best best after all
This is an important post as it explains why landlords may be vulnerable if their agent becomes insolvent and the tenancy deposit money is lost.

7. Tenancy deposits with student lets
This is a helpful post for landlords with students, as it looks at what you should do if you have lots of tenants and guarantors signing at different times, before the start of the tenancy. With thanks to Roger for providing the information.

8. Four more cases on possession proceedings
There are many case reports on the Landlord Law Blog on tenancy deposits, but this post looks at four (although one is on licensing), and gives a useful overview of the relationship between the TDPS rules and possession proceedings. If you are interested in case law, you should also follow the link to read about the Sheffield case, one of the very few cases which have been appealed (although sadly, not to the Court of Appeal).

9. New tenancy deposit case - deposit paid before 7 April 2007
This considers a useful case (albeit, as with all of them, a county court decision) as it goes to prove what we lawyers have always thought. Ie that deposits paid before 7 April 2007 where the tenancy is renewed, are caught by the regulations.

10. Tenancy Deposit muddle
Finally, this is an example of the byzantine complexity of the TDPS rules, and how new interpretations are always springing up to ambush us, after we thought we had got a grip on them. With thanks to Alan who drew the forum post mentioned, to my attention.

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So there you are. Ten posts (plus linked posts). These will give you a flavour of this, surprisingly complex, subject. If you want more, you will find them all here.

Defences to possession proceedings - spurious and otherwise

I have been having a bit of trouble recently with one of my section 21 repossession claims (using the accelerated procedure), which should have been an open and shut case. However, irritatingly, things have been held up due to the tenant putting in a defence claiming that he never received the notice. This is really annoying as we know he has received it (he rang up and told the managing agent so). But notwithstanding this, the Judge has set the case down for hearing (as he has to be sure). In the meantime the arrears continue to accrue (£8,000 plus and counting). It is particularly annoying as we suspect the tenant may have left anyway, but the landlord can't use his keys to go in and have a look as the tenant changed the locks. Another day in the life ..

Thinking about this case, led me to ponder on the sort of defences that get raised, in the cases I deal with (mostly possession claims based on the mandatory grounds).

The "I never received the section 21 notice" is of course a classic, along with (for rent arrears cases) claims that the rent has been paid (in cash of course) but not acknowledged by the landlord.

Another popular defence is the "I never got the paperwork" claim (although at least that has the virute of not being our fault!). And, although its not exactly a defence, I have known several tenants try to drag things out by endlessly saying that they are too ill to turn up to court.

For example, in one case a tenant turned up too late to the hearing (claiming illness), then applied to have the possession order set aside, failed to turn up to that saying that she had to go to hospital (an accident to her foot I think), then applied for a stay of execution, and once again 'fell ill' and didn't turn up. The only hearing she actually attended was yet another application for a stay of execution made on the day of the bailiffs appointment (which she attended on her own as there was not time for the court to tell us about it). However it did not do her any good as the Judge had no hesitation in rejecting her application. (She then turned up at the property after the bailiffs had given possession over to my clients agent and left, somehow managed to inveigle herself inside the property with the agent, refused to leave, and was eventually taken away by the police!)

There are increasingly greater numbers of defendants raising defences based on the tenancy deposit regulations (a large number of which have been reported on this blog), as the regulations gradually become better known. And tenants in shoddy properties can also defend and counterclaim rent arrears repossessions on the basis of the disrepair (on the grounds that compensation for this will offset the rent arrears). Although I have only had experience of one instance of this myself to date.

Perhaps the defences which have annoyed landlords most over the years though, are the defences based on technical errors in section 21 notices. In particular, as many landlords now know to their cost, if the notice is served after the fixed term ends, it has to give the correct expiry date, and even if this is just one day wrong, the claim will fail. It is a silly rule, and most unfair on landlords acting in person who have not read the legislation properly (and after all, who other than a lawyer is going to spend time nit picking over the legislation?). Other section 21 defences include: not mentioning section 21 in the notice, and not signing the notice (although that one got kicked out by the court).

Worries about defective section 21 notices in proceedings are, I am sure, responsible for many of my grey hairs (not that I am particularly grey you understand), and makes what was intended to be a straightforward process, into a nightmare. The same thing is happening with the tenancy deposit regulations.

Have you been involved in possession proceedings? What defences have you seen? If you have a tale to tell, please do leave a comment.

Case throws up injustices in the tenancy deposit scheme legislation

A very interesting article in the New Law Journal (NLJ) from Laura West, barrister, Arden Chambers and Marianne Rivett, solicitor, Kennedys (currently available here) highlights some of the injustices and inconsistencies in the current tenancy deposit protection scheme (TDPS) legislation.

