LANDLORD AND TENANT LAW This unique collection of essays, written by leading practitioners, policy makers and academics, looks at patterns of landlord and tenant law: past, present and future. Each sector is explored—commercial, long residential, housing, and agricultural—by taking a look backwards and forwards. The chapters explore the role that legislative, judicial, and policy developments, and market forces have played, and will continue to play, in shaping the law. Two chapters are devoted to the seminal case of Street v Mountford and its contemporary significance. A comparison is also made with the position in Australia and the United States. The book provides a scholarly reflection on the principles of leasehold law that will be of interest to practitioners, academics, and students of landlord and tenant law.
Landlord and Tenant Law: Past, Present and Future
Edited by
Susan Bright
OXFORD AND PORTLAND, OREGON 2006
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Foreword The relationship of landlord and tenant is of considerable importance in social, political and economic terms. It can relate to a small inner city flat or a corner street shop, at one end of the spectrum, and to a superstore or a 1000 hectare farm at the other end. In these circumstances, it is scarcely surprising that the relationship of landlord and tenant and the law of England have had such a substantial mutual effect. The number of cases, indeed of important cases, arising out of disputes between landlords and tenants has been very substantial, over the past five centuries. The past 25 years are no exception. There has been a stream of legislation dealing both with the landlord and tenant relationship generally, and particular aspects of the relationship (perhaps most notably the residential aspect) over the past 120 years. Again the past 25 years have been no exception. There has hardly been a time since its inception that the Law Commission has not been considering more than one aspect of the relationship as being ripe for reform. The relationship is of considerable interest to lawyers for other reasons. The nature of leases is anomalous. They represent freestanding assignable interests in land, and are therefore subject to the law of real property; yet they also constitute contracts, which are classically common law concepts. The classification of a lease as a ‘chattel real’ seems something of a contradiction in terms, but it is consistent with its hybrid nature. To the practitioner, disputes between landlords and tenants give rise to a well- balanced mixture of factual disputes, real property law, equity and common law. To the legislator, landlord and tenant law gives rise to interesting policy problems, often involving knotty drafting problems and the difficult task of balancing the free market against social engineering. There are two well-known, respected and up-to-date works on the subject of landlord and tenant law (the sheer size of these books is a measure of the difficulty and importance of the topic), a number of excellent books on specific legal topics, and, from time to time, a number of stimulating articles on specific cases or areas. However, there is a gap in the market, and it is that gap which this admirable book fills. The gap is for a book which gathers together the most important and interesting current topics in the field of landlord and tenant law, and considers them in an authoritative, imaginative and engaging way. In her introduction, Susan Bright, who has done splendidly as editor of this book, summarises the thrust and purpose of each of the chapters. One only has to scan the titles and authors to see the aptness and breadth of the
vi
Foreword
topics, and to see how lucky the editor and publishers, and indeed the reader, is to have the guidance of a highly regarded expert in relation to each of those topics. I am delighted to have been invited to write this Foreword. I would unreservedly recommend this book to anyone with an interest in the relationship of landlord and tenant, whether a legislator, an academic lawyer, a practising lawyer, a politician, a social historian, or a sociologist. The topics identified in the first 11 chapters cover effectively all the important modern developments, and the likely future direction, of landlord and tenant law in England. I am very glad to see that these valuable chapters are given an international context, by the last two chapters, which relate to aspects of landlord and tenant law in Australia and the United States. David Neuberger 28 July 2006
Contents Foreword ..................................................................................................v Notes on Contributors .............................................................................ix Introduction ...........................................................................................xiii Table of Cases ......................................................................................xxiii Table of Statutes ...................................................................................xxxi
1 Landlord and Tenant Law: Mapping the Recent Past..........................1 Derek Wood 2 Street v Mountford Revisited .............................................................19 Susan Bright 3 Judicial Directions in Landlord and Tenant law: Different Policies for Different Sectors ...............................................41 Sarah Blandy and Caroline Hunter 4 Commercial Leases Past and Present: The Contribution of the Law Commission .....................................................................65 Stuart Bridge 5 Commercial Leases: Future Directions ...............................................83 Sandi Murdoch 6 Agricultural Tenancies: Past and Present..........................................111 Andrew Densham 7 Agricultural Tenancies: Future Directions........................................129 Michael Cardwell 8 Long Residential Leases: Past and Present .......................................147 Martin Davey 9 Long Residential Leases: Future Directions......................................171 David Clarke 10 Housing Law: Past and Present........................................................191 Andrew Arden and Martin Partington 11 Housing Law: The Future ...............................................................213 Andrew Arden and Martin Partington
12 Recent Developments in Australian Residential Tenancies Laws........233 Marcia Neave 13 Impoverished Tenants in 20th Century America ..............................257 Richard H Chused Index .....................................................................................................277
Notes on Contributors Andrew Arden QC is a barrister and Head of Arden Chambers, London. He has practised and written about housing law for over 30 years. He is General Editor of the Housing Encyclopaedia, Housing Law Reports and Journal of Housing Law, and an author of Arden and Partington's Housing Law, the Manual of Housing Law, Homelessness and Allocations, Quiet Enjoyment and a number of other books and articles on housing law. He has appeared in many of the leading housing cases. Sarah Blandy LLB, Solicitor. Sarah teaches property law at the University of Leeds. She qualified as a solicitor and worked as a housing lawyer in law centres and private practice, before moving into local authority employment and from there into academia. Sarah has researched and written widely on property law issues, from a socio-legal perspective. Susan Bright BCL, MA, Solicitor. Susan is a Professor of Land Law and Law Fellow at New College, Oxford. She qualified as a commercial property solicitor in London before becoming an academic lawyer. She has published extensively in the field of landlord and tenant law and is currently Bulletin Editor of Hill and Redman's Landlord and Tenant Law. Stuart Bridge MA, Barrister, and Law Commissioner for England and Wales since 2001. Stuart has responsibility at the Commission for the reform of property and trusts law and of family law. He practised as a Barrister on the North Eastern Circuit prior to taking up academic posts first at Leeds University, and then at Cambridge where he is a University Lecturer and a Fellow of Queens' College. He sits as a Civil-only Recorder. Michael Cardwell MA, Solicitor, is a professor in Law at the University of Leeds. After working in legal practice with Burges Salmon, Bristol, Michael joined the School of Law, University of Leeds, in 1990. His early research was directed to agricultural tenancies and European Community quota regimes. More recently, he has addressed also broader legal issues generated by Common Agricultural Policy reform, his publications including The European Model of Agriculture (OUP, 2004). Richard H Chused is a Professor of Law at Georgetown University Law Center in Washington, DC, where he has taught since 1973. During 2004–5 he taught at Hebrew University in Jerusalem as a Fulbright Scholar. His written work includes books and articles in property, gender and American legal history, copyright and family law. Martin Davey LLB is a Senior Lecturer in Law at the University of Manchester where he teaches property law and family law. He has published widely in the field of landlord and tenant law. He is the author, or co-author, of a
x Notes on Contributors number of books including Landlord and Tenant Law (Sweet & Maxwell 1999). He is President of the Northern Rent Assessment Panel, which is part of the Residential Property Tribunal Service. Andrew Densham CBE, Solicitor, was a partner of Burges Salmon for 35 years. Andrew's publications include Scamell and Densham's Law of Agricultural Holdings and Halsbury's Laws of England. He has been engaged almost exclusively in agricultural tenancies and latterly in milk quota and other claims arising out of European agricultural matters. He has been involved in over 500 tenancy successions and numerous agricultural arbitrations, including rent reviews, notice to quit disputes, notice to remedy and Agricultural Land Tribunal cases. David Clarke MA, LLM, Solicitor. David is Professor of Law and a ProVice-Chancellor at the University of Bristol. He is a consultant to Osborne Clarke, Solicitors, Bristol and a legal chairman for the Residential Property Tribunal Service. He has written and lectured extensively in the law of landlord and tenant and more recently on commonhold. He has recently been appointed as consultant editor for the Landlord and Tenant title for Halsbury's Laws of England. Caroline Hunter BA, PGDip HA, is senior lecturer in housing law at Sheffield Hallam University. Before moving into academia she worked as a housing advisor and barrister specialising in local government and housing law. She has written extensively on housing law, and is deputy general editor of the Encyclopedia of Housing law and practice, and Journal of Housing Law. Sandi Murdoch LLB, LLM. Sandi is a Senior Lecturer in the School of Law at the University of Reading. She has published widely in the field of landlord and tenant and, over a number of years, has participated in a number of major research projects into the structure of commercial leasing. She has also served on panels advising government on the reform of landlord and tenant law. Marcia Neave LLB (Hons), FASSA, AO holds a personal Chair at Monash University and has previously held chairs at Adelaide University and the Australian National University. In 2001 she was seconded to the Victorian Law Reform Commission as its foundation chairperson. She is the coauthor of Sackville and Neave, Property Law Cases and Materials and has also co-authored books on restrictive covenants and easements, wills and intestacy and family property law. Martin Partington CBE was a Law Commissioner from 2001–5. He is now Special Consultant to the Law Commission and, as such, continues to lead the Commission's work on the reform of Housing Law. He is also Emeritus Professor at the University of Bristol. He has written extensively on housing law and is on the Editorial Committee of the Journal of Housing Law. A barrister, he is a member of Arden Chambers in London.
xi
Notes on Contributors
Derek Wood CBE QC has been a member of the chambers now known as Falcon Chambers since 1965. He has practised in all areas of property litigation since that date and appeared in many leading cases. He has sat as a Recorder and Deputy High Court Judge and is a Bencher of the Middle Temple. He has served as chairman or member of various Government advisory committees on property, planning, transport and rating. He was Principal of St Hugh's College Oxford from 1991 to 2002 and is an Honorary Fellow of St Hugh's College and University College, Oxford.
Introduction Leases underpin much land use in Great Britain. Approximately one in three homes is rented, one third of agricultural land is tenanted, and almost two-thirds of commercial property is leased. The concept of a lease is ancient, being developed over centuries by the courts and added to piecemeal by legislation, with socio-economic events acting as catalysts. In recent years, the pace of change in leasehold law has been stepped up. The subject area is now vast: few individuals would now regard themselves as ‘landlord and tenant lawyers’ but would instead see themselves as specialists in housing, agriculture, commercial property, property litigation or conveyancing. Whereas 100 years ago it made sense to think of it as one subject, based around the common law principles of landlord and tenant law with little statutory regulation, there are now discrete and hugely specialised branches of law requiring a mastery not only of the common law but many complex statutory codes. As Derek Wood notes in his opening chapter, the last 20 years alone have seen the same number of Acts of Parliament with prime significance. Landlord and tenant law is now very different from the common law subject of 100 years ago. This process of transformation of leasehold law is set to continue, as human rights legislation, social housing measures, judicial developments, extensive Law Commission activity, and changing economic and trade policies all impact on the regulation and uses of leases. The collection of essays in this book is the result of a conference bringing together academics, practitioners, policy makers and judges around this theme of ‘landlord and tenant law: past, present and future’. The mix of the speakers and delegates at the conference, many of whom have been active in shaping the law as it is today, enabled discussion, and the resulting chapters of this book, to extend over a wide range of issues. The aim of the conference, and of this book, is to stand back from the detail of the law in order to look at trends, to see how the broad patterns of the present day law have emerged, and to think about what the future might hold. This is achieved, notwithstanding the emergence of the separate strands of landlord and tenant law (or laws) by taking a look backwards, and forwards, in each sector. It is this model that provides the structure to this book. The opening chapter by Derek Wood provides an overview of the changes within landlord and tenant law over the last 20 years—common law, business tenancies, long residential leases, housing, and agricultural tenancies. Later chapters build upon this foundation with more detailed commentary on the movements and trends within particular sectors of the
xiv Introduction United Kingdom leasehold market. Thus, within each sector, there is one chapter looking back, and one forward. There are two chapters exploring the seminal case of Street v Mountford,1 one from a doctrinal perspective, and the other placing it within the broader policy framework. Finally, there are two chapters that compare this picture with the position in the United States and Australia, taking the residential sector as the basis for discussion. The various chapters of the book reveal how issues of policy, economics, law, and justice play a role in shaping the law within the differing sectors. This introduction does not need to provide a summary of each chapter as the reader can easily glean what each chapter covers from the chapter title alone. Instead, this introduction seeks to draw together some of the ideas and themes that emerge from the study of ‘landlord and tenant law: past, present and future’. Notwithstanding the great diversity that there is in the law of landlord and tenant between the sectors, there remains at the heart of the subject certain commonalities shared by the different branches. Of course, at a very basic level, what is common to all landlord and tenant relationships is that they reflect, as David Clarke expresses it in his chapter, a ‘division of interests, or a split in ownership, in the property as a whole’. Even at this point, however, one of the contemporary issues emerges as a point for discussion which is drawn out by both David Clarke and Martin Davey. In the case of long residential leases the division of interest between freeholder and leaseholder is not always seen as acceptable. As is explained by David Clarke, leases can be used by investors in order to exert on-going control over, and extract profit from, the management of the property. The potential for abuse of this relationship has led to numerous legislative interventions. In addition, it is now accepted politically that the leaseholder who purchases a long lease for a premium should be seen as having ‘already paid for the house or flat built on the land’ (Martin Davey). The reforms of recent years—enfranchisement rights, control of management costs, transfer of management to leaseholders, and the introduction of commonhold—all stem from this concern that the division of interest in the residential leasehold relationship is no longer appropriate. In other sectors, the broad division of interest does not present such issues. The tenant receives exclusive possession for the term upon payment for occupation, and the landlord retains a capital value in the reversion, which the landlord has a genuine interest in protecting. Whilst the issues that are played out in these sectors are varied, most stem from a concern to ensure that there is an appropriate balance in protecting this division of interest. Should the tenant have the right to remain in occupation even
1
[1985] 1 AC 809 (HL).
Introduction xv when the term has expired provided that an appropriate payment is made? What if such a right to remain impacts upon the capital value of the landlord’s interest? Should the tenant be able to move on from the property, free of ongoing liabilities, if his occupational needs change? Should the tenant receive compensation upon leaving the premises for things done at the tenant’s expense that have enhanced the capital value of the premises? Should a tenant be made responsible for the cost of maintaining the property if he has only a limited interest in it? Should the tenant have to pay for property which is not fit for the purpose? Should the landlord be able to terminate the lease early for tenant default, and if so, when? Only if the default threatens the capital value of the reversion or the income stream, or also in other cases? The law has responded to these questions variously by introducing schemes giving security of tenure, rights of succession, control of alienation rights, rights to compensation for improvements, relief from forfeiture, regulation of rent levels, and landlord repairing obligations. The ebb and flow of these measures is traced in the chapters of this book. Achieving an appropriate balance is not easy. What is ‘appropriate’ raises big questions about policy and justice. Striking an appropriate balance is not only about fairness as between the parties but also about the promotion of the wider public interest. There are some who may question as to whether ‘fairness’ ought to enter the equation at all. As Andrew Densham notes, the dominant political model of ‘laissez-faire’ in the 19th century held back intervention in the field of agriculture. Indeed, even now, in each sector there is still (again?) a strong non-interventionist thread running through. Even in the residential sector, where intervention is at its strongest, it is left to the parties to agree such things as the length of the lease and the rent payable. In the private housing market there has been a steady retreat from the more interventionist days that gave security, succession rights, and powerful control of rent levels. In other sectors (barring the long residential lease), there has similarly been a move away from a heavy regulatory hand. Indeed, the promotion of flexibility through freedom of contract now underpins government policy in both the agricultural and commercial sectors. The explanation for this movement lies in part in the economic impact of regulation. In the agricultural sector, the security of tenure and succession rights introduced in the last 50 years made it almost impossible for new entrants to farming to find land to rent. The restrictive agricultural tenancy laws that were strangling the tenanted sector have been replaced by a regime dominated by free market principles. Given the wider pressures upon farmers, well charted by Michael Cardwell, it is important that the regulatory regime is flexible, enabling farmers to diversify beyond strictly agricultural production, and to do so in ways that are environmentally sensitive. Similarly in the business sector, perceiving the function of the property market as being ‘to provide business premises on terms that meet occupiers’ needs, subject
xvi Introduction to market conditions’,2 the government is anxious to promote flexibility. The Landlord and Tenant Act 1954, Part II, giving tenants rights of renewal, is now effectively optional. The approach has been to encourage variety and flexibility in lease structures by promoting good practice and leaving the details to the contractual leasehold bargain. As Sandi Murdoch notes, this may not be enough. There is a case for saying that small business tenants, who make a significant contribution to the economy, need better protection. There is also likely to be further control on alienation to enable tenants to respond more quickly to the expansion and contraction of their businesses. In the private residential sector, too, the loosening of the strict controls of the Rent Act 1977, has, as Derek Wood notes, encouraged a much stronger investment market to grow. It is often only through understanding this ebb and flow of the wider political and legislative climate that common law doctrines can be explained. As Derek Wood comments, Lord Templeman in Street v Mountford3 makes it clear that the grant of exclusive possession for a term at a rent creates a tenancy. In later cases the application of this strong doctrinal position is put under strain. There are cases where an occupier moves in before the tenancy is agreed, or stays on when it runs out, and is held not to have a tenancy. Explaining these cases consistently with Street v Mountford4 can be done, but is not easy. This is what I do in my chapter. It is, however, the recently developed concept of the tolerated trespasser that most starkly exposes the limitations of a purely doctrinal approach to law. These former secure tenants of local authorities look very much as if they should be tenants, but they are not. To treat ‘like cases alike’ by the application of clear legal rules risks ignoring the fact that the wider context in which the issues arise will alter the ‘meaning’ that a particular outcome carries. The reality is that most of the cases involving classification of agreements can only be fully understood by taking into account these wider considerations; in particular the statutory context, the market in rental property and the relative bargaining strengths of the parties. The idea that policy underlies these cases is fully explored in the chapter by Sarah Blandy and Caroline Hunter. Taking similar case law as the basis for analysis, they show that there is a divergent approach in commercial and social rented cases. In the latter, the courts respect the need for local authorities to exercise important managerial functions which may necessitate occupiers being left without protected status. At the same time, the understanding is that local authorities can generally be trusted to make sensible decisions which will distinguish between the
2 ODPM, Commercial Property Leases: Options for Deterring or Outlawing the Use of Upwards Only Rent Review Clauses, May 2004, Appendix A, [9]. 3 [1985] AC 809 (HL). 4 Ibid.
Introduction xvii deserving and the undeserving. In the commercial sector, the courts have become comfortable with the idea of respecting the contractual autonomy of the parties; in cases where there is equality of bargaining power, and in a sector in which contracting out is legislatively sanctioned, the parties are given considerable freedom to shape how the occupation is to be classified. Of course it is in the private residential sector, the home territory of Street v Mountford, that there is neither the equality of bargaining often met in the commercial sector, nor the trusted landlord of the social rented sector. A further common feature of leases is that they share a doctrinal basis involving a duality of interests, as both estate (usually)5 and contract. This basic doctrinal position is coming under fire in different ways. As mentioned in my chapter, the acceptance that there can be such a thing as a nonestate lease6 in Bruton v London and Quadrant Housing Trust7 seems to shift the lease’s centre of gravity away from the grant of a proprietary interest in land to a contractual relationship involving the grant of exclusive possession for a term. An even stronger doctrinal challenge comes from the housing law reforms under discussion. The chapters co-authored by Martin Partington and Andrew Arden reveal a process of disengagement of housing law from its roots in landlord and tenant law. The goal of the Law Commission is to move away from the concept of a lease, so that regulation would instead be centred upon a contract that grants a right to occupy property as a home. Whether this is as a lease or licence would be unimportant. This progression has also taken place in Australia. In her chapter, Marcia Neave observes that the seminal report on Law and Poverty in Australia argued that many of the deficiencies in residential tenancy laws were the result of a lease being treated as an estate in land rather than as a consumer contract for the provision of housing.8 This is important not only for what it says about the merely residual role that notions of ‘property’ and ‘estate’ now play in residential rental relationships but, and more significantly, in terms of how we think about the relationship. Ideologically there has been a considerable shift from thinking of residential leases as being essentially about the grant of a property interest to seeing them as consumer contracts. It is not only short-term renting that is seen in this way, but Martin Davey remarks on how the same process has taken place in the context of long residential leases. It is a short journey from the acknowledgement that the law should reflect the theory that the leaseholder has already paid for the house or flat to saying that the principles enshrined in the law should be based closely on the model of consumer protection; it is not the
5 6 7 8
Where the landlord has no estate, the tenant cannot possess an estate. This is also described by commentators as a non-proprietary lease or a contractual lease. [2000] 1 AC 406 (HL). R Sackville, Law and Poverty in Australia: Second Main Report (Canberra, AGPS, 1975).
xviii
Introduction
property rights of the landlord that are dominant but the need to protect the tenant’s investment so that his asset is appropriately managed and serviced at reasonable cost and does not gradually waste away. This process is not reflected to such an extent in either the commercial or agricultural sectors. None of the writers of the chapters on commercial and agricultural tenancies make reference to it. Yet it is a process that is, perhaps, also at work in the commercial sector. A number of developments have occurred in the law as it affects business tenancies which could be said to reflect this concern to emphasise the needs of the tenant as a consumer, or at least to redress the contractual imbalance that may result from the often unequal bargaining relationship. The primary motivation behind the Landlord and Tenant (Covenants) Act 1995 Act was arguably the perceived inequity in original tenant liability. The important decision of the Court of Appeal in Chartered Trust plc v Davies9 acknowledges both that a landlord may have obligations to protect the tenant’s interest, even if not explicitly spelt out in the lease, and that the tenant can end the lease if there is a repudiatory breach by the landlord. The debate that has run for many years as to whether upward only rent review should be prohibited is motivated (arguably) not only by the perceived economic impact of rents being held above market levels in a falling market, but also by a sense of injustice, of tenants unable to negotiate for two-way review. The Landlord and Tenant Act 1988 was also concerned to strengthen the hand of the tenant against the landlord who was able to block attempts at alienation. The Law Commission’s proposals on termination of tenancies, discussed by Stuart Bridge, also proceed on the basis that the present law of forfeiture is unjust. This collection also contains various reflections on the process of reform. Stuart Bridge’s chapter opens with the ambitious goals of the Law Commission in its early days; codification of (the whole of) landlord and tenant law. Later these were to be toned down, acknowledging both the difficulties in amending laws that are party political, and the cost implications of undertaking major reviews of entire areas of law. Reform will not happen until the political climate is right. Martin Davey tracks the extremely long process of enfranchisement, which began in the 1880s but did not materialize until 1967. During one 40 year period there was an incredible 143 Bills on the subject. The law of renting houses was identified as a topic ripe for reform in the 1960s, but the ambitious Renting Homes project (referred to both in Stuart Bridge’s chapter, and in the chapters by Martin Partington and Andrew Arden), has become possible only because of recent political consensus on the balance between landlord and tenant. In the commercial sector, the powerful landlord lobby has undoubtedly shaped, and prevented,
9
(1998) 76 P & CR 396 (CA).
Introduction xix reform. The Landlord and Tenant (Covenants) Bill became, as Derek Wood notes, a political battleground and the 1995 Act is a compromise, not reflecting the full vision of the Law Commission (as is noted by Baroness Hale in the recent House of Lords case of London Diocesan Fund v Avonridge Property Company Ltd).10 As Charles Harpum reflected elsewhere, the 1995 Act ‘demonstrates that law reform legislation . . . is subject to the buffets of politics—interest group rather than party politics on this occasion. It is not a perfect piece of legislation because of the circumstances under which it was enacted . . . . Issues of detailed policy were in the process of evolving even as the drafting went on.’11 More recently, intense lobbying from the property industry has deflected reform on upward only rent review. But legal developments also occur in other ways. In her chapter, Marcia Neave suggests that the vocabulary of human rights contributes to the development of housing law as a distinct body of principles in England, something which has no parallel in Australia. In practice, however, the impact of human rights law upon the development of substantive law has been slight to date. As noted by Martin Partington and Andrew Arden, this may change as at the time of writing a key decision of the House of Lords is awaited on the width of Article 8 (the right to respect for the home).12 Where human rights law has already had a marked impact, however, is upon procedure as it has made important inroads in reinforcing the importance of following due process. Another issue that runs through the book is the impact that practice (lawyers) and process have upon the reality of law. The chapters by Martin Partington and Andrew Arden show the importance of a dedicated and concerned bar, and publication of specialist works and law reports. It is in no small part through the activism of members of the bar and an expansion of legal writing that housing law has emerged as a distinct discipline, bringing together the morass of law that affects housing rights, and so making the law more accessible. This is something that the near ‘codification’ of law through the Law Commission’s Renting Homes work will follow through. In the United States, there is nothing of the complexity of the law in England. The reasons are multifarious, and some are charted in the chapter by Richard Chused. In the context of housing law he describes the position of poor residential tenants before 1970 as ‘orphans of American law, left to fend for themselves in a largely hostile judicial environment’. The growing American economy and the civil rights movement sparked an era of reform.
10
[2005] UKHL 70 [38]. C Harpum, ‘The Law Commission and Land Law’ in S Bright and J Dewar, (eds), ‘Land Law Themes and Perspectives’ (Oxford, OUP, 1998) 161–62. 12 Since writing, the decision in Kay v LB of Lambeth; Leeds CC v Price [2006] UKHL 10; [2006] 2 WLR 570 affirms a conservative approach to the impact of human rights law on substantive housing law. 11
xx Introduction This political pressure, when coupled with legal services becoming available to the poor, led ‘in an historical blink of an eye’ to a change in the tone of tenants’ private legal status. It is this combination of the wider political mood, coupled with the availability of specialist legal services and lawyers committed to the cause of doing something about the problems of poor housing that have led to the changes. Throughout landlord and tenant law there are stories that show just how important ‘equality of arms’ and ‘access to justice’ is. Underlying the Law Commission’s work on termination of tenancies for tenant default is an acknowledgement that the court process must work more speedily and cost effectively. Again, the reforms contained in the Landlord and Tenant Act 1988, are prefaced in part on recognition that rights without effective remedies are inadequate. The need for a quick and efficient court system was raised as a key issue in the conference proceedings. As Martin Partington and Andrew Arden point out, the Renting Homes project plans to take this on board, with effective enforcement of rights and dispute resolution being the subject of an anticipated consultation exercise.13 It must, however, be noted that the continual cuts to the legal aid budget erode the hope of ‘equality of arms’ for many people. My thanks go out to many people for bringing this project together. When the conference was but a ‘twinkle in the eye’, Martin Partington and Stuart Bridge gave generously of their time to help shape and improve my embryonic ideas. Derek Wood has given invaluable support in thinking not only about how to put the conference together, but also in making sure that I did not overlook ‘key players’ in extending invites to delegates. John Colyer QC acted graciously as chair throughout the conference. Rowena Meager quietly recorded and noted the proceedings. Lord Justice Neuberger gave an entertaining after-dinner speech recalling the ‘life and times’ of a landlord and tenant lawyer. The delegates, all bringing something from their personal knowledge, ensured lively discussions. The conference speakers, all contributors to this book, have provided the food for thought. Time will tell if these chapters are prophetic or not. None of this could have got off the ground without financial support. For this I am deeply grateful to Falcon Chambers for its generous sponsorship of the conference dinner and to the Law Faculty at Oxford University for its support both towards the costs of the conference and for research assistance in the production of this book. My own time comes also at a price, and for this I thank the British Academy for the Research Readership which has enabled me to pursue this, and other, research projects. My sanity has been preserved (but who am I to judge?) by the invaluable assistance provided by Naomi Creutzfeldt-Banda in helping with the conference bookings and
13 An issue paper, Housing: Proportionate Dispute Resolution, was published in April 2006, accompanied by an online forum to promote discussion.
Introduction xxi ensuring things ran smoothly throughout (barring the delegate’s broken arm!), and by Catherine Lee who has helped to edit the book, delivering on her assurance that she has an eye for detail. You were both great to work with: thanks. I also need to thank Richard Hart for agreeing to publish this book. There is too little dialogue between academics, practitioners, policy makers and decision makers. The conference from which this book grew brought together experts from diverse backgrounds to discuss these changes. It was a great occasion. My hope is that this book will stimulate further debate, discussion, and thought on the nature of landlord and tenant law. Susan Bright January 2006
Table of Cases A USTRALIA
Fisher v Aboriginal Hostels Ltd [1998] VSCA 130 ...............................241 Jones v Bartlett (2000) CLR 166 (HC)..................................................243 Progressive Mailing House v Tabali (1985) 157 CLR 17 (HC) .............240 Radaich v Smith (1959) 101 CLR 209 (HC) ...................................20, 241 Shevill v Builders Licensing Board (1982) 149 CLR 620 (HC) .............240 Western Australia v Ward [2002] 213 CLR 1, [2002] HCA 28...............32 Wood Factory v Kiritos [1985] 2 NSWLR 105 (CA).............................240
E UROPEAN C OURT O F H UMAN R IGHTS
Connors v UK (2005) 40 EHRR 9 ........................................................211 James v UK [1981] HRLR 408 .............................................................160
E UROPEAN C OURT O F J USTICE
R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock (Case C-2/92) [1994] ECR I-955 .....................131–32 Wachauf v Bundesamt für Ernährung und Forstwirtschaft (Case 5/88) [1989] ECR 2609..................................132
U NITED K INGDOM
Abbahall v Smee [2002] EWCA 1831, [2003] 1 WLR 1472 .................182 Addiscombe Garden Estates v Crabbe [1958] 1 QB 513 (CA)..................2 Adler v Upper Grosvenor Street Investments [1957] 1 WLR 227 (QBD)..........................................................95, 104 AG Securities v Vaughan [1990] 1 AC 417 (HL) ..........32, 34–38, 43, 201 Allied Dunbar Assurance plc v Homebase Ltd [2002] EWCA Civ 666 .........................................................95–96, 103 Antoniades v Villiers [1990] 1 AC 417 (HL).................32, 34–38, 43, 201 Arbib v Earl Cadogan [2005] EWLands LRA-23 2004.........................184 Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59, [2001] 1 WLR 2180 (HL)........................................5
xxiv Table of Cases Aslan v Murphy (Nos 1 and 2) [1990] 1 WLR 766 (CA)........................37 Auwoth v Johnson (1832) 5 C & P 239, 172 ER 955...........................113 Bailey (CH) v Memorial Enterprises [1974] 1 WLR 728 (CA)..................3 Banjo v Brent LBC [2005] EWCA Civ 292, [2005] 1 WLR 2520 ...............................................................45, 56, 61 Bankway Properties Ltd v Pensfold-Dunsford [2001] EWCA Civ 528, [2001] 1 WLR 1369 .....................................37 Barrett v Morgan [2000] 2 AC 264 (HL) ..................................................8 Basingstoke and Deane BC v The Host Group [1988] 1 WLR 348 (CA).....................................................................10 Begum (FC) v Tower Hamlets LBC [2003] UKHL 5, [2003] 2 AC 430...............................................................................210 Begum (Rikha) v Tower Hamlets LBC [2005] EWCA Civ 340, [2005] 1 WLR 2103 .........................................................................229 Belevedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858 (CA) ...........................................162 BHP Petroleum Great Britain Ltd v Chesterfield Properties Ltd [2001] EWCA Civ 1797, [2002] Ch 194 ....................76 Billson v Residential Apartments Ltd [1992] 1 AC 494 (HL)............79–81 Birmingham CC v McCann [2003] EWCA Civ 1783, [2004] HLR 27 .................................................................................211 Bland v Ingrams Estates Ltd [2001] Ch 767 (CA) ..................................81 Bocardo SA v S & M Hotels Ltd [1980] 1 WLR 17 (CA)...............95, 104 Bradney v Birmingham CC [2003] EWCA Civ 1783, [2004] HLR 27 .................................................................................211 Bristol CC v Lovell [1998] 1 WLR 446 (HL)........................................205 Bristol CC v Mousah (1998) 30 HLR 32 (CA) .............................205, 209 Bristol DC v Clark [1975] 1 WLR 1443 (CA) ......................200, 205, 209 British Anzani (Felixstowe) v International Marine Management [1980] QB 137 (QBD) .....................................................3 Broadgate Square plc v Lehman Bros Ltd [1995] 1 EGLR 97 (CA)........10 Bruton v London and Quadrant Housing Trust [1998] QB 823 (CA); [2000] 1 AC 406 (HL) ...........................xv, 3, 30, 32, 38 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) ..................27–30, 56–60 Cambusmore Estate Trustees v Little [1991] SLT (Land Ct) 33 ............140 Cannock Chase DC v Kelly [1978] 1 WLR 1 (CA)...............200, 205, 209 Cardiothoracic Institute v Shrewdcrest Ltd [1986] 1 WLR 368 (Ch) .........................................................23, 26, 56 Centrovincial Estates plc v Bulk Storage Ltd (1983) 46 P & CR 393 (Ch)...............................................................75 Chartered Trust plc v Davies (1998) 76 P & CR 396 (CA)....................xvi Clear Channel UK Ltd v Manchester CC [2005] EWCA Civ 1304 .........53 Cole v Kelly [1920] 2 KB 106 (CA).........................................................22
Table of Cases xxv Co-operative Insurance Society v Argyll Stores (Holdings) [1998] AC 1 (HL) .................................................................................2 Crawley BC v Ure [1996] QB 13 (CA)..................................................201 Crédit Suisse v Beegas Nominees [1994] 4 All ER 803 (Ch) .....................7 Creery v Summersell [1949] Ch 751......................................................103 Croydon (Unique) Ltd v Wright [2001] Ch 318 (CA) .............................81 Cruise v Mount [1933] Ch 278 (Ch) .....................................................243 Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC Ch 324, [2005] 1 WLR 1 .......................................5, 74 Din v Wandsworth LBC [1983] 1 AC 657 (HL) .............................198–99 Doe d Cheny v Batten (1775) 1 Cowp 243, 98 ER 1066........................22 Doe d Lord v Crago (1848) 6 CB 90, 136 ER 1185 ...............................22 Dresden Estates Ltd v Collinson (1987) 55 P & CR 47 (CA) .................52 Family Housing Association v Jones [1990] 1 WLR 779 (CA)................51 Family Housing Association v Miah (1982) 5 HLR 94 (CA)...................50 Featherstone v Staples [1986] 1 WLR 861 (CA)........................................3 Footwear Corp v Amplight [1999] 1 WLR 551 (Ch) ................................5 Francis Jackson Developments Ltd v Stemp [1943] 2 All ER 601 (CA) ............................................................20, 45 Friends Provident Life Office v British Railways Board [1996] 1 All ER 336 (CA) ..........................................................6, 8, 75 Gisborne v Burton [1989] QB 390 (CA) ...................................................3 Go West Ltd v Spigarolo [2003] EWCA Civ 17, [2003] QB 1140............5 Greenwich LBC v McGrady (1982) 6 HLR 36 (CA) ............................201 Greenwich LBC v Regan (1996) 28 HLR 469 (CA)....................57–58, 60 Griffiths v St Helens BC [2006] EWCA Civ 160...................................220 Hagee (London) Ltd v AB Erikson and Larson [1976] QB 209 (CA)...................................................47, 53–54, 71, 89 Hall v Harlow DC [2006] EWCA Civ 156 ...........................................222 Hammersmith and Fulham LBC v Jastrzebski (ChD, 20 October 2000).....................................................................26 Hammersmith and Fulham RLBC v Monk [1992] 1 AC 478 (HL)......................................................................201 Hankey v Clavering [1942] 2 KB 326 (CA)...............................................4 Harrow LBC v Johnstone [1997] 1 WLR 459 (HL)..............................201 Helena Housing Ltd v Pinder [2005] EWCA Civ 1010...............28–30, 60 Hill v Griffin [1987] 1 EGLR 81 (CA) ..................................................103 Isaac v Hotel de Paris Ltd [1960] 1 WLR 239 (PC)................................24 Javad v Aqil [1991] 1 WLR 1007 (CA).................................22–24, 54, 61 Jenkin R Lewis v Kerman [1971] Ch 477 (CA).........................................8 Jewell v McGowan Gloucester County Cou rt (15 March 2001) (unreported); [2002] EWCA Civ 145....................142 Johnson v Moreton [1980] AC 37 (HL)..............3, 11, 113, 117, 126, 129
xxvi Table of Cases Kay v LB of Lambeth [2004] EWCA Civ 926, [2004] HLR 56; [2006] UKHL 10, [2006] 2 WLR 570........................................................xvii, 38, 211–12 Kensington and Chelsea RLBC v Hayden (1984) 17 HLR 114 (CA) ...................................................................50 Lambeth LBC v Howard [2001] EWCA Civ 468, (2001) 33 HLR 58 ............................................................................209 Lambeth LBC v O’Kane [2005] EWCA Civ 1010 ......................28–30, 60 Leadenhall Residential 2 Ltd v Stirling [2001] EWCA Civ 1011, [2002] 1 WLR 499...........................................28, 30 Lee v Leeds CC [2002] EWCA Civ 6, [2002] 1 WLR 1488..................210 Leeds CC v Price [2005] EWCA Civ 289, [2005] 1 WLR 1825; [2006] UKHL 10, [2006] 2 WLR 570........................................................xvii, 38, 211–12 London Diocesan Fund v Avonridge Property Co Ltd [2005] UKHL 70.........................................................................xvii, 76 Longrigg Burrough & Trounson v Smith (1979) 251 EG 847 ................26 Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49, [2003] 1 AC 1013 .................................................15 Manchester CC v Cochrane [1999] 1 WLR 809 (CA)...................205, 210 Manchester CC v Romano and Samari [2004] EWCA Civ 834, [2005] 1 WLR 2775 ...................................210 Manfield Ltd v Botchin [1970] 2 QB 612 (QBD)....................................53 Mannai Investment Company Ltd v Eagle Star Assurance Company Ltd [1997] AC 749 (HL)................................................3, 17 Marchant v Charters [1977] 1 WLR 1181 (CA)....................................172 Marcroft Wagons Ltd v Smith [1951] 2 KB 496 (CA)...........20, 26–27, 61 McClinton v McFall (1974) 232 EG 707 (CA) ......................................118 Mendoza v Ghaidan [2004] UKHL 30, [2004] 2 AC 557 .....................208 Michalak v Wandsworth LBC [2002] EWCA Civ 271, [2003] 1 WLR 617 ...........................................................................210 Mikeover Ltd v Brady [1989] 3 All ER 618 (CA) .......................35–36, 38 Mountford v Hodkinson [1956] 1 WLR 422 (CA)................................119 Murray Bull & Co v Murray [1953] 1 QB 211 (QBD) ...........................20 National Car Parks Ltd v Trinity Development Co (Banbury) Ltd [2001] EWCA Civ 1686 ............................33–34, 52–53 NCR Ltd v Riverland Portfolio (No 1) Ltd [2004] EWHC 921; [2005] EWCA Civ 312 ...................................6, 96 Newham LBC v Hawkins [2005] EWCA Civ 451 ................21, 28, 59–60 Newham LBC v Kibata [2003] EWCA Civ 1785, [2004] HLR 28 .................................................................................211 Newlon Housing Trust v Al-Sulaimen [1999] 1 AC 313 (HL) ..............201 North British Housing Association Ltd v Matthews [2004] EWCA Civ 1736, [2005] 1 WLR 3133 .................................221
Table of Cases xxvii Norwich Union Life Insurance Society Ltd v British Railways Board [1987] 2 EGLR 137 (Ch) ...........................................................7 Norwich Union Life Insurance Society Ltd v Shopmoor Ltd [1999] 1 WLR 531 (Ch) .......................................................................5 O’May v City of London Real Property Co Ltd [1983] 2 AC 726 (HL)........................................................................88 Orchard Trading Estate Management Ltd v Johnson Security Ltd [2002] EWCA Civ 406 .................................................176 Parker v Parker [2003] EWHC 1846 ......................................................23 Parry v Harding [1925] 1 KB 111 (KBD)..............................................213 Pemberton v Southwark LBC [2000] 1 WLR 1672 (CA)..................28, 58 Poplar Housing & Regeneration Community Association Ltd v Donoghue [2001] EWCA Civ 595, [2002] QB 48....................................................................................209 Post Office v Aquarius [1985] 2 EGLR 105 (Ch)......................................7 Powley v Walker (1793) 5 Term Rep 373, 101 ER 208 ........................113 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462........................................................................113 Qazi v Harrow LBC [2003] UKHL 43; [2004] 1 AC 983.................................................................201, 209–12 Quick v Taff Ely Borough Council [1986] QB 809 (CA) ..............7, 76–77 R v Ealing LBC, ex parte McBain [1985] 1 WLR 1351 (CA) ...............199 R v Hillingdon LBC, ex parte Islam [1983] 1 AC 688 (HL) ...........198–99 R v Hillingdon LBC, ex parte Puhlhofer [1986] 1 AC 484 (HL) ..........199 R v Hillingdon LBC, ex parte Streeting [1980] 1 WLR 1425 (CA)...........................................................198–99 R v Secretary of State for the Environment, ex parte Tower Hamlets LBC [1993] QB 632 (CA)\ .................................................205 R v Waveney DC, ex parte Bowers [1983] QB 238 (CA) ................198–99 R (Holding and Barnes plc, Alconbury Developments Ltd and Premier Leisure UK Ltd) v Secretary of State for the Environment, Transport and the Regions [2001] UKHL 23; [2003] 2 AC 295 .................................................210 R (on the application of McLellan) v Bracknell Forest BC [2001] EWCA Civ 1510, [2002] QB 1129 .......................................209 Ratcliffe v Sandwell MBC [2002] EWCA Civ 6, [2002] 1 WLR 1488 .........................................................................210 Ravenscroft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12 (QBD) ............................................................................7 Receiver for the Metropolitan Police District v Palacegate Properties Ltd [2001] Ch 131 (CA) ....................................................89 Reigate and Banstead BC v Benfield [2001] EWCA Civ 1510, [2002] QB 1129................................................................................209 Rexhaven Ltd v Nurse (1995) 28 HLR 241 (Ch) ....................................79
xxviii Table of Cases RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC Ch 1180....................................................................178 Rhone v Stephens [1994] 2 AC 310 (HL)..............................................177 Rous v Mitchell [1991] 1 WLR 469 (CA) .............................................119 Segal Securities Ltd v Thoseby [1963] 1 QB 887 (QBD) .........................80 Sheffield CC v Smart [2002] EWCA Civ 4 ............................................210 Somma v Hazelhurst [1978] 1 WLR 1014 (CA)............................197, 241 Sopwith v Stutchbury (1985) 17 HLR 50 (CA) .................................23–24 Southwark LBC v Williams [1971] Ch 734 (CA)..................192, 200, 209 Street v Mountford [1985] 1 AC 809 (HL) ......................i, xii, xiv-xv, 2–3, 19–21, 23, 25–26, 28–34, 36–39, 43, 51–52, 54, 172, 201, 241 Swindon BC (formerly Thamesdown BC) v Aston [2002] EWCA Civ 1850 ...............................................................28, 30 Thompson v Elmbridge BC [1987] 1 WLR 1425 (CA) ...................57, 222 Tito v Waddell [1975] 1 WLR 1303 (Ch)..............................................194 Tower Hamlets LBC v Ayinde (1994) 26 HLR 631 (CA)..................25, 55 29 Equities Ltd v Bank Leumi (UK) [1986] 1 WLR 1490 (CA)...................................................................74 Walji v Mount Cook Land Ltd [2000] EWCA Civ 356 ..........................57 Walsh v Lonsdale (1882) LR 21 Ch D 9 (CA) ......................................245 Wandsworth LBC v Winder [1985] AC 461 (HL) ........................205, 211 Westminster CC v Basson (1991) 23 HLR 225 (CA) ........................26, 55 Westminster CC v Clarke [1992] 2 AC 288 (HL) .............................51, 56 Wheeler v Mercer [1957] AC 416 (HL).............................................53, 61 Woodward v Docherty [1974] 1 WLR 966 (CA) ..................192, 200, 209
U NITED S TATES O F A MERICA
Altz v Leiberson 233 NY 16, 134 NE 703 (1922)...........................264–65 Bornstein v Faden 133 NYS 608 (NY App Div, 1912)..........................264 Bowles v Mahoney 202 F 2d 320, 91 US App DC 155 (1953)..............265 Bradley v Nestor 67 How Pr 76 (NY Com Pleas, 1884) .......................264 Braitman v Overlook Terrace Corp 68 NJ 368, 346 A 2d 76 (1975) ..........................................................................265 Brown v Board of Education 347 US 483, 74 S Ct 686 (1954) ............268 Gillick v Jackson 83 NYS 29 (NY App Div, 1903) ...............................264 Goldberg v Kelly 397 US 254, 90 S Ct 1011 (1970) .............................271 Hanna v Fletcher 231 F 2d 469, 97 US App DC 310 (1956) ................264 Helmsley v Borough of Fort Lee 78 NJ 200, 394 A 2d 65 (1978) ..........................................................................275 Inganamort v Borough of Fort Lee 62 NJ 521, 303 A 2d 298 (1973) ........................................................................275
Table of Cases xxix Jacobs & Youngs v Kent 230 NY 239, 129 NE 889 (1921)..................265 Jaffe v Harteau 56 NY 398 (1874)........................................................264 Jane Doe v Dominion Bank of Washington 963 F 2d 1552 (DC Cir, 1992)..................................................................................271 Javins v First National Realty Corporation 428 F 2d 1071, 138 US App DC 369 (DC Cir, 1970)..........................77, 258, 270, 275 Kline v 1500 Massachusetts Avenue Apartment Corp 439 F 2d 477 (DC Cir, 1970) ...........................................................271 MacPherson v Buick Motor Co 217 NY 382, 111 NE 1050 (1916).........................................................................266 Marini v Ireland 56 NJ 130, 265 A 2d 526 (NJ 1970)....................................................................258, 270–71, 275 Mayes v Jackson Township Tent Leveling Board 103 NJ 362, 511 A 2d 589 (1986) ........................................................................275 Michaels v Brookchester 26 NJ 379, 140 A 2d 199 (1958)...................265 Moore v Townshend 33 NJL 284 (1869) ..............................................261 Murry v Albertson 50 NJL 167, 13 A 394 (1888).................................260 Patton v Texas Co 13 NJ Super 42, 80 A 2d 231 (1951) ......................265 Pines v Perssion 14 Wise 2d 590, 111 NW 2d 409 (1961) ...................269 Reste Realty Corp v Cooper 53 NJ 444, 251 A 2d 268 (1969).............270 Robinson v Diamond Housing Corp 463 F 2d 853 (DC Cir, 1972) ...........................................................271 Schipper v Levitt & Sons Inc 44 NJ 70, 207 A 2d 314 (1965) .............265 Schmidt v Pettit 8 DC 179 (1873) .........................................................266 Schwartz v Apple 48 NYS 253 (NY City Ct, 1897) ..............................264 Stewart v Childs 86 NJL 648, 92 A 392 (1914) ....................................261 Sun Printing and Publishing Association v Remington Paper and Power Co Inc 235 NY 338, 139 NE 470 (1923).......................265 Thorpe v Housing Authority of the City of Durham 393 US 268, 89 S Ct 518 (1969) ......................................................271 Whetzel v Fisher Management Company 282 F 2d 943, 108 US App DC 385 (1960) .............................................................265 Wood v Lucy, Lady Duff-Gordon 222 NY 88, 118 NE 214 (1917)...........................................................................265 Ziegler v Brennan 78 NYS 342 (NY App Div, 1902) ............................264
WTO
US – Subsidies on Upland Cotton (Panel Report, 8 Sept 2004) WT/DS267/R and (Appellate Body Report, 3 March 2005) WT/DS267/AB/R ..............................................................................139
Table of Statutes A USTRALIA
Business Tenancies (Fair Dealings) Act 2003 (NT) ..............................2003 Charter of Rights (ACT)........................................................................255 Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ..........233 Commonwealth Trade Practices Act 1974 (Cth) Pt V...................................................................................................242 Fair Trading Act 1999 (Vic) Pt 2B .................................................................................................242 s 3............................................................................................................42 s 32W ....................................................................................................242 Fair Trading Acts...................................................................................242 Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas) .....................................................................233 Family Violence Act 2004 (Tas) s 17 ...................................................................................................251 Leases (Commercial and Retail) Act 2001 (ACT)..................................233 National Security Act 1939 (Cth) ..........................................................234 National Security (Landlord and Tenant) Regulations 1941 (Cth) ........234 Privacy Act 1988 (Cth)..........................................................................253 Div 3, ss 16A-16F..................................................................................253 Property Law Act 1958 (Vic) ss 52–54............................................................................................245 Property, Stock and Business Agents Amendment (Tenant Databases) Regulations 2004 (NSW) ...................................254 Property, Stock and Business Agents Regulations 2003 (NSW) Sch 6A, ss 4–5...................................................................................254 Residential Tenancies Act 1978 (SA) .............................................233, 235 Residential Tenancies Act 1980 (Vic) ............................................233, 235 s 4..........................................................................................................241 Residential Tenancies Act 1987 (NSW) .........................................233, 235 s 3..........................................................................................................241 s 15................................................................................................237, 240 ss 25–26 ................................................................................................244 ss 30–32 ................................................................................................248 ss 46–49 ................................................................................................248 s 58................................................................................................246, 250
xxxii
Table of Statutes
Residential Tenancies Act 1987 (NSW) continued s 60H.....................................................................................................250 s 61........................................................................................................240 s 63A .....................................................................................................250 ss 68–69A..............................................................................................251 s 631......................................................................................................251 Residential Tenancies Act 1987 (WA)............................................233, 235 s 4..........................................................................................................237 s 5(2)(d).................................................................................................241 s 38........................................................................................................244 s 42........................................................................................................244 s 82(3) ...................................................................................................244 Residential Tenancies Act 1994 (Qld) ...................................233, 235, 253 s 15........................................................................................................237 ss 53–53A..............................................................................................248 s 103......................................................................................................244 s 106......................................................................................................244 ss 123A–128..........................................................................................246 ss 165–165A..........................................................................................250 s 186A ...................................................................................................246 s 284C ...................................................................................................254 s 284C(1)...............................................................................................253 s 284E ...................................................................................................254 s 284H...................................................................................................254 Residential Tenancies Act 1995 (SA) .............................................233, 235 s 5..........................................................................................................237 s 56..................................................................................................248–49 s 68................................................................................................244, 246 s 69........................................................................................................244 Residential Tenancies Act 1997 (ACT) ..........................................233, 235 s 38........................................................................................................248 ss 107E-107H........................................................................................254 Residential Tenancies Act 1997 (Vic)...............................233–35, 243, 246 Pt 2........................................................................................................243 Pt 3........................................................................................................241 Div 5 .....................................................................................................243 Pt 4........................................................................................................241 Div 5 .....................................................................................................243 s 3..........................................................................................................246 s 4..........................................................................................................237 ss 6–8 ....................................................................................................239 ss 10–12 ................................................................................................239 s 21........................................................................................................239 s 28........................................................................................................242
Table of Statutes xxxiii s 29........................................................................................................245 s 30........................................................................................................254 s 31........................................................................................................247 s 33........................................................................................................247 ss 35–36 ................................................................................................248 s 40........................................................................................................247 s 42........................................................................................................247 s 44..................................................................................................248–49 s 44(4A).................................................................................................249 s 45..................................................................................................248–49 s 46........................................................................................................248 s 47..................................................................................................248–49 s 48........................................................................................................248 ss 50–51 ................................................................................................247 s 60........................................................................................................244 ss 68–69 ................................................................................................244 s 72........................................................................................................247 ss 74–79 ................................................................................................246 s 94A .....................................................................................................242 s 95........................................................................................................247 s 97..........................................................................................245, 247–48 s 98........................................................................................................248 s 114......................................................................................................244 s 116......................................................................................................244 s 120......................................................................................................244 s 129......................................................................................................247 ss 131–34 ..............................................................................................246 s 144A ...................................................................................................242 s 146......................................................................................................247 ss 148–49 ..............................................................................................248 s 150......................................................................................................247 s 171......................................................................................................244 s 173......................................................................................................244 s 180......................................................................................................244 s 188......................................................................................................247 ss 190–193 ............................................................................................246 s 220......................................................................................................250 s 234......................................................................................................251 s 238......................................................................................................250 ss 239–40 ......................................................................................246, 250 ss 248–49 ..............................................................................................250 ss 254–255 ............................................................................................255 ss 258–259 ............................................................................................255 s 262A ...................................................................................................255
xxxiv
Table of Statutes
Residential Tenancies Act 1997 (Vic) continued s 263......................................................................................................250 ss 331–32 ..............................................................................................251 s 406......................................................................................................248 s 411......................................................................................................248 s 431......................................................................................................248 s 437......................................................................................................248 s 493......................................................................................................248 s 496......................................................................................................248 s 497......................................................................................................247 Residential Tenancies Act 1999 (NT) ............................................233, 235 s 5..........................................................................................................237 Residential Tenancies (Amendment) Act 2002 (Vic) s 26 ...................................................................................................250 Residential Tenancies (Further Amendment) Act 2005 (Vic) .................241 Residential Tenancies and Other Legislation Amendment Act 2003 (Qld) .............................................................253 Residential Tenancy Act 1997 (Tas) ..............................................233, 235 s 5..........................................................................................................237 s 10........................................................................................................241 s 20........................................................................................................248 s 32........................................................................................................244 s 38........................................................................................................246 s 64B .....................................................................................................245 Retail and Commercial Leases Act 1995 (SA) .......................................233 Retail Leases Act 1994 (NSW) ..............................................................233 Retail Leases Act 2003 (Vic)..................................................................233 Retail Shop Leases Act 1994 (Qld)........................................................233 Retirement Villages Act 1986 (Vic)........................................................242 Retirement Villages Act 1987 (SA) ........................................................242 Retirement Villages Act 1992 (WA).......................................................242 Retirement Villages Act 1995 (NT) .......................................................242 Retirement Villages Act 1999 (NSW) ....................................................242 Retirement Villages Act 1999 (Qld).......................................................242 Retirement Villages Act 2004 (Tas) .......................................................242 Trade Practices Act 1974 (Cth)..............................................................106
E UROPEAN C OMMUNITY
Council Regulation (EEC) 857/84 adopting general rules for the application of the levy in the milk and milk products sector [1984] OJ L90/13 Art 7(4) as amended by Council Regulation (EEC) 590/85 [1985] OJ L68/1 ....................131
Table of Statutes xxxv Council Regulation (EC) 1259/1999 establishing common rules for direct support schemes under the common agricultural policy [1999] OJ L160/113 Art 4 .................................................................................................141 Council Regulation (EC) 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers [2003] OJ L270/1 (2003 Horizontal Regulation)...................................................139, 143 Recital (3)..............................................................................................140 Art 2(a)..................................................................................................130 Art 2(c)..................................................................................................130 Art 10(1) ...............................................................................................141 Art 71....................................................................................................133 Annex III ...............................................................................................138 Annex IV ...............................................................................................139 Annex VI as amended by Council Regulation (EC) 319/2006 [2006] OJ L58/32.....................................................138 Council Regulation (EC) 1788/2003 establishing a levy in the milk and milk products sector [2003] OJ L270/123 Art 17(4)...........................................................................................131 Council Regulation (EC) 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) [2005] OJ L277/1 ........................................141 European Convention on Human Rights and Fundamental Freedoms (ECHR).......................................208, 212, 256 Art 6 ........................................................................................208–10, 256 Art 8................................................................xvii, 201, 208–12, 256, 258 Art 8(2) .................................................................................................211 Art 14 ..............................................................................................208–10 Protocol 1, Art 1 ...................................................................................208 Horizontal Regulation 2003. See Council Regulation (EC) 1782/2003 Treaty of Rome .................................................................................120
INTERNATIONAL
International Covenant on Civil and Political Rights (ICCPR) ..............255 International Covenant on Economic, Social and Cultural Rights (ICESCR) .................................................................255 Uruguay Round Agreement on Agriculture .............................131–33, 145 Annex 2.................................................................................................133 para 6 ....................................................................................................133 para 6(e) ................................................................................................139
xxxvi
Table of Statutes
WHO Constitution Preamble ...........................................................................................210 WTO Decision on the Doha Work Programme 2004, WT/L/579..........145
U NITED K INGDOM
Acts of Enclosure...................................................................................151 Agricultural Holdings Act 1900 ............................................................115 Agricultural Holdings Act 1906 ............................................................115 ss 2–4 ....................................................................................................115 Agricultural Holdings Act 1908 ............................................................115 Agricultural Holdings Act 1914 ............................................................115 Agricultural Holdings Act 1923 ............................................................117 Agricultural Holdings Act 1948...................2–3, 71, 115, 117–18, 120–22 s 2......................................................................................................2, 118 s 3..........................................................................................................118 s 5..........................................................................................................119 s 8..........................................................................................................119 s 24(1)–(2) .............................................................................................119 s 25(1) ...................................................................................................119 s 25(5)–(6) .............................................................................................119 s 94(1) ...................................................................................................118 Agricultural Holdings Act 1984 ............................................................119 Agricultural Holdings Act 1986 .................................11, 71, 115, 122–24, 139–40, 142–43 s 2............................................................................................................11 s 66(1) ...................................................................................................143 s 96(1) ...........................................................................................139, 141 Sch 3 Case B ...................................................................................................126 Case C ...........................................................................................140, 142 Case D...................................................................................................142 Case E ...................................................................................................142 para 9(2)................................................................................................142 para 10(1)(d) .........................................................................................142 para 11(2)..............................................................................................142 Agricultural Holdings Acts ................................................114–15, 118–19 Agricultural Holdings (England) Act 1875 ..........................11, 71, 114–15 s 20........................................................................................................115 s 51........................................................................................................114 s 53........................................................................................................114 Agricultural Holdings (England) Act 1883 ......................................114–15 s 3..........................................................................................................114
Table of Statutes xxxvii s 54........................................................................................................115 Agricultural Holdings (Scotland) Act 1991 ...................................142, 144 s 39........................................................................................................144 s 85(2A)–(2B) ........................................................................................142 Agricultural Holdings (Scotland) Act 2003............................................142 ss 40–41 ................................................................................................144 s 69........................................................................................................142 Agricultural (Miscellaneous Provisions) Act 1949 .................................120 Agricultural (Miscellaneous Provisions) Act 1954 .................................120 Agricultural (Miscellaneous Provisions) Act 1963 .................................120 Agricultural (Miscellaneous Provisions) Act 1968 .................................120 Agricultural (Miscellaneous Provisions) Act 1972 .................................120 Agricultural (Miscellaneous Provisions) Act 1976 ...........................120–22 ss 16–24 ................................................................................................121 Agricultural (Miscellaneous Provisions) Acts.................................118, 120 Agricultural Tenancies Act 1995............................12, 71, 122–24, 126, -133–35, 139–40, 142 s 1..........................................................................................................143 ss 5–6 ......................................................................................................12 ss 9–14 ....................................................................................................12 s 16..........................................................................................................12 s 20(1) ...................................................................................................143 s 38(1) ...........................................................................................139, 141 s 38(2) ...................................................................................................143 Agriculture Act 1920 .............................................................................115 s 10........................................................................................................115 Agriculture Act 1947.........................................................................2, 117 s 11........................................................................................................140 Agriculture Act 1958 .......................................................................119–20 Agriculture Act 1984 .............................................................................122 Agriculture Act 1986 .............................................................................132 Agriculture (Scotland) Act 1948 Sch 6 .................................................................................................140 Anti-Social Behaviour Act 2003.................................................204–5, 209 s 16........................................................................................................222 Arbitration Act 1996 .................................................................12, 123–24 s 28..........................................................................................................12 Artizans and Labourers Dwellings Act 1868 .........................................206 Asylum and Immigration Act 1996 .......................................................203 Capital Transfer Tax Act 1984 ..............................................................123 Civil Partnerships Act 2004...................................................................209 Common Lodging Houses Acts .............................................................192 Commonhold and Leasehold Reform Act 2002.........................................15–17, 148–49, 163, 166, 168, 175
xxxviii Table of Statutes Pt I.................................................................................................177, 181 Pt II ...............................................................................................186, 189 Ch 1 ......................................................................................................188 s 38........................................................................................................183 s 38(2)(a) ...............................................................................................183 ss 43–49 ................................................................................................181 s 49(3) ...................................................................................................182 s 51........................................................................................................182 s 51(2) ...................................................................................................182 s 51(4) ...................................................................................................182 ss 71–113 ..............................................................................................163 s 73........................................................................................................188 s 76........................................................................................................173 s 117..............................................................................................166, 175 s 119......................................................................................................166 s 120..............................................................................................166, 175 s 128......................................................................................................175 ss 131–132 ............................................................................................166 s 132(2) .................................................................................................166 s 138..............................................................................................166, 175 s 164..............................................................................................169, 176 s 166......................................................................................................169 ss 167–71 ......................................................................................168, 176 Corn Production Act 1917 ..............................................................115–16 Criminal Law Act 1977 s 6 .......................................................................................................79 Customs and Excise Warehousing Act 1869..........................................112 Defective Premises Act 1972....................................................................59 Disability Discrimination Act 1995 .......................................................210 Homelessness Act 2002 .................................................................206, 220 Housing Act 1961 s 32 ...................................................................................................196 Housing Act 1974 ...................................................................................15 Housing Act 1980 ...................................12, 15, 45, 50, 163, 197–98, 200 s 48(2) .....................................................................................................50 s 85A .....................................................................................................222 Housing Act 1985.......................45–46, 50, 56, 60, 62, 77, 163, 196, 209 s 79..................................................................................................50, 216 s 79(3) ...............................................................................................50–51 s 82A .....................................................................................................204 s 84(2) .....................................................................................................45 s 85 .......................................................................................28, 30, 45, 59 s 85(2) ...............................................................................................30, 59 s 85(3)–(4) ...............................................................................................59
Table of Statutes xxxix s 85A .....................................................................................................205 s 138......................................................................................................205 s 604........................................................................................................77 Housing Act 1988 ..................13, 45–46, 48, 50, 71, 147, 158, 198, 202–3, 206 Pt 1, Ch 2 ..............................................................................................216 Pt 4........................................................................................................203 s 1....................................................................................................50, 147 s 6A .......................................................................................................204 s 7(4) .......................................................................................................45 s 9............................................................................................................45 s 20B .....................................................................................................204 Sch 1, paras 3–3C..................................................................................147 Sch 2, ground 8 .....................................................................................227 Housing Act 1996.....................15, 71, 162–63, 165, 168, 179, 203–4, 206, 236 Pt 3..........................................................................................................16 Ch 2 ......................................................................................................216 s 81........................................................................................................176 s 85........................................................................................................162 ss 153A-E ..............................................................................................204 s 193......................................................................................................220 s 204......................................................................................................200 Housing Act 2004 .............................................77–78, 194, 206, 219, 231 ss 216–17 ..............................................................................................225 Housing Acts ...................................................................................44, 192 Housing (Homeless Persons) Act 1977 ..........................192, 197–200, 209 Housing Finance Act 1972 ....................................................................193 Housing and Planning Act 1986............................................................199 Housing (Scotland) Act 2001 ................................................................221 Housing of the Working Classes Act 1885 ............................................206 Human Rights Act 1998............................................78, 191, 208–10, 256 s 3(1) .....................................................................................................212 Inheritance Tax Act 1984 ......................................................................123 Land Registration Act 2002 ....................................................................88 s 28........................................................................................................182 Landlord and Tenant Act 1730 .............................................................113 Landlord and Tenant Act 1927 .........................................................46, 76 Pt I.....................................................................................................46, 68 s 19(1).................................................................................4, 6, 72, 75, 87 s 19(1)(A) ..................................................................................................6 Landlord and Tenant Act 1954 ....................11, 17, 44, 47–49, 52–54, 56, 62, 69–72, 88, 101–2, 109, 158 Pt I.........................................................................................................158
xl
Table of Statutes
Pt II ........................................................xiv, 2, 10, 47, 61, 68–71, 88, 118 s 2(4) .....................................................................................................173 s 23(1) .....................................................................................................49 s 23(2) .....................................................................................................50 s 24..........................................................................................................47 s 30(1) .....................................................................................................47 s 30(1)(f)..................................................................................................10 s 38..........................................................................................................47 s 38(4) .....................................................................................................89 s 38A .......................................................................................................89 Landlord and Tenant Act 1985 .............................................................168 s 8........................................................................................................7, 77 s 8(4) .......................................................................................................77 s 11 .....................................................................................7, 77, 196, 210 s 19........................................................................................................179 Landlord and Tenant Act 1987 ...............................................16, 162, 175 Pt I.................................................................................................162, 179 Pt III ......................................................................................................162 s 1............................................................................................................16 s 3............................................................................................................16 s 21........................................................................................................162 s 24A .....................................................................................................162 Landlord and Tenant Act 1988 ...................xvi, xviii, 4–5, 72, 74, 88, 100 s 1(3) .........................................................................................................5 s 1(3)(b).....................................................................................................5 Landlord and Tenant Acts .....................................................................195 Landlord and Tenant (Covenants) Act 1995 ..............................xvi–xvii, 4, 6, 74, 76, 88, 95–96, 100, 104 s 5(2) .........................................................................................................6 ss 6–8 ........................................................................................................6 s 11............................................................................................................6 ss 16–19 ....................................................................................................6 s 22......................................................................................................6, 88 s 24..........................................................................................................96 Law Commissions Act .............................................................................66 Law of Property Act 1922 Sch 15, para 10(1) ............................................................................188 Law of Property Act 1925 s 1(1) .....................................................................................................147 s 52........................................................................................................147 s 54(2) ...................................................................................................147 s 146....................................................................................................8, 80 s 146(2) ...................................................................................................79 s 146(4) .................................................................................................103
Table of Statutes xli s 146(8)–(10) .............................................................................................8 s 147..........................................................................................................8 s 153..............................................................................................180, 187 s 205(1)(xxvii) .......................................................................................147 Law of Property Act 1969.................................................................47, 70 Leasehold Property (Repairs) Act 1938 .....................................................8 Leasehold Reform Act 1967.........................14–15, 148, 160, 164, 166, 175–77, 179, 184 s 1............................................................................................................14 s 1(1)(b)...................................................................................................14 s 3 .............................................................................................................4 s 3(1) .....................................................................................................173 s 9............................................................................................................15 s 19..........................................................................................................14 s 39(1) ...................................................................................................147 Leasehold Reform, Housing and Urban Development Act 1993 .....................................15–16, 148, 163–67, 175–76, 178–79 Pt I Ch I .........................................................................................................16 Ch II ................................................................................................16, 164 Ch III.......................................................................................................15 Pt II .......................................................................................................176 s 7..........................................................................................................173 s 9(2)(a) .................................................................................................173 Sch 6........................................................................................................16 para 4 ....................................................................................................175 para 4(2A) .....................................................................................175, 180 Local Government and Housing Act 1989 s 186 .................................................................................................158 Sch 10....................................................................................................158 National Assistance Act 148..................................................................192 Protection from Eviction Act 1964..................................................79, 193 Protection from Eviction Act 1977 ..........................................................79 Public Health Act 1936 .........................................................................196 Public Health Acts .................................................................................195 Regulatory Reform Act 2001 ..........................................................71, 124 Rent Act 1957 .................................................................................68, 198 Rent Act 1965 .......................................................................................193 Rent Act 1974 .................................................................192–93, 200, 209 Rent Act 1977.............................................................................xiv, 12–13 s 5..........................................................................................................147 Rent Acts .......................................................2, 12, 14, 17, 21, 23, 43, 68, 70–71, 147, 166, 192–93, 195, 198, 213–14, 217
xlii Table of Statutes Rentcharges Act 1977............................................................................176 Repeal of the Corn Laws 1846..............................................................112 Settled Estates Act 1856 ........................................................................151 Settled Land Acts (19th Century) ..........................................................151 Statutory Instruments Agricultural Holdings (Notices to Remedy and Notices to Quit) Order 1964 ............................................................119 Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1948 .................................................119 Common Agricultural Policy Single Payment and Support Schemes (Cross Compliance) (England) Regulations 2004, SI 2004/3196.......................................................139 Sch 7......................................................................................................139 Common Agricultural Policy Single Payment and Support Schemes Regulations 2005, SI 2005/219 Reg 11 ..............................................................................................141 Commonhold and Leasehold Reform Act 2002 (Commencement No 5 and Saving and Transitional Provision) Order 2004, SI 2004/3056...............................................168 Commonhold Regulations 2004 Reg 11(1)(b)......................................................................................182 Reg 11(2) ..........................................................................................182 Dairy Produce Quotas Regulations 2005, No SI 2005/465 Reg 14 ..............................................................................................131 Draft Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006.....................................................................143 Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 .......10, 17, 47–49, 71, 89, 97, 102–3 Art 22......................................................................................................89 Unfair Terms in Consumer Contracts Regulations 1999................................................106, 207, 218–19, 242
U NITED S TATES O F A MERICA
Anti-Eviction Act 1974..........................................................................274 Civil Rights Act 1964 ............................................................................268 Constitution...........................................................................................271 Economic Stabilisation Act 1970...........................................................273 Fair Housing Act 1968 ..........................................................................268 Federal Agriculture Improvement and Reform Act 1996.......................138 Federal Rules of Civil Procedure............................................................266
Table of Statutes xliii Summary Eviction Statute (NJ)..............................................................270 Tenement House Act 1867 ....................................................................261 Tenement House Act 1879 ....................................................................261 Tenement House Act 1887 ....................................................................261 Tenement House Act 1901...............................................................261–62 Uniform Condominium Act 1980..........................................................274 Uniform Residential Landlord-Tenant Act 1972....................................271 Voting Rights Act 1965 .........................................................................268 Wagner Steagall Act 1937......................................................................266
1 Landlord and Tenant Law: Mapping the Recent Past DEREK WOOD
T
HE PURPOSE OF this chapter is to mark out and discuss the principal developments in the law of landlord and tenant which have taken place in the last 20 or so years. It also raises some questions about developments which might take place in the future, and considers the status of this branch of the law as a subject for academic study. The chapter cannot be more than the most general review, conveying the author’s own impressions of what is important. Many of the topics raised are discussed in greater detail in later chapters. In the period in question there have been some 20 Acts of Parliament of prime significance, spanning the general law as well as the more specific areas of business, agricultural and residential lettings, and leasehold enfranchisement. But a summary of this kind cannot bind itself strictly to a 20-year time horizon. It might be easier to impose that limit on the citation of cases, rather than legislation, but across the field many important developments which started before 1985 have been continued, or in some cases continued and then reversed. A more challenging starting-point might have been the publication in 1950 of the Final Report of the Leasehold Committee chaired by Lord Justice Jenkins,1 which contains recommendations on leasehold enfranchisement, the tenure and rents of business premises, repairs and improvements. But its terms of reference excluded some topics of present-day importance, in particular residential and agricultural lettings, and it has little to say about the general law. In any case, going back a mere 20 years is quite complicated enough. The thinking of the Jenkins’ Committee nevertheless has some contemporary echoes, and some reference to their Report will be made. The overall question to be asked is whether landlords or tenants can claim that the law has been improved, either from their opposing points of 1
Lord Justice Jenkins (Chair), ‘Leasehold Committee: Final Report’ (Cmd 7982, 1950).