The article considers a case heard in May 2009 in the Central London County Court, Jacklin v Fraser Property Management Ltd, T/a Martin and Co (Bedford). Here the landlord was supposed to protect the deposit but failed to do so. When the agent (the defendant in the case) discovered this, he arranged for the deposit to be protected. The landlord subsequently went bankrupt, and the tenants abandoned the property during the fixed term and stopped paying rent. However despite this, on discovering the problem with the deposit, they brought a claim for the penalty for default, which is the fine of 3x the deposit sum.

The Judge chucked the case out because the claim had been improperly brought by only one of joint tenants (something future joint tenants should note when bringing claims). However the Judge went on to point out various problems as he saw it which would have put him in an impossible situation, had he not been able to do this (this section quotes from the NLJ article):

- He found he would have been compelled to order that the defendant pay the penalty despite the clear arrangement between the defendant and landlord—a completely unjust result. The inequity of such a decision would have been compounded by the fact that the landlord had since gone bankrupt and, had it not been for the actions of the defendant, the monies would have been as good as lost to the claimant.

- Had he been compelled to order the payment of the penalty by either the defendant, or indeed the landlord, the claimant may well have benefited from an enrichment which would have been unjust since he had abandoned the tenancy during the fixed term—where the landlord did not accept the abandonment—and ceased to pay rent without any legal basis for doing so.

- s 213(3) would require the court to either order the person who appears to the court to be holding the deposit to repay it to the applicant (s 213(3)(a)) or order that the person pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme (s 213(3)(b)) within 14 days.

Any such order would be completely pointless in the circumstances since the deposit was already protected in the insurance backed scheme. Furthermore, were the deposit protected in a custodial scheme the court would be compelled to order the return of the deposit to the tenant (even where the landlord was entitled to a set off).

However, where the landlord had chosen the insurance scheme (as in Jacklin) the court could manipulate the system and merely order the transfer of the deposit funds from an insurance backed scheme to a custodial scheme pursuant to s.213(3)(b) in order to avoid returning the monies to the tenant.

The NLJ article then goes on to consider three other problems with the legislation:

(1) Set off: the Judge in this case appeared to think that he would have allowed set off, whereas in another case, Stankova v Glassonbury, the Judge refused set off on the basis that if the landlord had registered the deposit he would have been able to do this via the arbitration scheme. But then in another case in Tunbridge Wells, Davies v Smith, set off was allowed!

(2) New tenancy agreements. It now seems that deposits paid in respect of a tenancy starting before TDPS came into force in 4/07 will be caught if a new tenancy agreement is given to the tenant but this is not clear from the legislation, and

(3) Whether a tenant receive the benefits of the legislation after the tenancy has ended. The legislation does not define 'tenant' and it is arguable that it only means current tenants. Although I would say that this would also be unfair, as often tenants only discover that a landlord has failed to protect after they have left the property and seek to claim the deposit. They then find that the landlord unreasonably fails to return it and that they are deprived of the benefit of the free arbitration service, because the deposit is unprotected.

I think we will all agree with the NLJ article's concluding comments:

As a result of the draftsman’s haste to get this scheme on the statute books, it would seem that this supposedly “no fuss” mechanism for tenants has run into problems. County court judges seem increasingly perplexed that they are compelled to make orders within a rigid system, with the potential for inequitable and unjust results. This is in clear conflict with the original aims of the legislation. In giving his judgment in Jacklin DJ Lightman commented that “the sooner Parliament looks at this the better”. In the interim it would seem that there is a real need for guidance from the higher courts and, in the longer term, need for amendment of the legislation.

If you have found this summary interesting, I would recommend you read the original article in the New Law Journal. Authors Laura West, barrister, Arden Chambers & Marianne Rivett, solicitor, Kennedys.

Twist Stick or Bust? How Landlords should to deal in the Rented Property Market Summer 2009 - by guest author Paul Hajek

Much has been written about the state of the Housing Market in England and Wales during 2009.

Over the last few weeks data that has been released has edged towards the positive. Although some opinion is predicting that further falls are inevitable, more commentators such as the Nationwide Building Society and the RICS are predicting an end to the fall in prices, and even a slight rise by the end of the year.

How have Landlords fared in all this uncertainty and what are the prospects for Landlords for the rest of summer 2009?

Landlords have certainly not been immune to the falls in the Housing Market. As confidence and turnover fell in the Housing Market, so then as a direct result we have seen an oversupply of rented properties, leading to a reduction in rents achieved.

We have heard tell of a swelling in the numbers of Landlords, the so called new breeds such as the distressed Landlord; the reluctant Landlord and the accidental Landlord. These Landlords i.e. those who did not want to sell in a failing market now sit alongside the more traditional investors and professional Landlords.

What then are the Prospects for the rented property sector?

Clearly, the love affair that the British enjoy with property shows no sign of diminishing. A recent Mintel Poll in the Sunday Times showed that 33% of adults believe now is a good time to invest in property and more than 50% say property is still a good long term investment, despite the recent crash.

It is suggested that large institutional investors are now looking towards the rented sector where they can now see an improvement in the potential yields available, rising on average from 4% to 6%.

The RICS has also indicated that as property transactions begin to rise from their very low levels, the influx into the rental market has slowed as the market reaches equilibrium with supply able to match demand.

The Young Group, a leading Property Investment Group, carries out a quarterly survey of investor market sentiment. Their 2nd quarter report contains upbeat news. 52% of investors are considering purchasing additional residential property assets within London during the next 12 months, compared to 30% who are looking at opportunities in the UK outside of the capital.

Sentiment among Investors remained strong and that 99% of investors intend to hold their residential property investments for the next 12 months. 41% intend to hold their assets for at least 10 years and 12% of private residential property investors intend to retain their property investments for the next 20 years or more.

On average, residential property investors expect to hold their investment assets for the next 10 years.

What are the barriers to improvement in the rented property sector?

The oversupply of rented properties in certain areas will not abate for some considerable time, and this will continue to exert downward pressure on rentals achieved. This is particularly the case with two bedroomed flats in urban areas.
Even where more saleable houses are involved, the market is unlikely to see rises sufficient to tempt the reluctant, distressed or accidental Landlord to cash in on their investments. Some Landlords may well have favourable tracker or low fixed interest rate mortgage and are well placed to ride out the storm.

The shortage of mortgage finance will also be a barrier to Landlords. Mortgage approvals, for which part will be investors looking to add to their rental portfolios, were again up visibly but the shortage in funding is evident in the number of buy to let mortgages declining according to moneysupermarket .com from 4690 to 177 in the last 2 years. Of those mortgages that are available at the time of writing, the Nationwide has a buy to let mortgage at 3.69% but with conditions, and a whopping 3.5% arrangement fee.

Unemployment has not yet bottomed out, and there may be more people forced to sell their properties, further dampening the prospects for a rise in rental income.

TWIST, STICK OR BUST THEN?

It may be dangerous to give too broad a conclusion. Certain parts of the country will be faring better than others. Locally, here in Bristol and South Gloucestershire the outlook for rents are good. Local estate Agents and Letting Agents are reporting that properties coming on the market to rent are letting relatively quickly. Rents have held strong and there is no evidence of a decline in rents achieved.

As ever, events may still derail any nascent stability. Unemployment may lead to lower, reduced prices and plentiful tenants taking the opportunity to buy rather than rent. Mortgages are still are hard to come by.

The Rental Index from the property portal FindaProperty.com published last weekstates that the UK rental market is stabilising. Although the supply of rental properties doubled between May 2008 to May 2009, stock levels have now declined for two consecutive months. This may be an early indication that the chronic over supply might be at an end.

Rents fell sharply during the period by an average 5.5% or £48 per calendar month. Since then, their Rental Index has shown a small increase of £6 pcm.

The low level of first time buyer activity continues to contribute to demand in the private rented sector.

If you are one of the distressed, reluctant or accidental landlords, who wish to get out of the market, there may be better news than of late. The sentiment, that the bottom of the market is near has been reached means now could be a good opportunity. Although it is still obvious that, if you bought within the last 2-3 years, you will almost certainly be unable to realise as much or any profit from selling now.

For most landlords who are successfully renting (albeit at perhaps less than their last rental), provided their gearing is manageable, they will be well able to ride out the storm and await a more obvious recovery.

For the continuing landlord investors with cash in hand or large deposits, there are bargains to be had, although they may have already missed the best bargains.

For traditional landlords the outlook is still positive and unlikely to force or change their outlook.

It may not be radical to suggest, but the best advice may be to “stick”.

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About the Author: Paul Hajek. Is a Solicitor and Principal of Clutton Cox, Solicitors, Chipping Sodbury and a Director of ActionMove, a leading Home Information Pack (HIP) Provider. Paul Hajek has over 25 years experience of the Conveyancing and Estate Agency market, and blogs regularly on his website. He can be contacted on 0844 372 3011; Paul at cluttoncox.co.uk or via his website www.cluttoncox.co.uk

The dogs trust - Charity of the month (August 09)

The Dogs Trust is the largest dog welfare charity in the UK. Visit their web-site for information on dog friendly holidays, plus dog related questions, re-homing and sponsoring.