2 Derek Wood view, or for their joint benefit, within this broadly defined period. Has the letting market improved or deteriorated? Is it easier or harder to carry on a business or live in leasehold property? Insofar as the relationship of landlord and tenant is a perpetual power struggle, are there any clear winners or losers? The broad verdict seems to be that the law itself has been clarified and made more workable in a number of important areas; the Law Commission has not been allowed to exercise the amount of influence it should have done; parliamentary draftsmen, particularly in the field of leasehold reform, have left us with some appallingly bad drafting; and there has been significant growth in the number of specialist practitioners, and in the literature. It has not been possible to include within this review the development of the law relating to remedies. Specific performance of tenant’s covenants was reviewed by the House of Lords in Co-operative Insurance Society v Argyll Stores (Holdings),2 and the rights of tenants to obtain mandatory orders, or have receivers appointed in cases where landlords are in default of their obligations, have been expanded. Nor is there the space to discuss developments in criminal law, including harassment.
FORM AND SUBSTANCE
Just within the timescale, in Street v Mountford,3 the House of Lords had important things to say about the nature of tenancy itself. When statute law began to invade the common law relationship of landlord and tenant, beginning with the Rent Acts in the First World War, practitioners, noting that this restrictive legislation applied only to lettings, began to look for other legal relationships which, although in their substance produced the same practical result as a letting, might nevertheless be expressed in some other form. The development of the concept of the contractual licence during this period provided the obvious escape route. When security of tenure was given to farmers by the Agriculture Act 1947 (re-enacted in the Agricultural Holdings Act 1948), Parliament was already alert to this device. Section 2 of the 1948 Act provided that most licences to occupy agricultural land would automatically be converted into tenancies from year to year. The hint was not taken when Part II of the Landlord and Tenant Act 1954 gave security of tenure to business tenants; and again landlords of commercial property tried to evade the Act by granting licences. It took Jenkins LJ himself, in Addiscombe Garden Estates v Crabbe, to hold that the relationship is determined by the law and not by the label which the parties choose to put upon it.4 Lord Templeman in 2 3 4
[1998] AC 1 (HL). [1985] AC 809 (HL). [1958] 1 QB 513 528(CA).
Mapping the Recent Past 3 the later case of Street v Mountford makes it quite clear that the grant of exclusive possession for a term at a rent creates a tenancy.5 The thinking behind Street v Mountford can be linked with the law’s rejection of other devices to circumvent statutory security of tenure. To take agricultural lettings as an example, in Johnson v Moreton,6 a tenant’s covenant not to serve a counter-notice to a landlord’s notice to quit, which would have invoked security of tenure under the 1948 Act, was held to be void for illegality. A letting by an owner to a farming partnership in which the owner was one of the partners, holding a veto over serving a similar counter-notice, was overruled by the Court of Appeal in the case of Featherstone v Staples.7 In Gisborne v Burton,8 it was held that the grant of a tenancy by the landlord to his wife, with a sub-tenancy to the farmer unprotected against the freeholder, was ineffective to deprive the farmer of security of tenure. The decision of the House of Lords in Bruton v London and Quadrant Housing Trust,9 may, however, have taken the Street v Mountford doctrine one step too far. It was held in that case that the question whether the parties have created a relationship of landlord and tenant depends exclusively on the terms of the contract between them. The fact that the so-called landlord might not have a legal estate out of which a tenancy could be granted was thought to be irrelevant. The decision is controversial and can perhaps best be explained on the basis of tenancy by estoppel. The other important area in which judges have introduced a new sense of realism is in the interpretation of leases and the technical procedures involved in the service of notices, with which the law of landlord and tenant is bedevilled. In CH Bailey v Memorial Enterprises, Lord Denning MR and Sachs LJ said that a lease of business premises is to be interpreted as a commercial contract between business people.10 When a rent review was not completed until after the review date, the rent became payable retrospectively from the date of review, ancient theories about the nature of rent notwithstanding. In British Anzani (Felixstowe) v International Marine Management,11 Forbes J overthrew the theory that the rent of business premises was a special category of debt against which there could be no equitable set-off. Lord Steyn, in Mannai Investment Company Ltd v Eagle Star Assurance Company Ltd,12 has performed a similar service in relation to the interpretation of procedural notices, overruling in the process the 5 6 7 8 9 10 11 12
[1985] [1980] [1986] [1989] [2000] [1974] [1980] [1997]
AC 809 (HL) 816. AC 37 (HL). 1 WLR 861 (CA). QB 390 (CA). 1 AC 406 (HL). 1 WLR 728 (CA) 732 (Lord Denning MR), 736 (Sachs LJ). QB 137 (QBD). AC 749 (HL).
4 Derek Wood highly technical decision of the Court of Appeal in Hankey v Clavering,13 which had, in the past, supported a flourishing practice for county court advocates. The question now is: whatever technical defects a notice may have in the naming of dates, parties or property, how would the reasonable recipient of the notice interpret it? Lord Steyn’s claim, in his speech, that he was bringing a breath of commercial fresh air into a technical area of land law did less than justice to the groundbreakers who had preceded him. It may also be said that the test of the ‘reasonable recipient’ is still going to keep advocates in business. The decision does however rid the case law of some of the more shameful and unmeritorious technicalities.
ASSIGNMENT OF LEASES
A lease is a piece of property which imposes long-term contractual liabilities on the lessee. At common law the original lessor and lessee continue to be liable on their covenants for the whole of the term of the lease, however, many times the reversion or term may be assigned. Long leases of houses and flats, or of development sites, are normally freely assignable. By contrast, lettings of agricultural land and short residential lettings are normally personal to the tenant and non-assignable. There are, of course, many exceptions to this general pattern. A middle ground is occupied by leases mostly of commercial property where the tenant can assign or underlet with consent which, either by the terms of the lease or by implication under Section 19(1) of the Landlord and Tenant Act 1927, cannot be unreasonably withheld. In the marketplace, it is important that tenants of business premises should be able to assign their leases or grant underlettings, in good times and bad. Their business may be expanding or contracting. They may become insolvent. But, a landlord who has chosen his original tenant with some care has a real interest in ensuring that an assignee is of sufficient calibre to take responsibility for the premises in the original tenant’s place. The Landlord and Tenant Act 1988 and the Landlord and Tenant (Covenants) Act 1995 have profoundly changed the way in which assignments and underlettings are now handled. Before the 1988 Act came into force, tenants who applied to their landlord for consent to assign or underlet found that the landlord held all the cards. If consent was refused, the tenant had three choices: apply to the court for a declaration that consent had been unreasonably withheld, go ahead with the transaction anyway and challenge the landlord to forfeit the lease, or accept the decision and do nothing. In most cases the second course was not practical, because few prospective assignees or undertenants
13
[1942] 2 KB 326 (CA).
Mapping the Recent Past 5 would be prepared to complete in the face of a refusal, and take the chance that any later contest in court would be decided in their favour. In court, relying on the first course, the burden fell on the tenant to prove that the landlord’s consent had been unreasonably withheld, and a refusal of consent would be regarded as reasonable if a landlord, acting reasonably, might have refused consent, even if many other landlords might have given it. If a landlord was found by the court to have acted unreasonably, the tenant’s only remedy was a declaration that the transaction could proceed. The courts were sympathetic to applications for a speedy hearing, but even then, the prospective assignee or undertenant might have gone away by the time the case was finished. There being no implied covenant to give consent if it was reasonable to do so, the tenant had no remedy in damages. The 1988 Act has significantly altered the balance of power. A landlord who is asked for a decision is now under a duty to give it within a reasonable time.14 If consent is refused, or is given subject to conditions, reasons for the refusal or the conditions must be given in writing.15 A failure within a reasonable time to give any decision at all will be treated as an unreasonable withholding of consent.16 The burden is on the landlord to justify the reasons for any adverse decision.17 The landlord cannot add new reasons to the written reasons given within the initial reasonable time.18 The previous test of reasonableness has, however, remained unaltered: it is sufficient if the landlord can show that the decision adverse to the tenant was a reasonable one, even though a decision the other way might be equally or even more reasonable.19 But, a landlord who has unreasonably withheld or delayed the giving of consent is liable to the tenant in damages.20 A number of recent cases has emphasised the severity of the new regime.21 A landlord who is still tempted to play cat and mouse with the tenant may have to pay exemplary damages.22 The 1988 Act has put new burdens of responsibility on practitioners. Landlords have to be told that they must make up their minds quickly. The Court of Appeal has recently held that it is unreasonable for the tenant to expect a response within 8 days, even though the formal application had been well-documented in
14
S 1(3). S 1(3)(b). 16 Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC Ch 324, [2005] 1 WLR 1. 17 Footwear Corp v Amplight [1999] 1 WLR 551 (Ch). 18 Norwich Union Life Insurance Society Ltd v Shopmoor Ltd [1999] 1 WLR 531 (Ch). 19 Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59, [2001] 1 WLR 2180 (HL). 20 Norwich Union Life Insurance Society Ltd v Shopmoor Ltd [1999] 1 WLR 531 (Ch). 21 Ibid; Footwear Corp v Amplight [1999] 1 WLR 551 (Ch); Go West Ltd v Spigarolo [2003] EWCA Civ 17, [2003] QB 1140. 22 Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC Ch 324, [2005] 1 WLR 1. 15
6 Derek Wood advance,23 but the handling of these transactions has undoubtedly been sharpened up. The Landlord and Tenant (Covenants) Act 1995 has invaded the common law even more dramatically. In the case of all leases granted after 1 January 1996, tenants are released from their personal liability under the covenants of the lease after assignment, unless the assignment is unlawful or takes effect by operation of law.24 Correspondingly, a landlord may be released from its liability on an assignment of the reversion if the tenant consents, or, if consent is refused, the court permits it.25 The drafting of the Bill, however, created a political battleground, and the amelioration of the position of tenants had to be matched by concessions to landlords. First, in the case of all new leases, Section 19(1) of the 1927 Act was overridden to the extent that it is now open to the parties to lay down conditions for the granting of consent which have to be met before it has to be given; and those conditions are not subject to an overriding test of reasonableness.26 Second, the outgoing tenant may be required to guarantee the performance of the incoming tenant’s obligations under the lease, either by an express condition written into the lease or, in any case, if it is reasonable for the landlord to make that requirement.27 These conditions, ‘authorised guarantee agreements’, have become common form in commercial leasehold conveyancing, and, it may be said, have noticeably oiled the wheels in the machinery for obtaining consent to assign. The mere abolition of privity of contract would undoubtedly and rightly have hardened landlords’ attitudes to the transmission of leases. Again, under the 1995 Act, in the case of all leases, new or old, a landlord wishing to pursue a former tenant or guarantor for a ‘fixed charge’ such as rent, must serve notice of claim within 6 months of the current tenant’s default.28 If payment is made in full, the former tenant or guarantor can call for an overriding lease from the landlord.29 Third, and consistent with the decision of the Court of Appeal in Friends Provident Life Office v British Railways Board,30 section 18 of the 1995 Act provides that an original tenant or guarantor will only be liable for obligations arising under subsequent variations of the lease if the right or obligation to make variations arises out of the terms of the lease as they stood before the original tenant parted with its interest.
23
NCR v Riverland Portfolio (No1) [2005] EWCA Civ 312. Ss 5(2) and 11. 25 Ss 6–8. 26 Landlord and Tenant Act 1927 s 19(1)(A) inserted by Landlord and Tenant (Covenants) Act 1995 s 22. 27 Landlord and Tenant (Covenants) Act 1995 s 16. 28 S 17. 29 S 19. 30 [1996] 1 All ER 336 (CA). 24
Mapping the Recent Past 7 REPAIRING OBLIGATIONS
In March 1996, the Law Commission published its paper ‘Landlord and Tenant: Responsibility for State and Condition of Property’.31 The paper is an important review of repairing and similar obligations. The paper does not propose any changes to the general law relating to repairs. The rationalisation of what had previously been a highly technical area, with difficult and unconvincing distinctions between ‘repair’ and ‘improvement’, and between supervening and inherent defects, had begun with the important decision of Forbes J in Ravenseft Properties Ltd v Davstone (Holdings) Ltd,32 and was continued by Hoffmann J in Post Office v Aquarius.33 The same judge had interesting comments to make on the scope of an unusually widely drawn repairing covenant in Norwich Union Life Insurance Society Ltd v British Railways Board.34 The revised approach to the concept of repair would not protect the tenant in Credit Suisse v Beegas Nominees,35 from having to re-clad an entire building. The Law Commission’s report highlights the general absence of landlords’ implied repairing covenants outside the scope of section 11 of the Landlord and Tenant Act 1985 (leases of dwellings for terms of less than 7 years), and recommends the general implication of a repairing covenant into all leases of buildings or parts of buildings. Lettings of agricultural property and oral leases would be excluded. Second, to reverse the lamentable situation revealed in Quick v Taff Ely Borough Council,36 the Commission proposed a more general implication of an obligation on the part of residential landlords that dwellings are fit for habitation. A revision of the absurdly narrow limits within which section 8 of the 1985 Act currently operates is long overdue. The first recommendation is more controversial than the second. Indeed, the second can hardly be regarded as controversial at all, and there seems to be no reason why it should not immediately be enacted.
TERMINATION OF TENANCIES
At the beginning of 2004, the Law Commission circulated for comment its Consultation Paper ‘Termination of Tenancies for Tenant Default’.37 The different circumstances in which a lease or tenancy can come to an end 31 Law Commission, ‘Landlord and Tenant: Responsibility for State and Condition of Property’ (Law Com No 238, HC 236, 1996). 32 [1980] QB 12 (QBD). 33 [1985] 2 EGLR 105 (Ch). 34 [1987] 2 EGLR 137 (Ch). 35 [1994] 4 All ER 803 (Ch). 36 [1986] QB 809 (CA). 37 Law Commission, ‘Termination of Tenancies for Tenant Default’ (CP No 174, 2004).
8 Derek Wood (expiry by effluxion of time, notice to quit or break, surrender or forfeiture) have not changed much since Coke wrote his commentary on Littleton, and are not likely to do so. In Barrett v Morgan, Lord Millett carefully explained the difference between surrender and tenant’s notice to quit.38 The very limited circumstances in which a variation in the terms of a lease will result in an implied surrender and a re-grant of a new lease, laid down by Russell LJ in Jenkin R Lewis v Kerman,39 were emphasised in the Friends Provident case in 1996.40 The thrust of the Law Commission’s recommendations is to rationalise and streamline the law and practice relating to forfeiture and relief from forfeiture, except in the case of residential tenancies granted for a term of less than 21 years, where the doctrine of forfeiture has already been eroded. Outside housing law, the current law is dominated by section 146 of the Law of Property Act 1925, which is not universal in its application to all cases of tenant default, notably the non-payment of rent. There are special provisions about decorating and repairing obligations in section 147 of the 1925 Act and the Leasehold Property (Repairs) Act 1938. Sub-sections (8) to (10) of section 146 deal with some highly specialised cases and are obscurely drafted. The Commission suggests that denial of title should no longer be a ground of forfeiture, and that tenant’s insolvency should be dealt with separately. Those cases apart, the Commission recommends that the existing procedure should be replaced by a new procedure, beginning with the service of a notice of default and leading to the making of an unconditional or conditional termination order by the court. The Commission proposes that the doctrine of waiver as such should be abolished, but would permit the court to take into account the conduct of the landlord, including conduct which would reasonably lead the tenant to believe that an act of default would not be fatal to the continuance of the tenancy, in deciding whether or not to grant a termination order. It is correct that the doctrine of waiver sometimes unfairly deprives the landlord of a right of forfeiture. Waiver by acceptance of rent, with knowledge of the breach, is a conspicuous example now that many tenants pay their rent electronically. The proposals would also improve the current system of vesting orders in favour of underlessees, and they deserve our support. BUSINESS TENANCIES
The leasehold system is fundamental to the efficient functioning of the nation’s business. Not many of the people conducting business in commercial property own the freehold. The overwhelming majority of shops, 38 39 40
[2000] 2 AC 264 (HL) 270–72. [1971] Ch 477 (CA). [1996] 1 All ER 336 (CA) 344–45.
Mapping the Recent Past 9 offices and industrial and warehouse property, whether they are situated in town centres or business parks, are held on leases. The system is attractive to the business community, because it does not tie up large amounts of capital which can be better deployed elsewhere. Correspondingly the ownership of business premises for letting has become an attractive vehicle in the investment market. For most of the time over the past 20 years, it has outperformed investment in equities, bonds and gilts. The lease is also an important financial instrument in the funding of redevelopment schemes. The ultimate funder may be a bank, pension fund or similar institution, securing its capital advances to a developer by owning the freehold and taking its return through rental receipts. Town centre sites owned by local authorities are commonly redeveloped under building agreements with developers, leading to the grant of a long lease reserving as rent a stated percentage of the net profits receivable from tenants of individual units. There are, of course, many other financial structures, but these forms of leasing, and variants upon them, are a common market phenomenon. Despite market anxieties at the end of the 1980s and the beginning of the 1990s, investors have shown a marked preference for occupational leases taken for terms of between 15 and 35 years with upward-only rent reviews. When rent review clauses were introduced in the 1960s and 1970s, reviews usually occurred at intervals of 7 years, the terms of leases having been commonly fixed as multiples of seven. Five is now the preferred frequency. Rent review is such an important feature of the commercial property market, that it is not surprising that it has generated a large amount of case law and, within the valuation profession, greater sophistication in professional practice. Typically, a rent review is triggered by one party (usually the landlord) giving notice to the other. At the beginning of the period under review in this chapter, there was considerable discussion over whether time was of the essence for the giving of a notice, and whether a notice did or did not comply with the formal requirements laid down, or apparently laid down, by the terms of the particular lease in question. Draftsmen of rent review clauses have become aware of the problems, and they now rarely arise. In the last 20 years, the valuation formula has become much more a focus of attention. There is a fiction involved. Under the terms of the actual lease, the actual tenant whose rent is being reviewed will, of course, remain in possession for the residue of the term, paying the reviewed rent. The valuation, however, assumes a new letting with vacant possession, the actual tenant having notionally vacated. The terms of the new letting are normally prescribed as being the same as those of the actual lease, except as to the amount of rent itself. Where there is an ambiguity, courts have insisted that, so far as possible, the terms of the existing lease must be implied into the hypothetical lease. Its duration will be the same as the unexpired residue of the actual term; rent reviews will occur at the same frequency; and all the
10 Derek Wood terms and conditions will be the same. The decision of the Court of Appeal in Basingstoke and Deane BC v The Host Group,41 exemplifies, but by no means exhausts, the large amount of case law on this subject. One particularly tricky issue, which has infuriated landlords, is the matter of the discount which would normally be allowed to a new incoming tenant taking the premises vacant, to allow for fitting-out and setting-up. The discount is deducible from comparable lettings in the market; but landlords would say that this is inappropriate when the party paying the rent is an actual tenant already comfortably established in continuing occupation. This problem too has tested the ingenuity of draftsmen and the courts.42 Upward-only rent reviews have been seen as particularly irksome by retail tenants, especially at times when the retail market has been falling. The government has twice set up working-parties to consider how this position might be ameliorated, requesting the property industry to come to some voluntary solution, and uttering veiled hints that, in the absence of voluntary agreement, it might make upward-only rent review clauses illegal. A voluntary system has been demonstrated by the University of Reading on two occasions, not surprisingly, to be unworkable.43 The market has for the most part ignored it, except where tenants have been in a sufficiently strong bargaining position to negotiate open rent review terms for themselves. This history is discussed by Sandi Murdoch in more detail in chapter 4. A statutory prohibition on upward-only rent reviews would be a most surprising intervention in what is essentially an open commercial market. It would have a profound effect on yields, significantly undermine confidence in investment and lead landlords (whenever they could) to demand a higher base rent at the beginning of the lease. Prospective statutory intervention of this kind would stand in crude contrast with the extraordinary resilience of Part II of the Landlord and Tenant Act 1954, perhaps the most successful brainchild of the Jenkins Committee. The Act has achieved an almost impossible balance between giving security and continuity to business tenants and, by ensuring that lease renewals are always on market terms, maintaining reversionary values. It has not, because of section 30(1)(f), stood in the way of redevelopment. It is not surprising that it ran unamended until 1969, and since then, has been significantly altered once by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. The main effect of the Order was to relax many of the procedural requirements concerning the giving of notices and counter-notices and to allow both parties a greater procedural opportunity to protect their position, either in getting a new tenancy or having it refused. 41
[1988] 1 WLR 348 (CA). Broadgate Square plc v Lehman Bros Ltd [1995] 1 EGLR 97 (CA). N Crosby, C Hughes and S Murdoch, Monitoring the Code of Practice for Commercial Leases (Interim Report) (London, ODPM, 2004); N Crosby, C Hughes and S Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (London, ODPM, 2005). 42 43
Mapping the Recent Past 11 It was well known in insurance circles that failure to comply with the strict time limits laid down by this Act, in its original form, was a fruitful source of claims against solicitors. The Order also made some perhaps over-elaborate changes to the rules for the charging of a revised interim rent while proceedings for a new tenancy are on foot. Notwithstanding the easier processes now available for contracting-out of the 1954 Act, it still applies to most business tenancies and will continue, in my view, to act as a stabilising influence in the market.
AGRICULTURAL HOLDINGS
The important sector of business property unaffected by the 1954 Act is agricultural land. The Agricultural Holdings Act 1986 was a consolidating Act, bringing together a code of statutory protection for tenant farmers and their families which had been developed since the Second World War. For centuries, the standard form of letting agricultural land has been the tenancy from year to year, commencing either at the beginning of the growing season (Lady Day) or after harvest (Michaelmas). Tenancies from year to year may be terminated at common law by a 6 months’ notice to quit expiring on an anniversary. This period was extended to 12 months by statute in 1875,44 but the tenure of farmland was otherwise precarious. Compensation on quitting for growing crops, improvements and other tenant right matters had been governed from time immemorial by custom, and also attained statutory recognition in 1875. In his speech in Johnson v Moreton, Lord Salmon eloquently explained why that system had to be changed.45 The 1986 Act then brought into one place the elaborate system of security of tenure enjoyed by tenant farmers introduced in 1947 and 1948. This system of security placed considerable restrictions on the circumstances in which a notice to quit could take effect, and was reinforced by dispute-resolution procedures which were unnecessarily complicated. On top of that, the 1986 Act consolidated the significant rights of succession, on the death or retirement of the tenant, which had been acquired in 1976 and 1984 by members of the tenant’s family who had been working on the farm. In 1995, it was considered that the pendulum had swung too far. Rights of succession could be exercised by two generations after the original tenant. The statutory conversion of most licences into tenancies under section 2 of the 1986 Act was catching many owners and, indeed farmers, by surprise. Parliament had decided not to close the loophole of an unprotected letting of a farm for a fixed term of between one and two years. 44 45
Agricultural Holdings (England) Act 1875. [1980] AC 37 (HL) 52.
12 Derek Wood Otherwise, owners were turning more and more to other commercial arrangements, such as contracting or management agreements, and the supply of land for letting was drying up. The Agricultural Tenancies Act 1995, applicable to all but a few new tenancies granted after 1 September 1995, has changed the picture completely. With some statutory modifications, contracts of tenancy now mean what they say. If they are granted for terms of two years or more, they will continue after the term date as tenancies from year to year, but may be determined by not less than 12, nor more than 24, months’, notice to quit.46 There is a statutory right to rent review, unless it has been expressly excluded or expressly provided for under the terms of the tenancy.47 The traditional right to remove fixtures and claim compensation on quitting is retained.48 There are no rights of renewal, much less succession. Disputes are simply resolved under the Arbitration Act 1996.49 The 1995 Act is said to have introduced much greater freedom into the agricultural letting market and created a much more straightforward relationship between owner and farmer. Having for more than 40 years enjoyed substantially greater security of tenure than tenants of other business premises, tenants under farm business tenancies introduced by this Act enjoy far less.
RESIDENTIAL LETTINGS
Similarly, there has been a considerable re-balancing in the protection given by statute to short-term residential tenants. Protection under the Rent Acts reached its zenith in the Rent Act 1977. The number of tenants who continue to be protected by the 1977 Act is dwindling, and that and earlier Acts did not apply to tenants of public sector landlords. In their unadulterated form, the Rent Acts strongly protected tenants and members of their family. Grounds for possession had to be made out in court, and even if a ground was established, possession would not be ordered unless it was reasonable to do so. The practice among county court judges, with famous exceptions, was to exercise that discretion in favour of the landlord very sparingly. A number of important changes occurred in quick succession and sometimes simultaneously. In altering the balance of power between council tenants and local authorities, the Conservative government by the Housing Act of 1980 gave tenants the right to buy their houses and the right to acquire long leases of their flats. They also gave them, under their existing tenancies, a measure of security of tenure approaching that enjoyed by tenants protected by the Rent Act. 46 47 48 49
Ss 5–6. Ss 9–14. S 16. S 28.
Mapping the Recent Past 13 To encourage investment in residential property for letting, new forms of unprotected tenancy have become available: shorthold, assured, and assured shorthold. In other cases, there is security of tenure analogous to, but not as sweeping as, that provided by the Rent Act 1977, notably under the statutory periodic tenancies arising under the Housing Act 1988. Rent control has also been relaxed. Other structural changes have taken place. Insofar as they were not divested of their estates by the right to buy, many local housing authorities have transferred their stock to housing associations, and the old-fashioned council tenancy is becoming a thing of the past. The ability to create private residential lettings outside the scope of the Rent Act produced for a while a strong investment market for individuals, buying houses and flats for letting, until the market became glutted. Judges have become attuned to the new climate. In particular, practitioners have noticed that judges are markedly more willing now to grant orders for possession, even under the Rent Act, noticing, no doubt, that Parliament does not attach the same sanctity to security of tenure as it previously did. The effect of these changes is that housing law has become highly fragmented during the last two decades, and the Law Commission’s current overhaul is timely.50 No one will be more conscious than the Commissioners, however, of the fact that the law of housing goes far beyond sound economic and social policy. It arouses strong political passions and is, unfortunately, one of those many areas in which politicians may seize the opportunity to make a name for themselves. This weakness is exemplified by the story of leasehold enfranchisement, which is now discussed in a little more detail.
LEASEHOLD REFORM
The attitude of policy-makers of all political persuasions to the long leasehold tenure of houses and flats stands in strong contrast to their treatment of all other kinds of letting. The standard model for home ownership is the fully fledged freeholder, with or without mortgage. If long leaseholders are to be compared with that model, they are at an obvious disadvantage which affects their security of tenure, their long-term financial prospects and any thoughts they might have about their heirs. A lease is a wasting asset. Its value ebbs away, back into the reversion, as the term draws down. The trend of legislation has been to reverse that flow. The desire of householders in leasehold estates or 50 Law Commission, ‘Renting Homes–1: Status and Security’ (CP No 162, 2002); Law Commission, ‘Renting Homes–2: Co-occupation, Transfer and Succession’ (CP No 168, 2002); Law Commission, ‘Renting Homes Law’ (Law Com No 284, Cm 6018, 2003).
14 Derek Wood blocks of flats to exercise greater control over the management of their property and its environment has also had a part to play. It may not be an exaggeration to say that the ownership of the freehold reversion to a residential long lease by a landlord who is at arm’s length from the tenant is now viewed as a politically unacceptable form of investment.51 The narrative of the enfranchisement of houses, compared with flats, is longer and more complete, and illustrates the point. After 80 years of public debate, beginning with the report of the Royal Commission on the Housing of the Working Classes 1884–85 (which by a majority supported it) to the Jenkins Committee reporting in 1950 (which by a majority opposed it), a Labour government in 1967 introduced leasehold enfranchisement for houses. The outline of the Leasehold Reform Act 1967 is well known. A tenant of a leasehold house, occupying the house as his residence, was given the right to acquire ‘on fair terms’ the freehold or an extended lease of the house and premises where the tenancy was a long tenancy at a low rent, and the rateable value of the house and premises was below the limits of the same rateable values which set the boundary for the application of the Rent Acts. A tenancy was a long tenancy if its term exceeded 21 years.52 The rent was a low rent if the amount payable was less than two-thirds of the rateable value on the appropriate day for determining it.53 The tenant could choose between acquiring the freehold or an extended lease for an additional term of 50 years.54 When he made his claim, he must have been occupying the house in right of the tenancy as his only or main residence for the last 5 years, or for periods amounting to 5 years in the last 10 years.55 This residency test ensured that a tenant could not claim rights under the 1967 Act in respect of more than one house, and that a claim could not be made by a corporate entity which was incapable of ‘residing’ according to the meaning attached to that word in the Act. The criticism that the anticipated break-up of leasehold estates would destroy the running of the positive covenants which enhanced their upkeep and appearance was met, at least in part, by allowing the landlords of such estates to impose approved management schemes on the new freeholders.56 The price payable on the acquisition of the freehold (which unsurprisingly turned out to be far and away the more popular claim) was based upon the somewhat woolly philosophy that ‘the land belongs in equity to the land owner and the house belongs in equity to the occupying leaseholder’. This was translated into law by providing that the tenant would pay a price for the freehold reversion based upon a number of assumptions including 51 52 53 54 55 56
See ch 9 by David Clarke and ch 12 by Marcia Neave. Leasehold Reform Act 1967 s 3. S 1(1)(b). S 1. Ibid. S 19.
Mapping the Recent Past 15 especially the assumption that the property was sold subject to the existing lease extended for another 50 years after its term date.57 Since 1967, the cause of leasehold enfranchisement has flourished. Under the Housing Act 1974, introduced as a Bill by a Labour government and adopted by a Conservative government, more houses were brought within the scheme by an increase in the qualifying rateable value limits, but with a technical adjustment favouring landlords in the method of valuing houses within the upper band. Another Conservative government, in its Housing Act 1980, which had conferred the ‘right to buy’ on council tenants, reduced the 5-year residential qualification to three, to bring it into line with the ‘right to buy’ provisions. Two further Conservative measures increased enfranchisement rights. Under the Leasehold Reform, Housing and Urban Development Act 1993 (Part I Chapter III), all houses were brought within the scheme of enfranchisement, irrespective of their rateable value or any other previously applicable financial limit, and a new ‘low rent’ test was accordingly introduced. A partial counter-measure was a further adjustment of the valuation formula in favour of landlords. The Housing Act 1996, among other things, removed altogether the ‘low rent’ test where the tenancy was for an original term of over 35 years and was not for other reasons excluded from the Act. The final chapter of this part of the history is set out in New Labour’s Commonhold and Leasehold Reform Act 2002, under which the residence test was abolished altogether (except in two highly specific cases). In the meantime, the 1993 and 1996 Acts had reformed and simplified the arrangement for introducing schemes of management. The effect of the abolition of the residence test is profound. It means that corporate, as well as individual long leaseholders, can enfranchise and that any long leaseholder can enfranchise as many properties as he, she or it holds under long leases. This is far removed from the perhaps rather commonplace ideas which underpinned the 1967 Act. Housing land, whether it consists of an individual plot or a significant residential estate, is unlikely in the future to be developed or held under the long leasehold system, even if the individual residents in actual occupation are short-term tenants paying a periodic rack rent or its equivalent. The story behind the enfranchisement of flats is equally dramatic. The 1967 Act only applied to houses, and there was an amount of case law which centred on the meaning of the word ‘house’. This sub-branch of litigation continues to flourish.58 But the authors of the 1967 Act balked at the enfranchisement of flats. In the 1980s, when long leasehold ownership of flats became increasing popular, pressure from tenants at the unsatisfactory way in which some properties were managed by corporate landlords 57 58
S 9. Malekshad v Howard de Walden Estates Limited [2002] UKHL 49, [2003] 1 AC 1013.
16 Derek Wood resulted in the setting up of a Committee of Inquiry under the chairmanship of Mr Edward Nugee QC.59 Its report in 1985 recommended greater statutory control over management and the levying of service charges. These recommendations were carried into another Conservative measure—the Landlord and Tenant Act 1987—together with an early attempt to give residents the right, under certain circumstances, to acquire the freehold from their landlord. The notoriously badly drafted 1987 Act, rushed onto the statute book before a general election, was considerably amended, expanded and reinforced by Part III of the Housing Act 1996. The essence of the right conferred by the 1987 Act was a ‘right of first refusal’, enabling tenants of blocks containing two or more flats to acquire the reversion or, if it became necessary, to recapture it when the landlord disposes of his interest. The Act is brought into play if more than half of the flats in the block are occupied by tenants who do not fall within narrowly drawn categories.60 The Act is full of exceptions and procedural hazards. For instance, the purchase is effected through a nominee, the price payable is the price at which the landlord is willing to sell, and if the landlord’s offer is rejected, there is a restriction on selling to a third party at a lower price. This Act is, however, much overshadowed by the provisions for collective enfranchisement of blocks of flats, and the rights of individual leaseholders to claim extended leases of their flats, under Chapters I and II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 as significantly amended by the Commonhold and Leasehold Reform Act 2002. The broad effect of the 1993 Act was to enable tenants of blocks containing two or more flats to acquire the freehold if at least 75 per cent of the internal floor space of the building was used for residential purposes, and at least two-thirds of the flats within it were held by ‘qualifying tenants’, that is to say tenants with long tenancies who were not business tenants. The price payable was the aggregate of the freeholder’s current interest in the premises, one-half of the marriage value, that is, the increased value attributable to the freehold by virtue of the participating tenants being able to grant themselves extended rights, plus any additional compensation for the loss in value of other property.61 Under Chapter II of the 1993 Act, qualifying tenants could add another 90 years to the term of their existing leases, upon payment of suitable compensation. The 2002 Act significantly enlarged the scope of these rights by applying the scheme to buildings with a greater non-residential content, narrowing the scope of an exemption in favour of resident landlords and above all by
59 Nugee Committee, Report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats (HMSO, London 1985). 60 Ss 1 and 3. 61 Sch 6.
Mapping the Recent Past 17 abolishing any requirement that a qualifying tenant must satisfy a test of residence. As in the case of houses, the 2002 Act has opened up the prospect of enfranchisement of more than one property, and by corporate entities as well as individuals, although in somewhat different terms. The 2002 Act envisages that the right of collective enfranchisement will be exercised by a nominee Right to Enfranchise (RTE) company. The drafting of both Acts has generated a great deal of professional criticism. Much of the case law has been bound up with arguments about the technical requirements relating to notices and counter-notices, quite against the spirit of Mannai and the philosophy underlying the Regulatory Reform Order of 2003, which smoothed out the procedures under the 1954 Act. The whole of the legislation falling under the general heading of ‘enfranchisement’ has been characterised by a determination to drive the long leasehold landlord out of business, with little or no regard to the need to frame the law in an intelligible and workable form.
LITERATURE
The continuing importance of leases in every branch of the property market, and the huge growth in legislation which has been referred to, have brought about a corresponding expansion in the literature on the subject. A compact and complete library for a practitioner in the law of landlord and tenant would previously have included Woodfall and Hill and Redman, each bound in two volumes. Outside Woodfall, the most reliable guide to the law and practice under the 1954 Act was to be found in the now superseded County Court Practice. There were Scammell, and Jackson and Muir Watt, on agricultural holdings, and of course Megarry on the Rent Acts. Woodfall is now a four-volume encyclopaedia. Hill and Redman runs to six volumes plus a Special Bulletin. Megarry has acquired an additional volume. The Rent Review Handbook is another encyclopaedia. Dowding and Reynolds have published a substantial text book on Dilapidations: The Modern Law and Practice. Reynolds and Clark have produced a comparable volume on the Renewal of Business Tenancies. There are two important text books on leasehold enfranchisement. Under the general title of Landlord and Tenant, the author’s chambers’ library lists 58 titles, plus ten on housing law, headed by Arden and Partington’s magisterial loose-leaf volume and the five-volume Encyclopaedia. Works on agricultural holdings are additional to these numbers. Andrew Arden began to publish his important series of Housing Law Reports in 1981. James Muir Watt initiated the equally brilliantly edited series of Estates Gazette Law Reports in 1985, nearly half of which are devoted to the law of landlord and tenant. In 2000, the Landlord and Tenant Reports themselves were started by Sweet and Maxwell, and there is now a Landlord and Tenant Law Review.
18 Derek Wood This naturally leads to the question whether there are any parts of the subject which can sensibly be taught on law degree courses. It must be obvious that no one studying land law can afford to be ignorant of the importance of leases and tenancy agreements in every branch of property. In some ways, a knowledge of the working of the leasehold market may be more important for business studies or land economy. Conceptually, an academic teacher of law might say that the law of landlord and tenant is merely a branch of the doctrine of estates. It is essentially a subject for practitioners (conveyancers or litigators) and it would be true to say that a student cannot get very far into the subject before drowning in its practical complexity. For those who practise in the area, it creates severe intellectual challenges; and while it may not stand on the same level, from a student’s point of view, as the core topics of contract, tort and equity, it possesses a unique blend of property and contract law—to say nothing of statutory interpretation—which makes it more interesting than some of the other down-to-earth subjects appearing on current syllabuses. The development of this branch of the law is also a part of our social history. The question is finely balanced.
FUTURE DEVELOPMENTS
Finally, to return to the market and the world of the practitioner, some brief remarks can be made about possible future directions for the development of the law. It is possible that a period of great change has come to an end. Landlords and tenants generally are not looking for further major shifts in the balance of power. But, that is to ignore the trouble-making potential of flat-dwellers. The law undoubtedly needs more tidying-up. The Law Commission is looking at the termination of tenancies and the codification of housing law. Its existing work on repairing obligations deserves parliamentary time. The trend against technicality, and towards reducing the significance of technical defects in the drafting of notices and the strict observance of procedural timetables, should continue. The rules for the collective and individual enfranchisement of long leases of flats have created the most conspicuous mess and should be revised. On the ground, beyond the realm of policy, the relationship between individual landlords and their tenants will, we may be sure, be as lively and as quarrelsome as it always has been.
2 Street v Mountford Revisited SUSAN BRIGHT 1
INTRODUCTION
A
COLLECTION OF papers looking at ‘landlord and tenant law: past, present and future’ should not fail to look at the impact of the decision of the House of Lords in Street v Mountford.2 Without doubt, it is one of the most important cases in this area over the last 100 years as it deals with the central question of when an occupation agreement is a tenancy. The ratio of Street v Mountford is narrow. Mr Street granted Mrs Mountford the right to occupy rooms for a weekly rent, subject to termination by written notice. The terms were set out in a written agreement, which was called a ‘licence’. It was conceded that Mrs Mountford had exclusive possession. The House of Lords held that this agreement was a tenancy: the parties were not free to attach their own label to the agreement. As Lord Templeman said, if ‘the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence’.3 There was no doubting that a contract existed; that Mrs Mountford had exclusive possession; that a rent was agreed; or, that there was a term. All the case is authority for, therefore, is that if there is a written agreement between an owner and occupier which confers exclusive possession at a rent for a term, the parties cannot chose to call this a licence if it is otherwise a tenancy. Street v Mountford has, however, acquired an importance beyond this narrow point. This is for two main reasons. The first is that Street v Mountford is often understood to stand for propositions that are wider than the actual ratio. Lord Templeman’s speech was not confined to
1 Many thanks to Ben McFarlane for his willingness to listen and help with the ideas expressed here as they took shape. 2 [1985] 1 AC 809 (HL). 3 Ibid, p 819.
20 Susan Bright ‘labelling’ cases: he discussed, as if governed by the same legal principles, cases in which there was no formal agreement between the owner and the occupier and no label attached to the relationship by the parties.4 In addition, Lord Templeman rejected the approach taken by a long line of cases on the lease–licence distinction which had attached pre-eminence to whether or not the parties intended to create a tenancy or only a ‘personal privilege’. These pre-Street v Mountford cases had supported the view that there would not be a tenancy if the parties did not agree to create one. In Murray Bull & Co v Murray,5 a company director stayed in occupation of his residential flat after his employment ended, under an express agreement with the company that he would stay as a quarterly tenant until he found somewhere else, or until the company needed the flat. Both parties had agreed that he should not be a controlled tenant. This was upheld by McNair J as a licence on the basis that ‘both parties intended that the relationship should be that of licensee and no more, though they may not have used that precise term’.6 In Street v Mountford, Lord Templeman said that Murray Ball was wrongly decided. Exclusive possession, not intention, is the key. Quoting Windeyer J in Radaich v Smith, Lord Templeman said: ‘a legal right of exclusive possession is a tenancy . . . .’7 The result is that Street v Mountford is often thought to stand for the dual propositions that the grant of exclusive possession for a term creates a lease, and that the parties’ intentions are relevant only to show an intention to create legal relations and an intention to confer exclusive possession on the occupier. It is exclusive possession that is emphasised, not intention. The danger of articulating things this way is that it underplays the role that the intention of the parties still does play in categorising the relationship: there are many cases where an occupier enjoys exclusive possession but does not have a (meaningful) tenancy because the parties do not intend to create one. It is not enough to simply know whether there is a licence or a tenancy; it really matters to an occupier to know the type of tenancy involved. In many of the difficult cases looked at in this chapter, the occupier has a ‘tenancy at will’. This is not a meaningful tenancy in any sense. It is not proprietary as it is not an ‘estate in land’, and it is not a tenancy that attracts statutory protection (except (probably) in the private residential sector).8 So, although technically a tenancy, it makes little difference to the occupier whether it is called that or a licence.
4 5 6 7 8
Such as: Marcroft Wagons Ltd v Smith [1951] 2 KB 496 (CA). [1953] 1 QB 211 (QBD). Ibid, p 217. [1985] 1 AC 809 (HL) 827; Radaich v Smith (1959) 101 CLR (HC) is an Australian case. Francis Jackson Developments Ltd v Stemp [1943] 2 All ER 601 (CA).
Street v Mountford Revisited 21 As will be seen below, the courts in many modern cases still say that ‘the agreement can, and should, take effect in the way the parties intend’.9 The challenge is to explain how it can be true both that the parties cannot choose to call a tenancy by another name, and that in cases undoubtedly involving exclusive possession the courts will find that there is no meaningful tenancy, if the parties clearly do not intend to create one. Street v Mountford has also assumed significance beyond the labelling point because of the obiter remarks of Lord Templeman when he said that ‘the court should . . . be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts’.10 This has provided later courts with a weapon to draw against more crafty ways of trying to avoid the housing controls. In revisiting Street v Mountford, the first part of this chapter (Part A) will discuss those cases in which an occupier enjoys exclusive possession but does not have a (meaningful11) tenancy, and which, therefore, sit uncomfortably with the wider perception of what Street v Mountford stands for. The second part of the chapter (Part B) will then turn more specifically to consider the impact that Street v Mountford has had on the ‘core Street v Mountford cases’, namely those in which the parties have entered into a written occupation agreement.
PART A: STREET V MOUNTFORD, MOVING IN AND STAYING ON
As mentioned above, Street v Mountford was a simple case where the parties had entered into a written agreement governing the terms of the occupation. Often this does not happen. The occupier may simply move in, and start paying rent on a regular basis, with relatively little (if any) discussion of other terms and with no documentation.12 Uncertainty can also arise at the other end of the relationship. The tenancy comes to an end, but the occupier stays in possession and continues to pay a periodic rent to the owner, without there being any new agreement. In these cases, as there is no document setting out what has been agreed, the question as to the nature of the occupation has to be worked out from what is known. It is tempting to say that what matters is simply finding out if there is exclusive possession or not. As there often will be exclusive possession, the fact that a periodic rent is being paid shows both that there is an intention to create legal relations and can be used to infer that the occupier has a periodic tenancy. This is often taken to be the historic approach 9
Newham LBC v Hawkins [2005] EWCA Civ 451 [36] (Arden LJ). [1985] 1 AC 809 (HL) 825. 11 See text accompanying n 8. 12 Although rent is not necessary for a tenancy it usually indicates contractual intent, which is necessary. 10
22 Susan Bright which appeared to focus upon the known facts, and used these to create a presumption of a periodic tenancy (both in the moving in and staying on cases).13 So, for example, in Doe v Batten, where the owner accepted ‘rent’ from a former tenant, it was said that the occupier would get a new tenancy, unless the owner could prove that he had made it clear that he was intending to recover possession and that the ‘rent’ was accepted only as ‘mesne profits’.14 But, this has only ever been a presumption. Even in the case of Doe d Lord v Crago,15 which is often cited in support of this common law presumption, it was expressly stated that it was open to the owner to avoid the implication of a periodic tenancy by giving some other explanation as to the basis upon which he was receiving rent. As Nicholls LJ said in Javad v Aqil, the law steps in to fill in the gaps, however, where there is evidence of what the parties intended, the law does not need to look only to the facts of exclusive possession and periodic payment to fill them in.16 What the parties intend has always been at the heart of categorising the relationship. Only if there is an unexplained payment of rent coupled with exclusive possession, would the courts use the presumption to infer a periodic tenancy. This presumption is seldom used nowadays.17 In most cases, the wider context and discussions between the parties provide an explanation as to the basis upon which the rent is being paid. The more modern approach still asks the same basic question: quo animo (with what intent is the rent received). However, the answer usually found in recent cases is that the payment is not for a periodic tenancy. Instead, the courts tend to find that there is only a licence or tenancy at will (especially if the parties are still trying to agree terms). The biggest change that has occurred is that the courts now take into account the statutory regimes that apply to tenancies in working out what the parties intended. The meaning of finding a tenancy has changed with the introduction of statutory security of tenure. Where a tenancy would attract protected status (giving the occupier a right to remain beyond what has been agreed between the parties), the courts are much less likely to find that this is what the parties intended where it is clear from the context that the arrangement is only
13 For instance, see: Cole v Kelly [1920] 2 KB 106 (CA) 132: ‘... a holding over with the consent of the landlord prima facie gives rise to a tenancy at will, which by subsequent payment of rent may be converted into a tenancy from year to year.’ 14 Doe d Cheny v Batten (1775) 1 Cowp 243, 98 ER 1066. Mesnse profits are damages or restitutionary payments for occupation without consent. 15 6 CB 90, 98; 136 ER 1185, 1188 (Wilde CJ): ‘. . . it is competent to either the receiver or payer of such rent to prove the circumstances under which the payments as for rent were so made, and by such circumstances to repel the legal implication which would result from the receipt of rent, unexplained.’ 16 Javad v Aqil [1991] 1 WLR 1007 (CA) 1012. 17 In Javad v Aqil [1999] 1 WLR 1007 (CA), Nicholls LJ described it as an arid issue as to whether the ‘so-called “old common law presumption’ ‘no longer exists or is virtually never used in practice’ (p 1017).
Street v Mountford Revisited 23 intended to be a temporary or interim one. This is an explicit part of the judicial reasoning in many cases. In Javid v Aqil, Nicholls LJ states that the parties: cannot sensibly be taken to have agreed that [the occupier] . . . shall have a periodic tenancy, with all the consequences flowing from that, at a time when . . . he has been permitted to go into possession or remain in possession merely as an interim measure (emphasis added).18
This approach sits rather uncomfortably alongside Street v Mountford, which clearly states that it is not up to the parties to attach their own label to an occupation agreement. Lord Templeman’s comments in Street v Mountford that ‘the Rent Acts must not be allowed to alter or influence the construction of an agreement’,19 also look strange alongside the clear acknowledgement in the moving in and staying on cases that the fact that a tenancy would attract protected status for the occupier makes it less likely that the parties would intend a periodic tenancy. One way of explaining the different approaches is to say that Street v Mountford is simply an authority on how to categorise a written agreement intended to govern a new occupation relationship; it has nothing to say about the ‘staying on’ cases, or the cases where an occupier simply moves in without anything being recorded in writing. This is true as a matter of strict authority: it is important to understand that Street v Mountford is only a case to do with ‘labelling’. But, this answer ignores the fact that the emphasis given both to the parties’ intentions, and the statutory context in these cases appears to run against the spirit of what Lord Templeman said in Street v Mountford. Moving in Cases and Doctrine Much of this tension can be removed by returning to some basic doctrinal issues. In Street v Mountford, Lord Templeman stated that ‘the only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent’ (emphasis added).20 In most of the moving in and staying on cases where the occupier has been held to be only a licensee or a tenant at will, the parties are still trying to sort things out. The fact that the parties have not reached a settled agreement and only intend the present arrangement to be temporary, supports the idea that 18 Ibid, pp 1012–13. See also: Cardiothoracic Institute v Shrewdcrest Ltd [1986] 1 WLR 368 (Ch) 378; Sopwith v Stutchbury (1985) 17 HLR 50 (CA) 74; Parker v Parker [2003] EWHC 1846 [268]. 19 [1985] 1 AC 809 (HL) 825. 20 Ibid, p 826. In order for there to be a ‘term’, the beginning, duration and end-date of the lease must be ascertainable at the commencement of the lease. A renewable term (period) is allowed, but the parties must then have agreed that this period is the term of the lease. If the parties have simply agreed that the occupier can stay until they agree ‘x’, this is not a term.
24 Susan Bright there is no ‘term certain’. One of the leading moving in cases is Javad v Aqil.21 In this case, the landlord allowed the business tenant into the premises because he had nowhere else to go, and ‘the landlord took pity on him.’ The tenant paid £2,500 ‘as rent for three months in advance’, but, the plan was always to negotiate for the grant of a 10 year lease. It was understood that the ‘property was to be returned to the landlord if the parties were unable to agree terms.’ So, if we ask what the parties intended, the correct answer was surely that they intended that the occupier could stay whilst they sorted out the lease, but that if the negotiations broke down, the occupier would have to leave. The occupier enjoyed exclusive possession and paid rent, but the parties never intended the interim arrangement to be a tenancy. In doctrinal terms, there was no term. It would be wrong to infer from the rental payment that they intended a periodic tenancy, as they clearly did not mean for the occupier to have the right to stay for successive periods subject only to notice to quit being served.22 The old presumption that a rental payment creates a periodic tenancy cannot be used in the face of an explicit agreement to the contrary. If there is no term certain, there can be no (meaningful23) tenancy. Here, the choices were either that there was a licence (but this had not been properly pleaded in Javad v Aqil), or that there was a tenancy at will.24 The Court of Appeal held it to be a tenancy at will. Similarly, in Isaac v Hotel de Paris Ltd, the Privy Council held that a bar manager who was allowed to run a bar and paid rent whilst the parties were trying to agree the formal contract, was only a licensee.25 It is explained by Lord Denning on the basis that it was intended only to be a ‘personal privilege’,26 but it fits with the idea that whilst parties are negotiating and only intend a temporary arrangement, no tenancy can be found because there is no term agreed. Again, in Sopwith v Stuchbury, a person let into residential occupation pending agreement of terms of a tenancy was held to be an (unprotected) licensee.27 In all of these moving in cases, no periodic tenancy has been found: the parties are still trying to reach agreement; the owner has not accepted the idea that the occupier can stay for any 21
[1991] 1 WLR 1007 (CA). At one point in the proceedings, the occupier had argued that there was a term certain for three months, but this claim was not pursued. 23 See text accompanying n 8. 24 In the county court, the case had been argued on the basis that there was either a tenancy at will or a periodic tenancy. This precluded the argument before the Court of Appeal that there might have been a licence or that there might have been a lease for ‘three months’ certain based on the rental payment. Nicholls LJ notes that the question of a pro rata repayment of the three months rent arose briefly when the occupier left following a disagreement, but was never settled because the occupier returned to the property shortly afterwards. As a tenancy at will, it would be the case that the occupier is entitled to pro rate repayment if he leaves. 25 [1960] 1 WLR 239 (PC). 26 Ibid, p 245. 27 (1985) 17 HLR 50 (CA). As this was a private sector case, tenant at will status would have given protection. 22
Street v Mountford Revisited 25 fixed period; and, it is understood by the parties that if they do not reach agreement the occupier will have to leave. This cannot be a ‘term of years’. Viewed in this light, the cases are entirely consistent with Street v Mountford. The difficulty with this, as an explanation of the moving in cases, is that it does not closely reflect the reasoning that is used by the courts. The judiciary do not say that there is a tenancy at will (or licence) because the parties intended that either one of them should be free to end the arrangement at a moment’s notice. Instead, the courts say that there is a tenancy at will (or licence) because the parties did not intend to be saddled with all the statutory consequences that would flow from finding a periodic tenancy.
Staying on Cases and Doctrine The analysis in the staying on cases is more complex. In the moving in cases, it is unlikely that someone will be allowed to move into property who is not intended to be a tenant without there being some kind of discussion between the parties. From that discussion, the courts can work out what the parties intended. In the staying on cases, the occupier is already there, and it may be that there is no real change in what is done from when the tenancy was continuing, and so no new discussions to draw on. There is the further complication that the occupier may not be the original tenant. Often the dispute concerns someone who lived with the tenant, and stays when the tenant leaves. Nonetheless, the cases follow a similar pattern to the moving in cases. If there is no alternative explanation offered as to why the rent is being paid and accepted by the owner, there is likely to be a tenancy. In Ayinde, the occupier took over a flat from her relations when they returned to Nigeria.28 They surrendered their tenancy, and the occupier paid the rent and wrote repeatedly to the local authority asking for the tenancy to be transferred into her name. However, she never received any significant response. She was in exclusive possession and paying rent: accordingly, she was held to be a tenant. She was never given any reason to doubt that she was being treated as a lawful occupier, and it was said that the ‘court will be slow to withhold the implication [of a tenancy] where all the badges of a tenancy are there, especially when the situation is allowed to linger on for more than a short period’.29 In Ayinde, there was no other explanation offered as to why the local authority accepted rent. However, often there is some other explanation, and then the courts will not find a tenancy, unless this is what the parties intended.
28 29
Tower Hamlets LBC v Ayinde (1994) 26 HLR 631 (CA). Ibid, p 636.
26 Susan Bright The staying on cases in which the courts say that there is no new tenancy tend to fall into three main categories. One is where the occupier stays on, alleging that she has a right to remain, and the landlord allows the occupation to continue whilst investigating this claim. The second is where the occupier stays whilst the parties negotiate the future arrangements; as in the moving in cases, the fact that the occupation is being allowed as an interim measure whilst the parties are negotiating, means that there is no term agreed. The final category is where the landlord has the right to recover possession, but gives a period of ‘grace’ to the occupier. This includes the category most difficult to reconcile with Street v Mountford, what has become known as the ‘tolerated trespasser’ cases, where a secure tenant of a local authority stays, paying ‘rent’, even though the secure tenancy has come to an end following a possession order. An example of the first ‘no tenancy’ category is Jastrzebski, where the occupiers claimed rights to succeed to a secure tenancy and remained whilst the local authority considered these claims.30 The local authority wrote explaining that the occupiers were there without consent, and that the payments were being accepted as ‘mesne profits’. It was held that there was no tenancy. Similarly, in Longrigg Burrough, ‘rent’ was accepted after a fixed term lease had expired, but the reason was that the occupier had refused to leave, claiming that he had security of tenure. The Court of Appeal ordered possession, and said that he had no contractual tenancy.31 Precisely what status the occupier has during this period is a little unclear. In Jastrzebski, Sir Oliver Popplewell described the occupiers as being ‘in a nebulous state to which the law does not seem to be able to attach a particular label’.32 Usually, the courts avoid attaching a label: it is sufficient to say that there is no tenancy. Nonetheless, if the owner clearly tells the occupier that she is unlawfully present and that any payment is received as mesne profits rather than rent, it must surely be the case that as there is no consensual occupation the occupier will be a trespasser.33 The result in these cases is easy to explain doctrinally: there is no consensual occupation, and the owner accepts the ‘payment’ only whilst checking if he has good grounds to remove the occupier. This cannot be a tenancy. An example of the second ‘no tenancy’ category can be found in Cardiothoracic Institute v Shrewdcrest Ltd.34 Here, a business tenant had occupied the property under a series of ‘contracted out’ leases (although 30
Hammersmith and Fulham LBC v Jastrzebski (ChD, 20 October 2000). Longrigg Burrough & Trounson v Smith (1979) 251 EG 847. 32 Hammersmith and Fulham LBC v Jastrzebski (ChD, 20 October 2000). This statement comes after discussing Marcroft Wagons Ltd v Smith [1951] 2 KB 496 (CA), and noting the difficulty that the Court of Appeal had there labelling the relationship. There is, however, an important difference. In Marcroft Wagons, the owner had allowed the occupier to stay and not asserted that she was unlawfully present. 33 This is supported by Westminster CC v Basson (1991) 23 HLR 225 (CA). 34 [1986] 1 WLR 368 (Ch). 31
Street v Mountford Revisited 27 business tenancies they were contracted out of the statutory regime and thus would not confer rights of renewal). After the last lease ended, the tenant remained whilst trying to agree new terms. In the meantime, the parties ‘agreed in principle’ to a series of fixed term extensions, but Knox J found that they were never in fact binding agreements. There was, therefore, only a tenancy at will (as in the moving in cases where there are on-going negotiations). As with the moving in cases, this case can be explained on the basis that there is no agreed term, although again the judicial language used to explain the result is in terms of the parties not intending to create a periodic tenancy, rather than focusing upon the absence of term. The final ‘no tenancy’ cases occur where the landlord has a right to recover possession but holds back on actual eviction for the time being. In Marcroft Wagons v Smith, the tenant had died, and her daughter, who had been living with her, asked for her name to be put in the rent book.35 The landlord’s agent refused to do this, stating that the property was required for one of the landlord’s employees. He did, however, say that he did not want to disturb her, and accepted two weeks rent. The Court of Appeal accepted that in cases where someone is staying on, it is reasonable to allow them a bit of time whilst the landlord is considering his position, but was troubled by the fact that it was six months before the landlord began possession proceedings.36 Nonetheless, it was held that it was not too long, and that the daughter did not have a tenancy. 3. Tolerated Trespass and Doctrine As Roxburgh J noted in Marcroft Wagons v Smith, it is very difficult to put a label on the occupier’s status in these cases.37 The occupier is not a trespasser, as she is there with consent, and whereas Denning LJ was content to describe her as a licensee, Roxburgh J considered that jurists might need to invent a name. This has happened, with surprising and conceptually difficult consequences, in the tolerated trespass cases involving local authorities and (former) secure tenants. The leading case in this area remains Burrows v Brent LBC, where an immediate order for possession had been granted against a secure tenant, Miss Burrows.38 The local authority came to an arrangement with her in which she agreed to pay a ‘rent charge’, and an agreed amount towards the arrears, but she failed to keep up with these payments. More than two years later, the local authority executed the warrant for possession. Miss Burrows argued that the agreement reached with her had made her a new tenant, but the House of Lords disagreed. The 35
[1951] 2 KB 496 (CA). It is clear that Lord Evershed MR was troubled by the fact that any alternative would penalize the owner for having shown kindness in allowing the daughter to stay. 37 [1951] 2 KB 496 (CA). 38 Burrows v Brent LBC [1996] 1 WLR 1448 (HL). 36
28 Susan Bright agreement was simply one to ‘forbear from executing the order’. Once the possession order ended the secure tenancy, Miss Burrows became a ‘trespasser whom the landlord has agreed not to evict—a “tolerated trespasser” pending either the revival of the old tenancy or the breach of the agreed conditions.’39 There are now many, many thousands of occupiers of local authority property who have this status. They have no statutory rights, no security of tenure, and are unable to enforce any landlord covenants in the former tenancy. Unless Street v Mountford is very narrowly confined, it is difficult to square the finding of tolerated trespass status with Street v Mountford, particularly in cases involving more than the occupier simply staying put and paying ‘rent’. In many cases, as in Burrows v Brent itself, there is an agreement or understanding reached between the occupier and the owner that she can stay, so long as she keeps up with the payments. The arrangement is not intended only to be a temporary one, whilst the parties negotiate something else. Nonetheless, the approach of the courts in tolerated trespasser cases is to say that there will only be a new tenancy if forced to this result. In Burrows v Brent Lord Browne-Wilkinson said: It cannot be right to impute to the parties an intention to create a legal relationship such as a secure tenancy or licence unless the legal structures within which they made their agreement force that conclusion.40 (emphasis added)
This has been seized upon in later cases, so that even action which suggests that the local authority is treating the occupier as a new tenant, such as sending out tenancy letters, new tenancy conditions or notices of rent increase, will not create a tenancy.41 Why is there not a new tenancy in the tolerated trespasser cases? These cases are clearly policy driven: if by allowing the occupier to stay, the local authority is treated as creating a new tenancy, this could cause landlords to evict as soon as the secure tenancy ends, and discourage them from making ‘reasonable and humane concessions’ which allow the occupier to remain in possession.42 Interestingly, there has been very little judicial discussion as to how the tolerated trespasser cases fit with Street v Mountford.43 39 Ibid, p 1455. The former tenancy may be revived by court order under the Housing Act 1985 s 85. 40 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1454. 41 Newham LBC v Hawkins [2005] EWCA Civ 451; Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010. But, the cases do not all go one way. In both Leadenhall Residential 2 Ltd v Stirling [2001] EWCA Civ 1011, [2002] 1 WLR 499 (private sector) and Swindon BC (formerly Thamesdown BC) v Aston [2002] EWCA Civ 1850 there was a new tenancy. 42 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1454. See also: Pemberton v Southwark LBC [2000] 1 WLR 1672 (CA) 1677. Policy is not one way. There are sound policy reasons as to why occupiers should not be left in tolerated trespasser status for many years with no effective rights. 43 Street v Mountford was not mentioned by the House of Lords in Burrows v Brent LBC [1996] 1 WLR 1448 (HL).
Street v Mountford Revisited 29 The Court of Appeal recently addressed the relationship between tolerated trespass and Street v Mountford in the cases of O’Kane and Pinder.44 Here, the tolerated trespass cases are explained by reference to the intent of the parties. According to Arden LJ: [Street v Mountford] established that, provided the parties intended to enter into legal relations, the question whether their relationship was one of landlord and tenant depended on whether the indicia of that relationship were present. The Burrows case, on the other hand, decides that the question whether the parties entered into a new tenancy turns on what the parties’ intentions were when the former tenant remained in occupation.45
This could mean that in the tolerated trespass cases, all that the local authority is saying is that it will (for now) forbear from executing the possession order, rather than intending to enter into a new contractual relationship. This is consistent with the passage from Burrows v Brent LBC to which Arden LJ refers. There are various problems with trying to explain the tolerated trespass cases as involving no contractual intent. First, if the local authority has said that the occupier can stay so long as she pays, this looks like a contractual arrangement. To explain away these cases as instances of there being no contractual intent may not always fit the facts. More importantly, to say that the local authority is simply promising to ‘forbear’ from executing the possession order overlooks the very strong positive message that the local authority is giving to the occupier. It is not simply conveying a rather limited assurance that it will not, for now, kick the occupier out. Instead, there is usually a much more positive assurance wrapped up in this to the effect that it is consenting to the continuing occupation provided that the former tenant keeps up her payments. Indeed, even in Burrows v Brent LBC, which contained a written acknowledgement stating that ‘if payments cease or are irregular the council will seek to evict’, the House of Lords accepted that Ms Burrows would interpret the arrangement as giving her the right to occupy. So, if it is intentions that are looked to, and they are to be objectively construed, then it looks very much as if the local authority is promising that the occupier can stay conditionally on making the due payments. Finally, if it is the parties’ intentions that are crucial, we would expect the courts to pay close attention to exactly what is said to the occupier. In practice they do not. The cases do not turn on fine points of linguistic interpretation as to exactly what was said. It has become a (simple) rule of law that in the case of secure tenancies where the date for possession has passed or a suspended possession order has been breached, the former tenant
44 45
Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010. Ibid, [60].
30 Susan Bright becomes a tolerated trespasser unless the court is forced to find a new tenancy. Although the origins of the doctrine may be based upon the parties’ intentions, the tolerated trespass cases have now evolved to become a law unto themselves. The only way of fitting them with Street v Mountford is to see them as cases involving ‘special circumstances’.46 This is what the Court of Appeal did in the private residential case of Leadenhall v Stirling.47 In Leadenhall, the occupier stayed on after the tenancy had been ended by a possession order, paying rent and arrears. Counsel for both parties accepted that when the rent was put up this created a new tenancy. The Court of Appeal agreed.48 The same result did not follow in Burrows v Brent LBC seemingly because of the different statutory regime.49 What makes the tolerated trespass cases different (special) is the combination of there being a local authority landlord, and the court’s discretionary powers under Section 85 of the Housing Act 1985 to postpone etc possession.50 This reading of Burrows v Brent LBC does make it possible for there to be an increase in the occupation payment made by tolerated trespassers without creating a new tenancy, as is consistent with the express result in more recent tolerated trespasser cases. Even if the increase looks like a contractual variation, it still takes place during the limbo period, which means that even if the other criteria for a new tenancy are met, it is prevented from creating a lease because of the special circumstances. The ‘special circumstances’ identified by Latham LJ in Leadenhall v Stirling could be said to fit with Lord Templeman’s exceptional cases in Street v Mountford. There is no need to point to a new tenancy to explain why there is exclusive possession: the occupation could be said to be referable to the tenancy in limbo. This is consistent with what Lord BrowneWilkinson says in Burrows v Brent LBC.51
46 In Street v Mountford, Lord Templeman accepted that in ‘special circumstances’ there would be no tenancy even if all the indicia of a tenancy were present; namely, where there is no intention to enter into contractual relations, the possession is referable to some other legal relationship, or the owner has no power to grant a tenancy. In fact, only the second category is exceptional: in the others one of the indicia of a tenancy is absent (subject to how Bruton v London and Quadrant Housing Trust [2000] 1 AC 406 (HL) is read). 47 Leadenhall Residential 2 Ltd v Stirling [2001] EWCA Civ 1011, [2002] 1 WLR 499. 48 Ibid, [31]. 49 Leadenhall Residential 2 Ltd v Stirling [2001] EWCA Civ 1011, [2002] 1 WLR 499 [34] (Latham LJ) [29] (Lloyd J). 50 Although the status continues, even after a stock transfer: Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010. 51 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1455. The status of tolerated trespasser does not appear to depend upon continuing revivability: Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010. But see: Swindon BC (formerly Thamesdown BC) v Aston [2002] EWCA Civ 1850 (where a new tenancy was found when the possession order had ceased to be enforceable, and a s 85(2) revival was, therefore, not possible).
Street v Mountford Revisited 31 Fitting it all Together Where does this review of the case law leave Street v Mountford? Whilst Street v Mountford can be understood as a narrow case to do only with labelling, it was not intended to be so confined. Lord Templeman sought to downplay the role of the parties’ intentions, and to emphasise the importance of exclusive possession and the fact that classification is a matter for the law, not the parties. Nonetheless, subsequent cases show that what the parties intend often remains central to the classification. It is only in the narrow context of labelling that the parties intentions are unimportant. The moving in and staying on cases show a great reluctance to find a tenancy if this is not what the parties intended. In practice, unless the owner has accepted that the occupier can stay either for an agreed period or indefinitely (subject to notice), there will not be a tenancy. Even if the occupier is there with the owner’s consent, enjoying possession and paying rent, there will not be a tenancy if this is not what they mean. Intention is important, but, consistently with Street v Mountford, it is not only intention to create legal relations and intention to grant exclusive possession that matter, but also intention to create a term. Contexts vary. The occupier may be a trespasser, occupying against the owner’s will. The owner may be looking into whether the occupier can be removed; planning to evict but giving the occupier a little more time; or, the parties may still be talking about their future plans. In none of these cases will the occupier have a leasehold estate. It is the tolerated trespass cases that remain the most difficult to reconcile with Street v Mountford. The occupier looks like a tenant: she has possession, and has been encouraged to think that she can stay for renewable periods so long as she pays the rent. Only policy concerns explain why this is not treated as a tenancy.
PART B: STREET V MOUNTFORD AND EXPRESS AGREEMENTS
Where there is a written occupation agreement between the parties, the courts use Street v Mountford as the guide for determining if there is a tenancy or not. Although the principles look clear (contractual intent, exclusive possession and term), the proper construction of the agreement is often far from simple. There have been difficulties in three main areas: working out whether the rights that the occupier has are extensive enough to amount to exclusive possession; applying Street v Mountford when there is multiple occupation; and, identifying the true agreement where there is a seeming divergence between the recorded agreement and the relationship in practice.
32 Susan Bright Finding Exclusive Possession In some cases, the question of whether or not the right label has been attached by the parties will turn on whether or not there is exclusive possession. This is quite different from working out if there is a ‘pretence’: the agreement is taken at face value, but the court has to work out whether the combination of rights and obligations created confer exclusive possession. This begs the question: what is exclusive possession? Lord Templeman stated: A tenant armed with exclusive possession can keep out strangers and keep out the landlord, unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair.52
It is this right to exclude, and the territorial control inherent to it, that distinguishes the lease from the licence. If the landlord has an unlimited right to enter the property, or to introduce other persons to share the property, this will prevent the occupier from being a tenant.53 Exclusory powers are not, however, necessarily absolute. An occupier may have the right to exclude some, but not all. Until recently, it was widely thought that there could only be a lease if the occupier had possession to the exclusion of the whole world, including the power to exclude the true or superior owner.54 The decision of the House of Lords in Bruton v London and Quadrant Housing Trust suggests otherwise.55 In this case, the grantor housing trust had only a licence in the property, and purported to grant a ‘weekly licence’ to Mr Bruton. The housing trust could not, of course, grant the power to exclude the superior owner, the freeholder, because of the nemo dat principle. The House of Lords held that Mr Bruton, nonetheless, had exclusive possession, and, therefore, a tenancy. This means that it will be sufficient for a tenancy to show that the grantee has exclusive possession in the sense of having the legal right to exclude all, including the grantor, save for someone with a superior title.56 52
Street v Mountford [1985] 1 AC 809 (HL) 816. Smith suggests an alternative: ‘There is a strong argument that exclusive possession is based upon the right to prevent the owner from entering at will, rather than the owner’s having no right to introduce other occupiers’: R Smith, Property Law, 5th edn, (Harlow, Pearson, 2005) 370. This is not consistent with Lord Oliver in AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL) 469. 54 See: Bruton v London and Quadrant Housing Trust [1998] QB 834 (CA) 845 (Millett LJ). 55 [2000] 1 AC 406 (HL). This case elicits a range of reactions, particularly as to whether the resultant tenancy can be described as ‘proprietary’. See: S Bright, ‘Leases, Exclusive Possession and Estates’ (2000) 116 LQR 7; M Pawlowski, ‘Occupational Rights in Leasehold Law: Time for Rationalisation?’ (2002) 66 Conv 550; P Routley, ‘Tenancies and Estoppel – After Bruton v London & Quadrant Housing Trust’ (2000) 63 MLR 424; M Dixon, ‘The Non-proprietary Lease: The Rise of the Feudal Phoenix’ (2000) 59 CLJ 25; M Harwood, ‘Leases: Are They Still Not Really Real?’ (2000) 20 LS 503; and JP Hinojosa, ‘On Property Leases, Licenses, Horses and Carts: Revisiting Bruton v London and Quadrant Housing Trust’ (2005) 69 Conv 114. 56 See: Western Australia v Ward [2002] 213 CLR 1, [2002] HCA 28 [478] (McHugh J). 53
Street v Mountford Revisited 33 It is, however, often difficult to tell whether the landlord has retained possession to himself, or simply preserved (limited) rights of entry. In NCP v Trinity Development, the Court of Appeal had to decide if a ‘licence’ agreement to operate a car park was in fact a tenancy.57 This turned on whether or not the agreement conferred exclusive possession. There were two particular clauses around which this issue focussed. One of these clauses provided that the licensee would allow entry to the licensor’s employees in the exercise by them of the ‘licensor’s rights of possession’, and give assistance to allow the licensor to carry out resurfacing. Another clause allowed the licensor to have 40 car parking spaces. The problem is that there are no hard and fast rules as to exactly how much involvement by the owner in relation to the property will mean that there is no exclusive possession. It is clear that there is no exclusive possession if: the owner can require the occupier to move to other property; has the right to put someone else in to share occupation; or, can himself come and go at will. But, in other cases, it may involve the difficult task of working out if the owner’s ongoing involvement is such that it simply cannot be said that the occupier has a ‘stake in the land’. Even the fact that the owner has reserved rights of entry can be ambiguous; although it may suggest that no exclusive possession has been granted, it could alternatively be explained as necessary to protect the landlord’s interest when exclusive possession has been given.58 Finding out if there is exclusive possession looks like a factual exercise: the court has to look at the rights reserved, and granted, and decide whether or not this amounts to the grant of exclusive possession. In NCP v Trinity Development, however, the Court of Appeal did not confine themselves in this manner.59 As well as looking at the extent of these rights, they also attached significance to the fact that the parties had expressed this agreement to be only a licence. Whilst only a pointer, this could help the courts to work out what the substance was. As the parties had described the arrangement as a licence, this made it less likely that exclusive possession was intended, and to ignore their choice of wording was inconsistent with freedom of contract. The fact that the parties had called the agreement a licence was used to help the court decide that there was no exclusive possession, and therefore no tenancy. Although there is no direct conflict between this approach and Street v Mountford, the cases do sit uncomfortably alongside one another. Street v Mountford says that the parties cannot
57 National Car Parks Ltd v Trinity Development Company (Banbury) Ltd [2001] EWCA Civ 1686. 58 In Street v Mountford [1985] AC 809, Lord Templeman says that such an express reservation ‘only serves to emphasise the fact that the grantee is entitled to exclusive possession and is a tenant’ (p 818). 59 National Car Parks Ltd v Trinity Development Company (Banbury) Ltd [2001] EWCA Civ 1686.
34 Susan Bright choose the label to attach. But what NCP v Trinity shows is that the label that they do choose can influence how the document is read, at least in cases where the parties are professionally advised.60
Multiple Occupation In Street v Mountford, there was only one occupier and the issue was the simple one of whether she was a licensee or a tenant. Lord Templeman did not address the difficulties that can arise in cases involving multiple occupation. Where a property is occupied by more than one person, the first question that must be asked is whether the arrangement is one made with a series of individuals, or if the arrangement is made to the occupiers as a collective.61 If there is a series of separate and individual arrangements, the occupiers will either be licensees or individual tenants of the separate parts of the property let to them. The greater difficulty arises in understanding what is required in order for there to be a lease to a group. A lease to a group is no more than a coowned lease. This means that there must be both co-ownership and exclusive possession. There are two methods of co-ownership of land: the joint tenancy, for which the ‘four unities’ are required (time, title, interest and possession) and the tenancy in common (which requires only ‘unity of possession’). It may be that some of the difficulties perceived by commentators to be found in the case law is due to the obscurity of the concept of ‘unity of possession’. This can be illustrated by discussion of the decision of the House of Lords in AG Securities v Vaughan.62 A large flat was let to four occupants who moved in at different times, paid different rents and signed separate agreements denying exclusive possession. The House of Lords held them to be licensees. In his book Plural Ownership, Roger Smith asks why there was no tenancy in common in AG Securities v Vaughan,63 questioning why the four occupiers did not have unity of possession, and, therefore, were not coowners.64 The answer lies, perhaps, in being very careful to distinguish ‘unity of occupation’ and ‘unity of possession’. Several writers describe unity of possession (the one requirement for a tenancy in common) as if it
60 Ibid. Both Buxton LJ [41] and Arden LJ [29] referred to the fact that the parties were (presumably) given appropriate advice. 61 There is a further complication that can arise if there are separate agreements to disguise a collective agreement; this is discussed below under ‘the pretence issue’. 62 AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL). 63 Ibid. 64 R Smith, Plural Ownership (Oxford, OUP, 2005) 24. See also: P Sparkes, ‘Co-tenants, Joint Tenants and Tenants in Common’ (1989) 18 Anglo–Am L Rev 151, 153.
Street v Mountford Revisited 35 is only to do with physical occupation. In explaining unity of possession, Megarry and Wade says that ‘each co-owner is as much entitled to possession of any part of the land as the others’,65 and the way that this concept is discussed, both there and elsewhere, suggests that it is simply to do with the co-owners not being able to physically exclude another co-owner from a part of the property. In this sense, the four occupiers in AG Securities v Vaughan did have unity of possession, as they had not been granted individual occupational rights of any particular of the property but, together, shared the whole. But, unity of possession is not simply to do with de facto occupation, it is to do with the legal right to exclude non-owners from the property. As Gray and Gray write, ‘exclusory power is central to the notion of possession.’66 The occupiers in AG Securities Vaughan had not been granted the right to exclude others, either collectively or individually. Lord Oliver puts this most clearly: None of them has individually nor have they collectively the right or power lawfully to exclude a further nominee of the licensor within the prescribed maximum . . . . The landlord is not excluded for he continues to enjoy the premises through his invitees, even though he may for the time being have precluded himself by contract with each from withdrawing the invitation.67
Possession appears to mean much the same thing whether it is used in connection with the phrase ‘unity of possession’ or ‘exclusive possession’. Unless a single occupier has the right to exclude others she cannot have a tenancy. Unless multiple occupiers have collectively the right to exclude others there can be no ‘joint lease’ as there will be neither unity of possession nor exclusive possession. There is, however, a further complication with multiple occupiers. It seems that in order for there to be a joint lease it is not enough that there is unity of possession and exclusive possession; in addition, all of the four unities must be satisfied.68 It is not clear why. The authority is not so overwhelming that this 65 Megarry and Wade, The Law of Real Property, 6th edn, (London, Sweet & Maxwell, 2000) 477. 66 K Gray and S Gray, Elements of Land Law, 4th edn, (Oxford, OUP, 2005) 489. Similarly, in order to establish an adverse possession claim it is not sufficient to show factual occupation but something stronger, a degree of exclusive control of the land, is necessary. 67 AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL) 471. 68 This is implicit in the approach taken by the House of Lords in AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL): see, for example, Lord Jauncey, p 474. In Mikeover Ltd v Brady [1989] 3 All ER 618 (CA) Slade LJ proceeds on this assumption. His express statement that the ‘four unities must be present for the creation of a joint tenancy’ (p 625) is, strictly, undeniably true as joint tenancy could mean co-ownership. Could it possibly be the case that this requirement of four unities for a joint lease has simply arisen because of the linguistic confusion that could come from the phrase ‘joint tenancy’ bearing two meanings (the ‘co-ownership/to distinguish tenancy in common’ sense and the ‘joint lease’ sense) and the transplanting of the legal conditions for one of these meanings to the other context?
36 Susan Bright issue could not be re-examined. In the leading case, AG Securities v Vaughan, the focus was upon the separateness of the arrangements and the absence of any kind of unity; what is said about the four unities may be obiter.69 In the related appeal, Antoniades v Villiers, where the same assumption about the need for the four unities appears to have been made, the focus was upon whether the separate agreements were really interdependent.70 In Mikeover v Brady, there is no detailed reasoning to support Slade LJ’s assertion that the four unities are needed.71 This doctrinal requirement has practical consequences. In Mikeover v Brady a couple signed two separate licence agreements, each containing an obligation to pay one half of the total rent for the flat.72 Slade LJ accepted that there was ‘a right of joint exclusive occupation of the property.’73 Nonetheless, there was no lease simply because the absence of a joint monetary obligation meant that there could be no unity of interest.74 This meant that the owner could evict the remaining occupier, as without a lease he did not have security of tenure. If it is ever accepted that there can be a joint lease with only unity of possession, there would, however, be difficulties. The scheme of the property legislation is to impose a statutory trust so that the co-owners have a joint tenancy at law, leading to the imposition of joint and several obligations on the co-owners even though they have not contracted on this basis. This peculiarity arises from the fact that the co-ownership rules have not been developed thoughtfully with reference to short term leases. Whilst the language of joint tenancies may be appropriate for long leases with a capital value, it does not really fit with rack rent leases where the true value of the lease to the occupier is the right to shelter rather than a monetary interest.
The ‘Pretence’ Issue In Street v Mountford, the issue was simply one of labelling the relationship as the owner conceded that exclusive possession had been granted. Since Street v Mountford, the legal debate about the parties’ ability to create ‘personal’ agreements has focussed on the effect of agreements drafted by owners in such a way that the indicia of a tenancy are absent. In the case of
69
AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL). Ibid. 71 [1989] 3 All ER 618 (CA). 72 Ibid. 73 Ibid, p 625. He presumably meant exclusive possession. 74 Views differ as to whether unity of interest does require a joint monetary obligation. The requirement is supported by Sparkes and Thompson: Sparkes (n 64) 152–53; MP Thompson, Co-ownership (London, Sweet & Maxell, 1988) 63. Smith questions it: Smith, Property Law (n 53) 369. 70
Street v Mountford Revisited 37 single occupation agreements, this can be done through denying exclusive possession as, for example, in Aslan v Murphy where the occupier of a tiny room was denied access to it for 90 minutes daily.75 Where there is a couple, the owner may, as in Antoniades v Villiers, use two identical ‘licence’ agreements which state that the occupier may be required to share with someone of the landlord’s choosing, and require the occupier to pay only a share of the rent.76 This means that there is neither exclusive possession, nor the unity of interest that is said to be necessary for a joint tenancy. These cases raise difficult issues. On the face of the agreements, the parties do not intend to create the rights that are necessary in order for there to be a tenancy. The problem is, however, that the substantive rights and obligations contained in the agreement do not always reflect those that are enjoyed in practice, and the style of the agreement may be simply a form of ‘dressing up’ imposed by the owner to hide the reality. Courts have dealt with these cases by developing the doctrines of sham and pretence. These enable the courts to ask whether the rights and obligations set out in the agreement are genuine; having discovered the genuinely intended rights the courts can then determine if there is a tenancy or not.77 The approach adopted by the courts to deal with these ‘dressing up’ cases throws up difficult issues, both doctrinally and practically. In Street v Mountford, the House of Lords respected the contractual agreement reached, but said that the parties could not attach their own label. In the ‘pretence’ cases, the courts have to tread carefully to ensure that they do not end up re-writing the parties’ agreement. It is only legitimate to override the recorded agreement where the courts can be confident that this does not reflect the true agreement reached. But this is not always the approach followed, and the courts risk engineering results in the interest of perceived justice. In Bankway v Pensfold-Dunsford, the Court of Appeal denied possession to a landlord against a protected tenant.78 The ground for possession was a mandatory ground based on rent arrears (a legitimate ground), but the arrears came about because of a review clause that lifted the rent from £4,690 per annum to £25,000 per annum. The reason why the clause was put in these terms was undoubtedly to ensure that the tenant could be forced out of the property through his inability to pay such a high rent. Nonetheless, it was a genuine rent review clause. The Court of Appeal disallowed possession on the novel ground that it was in substance an unlawful contracting out. This goes beyond a search for the true agreement.
75
Aslan v Murphy (Nos 1 and 2) [1990] 1 WLR 766 (CA). AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL). 77 See: S Bright, ‘Avoiding Tenancy Legislation: Sham and Contracting Out Revisited’ [2002] CLJ 146. 78 Bankway Properties Ltd v Penfold-Dunsford [2001] EWCA Civ 528, [2001] 1 WLR 1369. 76
38 Susan Bright There are also practical difficulties. How can a court be sure that the intention expressed in the agreement is not the true intention? Just because a provision has not been operated (yet) does not mean that it must be nongenuine. There was no material difference between Antoniades v Villers,79 and Mikeover v Brady,80 except for the fact that one of the occupiers left in Mikeover v Brady, and the landlord did not make the remaining occupier pay the entire rent. This fact meant that the court could hardly say that the separate obligation to pay was not genuine. In Antoniades v Villiers, this provision was never put to the test, so although it looked artificial (as it did in Mikeover v Brady) it may have been a genuine provision that never had to be called on. There is again the risk that the courts could effectively rewrite the parties’ bargain. It is important, therefore, that the ‘pretence’ doctrine is restrictively used.
CONCLUDING REMARKS
Street v Mountford is undoubtedly an important case, but it does, perhaps, settle somewhat less than it is sometimes credited for. It is, in part, a product of its times; a decision reached when homes for private rental were in short supply, and housing laws gave considerable protection to tenants but very little to non-tenants (creating the risk of abuse of the bargaining power held by the owner). The wider housing context may help to explain the seeming width of some of the remarks in Lord Templeman’s speech. As authority, however, it decides only that the parties cannot chose to attach the label of ‘licence’ to a relationship which otherwise has the hallmarks of a tenancy. In other cases, where there is no clear agreement reached between the parties, the courts do draw on what it was that the parties intended to create in order to categorise the relationship. They also do so even in the case of written agreements where the issue is whether or not exclusive possession has been granted. Street v Mountford did not tell us what is needed for there to be a joint lease, and, although later case-law has set down the rules, this has been done without much analysis or explanation as to why the four unities are needed. Further, there are now new battlegrounds emerging. The impact of the Bruton decision, with its relative concept of exclusive possession, is still being played out in the courts.81 But the most difficult area, and one of immense social importance, is the tolerated trespass cases. Doctrinally the basis for these cases is unclear. There remain many unanswered questions.
79
AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417 (HL). Mikeover Ltd v Brady [1989] 3 All ER 618 (CA). 81 In Kay v LB of Lambeth; Leeds CC v Price [2006] UKHL 10; [2006] 2 WLR 570 the House of Lords accepted the concept of the ‘non-estate’ lease without discussion. 80
Street v Mountford Revisited 39 It is here that the limits of Street v Mountford are most likely to be tested. It is these cases that have brought the conflict between doctrine and policy most clearly into play. The case law prior to the development of the tolerated trespasser concept can be squeezed into the doctrinal mould formed by Street v Mountford, but it is not always a comfortable fit. The tolerated trespasser cases require even more straining to fit. What they expose is that policy concerns drive many of the results. It may be that Street v Mountford is, after all, similarly best seen as based on policy, reflecting the housing need and legislative context of past times. Maybe Street v Mountford needs to be revisited.
3 Judicial Directions in Landlord and Tenant Law: Different Policies for Different Sectors SARAH BLANDY AND CAROLINE HUNTER
INTRODUCTION
W
HILE THIS BOOK seeks to bring a gaze onto ‘landlord and tenant law’, it also illustrates that, in fact, it might be more realistic to talk about ‘landlord and tenant laws’. During the 20th century, the law relating to landlord and tenant has moved from one of general common law principles applicable to all types of land, to a growing diversification based on the nature of the user of the land through the development of different statutory regimes. In this chapter, we want to examine how the (generally senior) judiciary has responded to this diversification, in particular by examining their attitudes to two different sectors with very different policy contexts: the social rented and the commercial. Analysis of judicial decision-making of the same issues across the two different sectors provides some valuable insights into judicial directions in landlord and tenant law. This chapter focuses on matters connected to the status of occupiers, and how the courts have responded to those cases which have tested the extent of security granted by the legislative regimes. Accordingly, it provides a complementary approach to the doctrinal analysis adopted by Susan Bright in the preceding chapter. The chapter begins with theories of judicial decision-making and considers some existing research as a background to our analytical concerns and methods. We then briefly sketch the history of legal regulation of the two sectors, and recent policy and social changes concerning them. The meat of the chapter examines the way in which the judiciary has approached questions concerning the contested status of occupancy in each sector, and the policy justifications which emerge from these decisions. This section orders the material in a similar manner to the preceding chapter, by distinguishing ‘moving in’ and ‘staying on’ cases. The final part of the chapter discusses our conclusions.
42 Sarah Blandy and Caroline Hunter UNDERSTANDING JUDICIAL DECISIONS
In seeking to analyse judicial decision-making, this chapter takes a ‘law in context’ approach which sees law (including judicial decisions) as ‘linked to the interests or needs of its time’.1 Therefore, decisions are analysed in relation to the broader context in which they are made, and we are alert for indications that the judiciary is taking this context into account. This approach has been developed in opposition to the idea that legal doctrine constitutes ‘a self-contained body of knowledge capable [only] of being interpreted in terms of its own distinctive techniques’.2 We are not concerned here with the literature on judges and politics, nor the politics of the judiciary, but rather the more sociological approach to examining the types of argument used to justify decisions.3 Justification, if needed, can be found in the words of Lord Browne-Wilkinson explaining ‘a principle which lies at the heart of the common law’: ‘The judge looks for what are called ‘the merits’ and having found them seeks to reach a result, consistent with legal reasoning, whereby the deserving win and the undeserving lose’.4 Before turning to specific decisions in relation to each tenure group, we first consider some of the existing research into judicial decision making, which has primarily focused on the House of Lords. How can we understand the decisions from the higher courts, and the House of Lords in particular? A traditionalist might argue that legislative interpretation is some pure technical process divorced from politics, but as Robson argues in relation to decisions on homeless persons, policy choices are made by judges: ‘There may be cogent reasons for their [the Law Lords] choices of policy but they are precisely that, policy choices’.5 Robson shows that both the traditionally opposing strands of doctrinal analysis, purposive and literal, are used to support these choices. He also comments that judges will be ‘activists when they have problems with the written law and its “gaps”’, but are content to comply when ‘they are broadly in agreement with the impact of a restricted interpretation’.6 In Robertson’s study of House of Lords’ judicial decision making, he remarked that: Judges are widely free to make creative decisions in both common law and statutory construction cases; they really can choose what to decide, with very little constraint, both because of the nature of law and the institutional setting within which 1
D Nelken, ‘Getting the Law Out of Context’ (1996) 19 Socio-Legal Newsletter 12, 12. R Cotterell, The Sociology of Law, 2nd edn, (London, Butterworths, 1992) 196. 3 As set out in N MacCormick, Legal Reasoning and Legal Theory (Oxford, Clarendon Press, 1978). 4 Cited in M Zander, The Law-making Process, 5th edn, (London, Butterworths, 1999) 303. 5 P Robson, ‘The House of Lords and Homeless People’s Rights’ (2000) 22(4) J of Soc Wel and Fam L 415, 419. 6 Ibid, p 427. 2
Judicial Directions in Landlord and Tenant Law 43 they work; in exercising this freedom they act as problem solvers in a highly pragmatic manner.7
The same point has been made by practitioners, in the context of landlord and tenant law. For example, Cheffings comments that the courts ‘are not shy at seeking ways around decisions that are inconvenient’.8 However, Valverde suggests that pragmatism and formalism do not constitute a binary divide but a continuum, pointing out that arguments based on both can be found in the same ‘legal field—even within one and the same judicial decision.’9 What analysis of judicial decision-making has been made in relation to landlord and tenant law? Partington considered the implementation of the Rent Acts.10 He notes that judges were not consistent in their hostility to the Rent Acts, but their ‘natural’ tendency to favour landlords over tenants was exacerbated by ‘rules of evidence which do not permit adequate discussion of the general social background to cases in this area’.11 What we have here, then, in relation to the control of private sector landlords, is an argument that judges pay insufficient attention to the policy arena. Robson, considering the same area of law at a later date (significantly, after the decision favouring tenants in Street v Mountford12) points to a more divergent view amongst judges. The decision in Street v Mountford was swiftly followed by the more ambivalent one in AG Securities v Vaughan; Antoniades v Villiers.13 Robson suggests that: Tenants have fared both well and badly. Their treatment, it is suggested, lies in the extent to which an overall shared outlook is absent within the small group of social policy decision-makers which is the House of Lords.14
Whereas the private rented sector is seen as reflecting the approach of ‘maximising the individual landlord’s property rights’ (as per Partington), or indeed, as revealing no policy consensus (as per Robson), can we see something rather different emerging in relation to the management of social housing? Robertson, after an examination of a series of homelessness cases in the House of Lords, concludes that: Law Lords cannot escape a sense of being managers of last resort to the welfare system whose line managers they wish to trust to get on with the job of looking 7
D Robertson, Judicial Discretion in the House of Lords (Oxford, OUP, 1998) 21. N Cheffings, ‘Without Prejudice’ [2001] EG 154, 156. 9 M Valverde, ‘Pragmatism and Non-pragmatist Knowledge Practices in American Law’ (2003) 26 Pol and Leg Anth Rev 86, 99. 10 M Partington, ‘Landlord and Tenant: The British Experience’ in E Kamenka and A E-S Tay, (eds), Law and Social Control (London, Edward Arnold, 1980). 11 Ibid, p 178. 12 [1985] AC 809 (HL). 13 [1990] 1 AC 417 (HL). 14 Robson (n 5) 430. 8
44 Sarah Blandy and Caroline Hunter after the inadequate in whatever is the most efficient manner. There is a deep paternalism here, and a trust in a paternalistic welfare system which knows best, rather than an emotionally neutral rights-declaring orientation.15
It is not our intention here to enter into the sort of detailed investigation of the views of different House of Lords judges that has been undertaken by both Robertson and Robson. We are concerned more with the apparent policy justifications which are given in the judgments and how they differ between the two areas of landlord and tenant. We would argue, however, that what we can see in the area of the rights of social housing tenants is a similar approach to that identified by Robertson in relation to homelessness law, viz one of trusting the landlords to manage in what is seen to be the most efficient manner. The type of focus which has been placed on decisions of the House of Lords in relation to matters of welfare law (in particular housing and accordingly local authorities) is absent when we move on to consider those relating to business tenancies. The concern about policy-making amongst the judiciary, although seen in relation to some areas of private law, for instance, that relating to damages for negligence,16 and restraint of trade,17 has not arisen in relation to the commercial landlord–tenant relationship. In the commercial sector, it is also much more difficult to find ‘landmark’ House of Lords decisions. We might speculate why there is less judicial activity in the House of Lords on the Landlord and Tenant Act 1954 than the relevant parts of the Housing Acts. This may be due to the fact that in commercial cases, both parties will have to take the funding risk of litigation, whereas many of the public sector cases appeals have been made by tenants funded by legal aid. Local authorities have also been able to secure funding from other authorities to support appeals—this type of solidarity is much less likely between commercial landlords. Indeed, another reason why there have been fewer House of Lords cases may be that the commercial rented sector gives rise to fewer points of principle which pass the threshold for leave to appeal to the House of Lords.
A BRIEF OVERVIEW OF THE TWO SECTORS
In order to understand the different policy contexts in which the two sectors operate, we set out here a brief overview of the origins of legal regulation, and recent trends for each sector.
15
Robertson (n 7) 363. J Bell, Policy Arguments in Judicial Decisions (Oxford, Clarendon Press, 1982) ch 3; Robertson, (n 7), ch 6. 17 Bell, ibid, ch 6. 16
Judicial Directions in Landlord and Tenant Law 45 Social Tenancies Until 1980, the security of ‘social tenants’ was not regulated by statute.18 Rather, their tenancies were governed by common law principles—most were periodic and terminable by notice to quit. For those whose landlords were local authorities, there was the possibility of using judicial review to challenge evictions, but the law at that time was not well-developed. The Housing Act 1980 introduced the concept of the secure tenant for both local authority and housing association tenants. The move to security had come out of pressure from the tenants’ movement, although, ironically, it was enacted alongside the right to buy, which was in part responsible for the subsequent social problems encountered by the sector. The law was consolidated into the Housing Act 1985. In 1988, however, housing associations were moved out of the 1985 regime, and into the new one applicable to private tenants: the Housing Act 1988. In practice, however, it is fair to say that the security for the vast majority of housing association tenants has remained closer to that of local authority tenants than private sector tenants. This is due to the fact that housing associations, at the behest of the Housing Corporation,19 have sought to give tenants maximum security; that is, fully assured tenancies under the Housing Act 1988, while the private sector has made use of assured shorthold tenancies. The grounds for possession generally relied on by housing associations are in much the same terms as those under the Housing Act 1985 for secure tenants. Therefore, today, the majority of tenants of social landlords will either be secure under the Housing Act 1985 or, if they are tenants of registered social landlords whose tenancies commenced after 15 January 1989, assured tenants under the Housing Act 1988. Under both Acts, tenants20 and in some specific instances, outlined below, licensees, who fulfil the basic requirements of occupying the dwelling as their only or principal home, acquire security of tenure. This means that they cannot be evicted without a court order, and only on the specific grounds set out in each Act. Furthermore, in relation to the grounds most commonly used (breach of tenancy agreement, rent arrears, anti-social behaviour), the judge must also decide whether or not it is reasonable to grant possession,21 and has a further discretion even if he concludes it is reasonable to grant possession, whether or not to suspend the possession order on terms.22 18 We use this term to cover both local authority landlords and registered social landlords, which are made up primarily of housing associations. 19 See currently, Housing Corporation, Regulatory Code and Guidance (London, Housing Corporation, 2005) [3.5.2]. 20 But a tenant at will has protection only in the private sector: Francis Jackson Developments Ltd v Stemp [1943] 2 All ER 601 (CA). Protected status in the public sector was denied to a tenant at will in Banjo v Brent LBC [2005] EWCA Civ 292, [2005] 1 WLR 2520. 21 Housing Act 1985 s 84(2); Housing Act 1988 s 7(4). 22 Housing Act 1985 s 85; Housing Act 1988 s 9.
46 Sarah Blandy and Caroline Hunter During the period from 1980, the nature of social housing in England and Wales has undergone a severe transformation. In England in 1976, it made up 31 per cent of the stock, and of that 29 per cent was local authority housing.23 Since then, a number of factors, in particular exercise of the right to buy, have led to a reduction in the size of the stock. That reduction has inevitably led to a change in the nature of the tenants, a process of residualisation, so that the population has become increasingly poor and economically marginal, and the sector has become a safety net for those who cannot gain access to market based forms of provision.24 Another relevant policy change is the transfer of stock from local authorities to housing associations through the process of large scale voluntary transfers. Under this policy, swathes of council housing have been transferred to housing associations, mostly specially constituted for this purpose.25 Transferred tenants change from being secure under Housing Act 1985 to being assured under Housing Act 1988. This trend seems likely to continue. Although the majority of social tenants still have a local authority for a landlord, the proportion of those with housing association landlords has risen from just over 2 per cent in 1976 to nearly 8 per cent in 2003.26 In the cases which we consider below, the landlords have principally been local authorities. It remains to be seen whether the transfer to the voluntary/ charitable sector will change the approach taken by judges which we identify.
Commercial Tenancies An overview of the legislative framework relating to this sector reveals both its longer history and its simpler development, in comparison with the social rented sector. The first statutory intervention, Part I of the Landlord and Tenant Act 1927, aimed to redress the imbalance between landlords and tenants which was a result of the shortage of business premises following the First World War. It did so by provisions designed to ensure that the landlord did not profit, at the end of a tenancy, from any improvements undertaken and goodwill built up by the tenant. However, in practice, the 1927 Act made it difficult for tenants to establish a claim for compensation, and did not enhance their security of tenure.
23 24 25 26
S Wilcox, UK Housing Review 2004/05 (London, CIH/CML, 2004) Table 17b. P Malpass, Housing and the Welfare State (Basingstoke, Palgrave Macmillan, 2005) ch 6. Ibid, ch 10. Wilcox (n 23) Table 17b.
Judicial Directions in Landlord and Tenant Law 47 A review of the legislation in 1950 by the Leasehold Committee (chaired by Lord Justice Jenkins) summarised the tensions in balancing the landlord’s property and management interests, and the tenant’s need for security which are still fundamental to this sector today.27 While acknowledging the need for security to protect tenants’ interests, it was said that this should not be of such an extent as to: Protect the bad tenant or perpetuate the inefficient business; [. . .] prevent the due expansion of existing businesses or the setting up of new ones; [. . .] promote stagnation and interfere with redevelopment or other desirable change.28
The policy context of the commercial sector remains much the same today and judicial decisions have to balance the same interests. The Landlord and Tenant Act 1954, Part II (with amendments in 1969 and 200329 which are outlined later) has provided the statutory framework for the commercial property market for 50 years. Protection is given where premises are occupied for business purposes,30 but only if there is a periodic tenancy or a fixed term tenancy of at least six months. The cornerstone is the provision that a business tenant’s existing lease will continue until determined in accordance with the 1954 Act,31 and there is a right to apply for lease renewal. The landlord can oppose the application to renew only on certain specified grounds. In most cases where there is a statutory right to renewal, the landlord and tenant in practice agree the terms of the new tenancy without the aid of the court. The grounds upon which the landlord is able to resist the tenant’s right to renew the tenancy,32 are similar to the grounds for possession which must be made out against residential tenants and reflect the broad policy concerns identified above.33 In contrast to the residential sector, the Landlord and Tenant Act 1954 (as amended) allows the parties to agree to a lease which excludes the security of tenure provisions, and for the tenant to surrender the lease (abandoning any renewal rights).34 Until recently, both types of agreement required court approval, but as Lord Denning said in Hagee (London) Ltd v Erikson and Larson, ‘the county court invariably approves such an agreement when it is made by business people, properly advised by their lawyers’.35 27
Lord Justice Jenkins (Chair), ‘Leasehold Committee: Final Report’ (Cmd 7982, 1950). Ibid, [143]. 29 Brought about by the Law of Property Act 1969, and the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (which came into force in 2004) respectively. 30 With exclusions for agricultural leases, mining leases and service tenancies: s 43. 31 S 24. 32 S 30(1). 33 See text accompanying n 28. 34 S 38. 35 [1976] QB 209 (CA) 215. This view still holds true today; research found a final refusal rate of between 0.8% and 3.3%; see DS Cowan, et al, Section 38 Landlord and Tenant Act 1954—Failed Applications (London, ODPM, 2003). 28
48 Sarah Blandy and Caroline Hunter In 1992, the Law Commission published a review which (eventually) led to the recent reforms to the statutory framework for the business sector.36 The review was necessary because the sector in 1954, and indeed in 1969 when contracting out was introduced, consisted of a myriad of small business tenants potentially needing protection from landlords, but had since developed in such a way that ‘many business tenants are more substantial businesses than their landlords’.37 Commentators have queried whether it is now necessary for business tenants to have greater security than that enjoyed by (generally private) residential shorthold tenants under the Housing Act 1988. Some have called for repeal of the Act altogether, leaving market forces to prevail. For example, it has been pointed out that, although the 1954 Act is an ‘unusually well drafted piece of legislation’, its original aims of preventing unfairness to tenants have been superseded by a need for flexibility, and the contracting out provisions mean that ‘the fundamental rationale for the existence of the statutory protection concerned could be called into question’.38 The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 brought in changes which, according to the Office of the Deputy Prime Minister, are designed to make the renewal and determination of business tenancies quicker, easier, fairer and cheaper, while leaving the main features of the 1954 Act intact.39 Agreements to exclude security and for tenants’ surrender no longer require court approval. The complex system of notices and counter-notices in respect of terminating and renewing tenancies, and in respect of interim rent, has been streamlined. This now minimal statutory framework applies across a very diverse sector, where separate property markets operate in respect of office, retail, and industrial premises. In each of these markets, which are subject to different economic cycles, the investment market exerts a strong influence on the landlord–tenant relationship. A recent report by the University of Reading found that flexibility, in the sense of enabling tenants to respond to a changing business environment during the lease, is increasing.40 However, small business tenants are still subject to ‘onerous, non-negotiable leases’, and upward only rent review clauses were standard. Some writers have concluded
36 Law Commission, ‘Landlord and Tenant: Business Tenancies: A Periodic Review of the Landlord and Tenant Act 1954 Part II’ (Law Com No 208, 1992). 37 M Driscoll, ‘Landlord and Tenant Act 1954: The Case for Its Repeal or, Failing That, Its Reform: Part 2’ (2003) 7(1) Landlord and Tenant Rev 4, 4. 38 D Neuberger, ‘The Finer Stephens Innocent Property Lecture 2000: Our Not So Flexible Friend’ (2000) EG 139, 139 and 141. 39 Office of the Deputy Prime Minister, Business Tenancies: New Procedures Under the Landlord and Tenant Act 1954, Part 2 (London, ODPM, 2004). 40 N Crosby, C Hughes and S Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (London, ODPM, 2005).
Judicial Directions in Landlord and Tenant Law 49 that ‘the political will is now in favour of greater regulation’,41 and indeed the government is currently considering whether to legislate on commercial property leases.42 Nevertheless, between the recent deregulation brought in by the Regulatory Reform Order 2003 and the prospect of further regulation on rent reviews, it can still be said of the commercial property sector that: ‘Save for the few areas where there is statutory regulation, the relationship between landlord and tenant will be dominated by the terms of the lease agreed between them’.43 An important difference between the commercial and the social rented residential sector is that negotiation of leases is common in the former, and non-existent in the latter. This overview shows a similar trajectory for legal regulation of both sectors, in that common law principles of landlord and tenant have been overtaken by statutory regulation. While further regulation is contemplated in the commercial sector, the Law Commission’s proposals for the reform of housing law would remove all residential tenancies from the realm of property law to the status solely of contract.44 It is also clear that there are very different policy principles underpinning the current statutory regimes as they operate at the beginning of the 21st century. The social rented sector is increasingly part of a residualised regime of welfare provision, while the commercial rented sector is an important part of a flourishing capitalist market. How then have these different policy imperatives driven the courts’ approaches to similar legal problems? STATUS OF OCCUPIERS
This issue is central to both legislative regimes, and is the focus of this chapter. Questions about the status of occupiers can arise at the outset, when occupation of residential or commercial property commences, and also when occupation continues at the end of a tenancy. In both landlord and tenant sectors examined here, it is clear which types of occupancy are within the scope of the relevant legislation. We are therefore concerned with evasions of, and arrangements outside, the statutory frameworks. The Landlord and Tenant Act 1954 applies to any tenancy where the demised property is, or includes, premises ‘which are occupied by the tenant and are so occupied for the purposes of a business carried on by him’,45 41
C Hunt, ‘Threat of Legislation Hangs Heavily’ [2003] EG 140, 140. Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005): ‘We will therefore continue to monitor the situation and retain the option to legislate in future if necessary.’ 43 S Bright and G Gilbert, Landlord and Tenant Law: The Nature of Tenancies (Oxford, Clarendon Press, 1995) 14. 44 Law Commission, ‘Renting Homes’ (Law Com No 284, Cm 6018, 2003). 45 S 23(1). 42
50 Sarah Blandy and Caroline Hunter with ‘business’ being given a wide definition.46 In the social rented sector, the Housing Act 1985 and the Housing Act 1988 both refer expressly to tenancies of a dwelling-house,47 but each statute creates a specific type of tenancy, respectively secure and assured. These specific tenancy types carry with them particular rights, apply only to the tenants of particular categories of landlord, and are dependent on the tenant occupying the property as his only or principal home. Moving in Here, we examine the courts’ decisions on arrangements which were made when the occupation commenced, and intended to be outside the statutory framework for both sectors. Such arrangements have taken the form of express agreements for a licence or tenancy at will. Bright and Gilbert suggest that in similar fact situations, the courts have tended to find licences in the private residential sector, and tenancies at will in the commercial sector.48 As we will see, a number of recent cases indicate that licences in the business sector are alive and well, particularly where expressly created to exclude the protection offered by the Act. First, however, we turn to licences in the social rented sector. One of the areas of greatest judicial activity in the 1980s related to the lease/licence distinction, and in particular how it played out for those in private rented accommodation.49 Legislative drafting in the Housing Act 1980 aimed to eliminate this debate. Accordingly, Section 48(2) of the Act provided that where under a licence: The circumstances are such that, if the licence were a tenancy, it would be a secure tenancy then . . . this Part of this Act applies to the licence as it applies to a secure tenancy.
In two cases,50 it was held that for Section 48(2) to apply, the licence had to grant exclusive possession. This was, of course, perfectly possible at the time given the state of the case law, but when the law was consolidated in 1985, the equivalent provision, Section 79(3) was worded slightly differently and provided that: The provisions of this Part apply in relation to a licence to occupy a dwellinghouse (whether or not granted for a consideration) as they apply in relation to a tenancy. 46
S 23(2). Housing Act 1985 s 79; Housing Act 1988 s 1. 48 Bright and Gilbert (n 43) 142. 49 See S Bright ch 2 of this volume. 50 Family Housing Association v Miah (1982) 5 HLR 94 (CA); Kensington and Chelsea RLBC v Hayden (1984) 17 HLR 114 (CA). 47
Judicial Directions in Landlord and Tenant Law 51 In Family Housing Association v Jones,51 the Court of Appeal held that given the decision in Street v Mountford, Section 79(3) must have been intended to alter the law and would confer security on a licensee who did not have exclusive possession. The issue came before the House of Lords in Westminster CC v Clarke.52 Mr Clarke was a homeless single man, who had been housed by Westminster City Council in a hostel. The hostel comprised 31 single rooms each with ‘limited cooking facilities’. The rooms were occupied by homeless single men with a range of different vulnerabilities. The occupiers, including Mr Clarke, signed a ‘licence to occupy’ which included a provision stating that exclusive occupation was not being granted and that: The accommodation allotted to you may be changed from time to time without notice as the council directs and you may be required to share such accommodation with any other person as required by the council.53
The issues which had to be considered by the House of Lords were whether Section 79(3) actually applied to non-exclusive licences, and if, in the circumstances, the licence which Mr Clarke had signed was non-exclusive. The simple answer to these questions was that the decision in Jones was wrong: Section 79(3) did not apply to non-exclusive licenses, and the licence here was non-exclusive.54 The first part of the decision is perhaps not so surprising. How, though, is the second justified? This is done entirely through considering the needs of the council as a landlord. Lord Templeman stated that: In reaching this conclusion I take into account the object of the Council, namely the provision of temporary accommodation for vulnerable homeless persons, the necessity for the Council to retain possession of all the rooms in order to make and administer arrangements for the suitable accommodation of all the occupiers and the need for the council to retain possession of every room not only in the interests of the Council as the owners of the terrace but also for the purpose of providing for the occupiers’ supervision and assistance.55
It was also suggested by Lord Templeman that this was: [A] very special case which depends on the peculiar nature of the hostel maintained by the council, the use of the hostel by the council, the totality, immediacy and objectives of the powers exercisable by the council and the restrictions imposed on Mr Clark.56 51 52 53 54 55 56
[1990] 1 WLR 779 (CA) 791. [1992] 2 AC 288 (HL). Ibid, p 297. Ibid, p 300. Ibid, p 302. Ibid.
52 Sarah Blandy and Caroline Hunter However, as Cowan pointed out at the time, the situation really was not very unusual, with many local authorities providing such facilities.57 For our purposes, the key point is the justification for the decision. In policy terms, the appeal is again to the needs of a social landlord in managing its stock. Its managerial needs require the rights of the occupier to be kept to a minimum. We now turn to the commercial sector where, given that it is possible to contract out of the 1954 Act, it is perhaps surprising that the courts are kept busy with cases concerning the status of occupiers. However, landlords apparently find the contracting-out process burdensome,58 and the option of contracting out provides a particular context for the decisions in commercial cases. Arguably, judges are influenced by the fact that express attempts to avoid protection are legitimated in this sector. In terms of the wider context, considerable information is now available to the judiciary about the sector as a whole,59 and about the way in which lawyers proceed when negotiating terms of occupation, as well as what those terms are likely to be. The same case law applies to lease/licence cases as in the residential sector, although: The indicia, which may make it more apparent in the case of a residential tenant or a residential occupier that he is indeed a tenant, may be less applicable or be less likely to have that effect in the case of business tenancies.60
It is apparent from many recent cases that the judiciary deals confidently with business licence cases on the basis of familiarity with typical leases. In National Car Parks Ltd v Trinity Development Company (Banbury) Ltd, the parties had signed a written agreement expressed to be a licence, and there was no suggestion that any of its terms constituted a sham.61 In departing from the view that the degree of control exercised by the lessor is the decisive factor in such cases, Arden LJ said that it would: Be a strong thing for the law to disregard totally the parties’ choice of wording and to do so would be inconsistent with the general principle of freedom of contract and the principle that documents should be interpreted as a whole.62
Therefore, in contrast with the approach laid down in Street v Mountford, here the freedom of the parties to contract, and their intentions as to the type of that contract, are of paramount importance. Arden LJ went on to draw a distinction between the situation where ‘healthy scepticism’ was 57
DS Cowan, ‘A Public Dimension to a Private Problem’ [1992] Conv 285, 290. J Morgan, ‘Avoiding Statutory Protection: Short Tenancies and Tenancies at Will’ [2000] Journal of Business Law 332. 59 Crosby (n 40). 60 Dresden Estates Ltd v Collinson (1987) 55 P & CR 47 (CA) 52 (Glidewell, LJ). 61 [2001] EWCA Civ 1686. 62 Ibid, [28]. 58
Judicial Directions in Landlord and Tenant Law 53 required because ‘the parties’ bargaining positions are asymmetrical’, with the situation, as in this case: Where two commercial parties have entered in to an agreement of this nature, calling it a licence, have received appropriate advice, they were aware of the importance of the term and they were intending to enter into such an agreement with an appreciation of its significance.63
The same familiarity with commercial realities and their accompanying legal documents can be seen in the comments of Parker LJ in Clear Channel UK Ltd v Manchester CC,64 where the occupier was arguing that a tenancy had been created despite an express clause in the contract declaring that it constituted a licence and did not confer a tenancy: the fact remains that this was a contract negotiated between two substantial parties of equal bargaining power and with the benefit of full legal advice. Where the contract so negotiated contains not merely a label but a clause which sets out in unequivocal terms the parties’ intention as to its legal effect, I would in any event have taken some persuading that its true effect was directly contrary to that expressed intention.65
In such circumstances, the healthy scepticism approach referred to by Arden LJ in National Car Parks is not required. We now turn to how the courts have treated the tenancy at will, a personal relationship between the parties which does not give rise to any proprietary interest. Soon after the introduction of the 1954 Act, it was established by Wheeler v Mercer that tenancies at will arising by operation of law are excluded from its protection.66 In that decision, we can see purposive interpretation of the legislation from Viscount Simonds, literal analysis from Lord Cohen, and a ‘where but for this decision would society end up?’ argument67 from Lord Somervell of Harrow, who said: ‘It would be absurd if a prospective purchaser, who had entered into possession pending completion, was within the Act’.68 All these different approaches arrived at the same decision. In the earlier cases concerning express agreements for tenancies at will, a protectionist stance was taken by the judiciary. In Manfield Ltd v Botchin, Cooke J was concerned lest ‘the policy of the Act was being evaded by the creation of tenancies at will of business premises’.69 This concern was echoed in Hagee. Here, Scarman LJ held, in words very reminiscent of Lord 63 64 65 66 67 68 69
Ibid, [26] and [29]. [2005] EWCA Civ 1304. Ibid, [29]. [1957] AC 416 (HL). A type of judicial approach identified by MacCormick (n 3) 104. Wheeler v Mercer [1957] AC 416 (HL) 435. Manfield Ltd v Botchin [1970] 2 QB 612 (QBD) 625.
54 Sarah Blandy and Caroline Hunter Templeman’s famous dictum in Street v Mountford, that: ‘Parties cannot impose on an agreement, by a choice of label, a nature or character which on its proper construction it does not possess’.70 In the same case, Lord Denning MR said that an express tenancy at will ‘is very rare. The court will look into it very closely to see whether or not it really is a tenancy at will or whether it is a cloak for a periodic tenancy’, but expressed the view that the occupier who enters into a tenancy at will ‘on proper advice with his eyes open . . . is bound by it’.71 Here, we see a forerunner of the more laissez-faire approach from the courts exemplified in the later licence cases discussed above. Indeed, the context has changed so that by 2000 it could be said that: ‘The three methods most favoured by landlords as ways of circumventing the 1954 Act are the licence, the express tenancy at will and the short lease’.72 ‘Classic’, rather than express, tenancies at will are commonly implied where an occupier is let in to the premises while the terms of the lease are negotiated. Increasingly frequently, the terms of the lease being negotiated while the premises are occupied under a tenancy at will include contractingout of the 1954 Act’s protection. In Javad v Aqil, Nicholls LJ warned that the courts must be wary of: Inferring or imputing from conduct, such as payment of rent and the carrying out of repairs, whose explanation lies in the parties’ expectation that they will be able to reach agreement on the larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties never had in contemplation at all.73
This perspective, from a later decision than Hagee, respects freely negotiated commercial transactions, rather than deeming one party to be in need of protection. Again, we find an emphasis on the intention of the parties, perhaps hardly surprising against the background of legislation which permits contracting out. This approach can be compared with that of the licence cases in the social rented sector, where the major factors are the purposes and the managerial needs of the local authority landlord.
Staying on In this section, we discuss the courts’ approaches to cases concerning occupiers who remain in occupation after their original tenancy, or (in the social rented sector) that of another person with whom they were living, has come 70 71 72 73
Hagee (London) Ltd v Erikson and Larson [1976] QB 209 (CA) 217. Ibid, p 215. Morgan (n 58) 332. [1991] 1 WLR 1007 (CA) 1014.
Judicial Directions in Landlord and Tenant Law 55 to an end. The status of such an occupier could potentially be that of tenant protected by the relevant legislation, tenant at will, tenant at sufferance, licensee, or tolerated trespasser.74 In the social rented sector, it is not uncommon for occupiers to remain in occupation after the tenant has departed. In general, they will be treated as unlawful occupiers and the social landlord will simply evict. In some cases, however, the landlord has accepted rent from the occupier. Does such acceptance create a tenancy to which security can attach? The answer to this question would seem to depend on two factors: the speed of action and attitude of the local authority, and the openness of the occupier. Therefore, in Westminster CC v Basson, the tenant moved out of the property leaving his former partner, Ms Basson, in occupation.75 Once the authority found out that this was the case, they wrote to her stating that she would be liable for specified charges for use and occupation, but that ‘in making the payments as Use and Occupation Charges this arrangement is not intended as the creation of a tenancy or a licence akin to a tenancy in any way whatsoever.’ Ms Basson subsequently applied for and received a rent rebate, and forms and internal documents referred to her paying rent and having a tenancy. Some 12 months later, the authority commenced possession proceedings, but subsequently the authority issued Ms Basson with a rent book. The county court rejected a claim that a tenancy had been created. In upholding this decision, the Court of Appeal found that the council’s letter was ‘entirely inconsistent with the proposition that the appellant was remaining in the council premises with [their] consent’.76 The subsequent events could not displace that inference. By contrast, in Tower Hamlets LBC v Ayinde, Mrs Ayinde remained in possession after the tenants had departed and over a period of two years tried to regularise her position.77 She paid ‘rent’ for the property and no steps were taken to evict her for some five years. Nourse LJ considered that the case must ‘be decided with well-established principles of the law of landlord and tenant’.78 In applying those principles, he found that a landlord with the knowledge of the council which had accepted rent without protest must unanswerably have accepted the rent-payer as a tenant. Wall J, agreeing with Nourse LJ, sought to distinguish Basson on the following basis: Inactivity by a local authority in the face of an ulteriorly motivated passivity by an unlawful occupier is one thing; inactivity in the face of persistent, honest and 74 Or, of course, a tenant by estoppel. We have decided not to discuss this status of occupier here because in the social rented sector cases are so rare, and in the commercial sector so complex, that comparisons are not fruitful. 75 (1991) 23 HLR 225 (CA). 76 Ibid, p 228. 77 (1994) 26 HLR 631 (CA). 78 Ibid, p 636.
56 Sarah Blandy and Caroline Hunter open assertions by an occupier of premises who is in exclusive possession, is paying rent on her own account and who is loudly asserting that she is a tenant leads, in my judgment on the facts of this case to what I conceive to be the only possible solution namely that she is indeed what she asserts.79
The key here in some ways seems to be the ‘deserving’ nature of the person holding over, in particular, their honesty and openness. This is a wellknown concept in welfare law—although the reasons for considering some deserving or not may change over time.80 Tenancies at will are rarely found, or even argued, in the social rented sector. However, Banjo v Brent LBC concerned a tenant holding over following a long tenancy, a tenancy type excluded from protection under the Housing Act 1985.81 Chadwick LJ, in a purposive analysis, found that this was not: ‘A case in which unusual facts point to a lacuna in the law which the courts must strive to fill. The law is clear. Parliament did not intend to provide security in cases of this nature’.82 Therefore, even if both landlord and tenant conditions were fulfilled, no statutory tenancy arose. This was not because of any intention of the parties. Rather it is justified because the policy of the 1985 Act was not to give security to this type of occupier, that is, a former long-leaseholder, however deserving. In the commercial sector, where an occupier holds over following the determination of a tenancy, the courts have been slow to find a periodic, and therefore protected, tenancy. The same considerations are applied as to tenancies at will at the commencement of occupation (discussed above), particularly where the occupier is holding over pending negotiations on the terms of a new lease. In Cardiothoracic Institute v Shrewdcrest Ltd, Knox J took into account ‘the machinery of the 1954 Act and the parties’ knowledge of its operation’ in deciding that there was no intention to create a periodic tenancy, pending agreement on a contracted-out tenancy.83 His Honour approved of a line of cases in which the existence of statutory protection had been ‘treated as a significant factor in evaluating the parties’ intentions in paying and receiving rent.’84
79
Ibid, p 639. See for example R Cranston, Legal Foundations of the Welfare State (London, Weidenfeld & Nicolson, 1985) ch 2; DS Cowan, Homelessness: The (In-)appropriate Applicant (Dartmouth, Aldershot, 1997) ch 2. Cowan suggests that the homeless may in some circumstances be seen as undeserving, and this may certainly have been the case with Mr Clarke in Westminster CC v Clarke [1992] 2 AC 288 (HL). See also Lord Browne-Wilkinson’s remarks (n 4). 81 [2005] EWCA Civ 292, [2005] 1 WLR 2520. 82 Ibid, [37]. 83 [1986] 1 WLR 368 (Ch) 379. 84 Ibid. 80
Judicial Directions in Landlord and Tenant Law 57 The continuing judicial awareness that landlords’ common law rights have been interfered with encourages decisions which aim to redress the balance. However, the decision in Walji v Mount Cook Land Ltd goes against this trend.85 It involved a lease for 7 years which had been agreed but not documented. Charles J held that it would be ‘sensible and reasonable for the law to fill the gap in the agreement reached between the parties by implying a periodic tenancy from what they did agree and all the surrounding circumstances’,86 which included the fact that ‘the Walji partnership could easily have found alternative premises in the “tenants’ market” that existed in May 1995’.87 Judicial confidence and knowledge of how the sector operates, allowed for a decision which departed from the norm. The final category of occupier status to be discussed here is that of the tolerated trespasser. For most social landlords, the reduction of rent arrears is a high priority. Arrears management, where other methods fail, is achieved through court action.88 At the court hearing, once the arrears are proved, the court will generally grant a suspended possession order, and in some cases an outright possession order, dependent in part on which the landlord is seeking.89 However, even after the possession order has been obtained, the landlord does not really want vacant possession of the property; what is desired is a regular income stream including a payment off the arrears. Indeed, vacant possession, whether caused by the tenant leaving voluntarily, or whether enforced by bailiffs, makes it far less likely that any payment of the arrears will be obtained. Therefore, as Lord Woolf recognised, social landlords do not really want possession.90 Yet, the legal structures are such that it is a possession order which they seek. However, once obtained, many landlords will permit the tenant to remain, notwithstanding an outright order or breach of a suspended order.91 What then is the status of the ‘tenant’ who has been allowed to remain in possession in these circumstances? This question was considered in two cases in 1996. The first was decided by the Court of Appeal in Greenwich LBC v Regan.92 The second, Burrows v Brent LBC, was decided some 10 months afterwards by the House of Lords.93 Both cases have been followed by a significant number 85
[2000] EWCA Civ 356. Ibid, [24]. 87 Ibid, [22]. 88 See H Pawson, et al, The Use of Possession Actions and Evictions by Social Landlords (London, ODPM, 2005). 89 On the outcomes of such cases see C Hunter, et al, The Exercise of Judicial Discretion in Rent Arrears Cases (London, DCA, 2005). 90 H Woolf, Access to Justice (London, HMSO, 1996) 202. 91 Which entitles the landlord to immediate possession, see Thompson v Elmbridge BC [1987] 1 WLR 1425 (CA). 92 (1996) 28 HLR 469 (CA). 93 [1996] 1 WLR 1448 (HL). 86
58 Sarah Blandy and Caroline Hunter of subsequent cases in the Court of Appeal, which have sought to work out the implications of these initial decisions for the landlord–tenant relationship. This is not the place for a detailed legal analysis of the decisions.94 Put briefly, the argument in both cases was that a new secure tenancy had been created. In Burrows, the tenant was permitted to remain in possession after the making of an outright possession order and, in Greenwich, allowed to remain in possession after failing to abide by the terms of a suspended order. In both cases the argument for a new tenancy with full security was based on the occupier continuing to pay ‘rent’ and a sum off the arrears after these events. The landlords argued that no new tenancy had been created, and both the Court of Appeal and House of Lords agreed. The issue became defining the status of a ‘tenant’ who continued in occupation after an order. It was resolved by the introduction of what seems to be an entirely contradictory concept: the ‘tolerated trespasser’. Contradictory in the sense that a trespasser is, by his or her very nature, occupying contrary to the wishes of the landlord, and surely a trespasser cannot really be expected to make regular payments? In Greenwich, the court briefly passed over alternative legal options as to the status of such an occupier: A landlord may allow a former tenant to remain in occupation after the expiry of his former tenancy without assent or dissent in which case he becomes a tenant at sufferance. Where the tenant’s continued occupation is with the landlord’s consent he may either be a tenant at will or a tenant under a new periodic tenancy. In the present case, the judge proposed another and more attractive alternative.95
Bright has described the tolerated trespasser as: A public sector tenant whose tenancy has been brought to an end by a possession order but who remains in possession of his or her home, paying for occupation, without the local authority taking any active steps to evict him or her. This situation can persist for many years. During this period, the occupier has no status as a tenant and enjoys none of the usual tenancy rights.96
Bright quotes Clarke LJ’s description of the tolerated trespasser in Pemberton v Southwark LBC as a ‘recent, somewhat bizarre, addition to the dramatis personae of the law’.97 How does Lord Browne-Wilkinson arrive at this bizarre position? First, his Lordship states that secure tenancies are not to be considered in the same way as other ‘ordinary’ tenancies.98 Since 94 See S Bright, ‘The Concept of the Tolerated Trespasser: An Analysis’ (2003) 119 LQR 495 and ch 2 of this volume for such an analysis. 95 Greenwich LBC v Regan (1996) 28 HLR 469 (CA) 475 (Millett LJ). 96 Bright (n 94) 495. 97 [2000] 1 WLR 1672 (CA) 1683. 98 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1455.
Judicial Directions in Landlord and Tenant Law 59 Section 85(2) of the Housing Act 1985 permits the court to vary the order prior to execution, until the date of execution the court can change the date on which possession is to be given and thereby ‘revive a secure tenancy which has already been terminated’.99 Further Section 85(4) of the Housing Act 1985 Act provides a specific power to the court to discharge or rescind an order for possession. These put secure tenants in a different position.100 Yet, this ignores the fact that Section 85(4) only relates to instances where the court has already decided to adjourn, stay, postpone or suspend the order for possession, and has imposed conditions which have been complied with.101 This would seem to have no application in the case of an outright order. Even Lord Browne-Wilkinson admits his method is ‘clumsy’.102 Nonetheless, the House of Lords was willing to accept that Section 85 was sufficient reason to overcome the evident absurdities found by the Court of Appeal in Burrows when hearing the case.103 There, it had been pointed out that at the rate of agreement reached between Brent and Ms Burrows it would have taken her 14 years to pay them off, during which time she would have been a mere trespasser. The answer to this from Lord Browne-Wilkinson, is the fact that she has the right to apply to the court to vary the order. Yet, unless she institutes the action and persuades the judge to exercise his powers, she will remain a tolerated trespasser for 14 years, and it is not clear that even if she pays for the full 14 years she will have a ‘right’ to have the tenancy revived. While the House of Lords mention in passing the effect of this limbo (no repairing covenants, no application of the Defective Premises Act 1972) their Lordships did not really consider the practical effects of their decision. They talk blithely of the tenant applying at any time to revive the tenancy and thereby retrospectively reviving the old secure tenancy, together with its covenants.104 Such issues have had to be considered in the numerous decisions which have since come before the Court of Appeal.105 How is this outcome justified by the House of Lords? In Burrows, Lord Browne-Wilkinson, who gave the leading judgment, begins by saying that the appeal ‘raises a question as to the rights of a tenant of a dwelling house let by a local authority’.106 Yet, the real driving force behind the conclusion can be seen later in the judgment:
99
Ibid. Ibid. 101 SS 85(2) and (3). 102 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1456. 103 (1995) 27 HLR 748 (CA). 104 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1456. 105 See Bright (n 94) for consideration of many of them, although they are still continuing some nine years since the decision; see most recently Newham LBC v Hawkins [2005] EWCA Civ 451. 106 Burrows v Brent LBC [1996] 1 WLR 1448 (HL) 1450–51. 100
60 Sarah Blandy and Caroline Hunter One factor which weighed heavily with the Court of Appeal in Regan (to which I also attach importance) is the practical effect of the decision under appeal, ie any consensual variation of an order for possession produces a new secure tenancy or licence. Local authorities and other public housing authorities try to conduct their housing functions as humane and reasonable landlords. In so doing they frequently need to grant indulgences to their tenants to reflect changes in the tenants’ circumstances.107
Therefore, here we have a view of the local authority landlord who makes ‘reasonable and humane’, concessions who can be expected to reach ‘sensible agreements’ with their tenants.108 As Lord Jauncey of Tullichettle put it: ‘Parliament cannot have intended to penalise a landlord who acted within the spirit of the 1985 Act by granting indulgences to defaulting tenants without going through time-wasting and expensive court proceedings.’109 It is important that it is local authority landlords who are at issue here, and it is clear that they can be expected to act in the paternalistic way referred to by Robertson.110 We might characterise the policy imperative which led to this decision as one which focuses on the needs of the landlord to manage its stock. It is presumed that the landlord will make decisions which are in the best interests of tenants, and therefore tenants can be left in a ‘limbo’ position, with their rights effectively abrogated. In the most recent decisions of the Court of Appeal, it has been emphasised that it will only be in exceptional circumstances that a new tenancy will be inferred rather than occupation as a tolerated trespasser;111 at least until a reconsideration of the point at which the House of Lords in the Burrows case ‘drew the balance between the interests of the tolerated trespasser and those of the former public sector landlord.’112 This formulation suggests that considerations of social policy, rather than doctrinal analysis, determine where the line is drawn.
CONCLUSIONS
In this ‘law in context’ analysis, we have focused on judicial decision-making related to the status of occupiers who are moving in, or staying on. By juxtaposing the case law in the two landlord and tenant sectors under discussion here, the divergent development between these sectors is highlighted. 107
Ibid, p 1455. Ibid. 109 Ibid, p 1460. 110 Robertson (n 7). 111 Newham LBC v Hawkins [2005] EWCA Civ 451; Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010. 112 Lambeth LBC v O’Kane, Helena Housing Ltd v Pinder [2005] EWCA Civ 1010 [64] (Arden LJ). 108
Judicial Directions in Landlord and Tenant Law 61 We suggest that this can be explained by the fact that judges are very much influenced by a common sense understanding of the policies which underlie the two statutory regimes. This is not expressed as a formal aid to statutory interpretation, but rather legislative purpose is not far from the surface of many judgements. There have been few real problems of statutory interpretation, in either sector. The question of whether a former long leaseholder could be categorised as a secure tenant was discussed in Banjo, as was the issue of whether tenancies at will fell within statutory protection, in Wheeler. However, most of the cases examined here have concerned the relationship of legislative provision and the common law of landlord and tenant. In seeking to reach a decision, many judges make reference to the words of Lord Denning in Marcroft Wagons Ltd v Smith, that ‘it is not correct to consider the common law position separately from the new position’, where that new position has been created by legislation.113 The alteration of the common law position, often to the detriment of the landlord, seems to be a factor weighing heavily in some decisions. Under the Landlord and Tenant Act 1954, Part II, the judiciary has been able to find a wide range of possible occupancy statuses, although there have been no innovations to compete with the tolerated trespasser in the social rented sector. In commercial cases, it is not unusual for all the options to be canvassed; for example in Javad v Aqil, the tenant argued for a periodic tenancy or alternatively tenancy by estoppel, and the landlord countered with tenancy at will or licence.114 It has been suggested that this breadth of range is due to commercial properties lending ‘themselves to a variety of physical uses and are subject to very different types of contractual restriction and control’.115 We would argue that the history of judicial decision-making in these cases has encouraged a flexible, common law approach by advocates. In narrower policy terms, a change in outcomes and judicial reasoning can be discerned from the 1970s, possibly as a result of the appointment of judges with more commercial experience.116 A greater knowledge of how the sector operates is displayed, and the early concern to protect the interests of tenants (following the purpose of the Act) has given way to a more realistic, confident and laissez-faire judicial style. We suggest that over time, the distinctive features of the commercial tenancy, as well as the statutory freedom to opt out, have influenced judicial decisions in this field, virtually displacing concern for protection of the tenant. 113
[1951] 2 KB 496 (CA) 505. The estoppel claim got no further than the County Court, and although the licence argument was mooted at appeal, it was not allowed to proceed. 115 M Haley, ‘Licences of Commercial Premises: A Return to Form’ [2002] Journal of Business Law 310, 310. 116 See for example the article by Neuberger (n 38), now a Lord Justice of Appeal, discussing the continued relevance of the 1954 Act, Part II, in the current commercial context. 114
62 Sarah Blandy and Caroline Hunter The comparison of decisions on the lease/licence distinction in the two sectors brings out some interesting points. There is an assumption in the social rented sector that there is no deliberate attempt to evade the Housing Act, contrasting with that in the private rented sector. Specific circumstances apply, of vulnerable and, to an extent, undeserving (the homeless) tenants and responsible landlords. There is a much smaller area for disputes, focused on circumstances which were not contemplated by the legislation. In the commercial sector, deliberate evasion of the 1954 Act poses no problems in the business environment and is not contrary to public policy in any way. The judiciary now assumes that both parties have had the benefit of legal advice and there is no disparity of bargaining power. In circumstances not controlled by express agreements, such as tenants holding over or going into occupation while negotiations continue in respect of terms, there is scope for the judiciary to ‘fill the gap’ in the parties’ intentions and decide on occupier status based on all the circumstances. When determining the status of occupiers following possession orders in the social rented sector, the judiciary has been inventive in conjuring up a wholly new status of occupier, while at the same time relying on the age old concept and get out of ‘intention of the parties’. Although the tolerated trespasser provides the most extreme example of judicial innovation, room for judicial manoeuvre appears severely restricted by statute in the social rented sector. However, this restriction may be self-induced; Pawlowski has suggested that the tenant at sufferance is a ‘form of tolerated trespasser’,117 while Cafferkey makes the point that there are significant similarities between the tolerated trespasser and the tenant at will, based on caselaw from the commercial sector.118 The decisions do not take a rights-based approach to the occupation of social housing. While judges are willing to examine the bigger picture, it is within a very narrow framework, which puts the perspective of the landlord at its centre and relegates the occupier to an object of social welfare who is to be indulged only to the extent that the landlord considers it appropriate. In both sectors, the majority of landlord/tenant relationships fit comfortably into the relevant statutory scheme—or in the commercial sector, have contracted out in accordance with the law—so never come to the notice of the courts. We have focused on the cases at either end of the spectrum: homeless, vulnerable occupiers in the social rented sector; and commercial sector occupancies which have come unstuck. When deciding on these
117 M Pawlowski, ‘Occupational Rights in Leasehold Law: Time for Rationalization’ [2002] Conv 550. 118 A Cafferkey, ‘Tolerated Trespass—What Does This Mean for the Former Landlord and Tenant’ [1998] Conv 39.