Find out how to help with their work here.

Discrimination against East European workers in rented property

A recent report on the BBC website highlights the fact that many letting agents are discriminating against migrant workers when renting property. In particular against Polish, Portuguese, Latvians, and Lithuanians.

This question of discrimination against ‘foreigners’ in letting property is not new, and is not confined to the UK. If it a difficult topic. On the one hand, no landlord should not be forced to let to someone he does not want to let to. On the other hand it is illegal for him to discriminate on the grounds of race, religion, colour, religious beliefs, national or ethnic origins. How can this be reconciled?

I suppose one answer is that, if the landlord keeps his opinions to himself and does not tell anyone why he is rejecting a particular applicant, particularly if has a reason for rejecting them which is not connected to their race/national or ethnic origins, there is not a lot anyone can do about it. However if he specifically tells his letting agent ‘No Eastern Europeans’ and the agent goes along with this, then it is clearly against the law.

One question I have not seen answered is why Eastern European migrant workers are being discriminated against in this way. Those I have come into contact with personally, have been decent hardworking people. Is it perhaps because it is more difficult to reference recent migrants? Or do landlords fear that they will up sticks and go back to their home country without warning, leaving large rent arrears? Or do landlords find it more difficult to weigh up and judge foreign nationals, and assess their suitability (particularly if they do not speak English well), in the same way that they do with people of their own nationality?

It has to be said that none of these are entirely unreasonable fears. However, applying blanket judgments against a whole nation is not only unfair but obviously wrong.

One final point. The BBC article refers to this sort of discrimination being against the National Association of Estate Agents mandatory code of practice for its members. However many agents are not members of the NAEA. This is perhaps yet another reason why we should have mandatory regulation of letting agents.

What do you think?

Shoddy HMOs? Don't blame the law, blame the enforcers

A recent article on the BBC news site, complains that landlords are avoiding the HMO licensing regulations by developing HMOs in buildings which do not come within the categories which require licensing, which in most cases requires a building to have three or more stories. Hence, the article implies, landlords are able to get away with shocking standards with impunity.

Well yes, but thats not wholly because of the HMO legislation. There is already power available to Local Authorities to deal with substandard properties. Under part 1 of the Housing Act 2004, Local Authorities can carry out inspections on properties under the Housing Health and Safety Rating System and serve improvement notices on the landlord requiring him to bring the property up to standard. If the landlord fails to do this, the Local Authority can prosecute, and also has the power to get the repair works done itself (and recoup the cost from the landlord).

Any one can contact the Local Authority if they are concerned about the standard of a property, it does not have to be the tenant. Local Authorities have a general duty to "keep the housing conditions in their area under review with a view to identifying any action that may need to be taken by them" (s3(1)).

Then there are the HMO management regulations. These require all HMOs to be managed properly and comply with basic standards. Landlords not complying with these, can also be prosecuted.

So although extending the licensing requirements might help, Local Authorities already have powers to deal with shoddy properties in their area, whether they are HMOs or not. The problem, so far as I can see, is not lack of power to do these things, but lack of funding and manpower. Presumably, as Mr Brown has mortgaged the country in order to pay the banks, this is not a situation which is likely to improve in the near future. What do you think?

Who do you most admire in property?

Perhaps it is a letting agent who (contrary to the bad press which agents often get) has really looked after your properties well and found you great tenants?

Maybe you are a tenant and you think the service provided by your landlord is exceptional?

Or perhaps you know of someone who has achieved something incredible, perhaps overcoming adversity to build up a great property business, or whose service has inspired you and others?

What about your lawyer? Lawyers are generally only used when people are in trouble - has your lawyer really helped you when you needed it, or does he or she run an exceptional service which gives you great support?

Rented properties generally need furnishing. Do you have a supplier with fantastic products at a great price who goes that little bit extra to help his customers?

Or have you been blown away by a service (perhaps an online service) which is really innovative and different?

What about public services? Has your local authority really helped your business, or is there another public service, or person working for a public service, you would like to see recognised?

Why am I asking all these questions? Well, the Landlord & Buy to Let Awards are currently open for nominations. Why not nominate the people or services you thought of when reading the questions above? Even if they don’t win, it will give them no end of a boost to know that someone thinks enough of them to nominate them. And if they win, this could really help their business or career.

Its very easy to nominate someone (and you can nominate as many people or services as you like). Click here (or the Landlord and Buy to Let awards logo on the sidebar) to see information about the awards and a link to the categories. Then click the link to enter someone into the awards. There is then a short online form to fill in, send that off and, bingo! Its done.