Judicial Directions in Landlord and Tenant Law 63 cases, we suggest that the courts rely on principles of contract and property, but do so in the shadow of the legislation which would otherwise apply. At one end, the policy justifications given in judgments are concerned with landlord managerialism of undeserving occupiers, and at the other with freedom of contract in commercial property transactions.
4 Commercial Leases Past and Present: The Contribution of the Law Commission STUART BRIDGE*
INTRODUCTION
F
the inception of the Law Commission, it is an appropriate time to consider its contribution to the law of landlord and tenant. The statute creating the two Law Commissions (one for England and Wales, and the other for Scotland) received Royal assent on 15 June 1965. Work at the Law Commission, chaired by Sir Leslie Scarman, commenced on 21 June 1965. Its first publication followed shortly thereafter on 19 July: the First Programme of Law Reform.1 The First Programme is a fascinating document setting out a real vision for law reform, and a collective enthusiasm for the work that was necessary. It contains no less than 17 items, some of which were delegated to other bodies (ad hoc or inter-departmental committees, or, in one case, the Criminal Law Revision Committee.) Item VIII reads as follows: ORTY YEARS SINCE
The basic law of landlord and tenant, even apart from legislation controlling rents and securing tenure, is unduly complicated, anachronistic in many respects and difficult to ascertain. It is to be found in a very large number of statutes and cases, is largely self-contained and in the Commission’s view is suitable for ultimate codification.
An example of these difficulties was the law of waste and distress for rent, and the Commission decided that was a good place to start. Subject to this,
* The author acknowledges his gratitude for the assistance and support in writing this paper of Julia Jarzabkowski, Barrister, Law Commission, who presented an earlier draft on his behalf at the conference, and to Joel Wolchover, Research Assistant, Law Commission. 1 Law Commission, ‘The First Programme of Law Reform’ (Law Com No 1, 1965).
66 Stuart Bridge the first Commissioners recommended: ‘That an examination be made of the basic law of landlord and tenant with a view to its modernisation and simplification and the codification of such parts as may appear appropriate’.2 Codification was all the rage in the 1960s. The Law Commissions Act itself, defining the statutory duty of the newly created bodies (‘to take and keep under review all the law . . . with a view to its systematic development and reform’), gave special mention to ‘codification’ as one of the methods such development and reform might take.3 Landlord and tenant law was not alone in getting the codification treatment: also lined up, as Item I of the First Programme, was the entire law of contract, and criminal law and family law were soon to follow in the Second Programme, published in 1968.4 A major problem with codification, at least in the context of our common law jurisdiction, is what exactly it means. As the Commission once explained, ‘Codification of the law is an exercise which can be interpreted in a number of ways’.5 It can mean simply a comprehensive re-statement of the existing law (much of which may be contained in decided cases) in the interests of accessibility, without any reform of the rules themselves. Or, it may include clarification of such parts of the law as are uncertain, and incorporate reforms to deal with defects which have been identified. It is in this latter sense that the Commission has generally understood codification. The form it takes may also vary. The ideal may be a single statute of the law as revised providing a comprehensive statement accessible to all. But that is hardly realistic today, given the resources that would be required to effect such an objective. More likely is a series of instruments which together provides a composite body of principle to which reference can be made. Forty years on, we do not have a Code of Landlord and Tenant Law in any of these guises. Nor, do we have a Code of Criminal Law, or Contract, or Family Law. Only criminal law codification remains on the agenda of the Law Commission, all the others have withered on the vine. Landlord and tenant did not, in truth, ever get very far: An Interim Report on Distress for Rent was published in 1966, a Report on Business Tenancies in 1969, and a Report on the Obligations of Landlords and Tenants in 1975.6 2
Ibid, p 10. Law Commissions Act 1965 s 3(1). 4 Law Commission, ‘The Second Programme of Law Reform’ (Law Com No 14, 1967). 5 Law Commission, ‘Landlord and Tenant: Reform of the Law’ (Law Com No 162, Cm 145, 1987) [3.2]. 6 Respectively, Law Commission, ‘Landlord and Tenant: Interim Report on Distress for Rent’ (Law Com No 5, 1966); Law Commission, ‘Landlord and Tenant: Report on the Landlord and Tenant Act 1954 Part II’ (Law Com No 17, 1969); and Law Commission, ‘Codification of the Law of Landlord and Tenant: Report on Obligations of Landlords and Tenants’ (Law Com No 67, HC 377, 1975). 3
The Contribution of the Law Commission 67 But by 1978, the Commission was having to back-track. It seems to have bitten off rather more than it could chew: It is now clear to us that the task of preparing a complete code of the basic law of landlord and tenant is immense and cannot be completed for a long time unless resources are devoted to it on a scale which is at present impossible. We have therefore decided that it is not realistic to try to embody in one report, with clauses, all the material which would be required for a comprehensive code. . . . Such a report would be too large for us to produce as a single exercise: we also think that pressures on Parliamentary time would make it extremely unlikely that a Bill of the required length would be enacted.7
There are two factors at play here: resources, and implementation prospects. As far as prospects of implementation are concerned, the Commission was (by 1978) learning from experience. In particular, although it had published its Report on Obligations of Landlords and Tenants in 1975, no steps had been taken to implement the report, and government had recently intimated there were no prospects for introduction of a Bill during the current Parliament.8 Although the Commission stated in 1978 that it would in due course (on completion of the work then being conducted on termination of tenancies and covenants against dispositions, alterations and change of use) review its commitment to the codification project, that was really the end of it. By 1987, the Commission was indicating publicly that codification was at best ‘a long term aim—very long term, at the present rate of progress’.9 Codification of the entire law of landlord and tenant is now no longer a realistic objective. But that is not to say that we should not take such opportunities as may arise to clarify existing principles in the course of remedying defects in particular areas of landlord and tenant law. It could be said that the current Renting Homes project, based though it is on a new vision for the future of residential leases and licences, effects something of a codification of housing law at least as it applies between landlords and those occupying their properties. It is interesting, if one goes back to 1965, to observe in Item VIII of the First Programme, the tacit acceptance that legislation controlling rents and dealing with security of tenure was not ‘appropriate’ for consideration by the Law Commission. For good reason, the Commission has always tended to steer away from matters which are intensely political (in particular party political).10 Devoting public resources to a project which is only likely to bear legislative fruit in the event of a certain party being in government 7 8 9 10
Law Commission, ‘Annual Report 1978’ (Law Com No 92, HC 87, 1978) [2.34]. Nothing ever came of the 1975 Report. Law Commission, ‘Landlord and Tenant: Reform of the Law’ (n 5) [3.2]. Sir Michael Kerr, ‘Law Reform in Changing Times’ (1980) 96 LQR 515, 516.
68 Stuart Bridge would be extremely difficult to justify. It would lead to accusations of partiality, and the Commission’s true independence from government would come under scrutiny. But it may be that an area that is at one time controversial ceases to become so as the political climate changes, and the possibility of the Commission making a useful and important contribution to law reform may ultimately arise.11 It would have been inconceivable in 1965, when the Law Commission was founded, that it consider the legislative regulation of housing law. The 1950s had seen an attempt by the Conservative government to de-regulate the private sector of housing by removing residential tenancies from the control of the Rent Acts. Following the return of Labour in 1964, that de-regulation process was reversed, the Rent Act 1957 was shown the door, and new legislative controls on the powers of landlords were introduced, including (in response to the phenomenon of Rachmanism) the first statutory provisions imposing criminal liability for eviction and harassment. For the next 20 years or so, the political football of the Rent Acts was kicked between the parties of government (and further division was caused (at least initially) by the reforms of public sector housing law initiated by Margaret Thatcher’s administration in the early 1980s, notably the introduction of the public sector tenant’s right to buy and the statutory conferment of security of tenure on tenants of local authority landlords). Even in 1990, it would have been inconceivable that the Law Commission could undertake a broadly based housing law project. However, once the new Labour Government of 1997 accepted in principle the statutory changes wrought by the Conservatives in this area since 1979, the way was clear for the first review by the Law Commission of this vitally important area of the law. With a background of consensus, it is hard to think of a project more ideally suited to the resources and abilities of the Law Commission. The 40th anniversary of the Commission is, therefore, a most appropriate time to publish the Report and Bill on Rented Homes.12
BUSINESS TENANCIES: LANDLORD AND TENANT ACT 1954 PART II
The legislative regulation of business tenancies pre-dates the establishment of the Law Commission.13 Part I of the Landlord and Tenant Act 1927 11 For another recent example of changes to the political climate enabling the Commission to carry out particular law reform projects, see the inclusion of Cohabitation in the Ninth Programme of Law Reform: Law Commission, ‘9th Programme of Law Reform’ (Law Com No 293, HC 353, 2005). 12 Law Com No 297, Cm 6781, 2006. 13 For the history of regulation, see: M Haley ‘The Statutory Regulation of Business Tenancies: Private Property, Public Interest and Political Compromise’ (1999) 19 Legal Studies 207.
The Contribution of the Law Commission 69 (recognised as the first statutory incursion into this territory), was of relatively limited impact, conferring on business tenants the right to compensation on quitting the premises for their improvements and for loss of goodwill. The specific limitations of these provisions, and their failure to address concerns about the tenant’s security, were noted by the Leasehold Committee (the Jenkins Committee) when it reported in 1950.14 Three years later, government accepted that tenants should obtain better security: The landlord of business premises, when an existing tenancy comes to an end, should have the right to resume possession himself if he requires the premises for the purpose of his own business or for the purpose of a scheme of redevelopment. If, however, he does not require the premises for himself for one of these purposes, he is entitled as landlord to a fair contemporary market rent for the premises—neither more nor less: and if the sitting tenant is willing and able to pay that rent and to enter in to other reasonable terms of tenancy, then the sitting tenant has a greater right than any alternative tenant to the tenancy on those terms.15
Part II of the Landlord and Tenant Act 1954 duly followed. It set up an elaborate and complex court-based process which required landlords and tenants to engage in a carefully choreographed series of steps following expiry of the tenancy, should the landlord wish to terminate or the tenant wish to obtain a renewal. Not only did the legislation put the court at the very hub of the process of renewal or termination, it built numerous traps for the unwary with untold consequences for those who failed to abide by its strict time limits and other procedural requirements. There can be few statutes, if any, which have been the catalyst for more professional negligence claims than the 1954 Act. The Law Commission has reviewed the operation of the statute on two occasions, reporting in 1969 and 1992. On the first of these exercises, in the course of its examination of the law of landlord and tenant pursuant to Item VIII of its First Programme, it made several recommendations for its reform.16 Its view was that on the whole the legislation had worked well, but that in the 14 years of its existence, it had become apparent that ‘in several respects the provisions of the Act have given rise to uncertainty or are likely to cause inconvenience or even injustice.’17 To its Report was appended a 13 clause Bill. In accordance with the Commission’s invocation ‘that the relevant provisions should be clarified or amended
14
Lord Justice Jenkins (Chair), ‘Leasehold Committee: Final Report’ (Cmd 7982, 1950). Government Policy on Leasehold Property in England and Wales (Cmd 8713, 1953) [43]. 16 Law Commission, ‘Landlord and Tenant: Report on the Landlord and Tenant Act 1954, Part II’ (Law Com No 17, HC 38, 1969). 17 Ibid, [1]. 15
70 Stuart Bridge without delay, pending an overall review of the law relating to leases of business premises’,18 its recommendations were implemented within the year by the Law of Property Act 1969. If there is a single theme underlying the 1969 reforms, it is an acceptance that where commercial tenancies (as opposed to residential tenancies) are concerned, there is rather less need for paternalistic intervention, and rather more for contractual autonomy. In particular, it was difficult to justify the degree of overarching protectiveness still prevalent in the residential sector where the Rent Acts held sway. Two reforms in particular aimed at meeting the need for greater flexibility: extending to 6 months the period for which tenancies may be granted outside the operation of the Act, and permitting parties to ‘contract out’ of the protective machinery on condition that they obtain the prior sanction of the court. Twenty years later, the Law Commission conducted a ‘periodic review’ of Part II of the 1954 Act. In the following Report, it once more accepted the utility of the machinery contained in the statute, explaining: The 1954 Act is an established part of the commercial property market and the practices of that market develop and change over the years, so it is appropriate for the statutory provisions to be reviewed from time to time to ensure that they are still fulfilling their intended purpose.19
As in 1969, it made recommendations for reform, on the basis that, although the Act as a whole was working well, certain details could be amended to ‘increase its usefulness and eliminate unnecessary formalities’.20 The reforms were not radical. They aimed to retain the renewal process on the grounds of familiarity to professional advisers and property owners; to maintain the overall balance between landlord and tenant; and, to be broadly neutral. More significantly, perhaps, there was a recognition (sometime before the civil procedure revolution instigated by the Woolf reforms) that the statutory procedures were too court-based: Although it must always be possible to refer disputes to court, to ensure that those involved can enforce their statutory rights, it should not be necessary to take proceedings as a routine part of the procedure. Recourse to the court should be kept to a minimum to cut out expense and delay for the parties and to reduce unnecessary burdens on the court system.21
Unlike 1969, these recommendations were not seized upon with enthusiasm by government and implemented in a fervoured flurry of legislative activity. Indeed, for many years, it seemed unlikely that anything would happen at all. At last, in 2000, Government announced that it would consult on its 18 19 20 21
Ibid. Law Commission, ‘Business Tenancies’ (Law Com No 208, HC 224, 1992) [1.3]. Ibid, [1.3]. Ibid, [1.9].
The Contribution of the Law Commission 71 own proposals (themselves based upon the 1992 recommendations of the Commission) to improve the working of the 1954 Act. Shortly afterwards, Parliament passed the Regulatory Reform Act 2001, enabling the reform of existing primary legislation by means of statutory instrument. The business tenancy recommendations became in time something of a flagship for this new legislative procedure, and they were finally implemented (although not by any means in all respects) by the catchily titled Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. It came into force on 1 June 2004. There is, without a doubt, very considerable affection for Part II of the 1954 Act, at least among legal practitioners. It is part of the vernacular. Adept litigators have enjoyed the buzz of precipitous time limits; notices and counter-notices; arguments about waiver; applications to strike out; all of which gives the process a mystique and allows its actors to clothe themselves in the mantle of specialist. It would be a great loss to the folklore of the county court, if the business tenancy jurisdiction were to be lost. But as a result of the deep inroads made into the protectionist legislation governing residential tenancies (the Rent Acts) and agricultural holdings by the Housing Acts of 1988 and 1996 and the Agricultural Tenancies Act of 1995, Part II of the 1954 Act now presents as something of an anachronism. Indeed it seems rather surreal that the one sphere where there is robustly protective legislation holding back market forces is the commercial sector of lettings. It can be said, of course, that unlike the Rent Acts and the Agricultural Holdings Acts, application of the 1954 Act is in a sense voluntary. Since 1969, it has been possible to contract out of the protective machinery provided that prior judicial sanction has been obtained, and such sanction has always been forthcoming (assuming that the application came within the court’s jurisdiction22). Since 2004, contracting out no longer requires the blessing of the court, and the parties can do it of their own volition. It is not, of course, possible to predict with any degree of confidence the effect of this reform, but there must be a reasonable likelihood that in a few years’ time a diminishing rump of commercial tenancies remain within the confines of the 1954 Act (as the vast majority have been contracted out). If contracting out becomes the norm, then what will be the point of retaining the jurisdiction? Will it serve any useful purpose? Or will it simply provide an irritation (and sometimes a very costly irritation) for those who fail to comply with the (not particularly onerous) conditions necessary for successful contracting out? 22 ‘We are told that the court inevitably approves such an agreement when it is made by business people, properly advised by their lawyers. The court has no materials on which to refuse it’: Hagee (London) Ltd v AB Erikson & Larson [1976] QB 209 (CA) 215 (Lord Denning MR).
72 Stuart Bridge Neuberger J (as he then was) made this very point (with considerably more erudition and elegance) some 5 years ago, at a time when contracting out still required the intervention of the court: If, in 1954, the philosophical, social and commercial arguments favoured giving commercial tenants statutory protection, the legislature apparently thought that the position had shifted by 1969, so that it was open to parties to contract out from such protection. I would suggest that, in the ensuing 30 years, matters have now moved on to such an extent as to question the need for any protection.23
It is ironic that the recommendations of a ‘periodic review’ (which inevitably takes account of the economic circumstances then prevailing, together with such projections as are available) should have taken some 12 years to be implemented. It is to be hoped that next time the legislation is considered, a rather shorter time elapses between Report and implementation. In the light of the recent amendments to the 1954 Act, the central question of a future review may well concern the continuing justification for regulation of business tenancies.
ASSIGNMENT AND ASSIGNABILITY
Two important statutes can trace their ancestry to work of the Law Commission. In one case, Parliament enacted the Commission’s (eventual) recommendations wholesale, in the other, they were ravaged by the legislative process.
Landlord and Tenant Act 1988 For over 50 years, where a tenant had covenanted not to assign, sub-let or otherwise part with possession without the landlord’s prior consent, the tenant had been able to challenge the landlord’s refusal of such consent on the grounds of reasonableness or the imposition by the landlord of unreasonable conditions.24 This legislative modification of covenants restricting disposition was, however, limited in one important respect: it did not apply where the prohibition on disposition was absolute. It was, therefore, open to landlords (where they could obtain agreement by the tenant) to circumvent entirely the statutory protection, and to bar totally any dealing with the tenancy. As the Commission noted in a 1985 Report: It is difficult to avoid the suspicion this had not been fully appreciated during the Parliamentary proceedings. Otherwise why slam the front door on contracting-out 23 24
Sir David Neuberger, ‘Our Not So Flexible Friend’ Estates Gazette, 30 September 2000, 139. Landlord and Tenant Act 1927 s 19(1).
The Contribution of the Law Commission 73 by the words “notwithstanding any express provision to the contrary”25 while leaving open the back door to using absolute covenants?26
That Report covered, as well as covenants against disposition, covenants restricting alterations and change of user. Central to the debate was the question of absolute covenants, and the view reached by the Commission was that (as a matter of principle, and subject to certain exceptions), where absolute covenants against disposition were concerned, absolute covenants should become regulated. The Report contains an interesting insight into the propriety of such an approach: [We] start from the position that a basic incident of the tenant’s rights of property is that he should be able to dispose of the property by assignment, subletting or otherwise. When he is prohibited or restricted from so doing, whether by statute or by the terms of the tenancy, an inroad is made on what would otherwise be his common-law right. In the final analysis, therefore, it is the landlord’s freedom to impose such a prohibition or restriction which has to be justified rather than a proposal that Parliament should place a limitation on that freedom. The effect of an absolute covenant is not to prevent a landlord from sanctioning the prohibited act but to allow him to be arbitrary or unreasonable in deciding whether to allow it and, if so, on what terms. In principle, a landlord should not, in our view, be able to impose terms which allow him to make arbitrary and unreasonable decisions so as to prevent a tenant from exercising one of his rights of property. . . .27
Reading this passage, the nagging question throughout is: ‘What about the landlord’s interests?’ It is the landlord who has granted the tenancy. Doing so was a voluntary disposition of property by the landlord. Surely, it is up to the landlord to dispose of that property on whatever lawful terms he or she wants. It is not only the tenant who has rights of property (consequential upon the term), so also has the landlord (consequential upon the reversion). The point was not lost on one of the then Commissioners, Brian Davenport QC, whose dissent from the resulting recommendation is recorded in a footnote to the Report.28 As it happened, the recommendation to regulate absolute covenants across the board was never implemented. No Bill was appended to the 1985 Report. But soon after its publication, the Conveyancing Standing Committee encouraged the Commission to press forward with those parts of the Report which sought to confer better remedies on the tenant, where
25
Ibid. Law Commission, ‘Covenants Restricting Dispositions, Alternations and Change of User’ (Law Com No 141, HC 278, 1985) [4.6]. 27 Ibid, [4.15]. 28 Ibid, [4.31], n37A. 26
74 Stuart Bridge the landlord failed to give consent within a reasonable time or at all. Timely criticism of landlords’ practices by the Court of Appeal further emphasised the need for reform in this area.29 Two years later, a Bill was duly published by the Commission in its Report on Leasehold Conveyancing. It did not take forward the recommendations concerning absolute covenants, and landlords would, therefore, remain free to extract them from tenants. Although the 1985 Report had highlighted the risk that fully qualified covenants would be slightly less attractive to landlords in view of the potential liabilities they now faced, the Commission believed the risk was small because ‘absolute covenants against dispositions are not generally acceptable to tenants, and we doubt whether it would be possible for many landlords to impose such covenants’.30 So it has proved. The resulting statute, the Landlord and Tenant Act 1988, which implements word for word the Bill appended to the Law Commission Report, is a short but hard-hitting enactment imposing civil liability (in damages) on landlords who delay unduly in deciding whether to grant consent to the tenant’s assignment or sub-letting, or who fail to give reasons for withholding such consent when asked. It has transformed the process of seeking consent to assignment and sub-letting has reduced the risk of the tenant losing a transaction as a result of landlord inertia, and has led in some cases to very substantial damages being awarded to the tenant, where the landlord has broken his statutory duty.31 It is, of course, important that a balance be maintained between landlord and tenant, but recent case law has certainly indicated that while the tenant may have better procedural weapons with which to strike the landlord, the substantive question of the reasonableness of the landlord’s refusal has not been significantly altered.32
Landlord and Tenant (Covenants) Act 1995 The Landlord and Tenant (Covenants) Act 1995 is principally concerned with the effect of assignment on the liability of the parties under the covenants contained in the tenancy. It is instructive to go back to the Law 29
29 Equities Ltd v Bank Leumi (UK) [1986] 1 WLR 1490 (CA) 1494 (Dillon LJ). Law Commission, ‘Leasehold Conveyancing’ (Law Com No 161, HC 360, 1987) [1.4]. The Report continues: ‘If we are wrong in this and there is any move towards absolute covenants, this would be an additional reason for the remainder of our Report to be implemented.’ 31 Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC 324 (Ch), [2005] 1 WLR 1 (Peter Smith J). (Damages over £150,000, including exemplary damages of £25,000, awarded to claimant tenant.) 32 T Fancourt and S Lloyd Holt, Licences to Assign: Another Turn of the Screw? (Blundell Lectures 30th Annual Series, 2005). 30
The Contribution of the Law Commission 75 Commission Report, dating from 1988, which set the ball rolling. The mischief, it should be remembered, was ‘first tenant liability’, or, as it is sometimes (rather misleadingly) known, the ‘privity of contract principle’. Once a tenant, always a tenant. At common law, the original tenant would be liable throughout the duration of the term, irrespective of the number of assignments which may have taken place since he ceased to be tenant himself, and that liability may extend to payment of higher rents following review.33 Liability would similarly be vested in subsequent tenants, as they would normally be expected as a condition of the grant of consent to assignment, to enter into a direct covenant with the landlord to the same effect. The ideological purity and intrinsic neatness of the initial reform proposals did not survive the implementation process. The end product is a political compromise which, possibly more by good fortune than by design, achieves a balance between landlord and tenant that could be much worse than it is. The Consultation Paper, published in 1986, provisionally proposed the abolition of the privity of contract principle, with the effect that lawful assignment of the term would effect an automatic release of the tenant’s covenanted liabilities.34 The Report, published in 1988, recommended that the landlord would be entitled to enforce a guarantee (given by the outgoing tenant on assignment) of the liabilities of the incoming assignee.35 Whether the landlord would be entitled to extract such a guarantee in the first place, would depend upon its reasonableness as a condition of the grant by the landlord of consent to assign. This would involve an orthodox application of Section 19(1) of the Landlord and Tenant Act 1927. By 1988, therefore, the Law Commission had recognised that in certain circumstances it would be reasonable for the landlord to have the assurance of a continuing guarantee from the outgoing tenant. After all, if the tenant was presenting an assignee to the landlord as a respectable and responsible person who was good for the rent, then it seems objectively fair for the tenant to put his money where his mouth is. But that was where the buck should stop: as the Commission put it, ‘Continuing liability as guarantor is limited to the period of the immediate assignee’s ownership because that is the period for which the reasonableness of the condition can be judged in advance’.36 The 1988 recommendations remained, however, unacceptable to those representing the interests of commercial landlords. The deal finally 33 Centrovincial Estates plc v Bulk Storage Ltd (1983) 46 P & CR 393 (Ch), as explained in Friends Provident Life Office v British Railways Board [1996] 1 All ER 336 (CA). 34 Law Commission, ‘Landlord and Tenant: Privity of Contract and Estate: Duration of Liability of Parties to Leases’ (CP No 95, 1986). 35 Law Commission, ‘Landlord and Tenant Law: Privity of Contract and Estate’ (Law Com No 174, HC 8, 1988). 36 Ibid, [4.15].
76 Stuart Bridge brokered during the Parliamentary process gave those landlords, as a trade off for the loss of the security of the first tenant’s covenant, greater control over assignment, by amendment of the Landlord and Tenant Act 1927. Landlord and tenant could now agree (usually in the terms of the tenancy, but at any time before consent to assign was sought by the tenant) on specific circumstances in which consent may be withheld, and on specific conditions subject to which consent may be granted. Once such an agreement is made, satisfying the necessary statutory criteria, consent may be withheld in those specific circumstances or granted only subject to the specific conditions, without fear of challenge by the tenant under the 1927 Act on the grounds that consent is being withheld unreasonably, or that the conditions being imposed are unreasonable. As a result of this amendment, it has become standard in commercial leases for the covenant restricting alienation to be drafted so as to ensure that a condition of granting consent is that the assigning tenant enters into an authorised guarantee agreement (AGA). That covenant will, of course, bind successive assignees of the tenancy thereby enabling the landlord at any time during the term to have resort, not only to the current tenant, but also to the tenant who immediately preceded him. It may be that this is (if somewhat fortuitously) a reasonably fair balance that has been achieved. The remainder of the Landlord and Tenant (Covenants) Act 1995 is a useful piece of legislation that has clarified some of the difficulties concerning the running of covenants between landlord and tenant, and that has introduced welcome protections for former tenants (in particular the requirement that the landlord serve written notice within 6 months of rent becoming due that they intend to pursue a guarantor or former tenant). There remain areas of contention: the divide between personal covenants (which do not run), and landlord covenants and tenant covenants (which do) is by no means easy, and its relationship with the antiavoidance provisions may require further judicial analysis and exploration.37
STATE AND CONDITION OF PROPERTY
In a survey of Law Commission work on commercial tenancies, it is easy to overlook the Report on Responsibility for State and Condition of Property.38 The catalyst for the project was the 1985 decision of the Court of Appeal in Quick v Taff Ely,39 that starkly exposed the failure of English 37 BHP Petroleum Great Britain Ltd v Chesterfield Properties Ltd [2001] EWCA Civ 1797, [2002] Ch 194; and London Diocesan Fund v Avonridge Property Co Ltd [2005] UKHL 70. 38 Law Commission, ‘Responsibility for State and Condition of Property’ (Law Com No 238, HC 236, 1996). 39 [1986] QB 809 (CA).
The Contribution of the Law Commission 77 law to impose on landlords of residential property what Americans would call a ‘warranty of habitability’.40 Although section 8 of the Landlord and Tenant Act 1985 remains extant, it is restricted in its application to premises let at rents which are so low any tenant living there would feel embarrassed to complain of anything.41 And section 11 of the same Act does not come to the tenant’s rescue in circumstances such as Quick’s case where what is complained of (there a defect in the design of the building) cannot be described as disrepair. In order to deal with the deficiencies highlighted by Quick, the Commission recommended that there should be implied into leases of dwelling-houses for a term of less than seven years (the same leases to which Section 11 applies) a covenant by the landlord (subject to certain qualifications) that the house is fit for human habitation at the commencement of the lease, and that it would remain so fit throughout the term. The fitness standard to be imposed should be that then utilised as the threshold for local authority enforcement of housing standards under the Housing Act 1985.42 The remainder of the Report was not, however, confined in its application to residential leases. There were three principal recommendations of particular import. First, that on the grant of any lease, the parties should make express provision to allocate the responsibility for repair of the property, and that in the absence of such provision being made, responsibility should fall on the landlord. This was to avoid the pitfall of tenanted property, for which neither landlord nor tenant had any repairing responsibility. Second, that all repairing obligations, whether owed by the landlord or the tenant, should be capable of specific enforcement. Third, all those in lawful occupation or possession of property belonging to another should be subject to a code of basic obligations as to the manner in which they treat the property. This would involve the abolition of both the tort of waste, and the implied covenant of ‘tenant-like user’ and their replacement with limited, but clearly defined, duties to take proper care of the property. Despite a warm reception being accorded to the Report, the Government has yet to decide whether to implement its recommendations. In the meantime, a difficulty has arisen with those recommendations dealing with the fitness of residential premises. The Housing Act 2004 introduces a new ‘public law’ regime for the assessment of housing conditions and the enforcement of housing standards, including new enforcement procedures. The new regime no longer relies upon the statutory fitness standards contained in the Housing Act 1985, the relevant provisions of which are repealed. Instead, it operates by reference to the existence of categories of hazard. Local authorities are 40
Javins v First National Realty Corporation 428 F 2d 1071 (1970). See: Landlord and Tenant Act 1985 s 8(4) which provides that for lettings on or after 6 July 1957, the rent must not exceed £80 pa in London, or £52 pa elsewhere. 42 S 604. 41
78 Stuart Bridge now expected to survey the premises, to identify any deficiencies, and to determine whether any of the hazards listed in the statute (and there are 29) are present. This assessment is based on the risk to the potential occupant who is most vulnerable to that hazard, on the principle that a dwelling that is safe for those most vulnerable to a hazard is safe for all. A hazard rating is expressed through a numerical score. If that score puts the hazard into category 1 (so that it is a category 1 hazard), then the local authority must act. If the hazard is in category 2, the local authority has a discretion, but no duty, to take action. In determining which action is appropriate in a given case, the authority may take into account the risk to the actual occupant of the property from the hazards which have been identified. Somewhat surprisingly, the Housing Act 2004 makes no provision whatsoever concerning the civil liability in damages of the landlord whose premises fail to attain the basic standards of habitability. Yet, it would seem obvious (or at least fair and just) that tenants should be entitled to claim damages in those cases where they suffer personal injury, or other losses consequential upon the landlord’s failure to achieve the standards expected of them. The enactment of these new provisions has really put into stark relief the omission of the Government to respond to the Law Commission’s 1996 Report. It may be that as far as residential property is concerned, the recommendations contained in the 1996 Report may be given substantial effect in the statute that implements our forthcoming Report on Rented Homes. But the recommendations concerning commercial property are valuable, and they should not be lost sight of. They also deserve a home.
TERMINATION OF TENANCIES
No Law Commission project has had a more protracted history than Termination of Tenancies. First mooted in 1968 as part of the codification plan, it has been honed down from an examination of all methods of termination imaginable (notice to quit, surrender, disclaimer, repudiation, frustration, denial of title), to how most effectively to replace the current law of forfeiture. A Report was published in 1984, but it was another 10 years before the Commission published the Bill giving effect to the recommendations contained in the Report. Following criticism of that Bill, in particular by those acting for commercial landlords, the question of termination by physical re-entry (to be abolished according to the Report and Bill) was revisited, and the policy decision taken to include some albeit limited provision for self-help. The implementation of the Human Rights Act 1998, and the civil procedure reforms, had in the meantime rendered much of the 1994 Bill obsolete. A further consultation exercise (the first in 20 years) was conducted as a necessary prelude to delivering further
The Contribution of the Law Commission 79 instructions to Parliamentary Counsel to prepare a new Bill.43 There are no observers of landlord and tenant law more expert or experienced than HH John Colyer QC. His view of the law of forfeiture, judicially articulated in Rexhaven Ltd v Nurse, is shared by many familiar with the area: Unless and until this particular legal minefield . . . is codified and reformed and some element of rationality introduced thereto, there will always be startling anomalies. Odd, and uneven, and unexpected, and unforeseeable results—some people would say unfair results—will constantly occur until this minefield is cleared.44
The problems with forfeiture begin with the fundamental flaw that the landlord who terminates the tenancy before the term expires in response to some breach of covenant or condition by the tenant must do so by effecting ‘re-entry’. The doctrine of re-entry carries with it an unnecessary and unhelpful quantity of baggage. Most forfeitures are now effected by means of court proceedings, rather than by self-help. Yet, excessive dependence on the underlying doctrine of re-entry distorts the picture, and the re-entry metaphor takes over. This was the problem in Billson v Residential Apartments Ltd.45 The dawn raid on the tenant’s premises (while the property stood empty) was lawful, being an exercise of the right reserved by the landlord in the lease. It effected the immediate termination of the tenancy, and the instant transformation of the occupiers from tenants to trespassers. That, said the landlords, is that. On re-entry, the tenancy ends, and there is no need for our action to be sanctioned judicially. The tenants cannot apply for relief under section 146(2) of the Law of Property Act 1925, as they can only do so where we are ‘proceeding’, and we have ‘proceeded’. The landlord’s argument was utterly compelling in its logic, and it required considerable ingenuity on the part of Lord Templeman to give the tenants jurisdiction to apply for relief. As the Commission has said, re-entry ‘made good sense at a time when actual re-entry could nearly always be practised, and when it nearly always resulted in the tenant departing from the property with no prospect of relief’.46 But since 1964, residential tenants have been protected from eviction without due process of law,47 and, since 1977, it has been a criminal offence to use or threaten violence to secure entry to any premises where someone is opposing that entry.48 Relief is granted, of course, where the tenant pays any outstanding rent (together with interest and the landlord’s 43 44 45 46 47 48
Law Commission, ‘Termination of Tenancies for Tenant Default’ (CP No 174, 2004). (1995) 28 HLR 241 (Ch) 255. [1992] 1 AC 494 (HL). Law Commission, ‘Forfeiture of Tenancies’ (Law Com No 142, HC 279, 1985) [3.3]. Protection from Eviction Act 1964, now replaced by Protection from Eviction Act 1977. Criminal Law Act 1977 s 6.
80 Stuart Bridge costs), and in most cases, where the breach complained of is effectively remedied, and in some cases where it is not. As physical (‘peaceable’) re-entry has declined in popularity (no thanks to the Court of Appeal in Billson, whose decision would have had a dramatically contrary effect), it is much more common to claim forfeiture by action before the courts. But here too, the re-entry fiction taints the process. ‘Constructive’ re-entry takes place when the proceedings are issued (and served). From then on, although the tenant remains in possession pending resolution of the landlord’s claim, the tenancy is over, and the (former) tenant is seeking in those proceedings to reinstate the tenancy (either by denying the effectiveness of the forfeiture itself, or, more likely, by petitioning the court successfully for relief). This is, obviously, detrimental to the tenant. Unless he or she does something, they will be out. But, it is not that great for the landlord either, as the equally pernicious law of waiver may turn round and bite him. The tenant is no longer a tenant, and should not therefore be treated as such. If, having notice of the tenant’s breach, the landlord (or for that matter his or her agent) deals with the tenant on the basis that the tenancy is continuing (for example, by doing something so extraordinary as making a demand for rent in respect of the premises the tenant occupies),49 then the landlord is in trouble. Irrespective of what the tenant actually understood from the landlord’s conduct, the right of re-entry will be waived, the tenancy will revive and the landlord’s opportunity to recover possession will be gone. If you were asked to design a workable system governing the termination of tenancies by landlords in response to default by their tenants, you wouldn’t start here. And once it is accepted that recovering possession by self-help is, as it should be, the rare exception rather than the general rule, then it becomes obvious that the starting point for any reform should be termination by order of the court. Unless, and until, the court makes an order terminating the tenancy, the tenancy should continue. That is the most important principle underlying the reforms to the law which the Law Commission is intending to recommend. The doctrine of re-entry (together with waiver) is not by any means the only defect of the current law. Whilst it must be right that the tenant should be given proper notice of the landlord’s contentions before any proceedings are commenced, the section 146 procedure is not by any means ideal. Its limitations emphasise another peculiar aspect which permeates the whole system, the dichotomy between those cases which involve non-payment of rent and those which do not. Is there really a need for two distinct regimes, applying not only to the notice requirements but also to the rules concerning relief? And, what about relief itself? Should it be the case that paying off rent arrears (and interest, and costs) always lets the tenant off the hook, even 49
Segal Securities Ltd v Thoseby [1963] 1 QB 887 (QBD).
The Contribution of the Law Commission 81 where the tenant is a proven recidivist whose persistent late payments have caused the landlord untold trouble and inconvenience? Should it be the case that remedying a breach of covenant has a similar effect? And (considering possible injustice to the tenant), does the doctrine of ‘stigma’ sometimes operate disproportionately too? Then, there are those who hold derivative interests: sub-tenants, mortgagees. It is far from clear which interest holders are entitled to claim relief, as the Court of Appeal has recently experienced.50 It is common sense, and natural justice, that where they are entitled to claim relief, they should obtain due notice of what the landlord is contemplating, so that they can make application in good time. But that is not currently the case. Finally, there is the tricky issue of self-help. Should ‘physical re-entry’ ever be permitted? Castigated by Lord Templeman as ‘dubious and dangerous’,51 there is no question that it should ever apply in relation to residential tenancies, at least where the tenant remains in occupation. There is, however, a strong body of opinion that it should continue to have some application as a remedy where the circumstances are such that it would be unreasonable to expect the landlord to commence proceedings. The Law Commission’s project aims to provide a better system than that currently available to deal with the termination of tenancies by landlords in response to default by the tenant. It envisages a scheme which requires the early exchange of necessary information; which is transparent; and, which sets out clearly what the landlord must do in order to terminate and what criteria the court must adopt in deciding whether or not the tenancy should be terminated. There should be as few unnecessary pitfalls as possible. In every case, the landlord should, before commencing proceedings (or seeking to invoke self-help), serve on the tenant a notice in writing (in prescribed form) informing him what obligations have been broken, and what should be done, by when, to put them right. The tenant’s breach of obligation will be a ‘tenant default’ triggering the operation of the scheme without any need for a specific clause (such as a forfeiture clause) in the tenancy agreement. The landlord’s notice must be served within six months of the landlord knowing of the tenant default, and the landlord has six months from the date of service of the notice in which to commence proceedings. (Where the landlord has asked the tenant to remedy the default, the six month period to commence proceedings should run from the date by which the landlord required the default to be remedied.) In order to ensure that those with derivative interests should be able to intervene and to put their case, they should also be served with the landlord’s notice. The class of derivative interest holders entitled to service should be defined by statute. 50 Croydon (Unique) Ltd v Wright [2001] Ch 318 (CA); and Bland v Ingrams Estates Ltd [2001] Ch 767 (CA). 51 Billson v Residential Apartments Ltd [1992] 1 AC 494 (HL) 536.
82 Stuart Bridge Once the landlord has served the notice, and the requisite time has elapsed, the landlord should then be entitled to commence proceedings. The court will only have jurisdiction to make a termination order on proof of grounds set out in the statute. If the court considers that the tenant should be given time to put the default right, it may make a remedial order. It may be useful for the court to have power to make an order for sale of the tenancy (in particular, where long residential leases are concerned, but it may also be that commercial tenancies with a significant capital value could be the subject of a similar order). There is much to be said for ‘structuring’ any discretion which the court may exercise so that it is clear to the parties, and the judge, on what basis the court is to act. This may assist the parties to resolve their differences amicably, without resort to the court process itself. The court should be expected to respond in a manner which is proportionate to the circumstances, that is the seriousness of the default; the potential windfall gain of the landlord; and, the effect of the order on other parties, such as those holding derivative interests in the tenancy. There should also be a statutory checklist of factors to which the court is to have regard. The recovery of possession by self-help should be strictly controlled, and, in particular, that it should not confer any hidden incentives. To the extent that it is permitted it should be open, not secret, and the tenant should have plenty of warning of the landlord’s intentions so that he can take appropriate preemptive action. The Report on Termination of Tenancies has had a prolonged gestation period, but the recommendations it contains, and its accompanying Bill, have derived the full benefit of wide consultation with interested parties and will present a wholly viable and fully developed alternative to the current law of forfeiture. By its improvements to the legal process of tenancy termination, the Report will provide an altogether fairer and more effective system than that which currently prevails. Its publication will comprise a further important contribution by the Law Commission to the rational development of the law of commercial leases.
5 Commercial Leases: Future Directions SANDI MURDOCH*
INTRODUCTION
F
15 years, commercial leasing practices have been of serious concern to successive governments. Ensuring that organisations can occupy premises on terms that do not inhibit the operation of their businesses has been an important plank in the United Kingdom’s economic strategy. Whilst there have been some important pieces of legislation during this period, governments have largely chosen to try to produce change by voluntary, rather than statutory means. Change has, indeed, occurred. Furthermore, it has been significant. The purpose of this chapter is to examine what influences commercial leases; to show how these have already brought about change; and, against this background, to consider their future direction. OR THE PAST
TRADITIONAL INFLUENCES ON THE SHAPE OF COMMERCIAL LEASES
Property Market Players and Investment and Lending Criteria The nature of the commercial occupier and investment markets has changed significantly since the Second World War.1 At the beginning of this period, the vast majority of commercial occupiers were small scale operators, and their landlords were the large landed estates and small investors.
* This chapter draws heavily on work done over many years with Prof Neil Crosby, and more recently with Cathy Hughes, both of the Department of Real Estate and Planning at the University of Reading. Their inestimable contribution is warmly acknowledged. 1 See generally: O Marriott, The Property Boom (London, Abingdon, 1967); and A Baum and N Crosby, Property Investment Appraisal (London, Routledge, 1988).
84 Sandi Murdoch This has changed dramatically. Although small business tenants remain significant, much of the better quality and well located property is now occupied by large corporate organisations; every high street and shopping centre demonstrates all too clearly the dominance of large national chains, especially in the retail, leisure and service sectors. There have been similar major shifts in ownership patterns culminating in large elements of the higher value properties moving to major investing institutions and property companies. The insurance companies and pension funds did not seriously enter the property market until the 1960s. In 1964, they owned just £851 million of property; by 1970, their property holdings had risen to £2 billion; and, by 1982, these had climbed to £17.5 billion.2 They have continued to have a significant presence ever since. The latter part of the 1990s and early part of the 2000s has seen a return of the smaller investor. This has, in part, been brought about by the poor performance of the stock market, coupled with a more flexible government policy on personal pensions, notably by the introduction of Self Invested Personal Pensions (‘SIPPs’).3 The attraction of property had occurred as a result of a change in investment criteria in the early 1960s; this was because inflation in the economy (a major driver of investment returns) was not performing as expected. In the first part of the 20th century, inflation had always been followed by periods of deflation. By 1960, however, prices had risen every year since the end of the war and investors realised that this was not another temporary phenomenon. This meant that investments producing fixed incomes over long terms (such as government bonds) were no longer well-regarded. Growth incomes, such as equity dividends, were perceived as affording protection against continuous inflation, and these started attracting the interest of the major investors. Property was seen as having the potential to be a growth, inflationproofed, investment. However, in order for it to demonstrate the new investment characteristics, it was essential for the traditional leasing arrangements to change so as to allow investors to participate in rental value gains. In particular, this meant that the ability to bring the rent into line with current rental values, during the currency of a lease was critical. In the 1950s, leases were very long and usually at rents fixed for the whole term; only 5 per cent had rent reviews in them at all, and, where rent reviews did exist, the rental changes were usually pre-determined. Until these features changed, property could not offer the hedge against inflation now demanded by investors.
2 See generally: C Darlow, (ed), Valuation and Investment Appraisal (London, Estate Gazette, 1983). 3 Such a scheme allows individuals to choose their own investments for their pension funds and it is clear that many are choosing to invest in commercial property, see generally: C Hallett, ‘Take a SIPP of Strength’ Estates Gazette, 29 June 2002, 127.
Commercial Leases: Future Directions 85 A survey of good quality retail property leases from 1945 onwards shows that between 1945 and 1961, the normal rent revision period did come down to 21 years; this was either because longer leases were starting to include 21-year reviews, or because the lease length itself was simply 21 years without review.4 However, it was the second half of the 1960s that shows the beginning of a dramatic change. By the late 1960s, around twothirds of leases had rent reviews, with many of these adjusting the rent to current open market rent, rather than stipulating fixed increases. The interval between rent reviews had reduced to 14 years, with some seven-year reviews starting to appear. By the early 1970s, lease lengths were usually 20–25 years, and the review pattern had shifted to five-yearly. This was to remain the norm until 1990. By the 1980s, the commercial property market was in the midst of a boom that was to continue throughout that decade. Landlords were in a dominant position, and this meant that a standard form of lease representing a near perfect investment vehicle was created during this period. At the quality end of the market, leases were almost invariably for 25 years, with five-yearly upwards only rent reviews to open market, on terms that rendered the tenant responsible for all repairs, services and other outgoings. The landlord’s position was further bolstered by the principle of original tenant liability, which came to be coupled with the standard practice of imposing a similar liability on any assignees by way of direct covenants. In this way, in the event of tenant default, the landlord could recover from any or all former tenants. Not surprisingly, the lure of such a secure long-term form of investment strongly attracted both home and overseas investors into the commercial property market. However, it is not only pure investors who have influenced the structure of commercial leases: lenders have also played their part. This is not surprising given that bank lending to property companies has increased from around £2 billion in 1980, to over £100 billion in 2003 (when other lenders are added it is estimated that this figure stood at some £135 billion at 31 March 2004).5 Lending criteria for an investment property focus on the amount of income (and its stability) and the length of the lease. Therefore, the level of rent must be adequate to cover interest payments; the unexpired term of the lease must exceed the period of the loan; and, the level of rent must be incapable of reduction. In this way, lenders as well as investors demand longer term leases on institutional terms. Despite the increasing number of big players on the tenant side of the equation, the relative shortage of good quality property in the right locations and intense competition between national chains left tenants ill-placed
4 5
Baum and Crosby (n 1). Money into Property (London, Debenham Tie Leung, 2004).
86 Sandi Murdoch to resist the inexorable rise of the institutional lease during the 1980s. Furthermore, even though this form of lease developed in the context of prime property, its impact was such that many of its features trickled down into leases of lower grade premises. As a result, many tenants were effectively compelled to take leases of a length and on terms that bore little relationship to their business requirements. Even this did not matter in a strong property market, since tenants with no further need for their premises could readily assign their leases. However, once the market turned, tenants (and former tenants) paid the price of unsuitable leases.
Valuation Methodology Valuers are a major influence on both the operation of the property market, and the structure of commercial leases. In the absence of a homogenous market of similar assets with a high number of transactions, valuations often take on the role of notional sales in setting the asking price for commercial property. The short-term performance of property is largely measured by adjustments to capital values made in regular asset valuations, and the balance sheet then shows the resultant property asset values. In this way valuations can influence the price at which the investor will be prepared to sell. The comparison method of valuation is still dominant. The predominance of leases on standard terms virtually eliminates the need to assess the value of non-standard terms. Therefore, where abnormal lease terms do exist, pricing the difference is not based on established techniques, and is usually estimated ‘intuitively’. Even where once abnormal terms become more common, there has been a lack of rigour in collecting and using market evidence. A good example of this is provided by the more widespread use of tenants’ break clauses. Valuers almost invariably value on the assumption that the break is exercised, although such evidence as exists indicates that this occurs in only a small proportion of cases. The result is that the valuation discount applied to unusual lease terms is often greater than appears to be warranted by more analytical approaches, and becomes a significant disincentive for landlords to provide more diverse leasing arrangements. Although there has been some improvement in recent years, the pricing of unusual lease terms remains a problem. There is now some technical support with the development of lease pricing models, and the more systematic collection of market data; however, there is no real evidence that more sophisticated pricing is yet feeding into everyday valuations.6
6 N Crosby, C Hughes and S Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (London, ODPM, 2005) 308–9.
Commercial Leases: Future Directions 87 Business Practices and Space Requirements The way in which tenants operate their businesses has an obvious impact not only on the space that they require, but also on the terms on which they wish to hold that space. In manufacturing, the mass production of standardised goods involving heavy capital expenditure on plant and machinery required large premises held on either a freehold basis or very long leases. Manufacturers would handle both production and distribution, and would take the property to meet those requirements. Organisations requiring office premises would employ staff on a traditional long term basis, and take the space necessary to accommodate them. Neither would be overtroubled by long leases. Even large retailers were often single outlet high street operators keen to protect their location with very long leases. All this is changing. What manufacturing remains often involves the use of high technology which demands greater flexibility within the property resource, including the ability to change the configuration of existing buildings, and to change functions within and between buildings. Manufacturing has also had to become more locationally flexible in order to be near to an appropriately skilled workforce. This all leads to the need for lease structures which enable production to be readily modified or moved. Production and distribution are now often separated, with distribution being outsourced to companies dependent on short-term contracts which need to take premises on terms that permit termination should those contracts not be renewed. The requirements of the office market are also changing. Technology is replacing routine tasks, and facilitating the provision of services from a single base, to a wider range of locations; technology and more flexible attitudes to working is allowing more workers to operate from home. There are also clear signs that organisations are distinguishing more clearly between their core and peripheral business, and demanding different leasing structures for each. Even retail is changing. Major retailers are more sensitive to instant trading success, and are more prepared to pull out of poor performing locations. Increases in different modes of shopping such as tele- and internet shopping may shift the balance of retail space from retail to warehouse. While relatively long leases are still required (largely to offset high fit out costs) exit strategies are becoming more important.
The Legal Influences Legislative Intervention Although parliament has exercised a relatively light touch in respect of commercial property, some statutes have had a particular influence on the shape of business leases. Section 19(1) of the Landlord and Tenant
88 Sandi Murdoch Act 1927 and its amendment in respect of assignment provisions in post-1995 leases of business premises,7 has profoundly affected the disposal of such leases. Equally important in shifting the balance of power on assignments and sub-letting has been the Landlord and Tenant Act 1988. However, pride of place for influential piecemeal intervention goes to the Landlord and Tenant (Covenants) Act 1995. In theory at least, the abolition of original tenant liability has moved the investment goalposts for landlords. The value of leasehold investments is no longer underpinned by the covenant strength of the original tenant: equally serious attention now has to be paid to each successive assignee. 2003 saw the implementation of the Land Registration Act 2002, and this brought many more business leases into the net of registration than was previously the case. The fear that the new Land Registry forms for registered leases would effectively impose a standard form lease have receded: the so-called ‘prescribed clauses’ requiring, in effect, very limited information about the lease terms rather than the inclusion of standard terms.8 Perhaps, more importantly for the property market, registration makes both the lease terms, and any side agreements intended to bind successors in title open to public inspection. Although commercially sensitive material can be edited out, the procedure is applicant specific, and the protection disappears where the lease or the reversion changes hands. As yet, there is little or no evidence either as to the approach of the Land Registry to exempting parts of lease documents, or as to the number of applications for such exemption. However, over the longer term, there seems little doubt that much more information on commercial lease transactions will come into the public domain. However, the biggest single statutory influence on commercial leasing in the post-war period has, of course, been Part II of the Landlord and Tenant Act 1954 (as amended in 1969 and 2004). As originally implemented, the 1954 Act conferred perpetual security of tenure on all occupying business tenants. Not only did this protect tenants in the operation of their business, it also breathed life (and value) into the fag end of their leases and gave tenants, particularly those in well-located premises, a real economic interest in their premises. Furthermore, the basis on which leases are renewed means that it is difficult for landlords to modernise lease terms (save where the tenant is agreeable); opposed changes in lease terms will only be supported by the courts where they are reasonable, and bringing lease terms into line with current market practice is not, of itself, reasonable.9 Although landlords can oppose a renewal, this has to be based on statutory grounds, and 7 8 9
Landlord and Tenant (Covenants) Act 1995 s 22. See: E Slessenger, ‘One L of An Improvement’ (2005) 69 Conv 282. O’May v City of London Real Property Co Ltd [1983] 2 AC 726 (HL).
Commercial Leases: Future Directions 89 institutional landlords of good quality property can find it impossible to regain possession. However, after 1969, it became possible to contract out of the Act and, although this was almost certainly intended to be confined to short term lettings,10 the Act permitted the contracting out of leases of any length, subject only to prior court approval. Whilst it was probably thought that the courts would strictly control the process, subsequent case law established that there was no jurisdiction to withhold approval of the lease.11 Indeed, the courts’ only function was to ensure that the tenant was aware that statutory rights were being foregone. The change from a process that was expected to involve close supervision by a judge to one that, over time, became a rubber-stamping exercise (often conducted over the counter by court staff) had massive ramifications. The principle was established that, whatever the length of the lease and whatever the circumstances of the letting, the parties could choose to contract out of the Act.12 Issues over contracting out became questions of procedure rather than principle. This meant that the abandonment in 2004 of what had become a token court process,13 and its replacement by a prior notice requirement was not treated as a matter that would affect the fundamental balance of the Act.14 Legislative Non-intervention Just as parliamentary intervention influences the shape of commercial leases, so does its failure to act affect the way in which they function. Major reform proposals by the Law Commission, notably on forfeiture, repairing obligations, distress and compensation for tenants’ improvements have not to date found their way onto the statute book. Whilst with the help of expensive legal advice, the parties can usually muddle their way through the antiquated rules in these areas, this is no way to run a business.
10 Law Commission, ‘Landlord and Tenant: Report on the Landlord and Tenant Act 1954, Part II’ (Law Com No 17, HC 38, 1969) [32]–[33]. 11 Hagee (London) Ltd v AB Erikson and Larson [1976] QB 209 (CA); and The Receiver for the Metropolitan Police District v Palacegate Properties Ltd [2001] Ch 131 (CA). 12 The reality is, of course, that landlords usually make clear that this is the only basis on which the lease will be granted; the tenant’s freedom of choice is often illusory. 13 The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 Art 22 repeals s 38(4) and introduces a new s 38A. 14 See: Law Commission, ‘Business Tenancies’ (Law Com No 208, HC 224, 1992) [2.17]–[2.19]. However, when these proposals came to be implemented, the House of Lords Select Committee considering Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 did require some persuasion on this issue, see: Select Committee on Delegated Powers and Regulatory Reform, ‘25th Report’ HL (2003).
90 Sandi Murdoch Lawyers and Lease Documentation Given the largely non-interventionist approach by the legislature to commercial lease terms and the general reluctance of the judiciary to disturb the status quo, the devil of business leases lies in their detail. This, of course, rests in the hands of the lawyers drafting them. The technical skill of specialist commercial property lawyers has become highly developed. By the end of the 1980s, the ability of those advising landlords to create excessively lengthy lease precedents dealing with every possible eventuality and full of tricks and traps (especially in the provisions relating to rent reviews, service charges and tenants’ breaks) had become legendary. These skills were put to further good use in the later 1990s to cope with the changes in the law on assignment, and to bolster the protection of landlords facing the prospect of sub-lettings at below the passing rent. Where draft leases of this nature are sent out in respect of long leases of prime property and to tenants with equally expert legal advice no real harm is done; legal egos lock horns, compromises are eventually struck and only the wallets of wellheeled clients suffer. However, these precedents have drifted down into less skilled (or less well-resourced) hands, and been used in respect of shorter length leases and lower value property. This produces a tendency for secondary property to be subject to unnecessarily complex leases and for smaller business tenants to be left bewildered by lease documentation that they can neither understand nor afford to have properly explained to them.
Taxation and Accounting Inevitably national and local taxation impacts on commercial lease terms. So, for example, the introduction of VAT brought amendments to most commercial lease precedents. More important for present purposes, is how taxation can impact on the shape of commercial leases in general. A useful recent example is the introduction of Stamp Duty Land Tax (SDLT) as a replacement for the old Stamp Duty. The latter tax was not payable on leases of 7 years or less, where the rent was under £5000 pa and, where payable, was charged purely on the average rent and any premium. Under SDLT, all leases are now capitalised at a standard 3.5 per cent discount rate for the term of the lease, and duty is charged to the occupier at 1 per cent of the amount by which the capitalised value exceeds £150,000. Although there is a view that this will increase the pressure for shorter leases (and will lead to a decrease in tenants’ break clauses and an increase in options to renew), the impact of tax incidence is not straightforward. A 15-year lease will, indeed, have a greater initial tax liability than a shorter lease of, say, 5 years. However, over the 15 years, the occupier on the short lease will have to renew twice and pay tax each time, no doubt on a higher rent if
Commercial Leases: Future Directions 91 rental value expectations implied by the level of equivalent yields actually materialise. There have also been proposals by the International Accounting Standards Board to change the way in which leases are reflected in company accounts. If implemented, these will force occupiers to identify occupational leases (which currently do not have to be entered on the profit and loss account), and to capitalise them in their accounts. If these proposals are adopted, the effect of capitalisation of lease liabilities could increase the pressure from occupiers for shorter leases.
Government Pressure Since the early 1990s, governments, regardless of hue, have been exerting pressure on landlords to offer their commercial tenants greater choice and flexibility in their leases. In particular, the present Government regards greater flexibility in commercial leasing practices as an important part of its business agenda. This means that it is not only the Office of the Deputy Prime Minister (‘ODPM’) that is surveying the scene, but also the Treasury. There was already an awareness that original tenant liability was proving particularly onerous during the property recession, hence the implementation of the Law Commission proposals on the subject was moving onto the front burner.15 Government interest had also been prompted by the Burton Report,16 which had claimed that retail tenants were being put under unnecessary additional burdens as a result of undesirable practices in the commercial lettings market. The then Department of the Environment therefore issued a consultation paper in 1993, which mooted the possibility of statutory intervention on upward only rent reviews, confidentiality clauses and dispute resolution procedures. The results of that consultation persuaded the Government that legislation was not yet necessary, and that the better way forward was to persuade the property industry to adopt a voluntary code of practice. The first Code of Practice for Commercial Property Leases was launched in 1995. The operation of this Code was monitored for 3 years. It was found that the Code itself had had virtually no impact since it was not widely used.17 However, there had been some significant changes in leasing practices, driven initially by the poor market conditions of the very early
15 Law Commission, ‘Landlord and Tenant Law: Privity of Contract and Estate’ (Law Com No 174, HC 8, 1988). 16 J Burton, Retail Rents—Fair and Free Market (London, Adam Smith Institute, 1992). 17 See: DETR, Monitoring the Code of Practice for Commercial Leases (London, DETR, 2000).
92 Sandi Murdoch 1990s, but sustained despite the improving market of the mid to late 1990s. In particular, lease lengths had become shorter and more diverse, and the greater prevalence of tenants’ break clauses had continued. Nevertheless, the upward only rent review clause had remained king, with no movement towards alternative forms of review. That said, its impact was not so widespread because of the greater incidence of leases which were too short to contain any review. It was also found that, especially among the small business tenant community, an understanding of commercial lease terms was poor, and many unrepresented tenants took leases on the first terms offered. The government again refrained from statutory intervention, but did press for a more robust code of practice which was to be more vigorously promulgated. This second Code was issued in 2002, and was, again, subject to independent monitoring. Following the publication of an interim report by the monitoring team which suggested that there was still little movement on upward only rent reviews,18 the government upped the pressure by publishing, in May 2004, a consultation paper on options for deterring or outlawing the use of upward only rent reviews.19 The monitoring team was also asked to conduct some additional research on the continued use of upward only reviews. The final report on monitoring the 2002 Code showed that its dissemination had been markedly more successful than the previous one, although its penetration to smaller tenants was still poor.20 Despite this, there was little evidence that it was having any direct impact on individual lease negotiations. Nevertheless, there were signs of increasing choice and flexibility in some aspects of commercial leases, although there were some difficulties in assignment and sub-letting provisions. The upward only form of rent review was still virtually universal where reviews existed, but it was found that over 50 per cent of leases were now free from review. Furthermore, there was clear evidence that, although landlords were not actively offering alternative forms of review, nor were tenants seeking them, and that, even if offered, tenants were not prepared to pay the price for an up/down review. This report, and the responses to its consultation on upward only rent reviews, persuaded government that sufficient progress was being made and the threat of legislation on rent review clauses has, for the time being, been removed. However, further monitoring has been promised, and the prospect
18 N Crosby, C Hughes and S Murdoch, Monitoring the Code of Practice for Commercial Leases (Interim Report) (London, ODPM, 2004). 19 ODPM, Commercial Property Leases: Options for Deterring or Outlawing the Use of Upward Only Rent Review Clauses (London, ODPM, 2004). 20 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6).
Commercial Leases: Future Directions 93 of statutory intervention on assignment and sub-letting has been left dangling.21 The pressure therefore remains.
THE CHANGING FACE OF COMMERCIAL LEASES
A combination of the above influences, together with dramatic shifts in both the general economic picture and the property market, have undoubtedly brought about some significant changes to the commercial leasing scene in the last 15 years. If it was the property boom of the 1980s which brought about that perfect investment vehicle—the institutional lease—it was the long and deep property recession, which started in 1989 and lasted until the mid-1990s, that brought about its decline. Although, during those years, landlords under existing leases gained substantial protection from, in particular, upward only rent reviews and original tenant liability, existing tenants paid a heavy price and would not again readily be drawn into signing the old style of lease. The most obvious change has been the reduction in, and increasing diversity of, lease lengths. This is illustrated in Figures 1 and 2. The data for 1990 is typical of that for leases throughout the 1980s. There have also been other changes. For example, there has been a significant increase in the number of tenants’ break options now included in commercial leases. Virtually unknown in the 1980s, these increased to being present in about 35 per cent of office leases and 25 per cent of industrial
Source: DETR, Monitoring the Code of Practice for Commercial Leases (London, DETR, 2000) p 64. Figure 1: Changing Lease lengths 1990 to 2002.
21
Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005).
94 Sandi Murdoch
Source: N Crosby, C Hughes and S Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (London, ODPM, 2005) p 84. Figure 2: Diversity of Lease Lengths 2002.
leases by 1993.22 During the improving market of the later 1990s, there was evidence of some decline in their use.23 However, by 2003, lease data relating to property held by the institutions shows that there had been a return to those former levels, while survey work suggests that the figures for secondary property are significantly higher.24 Whilst the majority of tenants’ breaks are timed to coincide with a rent review, it seems that, in the secondary market, shorter breaks are more prevalent and that some of these are geared either to the tenants’ operational requirements or to their risk of failure.25 Traditionally, tenants’ breaks were often subject to strict pre-conditions, and, when breaks became more prevalent, this was a ploy used by landlords to render the break effectively inoperable. It is clear that tenants and their advisers have become wise to this, and it is now rare for tenants’ breaks to be conditional on anything other the payment of rent.26 The period and timing of the notice required to operate a break can also impair its effectiveness. This is particularly so where the break is timed to coincide with a rent review. Although perceived as a means of giving a tenant the opportunity to escape from an unaffordable rent increase (or from a rent
22 N Crosby and C Lizieri, Changing Lease Structures: An Analysis of IPD Data: A Study of the Impact of Changing Business Patterns on the Property Market (London, Royal Institution of Chartered Surveys, 1998). 23 DETR, Monitoring the Code of Practice for Commercial Leases (n 17) 141. 24 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 299. 25 Ibid, p 300. 26 Ibid.
Commercial Leases: Future Directions 95 which will not reduce in line with falls in the market), this can only be achieved if the break can still be operated at a time when the tenant is aware of the likely new rent. It is clear that many leases are deliberately drafted so as to avoid this.27 Therefore, tenants who do not have the knowledge or foresight to seek advice on rental value well in advance of the review date often end up without any effective right to break. That said, the limited evidence on the actual operation of breaks suggests that only between 15 and 20 per cent of breaks are actually exercised and that, where they are, this is for operational rather than rent reasons.28 The Landlord and Tenant (Covenants) Act 1995 has ended original tenant liability for post-1995 leases. However, the ability of landlords to require an authorised guarantee agreement (an ‘AGA’) from the outgoing tenant, and the virtually universal practice of actually including this requirement in all commercial leases has seriously eroded the protection that the 1995 Act was intended to confer. Despite the recommendation in the 2002 Code of Practice that AGAs should only be imposed where the assignee is of lower financial standing than the outgoing tenant at the date of assignment, the imposition of an automatic AGA has remained standard.29 Although it is usual for assignments to be allowed, it seems that absolute prohibitions on assignment are found in short lettings of secondary property.30 The 1995 Act changed the law governing consent to the assignment of business leases by allowing landlords to insert strict factual conditions for consent into post-1996 leases. The imposition of such conditions is now widespread, although the signs are that, after the initial flurry of long lists of tight conditions, they have now softened and become more negotiable. The only exception is the standard requirement for an automatic AGA. The 1995 Act amendments on consents do not apply to sub-letting, and so, in principle, where there is a right to sub-let with consent, that consent cannot unreasonably be withheld. However, those drafting sub-letting provisions have adopted the device of imposing strict pre-conditions to the right to sub-let.31 Only when these conditions are satisfied, does the tenant have a right to sub-let at all, and only then does the reasonableness test kick in. Certainly at the quality end of the market, it has become increasingly prevalent for landlords to insist that there is no right to sub-let, except on the same terms as the head lease, and at the higher of either the passing rent 27
Ibid. Ibid, p 301. 29 Ibid, p 304. 30 Ibid, p 303. 31 It is now clear that such pre-conditions do successfully avoid the reasonableness test: Adler v Upper Grosvenor Street Investments [1957] 1 WLR 227 (QBD); Bocardo SA v S & M Hotels Ltd [1980] 1 WLR 17 (CA); and Allied Dunbar Assurance plc v Homebase Ltd [2002] EWCA Civ 666. 28
96 Sandi Murdoch or open market rent.32 Should the tenant later wish to sub-let in difficult market conditions, such a provision can seriously limit the tenant’s ability to offset its losses, since the landlord can prevent the tenant sub-letting on terms and a rent that differs from its own lease in the very situation when those terms cannot in practice be achieved. The efficacy of these pre-conditions has recently been endorsed by the Court of Appeal,33 although a subsequent High Court decision has shown a way of avoiding these restrictions in certain circumstances.34 Reliable data on the nature of repairing obligations is hard to come by. Survey work shows that full repairing and insuring leases (including those funded by a service charge) remains the norm. There is, however, clear evidence that, in the case of second hand stand-alone premises, these obligations are increasingly being modified by reference to schedules of condition.35 There is now more accurate evidence that the incidence of rent reviews is diminishing with the increasing number of shorter leases. Just over 50 per cent of leases have no review, and when the existence of a tenant’s break at or before the first review date is taken into account, this increases to nearly 60 per cent. However, where a review exists, it is almost invariably an upward only review to open market. The use of alternative forms of review, as recommended by the 2002 Code of Practice, has simply not materialised.36 However, leases to new tenants are not the whole of the commercial leasing market: statutory renewals to existing tenants form a proportion of new leases. As has already been mentioned, the statutory framework tends to ensure that renewals are on the same terms as the existing lease and, since lease data does not yet reliably distinguish between genuinely new lettings and statutory renewals,37 this may distort the picture on how leasing structures are changing. Furthermore, it is legitimate to consider the current role of the scheme of statutory protection for business tenants, given the virtual abandonment of such schemes in both the residential and agricultural sectors. Until the 2004 amendments to the 1954 Act, it has been easy to track renewals. The tight time limits for the procedures laid down in 1954 Act meant that, in practice, it was usually necessary for any tenant wishing to renew to make a court application under Section 24. The number of court 32 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 303. 33 Allied Dunbar Assurance plc v Homebase Ltd [2002] EWCA Civ 666. 34 NCR Ltd v Riverland Portfolio No 1 Ltd [2004] EWHC 921. 35 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 303. 36 Ibid, pp 301–2. 37 Ibid, p 120.
Commercial Leases: Future Directions 97 applications for renewal, therefore, provided a reliable indication of the maximum number of statutory renewals in any given year. Until the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 came into effect, contracting out of the Act could only be achieved by obtaining prior court approval. It has been shown that only a tiny percentage of such applications ultimately failed.38 Accordingly, the number of these applications was a very accurate indicator of the number of contracted out leases. The pattern of applications for renewal and for contracting out between 1973 and 2003 is shown in Figure 3. This shows quite clearly that, although the number of applications for new tenancies has remained remarkably stable, the increase in contracting out has been dramatic. Although figures were not collected between 1990 and 1993, it seems that it was then that contracted out tenancies started seriously to outstrip statutory renewals. Most surprisingly, this coincided not with a boom (during which landlords are clearly in a dominant position) but with a serious recession (when it might have been expected that tenants would have the upper hand in lease negotiations and so would not give up any rights that they perceived to be valuable).
Source: Monitoring the 2002 Code of Practice for Commercial Leases (London, ODPM, 2005) p 53. Figure 3: Applications for new leases (under Section 24) and for approval for contracting out (under Section 38(4)). 38 ODPM, ‘Section 38 Landlord and Tenant Act 1954—Failed Applications’ [2003] ODPM Urban Research Summary No 9.
98 Sandi Murdoch In drawing any conclusions from these figures, it needs to be appreciated that it is not known how many new tenancies (other than statutory renewals) are granted each year. Therefore, it is not possible to be sure whether the proportion of tenancies contracted out of the Act is actually increasing, or whether there is simply more lease activity. Survey work indicates that contracting out is much more prevalent in office and industrial leases than it is in retail. However, while there are some indications that the proportion of leases that are contracted out is increasing, it does not appear to be regarded as dramatic.39 This is strange: although, as already mentioned, there are no figures on the number of new lettings each year, one reasonable indicator (the number of property transactions recorded by the Valuation Office) shows no great increase in commercial leasing. However, even if it is general leasing activity that has increased, the static rate of lease renewals still suggests that the proportion of business tenants choosing to exercise their rights of renewal may be declining in real terms. Further, the contracting out figures show that, by the mid 1990s, security of tenure was no longer of critical importance to very significant numbers of tenants. This inevitably calls into question the continuing need for statutory protection in the business sector. This discussion of current leasing practices risks giving the impression that commercial leases operate in an homogenous market in which one size fits all. In reality, commercial property is divided both by quality and location (into prime, secondary and tertiary) and into sector (at the very least into office, retail and industrial). Lease terms vary significantly according to both the quality and sector of the property in question. Furthermore, commercial leases vary according to the size of the tenant and, for reasons that will become apparent, it is this latter variable that is worth pursuing here. Government has long been particularly concerned about the position of the small business tenant. This is not simply paternalistic, but rather based on the very significant economic contribution made by small businesses. Small and medium size enterprises (‘SMEs’) are 99 per cent by number of all businesses in the UK and account for 52 per cent of turnover.40 A high proportion of the SMEs are in fact micro businesses, as 70 per cent are run by sole proprietors, and a further 20 per cent employ fewer than five employees.41 The need to ensure that, where small businesses need to occupy premises, they do so on terms that do not inhibit their ability to prosper and develop is patent. 39 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 304. 40 The government usually defines an SME as one employing fewer than 250 employees. SMEs are further sub-divided as follows: micro firms 0–9 employees, small firms 0–49 employees (including micro firms) and medium sized firms 40–249 employees. 41 Small Business Service, ‘Statistical Press Release—SME Statistics UK 2003’, http://www.sbs.gov.uk/ sbsgov/action/layer—r.l2=7000000243&r.l=7000000229&r.s=tl& topicId=7000011759, accessed 12 January 2006.
Commercial Leases: Future Directions 99 The report on the first Code revealed that small business tenants (particularly those running micro businesses) were not faring well. It was shown that many small tenants were unrepresented in lease negotiations, and took their lease on the first terms offered.42 Further, they often did not know the most basic terms of their leases, and scarcely any had been made aware of the Code of Practice. These findings ensured an even higher profile for the position of small business tenants in the monitoring of the 2002 Code. The 2005 ODPM Report shows that smaller tenants took leases on noticeably different terms from those held by larger tenants. They occupy on shorter terms, at lower rents, and are less likely to be subject to rent review. The incidence of tenants’ breaks and rent free periods is lower and that of total prohibitions on assignment and sub-letting is higher. However, the general property awareness of small business tenants has not markedly improved. The smaller the tenant, the less likely they are to have any previous experience of leasing; the less likely they are to be represented in the commercial negotiations; the less likely they are to know about the Code; the less likely they are to try to negotiate; and, the less likely they are to know the terms of their lease.43 Whilst virtually all were quite satisfied with their leases, the survey was, necessarily, of tenants who had only recently taken their leases, and for whom problems would not yet have materialised. Nevertheless, the situation of small business tenants remains a matter of concern.
FUTURE DIRECTIONS
It is clear that, over the past 15 years, the overall structure of commercial leases has changed significantly and that, broadly speaking, they have become more ‘flexible’. However, flexibility is, in principle, a meaningless term. Average lease lengths may have become shorter, more diverse and there may be more tenants’ breaks, but none of this, in itself, shows that tenants are getting the leases that they want. An individual tenant’s lease may still be too long for his business requirements; the break may not be at the optimum point; any rent review is likely to be upwards only; and, there may be unduly restrictive disposition and user covenants. What really matters for occupiers of business premises is that they hold on lease terms that meet their particular needs: it is no real answer to say that, in general, things are better than they used to be. For tenants to be able to obtain the lease that best suits their requirements, they need to understand (or be prop-
42
DETR, Monitoring the Code of Practice for Commercial Leases (n 17) 145. Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 309–10. 43
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erly advised on) how various lease terms might impact on their business, and they need to know what options are available. They then need to be able to negotiate effectively with landlords who are receptive to their needs. Codes of practice have, to date, been the preferred route for achieving these objectives. However, there is a limit to what is reasonably deliverable, especially by voluntary means. Shorter and more tenant friendly leases increase the risk for landlords, and it is not unreasonable for them to expect a higher return on such leases. The evidence to date is that even experienced tenants are most concerned in lease negotiations about those terms that have an immediate impact. They are reluctant to consider future problems, and are not willing to pay for more beneficial terms. This is especially true in the case of up/down rent reviews. This tendency is even more marked amongst smaller, less experienced, tenants. The government has made it clear that it wants to see further movement on lease flexibility, and has promised that the position will continue to be monitored for the next 3 years. It is particularly concerned about inflexibility in assignment and sub-letting provisions; upward only rent reviews; and, the continuing lack of awareness on property matters among small business tenants in particular.44 These are not, of course, the only areas in which developments might take place. So what are the future directions in commercial leasing likely to be?
Outdated Laws Government’s recent focus has been the commercial terms of new leases. Little or no attention has been paid to the legal framework within which the ongoing relationship of landlord and tenant operates. In particular, outmoded laws have not been high on the list of priorities. To this, there are two obvious exceptions. The Landlord and Tenant Act 1988 has been successful in providing tenants with a stick with which to beat landlords who delay in dealing with applications for a licence to assign or sub-let, or who fail to articulate their reasons for refusing consent. The Landlord and Tenant (Covenants) Act 1995, while dealing with the very important issue of the continuing liability of tenants, cannot be viewed so sanguinely. The approach to the implementation of this legislation (effectively leaving the property industry to negotiate its own package) has resulted in a reform that has achieved far less than was promised. Of specific concern is that the price of tenant release, namely greater landlord control over assignments and the ability to insist on an AGA, has undermined the central purpose of the Act. 44
Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005).
Commercial Leases: Future Directions 101 What has not happened—and this must surely change—is some real progress on the various Law Commission proposals for reform in the landlord and tenant area. Most likely appears to be the long overdue reform of the law on forfeiture. Following the issue of its Consultation Paper on the Termination of Tenancies for Tenant Default,45 a Final Report and Draft Bill is expected in early 2006. The omens are not as positive for the proposal to abolish the remedy of distress,46 which has been accepted in principle but awaits implementation; that for the reform of the law governing repairing obligations,47 which remains under consideration; and, that for the abolition of the compensation scheme for tenants’ improvements, which appears to have disappeared into the ether.48 Finding parliamentary time for technical law reform has always been a problem. However, the 2004 amendments to the 1954 Act have shown that the regulatory reform order process is one that works reasonably efficiently, and this may be a way forward for implementing more of the Law Commission proposals. Statutory Protection: The End of the Road? In the light of developments in both the agricultural and residential sectors, it has been,49 and remains, pertinent to ask whether it is any longer appropriate to have a statutory scheme of protection for business tenants. It is unfortunate that the 1992 Law Commission proposals for the reform of the 1954 Act (which were part of what was intended as a periodic review) took so long to implement. It is hard not to conclude that this means that the Act will be off the political agenda for some time, and that there will be no open debate about the principle of statutory protection in the short-term. However, this does not mean that change will not occur. Since 1969, the 1954 Act has allowed contracting out. The figures already examined indicate that, in numerical terms, contracting out has increased dramatically and that applications for renewal have remained static. It seems inherently likely that landlords, who have long been under pressure to offer shorter and more flexible leases, will demand some sauce for the gander. Although they will doubtless continue to lobby for the repeal of the 1954 Act, their most obvious tactic is to insist on contracted out leases wherever they can.50 The new, notice based procedure sanctioned by the Regulatory Reform 45
‘Landlord and Tenant Law: Privity of Contract and Estate’ (n 15). Law Commission, ‘Distress for Rent’ (Law Com 194, HC 138, 1991). 47 Law Commission, ‘Responsibility for State and Condition of Property’ (Law Com No 238, HC 236, 1996). 48 Law Commission, ‘Compensation for Tenants’ Improvements’ (Law Com 178, HC 291, 1989). 49 Justice Neuberger, ‘The Finers Stephens Innocent Property Lecture 2000’ [2000] EG 139. 50 For example, see: The British Property Federation ‘model’ Short Term Commercial Lease, http://bpf.tl10.com/bpf_disclaimer.html, accessed 12 January 2006. 46
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(Business Tenancies) (England and Wales) Order 2003 makes this marginally easier in practical terms, and a whole lot easier in political terms. The absence of a court based process means that the number of contracted out leases can no longer be tracked and that a significant increase in contracted out leases can take place without attracting any attention. This may well produce an acceptable outcome for tenants with sufficient knowledge of, or advice on, the law. Those for whom location is crucial, notably those in the retail sector and those with destination businesses, will hold out for statutory protection. Those for whom location is not particularly important will not bother to do so. However, as always, it is the tenants who do not take, or are not given, proper advice who will suffer—they may accept contracted out leases where this is not appropriate. Nevertheless, while it is far more desirable that the future of the 1954 Act is decided by open debate, if the reality is that it becomes largely confined to those areas where it still serves a useful purpose, this will be no bad thing. Exit Mechanisms: Tenants’ Breaks, Assignment and Sub-letting It seems clear that shorter leases do not in themselves give tenants the flexibility of occupation that is needed in today’s business environment. It is simply not always possible, at the outset of a lease, to predict the required length of occupation. Therefore, the ability, unilaterally, to terminate their leasing responsibilities will remain important to tenants.51 However, the increase in tenants’ breaks only partly meets this need. Although such breaks are now usually drafted more fairly, they are still almost invariably at fixed points in time that will not necessarily coincide with the tenants’ business requirements.52 For this reason, assignment and sub-letting remain key features of lease flexibility because they provide tenants with the ability to exit their leases at any time. In principle, the ability conferred on landlords of business premises to impose strict factual conditions when giving consent to an assignment has restricted tenants’ ability to transfer their leases. In practice, save for the almost universal imposition of an automatic AGA, the use of over-strict conditions does not appear to be widespread, although there is clearly some use of inappropriate conditions.53 Strict pre-conditions as to the right to sub-let have been found to be common, and can be used to prevent good covenant tenants from off-setting their losses. It is, therefore, legitimate to question why landlords wish to 51 N Crosby, VA Gibson and S Murdoch, ‘UK Commercial Property Lease Structures: Landlord and Tenant Mismatch’ (2003) 40(8) Urban Studies 1487. 52 ‘Rolling’ tenants’ breaks are rare in practice, see: Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 299. 53 Ibid, p 180.
Commercial Leases: Future Directions 103 impose such restrictions on sub-letting when, by definition, their tenant remains liable on the terms of the head lease. One reason given is that, should the head lease fall away, the sub-tenant will become the direct tenant of the landlord. However, in the two situations where this can occur without the landlord’s concurrence, the landlord’s position can be protected. A sub-letting of the whole will mean that the tenant is not in business occupation, and will not, therefore, have any statutory right to renew its lease. However, the sub-tenant will have a right to renew its sub-lease directly against the head landlord (a scenario that the Court of Appeal found persuasive in the Allied Dunbar case itself). However, this risk can readily be avoided (and often is) by a requirement that any sub-letting is contracted out. The second situation in which the sub-tenant may become the direct tenant is where the head lease is forfeited and the sub-tenant applies for, and is given, relief.54 However, although such relief is at the discretion of the court, it is well accepted that the subtenant must virtually invariably be subjected to terms that are no less onerous than those in the head lease.55 It would, therefore, appear that, in law, a landlord need not be put at any serious risk by a sub-letting on terms different from the head lease. This suggests that landlords’ real concern is the level of rent under any sub-letting. Worries that tenants may offload a property at a sub-rent below open market levels can be adequately addressed by a pre-condition that the rent under the sub-lease must be at or above open market rent. With this in place, landlords can challenge the sub-letting without any risk of a claim for damages. This suggests that the real purpose behind the further requirement that any sub-rent must equal or exceed passing rent is designed either to maintain the value of the investment, or to protect the landlord’s position at rent review. Where a sub-letting can only be achieved at a rent below the rent passing under the head lease, it provides clear evidence of a drop in rental value both of the property itself and, possibly, that of the landlord’s neighbouring property. It may well be this that landlords are seeking to avoid. If so, it is hard to see any justification for perpetuating a system that allows landlords to manipulate market evidence. Government has stated that it intends to undertake a review of the law of assignment and sub-letting, with the aim of easing the position for tenants while not jeopardising property investment, including looking at legislative options.56
There is certainly a case for re-considering the law in this area. The 1995 amendments were made in haste,57 and when it was thought that the 54
Law of Property Act 1925 s 146(4). See: Creery v Summersell [1949] Ch 751 (Ch); and Hill v Griffin [1987] 1 EGLR 81 (CA). 56 Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005). 57 An opportunity to present a Bill to Parliament arose in June 1995, and the final form of legislation had to be prepared and put through in the space of a few weeks. 55
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abolition of original tenant liability might have a significant impact on investment values. As things turned out, the market accepted the change without difficulty, and it is strongly arguable that a return to the reasonableness test would be no bad thing. However, this would not solve the problem since lawyers would then revert to the device of imposing strict pre-conditions to the right to assign. Accordingly, in order to prevent this, the outlawing of absolute prohibitions58 (in respect of dealings with the whole of the premises59) would need to be re-considered.60 It is arguable that this would be a perfectly acceptable change in the law. The use of absolute prohibitions on dealings with the whole of the demised premises is unusual, and, in the pursuit of greater flexibility for tenants, there seems no good reason not to get rid of them altogether in commercial leases. Perhaps anticipating what could be blowing in the wind, the British Property Federation has persuaded 53 of its members (many of whom are industrial landlords) to sign up to a declaration that, after 30 April 2005, they will no longer insert into their leases pre-conditions on the right to sub-let that require the payment of a sub-rent that equals the higher of the rent passing under the head lease or open market rent. They will also, after that date, waive their right to enforce any such condition contained in an existing lease.61 This declaration does not cover any requirement that other terms of a sub-lease must be the same as those in the head lease (which can also effectively prevent tenants from sub-letting). Furthermore, no such initiative has been taken in respect of automatic AGAs, another undesirable effect of the 1995 Act. Given its public commitment, the Government will inevitably investigate whether changes to the law on sub-letting and assignment are necessary. It is difficult to predict what will happen. However, it seems safe to assume that it is unlikely that any changes in the law will be made before the results of the further monitoring of commercial leasing practices is complete.
Upward only Rent Reviews If there is one commercial lease term that has remained essentially intact during the past 25 years, despite the most intense government pressure for 58 It is because the law permits absolute prohibitions that the courts have felt unable to outlaw pre-conditions, see: Adler v Upper Grosvenor Street Investments [1957] 1 WLR 227 (QBD); and Bocardo SA v S & M Hotels Ltd [1980] 1 WLR 17 (CA). 59 It would be unacceptable to stop a landlord inserting provisions that prevent a tenant from fragmenting the property. 60 The outlawing of absolute prohibitions on assignment and subletting was recommended by the Law Commission, ‘Covenants Restricting Dispositions, Alternations and Change of User’ (Law Com No 141, HC 278, 1985), but this was never implemented. 61 See: British Property Federation, ‘Declaration on Subletting’ http://www.bpf.org.uk/ publications/declaration, accessed 12 January 2006.
Commercial Leases: Future Directions 105 change, it is the ratchet form of upward only review to open market rent. It is easy to see why. It underpins the investment value of commercial leases, not only by protecting an existing income stream through falls in the market, but also by helping to sustain the use of headline rents for new lettings in times when rents for new leases would otherwise fall (or fall more steeply).62 Despite the best endeavours of government and genuine threats of legislation, landlords have hung on. Does this matter? Clearly the government thinks so, and the pressure to offer alternative forms of rent review will remain.63 However, this anxiety does not appear to be shared by tenants. Obviously, as has been shown, an increasing number are taking leases that are too short to contain reviews. However, despite public utterances (notably by the large retailers and the British Retail Consortium), those whose leases are to contain an upward only rent review do not appear even to ask for an alternative form review and would not, if one were offered, pay extra for the benefit.64 It is strongly arguable that, if tenants are not worried, nor should government be. This is especially true if intervention would adversely affect the investment value of commercial property. However, a note of caution needs to be struck. First, the attitude of tenants to upward only reviews is strongly influenced by market conditions: if they believe that rents will only rise during the currency of the lease that they are negotiating, they will not press (or pay for) an up/down review. Second, it is one thing to leave large, well-experienced (or well advised) tenants to look after themselves. It is quite another to abandon the small business tenant who may well not appreciate the potential impact of an upward only rent review. While it is true that many small business tenants hold short leases, there is also some evidence that, in this sector of the market, rent review intervals are also shorter,65 so that it is not safe to assume that a 5 or 6 year lease is free from an upward only rent review. Continuing nonintervention on behalf of smaller tenants is less easy to justify.
62 That is, rents that only become payable after a lengthy rent free period. Such rents are necessarily higher than they would have been had they become payable from the start of the tenancy. What the landlord loses through the rent free period is gained by this higher headline rent, then becoming the base rent for the upward only rent review. 63 ‘We continue to have concerns about the prevalence of upward only rent review clauses in longer leases… [and] believe that further progress in this area is necessary to improve the flexibility of the market. We will therefore continue to monitor the situation and retain the option to legislate in future if necessary’: Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005). 64 Crosby, Hughes and Murdoch, Monitoring the 2002 Code of Practice for Commercial Leases (n 6) 307. 65 Ibid, pp 175, 189 and 302.
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Small Business Tenants It is clear that more needs to be done to help small business tenants in negotiating leases that they can understand and that are appropriate to their needs. Furthermore, as has been shown, there are areas where non-intervention by government may be appropriate for large tenants, but less so for smaller ones. It is obvious that the government has not yet settled on any particular strategy.66 It has to be concluded that voluntary codes and tailored advice have, to date, proved largely unsuccessful and. that other avenues merit investigation.67 In particular, an approach that specifically targets small business tenants has much to recommend it, and would, it is suggested, meet less political resistance from major landlords who will, for example, fight tooth and nail to keep upward only rent reviews in leases of prime property, but who might be less resistant to measures aimed largely at leases of secondary property granted to smaller tenants. The most obvious route to consider is that of consumer-style legislative intervention. This is an approach that has been used with some success in Australia.68 There, the Trade Practices Act 1974 (Cth) applies to certain restrictive covenants in leases, and to misleading conduct inducing one party to enter a lease. This only applies to corporations. However, in most states, there is also now similar legislation that protects all tenants against restrictive, misleading or unfair conduct by landlords. There is also state legislation aimed specifically at commercial leases. While some lease provisions are outlawed altogether (notably upward only rent reviews and those that require the recovery of certain operating costs), the central thrust of the legislation is to try to ensure that prospective tenants are given accurate information prior to entering into their leases by requiring landlords to provide Disclosure Statements. A failure to comply with this requirement sometimes entitles the tenant to terminate the lease, and always gives rise to a right to compensation. In the United Kingdom, there is, of course, an existing model in the form of the Unfair Terms in Consumer Contracts Regulations 1999. These are being applied successfully to residential tenancies, and there is a good case for extending the application of the regime to small business tenants.69 The major difficulty lies in identifying the target. How can small business tenants be defined? This is a problem that has not dogged the Australian legislation. This is because the pressure for statutory intervention in 66 ‘There is a need for action by both Government and the property industry’: Office of the Deputy Prime Minister, Hansard col 12WS (15 March 2005). 67 Such as that provided on both the ODPM and Small Business Service websites. 68 S Murdoch, P Rowland and N Crosby, ‘Looking After Small Business Tenants with Voluntary Codes or Statutory Intervention: A Comparison of Australian and UK Experiences’ (Adelaide, 7th Pacific Rim Real Estate Society Conference, 2001). 69 See: S Bright, ‘Protecting the Small Business Tenant’ [2006] Conv 137.
Commercial Leases: Future Directions 107 Australia came about as a result of a damning federal government report that revealed widespread systematic malpractice by the owners of shopping centres.70 As a result, their legislation is limited to retail leases held by small tenants, and is primarily aimed at shopping centres. The definition of a small business tenant is, therefore, prescribed by reference to floor space. In Australia, the use of property size based indicators (coupled with exclusions for tenants which are public companies) coincides reasonably with the distinction between corporate and small business retail tenants. However, this would not be true for commercial or industrial tenancies in Australia, nor for most United Kingdom business tenancies. Here, floor space is not a reliable determinant of tenant type. The United Kingdom data also clearly shows that the key indicator of the different levels of knowledge about leasing matters is the size of the business.71 Employee numbers are widely used to identify the size of a business,72 and, although this criterion would not be without its difficulties, this would appear to be the best starting point for designating the ambit of any legislation in the United Kingdom. However, to date, there has been no indication whatsoever that any government has plans to act in this way; furthermore, the Law Commission does not envisage that its proposal to extend the unfair contract terms regime to small businesses should include land contracts.73 Another approach to the problems faced by small business tenants would be the use of model leases. This has been tried in the past, most notably with the Law Society Business Lease, without any great success. The reasons for the relative failure of that initiative are various. It is a poorly presented document that tries to do too much; is difficult to amend; and, makes the mistake of trying to introduce new concepts and terminology (such as that to ‘maintain’ rather than ‘repair’ property and ‘obligations’ as opposed to ‘covenants’). It was resisted by solicitors who were wary of its approach, and who felt that its pre-printed format alone made it difficult for them to charge tenant clients a reasonable fee. This does not mean that a model lease produced under the imprimatur of a neutral body could not be useful.74 Generally, the push for the use of plain modern English is welcome, but care does need to be taken to ensure that novel terminology (which could give rise to legal uncertainty) is not 70 See: Report of the House of Representatives Standing Committee on Industry, Science and Technology, ‘Finding a Balance towards Fair Trading in Australia’ (Canberra, AGPS, 1997). 71 N Crosby, C Hughes and S Murdoch, ‘Do Small Business Tenants Need Protecting in Commercial Lease Negotiations?’ (Dublin, 12th Conference of the European Real Estate Society, 2005). 72 (N 60). 73 Law Commission, ‘Unfair Terms in Contracts’ (Law Com No 292, Cm 6464, 2005) [5.76]. 74 The British Property Federation produces a model lease aimed at smaller tenants. Irrespective of its terms, it is difficult to see how models emanating from a landlord source could serve the purpose here envisaged.
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employed. However, a model lease aimed at the small business community is not an appropriate testing ground for such ventures. Although it is vital that individual clauses are essentially unamendable,75 there could be a range of optional (albeit standard form) provisions (such as tenants’ breaks and repairing obligations limited by schedules of condition). The great virtue of including a limited range of optional clauses in a model lease is that it draws attention to their possible use for both inexperienced solicitors,76 and prospective tenants. Such a model lease could be accompanied by technical notes for solicitors, and also notes aimed at the prospective tenants themselves which could both explain the various provisions and also draw attention to the commercial issues at stake. It is surely possible to produce a more flexible and sensible version of the Law Society Business Lease that, with a package of explanatory literature, could more effectively serve the small business community than has at present been achieved by voluntary codes.
CONCLUSIONS
There can be little doubt that, over the past 15 years a little legislation, more difficult trading conditions, and persistent government pressure has produced lasting changes in commercial leases. It is possible that some structural change will continue although it is likely that this will slow. Certainly in terms of lease length, there is an increasing convergence between prime and secondary property, and this suggests that the shortening of lease lengths is nearing its natural end. Tenants’ breaks look likely to stay. However, their prevalence is currently very market sensitive, and, without more realistic treatment by valuers, will be resisted by landlords whenever trading conditions allow them to do so. Serious further movement on key lease terms appear unlikely to occur voluntarily. All the evidence indicates that landlords will not willingly give up upward only rent reviews in leases that are long enough to warrant a review. It is suggested that, unless lease lengths start to rise again (which looks unlikely) government will back off from statutory intervention. Even with shorter lease lengths and tenants’ breaks, commercial tenants still need
75 One of the desirable attributes of a model lease aimed at small businesses is that, where adopted, its content is familiar to the advisers on both sides, and that time (and expense) taken to approve lease documentation is greatly reduced. 76 Research interviews carried out for the ODPM project revealed that, amongst solicitors advising small business tenants, there were those who had little experience of commercial property, and who did not feel able to interfere with the commercial terms of the deal already struck by the client (usually without any professional property advice).
Commercial Leases: Future Directions 109 an ability to dispose of their leases at short notice. Assignment and subletting will always be important, standard lease terms remain landlordorientated, and, even if practices on sub-letting provisions do modify, there is a case for changes to the law in this area. The odds are that statutory protection, save for location sensitive businesses, will wither on the vine and that the repeal of the 1954 Act will not need to be actively considered. What ought to happen (and there are no real signs that it will) is that serious consideration should be given to singling out small business tenants for special treatment. Consumer style protection could well work. Landlords might not like it, but they might prefer this to government intervention on the terms on which prime investment properties are leased. At the very least, the possibility of developing carefully designed model leases is worth investigating. Perhaps the key change that might occur is that to the attitude of those involved in commercial leases. There are signs that this is starting to happen. Some big landlords are becoming genuinely more tenant friendly, and coming to believe that more flexible leases are not just a last resort in difficult market conditions, but a better way of doing business. This is even more marked amongst smaller landlords, especially by those who invest in property in their own locality, and who have a real interest in ensuring that their tenants prosper. Equally, at least some of the big legal firms specialising in commercial property are pressing landlord clients to become more reasonable in the draft leases that are being sent out. However, there is much more to be done to change attitudes. It has to be accepted that a commercial lease is, in essence, an investment vehicle. Landlords cannot be expected to become even more flexible in all of their lease terms, if investment values are inappropriately affected. Valuers, therefore, need to develop their skills to deal more effectively with more variable forms of lease. Other professional advisers, notably both property agents and solicitors, need to become more aware of what can and ought to be achieved on lease terms. Relatively few tenants have sufficient inhouse property knowledge to be able to negotiate for themselves. Most rely upon professional advice, and there is some evidence that advisers contribute to the perpetuation of the status quo on lease terms by making assumptions about what is and what is not achievable in lease negotiations.77 This needs to change. Inevitably, some landlords are much more progressive than others. Whether those who are set in their ways take up the challenge will, necessarily, depend to a large extent on market conditions. If there is an over-supply of good quality property in the right places, the owners of that property will have to modify their practices in order to find tenants. A shortage of 77 N Crosby, C Hughes and S Murdoch, ‘Are Property Agents To Blame For Upward Only Rent Reviews?’ (Dublin, 12th Conference of the European Real Estate Society, 2005).
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commercial premises will encourage a return to the bad old ways. Tenants too must play their part. Too often, even with the larger players, the accountants look at the immediate financial package and give no thought to longer term issues and how their property obligations will impinge on their business in the future. Property advice can be ignored in the face of short term gains. A preparedness to pay more now for a better quality product takes a degree of wisdom that, sadly, is often lacking in all shapes and sizes of modern consumer.
6 Agricultural Tenancies: Past and Present ANDREW DENSHAM
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HE DEVELOPMENT OF landlord and tenant law in the specific context of agricultural land has been driven by the concurrent political and economic conditions prevailing from time to time. Therefore, it is necessary to trace those influences in parallel with the statutory enactments and their judicial interpretation, to understand how and why agricultural tenancies came to be treated differently from all other forms of property. Until well into the 19th century, the landlord and tenant law applicable to all forms of property applied equally to agricultural land. Although there were minor exceptions to that general proposition,1 it was not until 1875 that agricultural land started to be treated as having its own body of law of landlord and tenant distinguishing it from all other forms of property.
AGRICULTURAL ECONOMICS: THE 19TH CENTURY
The period from 1770 to 1815 was one of great prosperity for agriculture, which ended abruptly with the end of the Napoleonic Wars. This was followed by a period of deep depression, which lasted for another 20 years. During this time, large areas of land were abandoned altogether, untenanted and uncultivated. Many landlords and tenants were ruined. By 1836, prosperity had started to return. However, the long period of depression had revealed the deficiencies of the landlord and tenant system, namely in the provision of capital necessary for the running of such a capital-intensive industry. At this time, distinctions also started to be made between those improvements which fell to be funded by landlords, and those for which the tenant was to be responsible.
1 For the exceptions of emblements, customs of the country and implied conditions see text following n 10.
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In 1848, a Parliamentary Committee was convened to consider the issue of a standardised system for ‘tenant right’.2 In 1849, a Bill was introduced to implement the recommendations, but it and subsequent attempts failed until 1875. The first 40 years of the reign of Queen Victoria had been a period of renewed prosperity for the industry. Although the Repeal of the Corn Laws in 1846 steadied prices,3 it did not immediately damage agricultural prosperity. However, two developments delivered devastating body blows to British agriculture. First, after the end of the American Civil War in 1865 (which, not surprisingly, had interrupted the development of farming in America), mass production of cereals on the American prairies occurred on virgin soil. New machinery, a railway system and steamers crossing the Atlantic enabled large quantities of cereal crops to inundate the English market and lower prices. Domestically, a succession of bad harvests also exacerbated the problem. By the end of the century, domestic corn production had fallen by two million acres. Second, and arguably the more damaging, was the development by 1891 of reliable refrigeration systems which enabled frozen meat to be imported from Australia, New Zealand and South America. As had happened with corn, domestic cattle and sheep production also fell. Against this background, it was imperative for British agriculture to receive support and protection from the government. However, there were major political restraints. By 1890, approximately 90 per cent of all agricultural land in cultivation was farmed by tenants under the landlord and tenant system.4 Attention was, therefore, directed to the tenanted sector.
19TH CENTURY POLITICAL PHILOSOPHY
During the 19th century, the political philosophy of laissez-faire was developed and adopted, resulting in the perception that freedom of contract was an overriding legal imperative. The political and judicial thinking of that
2 This term is used sometimes to refer to all claims for compensation by a tenant on quitting against his landlord. However, it is also used sometimes more narrowly, to include only short term seasonal improvements, such as unharvested crops and unexhausted manurial values, and to exclude compensation for capital improvements. 3 The Repeal of the Corn Laws is a misnomer. Although pre-existing agricultural tariffs were reduced substantially, it was not until the passing of the Customs and Excise Warehousing Act 1869 that they were finally abolished altogether 4 Reliable statistics are not easily found. The Northfield Report based on MAFF statistics for agricultural holdings were 88% in 1908; 62% in 1950 and 37% in 1978. Later statistics are more controversial. Lord Northfield (Chair), ‘Report of the Committee of Inquiry into the Acquisition and Occupancy of Agricultural Land’ (Cmnd 7599, 1979).
Agricultural Tenancies: Past and Present 113 time has been most eloquently expressed by Lord Simon in Johnson v Moreton.5 His Lordship stated that: Human felicity, it was argued, was best promoted by leaving to every person to seek his own advantage in competition with his fellows. A free market would ensure that the individual’s effort was directed to anticipating and satisfying with maximum efficiency the wants of his fellows. The most powerful motive force in the universe—man’s pursuit of his own interest—would thus be harnessed to drive a whole society forward. ‘Man’s selfishness is God’s providence,’ they said.6
This political creed was reflected in earlier judicial decisions: . . . if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice.7
As a consequence, there was no political desire to add to or amend the common law, or to supplement, amend or override tenancy agreements ‘freely’ entered into by landowners and farmers for the occupation of farmland.
19TH CENTURY AGRICULTURAL LANDLORD AND TENANT LAW
Before 1875, as a general rule, agricultural landlords and tenants were subject only to such terms as they had agreed upon between themselves, as supplemented by the common law applicable to all landlords and tenants at that time. Some implied terms had evolved over the years, including an obligation of a tenant ‘to manage and cultivate the land in a good and husband like manner’,8 and to ‘keep the premises wind and watertight.’9 However, such terms were minimal. An earlier statute, the Landlord and Tenant Act 1730, had been introduced for the benefit of landlords.10 This Act enabled landlords to charge double rent against a tenant who wilfully remained in possession after the expiration of notice to quit. But again, this interference with the principle that the party’s agreement contained the whole of their mutual terms was minimal. The ancient doctrine of ‘emblements’ had developed by custom, enabling a (former) tenant to have regress for harvesting corn or certain other annual crops which he had sown, but this was subject to conditions 5
[1980] AC 37 (HL). Ibid, pp 65–66. 7 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 (Eq) 465 (Jessel MR), as cited by Lord Simon in Johnson v Moreton [1980] AC 37 (HL) 66. 8 Powley v Walker (1793) 5 Term Rep 373, 101 ER 208. 9 Auwoth v Johnson (1832) 5 C & P 239, 172 ER 955. 10 4 Geo 2 c 28. 6
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making it unsatisfactory in practice. Of more practical consequence was the development of ‘Customs of the Country’ in some areas. These gave rise to entitlements for outgoing tenants to receive compensation on quitting for ‘tenant right’, even though there was no contractual right to such a claim. Some counties had well developed customs (notably Lincolnshire and Norfolk) others were less well developed, and others had none at all. This was the state of the law in 1875, when the Agricultural Holdings (England) Act 1875 was enacted.11 It proved to be the first in a long line of Agricultural Holdings Acts (‘AHAs’) and Agriculture Acts (‘AAs’) passed over the next 100 years. There was an economic imperative for support to be given to the agricultural industry, but the problem was as to how that support could be provided given the constraints of the prevailing political beliefs (freedom of contract, free trade and laissez-faire). On the continent, the peasant economy was protected by tariff barriers (which were erected against foreign imports), but the huge prosperity in this country had been founded on free trade. Resort to tariff barriers was unthinkable. In any event, many of the countries purchasing British manufactured products paid for them with agricultural products. The erection of tariff barriers would have been inappropriate. Similarly, any form of extending the period of tenure for tenants (who traditionally held on periodic annual tenancies) so as to encourage them to farm on a longer-term basis, and therefore more profitably, would have been politically unacceptable. Instead, encouragement was given to tenants by providing for compulsory compensation on quitting. The hope was that the availability of compensation would encourage tenants to invest by cultivating the land for longer term benefit than they could themselves be sure to enjoy during their restricted period of tenure. As further AHAs were enacted during the period 1875–1923, further restraints on the freedom of landlords and tenants to determine the terms of their tenancies were statutorily imposed.
THE AGRICULTURAL HOLDINGS (ENGLAND) ACT 1875 AND ITS SUCCESSORS
The AHA 1875 applied the Lincolnshire custom for giving compensation to outgoing tenants to all tenants, wherever situated. It also gave tenants the right to remove the fixtures they had provided,12 and it extended the period of notice to quit required to be given to annual tenants from the common law period of 6 months to 12 months terminating on the annual term date of the tenancy.13 It also introduced a specialist disputes procedure for the 11 This title, as for the Agricultural Holdings (England) Act 1883, is curious for it applies not only to England but also to Wales, but not to Scotland or Ireland: s 3. 12 AHA 1875 s 53. 13 Ibid, s 51.
Agricultural Tenancies: Past and Present 115 AHA regime.14 The main limitation of the AHA 1875 was that, in accordance with the political philosophy of that time, it did not prohibit contracting out. Not appreciating the statutory restrictions on their rights, landlords exercised their right to contract out. In consequence, a further statute was required. The AHA 1883 forbade contracting out,15 unless the parties had agreed an alternative measure of compensation (which was as valuable or better for the tenant). Having now breached the sanctity of contract creed, later AHAs overrode other provisions traditionally imposed by landlords. Further AHAs were passed in 1900 and 1906.16 The AHA 1906 introduced: a) Freedom of cropping of arable land except in the last year of the tenancy17; b) Compensation for disturbance on quitting unless the tenancy was terminated for bad farming18; c) Compensation for any damage to the tenant’s crops caused by game which the tenant had no right to kill19; and, d) A prohibition on landlords charging penal rents (unless the tenant had destroyed the permanent pasture, or felled or damaged trees).20 In 1908, a consolidating statute in the form of the AHA 1908 was passed to bring together the various changes that had been made to the law.21 Further statutes, namely the AHA 1914 and AA 1920 were subsequently enacted. These acts refined the compensation provisions for disturbance and fixed the measure of compensation at one year’s rent (with a second year’s rent on proof of loss).22 By 1923, almost all the core provisions entitling a tenant to compensation on quitting, including a specialist disputes procedure, had been introduced in the form they exist today. Most of the other restrictions on landlords, which are a feature of the AHA regime, had also been developed
14
Ibid, ss 20 (et seq). At that time to a referee or two referees and an umpire. AHA 1883, s 54. The AHA 1900 substituted specialist arbitration in lieu of references to a referee or two referees and an umpire. 17 AHA 1906 s 3. Freedom of cropping means that the tenant can decide which crops to grow on which parcels of land in any year, preventing the landlord from imposing a particular system on the tenant. 18 Ibid, s 4. 19 Ibid, s 2. 20 Ibid, s 3. Penal rents were allowed for breaking up permanent pasture, or felling or damaging trees, because these acts had long term consequences and were treated as particularly reprehensible. 21 The content and layout of this Act was remarkably similar to the AHA 1948 and AHA 1986, except that it made no provision for security of tenure and its consequences. 22 AA 1920 ss 10 (et seq). The earlier sections reduced the tariffs imposed by the Corn Production Act 1917. 15 16
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apart from those conferring security of tenure (which was introduced later in 1947). Later additions to the list of heads of claim for compensation, such as sod values, hefting of sheep and later milk quota compensation, were added as farming circumstances altered. All of this added to the mystique of this area of the law.
THE 20TH CENTURY: POLITICS AND ECONOMICS (THE FIRST 50 YEARS)
1914–18 and Between the Wars There was a short period of prosperity for agriculture during the First World War, which was aided by the wartime introduction of tariff barriers. But in 1921, the Corn Production Act 1917 (which had guaranteed minimum prices) was repealed in response, once again, to the call from the urban community for cheap food. The British market again became a dumping ground for food from all over the world. This was soon followed by the worldwide depression and mass unemployment of the 1920s, and the collapse of the United States’ Stock Market with the Wall Street crash in October 1929. Many farmers were declared bankrupt, and those who had prospered during the war lost all that they had made. Rents were reduced and much land was let rent free so as to keep it in cultivation. Others agreed to be liable simply to pay the tithe in lieu of rent. Thousands of acres of marginal land went out of cultivation altogether. Confronted with this crisis, the Ministry of Agriculture launched several schemes. These included organised marketing of milk (the Milk Marketing Board), eggs and bacon; regulating of the growing of potatoes, sugar beet and hops; and subsidising wheat. Although this saved British agriculture from total collapse, the land was in an impoverished condition when, in 1939, the country entered the Second World War. It is perhaps not surprising that in this context there was no further development of the law of agricultural holdings. Fine-tuning of the existing law, still more any radical reappraisal of it, would have been inappropriate in the unusual economic conditions of the time.
The 1940s During the five years of the war, farmers were exempt from war service. Owing to the necessity to provide as much home-grown food as possible, valiant attempts were made to increase production. In 1939, 88 per cent of the flour consumed domestically was imported, but, in 1944, it was only 56 per cent. Imported animal feed stuffs were reduced by 1.5 million tons,
Agricultural Tenancies: Past and Present 117 yet milk production was increased by 69 million gallons.23 Farmers were highly respected and appreciated, and they prospered. 1945 saw not only the end of the war, but also the election of the Atlee Labour Government (and with it the introduction of the Welfare State). These provided the catalyst for the most radical change to the agricultural holdings regime since the breakdown of the feudal system following the Black Death.
THE 20TH CENTURY: POLITICS AND THE LAW: 1947–48
This radical overhaul of agricultural holdings law was achieved by the introduction of the AA 1947 (which was soon repealed and re-enacted with the remaining provisions of the AHA 1923 as the AHA 1948). By this legislation, security of tenure was granted to tenants and a whole range of other informal arrangements between landowners and farmers were brought into the net of security. Consequential amendments were introduced over a wide range of traditional tenancy covenants. The rationale for this fundamental change to the status of tenants and landlords alike has been described by Lord Salmon in Johnson v Moreton. His Lordship stated that: During the last war, the submarine menace was such that it would have been virtually impossible to import into this country any more goods vital for our survival than we, in fact, did. Accordingly it is extremely doubtful whether we could have survived had it not been for the food produced from our own farms. . . . It must have been clear to all that it was then and always would be of vital importance, both to the national economy and security, that the level of production and the efficiency of our farms should be maintained and improved. This could only be achieved by the skill and hard work of our farmers and the amount of their earnings which they were prepared to plough back into the land from which these earnings had been derived. . . . The security of tenure which tenant farmers were accorded by the Act of 1947 was not only for their own protection as an important section of the public, nor only for the protection of the weak against the strong; it was for the protection of the nation itself.24
So security of tenure was introduced for public policy reasons which transcended the narrow interests of the parties and was said to have included national security, staple food production and social engineering. But by the time of Johnson v Moreton in 1980, the country had joined the Common
23 For this and other historic statistics see RC Walmsley, et al, Rural Estate Management (London, Estates Gazette, 1948). By today’s standards the levels of production of homegrown food were still very low. 24 Johnson v Moreton [1980] AC 37 (HL) 52.
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Market, and the whole European Community was already suffering from over production in nearly all sectors (with butter mountains, milk lakes and the like, as they were called). Some of Lord Salmon’s speech sounded strangely inconsistent with the experience of the industry, in particular the assumption that: ‘It must have been clear to all that it . . . always (sic) would be of vital importance . . . that the level of production . . . should be maintained and improved’.25 Significantly, Lord Simon expressed the rationale for conferring security rather more philosophically: In short, it was held, the constriction of the market and the inequality of bargaining power enabled the landlord to dictate contractual terms which did not necessarily operate to the general benefit of society. It was to counteract this descried constriction of the market and to redress this descried inequality of bargaining power that the law—specifically, in the shape of legislation—came to intervene repeatedly to modify freedom of contract between landlord and tenant. Since Maine the movement of many ‘progressive’ societies has been reversed. The Agricultural Holdings Act 1948 exemplifies such legislative activity specifically where the tenancy is of agricultural land.26
The method of conferring security was quite different from that found in the pre-existing Rent Acts or the later conferred security granted to other forms of business tenants under Part II of the Landlord and Tenant Act 1954. The complexity of operating the AHA security provisions has proved to be a feature which has given rise to much injustice, as rights have been lost by failure to comply with the unique provisions of the AHAs. Security was achieved under the AHA 1948 and the many Agricultural (Miscellaneous Provision) Acts (A(MP)As) passed almost yearly thereafter in this way. ‘Agriculture’ was defined obliquely as including a range of traditional, but not exclusively, farming activities.27 Surprisingly, this did not include corn production expressly! ‘Agricultural holdings’ was then defined as in essence all the agricultural land included in a contract for tenancy, which was let for business use.28 The AHA 1948 converted all qualifying short-term tenancies and also even licences into annual tenancies.29 There were very limited exceptions, notably grazing agreements. Longer terms of two years or more fell to be statutorily converted on the expiration of the fixed term into tenancies from year to year.30 Elaborate steps were taken to avoid contracting out of these provisions. As a consequence, many protected tenancies were created inadvertently when the parties had no intention of creating a tenancy at all. 25 26 27 28 29 30
Ibid. Ibid, p 67. AHA 1948 s 94(1). See also McClinton v McFall (1974) 232 EG 707 (CA). AHA 1948 s 2. Ibid. Ibid, s 3.
Agricultural Tenancies: Past and Present 119 Although a landlord wishing to secure possession could give notice to quit, the tenant was entitled to serve a counter notice within one month,31 which rendered the landlord’s notice of ‘no effect’ unless the consent of the Agricultural Land Tribunal (‘Tribunal’) was obtained.32 The grounds upon which the Tribunal could consent were subject to an overriding provision that it also had to be satisfied that a ‘fair and reasonable landlord would’ in ‘all the circumstances . . . insist on possession’.33 An alternative form of notice to quit could be given if the tenant had allegedly committed one of the ‘Seven Deadly Sins’ (as they came to be called).34 To counter such a notice, a different form of counter notice demanding arbitration had to be given in most of such cases.35 The giving of the wrong form of counter notice was fatal. Landlords and tenants alike could be statute barred from defending by the most technical of defaults.36 Three different fora, the Tribunal, specialist agricultural arbitration and the courts all had their own exclusive jurisdiction for their designated type of notice to quit. The result of this remarkable regime gave far more security to tenants of AHAs than has ever been enjoyed by any other form of business tenant, but with grave consequences which trapped the unwary. In most cases, annual tenancies were made to endure until the death of the tenant, with landlords unable to secure possession any earlier. Since tenancies were being made to endure, it also became necessary to introduce other provisions. A rent review provision was introduced enabling the rent to be revised at three yearly intervals in accordance with a formula.37 This was merely described as ‘the rent properly payable’. Rents soon fell far behind the market rents achievable on new lettings. The rental formula was then revised to the open market rental by the AA 1958. The further revision of this formula was then a central feature of the AHA 1984. Furthermore, almost every one of the conventional provisions of a tenancy agreement was subjected to some form of amendment or restriction. A model form of maintenance, repairing and insuring provision was provided for by statutory regulations,38 and existing agreements could even be varied by an arbitrator on reference to him so as to bring that agreement into line with the statutory model.39
31 32 33 34 35 36 37 38 39
Ibid, ss 24(1) and (2). Ibid, s 25(1). Ibid, ss 25(5) and (6). Ibid, s 24(2). Agricultural Holdings (Notices to Remedy and Notices to Quit) Order 1964. Mountford v Hodkinson [1956] 1 WLR 422 (CA); Rous v Mitchell [1991] 1 WLR 469 (CA). AHA 1948 s 8. Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1948. AHA 1948 s 5.
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The effect of this dramatic change to the law reversed the parties negotiating position inter se, and the effect on freehold values was substantial. Land sold subject to a protected tenancy soon secured, as little as half or even less the price paid for a similar farm with vacant possession.
POST-1948
Inevitably with such a radical change in the law, a number of unintended problems emerged which needed correcting. A useful vehicle for such regular minor adjustments to the law was available in the form of the annual Agricultural (Miscellaneous Provisions) Acts. These were required to give effect to the Deficiency Payments system, which was required under the payment support system applicable to farm prices before the United Kingdom signed the Treaty of Rome and became members of the European Economic Community. Under this system, each year negotiations between The Ministry of Agriculture and the National Farmers Union determined the support prices to be paid for each form of agricultural product, which was then enacted by the annual A(MP)A. This was then used for minor changes to the AHA 1948. Amendments were made in this way by the A(MP)A 1949, A(MP)A 1954, AA 1958, A(MP)A 1963, A(MP)A 1968 and A(MP)A 1972. The A(MP)A 1972 introduced major restrictions on landlords being able to recover possession following the giving of notices to remedy breaches of the terms of the tenancy. A chain of opportunities to challenge such notices was given. The first was when the notice to remedy was served. The tenant could demand referral to arbitration within one month. The second was if a consequent notice to quit was given. Again, the tenant could demand referral to arbitration within one month. A third opportunity was an additional right to apply to the Tribunal on the ground that a ‘fair and reasonable’ landlord would not insist on possession. The result of this multiplicity of challenges meant that landlords’ ability to enforce tenants’ contractual repairing obligations was rendered so expensive and protracted that they were rendered largely inoperable. The change introduced by the A(MP)A 1972 was as a result of a television programme entitled ‘Who owns Britain’s Acres?’ This was based on a misunderstanding of an individual notice to quit arbitration case. In that same year, the United Kingdom entered the Common Market and the need for annual A(MP)As ceased, except for the very important A(MP)A 1976. That Act was intended initially merely to abolish the Sugar and Hop Boards, but was used at a very late stage in the passing of the Bill to introduce what proved to be another fundamental change to the agricultural holdings law.
Agricultural Tenancies: Past and Present 121 1976–95
For landlords who were dismayed by the AHA 1948, there was worse to come. In 1976, succession for a possible two further generations of tenant was introduced by the A(MP)A 1976.40 This meant that a landlord who had granted a short term periodic annual tenancy, and had seen it subjected to restrictions on termination so as to become a lifetime tenancy for the tenant, now found that that period was extended for potentially two more generations of tenant. The possibility for such a landlord of ever recovering possession retreated, as it seemed, almost forever. To qualify as a potential successor, a tenant had to show that he was eligible and suitable. Each of those tests was subject to three subtests. To be eligible, he had to be closely related to the tenant who had just died; he had to have derived his principal source of livelihood from farming that land for at least five of the preceding seven years; and, not to have secure occupational rights over a commercially viable other block of farm land (called a ‘commercial unit’). The tests of suitability were directed towards ensuring that the potential new tenant was competent to farm, having regard to his ‘age health and financial standing’ and the views, if any, expressed by the landlord. Thereafter, a landlord could still maintain that succession should be denied on terms similar to those applying for notices to quit; but in practice these grounds could very rarely ever apply. This law, which was never part of the policy of either the Labour or the Conservative parties, was the price demanded by Plaid Cymru during the Callaghan minority administration (under the inaccurately named period of the Lib/Lab Pact). It proved to be the only parliamentary legislation that Plaid Cymru has ever secured in its history. As a result of these developments, landlords went to almost any lengths to avoid creating an AHA tenancy, even if they did not wish to occupy or sell. Where there was a subsisting AHA tenancy, similar efforts were made to bring it to an end, though usually with no success because the grounds for doing so were so restricted. Various forms of partnership were devised, and other rather artificial joint occupation arrangements were made and given names, such as share farming or share cropping agreements. All were devised to avoid the net of security of tenure. This was because licences granted to share occupation were not converted by the operation of law into annual tenancies under the statutory conversion provisions (which had sought to bring a wide range of occupational provisions within security). By now, the landlord and tenancy system was reduced to being almost totally moribund and artificially maintained by the inability of landowners
40
A(MP)A 1976 ss 16–24.
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to recover possession.41 When the Callaghan Government fell in 1979, many anticipated that the repeal of the succession provisions of the A(MP)A 1976 would be an early victim of the Thatcher administration. But that never happened. Instead, Mr Peter Walker, the Minister of Agriculture, let it be known that if the Country Landowners Association (on behalf of landlords) and The National Farmers Union (on behalf of tenants) could reach agreement as to what changes in the agricultural holdings laws were desirable, then he would secure the necessary parliamentary time for its enactment. Agreement was reached in the form of the CLA/NFU Pact, which was enacted as the AA 1984. This was consolidated with the remaining provisions of the AHA 1948 in the AHA 1986. The AHA 1984 never addressed the problem of the imbalance between landlords and tenants. It merely provided that henceforth no new AHA tenancies would carry with them succession rights, but that the existing rights were actually extended to enable a sitting tenant on retirement or permanent incapacity to instigate succession without waiting for death. The rent formula was amended with the intention of moving away from the open market formula to one which reflected ‘the productive capacity and the related earning capacity’ of the holding. Nearly every other section of the AHA 1948 was amended, mostly only very slightly.
THE AGRICULTURAL TENANCIES ACT 1995
It was not until 1995 that a fundamental change to the law was made after the production by the Ministry of Agriculture of a consultation paper in 1991. This had advocated a return to the old law, with virtually no regulation and a return to almost total freedom of contract. There was to be no security of tenure and no implied compensation or minimal period of notice. The Consultation Paper envisaged tenants having even less protection than the law before 1875 had provided, and without even the compensation provisions enshrined in the Customs of the Country. But following a Joint Industry Statement this was modified. With the ATA 1995, a wholly new (or perhaps very old) concept was introduced. Afterwards, Farm Business Tenancies (‘FBTs’) were to be the sole form of a new tenancy which could be created. Contracting into the AHA scheme was statutorily forbidden, just as comprehensively as until then contracting out had been. The only exceptions (allowing tenancies to come within the AHA scheme) were for succession
41 It is surprisingly difficult to find reliable statistics which reveal just how much land was let with security of tenure under the AHA regime at say 1995 and again at 2005. Those figures which have been provided are controversial and hotly contested. It is incontestable that the figure of 37% in 1978 (n 4) had been reduced substantially by 1995, and has been falling further ever since.
Agricultural Tenancies: Past and Present 123 tenancies created under the AHA regime, and new tenancies that had been created inadvertently under the doctrine of termination and regrant. By the ATA 1995, landlords and tenants were given almost complete freedom of contract to agree the terms of their FBTs with minimal superimposed restrictions. The main provisions of the Act are as follows: a) There is no minimum term for a FBT and minimal security of tenure. The only security offered is an extension of the notice period for annual tenancies to 12 months, a requirement for notice to be given to terminate a fixed term tenancy of more than two years, and control over the length of notice required to exercise a break provision. b) The tenant is able to diversify away from agriculture without losing FBT status. c) The parties can agree the rent review provisions, so long as review is based on an objective formula which is not upwards only. d) The tenant is entitled to compensation for improvements on quitting and there is freedom to supplement the compensation arrangements. Tenant’s fixtures are removable. e) Disputes are resolved under the Alternative Disputes Resolution procedure if possible, with a fall-back of arbitration under the Arbitration Act 1996. In all other respects, matters are left to the parties to agree between themselves. Even then, it was recognised that the new law would not be espoused by landlords and, therefore, would not have any practical effect unless the Labour Party (which had opposed the Bill) gave a commitment not to repeal the Act and reintroduce security of tenure if returned to power. This was given. The second practical objection was to the tax treatment of such land for inheritance purposes, as tenanted land received only 50 per cent relief whereas owner occupied land got 100 per cent relief. This was met by amending the Inheritance Tax Act 1984,42 to provide that the 100 per cent property relief was available to landowners of land let after 1 September 1995. In parallel, existing AHA tenancies, with security of tenure and succession, were left unaffected by the new 1995 provisions to work themselves out by effluxion of time or, as it was said, ‘to whither on the vine’. The present state of the law is that a dual, and concurrent diametrically different, set of regimes is in force. New tenancies created after 1995 are subject to the ATA 1995. Those created before 1995, and succession tenancies, are subject to the AHA 1986.
42
This Act was originally published as the Capital Transfer Tax Act 1984.
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Once again, following a major change in the law, it soon became apparent that amendment, if only by fine-tuning, was called for. As a result, following a report by Sir Don Curry (‘the Curry Report’) and Plymouth University (‘An Economic Evaluation of the Agricultural Tenancies Act 1995’), the Government set up the ‘Tenancy Reform Industry Group’ (‘TRIG’). Its terms of reference were to advise on the general health of the tenanted sector and, in particular, to encourage diversification whilst maintaining an appropriate balance between the rights of landlords and tenants. A number of compromises had been introduced in earlier legislation, particularly in relation to rent review and improvements which had caused problems that needed addressing. In May 2003, the TRIG final report was produced and, in December 2003, the Government produced its response. It promised to use the Regulatory Reform Act 2001 procedure to make a Regulatory Reform Order, which in turn could be used to introduce the necessary changes to the law. The intention was that the new legislation would be introduced with effect from September 2005, but this has now been revised to July 2006. The main proposed changes apply severally to AHA tenancies under the AHA 1986 and FBTs under the ATA 1995. Changes proposed to the AHA 1986 are first to succession. The criteria for statutory succession will be amended, to allow income derived from diversification with the consent of the landlord to be treated as if from agricultural work, and therefore taken into account in applying the ‘livelihood’ test. Second, the discreet arbitration procedure is to be abolished and replaced by the Arbitration Act 1996, bringing it into line with the ATA 1995 and the general law. More substantial are the changes proposed to the ATA 1995. These include: a) Model Clauses for repairs etc are to be introduced similar to those applying under the AHA 1986. b) Introduction of a code of good practice for agri-environment schemes and diversification projects within agricultural tenancies (which will be backed up by an Ombudsman). c) The rent review provisions will be changed to allow greater flexibility. d) There will be greater flexibility to agree discreet compensation provisions for improvements. e) There will be a clarification of the circumstances whereby land can be added to a holding without removing the tenant’s AHA rights through the doctrine of implied termination and regrant.
Agricultural Tenancies: Past and Present 125 AGRICULTURAL POLITICS AND ECONOMICS: THE 21ST CENTURY
In 1972, Britain joined the European Common Market (as it was then called). One of, if not the, most significant feature of that market was the Common Agricultural Policy, which had a major impact on farming fortunes. The immediate post war policy of successive United Kingdom governments had been to encourage greater and greater productivity, to render the country as nearly as possible self-sufficient in food. Large grants were paid to fund investment in land and buildings, for example The Farm and Horticultural Development Scheme. Prices were regulated under the Deficiency Payments system, whereby annual negotiations between the Ministry of Agriculture and the National Farmers Union resulted in minimum guaranteed prices being fixed, with the Government making up any shortfall in the market price. After 1972, the European Intervention System was substituted, whereby excess production was taken into intervention and then ‘dumped’ on Russia and the Third World (in the view of some, to the detriment of their economies). This produced great prosperity for farmers, and great resentment for the rest of the residents of the United Kingdom, who came to realise the cost to themselves as taxpayers of funding this policy. Since the early 1980s, a variety of attempts have been made to curb production through milk quotas and set-aside. The shift has been from supporting food production to enhancement of the ecology and the environment. The net effect is that farming has become progressively less profitable, resulting in farmers having to resort to diversification schemes and outside supplemental employment to survive. There is also a further source of problems for British food producers. For some years, the Government, under different political persuasions, has, as a matter of policy, preferred to buy products from abroad if they can be acquired more cheaply than they can be produced domestically. The cotton industry in the 19th century, and, more recently, the steel and coal industries, have all been marginalised or even destroyed, when the local industry has only not been competitive, because it is subject to regulatory restrictions which are not applied elsewhere, or, if they are, not so rigorously enforced. The agricultural industry is subject to just these same restraints. Minimum wages payable to staff, health and safety regulations, restrictions on spray applications and drugs (such as growth promotions and antibiotics) all render British agriculture uncompetitive with producers elsewhere in the world, such as Taiwan. The vagaries of currency movements and the strength of Stirling have also undermined domestic competitiveness.
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The political shift has been equally substantial. The clarion call has become: ‘you can’t buck the Market’. Concerns about those in uneven negotiating positions, like farm tenants who were previously thought to be in need of tender treatment, were answered by ‘the trickle down theory’. Under this philosophy, it was said that freeing business up from regulatory restraints and giving free rein to the market would increase the wealth that the fittest would enjoy. This would ‘trickle down’ to those less fortunate and all would benefit. Although the language used in the 20th century was very different from that of Jessel MR and Sir James Maine writing between 1850 and 1875, and markedly less elegant, the sentiments were identical. It remains to be seen as to whether the evolution of political thinking which followed that time comes round again and, as Lord Simon explained in Johnson v Moreton: “Competition” came to have the cliché “cut-throat” attached to it . . . . [T]o work felicitously as claimed, there must be a genuine free, open and abundant market in which there is equality of bargaining power. . . . [T]his called for a limited intervention by the state. . . .43
In the present political climate, the notion that farm tenants should be in a privileged position, in need of special protection so as to increase production of the nation’s staple food, has been turned on its head. The necessity now is perceived to be to curb production and to remove financial support for food production. The ATA 1995 gave statutory effect to those underlying principles, leaving AHA tenancies as historic anomalies and continuing relics of a previous philosophy. FBTs are, in practice, now only secured by established substantial farmers, with existing high levels of capitalisation, who add the extra acreage so as to benefit from the economies of scale. Neither old-style secure tenancies (AHAs) nor new style FBTs (under the ATA 1995) give rise to new entrants coming into agriculture. For landlords, particularly those who hold land as an investment as part of their portfolio, the position is much rosier. Even AHA landlords are able to release for development vernacular buildings, and other land for development following the easing of planning restrictions where planning consent has been obtained. This is because Case B of Schedule 3 of the AHA 1986 enables a landlord to give what is known as an ‘incontestable notice to quit’ where land is required for non-agricultural purposes and planning consent has been obtained. This, coupled with changed planning policies freeing up land, and particularly farm buildings for non agricultural uses, has given rise to many landlords securing very substantial development gains on traditionally low value agricultural land and buildings. 43
Johnson v Moreton [1980] AC 37 (HL) 66.
Agricultural Tenancies: Past and Present 127 More traditional landlords, whose family have held their estates for many years and see themselves as custodians for their generation and anxious to pass the estate on for future generations intact, are less favoured. Their prosperity is more closely linked to the earning capacity of their agricultural estate. Opportunities to sell for development or exploit diversification are counter-productive to the maintenance of a traditional estate. Although rental income is static or reducing, capital values are maintained or increasing. Factors such as fiscal benefits (capital gains tax, rollover relief and inheritance tax benefits) and the scarcity of land, which is a diminishing commodity (because it is irreplaceable and is constantly being eroded for general development), have combined to provide that agricultural land values are maintained. Where development of agricultural land is permitted, the increase in its value is dramatic. For those concerned with total returns (that is, capital growth and income combined without distinction between capital and income) agricultural land, even if subject to AHA tenancies, has for some years shown higher growth than most other forms of investment. ATA landlords operate in the real, and not the notional open market rent regime, whilst preserving the vacant possession premium. So capital values for let and vacant agricultural land are buoyant whilst the outlook for the occupiers engaged in food production is in general bleak, although a few with innovative ideas and marketing skills are prospering. For different reasons, the fate of farmers generally is similar to that of their predecessors farming during the periods 1815 to 1840, again from 1875 to 1914, and during the late 1920s and 1930s. Now that all financial support for tenants and owner-occupiers is independent of production, the single payment system under the Mid-term Revue has de-coupled financial support from levels of production to a flat payment per acre (hectare). Other grants are designed to re-directing farmers to improving the environment and the ecology. This has prompted some to describe farmers as being reduced to mere ‘park keepers’ or, as Mrs Beckett, the Minister for the Department of the Environment Food and Rural Affairs (DEFRA), put it at the Labour Party Conference in September 2005 that, farmers must redirect their activities from food production to land management.
7 Agricultural Tenancies: Future Directions MICHAEL CARDWELL
INTRODUCTION
T
HE AGRICULTURAL INDUSTRY continues to generate controversy, and to attract criticism from politicians and public alike. Priorities for farming, and rural land use more generally, are shifting; and, in turn, these shifting priorities are placing strains on the current regime for the regulation of agricultural tenancies. In particular, it may be questioned whether regulation should remain predicated upon ‘production agriculture’, subject to the imperative of reaching a high level of national selfsufficiency in commodity foods. Within the landlord and tenant context this imperative has been perhaps most graphically enunciated by the House of Lords in Johnson v Moreton.1 As stated by Lord Salmon, it would always ‘be of vital importance, both to the national economy and security, that the level of production and the efficiency of our farms should be maintained and improved’.2 The past success of this drive for increased output may be judged by the fact that, between 1976 and 1990, cumulative growth in production of cereals in the United Kingdom reached some 55 per cent.3 The policy background, as indicated, is now very different. Not least, there is widespread perception that farmers create ‘negative externalities’ such as environmental degradation, while the Bovine Spongiform Encephalopathy (‘BSE’) and Foot-and-mouth crises have shaken confidence in the integrity of the food supply. These concerns have been reflected in European Community polls, which have found that food safety and respect for the environment consistently emerge as the most important roles advocated by the public for the
1
[1980] AC 37 (HL). Ibid, p 52. 3 B Gardner, European Agriculture: Policies, Production and Trade (London, Routledge, 1996), Table 4.4. 2
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Common Agricultural Policy.4 At the same time, much hostile comment has been directed against agriculture in the context of world trade. Subsidies for farmers and trade barriers (as provided under the Common Agricultural Policy) are still the focus of much of this hostility, together with their adverse effects on agriculture in developing countries. For example, the House of Lords European Union Committee declared in June 2005: ‘If such subsidies and protection of agricultural markets were cut, agricultural exports from developing nations could help those economies to grow.’5 Moreover, the whole rationale underlying ‘production agriculture’ has increasingly been questioned.6 This is very evident in literature produced by NGOs. By way of illustration, it has been asserted by Friends of the Earth that: ‘What is needed is a new way to view the value of farming to society.’ A high value was to be attached to: the availability of the best food for everyone; the protection of natural resources and biodiversity; the creation and maintenance of landscapes; the use of the countryside for recreation; the humane treatment of farm animals; and the maintenance of a dynamic and diverse rural economy.7 It may be emphasised that such a vision displays considerable similarities to the ‘European Model of Agriculture’, which has been implemented by the Agenda 2000 reforms of the Common Agricultural Policy and their Mid-term Review in July 2002.8 The objectives of this model expressly extend beyond commodity production.9 Indeed, under the more detailed provisions of the Mid-term Review, production is no longer a pre-requisite to qualifying as a ‘farmer’ for the purposes of direct support payments. For such purposes, it remains necessary to exercise an ‘agricultural activity’, but ‘agricultural activity’ is so broadly defined that it includes mere maintenance of the land in good agricultural and environmental condition.10 Further, two objectives of the European Model of Agriculture (as confirmed 4 European Commission, European Union Citizens and Agriculture from 1995 to 2003 (Brussels, European Commission, 2004) 22. 5 Report from the Select Committee on the European Union, ‘The Future Financing of the Common Agricultural Policy’ HL (2005–06) 7–I [108]. That said, as also recognised by the House of Lords European Union Committee, the European Community has already put in place significant reductions in export subsidies; and, besides, in December 2005 agreement was reached in the Doha Development Round of world trade negotiations that all forms of export subsidies should be eliminated by the end of 2013: Doha work programme Ministerial Declaration (adopted on 18 December 2005) WT/MIN(05)/DEC[6]. 6 For instance, see generally: S Bright, ‘Tenant Farming: For the Good of the Nation?’ [1995] Conv 445. 7 E Diamand and P Riley, Get Real About Food and Farming: Friends of the Earth’s Vision for the Future of Farming in the UK (Friends of the Earth, 2001) 30. 8 For instance, see generally: M Cardwell, The European Model of Agriculture (Oxford, OUP, 2004) passim. 9 This characteristic has been said to render agriculture ‘multifunctional.’ For instance, see: OECD, Multifunctionality: Towards an Analytical Framework (Paris, OECD, 2001) passim. 10 Council Regulation (EC) 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers [2003] OJ L270/1 (‘2003 Horizontal Regulation’) Art 2(a) and (c).