You can also nominate your own firm if you like, but its nice to promote someone else. But don't delay too long, as the closing date for entries is 21 August 2009. Why not do it now?

HMO Landlords fined in Manchester

More and more landlords and agents are being prosecuted under the HMO licensing regulations. For example, a report in the Sikh Daily Times mentions two cases under the HMO legislation in Manchester.

In cases heard 20 July 2009 at Leeds Magistrates Court, a landlord, Mrs Ghamar Gill, was fined £1,000 and ordered to pay costs of £1,554. An inspection of her property revealed a lack of adequate fire precautions and the property had no fixed heating system which meant tenants had to rely on portable heaters. No doubt the Local Authority will have served an improvement notice on her in respect of this.

The other case involved an agent, Mr Qumar Javed of 2View Properties management company, who had taken over the management of a property on behalf of a private landlord and failed to license it. He was fined £2,000 and ordered to pay costs of £828.

Whether you are a landlord or an agent, the legislation must be complied with. If you own or manage a property with more than five tenants and you don’t know if your property needs a license or not, have a word with someone at your local authority. You can find contact details via my Local Authority Directory.

Do you know of any landlords who have been prosecuted?

New blog from DPS director

A new blog has recently been started by Kevin Firth, a director of Computershare, the company behind the Deposit Protection Service. The blog is called The Letting Protection Service Blog. There are only a few entries so far, but one of them has a little video, so it looks as if Kevin will be using videos as well as written posts on the blog.

The Letting Protection Service (which I was not previously aware of) is a separate company (although still part of Computershare) offering various services to landlords, such as inventories, guarantees and tenant referencing.

Kevin says "Over the next few weeks, I’ll be using this blog to offer my own tips and advice". I wish him all the best for his new blog.

Advice for landlords seeking to recover commission post OFT v. Foxtons

You are a landlord. You are not a 'professional landlord' (i.e. you do not have a large portfolio and landlording is not your main business). You have paid commission to your agent (who may or may not be Foxtons) in the past, even though they were not managing the property. The commission was charged under a clause which was buried in the small print of your agency agreement and not drawn to your attention before you signed. In the light of the Foxtons case decision, you want to reclaim it. What should you do?

Initially, the answer is "not much", as the recent decision is not necessarily the end of the story. First, the Judge states at the end of his judgement that the practical consequences of his decision are yet to be either agreed between the OFT and Foxtons, or will be the subject of a further hearing. So that needs to be sorted out.

Second, this was a High Court decision, and High Court decisions can be overturned on appeal to the Court of Appeal, (and possibly then again on an appeal to the House of Lords). At the present time, we don't know whether Foxtons will appeal or not.

Whether Foxtons appeal will probably depend on the decision in the other big (even bigger) OFT unfair contract terms litigation, which is the case against the banks on bank charges. There is a House of Lords decision due out at some stage on this (the case was heard at the end of June), so we all need to wait and see what happens.

So overall it is tricky to predict the final outcome in the Foxtons case and how it will affect other clauses providing for commission on renewals in non managed agency contracts. My gut feeling is that Mr Justice Mann got it right in his decision in the Foxtons case, so far as it went, and I think it is unlikely a court will want to substantially alter his judgement (other than perhaps to take it further).

However I am not so sure that the House of Lords (or the Supreme Court as we will shortly have to call it) will feel very happy about coming to a similar sort of decision in the banks case, if this will require banks to pay back millions of pounds in charges to customers, at a time when most of the banks are still a bit fragile after the crash. It is not unknown for HL decisions to be influenced by politics (for example Lord Hoffmans judgement in Birmingham City Council v. Oakley [2001]).

So what should landlords do? Well I agree with others posting on this subject (for example the National Landlords Association and the Residential Landlords Association) which is that they should send a letter now to their agents, requesting them to return the commission paid within 14 days, to establish their claim. However once this is done, my advice is then to wait and see what happens. I will keep posting on this topic, and will try to keep you up to date, as will the landlords associations.

If though, your agent was Foxtons under one of their old agreements criticised by the Judge, or if your agent had a very similar clause which was buried in the small print of your agency agreement, and you don't want to wait, you could consider issuing proceedings now to get a place in the queue of similar cases in the County Court that is no doubt building up. However, no-one can be certain of anything at present, and always bear in mind that if you lose your case, you may have to pay your agents' legal costs.

Hating Foxtons, and another case

I was very amused, while surfing the internet recently, to find that there is a whole web-site dedicated to hating Foxtons - www.wehatefoxtons.com. If you are interested in the landlord business and have a spare few minutes, it is worth a look, if only for the amusing spats between those posting (which include landlords, tenants, and Foxtons employees).

However there is one interesting case, which you can read here, Foxtons Ltd v Willis Estates Ltd, which was heard on 3 June 2009 at the Brentford County Court.

In this case the landlords, no fools, had deleted the renewal commission clause from the Foxtons agency contract before signing. The property was then let to tenants, the tenancy agreement signed, and the tenants paid the initial payments. In the interregnum between this happening and the tenants moving in, someone at Foxtons twigged that the agency agreement had been changed and they were on line to lose their renewal commission. They therefore told the landlords that they had to sign a new agency agreement, and that if they did not they would not release the keys to the tenants and the letting would not go ahead. The landlord signed.

The court case was the agents claim for the commission. The Judge found for the landlords, saying that as the property had been let, there was no consideration for the second agreement (this is a legal term which means that a contract is only enforceable if both sides provide something of value), plus it was void anyway as it was signed under duress.

An interesting case, not only on the renewals commission saga, but also for shedding light on Foxtons business practices. The landlords here recommend that other landlords using Foxtons, get the tenants to pay rent to them, the landlords, direct rather than to Foxtons so they do not have funds out of which to deduct their commission claims.

Becoming a lawyer

Like many people I suspect, I was concerned to read the recent BBC report about glass ceilings which, the report said, means that "top professions such as medicine and law are increasingly being closed off to all but the most affluent families”

However I am not sure I entirely agree with that. I don’t know about medicine but so far as becoming a solicitor is concerned (I am not going to talk about barristers), it is not necessary to travel in a line from Eton to Oxbridge to Linklaters. There are alternative routes.

The traditional route
The process of becoming a solicitor is described on the Solicitors Regulation Authority web-site here. There are three stages:

The Academic stage (normally a law degree, but there is a conversion course for non law graduates)

The Legal Practice course. This is offered by the College of Law and various Universities (generally former polytechnics) and colleges, and

A training contract (previously called ‘articles’) normally with a firm of solicitors.

1. So far as stage 1 is concerned, if you cannot afford to go to University, you can study for the London External Law Degree. I studied for this many years ago (as I could not afford to pay for the conversion course from my Geography degree) - it took me five years. It was a tough five years but also enjoyable in many ways. You can only really do an external degree in this way if you actually like the subject (which I did).

For the first part of this time I worked as a legal secretary, for the final two years I worked as what we now call a paralegal but which then was called a solicitors clerk (i.e. someone without a legal qualification doing fee earning work in a solicitors office). Although I disliked the secretarial experience, it has actually proved invaluable for me, so my chequered route to becoming a solicitor was after all a Good Thing.

2. As regards the legal practice course, you can also now do this part time. Many of the colleges offer this, allowing you to study in the evenings or at weekends. If you have worked or are working in a solicitors office doing legal work (as I did) you should find this course fairly straightforward, as much of it will be familiar to you from your job.

3. The training contract is often the most difficult part of the journey, as you have to persuade a firm to take you on. However you should manage this (eventually) if you can show that you are able, and willing to work hard. You can also get a training contract with legal departments in local authorities and some other large firms such as the utilities. It has to be said though that some people find it very hard indeed to get a training contract. Which is very unfair. Although if you hang on in there and keep trying there is always hope. The solicitor who started the Nearly Legal web-site was in this position when he started blogging (hence the name), and he is now a qualified solicitor in a good London firm.

The Ilex route
There is however another route to becoming a solicitor, which is not always realised. This is via The Institute of Legal Executives, also known as Ilex. Here people, usually (although not necessarily) support staff at legal firms, study part time for their Ilex exams, which will eventually qualify them as a Legal Executive Lawyer. This is excellent for those who cannot afford to take time off or pay the fees to study full time.

Legal Executive lawyers have many of the rights formerly reserved for solicitors, for example legal executive advocates have right of audience in the County Court and Magistrates Courts, and although most work within solicitors firms, they can practice on a self employed basis.

A couple of years after qualifying as an Ilex Fellow, they can then go on to become a solicitor, generally without having to do a training contract, although I believe they still have to do the legal practice course. The Ilex site is rather vague about this and implies that the rights now available to Ilex Fellows now make this unnecessary.

One of my best friends started out as a legal secretary, qualified with Ilex, become a solicitor, and then went on to become a partner in her firm, so anything is possible if you want it badly and are prepared to work hard.

Don’t give up before you start
If you are not from a moneyed family with contacts in the legal profession, it will be harder for you to qualify. Life is not fair. However if you are of reasonable intelligence and willing to work hard, you should manage it. I did.