Agricultural Tenancies: Future Directions 131 at the time of the Mid-term Review) are distinctly similar to those of Friends of the Earth: ‘production methods that support environmentally friendly, quality products that the public wants’; and ‘diversity in forms of agriculture, maintaining visual amenities and supporting rural communities’.11 However, it may be dangerous to see too close an identity between, on the one hand, the form of agriculture as advocated by NGOs promoting environmental protection and animal welfare and, on the other hand, the European Model of Agriculture as articulated by the European Commission. Importantly, a further objective of this model has been to maintain competitiveness on the international stage.12 In consequence, new imperatives influence the future for agricultural tenancies. But before considering their effects in greater detail, a preliminary point may be emphasised. As noted, both reforms to the Common Agricultural Policy and the world trade framework established by the Uruguay Round Agreement on Agriculture (‘URAA’) impact heavily upon agricultural tenancies. Yet land law considerations are not prominent at either of those levels of regulation. Thus, in R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock, the European Court of Justice stated that ‘legal relations between lessees and lessors, in particular on the expiry of a lease, are, as Community law now stands, still governed by the law of the Member State in question’.13 Indeed, in the case of the URAA, the landlord and tenant relationship simply receives no mention. On the other hand, European Community law would still seem capable of intruding, and specific provisions do address leases. For example, shortly after milk quotas were introduced, it was provided that: in the case of rural leases due to expire, where there the lessee is not entitled to an extension of the lease on similar terms, Member States may provide that all or part of the reference quantity corresponding to the holding which forms the subject matter of the lease shall be put at the disposal of the departing lessee if he intends to continue milk production.14
11 European Commission, Mid-term Review of the Common Agricultural Policy COM(2002)394, 2. 12 For instance, see: European Commission, ‘The Future for European Agriculture’, http://europa.eu.int/en/comm/dg06/ag2000/agprop/mot_en.htm [3], accessed 3 June 1998; and European Commission, Mid-term Review of the Common Agricultural Policy (n 11) 2. 13 Case C–2/92 R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock [1994] ECR I–955, I–985. 14 Council Regulation (EEC) 857/84 of 31 March 1984 adopting general rules for the application of the levy in the milk and milk products sector [1984] OJ L90/13 Art 7(4), as amended by Council Regulation (EEC) 590/85 of 26 February 1985 [1985] OJ L68/1. See now Council Regulation (EC) 1788/2003 of 29 September 2003 establishing a levy in the milk and milk products sector [2003] OJ L270/123 Art 17(4); and, for current implementation in England, the Dairy Produce Quotas Regulations 2005 SI 2005 No 465 Reg 14 (applicable to tenancies ending after 31 March 2005).
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Further, and in any event, national implementation of European Community law is subject to its general principles, including the right to property; and these may directly affect the landlord and tenant relationship. For example, in the milk quota case of Wachauf v Bundesamt für Ernährung und Forstwirtschaft, the European Court of Justice held that, if European Community rules had the effect, upon the expiry of a lease, ‘of depriving the lessee, without compensation, of the fruits of his labour and of his investments in the tenanted holding’, then they ‘would be incompatible with the requirements of the protection of fundamental rights in the Community legal order.’ It was also expressly confirmed that those requirements are binding on Member States when implementing European Community rules.15 That said, an important factor is that the impact of European Community law is restricted to areas where the European Community enjoys competence. Although these areas are substantial, quota regimes and the various direct payment schemes being prime examples, they remain far from comprehensive. Besides, the European Court of Justice has not always adopted a generous approach to applicants in this context, as illustrated by the case of R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock.16 It was claimed that there would be breach of the general principles of European Community law and, in particular, the right to property and the principle of non-discrimination, if a tenant, to whom milk quota had been allocated, did not receive compensation at the end of the lease.17 The application failed, even though it is not easy to see how the situation of the tenant differed materially from that considered in Wachauf v Bundesamt für Ernährung und Forstwirtschaft.18 It may be concluded, therefore, that the legislative framework at European Community level does afford the United Kingdom Government a large measure of discretion in the regulation of agricultural tenancies; and similar latitude is granted by the URAA. As indicated, it makes no express reference to landlord and tenant relationships. However, notwithstanding this latitude, world trade considerations undoubtedly do influence the legal configuration of subsidies received by farmers; and, in turn, this materially affects landlord and tenant relationships. Most significantly, the URAA has been a major force behind the recasting of domestic support to farmers by
15 Case 5/88 Wachauf v Bundesamt für Ernährung und Forstwirtschaft [1989] ECR 2609, 2639–40. 16 Case C–2/92 R v Ministry of Agriculture, Fisheries and Food, ex parte Bostock [1994] ECR I–955. 17 The tenancy expired after the introduction of milk quotas on 2 April 1984, but before the compensation scheme under the Agriculture Act 1986 came into force. 18 For instance, see: JHH Weiler and NJS Lockhart, ‘“Taking Rights Seriously” Seriously: The European Court and its Fundamental Rights Jurisprudence’ (1995) 32 CML Rev 51 and 579.
Agricultural Tenancies: Future Directions 133 the Mid-term Review of the Common Agricultural Policy. Payments under numerous earlier schemes (including arable area payments and headage payments in the livestock sector) have been replaced since 1 January 2005 by the Single Farm Payment.19 This new form of domestic support is apprehended to be decoupled from production, on the basis that receipt is not dependent upon production of any particular crop or, indeed, production at all. As a result, it is claimed by the European Community to be exempt from domestic support reduction commitments imposed by the URAA.20 More precisely, it is claimed to qualify as ‘de-coupled income support’ within Paragraph 6 of Annex 2 to the URAA.21 Accordingly, while national governments may, as a matter of law, enjoy much discretion, it is no longer realistic to regard them as legislating in a vacuum, free from broader constraints at European Community and world trade levels. With this in mind, two aspects may be addressed in order to shed light on future directions for agricultural tenancies: first, the extent to which there is an ongoing role for tenancies in the agricultural sector, with particular reference to United Kingdom Government policy; and, second, the extent to which current legislation can accommodate the new demands which are being placed on farmers. In this latter context, attention will be directed to the effect of the Mid-term Review of the Common Agricultural Policy, and, indeed, more general pressures to enter into conservation schemes and to diversify.
THE ONGOING ROLE FOR TENANCIES IN THE AGRICULTURAL SECTOR
Both the United Kingdom Government and policy-makers have long united in encouraging the grant of agricultural tenancies. Such an approach, for example, could be found in the 1979 Northfield Report.22 However, at the commencement of the reform process which culminated in the Agricultural 19 On the Single Farm Payment, see generally, eg: J Moody and W Neville, Mid-term Review: A Practical Guide (Bristol, Burges Salmon, 2004) passim. Some Member States, such as France, delayed implementation until 1 January 2006, as permitted by the 2003 Horizontal Regulation [2003] OJ L270/1, Art 71. 20 For such claims, see, eg: European Commission, Mid-term Review of the Common Agricultural Policy (n 11) 20; and European Commission, A Long-term Policy Perspective for Sustainable Agriculture, COM(2003)23, 4. See also: A Swinbank and R Tranter, ‘Decoupling EU Farm Support: Does the New Single Payment Scheme Fit within the Green Box?’ (2005) 6 Estey Centre J of Intl L & Trade Pol 47; and A Swinbank, ‘Developments in the Doha Round and the WTO Dispute Settlement: Some Implications for EU Agricultural Policy’ (2005) 32 European Review of Agricultural Economics 551. 21 Although the term does not appear in the URAA, payments exempt under Annex 2 are said to fall within the ‘Green Box’. 22 Northfield Committee, ‘Report of the Committee of Inquiry into the Acquisition and Occupancy of Agricultural Land’ (Cmnd 7599, 1979).
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Tenancies Act 1995, a mere 36 per cent of agricultural land in England and Wales was farmed by tenants, as opposed to 90 per cent in 1910.23 The same occasion provided an opportunity to re-assert commitment to the let sector, with the three guiding principles being to: to deregulate and simplify; to encourage letting of land; and to provide an enduring framework which could accommodate change. The existing legislation was considered ‘inappropriate to a market driven economy’; and, accordingly, its burden was to be ‘replaced by a more flexible framework’.24 It was also expressly acknowledged during the passage of the Agricultural Tenancies Bill through the House of Lords that such shift towards freedom of contract was fully consistent with wider government policies in terms of deregulation, greater market orientation, as well as with giving individuals greater freedom to manage their own affairs and the responsibility that goes with it.25
However, the primary motivation was stated to be ‘general agreement that action to boost the tenanted sector is long overdue’.26 Government commitment to agricultural tenancies has more recently been reiterated by the Tenancy Reform Industry Group (‘TRIG’).27 The list of Government objectives included: — To ensure tenant farmers can: — diversify where this will improve the viability of their business; — and take steps to help enhance and protect the environment, without fear of losing their tenancy or jeopardising succession rights. — To ensure that holdings can be restructured without jeopardising a tenant’s rights. — To maintain an appropriate balance between landlord and tenant interests. — To ensure that a variety of sustainable entry routes are available which provide an opportunity for new entrants to join and progress within the farming industry. — To maintain the area of let land. — To increase the area of land let under whole farm agreements. — To maintain and improve flexibility within the rental market. In addition, the list included wider aspirations to ‘strengthen the rural economy’ and ‘to promote cohesive and sustainable communities through 23 Ministry of Agriculture, Fisheries and Food, and Welsh Office Agriculture Department, Agricultural Tenancy Law – Proposals for Reform: A Consultation Paper (London, Ministry of Agriculture, Fisheries and Food; and Cardiff, Welsh Office Agriculture Department, 1991) [2]. 24 Ibid, [4]. 25 Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe) Hansard (HL) cols 490–91 (28 November 1994). 26 Ibid, col 491. 27 TRIG, Final Report (London, DEFRA, 2003).
Agricultural Tenancies: Future Directions 135 the creation of innovative, diverse and environmentally responsible farm based businesses’.28 These Government objectives provide perhaps the clearest indication of future policy for the let sector; and, consistent with them, TRIG took as one of its guiding principles the need for flexibility, to enable farming businesses to adapt to circumstances as yet unforeseen. It was also understood that ‘flexibility was best delivered by increased freedom of contract’.29 This amounts to firm endorsement of the policy already being implemented by the Agricultural Tenancies Act 1995. Of the guiding principles employed by TRIG, two more may be highlighted. First, delivery of the Government objectives was to be sought wherever possible by non-legislative means; and, as shall be seen, this found expression in the recommendation that diversification should be dealt with through a Code of Good Practice, rather than through amendment to statute. In particular, such an approach was regarded as preferable to amending the statutory definition of ‘agriculture’ or granting tenants a statutory right to appeal against any refusal by a landlord to consent to non-agricultural activities.30 Second, TRIG endeavoured to maintain neutrality between lettings and other vehicles for farm management, so that farmers could make decisions based upon commercial merits as opposed to exploiting particular loopholes. Against this policy background, it is possible to focus on two factors which have the capacity to impact on the ongoing role for agricultural tenancies. First, a notable strength of the let sector is that it provides the opportunity to farm without incurring the capital cost of acquiring freehold land. Traditionally, this strength has been associated with the provision of a step onto the farming ladder for new entrants, as emphasised by Earl Howe on the second reading of the Agricultural Tenancies Bill.31 To this end, a major role has been played by County Council smallholdings; and their continuing importance may be illustrated by empirical work on farm business tenancies. The 2002 research study, An Economic Evaluation of the Agricultural Tenancies Act 1995, found that 33.2 per cent of farm business tenants on County Council smallholdings in England were new entrants. This compared favourably with a proportion of 9 per cent overall.32 It was also significant
28 Ibid, p 7. See also: DEFRA, Government Response to the Report of the Tenancy Reform Industry Group (TRIG) (London, DEFRA, 2003) 1–2. 29 TRIG, Final Report (n 27) 8. 30 On conservation schemes and diversification, see further below. 31 Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe) Hansard (HL) col 487 (28 November 1994). 32 I Whitehead, et al, An Economic Evaluation of the Agricultural Tenancies Act 1995 (Seale-Hayne, University of Plymouth, 2002) Table 3.9. For the overall figures in England, reference in the study was made to the 1999/2000 survey conducted by the Central Association of Agricultural Valuers.
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that, in the case of County Council smallholdings, 91 per cent of lettings to new entrants were lettings of complete holdings, whereas the proportion was far lower, at 28 per cent, if all lettings to new entrants were taken into account.33 These figures would tend to confirm the view that agricultural tenancies are increasingly taken by established farmers who already own freehold land or who are, at the least, protected under the agricultural holdings legislation. Moreover, if not just lettings to new entrants but all new farm business tenancies were analysed, the 2002 research study found that in England and Wales only 9 per cent were lettings of complete holdings.34 Similarly, a later survey in 2004 found that only 8.3 per cent of lettings were of complete holdings.35 This arguably reflects the practice, as again found by the 2002 research study, that land agents would prefer not to advertise land to be let, instead targeting the larger, established farmer, who could afford the highest rent; who would present the least risk; and, who would be generally interested in the bare land which comprises most farm business tenancies.36 From the point of view of efficiency, such a pattern has the clear advantage of allowing expansion and contraction of existing farming operations without major capital costs, as was also recognised by TRIG: ‘The flexibility of the sector is a key part of the ability of UK agriculture to respond to the economic pressures which it currently faces.’37 Indeed, there is even evidence that the ability to increase the amount of land farmed, and thereby to exploit economies of scale, may prove critical to reaching the level of competitiveness necessary to remain in production agriculture.38 At the same time, in husbandry terms, short-term tenancies are singularly appropriate for specialist cropping, such as fruit, vegetables and potatoes, while their legal flexibility was of benefit during the implementation of the Mid-term Review. For example, they came to the aid of farmers who wished to sell land before definitive establishment of their entitlements to the Single Farm Payment. To ensure the continuity of occupation which was required for such definitive establishment, a farm business tenancy could be granted back to the vendor, with the entitlements then being transferred to the purchaser-landlord on termination.39
33
Ibid, [3.21]. Ibid, [3.7]. 35 Central Association of Agricultural Valuers, The Central Association of Agricultural Valuers Annual Tenanted Farms Survey 2004 (Coleford, Central Association of Agricultural Valuers, 2005) 9. 36 I Whitehead, et al (n 32) [3.23]. 37 TRIG, Final Report (n 27) 1. 38 See, eg, Deloitte Press Release, ‘Farmers Predicted to Produce Food at Loss’, 3 November 2005. Deloitte Press Releases are available at http://www.deloitte.com. 39 Moody and Neville (n 19) 189–90. 34
Agricultural Tenancies: Future Directions 137 It may be observed that in the United States there is also widespread farming of owner-occupied land in conjunction with let land, prompted by similar considerations. Therefore, while nearly half of the total acreage in production falls within the let sector, only 8 per cent of farms are operated by farmers dependent upon tenancies alone.40 A second factor is that the future of agricultural tenancies, to a considerable degree, depends upon resolution of the inherent tension between, on the one hand, such emphasis on flexibility and, on the other hand, broader aspirations of Government to promote cohesive and sustainable rural communities. At European Community level, this tension is also apparent at the heart of the multifunctional European Model of Agriculture. It may even be found in the United States, where, notwithstanding the importance attached to a competitive agricultural industry, a clear policy goal continues to be the ‘[m]aintenance of the family farm organization as a dominant part of the production system’.41 The need to preserve this Jeffersonian vision of independent farmers who conserve the agricultural heritage arguably underpins the willingness of the public in the United States to support agriculture; and this again finds parallels in Europe.42 By way of example, the Curry Report affirmed that in many ways it is this majority of smaller farms that, for many, are the ideological and political basis for agricultural support and who play a crucial role in the social and cultural fabric of rural areas43.
Nonetheless, as indicated, empirical evidence would suggest that farm business tenancies are proving rather a conduit to land consolidation, with those operating on a smaller scale being squeezed out by economic pressures.44 Despite these difficulties, it would seem clear that the United Kingdom Government has signalled a firm commitment, not only to preserve and enhance agricultural tenancies, but also to enshrine freedom of contract as their underlying principle. It may, therefore, be considered whether this principle will prove able to meet the challenges presented by the Mid-term Review of the Common Agricultural Policy, together with more general incentives to enter into conservation schemes and to diversify. 40 US Dept of Agriculture, Food and Agricultural Policy: Taking Stock for the New Century (Washington DC, US Dept of Agriculture, 2001) 24. See also: M Cardwell, ‘Farm Business Tenancies: The American Way?’ [2000] Conv 229. 41 The Commission on 21st Century Production Agriculture, Directions for Future Farm Policy: The Role of Government in Support of Production Agriculture—Report to the President and Congress (Washington DC, 2001) xv. 42 For a comparative treatment, see: RA Coulthard, ‘The Changing Landscape of America’s Farmland: A Comparative Look at Policies Which Help Determine the Portrait of Our Land— Are There Lessons We Can Learn From the EU’ (2001) 6 Drake J of Agricultural L 261. See also: ND Hamilton, ‘Reaping What We Have Sown: Public Policy Consequences of Agricultural Industrialization and the Legal Implications of a Changing Production System’ (1997) 45 Drake L Rev 289. 43 Policy Commission on the Future of Farming and Food, Farming and Food: A Sustainable Future (London, Cabinet Office, 2002) 53. 44 For instance, see: Central Association of Agricultural Valuers (n 35) 8.
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The Mid-term Review Although freedom of contract continues to be the watchword for agricultural tenancies in the United Kingdom, it has been seen that broader constraints operate at European Community and world trade levels. This was expressly recognised during the passage of the Agricultural Tenancies Bill through Parliament. Referring to the intention of the Government to deregulate, it was questioned whether this could be appropriate, when the common agriculture policy is the most interventionist policy one could imagine? Is not it contradictory to be strongly advocating the free market in what is an incredibly rigged market?45
On the one hand, it may be argued that the Mid-term Review of the Common Agricultural Policy has now unshackled farmers from the detailed rules of earlier, more specific subsidy regimes, in that the Single Farm Payment embraces most of those regimes and is not dependent upon any particular form of production or production at all.46 In this may be found echoes of the ‘Freedom to Farm’ under the United States Federal Agriculture Improvement and Reform Act of 1996; and, indeed, Commissioner Fischler saw as a chief merit of such decoupling from production that it would ‘give entrepreneurial freedom back to our farmers’, who would ‘no longer have to produce just for subsidies’.47 He even used the expression ‘freedom to farm’.48 On the other hand, the reforms have been characterised as ‘decoupling with strings attached’.49 In particular, receipt of not just the Single Farm Payment, but most direct payments is dependent upon cross compliance with, first, statutory management requirements relating to public, animal and plant health, the environment and animal welfare50; and, second,
45
(Mr Alan W Williams) Hansard (HC) col 82 (6 February 1995). For the subsidy regimes comprised within the Single Farm Payment, see: 2003 Horizontal Regulation [2003] OJ L270/1, Annex VI, as last amended by Council Regulation (EC) 319/2006 of 20 February 2006 [2006] OJ L58/32. 47 Commissioner Fischler, ‘Towards Sustainable Farming—Ireland and the Common Agricultural Policy’ (Speech/02/557) (Dublin, 11 November 2002). 48 Commissioner Fischler, ‘The Mid-term Review: Towards a Policy that Pleases Everybody’ (Speech/02/339) (Wageningen, 12 July 2002). 49 For instance, see: Centre for World Food Studies, Amsterdam, and Netherlands Bureau for Economic Policy Analysis, the Hague, The CAP-reform Proposal of the Mid-term Review: Decoupling with Strings Attached (Brussels, European Commission, 2002). 50 The statutory management requirements are set out in Annex III to the 2003 Horizontal Regulation [2003] OJ L270/1. 46
Agricultural Tenancies: Future Directions 139 an obligation to maintain all agricultural land in good agricultural and environmental condition.51 Accordingly, following the Mid-term Review, farmers may have greater ability to respond to market signals, but European Community law still dictates farming practice, with a new, multifunctional emphasis. This policy shift may be examined with particular reference to the requirement that all agricultural land be maintained in good agricultural and environmental condition. First of all, policy documents have stated that, to meet the requirement, no production would be necessary.52 Such would seem fully consistent with the claim by the European Community that the Single Farm Payment is ‘Green Box’ compatible as decoupled income support, a key criterion for the exemption being that no production should be required.53 Moreover, the United Kingdom implementing legislation makes this aspect explicit. Thus, in England, the Common Agricultural Policy Single Payment and Support Schemes (Cross Compliance) (England) Regulations 2004 contain specific rules in respect of the ‘[m]anagement of land which is not in agricultural production’.54 Although such cross compliance qualifies as an ‘agricultural activity’ for the purposes of the 2003 Horizontal Regulation, it would seem questionable whether it would qualify as ‘agriculture’ for the purposes of the Agricultural Holdings Act 1986 or the Agricultural Tenancies Act 1995, the focus of their non-exhaustive definition being on production: ‘agriculture’ includes horticulture, fruit growing, seed growing, dairy farming and livestock breeding and keeping, the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes.55
As a result, if an agricultural tenant chooses simply to maintain all agricultural land in good agricultural and environmental condition, it may be doubted whether the tenancy remains agricultural. Even if this hurdle could be cleared, the statutory framework provided by neither the Agricultural Holdings Act 1986 nor the Agricultural Tenancies Act would seem to be appropriate. For
51 In respect of this latter obligation, a European Community framework is set out in Annex IV to the 2003 Horizontal Regulation [2003] OJ L270/1. 52 For instance, see: European Commission, Impact Assessment of the Mid-term Review Proposals for Agricultural Markets and Revenues in the EU–15 and in the EU–25 Using the ESIM Model (Brussels, European Commission, 2003) 5. 53 URAA Annex 2 [6(e)]. See also United States – Subsidies on Upland Cotton (Panel Report, 8 September 2004) WT/DS267/R and (Appellate Body Report, 3 March 2005) WT/DS267/AB/R. 54 SI 2004 No 3196 Sch [7]. 55 Agricultural Holdings Act 1986 s 96(1); and Agricultural Tenancies Act 1995 s 38(1).
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example, compensation provisions, which remain compulsory even under the Agricultural Tenancies Act 1995, would be rendered effectively otiose. Further, tenants would run the risk of breaching the statutory rules of good husbandry contained in Section 11 of the Agriculture Act 1947, and, in particular, the requirement that the occupier is maintaining a reasonable standard of efficient production, as respects both the kind of produce and the quality and quantity thereof, while keeping the unit in a condition to enable such a standard to be maintained in the future.
It is probable that maintaining land in good agricultural and environmental condition would be keeping the holding in good heart for the future, not least because an express purpose of the cross compliance condition is to prevent land abandonment56; but it would be less easy to show a reasonable standard of efficient production. In this regard, it may be noted that in the Scottish case of Cambusmore Estate Trustees v Little it was held that, where there was simply no production whatsoever, this would prima facie amount to a breach of the rules of good husbandry.57 Strictly speaking, there is no statutory obligation to comply with the rules of good husbandry, whether under the Agricultural Holdings Act 1986 or the Agricultural Tenancies Act 1995.58 However, under the Agricultural Holdings Act 1986 breach may be used by the landlord for the purposes of obtaining the grant of a certificate of bad husbandry; and, if granted, this is ground for the service of a notice to quit under Case C in Schedule 3 to the Agricultural Holdings Act 1986. Furthermore, most landlords in any event insist on incorporation of an express covenant requiring compliance. Consequently, it is perhaps not surprising that TRIG, when issuing advice to tenants and landlords following the Mid-term Review, could conclude that: ‘The essential moral is for the parties to be practical, commercial, understand what each wants and what each can give and, most importantly, to be fair.’59 Conservation Schemes and Diversification European Community law has for some time encouraged farmers to enter into conservation schemes and to diversify. The status of such measures 56
For instance, see: 2003 Horizontal Regulation [2003] OJ L270/1 Recital (3). [1991] SLT (Land Ct) 33. For the rules of good husbandry applicable in Scotland, see the Agriculture (Scotland) Act 1948 Sch 6. The Scottish rules include a requirement to maintain a reasonable standard of efficient production in identical terms to s 11 of the Agriculture Act 1947. See also: B Gill, The Law of Agricultural Holdings in Scotland, 3rd edn, (Edinburgh, W Green/Sweet & Maxwell, 1997) 64–66. 58 For instance, see: HAC Densham and D Evans, Scammell and Densham’s Law of Agricultural Holdings, 8th edn, (London, Butterworths, 1997) 135–37. 59 TRIG, ‘Notes to Aid Tenants and Landlords on CAP Reform’, http://www.defra.gov.uk/ farm/capreform/pubs/pdf/tenland.pdf [40], accessed 16 January 2006. 57
Agricultural Tenancies: Future Directions 141 was enhanced when rural development became the ‘Second Pillar’ of the Common Agricultural Policy under the Agenda 2000 reforms (alongside the ‘First Pillar’ constituted by market management). In Autumn 2005 the trend was continued by Council Regulation 1698/2005.60 For the purposes of implementing rural development objectives, this new legislative framework identifies four blocks of measures or ‘Axes’, of which two are of particular relevance to agricultural tenants: Axis 2, improving the environment and countryside; and Axis 3, quality of life in rural areas and diversification of the rural economy. The former includes agri-environment payments. In addition, the Mid-term Review had already secured a greater proportion of Common Agricultural Policy funding for rural development. A significant initiative was the imposition of compulsory ‘modulation’ (that is, the transfer of funds to the ‘Second Pillar’ from the ‘First Pillar’).61 It is provided that by 2007 5 per cent of direct payments must be so transferred62; and it has been estimated that this will realise 1.2 billion Euros per annum across the European Community.63 Turning more specifically to conservation schemes, there is scope to integrate these more fully into the regulation of agricultural tenancies in England and Wales. This lack of integration continues notwithstanding, as indicated, the increased importance of such schemes under the reformed Common Agricultural Policy, and notwithstanding the identification of potential difficulties for tenants during the passage of the Agricultural Tenancies Bill through Parliament. For example, it was expressly urged, in the event unsuccessfully, that the definition of ‘agriculture’ should be widened to accommodate ‘those tenants who will have land in various Government schemes, such as set-aside, environmentally sensitive areas and nitrate sensitive areas’.64
60 Council Regulation (EC) 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) [2005] OJ L277/1. This Regulation is to have effect, as a general rule, for the programming period commencing on 1 January 2007. 61 Prior to the Mid-term Review modulation had been authorised by Council Regulation (EC) 1259/1999 of 17 May 1999 establishing common rules for direct support schemes under the common agricultural policy [1999] OJ L160/113 Art 4; but the United Kingdom had been one of a minority of Member States to implement this discretion. 62 2003 Horizontal Regulation [2003] OJ L270/1 Art 10(1). Member States have the option to increase this percentage, an option that has been exercised in England: The Common Agricultural Policy Single Payment and Support Schemes Regulations 2005 SI 2005 No 219 Reg 11. 63 For instance, see: Commissioner Fischler, ‘CAP Reform’ (Speech/03/356) (Brussels, 9 July 2003). 64 (Mr Clifton-Brown) Hansard (HC) col 82 (6 February 1995). As has been seen, the definition of ‘agriculture’ in the Agricultural Tenancies Act 1995 s 38(1) is unchanged from that in the Agricultural Holdings Act 1986 s 96(1), with the focus being on production.
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On the other hand, in the case of tenants protected by the Agricultural Holdings Act 1986, some statutory consolation is provided by the fact that, where there is an express conservation clause, the Agricultural Land Tribunal shall disregard any practice adopted by the tenant in pursuance of that clause when determining whether or not to grant a certificate of bad husbandry for the purposes of Case C. Moreover, the conservation clause is to be regarded as a term or condition which is not inconsistent with the responsibilities of the tenant to farm in accordance with the rules of good husbandry both for the purposes of Case D (remediable breach) and for the purposes of Case E (irremediable breach).65 It may be observed in this context that greater security has been accorded to tenants in Scotland. Following amendment to the Agricultural Holdings (Scotland) Act 1991 by the Agricultural Holdings (Scotland) Act 2003, it is not necessary that there be an express conservation clause to trigger protection. Conservation activities are also to be regarded as complying with the rules of good husbandry if carried out in accordance with ‘the conditions of (i) any grant for the purpose of such activities paid out of the Scottish Consolidated Fund; or (ii) such other grant of a public nature as may be prescribed’.66 With regard to diversification, the inherent dangers for tenants have been well illustrated by the case of Jewell v McGowan. In that case, the tenant undertook substantial open farm activities, to the extent that they were claimed to contribute one third of the income of the farm. At first instance, such activities were held not to amount to breach of a covenant to use the holding for agricultural purposes only. In particular, the court took a flexible approach as to what constituted ‘agriculture’, which it considered to be a concept ‘not fixed in a time warp for ever’.67 Like success was not enjoyed by the tenant before the Court of Appeal. Emphasis was laid on the fact that the covenant was to use the holding for agricultural purposes only. Accordingly, the open farm activities were regarded as distinct in character and purpose from the agricultural enterprise, even though the profits would be devoted to the agricultural enterprise.68 That said, an express purpose of the Agricultural Tenancies Act 1995 was to assist tenants in adapting to change; and, for this purpose, it permits substantial diversification over the course of a farm business tenancy. Provided
65 Agricultural Holdings Act 1986 Sch 3 [9(2)], [10(1)(d)] and [11(2)]. Like provision is also made where obligations were accepted by or imposed on the tenant under the Nitrate Sensitive Area scheme: ibid, [9(3)], [10(3)] and [11(3)]. In the case of the Agricultural Tenancies Act 1995, there is evidence that a significant number of longer agreements (with a term of three years or over) do include specific environmental provisions: I Whitehead, et al, (n 32) Table 3.10. 66 Agricultural Holdings (Scotland) Act 1991 s 85(2A) and (2B), as amended by the Agricultural Holdings (Scotland) Act 2003 s 69. 67 Gloucester County Court (15 March 2001) (unreported). 68 [2002] EWCA Civ 145. See also: W Barr, ‘Agricultural Law Update’ (2002) 146 SJ 657.
Agricultural Tenancies: Future Directions 143 that the requisite notices are given, a tenancy remains a farm business tenancy if: (a) the character of the tenancy was primarily or wholly agricultural on commencement of the tenancy; and, (b) throughout the tenancy at least part of the land is farmed for the purposes of a trade or business.69 Following commencement, therefore, it would seem that the degree of commercial farming need not be great. Besides, the requirement is that farming take place throughout the farm business tenancy, not that the land be used for agriculture; and farming is defined more broadly than agriculture in Section 38(2): ‘References in this Act to the farming of land include references to the carrying on in relation to land of any agricultural activity.’ The wording is distinctly similar to that in the 2003 Horizontal Regulation, but, without express reference as found in the 2003 Horizontal Regulation, it may be questioned whether it would extend to maintaining land in good agricultural and environmental condition. In addition, at the commencement of the farm business tenancy the character of the tenancy must in any event be primarily or wholly agricultural.70 The same Act has improved rights to compensation in respect of diversified activities. As a general rule, the amount payable is ‘an amount equal to the increase attributable to the improvement in the value of the holding at the termination of the tenancy as land comprised in a tenancy’.71 No longer is compensation limited to ‘the increase attributable to the improvement in the value of the agricultural holding as a holding’.72 Compensation (on a different basis) has also been made available in respect of planning permissions. Further encouragement for diversification may be found in moves, as recommended by TRIG, to relax the criteria for succession under the Agricultural Holdings Act 1986. More specifically, TRIG proposed amendment to the requirement that a potential successor must earn his or her principal source of livelihood from agricultural work on the holding, or on an agricultural unit of which the holding forms part, for at least 5 out of the 7 years prior to the death or retirement of the previous tenant. The nature of the proposed amendment was to include in the calculation not just agricultural work but also work on a diversification project approved by the landlord.73 69 Agricultural Tenancies Act 1995 s 1 (satisfying the notice conditions, as opposed to the agriculture condition, together with the business conditions). 70 See: Densham and Evans (n 58) 915–16. 71 S 20(1). 72 Agricultural Holdings Act 1986 s 66(1). 73 TRIG, Final Report (n 27) 16. See now the draft Regulatory Reform (Agricultural Tenancies) (England and Wales) order 2006, which provides for inclusion of agricultural work carried out by the potential successor from the holding, and other work carried out by him on or from the holding, on condition that this is approved in writing by the landlord after the amendment comes into force.
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However, as has been seen, TRIG recommended that diversification issues otherwise be dealt with through a Code of Good Practice74; and this recommendation was taken up by the Government, with the issue in 2004 of the Code of Good Practice for Agri-environment Schemes and Diversification Projects Within Agricultural Tenancies.75 Accordingly, TRIG again elected not to follow the more generous approach adopted towards tenants in Scotland, who now enjoy the statutory right to give notice of intent to diversify, with their landlords having only limited grounds to object.76 CONCLUSION
While freedom of contract may currently be the guiding principle for governance of agricultural tenancies in England and Wales, it is difficult to avoid the conclusion that both the legislature and individual farmers are nonetheless constrained by broader considerations that transcend national boundaries.77 These broader considerations reflect the fact that agriculture is regarded as exceptional at European Community level and in the context of world trade. Such exceptionalism, in the view of the European Community institutions at least, is now based far less on the imperative of food production and far more on the unique position of farmers as the first link in the food chain. Therefore, as stated by Commissioner Fischler against the background of the BSE and Foot-and-mouth crises, it is farmers who ‘must ensure that everything that passes from “stable to table” meets the required standards’78; and food safety is not negotiable.79 As a result, by virtue of European Community law agriculture remains a sector of the economy which is subject to specific and tight regulation. The Single Farm 74
TRIG, Final Report (n 27) 50–57. DEFRA, ‘Code of Good Practice for Agri-environment Schemes and Diversification Projects within Agricultural Tenancies’, http://www/defra.gov/uk/farm/tenancy/trig/trigcogp/pdf, accessed 18 May 2006. accessed 18 may 2006. It may be noted that the Code of Good Practice is backed up by an adjudication scheme; but the decision of the adjudicator is not legally binding. See now: DEFRA News Release 594/05, ‘Adjudication Scheme for Agrienvironmental Schemes and Diversification Projects within Tenancies’, 16 December 2005. 76 Agricultural Holdings (Scotland) Act 2003 ss 40–41. It is also provided that neither a tenancy governed by the Agricultural Holdings (Scotland) Act 1991 nor a tenancy under a lease constituting a limited duration tenancy cease to be such tenancies simply because the land is used for a non-agricultural purpose; and that any term of a lease which prohibits the use of land for a non-agricultural purpose is of no effect: ibid, s 39. Significantly, a 2006 survey of English tenant farmers found that, notwithstanding the introduction of farm business tenancies, there was a preference for diversifying on land that was owned rather than rented: B Ilbery, et al, Research into the Potential Impacts of CAP Reform on the Diversification Activities of Tenant Farmers in England—Baseline Study (EPES 0405/05) PTO. 77 It may be reiterated that in Scotland a more interventionist approach has been taken. 78 Commissioner Fischler, ‘Agriculture and Agri-food: A Clean Green Future’ (Speech/01/254) (Dublin, 31 May 2001). 79 For instance, see: Commissioner Fischler, ‘Round Table on Agriculture and Food’ (Speech/01/359) (Brussels, 26 July 2001). 75
Agricultural Tenancies: Future Directions 145 Payment may have freed farmers from the detailed provisions of a wide range of support regimes; but the cross compliance obligations still circumscribe their action. Importantly, these obligations are compulsory, not fit matters for negotiation between a tenant and landlord. Likewise, by virtue of the URAA agriculture enjoys its own legislative framework for world trade purposes. As to the future, it is also of note that, when the General Council of the World Trade Organization adopted its Decision on 1 August 2004, taking the Doha Development Round negotiations a stage forward, the Framework for Establishing Modalities in Agriculture dominated the text.80 In this shifting environment, tenancies must still have an important role. They have the great merit of flexibility, permitting the expansion and contraction of farming businesses without high capital costs. They may also be usefully employed for such activities as specialist cropping. However, it would seem prudent to take account of the fact that agriculture is indeed an exceptional industry, which may continue to claim entitlement to its own regulatory code at national level, just as it is subject to its own regulatory code at European Community level and in the context of world trade. A consequence is that, on occasion, there may be compelling reasons why the principle of freedom of contract should yield. For instance, it is counterintuitive that observance of a compulsory cross compliance obligation to maintain land in good agricultural and environmental condition may place the agricultural status of a tenant at risk. In like vein, a declared Government objective is to ensure that tenants can diversify and protect the environment without jeopardising their rights. Amendment to succession rights will assist, but a more robust legislative package might afford a tenant greater comfort and at the same time ensure cohesion with rural development initiatives at both European Community and national level. It may rightly be argued that in the case of diversification, unlike cross compliance, the tenant is under no compulsion. Yet diversification is part and parcel of the economic realities of farming, as illustrated by the fact that a 2006 survey of English tenant farmers found that over 40 per cent had diversified.81 In consequence, it would seem only fair that a tenant should be able to take reasonable opportunities to move away from agricultural production which may be proving unprofitable. Following the recommendations of TRIG, it is likely that future governance of agricultural tenancies will continue to be based upon freedom of contract. However, both the status and the specific regulation of agriculture in European Community and world trade law suggest that there would be merit in the Government adopting freedom of contract with more strings attached.
80 Decision on the Doha Work Programme (adopted by the General Council on 1 August 2004) WT/L/579. 81 B Ilbery. et al (n 76) Executive summary [4.14].
8 Long Residential Leases: Past and Present MARTIN DAVEY
INTRODUCTION Leaseholds are eviscerated freeholds stuffed with law; a tenure first contrived when legal subtlety was perfectly matured, but social science and political economy were yet unknown.1
I
text, the author rightly draws attention to the centrality of the distinction between short and long-term leases.2 A weekly tenancy and a ‘long’ lease for 99 or 999 years are both ‘tenancies’, and both are capable of existing as legal estates in land.3 However, from that point on, the differences between these two types of lease far outnumber their similarities. The statutory schemes of rent control and security of tenure, first introduced in 1915 and 1920 respectively, and their successor schemes, have been confined to tenancies of properties let at a ‘rack rent’, rather than those let at a ground rent.4 Furthermore, since the ‘deregulatory’ Housing Act 1988, such private rented sector tenancies are now increasingly viewed primarily as consumer contracts for the hire of property.5 By contrast, a tenant under a long residential lease (who is frequently described as a ‘leaseholder’) will have paid a capital sum to acquire the lease (which will be a saleable asset). They will pay a relatively low ‘ground rent’; N A RECENT
1
Anonymous, ‘The Ethics of Urban Leaseholds’ (1879) 69 British Quarterly Review 301. ‘If there is one central truth of this book, it is the fundamental distinction between long and short leases’: P Sparkes, A New Landlord and Tenant (Oxford, Hart Publishing, 2001) vii. 3 Law of Property Act 1925 ss 1(1) and 205(1)(xxvii). For formalities, see: ss 52 and 54(2). 4 Leases granted for more than 21 years were originally excluded from the Rent Acts until the exclusion was removed by the Leasehold Reform Act 1967 s 39(1). However, in practice, the ‘low rent’ exception under s 5 of the Rent Act 1977, now excludes from the Act, those longer terms granted for a ground rent. (See also the low rent exception in s 1 and Sch 1, paras 3–3C Housing Act 1988). 5 For a discussion of the complex web of discourses on the topic of leasehold reform, see: S Blandy and D Robinson, ‘Reforming Leasehold: Discursive Events and Outcomes, 1984–2000’ (2001) 28 J of L & Soc 384. 2
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pay the council tax to the local authority; and, will have to repair the property, if they wish to maintain the value of the lease. They will not see themselves as a ‘tenant’, and nor are they likely to think of the freeholder as their ‘landlord’. Therefore, in the case of a long lease, contract and property law combine to ensure that in the early years of a long lease, the ‘property’ right of the landlord is relatively weak, and that of the leaseholder is corres pondingly stronger. By contrast, as the lease diminishes, and particularly where the expiry of the term is imminent, the property right of the landlord grows stronger, and that of the tenant grows weaker. Long leases of houses have been granted typically under one or other of two types of lease. The first is the 99-year ‘building lease’ and the second is the 999-year lease. It was with the first of these types of arrangement in mind that leaseholders, social reformers, and politicians argued from midVictorian times that the law governing long residential leases was heavily biased in favour of landlords, and that this imbalance called out for statutory redress.6 The most radical demand was for enfranchisement, that is to say a power on the part of the leaseholder to compel the freeholder to transfer the freehold to the leaseholder at a price to be determined by agreement, or by an independent tribunal or court. As we shall see, the arguments employed by the 19th century campaigners were many and varied, but most significantly, those arguments were conducted as part of a much wider political struggle between the landed and commercial interests, the outcome of which put paid to the campaign. Indeed, the arguments against reform that succeeded in the late 19th century continued to hold sway throughout the 20th century. They were defeated only when the Leasehold Reform Act 1967 finally introduced enfranchisement for qualifying long leases granted for more than 21 years. By now, the post-Second World War Butskellite consensus in favour of wider levels of home ownership was sufficiently strong to overcome the ideological obstacle to enfranchisement provided by the doctrine of sanctity of contract. Once accepted, it was only a matter of time before the principle of enfranchisement was extended to flats and maisonettes by the Leasehold Reform Housing and Urban Development Act 1993. Since then, the qualifying conditions have been relaxed from time to time, in order to combat those freeholders who took advantage of loopholes and ambiguities in the legislation to deny their tenants the opportunity to enfranchise or to obtain a new or extended lease. The most recent measure is the Commonhold and Leasehold Reform Act 2002 (‘The 2002 Act’).
6 Due to the length of the term, the arguments against permitting tenants holding under 999-year terms to acquire the freehold were much weaker.
Long Residential Leases: Past and Present 149 As well as the wasting asset problem, leasehold flat schemes have thrown up peculiar problems of their own mostly relating to service charges. This mode of living differs from houses because freehold is not an option. However, the property relationship of the parties tends to be overshadowed by the contractual element. Although in practice there is a multiplicity of leasehold arrangements, they broadly fall into two types. The first is where the landlord is independent of the tenants, and the second is where the landlord is a tenants’ management company. Although the latter type is not without its problems, it is the former that is most likely to cause difficulties. This is because to the landlord, their interest is an investment in an income stream, whereas to the tenant it is their home and yet they lack control over its full enjoyment. Landlords have long been accused of using their position under the lease to exploit flat owners, and of engaging in practices that have led to the dereliction of many blocks of flats. Parliament has responded by a series of piecemeal consumer protection measures to combat specific identified malpractice by landlords and managers, in order to give leaseholders who cannot (or do not wish to) enfranchise, more control over their flat and environment. This is an ongoing conflict. Since the 2002 Act, commonhold has been introduced as an alternative mode of landholding. The aim is that in the long term, commonhold will eclipse the lease as the device of choice for flat and other developments, and thereby eliminate the vices that have bedeviled the older system of tenure. However, the outlook is not optimistic.7 The purpose of this chapter is to examine how we have got from there to here, looking at the relevant issues of principle and policy and the lessons that might be drawn for the future. These lessons are explored further in the following chapter by David Clarke.
THE LONG LEASE IN AN URBAN CONTEXT 8
It has been said that the development of the lease as predominantly a contractual device gave it ‘a plasticity which could conform to the finest shade of commercial requirements’.9 That plasticity was amply demonstrated by the device of the building lease, which played a central role in the urbanisation of Britain in the 18th and 19th centuries. The industrial revolution
7
See D Clarke, ch 9 of this volume. See: HJ Dyos, ‘Exploring the Urban Past’ in D Cannadine and D Reeder, (eds), Essays in Urban History (Cambridge, CUP, 1982) esp chs 10 and 11. 9 GA Grove and JF Garner, (eds), Hargreaves’: An Introduction to the Principles of Land Law, 4th edn, (London, Sweet & Maxwell, 1963) 174. See also Pollock’s description in 1895 of the law of residential and commercial leases as a purely commercial one: F Pollock, The Land Laws, 3rd edn, (London, Macmillan, 1896) 3. 8
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was accompanied by an unprecedented growth in the population, and an increasing migration from the countryside to the towns. Between 1801 and 1891, the population of England grew from 10.6 million to 33.1 million, 80 per cent of whom lived in towns and cities. The growth of urban Britain gave immense opportunities for the landed aristocracy to develop new sources of wealth.10 London was ideally positioned as a prime site for investment, and from the 17th century onwards, a small group of aristocratic landowners began to convert their land in the capital from rural to urban use. Meadows, swamp and marshland were transformed, and the value of the newly developed land rocketed. The landowner with no experience of building would not risk developing the land himself, with all its risks and costs. One solution was to sell the freehold of plots outright to a developer, with intricate arrangements being necessary in respect of roads and sewers together with restrictive covenants to preserve the residential nature of the estate. Another solution (which was that adopted in much of London), was to make use of the device of the building lease. This device required the landowner to take a long-term view. He would lease the land to a developer for a site rent only, invariably for a term of 99 years.11 The lease would be preceded by a contract between owner and developer that sought to specify the type and quality of dwellings to be erected. Indeed, a lease of the houses would not normally be granted to the developer until they were built. Covenants would regulate the use of the land, and ensure the required degree of estate management control to preserve the value of the reversionary interest. Having entered into a standard type building agreement, covered the land with houses and taken a lease of the houses, the developer would then sublet the houses at a premium or improved ground rent for a term of 99 years, less a short period. In practice, the developer would often dispose of some plots to smaller builders, and sometimes there would be four or five interests carved out (each receiving a rent before one got to the actual occupier). The landowner, or in practice his successor, would come into possession 99 years 10 D Cannadine, Lords and Landlords: The Aristocracy and the Towns 1774–1967 (Leicester, Leicester University Press, 1980). Those landlords with land in the vicinity of growing towns were very fortunately placed. These included not just the old landed gentry, but also newer merchant landowners. See: TM Devine, ‘Glasgow Colonial Merchants and Land 1770–1815’ in JT Ward and RG Wilson, (eds), Land and Industry: The Landed Estate and the Industrial Revolution (Newton Abbot, David & Charles, 1971) 205. 11 Earlier building leases had been for standard lengths that ranged from 31 years to 61 years. The 99-year building lease was used for the first time in London on the Bedford estate at Bedford Square in Bloomsbury, London. (Earlier attempts to develop by freeholds subject to rent charges were disastrous). However, it had been used elsewhere (such as Bath) in the 1730s. Indeed, by 1765, 95% of all leases granted by Bath Corporation were for 99 years. RS Neale, Writing Marxist History, British Society, Economy and Culture since 1700 (Oxford, Blackwell, 1985) 163. Cf W Holdsworth, An Historical Introduction to the Land Law (Oxford, Clarendon Press, 1927) 233, where the author incorrectly states that the forms of building leases were not settled until the 19th century.
Long Residential Leases: Past and Present 151 later, when the improved development could be re-let for a rack rent on 21 year repairing leases, or cleared and re-let on building leases. In the 1840s, half of the Duke of Bedford’s estate was let on ground rents and half on rack rents, the building leases on the latter having fallen in. Therefore, the ground rents which were declining in value were offset by the rising rack rents. In practice, of course, the whole process was extremely complex, lengthy and highly speculative. The developers obtained their finance from a variety of sources, often including the landowner, who would lend on mortgage. The Duke of Bedford, for example, lent substantially to his builders. The sources other than the landowner comprised investors from all over the country, including clergymen, widows, the professions (such as the Army and solicitors) and trust funds who would lend on mortgage. The reason for the choice of 99 years (rather than some other period) may be related to the fact that it replaced the previously common terms for a life or lives, and in practice, covers two or three generations. Furthermore, much of the land of England and Wales was tied up in strict settlements, and the leasing powers of the tenant for life for building purposes were limited by statute to a maximum term of 99 years, unless a Private Act of Parliament was obtained.12 Holdsworth suggested that the 19th century Settled Land Acts simply codified conveyancing practice.13 But why was the 99-year ‘short’ or ‘London’ building lease (as it came to be known) the vehicle of choice for much urban development? Its employment was certainly not universal. One explanation is, of course, the dynastic imperative, and this clearly drove the actions of the owners of the ‘Great Estates’. Such owners laid great store by their careful control of urban planned estates, which they were determined to pass on to future generations. The device was also adopted by wealthy landowners in many other places outside London, including major cities, such as Birmingham,14 and Sheffield as well as the new coastal resorts, such as Torquay,15 Eastbourne, Bournmouth, Southport and Llanddudno.16 However, it was not the device 12 The agent of the Earl of Dartmouth, whose land at Sandwell near West Bromwich could not be let on building leases of more than 60 years, complained that ‘on these terms no person will be found to take the Land.’ See RW Sturgess, ‘Landowners, Mining and Urban Development in Nineteenth Century Staffordshire’ in JT Ward and RG Wilson, (eds), Land and Industry 175, n 10 above. There were 700 private Acts between 1800 and 1850: E Spring, ‘Landowners, Lawyers and Land Law Reform in Nineteenth Century England’ (1977) 21 Am J of Leg Hist 40, 46. The Settled Estates Act 1856 permitted tenants for life to grant building leases for up to 99 years with the leave of the court. 13 Holdsworth (n 11) 234. 14 For a study of the development of the Calthorpe Estate at Edgbaston, see: Cannadine (n 10) Part Two, 81–225. 15 75% of Torquay had been built on land leased from Sir Thomas Palk, a factor that enabled the Liberal party to hold on to what was predominantly a Tory Town: H Pelling, The Social Geography of British Elections 1885–1910 (London, Macmillan, 1967) 170. 16 Llanduddno was developed by Lord Mostyn and other freeholders who had acquired the land through Acts of Enclosure: Hansard HL vol 742, col 1349 (28 February 1966).
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of choice in other towns.17 These towns, such as Leeds, which lacked any single aristocratic great landowner, were developed on a freehold basis or by the use of 999-year building leases.18 In the case of the longer lease, development was again regulated through the use of covenants. By contrast, in some parts of the country, such as parts of Lancashire, Greater Manchester, Sunderland and Bristol, freeholds were sold subject to a perpetual annual rent charge or chief rent. Not only did this provide an income, it also permitted the annexation of positive covenants that could effectively bind successors, and thereby further control development. What factors determined these different tenurial patterns of urban development? It was strongly argued in the last quarter of the 19th century, when hostility to the hegemony of the ruling landed class was most rampant, that 99-year leases were prevalent where a small number of landlords effectively formed a cartel to keep land prices high by limiting the supply, and then by only supplying 99-year building leases.19 It was then reasoned that this lack of monopoly in other parts of the country led to increased competition, and consequently the need to sell the freehold or a 999-year lease.20 Unfortunately, this is not borne out by the evidence which fails to show a consistent pattern.21 A study of the distribution of different tenures in the 1830s and 1840s showed, for example, that in the freehold town of Middlesborough 73 per cent of the land was owned by three owners, whilst in Derby, also a freehold town, only 20.5 per cent of the land was so held. By contrast, in Bury, which was mainly let on 999-year leases, 81.7 per cent of the land was held by the three largest landowners, whereas in Wigan, also developed on the 999-year lease, only 25 per cent of the land was concentrated in three or fewer hands. As to towns developed on 99-year leases, 99 per cent of Southport was in the hands of the three largest owners, whereas in Swansea, only 42 per cent was so held. Therefore, not all aristocratic landowners were driven by the dynastic urge, when developing large tracts of urban Britain.
17 Some of the seaside resorts were a by-product of the industrial revolution, especially the expansion of the railways, whilst others were places of leisure for the upper classes and the rising middle class of professionals and industrialists. Lord Radnor’s ground rent income from Folkestone rose from £838 in 1851 to £8222 in 1886. D Spring, ‘English Landowners and Nineteenth Century Industrialism’ in JT Ward and RG Wilson, (eds), Land and Industry (n 12) 44. 18 The 999 year lease, together with freeholds subject to a rentcharge, was most common in the North West of England. 19 Pollock (n 9) 158. 20 H Lazarus, Landlordism: An Illustration of the Rise and Spread of Slumland as Evinced on the Great Estates of the Great Landlords of London (London, 1892); and F Banfield, The Great Landlords of London (London, 1881). 21 MJ Daunton, House and Home in the Victorian City, Working Class Housing 1850–1914 (London, Edward Arnold, 1983) 77.
Long Residential Leases: Past and Present 153 Another suggested explanation was that the key factor was land values, and not the nature or number of owners (who were not themselves developers). Other related factors would include local custom and practice. Therefore, where land was cheap, freehold was commonly employed because builders would not look at leasehold. Where land was expensive, the 999-year lease or freehold chief rent system was employed. Where land was even more expensive, the 99-year or (shorter) building lease was deployed. This would explain why in expensive areas (such as Birmingham and London) the 99-year lease was prevalent.22 On this analysis, the land economics of the local market was the dominant consideration. In other words, the landowners were supplying to meet a demand and not to create one.23 The truth is likely to embody a combination of the factors. Dynastic ambitions loomed large in many cases, but in others, the device of choice would often depend on other factors related to local economic and social conditions and custom. Indeed, even where the 99-year lease was used, the stringency with which landlords controlled the land through covenants would depend on local social and economic factors.
BUILDING LEASES ATTACKED
Land Reform Until around 1880, social privilege and political power were the preserve of the landed gentry. However, that hegemony was soon to be contested. The 1880s proved to be a pivotal decade. Disraeli’s prediction in 1880, that the coming years would see an assault on the constitutional position of the landed interest, proved only too accurate. Central to the ‘land question’ which dominated politics throughout the 1880’s, was the monopoly of land.24 The publication of The Great Landowners of Great Britain and Ireland disclosed that rural land ownership in Britain was concentrated in remarkably few hands.25 Businessmen, who experienced volatile economic conditions and
22 But why was Jarrow predominantly short leasehold, whilst neighbouring South Shields was mainly long leasehold? 23 A Underhill, Leasehold Enfranchisement, 2nd edn, (London, Cassell, 1887) 45. 24 HJ Perkin, ‘Land Reform and Class Conflict in Victorian Britain’ in J Butt and IF Clarke, (eds), The Victorians and Social Protest (Newton Abbot, David & Charles, 1973) 177; FML Thompson, ‘Land and Politics in England in the Nineteenth Century’ (1965) (5th series XV) Trans of the Royal Hist Soc 23. 25 J Bateman, The Great Landowners of Great Britain and Ireland, 4th edn, (Leicester, Leicester University Press, 1971). For ownership of contemporary Britain, see: K Cahill, Who Owns Britain? (Edinburgh, Canongate, 2001).
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trade cycles that could endanger or destroy their businesses and fortunes, saw themselves as the true wealth creators. By contrast, they viewed landowners as unproductive rentiers of land, whose title to the land was of questionable provenance, and who did nothing to earn the fortunes that came their way by courtesy of the efforts of the rest of the community. By their indolence, they held back risk taking and the pursuit of profit. The Liberals were able to capitalise on this hostility, and land reform became a central plank of the Party’s political agenda. In many ways, this was a later phase in a longer war that could be traced back to other anti-landed class movements of earlier decades, most notably the Anti-Corn Law League of the 1830s, or even earlier centuries. This monopoly was not confined to rural land. Further inquiries in the same decade exposed the extent and nature of the system of urban building leases, and this only served to exacerbate the attack on the landed interest. As Cannadine observed: … during the 1880s, the landlords of Britain—as landlords—were the object of unprecedented criticism, hostility and abuse. There were widespread demands that the state should intervene on the side of the people: by regulating the hitherto sacrosanct relations between landlord and tenant, by imposing heavier taxation on rural and urban rentals, and even by abolishing ‘landlordism’ altogether and returning the land to the people.26
The Campaign for Leasehold Enfranchisement One of the many campaigns in this war was that for leasehold enfranchisement, that is to say, the compulsory acquisition by the lessee of the landlord’s reversionary interest and with it his right to the ground rent.27 By the 1880s, many 99-year building leases were falling in, and landlords were able to obtain substantial premiums and increased rents on renewal for much shorter periods. These sums were considered by leaseholders to be an unearned windfall increment for the freeholders. The Campaign was led in Parliament by the Lib-Lab MP, Mr Henry Broadhurst, who instigated a debate on the subject in the Commons in 1882 having procured the member for Hereford, Sir Robert Reid, to prepare a bill on the subject. The Bill failed, but one outcome was the formation of the Leaseholds Enfranchisement Association in
26 D Cannadine, The Decline and Fall of the British Aristocracy (London, Macmillan, 1996) 61. See also Cannadine (n 10) 225 where he notes that the Calthorpes were able to enjoy an aristocratic lifestyle on the proceeds of urban, not agricultural, income. 27 The Campaign is fully described in A Offer, Property and Politics 1870–1914 (Cambridge, CUP, 1981) 151; and D Reeder, ‘The Politics of Urban Leasehold in Late Victorian England’ (1961) 6 Intl Rev of Soc Hist 413.
Long Residential Leases: Past and Present 155 1884.28 Although based in London, this pressure group soon acquired branches in many provincial towns, especially those with large quantities of working class housing. In 1885, the Supplementary Report of the Royal Commission on the Housing of the Working Classes (which was signed by 10 of the 17 members of the Commission, including Broadhurst) recommended reform by way of leasehold enfranchisement. The Select Committee on Town Holdings was appointed in 1886 to examine that conclusion. The Evidence submitted to the Committee neatly encapsulated the opposing arguments. Long leases were attacked on several grounds. First, that the system was a further illustration of the monopoly power of a relatively small class of landowners.29 Second, that at the end of the lease, the landlord reaped what others had sown and was able to let on repairing leases at rack rents.30 Third, that the system created slums. This last argument was evidenced by the existence of a widespread practice of some leaseholder landlords interposing a middle man, who would pay the rent and then sub-let the property in multiple units. Neither the owner, nor the middleman, would be concerned about repairs, especially in the case of ‘fag end leases’.31 An associated argument was that the building lease system encouraged builders to build houses that would have no useful life beyond the end of the term. The movement for leasehold enfranchisement was considered by its supporters to be neither illiberal nor socialist. This is because it was seen as a way of breaking up a monopoly of landholding, in favour of a more level playing field occupied by a large number of owners (thereby promoting economic freedoms). The campaign fitted in with the wider movement for breaking up the great settled estates and to facilitate free trade in land.32 The ground landlords and their professional advisers presented the arguments against enfranchisement.33 First, they argued that enfranchisement would destabilise the property market and harm thousand of small investors, trustees and insurance companies, who had purchased ground rents as long term safe investments. Indeed, it was argued that legislation
28
A movement of shopkeepers, professional men and small capitalists: Offer (n 27) 153. The Town Holdings Committee found that one third of the urban population of England and Wales was living on land held on 99 year building leases: Reeder (n 27) 421. 30 Radicals were not slow to point out that the Calthorpes, whose ground rental income from their Edgbaston estate rose from £5,233 in 1810 to £28,882 in 1888, derived their wealth from their lessees who were prosperous Birmingham professionals and manufacturers. See: Cannadine (n 10) 222. 31 Ibid, p 175. See also DJ Olsen, Town Planning in London, The Eighteenth and Nineteenth Centuries (New Haven, CT, Yale University Press, 1964). 32 On settled land reform, see: Spring (n 12). 33 See Underhill (n 23) 37–50 for a meticulous demolition of the arguments and the proposed Bills. 29
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would devalue ground rents even further. Second, that reform would not enable the working class to become home owners, because it would benefit the absent middlemen from whom the former rented their homes on periodic tenancies. Accordingly, there was strong opposition to non-occupying leaseholders being able to benefit from enfranchisement. Third, that overbuilding and slums were caused by factors other than the building lease system, and were not unique to that system of tenure. Fourth, that building leases were an efficient instrument of good estate planning and management, which permitted redevelopment en bloc at private expense every 80 or 90 years. Fifth, that reform would be an assault on property. Leaseholders had entered into a free contract, to buy a wasting asset, the sanctity of which should be respected. They could save throughout the lease to provide for the costs of renewal at a rack rent at the end of the term. Indeed, there was some evidence that where a lease was renewed in favour of the occupier, the new rack rent could be less than what he was formerly paying to a middleman. The Town Holdings Report of 1889 eventually came down against compulsory leasehold enfranchisement, which, in the Committee’s opinion, lacked widespread support and was an unwarranted interference in existing contracts. It must be remembered that the dominant political ideology was founded on a liberal notion of individual and private property rights. Instead, the Report favoured a half hearted local and optional enfranchisement solution. As it transpired, and despite the adoption of the policy of leasehold enfranchisement by the Liberal party, no legislation was forthcoming. The campaign eventually lost momentum, as a rapprochement of Towns and Aristocrats in a new Tory Party emerged from the late1880s onwards.34 Indeed, the class divide between industrialists and landowners was not a simple one. Many wealthy members of the business and professional middle class mirrored the aristocrats by acquiring landed estates. Although leasehold enfranchisement was popular in resorts such as Torquay and Folkestone (to the benefit of the Liberals) these middle class resorts were deeply conservative.35 Their inhabitants had a respect for property, and baulked at the more radical solutions to the land issue advocated by some of the more extreme elements of the wider campaign. The Victorian era was, after all, one imbued by a strong voluntarist ethic. The left was also suspicious of leasehold reform, seeing it as a middle class idea that was calculated to boost the power of property, and divert attention
34 Leasehold bills, all unsuccessful, were introduced annually in the House of Common every year from 1883 to 1914. 35 Although in the 1880s and 1890s, there were sometimes clashes between the new municipalities and the landowners such as those in Southport and Eastbourne. For the aristocratic development of seaside resorts, see D Cannadine, (ed), Patricians, Power and Politics in Nineteenth Century Towns (Leicester, Leicester University Press, 1982).
Long Residential Leases: Past and Present 157 from more fundamental reforms such as land nationalisation. Indeed, the growing oppositional forces of the left in the early 20th century could be said to have helped forge an alliance of owners of all types against attacks on the concept of private property itself.
THE CAMPAIGN REVIVED
Nevertheless, despite its ultimate failure, the campaign for land reform had weakened the resolve of many landowners. By the end of the 19th century, many of them, fearing more fundamental assaults on their position, were now looking to alternative investments to that provided by urban land development. In 1893, the Church Commissioners offered leases on 999year terms at a higher rent, and did not find any large scale take up of the offer. When the slum conditions on some of their estates were exposed, the Commissioners either knocked the houses down or handed them over to Octavia Hill and her team of housing managers. Despite the widespread development of urban estates by the great landowners, these owners did not have any particular attachment to the land and its tenants. The Palk family had developed Torquay on the 99-year lease system, but because of debts, the estate had to be sold off between 1887 and 1894. Eastbourne was developed by the Duke of Devonshire. The Duke granted leases of 90 years, with an option to purchase in the first 10 years at 30 years purchase (reduced to 25 years in 1913). Death duties (1894) and reversion duty (1908) contributed in no small way to the diminution in the social and political appeal of the estates whose function as financial investments came to be highly questionable. Many more landowners sold off large parts of their urban estates between the First and Second World Wars. For example, in 1919, the Duke of Bedford sold off £2 million worth of his Bloomsbury ground rents.36 In later decades, especially after 1950, many more of the holdings of the ‘great estates’ were sold off to meet death duties (although, nevertheless, their holdings remained substantial). This process of ground rent sales was echoed amongst the wider body of freeholders and developers. The outcome was that many ground rents were now owned by property companies, or by a large number of small landlords.37 The Bute estate sold its Cardiff estate in 1938 to the Western Ground Rent Company. By contrast, other purchasers of ground rents were those seeking a steady income, such as widows, orphans and trustees. Despite the failure of the campaign of the 1880s, the issue of leasehold enfranchisement did not disappear in the period between 1884 and 1925, 36 FML Thompson, English Landed Society in the Nineteenth Century (London, Routledge and Kegan Paul, 1963) 336. 37 Ibid.
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during which 143 Bills on the subject were introduced. However, thereafter, the issue largely fell into abeyance as a political demand, until 1950 when the Leasehold Committee (appointed in 1948 by the post-war Labour Government) issued its Report.38 Once again, leasehold enfranchisement was rejected as a solution to the problem, and a more limited form of relief was proposed. This was, that a long lease which would have been a Rent Act tenancy (but for the low rent exception) should continue following expiry of the fixed term. The landlord would only be able to end the tenancy in accordance with the Act, following which the tenant would acquire a statutory tenancy. The landlord would then only be able to recover possession against the statutory tenant on one or more of a number of grounds. These included the ground that, for the purposes of redevelopment, the landlord proposed to demolish or reconstruct the whole or a substantial part of the premises for which purpose he reasonably required possession. These recommendations were enacted in Part 1 of the Landlord and Tenant Act 1954.39 Mr CL Hale MP and Mr AL Ungoed-Thomas KC signed a powerful Minority Report in favour of enfranchisement. They rejected the sanctity of contract argument on the basis that it should not apply to unfair contracts. They were also heavily influenced by the fact that, in many parts of Wales and Cornwall, workers had built their own houses on land leased to them for 99 years and their descendants now faced eviction as the leases neared expiry. Although this dissent failed to carry the day in 1950, the demand for enfranchisement did not go away, and there were at least three attempts to introduce leasehold reform between 1951 and 1964 (by which time there had been a political sea change towards enfranchisement). The policy was still a plank of the Labour and Liberal Party programmes, but was no longer opposed by the Conservatives. All parties were committed to the policy of widespread home ownership. The Conservative Party had come to accept that the compulsory deprivation of the freeholder under a long lease, provided he received a fair market price, was a worthwhile sacrifice for the benefit of a more widely diffused class of owner occupiers. Other developments had also paved the way for this change of policy by the party of the landed interest. Twentieth century planning controls had weakened the argument that the long leasehold system ensured the provision and maintenance
38
Lord Justice Jenkins (Chair), ‘Leasehold Committee: Final Report’ (Cmd 7982, 1950). To reflect the phasing out of the Rent Act scheme by the Housing Act 1988, it is now provided that a parallel assured tenancy regime, and not a parallel Rent Act scheme, will apply to those long tenancies that are granted on or after 1 April 1990. The assured tenancy regime also applies to any tenancy that, immediately before 15 January 1999, was a long tenancy for the purposes of Part I of the Landlord and Tenant Act 1954 and which terminates on or after that date (save where the landlord served a notice under LTA 1954 specifying a termination date earlier than 15 January 1989): Local Government and Housing Act 1989 s 186 and Sch 10. 39
Long Residential Leases: Past and Present 159 of well planned residential estates through their network of covenants.40 Compulsory purchase powers had also created a precedent for the acquisition of property rights as an instrument of social policy, although some would question the social content of a policy that compelled one individual to transfer his property to another at a bargain price. More generally, the post war ‘Butskellite’ consensus had blurred the formerly sharp ideological boundaries between the major parties.
REFORM AT LAST
The aspirations and efforts of the reformers finally came to fruition with the Labour Government’s 1966 White Paper on Leasehold Reform in England and Wales,41 and subsequent Bill. This measure, like the Minority Report of the Jenkins Committee in 1950, was inspired by the fact that many long leases of houses in industrial parts of Wales that had been bought leasehold, out of ignorance and/or lack of choice, by working families were approaching expiry.42 The 1966 Conservative Party election manifesto had also promised legislation to permit leaseholders the right to buy or rent their homes on fair terms, except where the property was to be redeveloped. The Party accepted that for the occupying leaseholder, the property was not primarily an investment, but a home and of intrinsic value to him as such in a non-monetary sense.43 It also realised that as long leases approached expiry, the tenant had little incentive to maintain and repair the property as the lease became almost unmarketable. The Bill entitled a qualifying leaseholder of a house to acquire compulsorily the interest of the freeholder, together with the interest(s) of any intermediate lessors. A residence qualification prevented absentee lessees from benefiting from the new right. The White Paper and the Bill provided that the purchase price was to be based on the principle that the land belonged in equity to the landowner and the house belonged to the tenant. However, the Opposition certainly did not accept this basis of valuation of the landlord’s interest, which it described as expropriation not
40 See I McDonald, ‘The Leasehold System—Towards a Balanced Land Tenure for Urban Development’ (1969) 6 Urban Studies 179. 41 Ministry of Land and Natural Resources, ‘Leasehold Reform in England and Wales’ (Cmnd 2916, 1966). 42 It was estimated that there were 250,000 long leasehold houses in Wales and 1 million in England. Parliamentary Debates Commons vol 742, col 1283 (28 February 1966). Portmadoc, for example, had been developed on a system of 60 year leases the majority of the houses having been built by workmen themselves: ibid, col 1348. For a discussion of the history of leasehold enfranchisement with particular reference to Wales, see: GLH Griffiths, ‘The Hundred Years War—The Development of the Movement towards Leasehold Enfranchisement in Wales’ (2003) 67 Conv 289. 43 Cf MJ Radin, ‘Residential Rent Control’ (1986) 15 Philosophy & Public Affairs 350.