The main barrier I would say is one of intelligence rather than money. When I started my external law degree, there were many people in the class who never made it to the second stage because they simply could not pass the exams. You have to be able to analyse in a legal way. That is one of the main skills that you learn through the legal education process, it reprograms your brain to think differently. If you can do this, it will help you get on in life generally, even if you never make it to becoming a qualified lawyer.

But before you start
I would suggest that all thinking of a career in the law, should first read Professor Richard Susskinds book, The End of Lawyers? which I discussed in my blog item here. This will prepare you for the future in the legal profession, which long term is unlikely to be much like the past, for most of us.

Another TDPS case - Locke & Orchard v Osborn

I have just learned about this case decided at the end of June. Here Mrs Osborn was let down by her agents, Countrywide Residential Lettings who, despite having protected the deposit, had failed to serve notice on the tenants giving the prescribed information, or return the money within the proper period of time. As a result, an order was made that she should pay the 'fine' of three times the deposit amount.

The shocking thing about this case is that apparently the elderly landlord, suffering from dementia, had to be driven by her son from her care home in Norfolk to the court hearing in Portsmouth. Which not surprisingly she found completely baffling. This and the long journey seems to have been a pointless exercise and unnecessarily distressing to Mrs Osborn.

My initial thoughts were that it should have been possible to avoid this. For example solicitors could have arranged for representation at the hearing (there are professional companies which provide advocacy services). Mrs Osborn could have given evidence by way of an affidavit (presumably she would just say that she had left matters in the hands of her agents), and a medical certificate could have been obtained to excuse her non attendance. As the property was being managed by letting agents, they were the ones to give evidence, not her.

However as the whole problem was caused by the agents failing to deal properly, Mrs Osborn will have grounds to claim re-imbursement from them. In fact from the reports I have seen, it looks as if they accept this.

But this just goes to re-inforce the fact that landlords must protect tenancy deposits and serve notice with the prescribed information on the tenant. If both are not done the landlord is at risk.

Letting agents - instead of renewal fees

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

I was a bit shocked, although I suppose not entirely surprised, to read in the excellent 4wallsandaceiling property tribes forum about what some greedy letting agents are doing to replace the renewal commission they are going to lose as a result of the decision in the OFT v. Foxtons case.

They are contacting tenants and persuading them to leave at the end of the fixed term, so they can earn commission on finding a new tenant for the landlord.

In fact they will be gaining twice from this manouvre, as they will presumably get commission from the landlord of the property the tenants are moving too also, having done little work for it.

The agents on the 4walls forum (who don't do this) ask whether this practice is legal. The answer is no. This is probably a good time to take a look at the law of agency, which most people have either forgotten or think does not exist.

Trotting over to the bookcase to get out my book on agency law, I find this rather good quotation from a Judge in an agency case:

"The position of principal and agent give rise to particular and onerous duties on the part of the agent, and the high standard of conduct required from him springs from the fiduciary relationship between his employer and himself. His position is confidential. It readily lends itself to abuse. A strict and salutary rule is required to meet the special situation."

The fiducuary duty is an important one. I have sourced a nice definition from Gillhams Solicitors LLP which you can read here. Agents would do well to study it.

Under agency law there are a number of principles and rules, which are in essence as follows:

• The agent must perform his contractual duties, and follow his principals (ie the landlord's) instructions
  
• He must do this with 'due care and skill' appropriate to the type of work he is doing
  
• He must not delegate his duty (without the principals consent)
  
• He must not put himself in a position where his duties to the principal conflict with his own interests
  
• He must not take bribes
  
• He must not take advantage of his position or his principals property in order to obtain a benefit for himself, and
  
• He has a duty to account (ie he must keep his principals money separate from his own, and hand it over, together with all relevant documents and accounts when asked)

I am sure many landlords will smile ruefully on reading this, their experience having been quite different. From what I hear about many agents (not all of them), they seem to have no idea that they are acting in a fiduciary capacity and appear to be acting in their own interests only.

So what can a landlord do if he finds that his agent has acted against his interests, and persuaded his tenant to leave so he (the agent) can earn a new commission finding a replacement? Well I would that thought that, as this is a clear breach of the agent's fiduciary duty, the landlord can go to court and claim both a refund the commission received by the agent for re-letting the his property, and the commission received by the agent respect of the property to which the tenant moved, along with a refund of all expenses incurred by him as a result of the tenant vacating.

It might be an idea, if a clear example of this practice is found, for a test case to be brought (possibly funded by one of the landlords associations??), so these agents are made aware of their responsibilities.