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in the public interest, but in favour of one citizen at the expense of another. The authors of the leading treatise on enfranchisement continue to echo that viewpoint: ‘The view of the authors is that, contrary to the assertions of the 1966 White Paper there was, and is no real justification for enfranchisement at any price other than at the full market value of the landlord’s interest’.44 Despite these criticisms, the Bill became law and the long war over enfranchisement was all but over, but not quite.45
LONG LEASES OF FLATS The question that is being asked is wrong. It should not be whether we should interfere in this perverse system of property ownership but how we ever allowed it to develop in the first place and why we have done nothing about it before.46
The Problem with Flats A significant flaw in the Leasehold Reform Act 1967 was that it was confined, for unconvincing reasons,47 to long leases of houses and did not extend to individual flats or maisonettes. It might be argued that those who buy property on long leases do so with their eyes open, and in the knowledge that one day such a lease will come to an end.48 But this is to ignore the fact that in many areas where the building lease system was predominant the purchaser had no choice. This is even more
44 A Radevsky and D Greenish, Hague on Leasehold Enfranchisement, 4th edn, (London, Sweet & Maxwell, 2003) 15. The authors had already noted that: ‘Although the 1967 Act was passed primarily to meet the anxieties of ordinary householders in South Wales and other areas where the long leasehold system was widespread, it is notorious that the persons who in fact derived most benefit from the 1967 Act were relatively wealthy purchasers of short residues of long tenancies of houses in Belgravia, Chelsea, Kensington and similar expensive areas of London, just under the £400 Greater London rateable value limit which then applied.’ 45 The Great Estates and other landlords of substance have not given in without a struggle. The Act has been the subject of at least three House of Lords cases, and numerous decisions of the Court of Appeal. It was also the subject of an unsuccessful challenge by the Duke of Westminster in the European Court of Human Rights: James v United Kingdom [1981] HRLR 408. 46 Mr Nigel Waterson, debating the Housing and Urban Development Bill 1992: Hansard HC, vol 213, col 212 (3 November 1992). 47 That is to say that the leases of most leasehold flats were not nearing expiry and that other reforms, such as reform of the law of covenants or the introduction of a system of commonhold, would deal with this problem. 48 But, see: I Cole, et al., The Impact of Leasehold Reform: Flat Dwellers’ Experiences of Enfranchisement and Lease Renewal (London, DETR, 1998), where the researchers found that many flat dwellers had a poor understanding of their legal status, believing that they owned their property in the same way as owners or buyers of freehold properties.
Long Residential Leases: Past and Present 161 marked where a purchaser buys a long lease of a flat. As David Clarke has stated: ‘for purchasers of flats and horizontally divided property there is no alternative to a lease’.49 In late 1998, the Government estimated that there were some 900,000 leaseholders of houses in England and Wales, and over a million leaseholders of flats.50 We have already seen that some long leaseholders of houses have encountered problems relating to the wasting nature of their asset, and leases of flats are no less prone to similar difficulties. However, flats bring with them their own peculiar additional set of problems. A flat is part of a building. Somebody has to maintain the building and the ‘common parts’ and to provide any necessary ‘services’, and somebody has to pay for that maintenance and those services. Long leases usually provide that the landlord will maintain the building and common parts, and provide specified services and that the tenants of the individual units will reimburse the landlord through a ‘service charge’. Here, there is a stark contrast between the interests of landlord and leaseholder. For the latter, the property is their home in which they will have staked a considerable investment for a long-term interest. Furthermore, the freeholder at the time will have drafted the lease in their own interests. In the writer’s experience, these leases differ markedly from each other in significant respects and are often defective. But what does ownership of the freehold mean to the landlord (especially where the flat leases have a long period to run?)51 Its capital value is low, so why would anybody want to be a landlord in these circumstances? The answer lies in the management of the services. In other words, the freehold is a source of income, and, as such, has an investment value. But this suggests, of course, that for the business to be profitable, leaseholders must be paying through their service charge for more than the cost of the services to the landlord including their management expenses. In other words, the ‘management’ is likely to include a profit element. Landlords also make a profit through placing insurance of the building with an insurer who pays a commission to the landlord. Less scrupulous 49 D Clarke, ‘Occupying “Cheek by Jowl”: Property Issues Arising from Communal Living’ in S Bright and J Dewar (eds), Land Law (Oxford University press, 1998) 388. 50 DETR, ‘Residential Leasehold Reform in England and Wales: A Consultation Paper’ (London, DETR, 1998). More than half of all leasehold flats are in London and the South East: 13. 51 As flat development did not occur in the UK on any significant scale until after the Second World War, and since leases are likely to be for a minimum of 99 years, the wasting asset problem is at present only likely to affect lessees under the earliest of such schemes: ‘Leasehold Reform in England and Wales’ (n 41) para 8, p 4. This was one reason why there was not considered to be a pressing need for enfranchisement of flats until 1993. It has been stated that for 80% of flats, the lease still has 80 years or more to run: Residential Leasehold Reform in England and Wales (n 50) 13. Of course, as the residue of the term diminishes, the leaseholder is faced with the problem that the property may be unmarketable because lenders will not lend on the security of a short term. This puts the freeholder in a strong bargaining position with regard to any possible lease renewal.
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landlords might also threaten lessees with forfeiture of the lease, and therefore loss of a substantial capital asset, for a breach of any major or minor covenant by the leaseholder. Others arrange for expensive repairs, the need for which is questionable, and which are carried out by associated companies of the landlord. New computerised accounting systems have aided this ‘farming’ of freeholds. They permit the generation of regular demands, together with intimidating threats, in the event of non-payment. It is for these reasons that in recent decades Governments have sought to regulate further this relationship.
A Limited Solution Some of the problems identified abosve were caused, or exacerbated by, defectively drafted leases; the absence of reserve or sinking funds (or where such funds existed problems over ownership and taxation of the funds); and, the absence of a suitable dispute resolution regime. All these issues were highlighted by the Report of the Committee on the Management of Privately Owned Blocks of Flats (the Nugee Committee) published in 1985, the outcome of which was the enactment of the Landlord and Tenant Act 1987. That measure had three main objectives with regard to blocks of flats. First, it introduced new powers for the appointment of a manager by the court, where a landlord was not fulfilling his obligations.52 Second, it gave tenants a right of compulsory acquisition in extreme cases,53 where the appointment of a manager has not worked, or was deemed by the court to be an insufficient remedy.54 Third, it gave qualifying tenants a right of pre-emption, where a landlord wished to dispose of his interest in premises to which the Act applies.55 Unfortunately the Act, which passed into law after very little debate, has since become an object lesson in bad drafting, and has had severe critical comment showered on it by the courts and commentators.56 The difficulties exposed by the Act were symptomatic of much of the regulatory framework designed to combat landlord abuse. Its provisions were weak, it contained insufficient anti-avoidance measures, and the penalties for non-compliance were so weak that the Act was largely ignored by landlords. Some of the criticisms of the Act were subsequently addressed 52 Landlord and Tenant Act 1987 s 21. This power was later transferred to leasehold valuation tribunals (‘LVT’), and is exercisable by the LVT where satisfied that the landlord’s management is unsatisfactory: Landlord and Tenant Act 1987 s 24A, as inserted by s 85 of the Housing Act 1996. There are a number of exceptions including, where the landlord is a public authority or a housing association. 53 Landlord and Tenant Act 1987 Part III, as amended by Housing Act 1996. 54 Now the LVT since Housing Act 1996. 55 Ibid, Part I. 56 For instance, see: Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858 (CA).
Long Residential Leases: Past and Present 163 by amendments introduced by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002. However, by and large, the primary remedies contained in the Act have been by passed by other more direct forms of relief for beleagured tenants, not least the right to enfranchise dealt with below.57 It should also not be supposed that it is only cases of private landlords that cause difficulties. In some leases of flat developments, there is provision for the freehold to be transferred to (or for the property to be managed by) a tenants’ management company of which all tenants are shareholders. At first sight, this might appear to improve the position of the tenant, but in some cases the outcome is that the landlord is substituted by the management company as the object of leaseholder grievance.58 This is especially so where the management company has appointed managing agents with whose management leaseholders are dissatisfied. Furthermore, about 200,000 leaseholders have a local authority or housing association as their freeholder. These are often reluctant landlords, who have been forced into that position because of the system of long leasehold tenure. Many of the properties are systems built developments dating from the 1960s that require extensive and expensive repairs (the need for and cost of which can come as a shock to purchasers). The blocks are also likely to contain a mix of long leaseholders, who have exercised the right to buy first made available by the Housing Act 1980, alongside secure tenants holding under weekly tenancies, but with the security of tenure afforded to secure tenants by the Housing Act 1985. These tenants will pay a fixed service charge for their services. Enfranchisement of Flats Like long leases of houses, long leases of flats, are a wasting asset whose value and marketability is jeopardised by that inherent defect of leasehold tenure. The wasting asset problem was addressed in two ways by the Leasehold Reform, Housing and Urban Development Act 1993.59 First, the Act provided a scheme whereby qualifying lessees under long leases of flats or maisonettes could acquire the freehold of their block through a nominee purchaser.60 57 See also the ‘no fault’ right to manage introduced by the Commonhold and Leasehold Reform Act 2002 ss 71–113. 58 In some cases, the management company might simply be a company to whom the landlord has transferred the management responsibilities, and/or it might have an intermediate long lease between the freeholder and the occupying leaseholders. 59 See: S Bright, ‘Enfranchisement—A Fair Deal for All or for None’ (1994) 66 Conv 211. 60 The Labour Opposition agreed with the principle of the Bill, but voted against it on Second Reading on the basis that it did not go far enough.
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Second, the Act gave a qualifying leaseholder (under a tenancy at a low rent or for a particularly long term), the right to obtain a new lease. This would be for a period equivalent to the unexpired portion of the existing lease plus 90 years, at a peppercorn rent but on payment of a market value premium, in substitution for the existing lease.61 If the right is exercised, it makes the lease a marketable asset by effectively transferring the value of the landlord’s freehold reversion interest in the flat to the leaseholder. As originally drafted, the Bill did not require a qualifying leaseholder to satisfy any residence requirement. However, the need for a residence qualification of three years in the last 10 on the date when notice exercising the right is given,62 was inserted at the House of Lords Committee stage after a compromise deal with the large landowners. This removed potential claims by absentee leaseholders who were themselves investors who had sub-let their flats. The antagonism to absentee landlords, it will be recalled, mirrored similar objections raised by the 19th century opponents of leasehold reform. Therefore, the 1993 Act removed the anomaly whereby flats and maisonettes had been omitted from the scheme of the 1967 Act. Indeed, the popular pressure for this move came from the modern-day successors to those interest groups who had first raised the cause of enfranchisement over 100 years earlier. Furthermore, these groups had the strong support of some influential Conservative MPs, who represented those constituencies (mainly in London and the South East) with the greatest concentration of long leaseholds of flats, and whose campaign had caught the attention of the Prime Minister, John Major. Despite the opposition of the Great Estates, the Government was unmoved on the principle of enfranchisement. It believed that it was delivering public goods, without unfairly disadvantaging landlords affected (who would receive a fair price for the property and who would be able to preserve the character of their estates by seeking approval for an estate management scheme under the Act). The measure was also intended by the Government to be a stepping stone towards the process of conversion to commonhold. However, commonhold ran into problems and a scheme did not reach the statute book until 2002. Furthermore, apart from the fact that it was difficult in principle to defend the distinction between houses and flats, the measure was also justified by the Government as a response to the growing concern and widespread complaints about the poor management of many blocks of flats. Many of these flats would be owned or occupied by supporters of the governing party, whose ideology favoured the spread of home ownership as widely as possible. 61 Leasehold Reform, Housing and Urban Development Act 1993, see Pt 1 Ch 2. The Act provides in practice for the lease to be renewable again at a peppercorn rent (and no premium) ad infinitum at the end of each term; in effect a perpetually renewable lease at a peppercorn rent. 62 Occupation had to be as the leaseholder’s only or principal home.
Long Residential Leases: Past and Present 165 However, the Bill had what was at times a stormy passage through Parliament, and at the end of that journey, although the main principle survived, the detailed content had been considerably emasculated and tilted in favour of the landlord interest. As predicted by some commentators, the exercise of the right of enfranchisement has proved to be troublesome for many tenants save those in the smallest of flat developments. Many landlords sought to evade its effects by avoidance devices that were only partially remedied by the Housing Act 1996. The Leasehold Valuation Tribunal (‘LVT’) handled disputes over price and terms where the parties were unable to agree. No fee was payable in respect of LVT proceedings, and the LVT did not have power to award costs.63 One by-product of this process of adjudication was that the process could be long and drawn out. Indeed, at the end of the day, the freeholder could automatically exercise his right to appeal to the Lands Tribunal, regardless of the merits against any determination of the LVT on price or terms. Because the Lands Tribunal could award costs, leaseholders were sometimes cajoled into settling at a higher price or on more onerous terms than determined by the LVT. Nevertheless, some of the more apocalyptic predictions did not come to pass. The Great Estates did not collapse. Subsequent research for the Government showed that of the two remedies introduced by the 1993 Act, the more complex one of collective enfranchisement proved to be that most favoured by leaseholders.64 Those leaseholders whose leases had a relatively short time remaining were more likely to pursue the less complicated right to obtain an individual extended lease. Those who did seek to enfranchise collectively, did so predominantly because of problems with current living conditions associated with high levels of service and other property charges; maintenance and management problems with the block of flats; and poor communication with the freeholder or managing agent. Perhaps, unsurprisingly, leaseholders of small blocks of flats were the most likely to succeed. Success tended to be associated with circumstances where there was a good co-operative relationship with the freeholder; a sense of commitment by leaseholders; some ‘insider knowledge’ of the process; and, sufficient financial resources to pursue it. In other cases, many leaseholders abandoned the process before completion for a variety of reasons. These included: intransigence and obstruction by freeholders; the legal complexities and paucity of informed professional advice; and, representation and the uncertainty of the costs involved.
63 The purchase price included the freeholder’s reasonable costs of dealing with the enfranchisement, but that did not extend to costs incurred in appearing before an LVT. 64 See n 48.
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Furthermore, the succeeding Conservative Government and the Labour Government of 1997 were able to reverse many of the battles lost during the passage of the 1993 Act without significant opposition. At the same time, these more recent legislative forays into the field of the landlord and tenant relationship under long leases has placed more direct emphasis on tackling landlord abuse. It was never clear why in principle the 1967 and 1993 Acts had included a residence requirement, if those Acts were based on the theory that the leaseholder had already paid for the house or flat built on the land. Maybe it was simply to restrict the claim to those who otherwise stood to lose their residence on expiry of the lease. But, this would seem to confuse the rationale of the Rent Acts with the rationale of enfranchisement measures designed to benefit successors in title of original leaseholders who had built or paid for the house. In more recent times, the residence requirement seems to have been a tactical concession to large landowners to limit the operation of the scheme. Whatever the reason, the issue is of historical interest only now. By 2002, the climate had changed, a Labour administration was in power, and the Government was able to amend the 1993 Act. Accordingly, the 2002 Act removed any residence requirement both for collective enfranchisement and claims to a new lease.65 The need for the tenancy to be at a low rent or for a particularly long term was also removed.66 However, in the case of a new lease claim, a new requirement, that the claimant must have been a qualifying tenant for the last two years, was introduced.67 This was to avoid short-term speculation in the ‘fag end’ of leases. The 2002 Act also made other changes in favour of leaseholders including: the way in which the purchase price is calculated; relaxation of the resident landlord requirements; and raising the ceiling for non-residential parts to 25 per cent of the floor area. The enfranchisement process will now be conducted by a Right to Enfranchise (RTE) Company, which will be set up on the same lines as a commonhold association and be able to manage the building after enfranchisement. All qualifying tenants in the block must be given the opportunity to join the company, and a claim to enfranchise cannot be made until the company has given all qualifying tenants the opportunity to participate in the enfranchisement claim. Despite these changes, it is quite apparent that although collective enfranchisement is undoubtedly rendered simpler at present than it has ever been,
65 CLRA 2002 ss 120 and 138 respectively. In the case of enfranchisement the need for the initial notice to be given by not less than two-thirds of the qualifying tenants was removed by s 119, but the need for the group to hold leases of at least half the flats in the block remains. 66 Ibid, ss 117 and 131. 67 Ibid, s 132(2). A personal representative can exercise the right within two years of the death of a tenant who had been a qualifying tenant for the two years before his death: s 132.
Long Residential Leases: Past and Present 167 it remains a formidably complex and potentially expensive process whose complexity will deepen when the RTE (right to enfranchise) provisions come into force.68 It is telling that in a 1998 research study only a small number of respondents said that further changes in the legislation would revive their interest to enfranchise.69
Other Controls This brings us to the most recent phase in the long war between freeholders and long leaseholders. Although the right to a new lease granted by the 1993 Act solved the problem of the wasting asset, the leaseholder remains a lessee, and, as such, is still at the mercy of the landlord in all the other ways outlined above. Furthermore, collective enfranchisement has not proved, and is unlikely to prove, to be the definitive solution to the problems encountered by long leaseholders of flats. Therefore, landlords could continue to exploit their superior bargaining position by making excess or unwarranted charges for such matters as repairs and maintenance of the building; the arranging of insurance; and, the provision of other services including management charges. Other common abuses included: threatened forfeiture actions for minor breaches of covenant; and, the imposition of exorbitant charges for necessary consents under the leases. Alternatively, the landlord may be either failing to manage the building at all, or managing it in a very poor manner. As noted above, research has shown that the main concerns of those seeking to enfranchise were related to escalating or unreasonably high service charges, including management charges, and the general feeling that freeholders/managing agents were obtaining excess profits. In other cases, freeholders had failed to maintain the structure of the building, or had been absent or uncommunicative with leaseholders. The large number of absent leaseholders (sometimes living abroad) further complicated the position. These owners, who had bought the flats as an investment, had sub-let on assured or assured shorthold tenancies, and as a group displayed varying levels of interest in issues of management and service charges. A similar scenario is sometime presented where a number of leaseholders have exercised the right of collective enfranchisement in the 1993 Act. The purchasers may find that the management of a block of flats can be a complex, time consuming and expensive affair with the potential to create different battlegrounds of conflict, both between participating tenants as well as between enfranchising tenants and other tenants in the same block.
68 69
Radevsky and Greenish (n 44) 31–32 and 39–40. See n 48.
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Consumer Protection Successive governments have sought to deal with these problems by constructing an elaborate regulatory framework. The current extensive controls on the reasonableness of service charges (including consultation requirements in respect of certain contracts entered into by landlords for works and services) are contained mainly in the amended Landlord and Tenant Act 1985. Another more specific set of controls seek to protect tenants from excessive insurance premiums. The Housing Act 1996 established the LVT as the primary forum for dispute resolution over such matters. That measure also placed obstacles in the way of landlords, who sought to forfeit leases for non-payment of service charges. Some of these were landlords who had bought up reversions by threatening tenants who had refused to meet unreasonable service charge demands with forfeiture. Many tenants complied with the demands for fear of losing their homes. Despite these measures, abuses continued and the piecemeal nature of reform was criticised by commentators and government.70 However, noting that ‘we also have to recognise that landlords do have legitimate rights and that not all landlords exploit their position’71 the government erred on the side of caution when it came to more radical reform. The 2002 Act, therefore, continued a process of amending and extending the existing series of piecemeal measures, in order to deal with the abuses identified above in a more effective way than ever before. The service charge regime was modified not least by extending the powers of the LVT to deal with a wider range of disputes over service charges and related matters. Charges that are not within the definition of service charge (defined by the Act as administration charges) were brought within the framework. However, the elaborate nature of the framework, although more comprehensive than ever, does not come without a price. The law is now to be found in a dense set of primary and secondary measures that are not readily comprehensible to the average tenant or some landlords. No fault right to manage was introduced, although the relevant provisions require tenants to be well organised and professionally advised. More stringent controls on forfeiture were introduced and the LVT has become the gateway to forfeiture by court proceedings or peaceable re-entry.72 The 2002 Act also took the opportunity to deal with abuses that are common in relation to long
70 Clarke (n 49) 382. Residential Leasehold Reform in England and Wales (n 50) 15. Lord High Chancellor, ‘Commonhold and Leasehold Reform: Draft Bill and Consultation Paper’ (Cm 4843, 2000) 107. 71 Cm 4843 (n 70) 107. 72 Commonhold and Leasehold Reform Act 2002 ss 167–71 and the Commonhold and Leasehold Reform Act 2002 (Commencement No 5 and Saving and Transitional Provision) Order 2004, SI 2004/3056.
Long Residential Leases: Past and Present 169 leasehold houses with regard to demands for ground rent, backed up with threats of forfeiture and unreasonable insurance requirements.73 The legislative framework described above is clearly consumer protection legislation, although it is clearly of benefit to the honest landlord who is seeking to obtain a determination as to the payability and reasonableness of lawfully demanded service charges in the interests of the development as a whole.74 In many cases, however, it must be recognised that the landlord’s property right is more often than not of minimal capital value; for all intents and purposes, the substantive owner is the tenant. Recognition of this reality enables the landlord and tenant relationship to be shorn of its property based rules and principles, in favour of a contractual analysis. Only time will tell whether the current wide ranging scheme will suffice to combat all the ways in which tenants are vulnerable to exploitation. However, despite the formidable array of procedures and remedies available to tenants, they are of no avail to a tenant who wishes to sell and would rather pay an unjust demand, than see the sale fall through. It is here that legal protections are exposed in practice as illusory. Despite the advent of commonhold, the law has not forbidden the creation of long leases of houses. This means that, because of the cautious introduction of commonhold (which is the only truly viable means of providing for the communal living arrangements associated with flat developments), long leases of flats will be with us for a long time to come. It seems likely that we will not have heard the last of leasehold reform.
73
Ibid, ss 164 (insurance) and 166 (ground rent demands). I have dealt with this framework in more detail: M Davey, ‘The Regulation of Long Residential Leases’ in E Cooke, (ed), Modern Studies in Property Law (Oxford, Hart Publishing, 2005) ch 10. 74
9 Long Residential Leases: Future Directions DAVID CLARKE
T
HIS EXAMINATION OF the future directions for long residential leases is based on two premises. The first is that, although historically leases have had to be used for the sale of some types of residential property (since standard freehold has been unacceptable in practice), a lease is inherently unsuited as a form of tenure for the sale of homes (whether as flats or houses). The second premise is that, in any event, the clearly articulated policy of Parliament is that those who already own their homes on long leases should have the opportunity of securing the freehold of their home (whether collectively or individually). The first premise can be demonstrated by an examination of the principles that underpin leases and the problems that long leaseholders face when there is an outside landlord. The second is built upon the legislative response to those problems over the last 40 years. In the light of those facts, the submission is that solutions need to be found for the future to escape from further legislative tinkering with the detail of long leases. The need is to ensure that a new generation of homeowners of flats and other dwellings with shared facilities are not confronted with the problems that current leaseholders still face. The fundamental problems must be addressed with radical solutions, especially when considering new developments of homes for the future. Commonhold should be, but is not as presently configured, the solution. There are a few particular defects in the form of the legislation that, if tackled and answered, could see a take up of commonhold tenure in the future to replace the use of the long lease in many situations. But even if all the current defects of commonhold are attended to (as they should be), commonhold would (at best) be the solution only in a majority of situations. So long leases will, in any event, remain a useful way of developing and holding some residential properties, and may continue to be the preferred tenure if commonhold fails to get established. In any event, it would be wrong to postulate a future where long residential leases were not permitted. A radical solution for the future grant of such leases is, therefore, proposed.
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WHAT PRINCIPLES SHOULD GUIDE THE FUTURE DIRECTION?
Leases as a Mechanism for a Division of Interests In order to assess what the future of long residential leases ought to be, a brief theoretical analysis of the way leases are used and how the long residential lease currently fits into that analysis needs to be established.1 Leases are, in practice, adopted as a vehicle to achieve very different objectives in a myriad of varying contexts. It is axiomatic that all leases grant possession of the property exclusively to the tenant. However, is submitted that a, perhaps the, principal purpose of a lease (and a vital feature), is to achieve a division of interests, or a split in ownership, in the property as a whole. Waldron argues that a leaseholder, a landlord and a mortgagor may all be described as private owners in the same property (and hence have what I term a ‘genuine’ interest in the property) if one sees the idea of ownership as assigning resource to an individual.2 An alternative way of viewing split ownership is to analyse a property interest as a ‘bundle of rights’, which is split in various ways between those owners.3 So, if a freeholder, after a grant of a lease, retains no real part of the ‘resource’ (to adopt Waldron’s terminology) or none of the ‘bundle of rights’ (save perhaps for the odd tiny twig), then the division of interests may be seen as not genuine. Seen in that context, the submission is that the long residential lease stands apart from other categories of leases in that, while most leases reflect what may be termed a ‘genuine’ or ‘acceptable’ division of interest in the property in question, the division of interest in a long residential lease is now rarely ‘genuine’, and, in any event, deemed by Parliament to be unacceptable. The interest allocated to a tenant, or the ‘stake in the property’,4 may vary from one that is barely distinguishable from a mere contractual right to occupy, to one that is not only substantial but also the dominant interest for a considerable period of time. But the result is usually a division of interest that is genuinely desired by both the parties. Moreover, the
1
The reader is referred to Martin Davey’s preceding chapter for a historical perspective. See: J Waldron, ‘What is Private Property?’ 5 OJLS 313, 345. 3 See: A Honore, ‘Ownership’ in AG Guest, (ed), Oxford Essays in Jurisprudence (First Series) (Oxford, OUP, 1961) 107, 113. 4 The phrase draws on the words of Lord Denning MR, ‘Was it intended that the occupier should have a stake in the room?’ in Marchant v Charters [1977] 1 WLR 1181 (CA) 1185. This was disapproved in Street v Mountford [1985] AC 809 (HL) 825 as the test for distinguishing a lease from a licence. But while a tenant with exclusive possession will, necessarily, have a genuine interest or stake in the property, there is no test or principle that requires a landlord to have such a genuine interest. 2
Long Residential Leases: Future Directions 173 interest remaining vested in the freeholder or reversioner5 is one that is broadly acceptable, politically, socially and economically. The nature of interest of the tenant in any particular instance is closely linked to the duration of the term. Many tenancies combine short-term occupation with payment of a market rent, such as periodic tenancies and fixed terms of less than 5 years (commercial) or 7 years (residential). In either case, there is a genuine division of interest between the parties based on payment for occupation and exclusive possession for the term by the tenant, while the reversion to the lease retains all, or nearly all, of the capital value of the property. When one encounters medium term occupation by lessees or tenants (for terms (say) up to 25 years6 for commercial leases, and 21 years7 for residential leases) different features are found. Both commercial and residential leases for such periods are usually at a market rent, such rent being subject to regular review (always for commercial, and usually for residential). Even if (unusually) there is a premium, or part-premium, paid on the grant of the lease, the reversion continues to have substantial value. The lease may terminate early for good reasons (whether by agreement, surrender, forfeiture or other means), and there remains a genuine division of interest in the property. The essence of the arrangement remains paying for the right to occupy a building, where the capital value of that property belongs to the freeholder. The capital value of the freehold reversion to the lease is typically far greater than the capital value of the lease. Indeed, by virtue of the limited duration, any capital value paid on the assignment of such a medium term lease will be a reflection of the short-term benefits to be had from occupation for the remainder of the term (such as a rent below that payable in the market, or the market value of a tenant’s fixtures and fittings). A commercial lease granting long-term occupation is typically for a term of 125 years. A land-owner, often a local authority with a long term interest, may use the lease both to maintain control over land use for public purposes and to secure an appropriate income on its asset, namely the land. A ground rent is a market rent for the value of that land. The buildings may, and often will, be constructed by the lessee, the cost being written off over 5 These terms are used in this paper rather than ‘landlord’ or ‘lessor’. Just as the reversioner under s 9(2)(a) of the Leasehold Reform Housing and Urban Development Act 1993 is usually the freeholder, its use here recognises that there may be intermediate leasehold interests which not only provide an intermediate landlord for the leaseholder, but also may be the vehicle through which service charges are paid and management provided. 6 25 years was the traditional period for full repair and insurance (FRI) commercial leases, but the average term is now often shorter. 7 21 years is the recognised boundary between short leases, with ‘tenants’, and long leases, with ‘leaseholders’: Landlord and Tenant Act 1954 s 2(4); Leasehold Reform Act 1967 s 3(1); Leasehold Reform Housing and Urban Development Act 1993 s 7; and Commonhold and Leasehold Reform Act 2002 s 76.
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the life of the lease with the expectation that the useful life of the building will end at (or indeed, before) termination.8 Since the freeholder is providing the land, and receiving market value for that land, there remains the same division of interest based on payment for occupation. Even just after a 125 lease at a ground rent is granted, the freehold capital value of the reversion will be significant because of the substantial and reviewable ground rent reserved. The lease recognises that the site belongs to the freeholder. The freeholder’s interest is in the land, but the building’s value belongs to the lessee and that is recognised by the use of the ground rent. To contrast this with residential situations, even for leases commonly granted for a term of 99 years, it would be unusual for a rent paid by a long leaseholder to reflect the true value of the land. Consequently, in residential long leases, the capital value of the freehold reversion is likely to be relatively small, particularly in comparison with the capital value of the lease. When one turns to the long residential lease that is typically granted for a term of 999 years, it is submitted that there is no genuine division of interest and arrangements made subsequent to the grant of the lease will often recognise that fact. In such developments, the freehold reversion, say to a block of flats, is often conveyed to a residents management company. There is often no ‘outside’ landlord (and, if there is, such landlords may find it uneconomic to collect the nominal rents and ‘disappear’). The only usual division of interest is between any one individual leaseholder on the one hand, and the collective body of leaseholders (acting through the management company) on the other. The modern purpose, at least, of such a grant is to use the lease as a device to secure positive covenants and the payment of financial obligations for shared facilities. How does the traditional long residential lease at a term of 99 years fit into this analysis? From the perspective of the freeholder (whether a landed estate or property company), there is monetary value to that reversion to a 99-year term in the market, a value that will grow as the term of the leases declines.9 It could consequently be claimed that the freeholder has a genuine interest in the way the property subject to the long lease is used (perhaps because of freehold ownership of other properties on an estate) or that the reversioner has a genuine interest in ensuring proper maintenance and repair. But the counter argument is that when a lease is sold at a premium and a very low rent, the freeholder retains no real interest in the land itself. The monetary interest only arises because the length of the term is, on the 8 In commercial leases, at or even towards the end of long terms, the value of the cleared site may often exceed the value of the site with the current buildings. 9 The value of the rent payable for the period of the unexpired term is generally achieved by multiplying that rent by the figure for the ‘years purchase’ shown in valuation tables: A Radevsky and D Greenish, Hague on Leasehold Enfranchisement, 4th edn, (London, Sweet & Maxwell, 2003) [9–09]. However, the rental value is rarely significant in relation to the value of the property as a whole, and the growth in value, and the ‘genuine interest’, comes from the declining term.
Long Residential Leases: Future Directions 175 one hand, long enough for the first leaseholder not to worry about what happens half way through the term, but short enough for the freeholder to look for value creeping back as the length of the term declines.10 Whatever the view that might be taken on principle in relation to residential long leases, legislation has now made it clear that it is unacceptable for the site of a home to remain vested in an outside investor,11 if the leaseholder wishes to terminate that relationship.12 Where the whole of the financial stake has been transferred from freeholder to leaseholder, through the decision to grant the lease at a premium for a long period but with no substantial rent, the legislature initially decided that the resident leaseholder (if paying a low rent), could require the freehold to be transferred.13 But the legislature has more recently gone even further. Enfranchisement of houses and flats no longer depends in any way upon there being a low rent, as defined, nor is there now a residence requirement.14 The principal requirement is now only that there is a long lease. It is, therefore, suggested that it is now difficult to argue that the use of long residential leases for the transfer of newly built homes is appropriate—unless it is the only option available. In summary, therefore, whilst the law makes it clear that a tenant or leaseholder must enjoy exclusive possession for a lease to exist, there is no balancing requirement that a landlord or freeholder must have a significant or genuine stake in the reversion to the lease. This fact has enabled leases to be used as ‘devices’ where the retention of the reversion to the lease may be done primarily to achieve other purposes.
Leases as Devices Leases are, of course, used for purposes other than to reflect a genuine division of property as desired by both parties. A lease is (or was) an excellent way of maintaining an income from land, while effectively parting with ownership of that land because of the long term granted. This is certainly
10 For the purposes of the calculation of marriage value, s 128 of the Commonhold and Leasehold Reform Act 2002 inserted sub-para (2A) into para 4 of Sch 6 of the Leasehold Reform, Housing and Urban Development Act 1993, so that when the unexpired term of the existing leases exceeds 80 years, any increase in the value of the freehold attributable to the claimant’s ability to have a new lease is to be ignored. 11 Leasehold Reform Act 1967 (enfranchisement of houses); Landlord and Tenant Act 1987 (right of first refusal); Leasehold Reform, Housing and Urban Development Act 1993 (enfranchisement of flats); and, Commonhold and Leasehold Reform Act 2002 (right to manage). 12 Equally, in a case of a block of flats, the right to manage introduced by the Commonhold and Leasehold Reform Act 2002 makes it clear that management cannot be retained if the leaseholders collectively, through a RTM company, wish to take it over. 13 For houses, the Leasehold Reform Act 1967; and for flats, the Leasehold Reform, Housing and Urban Development Act 1993. 14 Commonhold and Leasehold Reform Act 2002 substantially deleted the residence requirements for any type of enfranchisement: ss 117, 120 and 138.
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not a recent phenomenon,15 but is no longer seen as an acceptable position.16 A reversioner to a long residential lease may make money just by utilising the covenants that may be attached to a leasehold estate. Some would categorise this as making profits at the expense of the leaseholder. These mechanisms will include such various matters as commission on insurance premiums paid by the freeholder (but payment of the premiums in full by the leaseholders ensures that the commission benefits the reversioner); fees for permissions; the profits from management and administration costs of an estate of leasehold properties; and the ‘hope’ value of a successful forfeiture of a lease.17 These are not likely to be a major reason for the initial grant of a long residential lease, but they are factors which contribute to the intrinsic value of the freehold reversion after the lease has been granted, and create a pool of investors able and willing to invest in freehold reversions to long residential leases. Just as the long leaseholder can ‘buy out’ any form of income payment through either enfranchisement or the exercise of the right to the new lease, so to the right to manage can now ensure that many of the ways of making profits at the leaseholders’ expense can be terminated by taking over management through a RTM company—significantly in this context, without payment of compensation.18 Second, a lease is an effective way of maintaining control over land through the medium of covenants.19 This chapter is not the place to explore 15 As a Chairman of Leasehold Valuation Tribunals, the author has had to deal with a considerable number of cases where property was built on land demised by a lease for 500 years granted in 1563 at a rent of £1 6s and 9d. Probably in 1563, the rent was of monetary value and a worthwhile income from what was then marshland. Now, hundreds of dwellings have been built, each title being an assignment of part of the remainder of the term of the lease. The freeholder is now unknown, leaving the leaseholders to enfranchise by paying considerable sums (sometimes in excess of £1000) into court to secure freehold title to a very tiny bit of the land originally subject to that lease. Without some mechanism to restore rents to the real value they had when created it is inevitable, over a long term, that they will become uneconomic to collect. The case also illustrates how long leases can create problems for future generations. 16 Enfranchisement, whether under the 1967 or 1993 Acts, will terminate the lease and thereby extinguish the rent, and the exercise of a right to a new lease under Part II of the 1993 Act will be at a peppercorn rent. A freehold rentcharge (common in Bristol and Lancashire) was an alternative method of achieving the same result in freehold land. The Rentcharges Act 1977 ensured that, except for an estate rentcharge, no new rentcharges could be created, and existing rentcharges (if not redeemed earlier) will expire in 2037. 17 The ability of a reversioner to use forfeiture proceedings, or the threat of such proceedings, (particularly in relation to disputed service charges) has led to restrictions on the use of forfeiture on the grounds of non-payment of service charges in respect of residential premises: Housing Act 1996 s 81. These provisions were substantially strengthened by ss 167–71 of the Commonhold and Leasehold Reform Act 2002. 18 There are, of course, specific provisions as well, such as the ability of a long leaseholder of a house being able to effect insurance and override the provisions to the contrary in the lease: Commonhold and Leasehold Reform Act 2002 s 164. 19 Leases have the advantage of permitting positive covenants, such as repair or insurance, which are not possible in freehold land (except when attached to an estate rentcharge): Orchard Trading Estate Management Ltd v Johnson Security Ltd [2002] EWCA Civ 406 and S Bright, [2002] Conv 507.
Long Residential Leases: Future Directions 177 the issue of how far it should be proper to maintain control over land, but the point to stress is that, for freehold land, there must always be adjoining land to be benefited. In leasehold land, the land to be benefited is merely the reversion. But if the reversion is illusory and exists primarily to permit that control, it may not be justifiable since there is no separate property to be benefited. Third, the long residential lease is (or was) a way of realising the capital value of land, while retaining, for the future, the opportunity to realise that capital value again. The lease might not end within the natural lifespan of an individual, but the additional long-term benefit to a corporate body, an individual’s later family, or heirs was considerable when the lease ‘fell in’.20 The classic London estate of homes (whether houses, flats or a combination of both), granted leases for 99 year terms and thereby achieved this result (at least before the Leasehold Reform Act 1967). Taken together, the motives of control of the land and of income, with the additional long term assurance of the land returning to benefit later generations (plus, in the meantime, the hope value of leases being terminated early or one reason or another) were powerful drivers for the practice of granting 99 year terms. One may add into that equation the modern need to have a substantial term of 40–60 years in order to maintain the value on the sale of a long residential lease. If statute had not intervened, a substantial capital receipt would still be obtainable by a reversioner every 50 years or so. But the overwhelming reason (other than as discussed above), for using leases is, obviously, that freehold sales are not possible for flats and other horizontially divided property, due to the inability of the law to allow positive covenants to be enforced between adjoining freehold proprietors (even if these are mutually beneficial).21 Therefore, in a huge variety of residential situations, a lease is (or has been until recently),22 the only possible option for any horizontal division of newly constructed buildings for multi occupation; for any conversion of a single dwelling into flats; and, for any case where adjoining owners are to share and pay the cost of those shared facilities.
20 The cynical approach is to regard this as a way of getting the full value of property every three generations. The premium paid for the grant of a 99-year lease of a house at a very low rent is likely to be only marginally less than (or even the same as) the price that would be paid for the freehold at the same date. However, prior to 1967, the property returned to the freeholder at the end of 99-years for the process to begin again. Equally valuable was the control of a re-grant of a fresh 99-year term to a leaseholder whose current term was becoming too short to permit a mortgage or sale of the existing lease. 21 Such as the covenant to contribute to the cost of repair of a shared roof: Rhone v Stephens [1994] 2 AC 310 (HL). 22 It was the only practical option prior to the introduction of commonhold on 27 September 2004 (the date (nearly all) of the commonhold provisions in Part I of the Commonhold and Leasehold Reform Act 2002 came into force).
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Two Types of Long Residential Lease A clear distinction can therefore be drawn between a long residential lease when it is used solely as a means of enabling the enforcement of covenants (‘leases of the first type’) and such a lease when it may also be used as a means of wealth creation or to exert a measure of outside control (‘leases of the second type’). Leases of the first type are only being used because there is (or was prior to the introduction of commonhold) no real choice of tenure when it comes to the sale of flats.23 The length of the term is traditionally 999 years, rather than 99. The freehold estate is typically transferred to a corporate vehicle (set up for the purpose), which is under the control of the residents as a whole.24 The developer will be able to insert covenants into the lease, but after the transfer they become of communal benefit, rather than possible instruments to extract financial benefit for an outside landlord. Management, for better or worse, is in the hands of the leaseholders. The leases are not wasting assets because the term is, effectively, indefinite. In long residential leases of the second type, there is (still) the intention to retain some long-term benefits for an outside investor. Where the freehold is retained by the developer/grantor (whether or not transferred to another person after completion of the development), management control is retained.25 The length of such leases is usually only 99 years,26 although the same management benefits can exist in 999-year terms. Control gives the opportunity to achieve a financial benefit—merely from the process of management.27 Highly reputable property companies, (whether directly as freeholders or indirectly as their agents) can cover their costs and make appropriate profits from the service they provide to leaseholders through the exercise of their management duties. But, however impartial and
23 It would now be unusual to find a new grant of a 999-year lease of a house, since the leaseholder would have an immediate right to purchase the freehold. The only reason for using leases for the sale of houses in the past would have been to maintain some control through covenants or to produce some ongoing some income from the property. 24 RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC Ch 1180 was an instance of a resident’s management company successfully enforcing a contract between a developer and a leaseholder for the freehold of a block of flats to be transferred to the management company. 25 Management control by a freeholder independent of the leaseholders may be justified or even essential in some situations. Thus, as a consequence of the right to buy, housing associations increasingly manage estates that are mixed between tenants and leaseholders. 26 Some of the other reasons identified earlier may reinforce this choice of length of term. 27 This was made clear when, in conversation some years ago (and prior to the 1993 Act), an individual recounted to the author how he had purchased a large number of freehold reversions to long leasehold developments from a major builder who saw them as a liability. He was able to farm out the management of these developments to a property company that was willing to cover its costs and make money from the management alone. He could then enjoy the income from the rents free of any expense.
Long Residential Leases: Future Directions 179 efficient, outside management is resented by a substantial number of leaseholders, who want to have a say in the management of their estate. The particular problems have arisen when the freeholders are not reputable companies, but corporate bodies or individuals who seek to make more than a fair profit from their management duties. The potential abuses are well-known, and have led to the landlord and tenant statute book being littered with provisions designed (at least in part) to counter these abuses. These may include: exorbitant fees for notices or services; excessive interest charges on ground rent arrears; insurance policies selected to maximise the commission payable to the freeholder; repair and maintenance work being done (often at a shoddy standard) at high cost by firms that are part of (or intimately linked to) the freeholder’s empire; and, the early recourse to forfeiture proceedings in the hope of getting one or two windfall terminations. The attempts at countering such abuses have not always been well-drafted, and not always easy to implement.28 Moreover, one (often overlooked) effect of these statutory responses is the impact that they have both on the ‘innocent’, and the leaseholders themselves. This is because they apply to all residential long leases. It is easy for those managing just a few properties (whether as agents or as freeholders acting for themselves) to fall foul of the complexities of the legislation through ignorance. In such circumstances, leaseholders may benefit, but not if they are running their own management company. Here, it is all too common for a dissident leaseholder who has lost an argument over, say, the amount of service charges within the meeting of members of the management company, to bring the matters, effectively by way of appeal, to a leasehold valuation tribunal. If the management company has not got the processes right, there can be serious consequences.29 The policy of the law, as exemplified in the Leasehold Reform Act 1967 (as amended) and the Leasehold Reform, Housing and Urban Development Act 1993 (as amended) is to move long leases of the second type into freeholds or, at least, into long leases of the first type. In the case of houses, this is achieved through the medium of a transfer of the freehold to the leaseholder. In the case of flats, the mechanisms are either a collective enfranchisement (which is built on the premise that the leaseholders will grant
28 The original provisions of Part 1 of the Landlord and Tenant Act 1987 (Tenants’ Rights of First Refusal) were particularly poorly thought through, and had to be substantially recast by the Housing Act 1996. 29 For example, a residents’ management company, whose only resources are likely to be funds received from its leaseholders, may find that it is unable to recover the full amount of expenditure on works because of a failure to follow the consultation requirements in detail and the consequent limitation on service charge recovery under s 19 of the Landlord and Tenant Act 1985. It could then find itself insolvent, or dependant upon extra contributions from other leaseholders. In contrast, none of the landlord and tenant legislation on such matters applies to a commonhold association.
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themselves 999-year leases after securing the freehold)30 or a more gradual process by individuals exercising their right to a new lease31 or, even less directly, through the exercise of the right to manage.32 Since this is so, then it is submitted that the future direction of residential long leases should be to secure that position (a lease of the first type) immediately on the grant of that lease. As such, this will avoid the tortuous processes of enfranchisement to achieve that result later on.
WHAT SHOULD THE FUTURE DIRECTION BE?
There can be no doubt that it is important in the national interest to get the best form of tenure for residential property, especially for the new homes required in the coming century.33 What is clear is that it remains impractical to use standard freehold tenure for the sale of any residential property, other than the stand-alone single house, semi detached property or terraced dwelling. For the increasing number of flats, and interdependent properties sharing facilities, standard freehold is not an answer. Is leasehold still the answer, or part of the answer? The possible future directions for long residential leases are the following. Elements of one or more can perhaps be combined.
Replacement with Commonhold34 The most obvious solution is to encourage the use of commonhold for new developments that would otherwise have to be by way of long leases. 30 Leasehold Reform, Housing and Urban Development Act 1993 Sch 6 para 4 (2A), This directs a valuation on the assumption that the tenants participating in the enfranchisement will have new leases granted to them, without any payment of premium, and without restriction as to the length of the term. 31 The right is, at a peppercorn rent, for a new term expiring 90 years after the term date of the existing lease. The 90-year period is strange in the sense that the new lease can itself be indefinitely extended, so a 900-year period might have been better. The reason for a successive periods of 90 years may have been to avoid any problems with a potential claim to enlargement by virtue of Law of Property Act 1925 s 153—see n 64 below. 32 If a freeholder or reversioner loses the right to manage (and with it, the ability to make money from management), it may be an incentive to offer to sell the freehold or reversionary interest by private treaty. 33 The Government has identified the need for many thousands of new homes. The Thames Gateway proposals are well-known, but local authorities across the country are required to consult together to produce regional proposals. ‘Brownfield’ sites are to be preferred, but a common feature is often plans for high intensity developments with shared facilities and positive obligations. 34 Commonhold is, of course, a sub-specie of freehold, but it was specifically designed to offer an alternative to long leases and has sufficient similarities for it to be included in Hill and Redman’s Law of Landlord and Tenant.
Long Residential Leases: Future Directions 181 However, Part I of the Commonhold and Leasehold Reform Act 2002, for all the assurance that it was a fine piece of legislation,35 contains some fundamental flaws that will prevent its widespread adoption for both large and mixed residential estates and developments. Indeed, these inadequacies are proving so fundamental to the key players (developers and lenders36) that commonhold will possibly be consigned to the margins. There were, by 27 September 2005, only five commonholds registered a year after commonhold was brought into force,37 and they are all small homogeneous developments. Interestingly, none is in London, or the South East of England. Indeed, they appear to be used as an alternative to granting 999-year leases. Perhaps a few commonholds will, in due course, also occasionally be used as a better choice than standard freehold. However, there is no indication that any major house builder is planning to use commonhold.38 There are a number of major defects with the commonhold legislation that make it unpalatable to major residential developers. Undoubtedly, the major problem is the concerns that lenders have concerning their mortgage security,39 on either a voluntary or compulsory winding-up of the commonhold association.40 A voluntary winding-up ought not to be a problem for it is only likely to occur if a commonhold association (with the support of at least 80 per cent of the unit-holders) decides to sell the property as a whole. It is probable that when, under the statutory procedure,41 the
35 ‘(T)his is one of the finest Bills to go through both Houses’?Baroness Scotland of Astall, HL Debates, Vol 633, col 691. 36 Since it is unlikely that many commonholds will be established by conversion from existing long leasehold developments (because of the necessity for 100% consent), commonhold will only be established if developers choose it (and they are unlikely to do so if some major lenders are unwilling to lend on the security of commonhold titles). 37 Two months later, by 22 November 2005, the number had grown to just six, with five in England and one in Wales–see Lord Evans of Temple Guiting in an answer to a Parliamentary Question, HL Deb, 22 November 2005, column 1496. The ‘Moneybox’ programme suggested that the number of homes within these six commonholds totalled just 165 (BBC4 Radio, 29 October 2005). 38 Ian Robertson, Group Chief Executive of developer Wilson Brown, stated (of commonhold): ‘I have no need for it. I’m afraid that I am a traditionalist and I think most developers are the same. We want to stick with long leases’: Property Week (28 October 2005). The problem is that the benefits of commonhold are for the future unit-holders who get a better deal than having a long lease; but it is the developers who need to be convinced of the merits of commonhold if it is to become established. However, on 16 December 2005, a press release stated that Crest Nicholson plc intended to develop 2000 new homes at the Oakgrove Millennium Community in Milton Keynes by way of commonhold. 39 Developers are unlikely to be convinced if there is any chance that purchasers will not secure loans to enable them to buy. 40 It could be argued that the problems arise because of the decision not to create a special corporate body to act as a commonhold association, and the subsequent decision to have the commonhold association as a limited liability company. If it had been an unlimited liability corporate body, lenders would have had direct recourse to the unit-holders on whose authority, and for whose benefit, the commonhold association had incurred the debts. 41 Commonhold and Leasehold Reform Act 2002 ss 43–49.
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commonhold units vest in the commonhold association, the commonhold association becomes a registered proprietor subject to the registered charges.42 However, the section does not say so expressly.43 Even if it does so vest, there is no provision requiring the loans on the commonhold units to be repaid, either when the commonhold association becomes the registered proprietor or, indeed, at any later date. So another concern of lenders is the problem, in such circumstances, of securing continuing payments under the security, or of obtaining possession of the unit in default.44 If lenders on the security of commonhold units had been required to consent to a voluntary winding-up (likely to be a very rare event in any case) then the issue would not have arisen. There are also concerns that commonhold units could transform into ‘flying freehold’ titles on a compulsory winding up by the court. The court has a power to authorise a succession order in relation to an insolvent commonhold association.45 A successor association would then take over the duties of the commonhold association and the common parts would be vested in it. Indeed, the statute says that the court ‘shall grant’ such an application, but it need not do so46 where ‘it thinks that the circumstances of the insolvent commonhold association make a succession order inappropriate.’47 This raises the prospect of situations where the court refuses to order the establishment of a successor association. Without an association in which to vest the common parts, the units would become freehold units reverting to standard freehold titles which were left ‘in limbo’, and perhaps in a worse position than if the flats had been created as flying freeholds in the first place.48 There are other limitations for lenders. The blanket restriction on leasing commonhold units for a term longer than seven years49 means that 42
Land Registration Act 2002 s 28. Commonhold and Leasehold Reform Act 2002 s 49(3). The section merely states that the commonhold association is entitled to be registered as the proprietor of the freehold estate in each commonhold unit. 44 For those lenders who do accept commonhold, then under the Council of Mortgage Lenders Handbook for England and Wales (May 2005 edn), a provision will be required in every commonhold community statement to ensure that any mortgage or charge secured on a unit is repaid on the termination of the commonhold: [5.5.6.4]. 45 Commonhold and Leasehold Reform Act 2002 s 51. 46 Moreover, there can be no successor association without an application, and applications can only be made by the insolvent association, the members of the association or the provisional liquidator (see s 51(2)). Lenders on the security of any commonhold unit could not make the application. 47 Commonhold and Leasehold Reform Act 2002 s 51(4). 48 In a block of freehold flats, the walls, roofs and foundations would be part of one (or more) of the freehold titles and, following the decision in Abbahall v Smee [2002] EWCA 1831, [2003] 1 WLR 1472, there would be some limited remedy available for repair and maintenance. However, in a commonhold situation, all the common parts would vest in the liquidator of the insolvent association in the absence of a successor association. 49 Commonhold Regulations 2004 Reg 11(1)(b). The limited exemptions in Reg 11(2) which permits some leases to be up to 21 years would not assist lenders. 43
Long Residential Leases: Future Directions 183 (at present) the current forms of Islamic mortgages of commonhold units and the current forms of shared ownership leases (both of which depend on 25 year leases that are outlawed in commonholds) are not possible. Sales on shared ownership terms may be possible in commonholds by developing an alternative based on the creation of a trust.50 There is also regulatory power to create additional exceptions to the ban on leases for longer than seven years, so the current forms of Islamic mortgages based on a lease could then be used.51 There is one particular inflexibility in the legislation that could be awkward for developers. Section 38 of the Commonhold and Leasehold Reform Act 2002 authorises the commonhold assessment (equivalent to the service charge in leases). However, after permitting very wide provisions to be made, it then requires that: ‘The percentages allocated by the commonhold community statement to the commonhold units must amount in aggregate to 100.’52 Commentators have interpreted this to mean that it is not possible in a commonhold to have, as in leases, a divided assessment.53 The statutory insistence upon an undivided commonhold assessment will make many developments unsuited to commonhold. If long leases are used, a service charge in two or more parts can be adopted to cover the myriad of situations where some services benefit some properties, but not all.54 Such an approach would appear to be precluded in a commonhold development.55 50 The trust solution is the more commonly proposed alternative to the shared ownership lease. The Registered Social Landlord (‘RSL’) and the occupier would be trustees of the legal estate and subject to a trust embodying the terms of the shared ownership. An alternative is to provide for the RSL’s interest by way of a contract supported by a first charge on the property. This solution was suggested to the author by the Stokes Partnership, of Crewkerne, Somerset, but it could suffer from an unwillingness on the part of lenders having to take a second charge as their security. 51 The author is aware that the Department of Constitutional Affairs is exploring regulations to this effect. 52 Commonhold and Leasehold Reform Act 2002, s 38(2)(a). 53 See: D Clarke, Clarke on Commonhold: Law, Practice and Precedents (Bristol, Jordans, 2003) [17(2)]–[17(4)]. 54 Many developments (not just the very large ones) may have mixed housing so that some of the estate facilities (for example garages or parking spaces) will be for the benefit of some residents, but not others. 55 The annoying point is that s 38(2)(a) of the 2002 Act serves no useful purpose. It was presumably inserted by the draftsman to ensure that the commonhold assessment could not add up to more (or less) than 100%, so that there could not be a shortfall (less than 100%), or ‘profit element’ (more than 100%) as is sometimes found in long leasehold situations. But if there had been no such provision to prevent it, there would be no real possibility that a commonhold community statement (CCS) would ever be deliberately drafted with either an excess or a shortfall, since the CCS is a public document and the position would be obvious to all; and even if it had occurred, there is no outside landlord to benefit or to suffer loss. The only persons to gain or lose would be the unit-holders themselves! There would be no incentive to continue such a position, and every incentive to amend the CCS to put it right. So to solve a problem that did not really exist, a key flexibility needed for all larger or complex commonholds is not available.
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There are other minor concerns and potential improvements for commonhold legislation.56 But the final key issue is incentive. Whilst freehold reversions to long leasehold properties carry value,57 and while long leases command (or are believed to command) the same premium as the sale of a (freehold) commonhold unit, then developers have every incentive to continue with long leases. A recent decision of the Lands Tribunal would appear to reinforce the incentive to retain a reversion by choosing to develop on long leases and secure the additional capital value of the freehold. In Arbib v Earl Cadogan,58 the argument centred on the correct deferment rate to apply in a valuation both in collective enfranchisement and in acquisition of the freehold of houses under the Leasehold Reform Act 1967.59 It was held that the previous practice of a deferment rate of 6 per cent was not a binding convention. Although market evidence usually represented the best evidence of value, dependable market evidence was not unlikely given the extent of the rights to enfranchise. In the absence of such evidence, it was held that it was permissible to make reference to the money market. After hearing evidence of falling yields in all other forms of investment, the Tribunal fixed a deferment rate of 4.5 per cent. The result is that the value of freehold reversions will increase, the capital value of the leases will decrease and those exercising the right to enfranchise will have to pay more. The incentive to continue to develop by way of long leases for terms of about 99 years has increased significantly as a result of this decision. Therefore, if nothing is done, at best commonhold will be peripheral, at worst it will be largely irrelevant, to the solution to developing homes for the future. For it to have a major role, there would need to be primary legislation to deal with lenders concerns regarding the liquidation of the commonhold association. Less than half the members of the Council of Mortgage Lenders are currently willing to lend on commonhold titles, and some of the big lenders are included in these numbers.60 Such primary legislation could also tackle the other shortcomings. Yet, there is little sign of
56 For example, the failure to provide a first charge on a commonhold unit for unpaid assessment: Clarke (n 51) [17(16)]. But this is a defect that may make life more difficult for a commonhold association recovering monies due from a recalcitrant unit-holder. It is not likely ever to be a factor in developers not choosing commonhold for new developments. 57 One of the interesting conundrums is why that value remains when, at any time, in a development with sufficient qualifying tenants, the right to manage may be exercisable at any time at no cost. The answer is that, though this largely removes the ability to make money from management, it does nothing to reduce the capital value where leases are a wasting asset. 58 [2005] EWLands LRA—23 2004. 59 The cases involved conjoined appeals relating to both flats and houses. 60 A search by the author on the CML website http://www.cml.org.uk/cml/home in early September 2005 suggested that less than half of the members whose position was quoted would lend on commonhold without question. A good number would not at all; others just noted that special reference should be made to the lender concerned.
Long Residential Leases: Future Directions 185 any willingness, or political pressure, for such a solution.61 Presently, the Department for Constititional Affairs maintains a team monitoring the position and consulting on possible additional regulations. However, it is submitted that additional secondary legislation will only tinker with the details, and would be unlikely to see any major shift in developer’s preferences. Yet, even if the major concerns were satisfactorily addressed by primary legislation, there is no certainty that commonhold would be widely adopted in preference to long leases. Indeed, while there is any financial incentive in selling the freehold reversion to a new development by way of long leases to a property management company (rather than having the common parts vest in a commonhold association automatically), long leases are likely to continue to be preferred. Finally, there is the preference for the familiar. Even if the factors governing the choice between commonhold and long leasehold for new developments were entirely neutral, it is likely that many developers would still opt for the familiar, especially if there is a little more profit from the deal from the sale of the freehold reversion once the development is complete.62 Accordingly, there must be good reasons positively to choose commonhold, even if the technical difficulties and statutory gremlins outlined are overcome. Primary legislation to encourage, or even require, the use of commonhold in preference to long leases is always a long-term possibility. Indeed, it was strongly urged in Parliament in 2000/01, primarily because the unwillingness of developers to abandon long leases was foreseen. Yet, it is hard to envisage any Government being willing to take any steps in such a direction, until it is satisfied that commonhold is fit for the purposes for which it was enacted. If, by whatever means, commonhold eventually becomes the tenure of choice for new developments, then it will be inevitable that existing long leaseholders will wish to have an easier mechanism to convert long leasehold developments into commonhold. Presently, any such transfer can only be done if there is unanimity among both long leaseholders and their mortgagees, (a requirement which will ensure there are very few conversions). Finding a mechanism for encouraging conversion will not be easy. It is 61 One possible positive ‘straw in the wind’ is the indication that the Government may be prepared to examine the issues. On 22 November 2005, Lord Evans of Temple Guiting indicated that there was concern at the slow start for commonhold; that the reasons were being investigated; that the Government would look at ways in which take-up could be boosted; and will decide in 2006 whether to hold a formal review. HL Deb, 22 November 2005, col 1496. 62 Consider the view of the developer quoted in Property Week for 28 October 2005 (Ian Robertson, Group Chief Executive of developer Wilson Brown): ‘The long leasehold structure works very well and is profitable for developers. A lot of other countries do not understand the leasehold structure, but it is something that we do very well.’ The point is that long leases are, indeed, for the reasons outlined in this chapter, profitable for developers—but long leases are not so profitable or congenial for many of the leaseholders who have to deal with the consequences of that structure. If commonhold is to be used by developers, then the extra profit lenders can make from long leases must be removed.
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suggested that it would have to involve the non-consenting minority being forced to accept a commonhold unit in place of the long lease.63 Such a procedure would inevitably require giving those persons the opportunity to challenge the change, if it could be demonstrated that the new commonhold unit was valued less than the long lease it replaced.64 Constructing such a mechanism for conversion would be a major task, unlikely to be attempted unless there is an overwhelming political imperative to do so. There will be no such imperative until commonhold is well established and commonhold units command a higher market premium than similar properties for sale by way of assignment of a long lease. Even if commonhold overcame all the difficulties outlined to become the accepted method of selling homes with shared facilities, it is submitted that it would not be possible to cover every eventuality, so as to make long residential leases redundant.65 Long residential leases will not disappear. Consequently, we need to address how the long residential lease should be used in the future especially as, if nothing is done, commonhold may have only a minor role to play.
Prescribing the Format of Future Long Residential Leases The submission is that primary legislation could, and should, ensure that the future format of any long residential lease achieves, right from the date of the grant, the objectives embodied in the current enfranchisement legislation. The aim would be two-fold. The first aim would be to remove any remaining major incentive to use long leases as a means to oppress or make profits from leaseholders. The second would be to take forward the clear legislative objectives contained in Part 2 of the Commonhold and Leasehold Reform Act 2002 (that the owner of a long residential lease has, either individually or collectively, the right to the freehold). The idea would be to achieve these objectives in a straightforward manner when the home is first 63 A replacement commonhold title to the same property as the replaced long lease ought to be equally valuable a capital asset as the long leasehold title. In 2002, the Government rejected a solution based on ‘pepper-potting’, namely leaving the long leases of the dissident minority in place within a commonhold—see HL Deb, Vol 627, col 489 (Baroness Scotland) and Standing Committee D, col 17, (Mr Michael Wills, MP). 64 Given the considerable number of new jurisdictions given to leasehold valuation tribunals, one more, namely to value any payment due on the conversion to commonhold, would not be out of place (especially as a valuation jurisdiction is particularly suited for the mixed lawyer and valuer membership). 65 An example where leases would remain the only practical choice might be the property consisting of a single residential unit over one (or more) retail units on the ground floor. If the wish is to sell the residential flat, but retain the freehold to the retail unit, a long lease of the flat is the only sensible option. A development of just two units, though possible in commonhold, is not ideal (though the leasehold devices, such as cross leases, are not much better). Presently, mixed-use commonholds are not a sensible choice either.
Long Residential Leases: Future Directions 187 sold and not, as now, only to provide for a complex later process to achieve the same end. This could be done by requiring all new leases of homes either to be for a term of less than 21 years (and therefore not long leases at all), or to be granted for a very long term of (say) at least 999 years and at a peppercorn rent (or, perhaps, nominal rent not exceeding, say, £10).66 Any attempt to grant a lease of residential property67 for periods of more than 21 years, and less than 999, would be transformed into a term of 999 years. This proposal is not as radical as it sounds. We already have legislation permitting a collective enfranchisement, and providing for the grant of a new lease for any number of further terms of 90 years at a peppercorn rent, and granting a right to manage to leaseholders without any payment to the reversioner. So why not go to the obvious conclusion and require developers to transfer the ‘whole value’ of the land and buildings to the new leaseholder/owner at the outset? There is no justification for permitting a developer to retain at the start what Parliament has indicated can be taken away at any time in the future. The developer cannot complain. The full capital value of the freehold, or of the lease for 999 years at a peppercorn rent, will be paid at the first sale. Theoretically, the buyer of the new home might pay a little more by way of initial purchase price, but in practice, any extra sum will be small, and it is likely that there will be little difference noticed in the market in the long term. However, there will be a lot of difference afterwards. The leaseholder will already have the full capital value and an indefinite lease (or ‘virtual freehold’) and there will be no future problem with enfranchisement.68 It might be objected that a person granting a lease in ignorance of this provision could suffer significant loss. However, it would be highly improbable that a lease of residential property for a term exceeding 21 years (which must be in writing) would be drawn up without legal advice.69 There is also a precedent for a provision along the lines suggested. In the case of a lease containing a perpetually renewable option to renew the term, 66 The reason for suggesting a formal payment of a sum like £10 is partly that the payment and receipt of rent evidence the continuing leasehold relationship that is the foundation of the relationship between the parties. More significantly, the payment of rent of monetary value exceeding £1 will ensure that the term cannot be enlarged into a fee simple by virtue of the Law of Property Act 1925 s 153. This section permits enlargement into a fee simple where the original term of the lease exceeded 300 years and no rent, or a peppercorn rent, is payable. Such an enlargement would destroy the leasehold relationship that has been chosen to ensure the mutual enforcement of positive obligations. An alternative way of avoiding the impact of s 153 would be to permit the length of the term to be 299 years. Of course, s 153 could be amended to ensure it could not apply to leases of flats or other horizontally divided property. 67 The same definitions as those found in existing enfranchisement legislation would be used. 68 The leaseholder will not have to negotiate the tortuous process of enfranchisement, a process now notoriously complicated, and, more importantly, will not have to pay a second capital sum to secure the home. 69 Thereby giving protection through the solicitor’s indemnity policy in a case where negligence is shown.
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statute converts the lease into a term of 2000 years determinable only by the lessee.70 Moreover, any statutory provision along the lines suggested could include exceptions. These could permit, for example, leases for terms up to 25 years for the purposes of offering security, or where the lessor is a Registered Social Landlord.71 Any other desired exceptions could be built in, perhaps by permitting regulations to this effect, so that any unforeseen problems could be addressed. However, the main rule would achieve at minimum cost, and without complex processes, the stated aim of the legislature, namely that the owners of homes and flats should enjoy freehold (or ‘virtual freehold’) tenure without any outside investor having an interest in the property. Prescribing the term of residential leases, and limiting them to less than 21 or at 999 years, would solve the problem of an outside investor in homes. However, legislation could go further and answer the issue of management of blocks of flats at the time of grant as well. Legislation could require, in defined circumstances, that once all units have been sold on a long lease, the freehold to a block of flats to be transferred to (what may be termed, say) a Right to the Freehold (‘RTF’) management company. Such a RTF company would complement or match the existing RTM (Right to Manage) company,72 and the (putative, not yet in force) RTE (Right to Enfranchise) company. Such a solution would thereby achieve management and control of the freehold by leaseholders from the start. Here, the legislation might have to be more complex if it was to achieve a match to existing legislation. In substance, it would only apply where a self contained building was developed with a sufficient number of qualifying tenants who would, in due course, have been able to enfranchise collectively. Instead of having to commence such a collective enfranchisement, the leaseholders would be entitled to a transfer of the freehold at no cost to them. Such a provision would only apply where all the long leases in a development were granted after the section came into force. There would have to be provisions to permit the transfer to a management company that took control of two or more self-contained buildings, but this may be possible by permitting clearly defined contractual arrangements between the developer and buyers that met the statutory minimum requirements. Clearly, a developer could avoid the result by having a sufficient number of units within a development that were not sold on 999-year leases. However, there would be financial implications for a developer who took that course. The buyers would be aware that, perhaps unlike a development elsewhere, there was no 70 Law of Property Act 1922 Sch 15 [10(1)]. It could be argued that the likelihood of this provision being overlooked is far greater than one providing that a term in a residential lease must either less than 21 years, or 999 years or more. 71 Therefore, the current forms of Islamic mortgage and shared ownership lease would not be affected. 72 Commonhold and Leasehold Reform Act 2002 Part 2 ch 1, and especially s 73.
Long Residential Leases: Future Directions 189 automatic control by the leaseholders,73 and should (one hopes) receive legal advice as to the long-term implications of an exclusion from the statutory scheme.74 This proposal sounds a bit like aiming to achieve the benefits of commonhold, but under the guise of a leasehold. While it may obviate the necessity for commonhold, if the leaseholders get an indefinite lease at a nominal peppercorn rent and control of the freehold reversion through a RTF company, it may also, paradoxically, stimulate the use of commonhold by developers in the first place, since much of the incentive to develop by way of a long lease will have gone.75 However, it will achieve, from the outset, the broad legislative aims of Part II of the 2002 Act. Finally, it is worth raising the question of what eventually should happen to the raft of statutory measures that currently apply to long leases. These provisions have been drafted and promulgated primarily in response to concerns about abuses perpetrated by some freehold reversioners. They have had varying degrees of effectiveness. However, already, more long leaseholders are securing management of their freehold reversions by a collective enfranchisement, a purchase by private treaty, or the exercise of a right to manage. Should the suggestions made in this chapter be adopted, all new leasehold developments will be on the basis of management control by the leaseholders themselves, through the medium of a management company. The proportion of reversions vested in, or managed by, the leaseholders themselves will increase. It may be, in due course, that leaseholders managing their own developments will find that the onerous liabilities are irksome and counter-productive (and may even lead to pressure for some relaxation). Given that similar restrictions were not imposed on commonhold (so there can, for example, be no challenge to the reasonableness of the commonhold assessment), there may be a case for review of legislation applicable to long leaseholds of what I termed the ‘first type’ above.
WHAT IS THE FUTURE DIRECTION LIKELY TO BE?
What is most likely to happen is the direction that comes by default. There will be no new initiatives, either to develop commonhold or to streamline the format of long residential leases. So, new developments will continue as we have them now. Each standard lease will be different to those in any other development. There will be no guarantee that even that the terms of each lease are the same in a single development. The full panoply of the 73
There would be no right to a collective enfranchisement or a right to manage. It would be possible, and consistent with other legislation, for a statutory notice to be required from the developer stating that the freehold would not be transferred to a RTF company. 75 Assuming that the defects, listed earlier in this chapter, are addressed. 74
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Landlord and Tenant legislation, drafted on the basis that there was an outside landlord, will continue to apply to tenant’s management companies. Is this desirable? It is a future of continued leaseholder complaints; more problems with out-of-date lease terms; rising case loads for leasehold valuation tribunals; and, continued legislative tinkering. We will remain the last major common law jurisdiction persisting in using leasehold tenure for the sale and purchase of homes, and all the trumpeted benefits of a commonhold system will be denied to the majority. It is a direction that we must not take by default.