Fool’s Gold

Having been impressed by seeing Gillian Tett on Bremner Bird and Fortune a while back, and being curious as to the cause of the recent global financial crisis, I recently bought her book, Fool's Gold.

Despite the book being mainly about the financial markets, a subject which would normally have my eyes glazing over within a couple of minutes, I have read it with enjoyment (well sort of) and in the space of 24 hours (albeit having skimmed most of the more technical sections). Ms Tett is to be congratulated on writing such a readable book.

So what have I learned from it? Very basically, and adopting a Pooh Bear of little brain approach, it seems that what happened was as follows:

For a long, long time, millennia even (according to some clay tablets from Mesopotamia), people have been buying financial contracts based on the future value of something. This is known as a derivative. Its a way of avoiding risk. Party A pays over the odds so he can be sure of buying something at a particular price in the future. Party B (who takes the risk) gains or loses depending on what that future price actually is.

In her book Gillian Tett follows the fortunes of a group of bankers from the American Bank J P Morgan from about 1994, who developed innovate new ways of doing this sort of thing. What in in the real world we would probably look upon as gambling.

The main innovation the J P Morgan team developed was a way of splitting the risk involved in lending money, so it became separated from the loan itself. One reason for this was that banks are required to retain capital to cover the risks on their books. If the risk had been sold on however, then they would not have to retain so much capital and could use that for other money making schemes. And make more profit.

The risk for the loan (or actually bundles of risks for loans which were sold on together) were divided into different types. There was the ‘junior’ risk, which was very risky but which carried high rewards, ‘mezzanine risk, (sort of middle risk)’ and then ‘senior’ risk which was considered to be pretty safe. There was also a residual risk, known as ‘super senior’ which was at least risk of default and which was considered very safe indeed.

The original team which developed this idea, understood and, it seems, on the whole dealt with it fairly responsibly (which is partly why J P Morgan is still in business (and doing well) today). The problem was that this type of deal became very popular, and was undertaken by people who did not understand it. It also became enormously complicated with deals so complex that no-one could really work out what was actually happening or where the loan originated. The whole topic was also shrouded in jargon and acronyms which made it almost impenetrable for people unfamiliar with it (i.e. everyone other than the few bankers specialising in this type of work.)

Another problem was that the risk was assessed on formulas which everyone considered to be valid but which were in fact based on very little underlying data. The reason for this was that although there was a fair amount of data available for when things were going well, there was little if no data for times when thing were going badly and property prices falling.

As time went by these deals became more and more popular. Most people wanted to buy the ‘junior’ or more risky products because that was where the greatest profit lay. No-one really considered that there could be a problem, as property prices had always gone up. So popular were these products (because of the massive profits which were being made) that there was a huge demand for more loans and mortgages to service the risk products. No-one was really at risk anyway (so the theory went) because the risk was so sliced and diced and was spread out so thin that it became negligible.

Presumably therefore (although I don’t think the book actually says this) loans were being made recklessly to people who could never afford to pay them long term, so that the risks could be sold on to people anxious to buy them so they could earn these huge profits. Unbelievable but presumably true.

Another problem was the ‘super senior’ risk. The very safe and boring risk, which was so safe it was not really considered a risk at all. No-one wanted to buy this as it did not carry the lucrative profits. These just tended to stay with the financial organisation making the loans. The people at J P Morgan got uneasy at this huge stockpiling (billions of pounds worth) of super senior risk, and managed to get rid of a lot of it, but other banks didn’t. They were super safe anyway so were no real risk.

Then things started to go wrong. The people who had been given loans that they could never pay, stopped paying them. Not only this, but in many cases the property when repossessed, was in such bad condition that it failed to raise much money when sold.

The risk investments therefore stopped paying. Not only that, they stopped paying in much greater volume than had ever been predicted by the predication models. Not only was there no money available to pay the junior through to senior risks which had been sold off. There was not enough to pay the super senior risks. The ones which had been largely retained by the banks. But as they were not considered to be a risk (because they were super safe) the banks had not retained sufficient reserves to cover them. Sometimes they did not even realise (because different departments did not talk to each other) that they were there, until they became a problem.

Hence the smash.

Its not really as simple as that of course. And the book talks at some length about ‘shadow banks’, which so far as I can make out are organisations created so that these risky products could be dealt with outside the regulatory system which regulates the banks.

But, ladies and gentlemen, this it seems, is largely why huge sums of taxpayers money, which should have been used for health, schools, the justice system, and defence, were used instead to stop the banks going bust. Any also why a lot of innocent people have lost their jobs. Fools gold indeed.