10 Housing Law: Past and Present ANDREW ARDEN AND MARTIN PARTINGTON
INTRODUCTION
T
HIS CHAPTER LOOKS at the development of housing law as an area of legal practice and scholarship. It does not purport to be a definitive account of the history or of the present state of the subject matter. Rather, it offers a personal view on the development of an important area of law which, in different ways and to different degrees, has dominated the professional lives of both authors. The modern development of housing law as a subject and as an area of practice is explored by looking particularly at three periods: 1964–77; 1977–88; and, 1988–the present. The chapter finishes with a look at the Human Rights Act 1998, and its current influence on the development of housing law. The following chapter (chapter 11) presents some ideas about how housing law may develop, particularly taking into consideration the current work of the Law Commission, but also considering a number of wider issues, in particular the future of housing law as an area of legal aid practice.
PRELIMINARY POINTS
Before addressing the substance of the argument, there are two preliminary points which should be mentioned. First, the overall focus of this volume is the past, present and future of ‘landlord and tenant’ law. One of the underlying trends in the emergence of housing law as an independent subject of practice and study has been the increasing separation of housing law from its origins in landlord and tenant. Whilst landlord and tenant law remains an important part of housing law, the influence of that area of law on the regulation of rented housing has shifted markedly to other areas of law, in particular public statute law. This reflects the fact that successive governments have found it more necessary to intervene in this sector of the property economy than in others, to the extent that the ensuing legislation may be said to have overtaken the importance of the common law, even as it has itself been developed.
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Second, and notwithstanding this, the chapter examines housing ‘law’, not housing ‘policy’. The two concepts are obviously related, both in statute and in practice. Although we are practitioners, and not policy makers, we like to think that we also are aware of and understand housing policy. But we are not housing policy experts, and this does not purport to be a paper on the development or future of housing policy.
PHASE 1: 1964–77
There has been law relating to the regulation of rented housing since at least the middle of the 19th century. Starting with the Common Lodging Houses Acts, there had by the 1960s been numerous Housing Acts and Rent Acts.1 There was a small number of textbooks on what we would today call ‘housing law’. The most important of these was Megarry’s The Rent Acts, which was first published in 1939. There were those who practised aspects of housing law, which was typically called ‘landlord and tenant’. Indeed, the staple diet of many young practitioners at the Bar was representing parties to possession proceedings in the county court. And a number of important cases were run by experienced practitioners who have subsequently gone on to high judicial office.2 But there was no coherence to the idea of housing law. Legal issues relating to the regulation of rented housing were seen as adjuncts to other areas of law, not an area of law recognised as such in its own right. For example, housing issues arose in the context of landlord and tenant law, in which principles drawn from cases on agricultural and commercial leases (as analysed in Woodfall or Hill and Redman) were used to try to defend the occupiers of putatively furnished, shabby bedsitting rooms in the inner cities. Housing issues arose in the context of conveyancing, which dealt with the owner-occupied and leasehold sectors. Housing issues arose in the context of public health law and planning law, of which public housing law was (not inappropriately) considered a sub-sector. It also needed consideration in the context of compulsory purchase (particularly for slum clearance) when issues relating to rehousing and payments of compensation for disturbance were involved. Housing matters also arose in the context of
1 A summary of the history of housing law may be found in Part 2 of the Law Commission, ‘Renting Homes–1: Status and Security’ (CP No 162, 2002). 2 For example, Robert Carnwath whose Southwark LBC v Williams [1971] Ch 734 (CA) was an unsuccessful but timely attempt to raise the profile of the National Assistance Act 1948 and formed part of the legal backdrop to the Housing (Homeless Persons) Act 1977, and Stephen Sedley who drove a coach and four through the perceived wisdom on what was required to qualify a tenancy as furnished (and, therefore, out of full protection) in Woodward v Docherty [1974] 1 WLR 966 (CA), on the eve of the Rent Act 1974. But, both these were better known in areas of practice other than housing law.
Housing Law: Past and Present 193 matrimonial (now family) law, and, from the 1960s, other areas of social welfare law, including social security and discrimination law. This lack of coherence also meant that the law that sought to regulate the operation of the housing market was not widely taught in the law schools or on professional law courses.
The Boom in Legislation 1964 is taken as the starting point because this was the year that the then newly elected Labour Government introduced the Protection from Eviction Act 1964. This Act, for the first time, made the obtaining of an order of possession from a court a general prerequisite to lawful eviction. This started an active period of housing-related legislation. The 1964 Act was followed by the Rent Act 1965, which introduced the concept of the fair rent (with its attendant Rent Officers and the Rent Assessment Committee). Then came the Housing Finance Act 1972, which introduced a national scheme of rent rebates and allowances (now Housing Benefit) to subsidise the housing costs of the poor. The Rent Act 1974 substituted the criterion of the resident landlord for that of the furnished dwelling as the basis to keep tenants out of full protection. It also, and despite being introduced by a Labour Government, recognised that the private rented sector needed to respond more to the practicalities of the market.3 There were major consolidations of the Rent Acts and the Protection from Eviction Act in 1977. Regulation of the housing rental market, in particular the private sector, was an issue on which the major political parties were then sharply divided. As the political complexion of governments changed, this generated new law.4
Stimuli for Change The impetus for this legislative activity came from a variety of sources. First, a number of sources pointed to particular problems in the operation of the housing market. The outrageous activities of the landlord who gave his name to Rachmanism, and other abuses in the private rented sector, received much publicity and were among the many issues considered in the Milner-Holland Inquiry into Housing in Greater London.5 Another sort of 3 For example, the Act gave owner-occupiers who had let their home while they were away temporarily the absolute right to regain possession. 4 This did not mean that initiatives from the Labour Government were wholly in favour of tenants, or those from the Conservative Government wholly in favour of landlords. The picture is much more complex. 5 Sir E Milner Holland (Chair), ‘Report of the Committee on Housing in Greater London’ (Cmnd 2605, 1965).
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shock was caused by the television documentary-drama ‘Cathy Come Home’, which exposed the injustices associated with treatment of the homeless. More generally. during the 1960s, a change in social attitudes led to a greater focus on social and welfare rights. At that time, a number of important campaigning organisations, such as SHELTER and the Child Poverty Action Group, were founded.
Use of Law These organisations used legal test cases as part of their campaigning activity. At around the same time as this development, there began to spring up Neighbourhood or Community Law Centres, the first of which in North Kensington opened its doors in 1973. This provided a focus not only for problems but also a forum for lawyers. Likewise over the same period, the legal aid scheme, which had been introduced in 1949, was expanding its scope. The combined effect was that a number of younger professionals, imbued with an enhanced (or at least what appeared to be an enhanced) sense of social responsibility, began to ask how law and legal process might be used to advance the position of the less advantaged. The impact of these developments was most noticeable initially on the ground, where possession cases in county courts like West London and Bloomsbury and Marylebone came to be routinely defended, instead of orders being routinely made.6 Nor was it only lawyers who were involved in these developments. Tenants’ friends, like the first independent Environmental Health Officer, David Ormandy,7 and socially-conscious surveyors, were also regulars at court.8
Legal Action Group Perhaps most important for the development of housing law as a subject in its own right was the establishment of the Legal Action Group, accompanied by the birth of the ‘LAG Bulletin’ (now ‘Legal Action’). This provided an outlet for specialist consideration of poorly examined issues relating to
6 Stephen Sedley made a huge impact, taking HH Judge Llewellyn of BMCC out to see a furnished flat (using Megarry J’s trip to the Gilbert and Ellis Islands in Tito v Waddell [1975] 1 WLR 1303 (Ch) as a precedent). 7 Still at the sharp end as the principal author of the research which led to the new Housing Health and Safety Rating scheme, introduced by the Housing Act 2004. See Project Report, ‘Preparation of Housing Health and Safety System Guidance (Version 2)’ (ODPM, 2004). 8 Such developments were not universal. Across town in Shoreditch, the registrar was making 100 plus orders each possession day morning, clearing his list by lunch.
Housing Law: Past and Present 195 housing law: for example, the nature of service occupation,9 and the central issue of whether an arrangement between the owner and occupier of premises was a tenancy or licence.10 Reflecting the huge growth of housing law as an area of practice, every new Law Centre and legal aid firm created a demand for more ‘accessible’ material. This led to articles which raised issues about the type of homes occupied by those eligible for legal aid (that is, working class rented homes) rather than issues affecting middle class rented homes the tenants of which had in earlier years been able to afford to litigate, whose cases had, if not dominating legal discussion, certainly featured disproportionately within it.11
Legal Literature Reflecting this increased demand, other legal publishers (in particular Sweet and Maxwell) also started to develop an interest in housing law. Initially, they commissioned Housing, Security and Rent Control; and, Housing, Repairs and Improvements.12 These became Arden’s Manual of Housing Law, now in its 7th edition.13 Their Encyclopaedia of Housing Law14 was expanded to cover the Rent Acts, mobile homes, leasehold enfranchisement, accommodation agencies and the law on rent books, miscellaneous Landlord and Tenant Acts with a direct housing impact, matrimonial housing law, housing benefits, discrimination (in those days, just race and sex, but now also disability), and parts of the Public Health Acts. They also commissioned the first hard law practitioner’s text on the subject.15
Academe These developments in legal practice were also reflected in some university law curricula, particularly at the then new universities, such as Warwick and Kent, which sought to deliver their programmes of legal education by reflecting on the social context in which law operated. At Warwick, for example, in teaching the traditional subject of land law (including a section 9
A Arden, ‘Service tenancies and service occupancies’ [1974] LAG Bulletin 108. A Arden, ‘Tenant or licensee?’ [1974] LAG Bulletin 155. 11 For example, the statutory requirement that the Rent Act applied only to the ‘only or principal home’ gave rise to discussion about the circumstances in which a person could have two homes but still stay within the scope of protection. Most tenants were glad of one home. 12 A Arden, Housing, Security and Rent Control (London, Sweet & Maxwell, 1978); and T Hadden, Housing, Repairs and Improvements (London, Sweet & Maxwell, 1979). 13 A Arden and C Hunter, Manual of Housing, 7th edn, (London, Sweet & Maxwell, 2003). 14 A Arden (General Editor), J. Shepherd (Deputy General Editor) (London, Sweet and Maxwell, looseleaf). 15 A Arden and M Partington, Housing Law, (London, Sweet & Maxwell, 1983). 10
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on landlord and tenant law), housing was the means of demonstrating the social relevance of an area of law many students otherwise found hard to grasp. Interestingly, the emphasis here was not so much on the creation of a new subject, which was the focus of the practitioners, as on the expansion of a well-established existing subject.16
Practice In legal terms, practitioners began to explore how law already on the statute book could be used more effectively in the housing context. For example, practitioners started to use the ‘statutory nuisance’ provisions of the Public Health Act 1936, which had long been available but which had not been much used to try to do something about housing conditions. They also began to pay more attention to the implied repairing covenants imposed on a landlord to keep the structure of premises in repair (in Section 32 of the Housing Act 1961).17 Given its lack of initial use, one might be forgiven for thinking that the Act had been passed in 1971, not 1961.
Status But the central element in defining the special nature of housing law arose from the development of the legally technical but key issue of the ‘status’ of the occupier.18 Before addressing any housing issue, housing law required the adviser or advocate to determine the legal status of the occupier. Unless he or she did so, one could not determine the occupiers’ position concerning security, rents and other rights, such as housing conditions. It was not much good commencing proceedings under Section 32 if the landlord could (and certainly would) retaliate with a notice to quit.
Housing Perspective v Property Perspective More generally, what practitioners were doing was to seek to persuade courts to move away from deciding issues relating to rented homes on the 16 This was not without controversy. A reviewer of M Partington, Landlord and Tenant: Text and Materials on Housing Law, 2nd edn, (London, Weidenfeld and Nicolson, 1980) (a cases and materials book that arose from the Warwick course) observed that it was a book ‘flying under false colours’. This clearly reflected a view that landlord and tenant and housing should be kept distinct. 17 Now the Landlord and Tenant Act 1985 s 11. 18 This came to be acknowledged by key influential figures as the only sensible starting point. It was also adopted by Parliamentary Counsel as the basis for drafting housing legislation: see for example the Housing Act 1985.
Housing Law: Past and Present 197 basis of a clinical and narrow assessment of proprietorial rights,19 but instead to address them from the perspective that what they were deciding was how people lived. In like vein, practitioners were also challenging the traditional protectionist approach to local authority decision-making (whether in relation to access to housing or to housing conditions, rents, eviction or otherwise) to be found in the courts. The new perspective, which we now call housing law, grew (as does so much else) from below. It would be a mistake to think that it only, or even mainly, resulted from the work of practicing lawyers and academics. Many others were involved: tenants’ campaigners; those working in housing departments and housing associations (where many of the rising managers were university educated and of a similar attitude), and those working in local government more widely (in particular, in public health and planning). Architects and surveyors were also engaged. And even within the court system some county court judges, registrars and bailiffs influenced the development. In summary, the first stage in the development of housing law was about taking it beyond the confines of property law, to see that it was about homes in which people lived, surrounded and dominated by the dispute and by the disrepair. It was about the insecurity that increased with every missed rent payment. It was about the home on matrimonial breakdown, and the homelessness that flowed from eviction reflecting insufficient local authority accommodation.20 It developed (as so many other changes) in and of its times. On the ground, that meant there were ideas and people (lawyers) to put them into practice; at a more elevated level, it meant changing attitudes, reflected through both case-law and legislation. This is a theme that we shall see recur, namely changes in attitude stimulated from below, leading both to judicial decisions that re-interpret the law, and legislation to similar effect.
PHASE 2: 1977–88
Phase two is the decade of the two fundamental legal developments that have dominated the substance of housing law as a subject. The first of these was the Housing (Homeless Persons) Act 1977 which created rights (albeit highly contingent) for the homeless. The second, the Housing Act 1980, conferred both the right to buy and security of tenure on council tenants. 19 The approach epitomised in Somma v Hazelhurst [1978] 1 WLR 1014 (CA), in which the Court of Appeal upheld a so-called non-exclusive occupation agreement, pursuant to which two putative strangers and even the landlady were apparently sharing occupation of a single bed-sitting room, such that no one of them, nor the two true occupiers, could be said to have exclusive possession of it. 20 Exacerbated by the International Monetary Fund’s crackdown on the British economy in the second half of the 1960s.
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The 1980 Act, however, also introduced the shorthold tenancy,21 which permitted a landlord to recover possession of what was otherwise a protected tenancy simply by compliance with certain formalities. In other words, it started the process of de-regulation of the private rented sector.22 The period can therefore be seen as the high point in the statutory protection of tenants’ rights, in both senses: as peak and turning.
Housing (Homeless Persons) Act 1977 Despite the limitations on its scope, this Act was a major advance. For the first time, the Act created a legal entitlement to housing for those in statutorily defined classes of housing need. In effect, the Act set legal boundaries to local housing authority discretion to allocate their housing stock according to their own criteria. No longer did key questions of housing need to be decided according to local schemes. Absent intentionality, the statutorily defined classes of priority need homeless were, by law, to be given preferential treatment (irrespective of what local politicians and officials thought or felt). Issues arising from the legislation became an important and routine part of housing practice from that time on, and continue to do so. Litigation tended to demonstrate a certain ambivalence in the courts. Cases tended to start with a sympathetic result (at the High Court by way of judicial review), but it was not uncommon for this to chill as the case scaled the higher courts. This was not a universal trend. There were victories which have stood the test of time: R v Waveney DC, ex p Bowers, the case with a realistic and helpful approach to vulnerability (one of the key tests of housing need)23; and, R v Hillingdon LBC, ex p Streeting, the case of the Ethiopian refugee with no local connection anywhere in the United Kingdom, to whom the courts decided that the Act applied in whatever local authority area she chose to ask for assistance.24 Two cases heard together by the House of Lords, Din v Wandsworth LBC,25 and R v Hillingdon LBC, ex p Islam,26 embodied the ambivalence. In the first, it was common ground that the applicant would have been unintentionally homeless by the date of application (because if he had remained in occupation, he would have faced possession proceedings to 21 At that point, the protected shorthold under the Rent Acts; now, the assured shorthold under Housing Act 1988. 22 An earlier attempt (under the Rent Act 1957) had been a notable failure, generating the greatest loss of stock in the private rented sector ever then recorded. 23 [1983] QB 238 (CA). 24 [1980] 1 WLR 1425 (CA). 25 [1983] 1 AC 657 (HL). 26 [1983] 1 AC 688 (HL).
Housing Law: Past and Present 199 which there would have been no defence) but, because he had left prematurely, his homelessness could nonetheless be said at its inception to have been intentional. The decision in Wandsworth to that effect was upheld. In the second, Islam, a man had to quit his shared bedsitting room in Uxbridge, because his wife and several children had arrived after a sevenyear wait for entry clearance. Hillingdon declared this to be intentional homelessness. The Court of Appeal had agreed with this view. Lord Denning MR decided that the home which had been intentionally lost was comprised of the family house in Bangladesh, to which there was attached (limpet-like) half a room in Uxbridge. According to him, the man was still notionally living (through his family) in Bangladesh despite working in Uxbridge. (Presumably he was notionally commuting night and day). Another member of the Court of Appeal, Sir Denys Buckley, was unable to adopt this approach, but instead viewed Mr Islam as intentionally homeless for bringing the family over to England at all, therefore making his halfroom unsuitable (or rather, ‘unavailable’ in the statutory sense). The House of Lords reversed the decision, agreeing with the minority decision of Lord Justice Ackner in the Court of Appeal, whilst criticising him for saying that he dissented from the majority ‘with regret’. This was somewhat unnecessary, as Lord Justice Ackner had plainly only been mouthing a common courtesy to his brethren on the bench: certainly, he was no enemy of the homeless.27 Then again, the decision in R v Hillingdon LBC, ex p Puhlhofer was dreadful.28 In that case, the House of Lords rejected the sensible and sound equiparation of homelessness with a state in which premises could be quit without a finding of intentionality (which had been initially formulated by Woolf J in a series of High Court cases). Instead, the House of Lords declared that as Parliament had, in the 1977 Act, ‘plainly, and wisely’ been silent on the quality or suitability of accommodation the possession of which would prevent a person qualifying as homeless or that needed to be provided to the homeless, so would be their Lordships. They did, however, concede that Diogenes’ barrel would probably not qualify, a tellingly anachronistic reference. The decision also reiterated the black letter administrative law principle, that challenge to a local authority decision in the courts should be a rare and last resort. Amendments in the Housing and Planning Act 1986 reversed the worst of the effect, a refreshingly blunt answer by Parliament to the ‘plain and wise’ judicial aside. The procedural proposition, that challenge should be
27 Consider R v Ealing LBC, ex p McBain [1985] 1 WLR 1351 (CA), in which he adopted ‘change of circumstance’ to allow the homeless to re-apply after an earlier offer had been rejected. This is an example of consciously and deliberately pro-homeless, judge-made law which, like Bowers and Streeting, has withstood the test of time. 28 [1986] 1 AC 484 (HL).
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rare, although commonly cited, had relatively little substantive effect on the work of the High Court or the Court of Appeal. Both continued to deal with a constant stream of homelessness challenges, more than occasionally sympathetically. Indeed, so great was the pressure of homelessness cases on the High Court (in judicial review proceedings) that, in 1996, the decision was taken to transfer the review jurisdiction to the county court.29
Housing Act 1980 Security of tenure for council tenants had been a campaign issue for the Consumer Association. It was originally included in the Housing Bill 1979, which fell when the then Labour administration called the General Election that brought Mrs Thatcher to power. Just as Woodward v Docherty,30 and Southwark LBC v Williams,31 had foreshadowed, respectively, the Rent Act 1974 and the Housing (Homeless Persons) Act 1977, so also had the absence of security been raised in two Court of Appeal cases.32 These cases, somewhat grudgingly, acknowledged the theoretical ability of a council tenant to challenge a local authority eviction by way of judicial review, while rejecting the particular attempts. The Conservatives reintroduced statutory security of tenure, but this time in conjunction with the introduction of the Right to Buy (‘RTB’). With many authorities opposed to RTB (because of the reduction of their stock and, inevitably, the best of it first), security of tenure was indeed a sine qua non of RTB. Nonetheless, it was a long overdue, and welcome, development.
Housing Benefit Administration Another significant policy change during this period was the transfer of administration of housing assistance for those in receipt of social security benefits from central government to local authorities. This began an administrative nightmare that has yet to abate. One particularly perverse consequence of the widespread failure efficiently to administer housing benefit is that, where it ought to prevent eviction for non-payment, it has instead allowed arrears to accrue without any fault on the part of the tenant, not merely putting them at risk of possession proceedings, but in many cases actually leading to court proceedings.
29
Housing Act 1996 s 204. [1974] 1 WLR 966 (CA). 31 [1971] Ch 734 (CA). 32 Bristol DC v Clark [1975] 1 WLR 1443 (CA); and Cannock Chase DC v Kelly [1978] 1 WLR 1 (CA). 30
Housing Law: Past and Present 201 Street v Mountford As for development of the common law, the impact of a housing law perspective was gaining ground. In the mid-1980s, Lord Templeman in Street v Mountford,33 stamped his foot on Rent Act evasion, in a blunt condemnation of the way the licence had been expanded by the Court of Appeal to damage tenants’ rights. It was a breath of fresh air, even if most people did not know that garden forks had five, rather than four, tines. This was followed at the end of the 1980s, in another twin hearing in the House of Lords, which focused on the non-exclusive occupation agreement. The decision in AG Securities v Vaughan, Antoniades v Villiers put agreements which were plainly phoney to bed once and for all.34
Hammersmith and Fulham RLBC v Monk Another issue that exemplified the development of housing law in conjunction with practice reached the House of Lords in Hammersmith and Fulham RLBC v Monk,35 upholding Greenwich LBC v McGrady.36 These cases held that one (only) of a number of joint tenants (local authority tenants) could serve an effective notice to quit which would destroy the tenancy and with it the basis for any security. Typically, a notice was served by a departing joint tenant spouse seeking to procure re-housing, with the purpose of enabling the authority to recover one family-sized home before allocating another. It is a case that has been reinforced in Crawley BC v Ure,37 Harrow LBC v Johnstone,38 and Newlon Housing Trust v Al-Sulaimen,39 each of them on a discernible ‘policy’ approach. The relevance of the issue is most marked by its place in the history of what is the most important current issue in housing, human rights. Indeed, it was a ‘Monk notice’ that sparked the proceedings in Qazi v Harrow LBC,40 the first of four cases which mark the lines of combat under Article 8.
33 34 35 36 37 38 39 40
[1985] [1990] [1992] (1982) [1996] [1997] [1999] [2003]
AC 809 (HL). 1 AC 417 (HL). 1 AC 478 (HL). 6 HLR 36 (CA). QB 13 (CA). 1 WLR 459 (HL). 1 AC 313 (HL). UKHL 43, [2004] 1 AC 983.
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Legal Literature These developments in the courts were supported by a rapidly developing housing law literature. Major innovations were the arrival of the Housing Law Reports in 1980; publication (after many years of struggle) of Arden and Partington’s Housing Law practitioners’ text; and Handy and Alder’s Housing Association Law in 1987, which is, deservedly, also still going strong in its 4th edition.41 David Hoath, David Yates, and David Hughes were among others writing on the subject. Practice In like manner, housing law had also become an established feature of legal practice, in particular legal aid practice. No longer the preserve of a relatively small number of social activist lawyers with a relatively common agenda, many more joined in. Indeed, this second phase of housing law is perhaps most marked by the growth in the number of housing lawyers, sufficient for them to begin to identify philosophical or political differences between themselves, in particular between those who considered that housing lawyers should only act for occupiers/applicants, and those who thought the term should embrace those who also acted for the owners and managers of housing. What this growth in practitioner numbers brought with it was a massive increase in civil legal aid expenditure and a corresponding concern about it on the part of central government. We discuss the implications of this in the following chapter, as the role and extent of legal aid will have an enormous impact on the future shape and practice of housing law. Suffice it to say here that, by the late-1980s, there was a substantial body of public sector work in security and homelessness, as well as in shortholds in the private sector, and disrepair issues in both. All the ingredients were present for a flourishing housing law practitioner sector, backed by a full body of housing law literature, with the promise of increasing influence and effectiveness. In other words, all the ingredients for a crack-down. PHASE 3: 1988–THE PRESENT
Market Principles The third phase we identify starts in 1988 with the enactment of the Housing Act 1988. This completed the process of bringing market principles 41 J Alder and C Handy, Housing Association Law, 4th edn, (London, Sweet & Maxwell, 2003).
Housing Law: Past and Present 203 back to the private rented sector. The Act abolished rent regulation,42 and most statutory security of tenure. The predominant form of tenure for the private rented sector was henceforth to be the assured shorthold tenancy. The legislative developments contained in the 1988 Act were taken further in the Housing Act 1996, which made the assured shorthold even easier for private landlords to use, by eliminating some of the procedural pitfalls that were initially associated with the assured shorthold tenancy.
Devolution Meanwhile, registered housing associations (which were to become registered social landlords in 1996), were moved by the 1988 Act from public sector security to private. Government funding arrangements increasingly favoured registered social landlords (RSLs) over local authorities. Largescale voluntary transfer (LSVT) was to emerge as the successful mechanism for moving stock from local authority ownership to RSLs (after the failure of the first scheme in Part 4 of the Housing Act 1988). More and more authorities joined what had previously been a tiny group, without a housing stock of their own. Therefore, a shift occurred, with much social housing moving from the hands of democratically accountable social landlords (the elected local authority), to unelected RSLs who were regulated by an increasingly powerful Housing Corporation. Homelessness Law as a Safety Net Perhaps unsurprisingly, many local authorities, whose ability to invest in new council housing had been seriously circumscribed, were growing increasingly concerned about their obligations to provide for the homeless. In part this was because of the loss of stock through RTB (uncompensated by new investment) and LSVT, but it was mainly because the priority being given to those towards whom they had homelessness duties was affecting their ability to make housing available to others. The Asylum and Immigration Act 1996 saw the exclusion of illegal immigrants and asylum seekers from entitlement to social housing. This change was accompanied by a general downgrading of homelessness obligations in the Housing Act 1996 to ‘safety net’ provision, with a wholly new scheme of allocations to ensure that the homeless took up no more than a proportion of available lettings.
42 It can be argued that there is a sense in which the operation of the Housing Benefit scheme can indirectly, but significantly, influence market rent levels: M Partington, ‘The Re-introduction of Rent Control? The Effect of Changes to the Housing, Benefit Scheme, 1996 and 1997’ (1997) 1(1) Journal of Housing Law 6.
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The changes did a lot to benefit the owners of bed and breakfast and similar temporary accommodation, even if (with ever-reduced public housing) it made little difference to the demographics of council and RSL estates.
Anti-social Behaviour Another issue gathering force over this period was anti-social behaviour. Though not exclusively a housing issue, it plainly had a housing dimension. In consequence, local housing authorities (and more especially their staff) were increasingly being called on to perform functions that are arguably more properly undertaken by the police themselves. It was either Hackney or Manchester who were first off the mark, using powers both as a local authority and as a landowner, more than as a landlord, to seek to regulate behaviour on their estates. This seemed a sensible strategy: a local solution for a local problem. The Housing Act 1996 began, however, to heat up the issue with new injunctive powers and (to start the cut-back from full security) introductory (or ‘probationary’) tenancies. These initial developments have since been taken much further, with a raft of new legislative powers to control the anti-social, including power to exclude them from their homes and demote their tenure,43 many of them fostered or pioneered by local housing authorities. This is not to criticise the housing officers who use the powers they have been given, even if they use them vigorously. If the job is not being done by other agencies, they cannot be blamed for doing the best they can to improve conditions for the many others for whom they also have responsibility. To the contrary, once powers are conferred on them, it creates an expectation more compelling than any coherent (let alone abstract or theoretical) explanation of a decision not to use them, based on appropriate ‘roles’. Nonetheless, the basic question that remains is whether this is really a function for housing staff.
Broadening Housing Law With this development comes a more elusive proposition: the wider the range of issues that are considered ‘housing’, the wider the range of attitudes towards it. Everyone supports good housing, but everyone condemns antisocial behaviour.
43 See: Housing Act 1996 (as amended by the Anti-Social Behaviour Act 2003) ss 153A–E. For exclusions and demotions see: Housing Act 1988 ss 6A and 20B and Housing Act 1985 s 82A.
Housing Law: Past and Present 205 In turn, some of the empathy that had been built up in the courts began to dissipate. An increasingly firm ‘policy’ line was taken against anti-social tenants. The Court of Appeal moved away from its traditional stance, of not interfering with the exercise of discretion by county court judges in possession cases. This trend started with Bristol CC v Mousah.44 The Court of Appeal made clear its expectation that those guilty of anti-social behaviour would suffer outright eviction, in the interests of others. This, too,45 foreshadowed legislation to the same effect.46 In Bristol CC v Lovell,47 the House of Lords had recourse to a procedural discretion to permit a later action for possession to leap-frog an earlier action to enforce the statutory right under Section 138 of the Housing Act 1985 to an injunction to complete RTB, in order to deprive an anti-social (drug-dealer) tenant of his right to buy. Also worthy of mention is Manchester CC v Cochrane, in which the Court of Appeal held that an introductory tenant could only challenge the outcome of an eviction review by judicial review.48 In doing so, the Court distinguished Wandsworth LBC v Winder.49 Therefore, unless the review decision was quashed, the county court had no option but to order possession, a line to be followed in the human rights cases discussed below. It was not only in relation to the anti-social that the courts were taking a clear position. The ‘concession’ made by the government in R v Secretary of State for the Environment, ex p Tower Hamlets LBC,50 that a local authority which suspected there might be illegal immigration was under a duty to report it to the immigration authorities, likewise represents a step in the direction of using housing as social control. This step might (and some would say should) have been avoided by the law on confidentiality. New Labour The return of the Labour Government in 1997 might have heralded a return to the highly politicised period of the 1960s and 1970s, when each change of government sought to unpick the legislation of its predecessor. This was not,
44
(1998) 30 HLR 32 (CA). Cf Bristol DC v Clark [1975] 1 WLR 1443 (CA); and Cannock Chase DC v Kelly [1978] 1 WLR 1 (CA) above note 32. 46 Housing Act 1985 s 85A, added by the Anti-social Behaviour Act 2003. 47 [1998] 1 WLR 446 (HL). 48 [1999] 1 WLR 809 (CA). 49 [1985] AC 461 (HL). In Winder, the Court held that although ordinarily a public law decision could only be challenged by judicial review (for which permission to claim which is needed), the public law invalidity of an authority’s action could be raised as a defence to a private law right. That is, if a tenancy had been terminated, or was sought to be terminated, on the basis of a public law decision, that decision could be challenged on the ground that it was invalid (and therefore void, so that the termination would itself be ineffective). 50 [1993] QB 632 (CA). 45
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however, the stance adopted. New Labour broadly accepted the disposition of rights and obligations created during the Thatcher era. In particular, it did not reverse the market reforms relating to the private rented sector. Nevertheless, a number of legislative developments have dealt with specific issues as they have risen up the political agenda. While generally relaxing the restrictions on the allocation of housing to the homeless which had been introduced by the previous administration in the Housing Act 1996, New Labour both accepted and enhanced the exclusion of illegal immigrants and asylum seekers from public sector stock. It also introduced in the Homelessness Act 2002 new measures to place tenants guilty of anti-social behaviour outside the allocation scheme. Indeed, it put them on the same legal footing as illegal immigrants and asylum-seekers. Other developments were to be found in the Housing Act 2004, which has introduced a wide range of complex provisions relating to many aspects of the housing market (for both owner-occupied [home information packs] and rented properties). The key issues here relate to the new basis for dealing with hazards in the home (the Housing Health and Safety Rating System, replacing the former statutory unfitness test and probably the greatest advance in basic housing standards since the statutory introduction of the fitness concept itself).51 The Housing Act 2004 also covers licensing of housing in multiple occupation (together with wider powers for selective licensing in other areas of low housing demand, however they may be identified); new modes of local authority management of privately rented housing and empty housing; the contentious issue of the regulation of tenancy deposits; and, detailed changes to the right to buy.
Tenants as Consumers One academic development that occurred in this period, starting after enactment of the Housing Act 1988, was an argument that there might be a new way of looking at housing law, particularly in the context of the rented sector. It was suggested that, rather than being seen as an off-shoot of landlord and tenant, it might better be seen as a branch of consumer law.52 The function of the law would then focus more on ensuring the transparency and fairness of rental agreements, and that tenants should be entitled to a 51 Artizans and Labourers Dwellings Act 1868 (31 & 32 Vict c 130). See also: Housing of the Working Classes Act 1885 (48 & 49 Vict c 72). 52 M Partington, et al, ‘The Consumer Implications of the Housing Act 1988’ (Working Paper 77, School for Advanced Urban Studies, University of Bristol, 1988); M Partington, ‘Rethinking British Housing Law: The Failure of the Housing Act 1988’ in M Freeman, (ed), Critical Issues in Welfare Law (London, Sweet and Maxwell, 1990); and M Partington, ‘Law and Regulation: Aims, Effects and New Approaches’ in A Norton and K Novy, (eds), Low Income Housing in Britain and Germany (London, Anglo–German Foundation, 1991).
Housing Law: Past and Present 207 certain level of service delivery.53 These embryonic ideas found some legislative support which emanated from Europe. Implementing a European Directive, the Unfair Terms in Consumers Contracts Regulations 1999 were brought into effect, which in terms provided that rental contracts were within the scope of the regulations.54
Practice These legislative changes increased both the amount and complexity of housing law and, therefore, ought to have generated a need, and provided work, for more and more housing lawyers. Instead, housing law practitioners have come under significant pressure, in particular through public funding,55 to the extent that the numbers offering expertise in the area have started to fall. At the same time as the subject became more difficult, it has become increasingly difficult either to find a housing lawyer (there are parts of the country now where there is none) or to fund a housing case. The idealism of the 1960s and 1970s was no longer as readily apparent. Even the shift in public funding from private practice to citizens’ advice bureaux and other accredited agencies has not prevented the creation of housing advice ‘deserts’. In addition, there have been major reductions in rights to appeal. There was a time when the Housing Law Reports could barely keep up with the volume of appellate decisions; now, they are comfortably apace. Like so much else (the moves to control anti-social behaviour, controlling public expenditure on legal services), it is no bad thing per se. On the contrary, it is superficially attractive. Nonetheless, it adds to the pressure on the practitioner to decide what is worthy of pursuit in the body of housing law. In turn, uncertainty breeds inhibition. There are other areas of practice where it is less difficult to decide what to do, and more remunerative to do whatever one decides. In all, the ingredients of a more stable career. In turn, this raises the issue of what housing law and housing lawyers can do to promote social housing goals. The new approach fostered by housing practitioners, and which the courts have intermittently adopted, has had some effect. But it was unable to address the fact that the overwhelming majority of occupiers (even at the height of availability of legal aid), had inadequate access to advice with which to confront the exercise (and exploitation) of complex rights by those who through ownership had 53 For example, why should a landlord be able to ‘let a tumbledown house’ if a garage cannot sell a second-hand car that does not work? 54 Office of Fair Trading, Guidance on Unfair Terms in Tenancy Agreements, (OFT356), 2nd edn, (OFT, Hayes, Middlesex, 2005). 55 Discussed further in the following chapter.
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control of the physical stock or who through constitution had greater freedom under the law.56 It is always a question of balance, but at present, and with the possible exception of human rights (discussed next), the extent of housing rights is being determined much more in the political arena than through the effects of the practice of housing law. The 1980s was the decade where statutory housing rights were at their peak. First, homelessness legislation, then security of tenure for council tenants had created a network of entitlements in the public sector; there was also significant statutory protection in the private sector. Since 1988, these rights have been increasingly whittled away. It would be going too far to say that the provision of rented housing has become matter of privilege rather than right, but as the rights of tenants and potential tenants have been reduced in themselves, and as housing law has (by the expansion of its ambit) become more complex, it is not coincidental that so also has the ability of the housing practitioner to step in on their behalf been cut back.
HUMAN RIGHTS
The Human Rights Act was passed in 1998 and came into force in 2000. Housing lawyers have been amongst the most eager to test the extent to which the provisions of the European Convention on Human Rights and Fundamental Freedoms are able to protect housing rights. Cases have sought to raise issues in relation to access, security, rents, conditions and management; in other words, to test the extent to which the Human Rights Act 1998 can be superimposed on domestic housing law. The two key articles which housing lawyers have sought to employ are the rights to a fair hearing in Article 6 and to respect for private and family life and the home in Article 8. Other potentially relevant articles include the Article 14 right not to be discriminated against (where another Convention article is in play), and Article 1 of Protocol 1 which protects the right to peaceful enjoyment of possessions.
Limited Success To date, the outcome has not been dramatic. If Article 8 applies, it certainly does not seem to have had any substantive effect. It is a matter of record that only Mendoza v Ghaidan has achieved a clear benefit on the part of the tenants or the homeless.57 In that case, the House of Lords accepted that
56 57
That is, local authorities and the limits of judicial review. [2004] UKHL 30, [2004] 2 AC 557.
Housing Law: Past and Present 209 the rules on succession breached Article 14, and held that they should apply equally to homosexual couples living together as a family as to heterosexual couples. The political impact of this decision should not be overstated. Just as Woodward pre-Rent Act 1974,58 Williams pre-Housing (Homeless Persons) Act 1977,59 Bristol DC v Clark and Cannock Chase v Kelly preHousing Act 1980,60 and Bristol CC v Mousah pre-the Anti-social Behaviour Act 2003 amendments to the Housing Act 1985,61 so it was already clear that forthcoming legislation (in the form of the Civil Partnerships Act 2004) was to achieve the same effect.
The Article 8 Fandango The Article 8 cases started with Lambeth LBC v Howard,62 in which Sedley LJ said that every eviction was a prima facie breach of (or ‘engaged’) Article 8. He qualified the observation by saying that he was not addressing cases where the law afforded an absolute right to possession.63 As will be noted below, little attention was paid on this point until Qazi. It may be noted, too, that Lambeth did not contest the proposition that Article 8 applied. The possession order was against a secure tenant for harassing his singlemother neighbour, and it was confidently argued that Article 8 made no difference whatsoever to the overriding requirement of reasonableness. As the conduct had been serious, the outcome was not in serious doubt. The first big case was Poplar Housing & Regeneration Community Association Ltd v Donoghue.64 It saw a number of innovations: policy evidence introduced at the Court of Appeal; application of the Human Rights Act to RSLs in appropriate cases (particularly where there had been a stock transfer from a local authority); and, deference to the will of Parliament leading to defeat for the tenant. In the event, it was held that the county court (itself a public authority) had no option under the legislation but to order possession. After Poplar came R (on the application of McLellan) v Bracknell Forest BC, Reigate and Banstead BC v Benfield,65 on introductory tenancies, which raised Article 6 issues as well as Article 8. The Court of Appeal,
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[1974] 1 WLR 966 (CA). [1971] Ch 734 (CA). 60 Bristol DC v Clark [1975] 1 WLR 1443 (CA); and Cannock Chase DC v Kelly [1978] 1 WLR 1 (CA). 61 (1998) 30 HLR 32 (CA). 62 [2001] EWCA Civ 468; (2001) 33 HLR 58. 63 Ibid., [32]. 64 [2001] EWCA Civ 595, [2002] QB 48. 65 [2001] EWCA Civ 1510, [2002] QB 1129. 59
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affirming the decision of the High Court and following the planning case, R (Holding & Barnes plc, Alconbury Developments Ltd and Premier Leisure UK Ltd) v Secretary of State for the Environment, Transport and the Regions,66 and Manchester CC v Cochrane,67 held that the requirements of Article 6 were satisfied by a combination of internal review processes and judicial review (that is, ‘no change’). This approach was subsequently adopted in Begum (FC) v Tower Hamlets LBC in relation to homelessness decisions,68 although the assumption that these decisions constitute an adjudication of civil rights (a precondition to bringing a claim under Article 6) was doubted. As for Article 8, the authority’s argument, that there was no engagement with Article 8 in the eviction of a tenant in accordance with the terms (contractual and statutory) on which the tenancy had been granted, was given exceedingly short shrift.69 It had to wait until Qazi to achieve a (limited) measure of success, as is discussed below. There have been other cases. Michalak v Wandsworth LBC,70 (on Article 14) and Sheffield CC v Smart,71 (on Article 8) must be mentioned. In each case, the occupier was unsuccessful, and the dominance of domestic law was re-asserted by the route of deference. In relation to housing conditions, Lee v Leeds CC, Ratcliffe v Sandwell MBC put a sharp halt to a burgeoning movement in the county courts to use Article 8 to back up and extend the repair obligations under Section 11 of the Landlord and Tenant Act 1985.72 The Human Rights Act 1998 was successful, however, in Manchester CC v Romano and Samari (but in favour of the authority).73 The case raised the tension between eviction for anti-social behaviour and the prohibition on unjustified ‘detriment’ (relating to a person’s disability) under the Disability Discrimination Act 1995. Justification for any detriment, however, includes protection of the health and safety of others, including neighbours. The court construed the 1995 Act with the Article 8 rights of neighbours in mind. This in turn led to the World Health Organisation’s definition of health (‘a complete state of physical, mental and social well-being’)74 being applied to the ‘protection’ justification. This is a standard so easy to satisfy that it was already covered by the requirement of reasonableness. Thus, few if any cases where it would be reasonable to evict would not endanger the health of neighbours (as so defined). 66 67 68 69 70 71 72 73 74
[2001] UKHL 23, [2003] 2 AC 295. [1999] 1 WLR 809 (CA). [2003] UKHL 5, [2003] 2 AC 430. Ibid, [40]. [2002] EWCA Civ 271, [2003] 1 WLR 617. [2002] EWCA Civ 4; (2002) 33 HLR 34. [2002] EWCA Civ 6, [2002] 1 WLR 1488. [2004] EWCA Civ 834, [2005] 1 WLR 2775. Preamble to Constitution of the World Health Organisation 1952.
Housing Law: Past and Present 211 The Long and Winding Road Home In Qazi v Harrow LBC,75 the House of Lords was called on to decide whether possession proceedings against one of two (former) joint tenants (the other of whom [his wife] had served notice to quit, thereby terminating the joint tenancy as a whole)76 breached Article 8. By a 3–2 majority, it was held that Article 8 was ‘engaged’, because, notwithstanding the absence of any legal right to reside in the property, it was still the occupier’s ‘home’. That said, Article 8 was not breached because there was no lack of ‘respect’ in the procedure which deprived him of his house. Once the proprietary and contractual (and statutory) conditions entitling the landlord to recover possession were met, Article 8(2) was (at least ordinarily) met, and there was no need or room left for the court to consider questions of balance and proportionality. Although the decision was controversial, it was, however, applied in a number of subsequent cases,77 culminating (domestically) in Kay v Lambeth LBC.78 There, an attempt was made to argue that Article 8 was a ‘consideration’, the failure to take account of which by the authority could be challenged on Winder principles.79 This was unsuccessful. Between argument and judgment, however, the European Court of Human Rights issued its decision in Connors v United Kingdom,80 finding that the United Kingdom had breached Article 8 because of the want of security of tenure available to gypsies in local authority caravan sites. Although founded on the basis of the United Kingdom’s failure to discharge its positive obligation to facilitate the gypsy way of life, there was a superficial inconsistency with Qazi, in the sense that proprietary and contractual (and statutory) rights had not been definitive of Article 8 rights. When Kay was handed down, it concluded81 that Connors was particular to the position of gypsies.82 In Leeds CC v Price,83 however, a subsequent Court of Appeal concluded that Connors was not confined to gypsies, and was irreconcilable with Qazi. The Court of Appeal also said that although
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[2003] UKHL 43, [2004] 1 AC 983. Above, n 35. 77 Newham LBC v Kibata [2003] EWCA Civ 1785, [2004] HLR 28; and Bradney v Birmingham CC, Birmingham CC v McCann [2003] EWCA Civ 1783, [2004] HLR 27. 78 The appeal arising out of the decision in Kay v LB of Lambeth [2004] EWCA Civ 926; [2004] HLR 56 was heard by the House of Lords in December 2005. See [2006] UKHL 10, below Stop Press. 79 [1985] AC 461 (HL). 80 (2005) 40 EHRR 9. 81 Following written submissions. 82 [2004] EWCA Civ 926 [106]. 83 [2005] EWCA Civ 289, [2005] 1 WLR 1825. 76
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it was not bound by Kay (because there had not been full argument); it was, however, bound by Qazi. Accordingly, it held against the occupiers, but granted them leave to appeal to the House of Lords. At the time, a petition was pending in Kay. With the support of the authority, leave was granted by the Appeals Committee to ensure that the cases were all brought on together (and, in substance, that the doubt cast on Kay in Price did not lead to a resolution of the Kay appeal without its parties present). What better place to stop? At the time of writing, Kay is undetermined; by the time of publication, it will have been decided and the speeches made widely available, and probably already the subject of academic discourse. To guess the outcome would be unthinkable; the potential impact on housing law practice, anyone’s guess. On one view, the impact could be enormous, conferring a broad discretion on the county court which would override legislation and, therefore, Parliament’s view of what the housing market needs in order to be sustainable. Others suspect a more limited effect. In the meantime, the next chapter addresses the future of the practice of housing law as if Kay and Price will make no real difference.
Stop Press The prediction that the outcome in Kay would be of limited effect turned out to be correct: [2006] UKHL 10. An unusually large Committee of 7 Law Lords held unanimously that the appeals should be dismissed, though they were divided on their reasons. A majority (4) held that domestic law was definitive and that, therefore, a defence based on Article 8 should be struck out save (a) where it might be 'read down' to achieve compatibility between domestic law and the provisions of the European Convention on Human Rights and Fundamental Freedoms (Human Rights Act 1998, s 3(1)); or (b) where the compatibility of domestic law was under challenge, in which case the matter would have to be adjourned to the High Court. In any other case the defence should be struck out (see [110]). The minority (3) would additionally have allowed Article 8 to be raised as a defence where there was a 'highly exceptional' case that an eviction breached an occupier's human rights, according to such a tightly circumscribed standard of exceptionality that neither of the case before the Committee merited a hearing (see [29–39], [46–7]).
11 Housing Law: The Future ANDREW ARDEN AND MARTIN PARTINGTON
INTRODUCTION
T
HINKING ABOUT THE future of a subject is inevitably more speculative than analysis of the past and the present. This chapter proceeds on the assumption that many of the trends established over the last 40 years will, broadly, continue. The discussion is divided into three sections. The first considers how the substantive law of housing may develop.1 The second part looks at how the practice of housing law may develop, reflecting in particular on changes likely to occur in the provision of legal aid. The final part offers preliminary views on how broader changes to the ways in which regulation of the rented sector is conducted may impact on housing law.
REFORM OF THE SUBSTANTIVE LAW
One of the great achievements of the development of housing law as an area of legal practice and academic study has been that an extremely disparate set of laws has been brought together into some sort of coherence. There had long been rules of common law and statute law that related to housing, especially rented housing, but until housing law developed, there was no sense of how these fitted together. In addition, the very act of bringing together this disparate body of law starkly disclosed its complexity. It is not well suited to deal with the issues that commonly arise in the context of renting homes, not least because of its inaccessibility. The idea that housing law is hopelessly complex, and, for that reason alone, deserves to be reformed, is not new. In addition to early judicial comments,2 debates in the House of Lords on the Law Commissions Bill in 1 Much of this draws on the current program of work being undertaken by the Law Commission. The views expressed here are those of the authors themselves: they do not necessarily represent the collective views of the Commission. 2 In Parry v Harding [1925] 1 KB 111 (KBD) Lord Hewart CJ observed that in relation to the then existing Rent Acts (p 114): ‘It is deplorable that in dealing with such a matter as this, a Court, and still more a private individual … should have to make some sort of path through the labyrinth and jungle of these sections and schedules.’
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1965 singled out the Rent Acts as a topic ripe for reform. But the fact that at that time, as we noted in the preceding chapter, housing law was so politically contested, meant that it did not at that time fit into the kinds of topic with which it was appropriate for the Commission to engage. The process by which reform of housing law became a topic suitable for a Law Commission project is a subject that justifies more detailed analysis than is provided here. But four key factors influenced the decision of Government to ask the Commission to undertake the current programme to modernise and simplify the law on housing.3 First, Lord Woolf, in his Access to Justice reports, had observed that substantive housing law needed reform. He argued that whatever procedural changes might be made to civil procedure generally, they would not be enough to address the problems of access to justice that he saw arising in the housing context.4 In reaching this conclusion, he was heavily influenced by those practitioners who had been responsible for the development of housing law as a distinct area of practice.5 Second, powerful voices in the social housing sector were arguing for change. In particular, Marianne Hood wrote a report for the Chartered Institute of Housing on the need for a single social tenancy.6 Third, the then Housing Minister, Nick Raynsford, understood from his pre-ministerial days as Director of the SHAC, Tnt London Housing Advice Centre the desirability of reforming housing law. And, the Law Commission’s then Chairman, Sir Robert Carnwath, had a long-standing professional interest in the issue. Finally, the New Labour government, as also noted in the previous chapter, had agreed broadly to accept the disposition of rights and obligations as between landlords and tenants that had been introduced by the Thatcher/ Major governments. To a considerable extent, this took the political heat out of debates on housing law. It created a more politically stable context in which work by the Law Commission would be feasible.
THE LAW COMMISSION’S PROJECTS
The Law Commission’s housing law reform programme comprises three distinct (though inter-related) projects: the rented homes project; the housing disputes project; and the responsible renting project.
3
For details, see the section: ‘The Law Commission’s Projects’ below. Lord Woolf, Access to Justice: Final Report on the Civil Justice System in England and Wales (London, HMSO, 1996) ch 16. 5 In particular the Housing Law Practitioners’ Association. 6 M Hood, One for All—A Single Tenancy for Social Housing—(Coventry, Chartered Institute of Housing, 1999). 4
Housing Law: The Future 215 The rented homes project is at the most advanced stage, with the publication of the final Report and draft Bill in May 2006.7 It has two principal aims. The first is to create a new legal framework for the landlord–occupier relationship, that will promote better mutual understanding of the rights and obligations of both sides.8 The second aim is to provide a much more flexible legal context in which government policy can be delivered, particularly in relation to the provision of social rented housing. The Commission’s recommendations remove unnecessary barriers between local authorities and Registered Social Landlords (RSLs) (and could facilitate the involvement of private sector investment as well, should that be thought desirable). The housing disputes project is advancing steadily. It involves taking a broad look at how housing problems and disputes arise, and, using the principle of ‘proportionate dispute resolution’, asks what a more coherent scheme of housing dispute resolution might look like. An Issues Paper was published by the Law Commission in April 2006. The responsible renting project is, at the time of writing, less advanced. It explores ways in which good housing management practice can be promoted and other mechanisms devised for ensuring that parties to agreements stick to their agreements. It involves thinking about how law can be used positively to promote desirable outcomes, in contrast with its more usual function of creating sanctions for activity thought to be unacceptable. This project will draw on a significant body of academic research on ‘regulation’, and examine how principles of regulation developed and applied in many industrial and commercial contexts might be adapted to the residential rental sector. SUBSTANTIVE LAW REFORM
Rented Homes Given that nearly a third of the population of England and Wales rent their homes, a more straightforward structure for the regulation of the home rental sector will have considerable social, as well as legal, significance. This is not the place to set out a detailed account of the details of the Commission’s recommendations; the focus is on the key features.
Housing Status The Rented Homes project starts by revisiting the issue of housing status, which emerged over the last 30 years as the central concept of housing law. 7
Renting Homes: The Final Report (Cm 6781) (London, TSO, 2006). Use of the word ‘occupier’ as opposed to ‘tenant’ is deliberate as the scheme applies generally to occupation agreements, not just those that create a landlord-tenant relationship. 8
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At present, the status of occupiers of rented accommodation is determined by a complex interaction of principles of landlord and tenant law (in particular the factors that lead to the existence of a tenancy); principles of common law (dealing with contracts and licences); and, rules of statute law (which define which classes of tenants/licensees have what types of statutory protection). The Law Commission concluded that this framework was inappropriate for those who occupy in the rented sector.9 To replace the current structure, with its mixture of secure tenancies, assured and assured shorthold tenancies, introductory tenancies and so on, the Commission recommends that there should be just two types of occupation agreement relating to rented homes. The first is the ‘secure contract’ (initially called the ‘type 1 agreement’), modelled on the existing ‘secure tenancy’.10 It gives a high degree of statutory security of tenure to all occupiers within this class. The second is the ‘standard contract’ (initially called the ‘type 2 agreement’), modelled on the assured shorthold tenancy (AST).11 This provides limited statutory security of tenure, instead relying on the agreement itself to set out the mutual rights and obligations of the parties to the agreement, within a framework of contractual rights with a statutory underpinning. Although there are only two basic agreement types, the Commission’s recommendations provide for a number of variations to them (in particular to the ‘standard contract’), reflecting the different tasks the standard contract will be required to perform. Therefore, the standard contract may be created on both a periodic and fixed-term basis. This responds to the fact that many private landlords like to create fixed-term agreements, and many occupiers like the security that a fixed-term provides. The standard contract is also available in a ‘probationary’ form, for social landlords who want to use probationary agreements for those newcomers to renting. This will replace the currently extremely cumbersome arrangements for the creation of ‘introductory tenancies’, whereby local authorities who wish to use them have to do so on an all-or-nothing basis. The Commission’s recommendations enable probationary agreements to be granted to those for whom that is truly appropriate. It is also available in a ‘demoted’ form, where this is used for a person found to have engaged in sufficiently serious anti-social behaviour. The Secretary of State is given power to create further variations should they prove necessary. One feature of the Law Commission’s proposals, which distinguishes their recommendations from earlier reforms, is that existing tenancies will, in general, be mapped onto the new scheme. This is intended to stop the 9 10 11
The Commission’s recommendations do not affect the leasehold sector. Housing Act 1985 s 79 (these apply to local authority tenants). Housing Act 1988 Pt 1 Ch 2, as amended by the Housing Act 1996 Pt 3 Ch 2.
Housing Law: The Future 217 accretion of different forms of housing status which has occurred in the past, and which has done so much to add to the complexity of the legislation. The one exception to this is that the Law Commission does not recommend the automatic mapping of those remaining tenancies protected by the Rent Acts onto the new scheme (in response to fears expressed by that group of tenants that their position would be harmed). The Secretary of State is, however, given power to bring this group into the new scheme should this prove to be desirable. Related to their recommendations regarding agreement types, the focus of the Commission’s recommendations is not on whether the occupier has a legal estate in land (the traditional landlord and tenant law approach), but much more directly on the contract between the landlord and the occupier. This reflects the trend, noted earlier, for moving away from the use of concepts of landlord and tenant law as the basis for determining questions of housing status. The Commission felt particularly strongly that these concepts, while appropriate for commercial and long-term residential leases, were not appropriate for normal weekly or monthly residential lettings. The Commission’s recommendations, therefore, apply equally to leases and licences. The fundamental requirement is for a contract conferring the right to occupy premises as a home. Again, there are exceptions. For example, holiday lets fall outside the scheme. So too will arrangements where there is sharing with a resident landlord. Special arrangements are made for those living in supported (usually hostel) accommodation. Apart from these limited exceptions, however, all occupation contracts are covered by the scheme. Therefore, many of the existing statutory tests that add to the complexity of the law (for example, that the premises are occupied as the only or principal home, or that the rent is above or below a particular level) simply disappear. This shift in emphasis does not wholly displace the old law. For example, in determining third party rights (such as where a landlord sells his or her estate to another), the question of whether the original landlord granted tenancies or licences will still be a very live one. The answer to the question directly affects the extent of the liabilities and duties that the new landlord takes on. In the main, however, these legal distinctions will not need to be drawn in order to determine the status of the occupier as against his or her landlord.
The Consumer Protection Approach A second key feature of the Law Commission’s recommendations is its foundation in the consumer protection approach. The Commission built on the ideas that began to be discussed in the late 1980s of adopting a consumer protection approach to the regulation of the rented sector of the
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housing market. It was felt that landlords who provide housing services should be treated analogously to others in the service sector of the economy, for example, those who sell cars or holidays. Those who provide cars that do not work, or holidays that do not match the claims in the brochure are subject to legal sanction. There seemed no reason why landlords should not be subject to similar constraints, particularly given the lifting of restrictions on rent levels, and the ability of private landlords to secure market rents. In addition, it seemed sensible that occupation contracts should, as far as possible, be fair and transparent, reflecting the heart of consumer protection. By the time the Commission began its work, this was no longer just an academic idea. Following the development of principles relating to unfair terms in contracts that had been advanced by the European Commission and incorporated in a European Directive, the Unfair Terms in Consumer Contracts Regulations 1999 had been introduced into English law. These were clearly applicable to the classes of short-term tenancy agreement that is the focus of the Renting Homes project. The basic objective of the regulations is to ensure that terms in contracts (including residential contracts) are fair and transparent. While these principles do not apply to the core terms of the agreement, which includes the question of price, they are otherwise wide in their application. Examples of their impact on tenancy agreements is set out in guidance published by the Office of Fair Trading.12 The Commission has taken this approach further by recommending the adaptation of these principles so that they apply to all landlords and contract-holders, not just those falling within the technical definition of ‘supplier’ and ‘consumer’. On this basis, they apply to ‘hobby’ landlords, who may have only a small number of premises to let, as much as to professional landlords with large residential estates to manage. This is an important step in trying to ensure that all parties to occupation agreements have a better understanding of their mutual rights and obligations, and thereby in promoting the image particularly of the private rented sector (which is still regarded by some with extreme suspicion). A number of detailed consequences flow from the adoption of this approach. First, the Commission’s recommendations place great emphasis on the provision by the landlord to the occupier of a copy of the agreement. Whilst there are no formalities required to reach the agreement itself, once made, the agreement must be evidenced in writing. In order to facilitate this task, the Commission recommends that model agreements be prescribed by the Secretary of State (the Welsh Assembly Government in Wales).
12 Office of Fair Trading, Guidance on Unfair Terms in Tenancy Agreements, 2nd edn, (OFT356) (OFT, Hayes, Middlesex, 2005).
Housing Law: The Future 219 The model agreements will be readily available free or at low cost. They will be able to be completed simply by filling in a cover sheet setting out key matters such as the address of the premises; the name and address of the landlord/agent; and the rent. The cover sheet will also contain any other clauses relevant to the specific premises. Variations will (for most clauses) be possible, but some clauses will only be variable in favour of the contractholder. Any variation will need to be compliant with the Unfair Terms in Consumer Contracts Regulations 1999. The model agreements will, by definition, be compliant with these Regulations. This will remove one of the uncertainties that currently face many landlords. The Law Commission regards the written statement of the agreement as fundamental to the delivery of the consumer protection approach. The aim is to ensure that both landlords and contract-holders have as full a statement as practicable of their respective rights and obligations, without the necessity of going to other sources of information or advice. There will be non-criminal sanctions, should the landlord fail to provide a written statement of the agreement. A specific consequence of the consumer protection approach is that the Commission has taken the opportunity to introduce into the Rented Homes scheme the substance of proposals they made some years ago,13 that a dwelling, when let, should be fit for human habitation. The familiar statutory test has, under the Housing Act 2004, been replaced by new concepts of ‘category 1 (and other) hazards’. The Commission recommends that, when the agreement is entered into, the landlord must ensure that the accommodation meets the standards required to ensure there are no category 1 hazards. This is an important measure of consumer protection; but one that is fully justified given the freedom of private landlords to charge market rents (which should include an element for repair and maintenance). Another measure reflecting the consumer protection approach which is not directly contained in the Commission’s recommendations, but which will be considerably assisted by them, is that relating to the protection of tenancy deposits. Although the Government included new rules relating to these in the Housing Act 2004,14 their impact will be much enhanced if these rules are incorporated as terms of the occupation agreement. The Law Commission scheme will provide for this, and create a direct means for informing both landlords and occupiers about their rights and obligations in relation to the payment (and repayment) of tenancy deposits.
13 Law Commission, ‘Responsibility for State and Condition of Property’ (Law Com No 238, HC 236, 1996). 14 See also: ODPM, Tenancy Deposit Protection: Consultation on Secondary Legislation (London, ODPM, 2005). The report is available at http://www.odpm.gov.uk/pub/934/ TenancyDepositProtectionConsultationonSecondaryLegislationPDF441Kb_id1161934.pdf. (last accessed 10 April 2006).
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The effect of the proposed contracts will not, however, impact solely on landlords. The contract will equally set out the obligations on occupiers of rented accommodation and the consequences that result from failure to observe the terms of the contract. In particular, the contract will make quite clear that housing-related anti-social behaviour (including domestic violence) is not permitted, and will lead to adverse consequences for those who engage in it.
Landlord Neutrality A third feature of the Commission’s recommendations is that the two agreement types have been shaped without any reference to the identity of the landlord. Although the secure contract is modelled on the current secure tenancy, it is no longer inextricably linked to the local authority as landlord. Whilst the Law Commission claims its expertise is legal rather than policy, it is not unaware of the policy implications and potential of this recommendation. The landlord-neutral secure contract will provide significant opportunities to policy-makers for the delivery of social housing for rent, by enabling new forms of partnership between local authorities, RSLs, and private investors to become involved in the provision of social rented accommodation. The terms on which all secure contracts are made will be identical. This will eliminate one of the major difficulties in securing tenant consent to transfers. If more properties are transferred, it will have a considerable impact on housing standards, as resources for improvements are available to RSLs which are not available to local authorities. It will also enable those whose responsibility it is to allocate housing to those in social housing need to do so with greater flexibility. The fact that the terms of any letting agreement will be identical will encourage take-up of RSL accommodation as an alternative to the preference that many tenants still feel for local authority accommodation. Further, it does away with the currently complex means of discharge of homelessness duties delineated under Section 193 of the Housing Act 1996.15 A particular consequence of this approach is that, insofar as the current rights of RSL tenants are inferior to those of council tenants, they have to be ‘levelled up’ to those of secure tenants. There are two particular differences which are significant. First, the mandatory ground for possession, Ground 8, which entitles a landlord to obtain an order for possession wherever there are two months of arrears, will no longer be available to RSLs. This is an issue on which 15 As amended by the Homelessness Act 2002. See Griffiths v St Helens BC [2006] EWCA Civ 160.
Housing Law: The Future 221 there remains some RSL concern. The Commission took the view that the use of mandatory grounds was not appropriate in the context of the social rented sector, particularly where (as often happens) the ground of possession is not being used against a tenant who is wilfully in default, but against those who are the victim of the maladministration of housing benefit.16 Second, there are changes to the rules on succession which will have the effect of giving additional rights of succession to RSL tenants. The Commission is also (following the Housing (Scotland) Act 2001) proposing an extension of succession rights to unpaid carers who have given up their own homes to look after another. Again, this is a source of concern to some RSLs, who fear that the new rules will result in loss of control of accommodation required for more pressing social purposes. The Commission has responded to this fear by making clear that there should be a number of ‘estate management’ grounds for possession which will, if alternative accommodation can be provided and it is reasonable to do so, enable the RSL to regain possession of premises. It will also be possible for succession rights to become a ‘bargaining chip’. Accordingly, where the contract-holder wishes to add someone to the contract or wishes to exchange their accommodation, an RSL can give consent subject to the condition that the contract-holder gives up one of their rights to statutory succession. In addition, the creation of the secure contract which operates across the social rented sector will facilitate greater flexibility in the provision of alternative accommodation as different landlords will be able to provide the alternative accommodation on terms identical to those of the current agreement. As regards the standard contract, this is also defined without any reference to the identity of the landlord. It is anticipated that, as with the current AST, the standard contract will become the agreement of choice for the private rented sector. However, there will be circumstances in which social landlords will be able to use the standard contract, or variations to it. For example, RSLs will be able to use the standard contract for letting to key workers in more commercial near-market schemes, an important part of the portfolio of many RSL landlords. Those who provide supported accommodation to the most socially excluded and vulnerable will be able to use the standard contract as part of a staged programme to bring the most vulnerable into secure housing. As noted earlier, local authorities will be able to use standard contracts for probationary periods, or following a demotion order from the court. It would be possible, if government wished,
16 Also see: North British Housing Association Ltd v Matthews [2004] EWCA Civ 1736, [2005] 1 WLR 3133.
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for local authorities to be given power to grant standard contracts, for example, to expand their portfolios of letting types. This might facilitate additional provision for key workers, or those seeking a way into the home ownership sector through the use of equity-sharing arrangements. Although the notice-only ground for possession will be available,17 where landlords are public authorities, any decision to evict on the notice-only ground will still be subject to the possibility of proceedings by way of judicial review (but to be available in the county court). Standard contracts will also be able to be ‘enhanced’ to give greater (contractual) security to occupiers. For instance, in areas where private landlords have bought up significant numbers of properties for rent, local authorities could agree to provide the landlords with occupiers (who will have been checked and approved by the local authority), but only if the landlord lets for a period of, say, three years, or until children have left school. This will enhance the security of socially disadvantaged families, but through use of the contract rather than by the far less flexible means of blanket statutory security provisions.
The Powers of the Courts The powers of the courts to order possession remain largely unchanged. However, in response to widespread criticism received by the Commission during the consultation stage about the inconsistency and unpredictability of judicial decision-making in possession cases, the Commission recommends that there should be statutory provisions to structure the discretion judges exercise when deciding whether or not to order possession. The aim of this recommendation is to ensure that judges take into account all those with an interest in the outcome, not just the occupier, but also the landlord and, where relevant, other neighbours. This continues the trend noted in the previous chapter, where the Court of Appeal began to lay down criteria for the exercise of judicial discretion in anti-social behaviour cases.18 The other notable change recommended by the Law Commission relates to the impact of suspended possession orders. The present law provides that, if there is any breach of the terms on which a suspended possession order is made, it has the effect of bringing the tenancy agreement to an end.19 Many landlords do not, in fact, seek to enforce their right to possession at that stage, but allow the tenant to continue in occupation, usually 17 The ground which provides that proceedings for possession can be brought simply by the landlord giving the occupier two months’ notice that he/she intends to seek possession from the court without proof of any default on the part of the occupier. 18 See: Housing Act 1980 s 85A, added by s 16 of the Anti-social Behaviour Act 2003. 19 Thompson v Elmbridge BC [1987] 1 WLR 1425. See also Hall v Harlow DC [2006] EWCA Civ 156.
Housing Law: The Future 223 on additional terms. To deal with the status of the former tenant in these circumstances, the courts created the legally contradictory concept of the ‘tolerated trespasser’. Although understandable from a pragmatic point of view, the concept has come under severe criticism.20 The Law Commission makes specific recommendations that remove the need for retaining the tolerated trespasser by providing that where a suspended possession order is made, the occupation agreement should remain in existence until either the landlord obtains possession, or until the landlord grants a new agreement to the occupier. A time limit is imposed so that if the landlord fails to act, a new agreement is deemed to come into existence.
Other Matters There are many other detailed issues included in the package of recommendations made by the Commission, not considered here. They relate, for example, to the ability of occupiers to allow others to be joined to the contract; the right of contract holders to take in lodgers and the effect of so doing on the landlord; the circumstances in which occupiers may ask to exchange their accommodation for another; and, the rights of occupiers to undertake repairs. These largely reflect rules found in the current regulatory schemes which have been taken into the new scheme. Many of these provisions are complex, though appear to be little used in practice. Government may wish to consider whether all these detailed provisions are still required. The Commission did not think it was within its terms of reference to recommend changes to them. It certainly did not consult on the issues. One important change should, however, be noted. The present position whereby a joint tenancy may be brought to an end simply by one of the joint tenants issuing a notice to quit,21 though often leading to sensible outcomes,22 may not always operate fairly. The Law Commission, therefore, proposes that notice to terminate an agreement issued by one joint occupier should only terminate the interest of that joint occupier. Landlords who want to remove an occupier who has engaged in domestic violence, or indeed any other seriously anti-social behaviour, will be able to do so by taking possession proceedings in the normal way. The structuring of judicial discretion, mentioned above, is intended to ensure that in most cases the landlord will be able to obtain the possession order required.
20 See: S Bright, ‘The Concept of the Tolerated Trespasser: An Analysis’ (2003) 119 LQR 495. See also: A Arden, ‘Two Riddles, Two Wrongs and an Ass’ [2002] Journal of Housing Law 19. 21 Discussed in ch 10. 22 Particularly in cases where a joint tenant has been driven from her home by domestic violence.
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Comment The main achievement of the ‘housing law movement’ was to bring together the vast body of legal rules relating to rented housing. Indirectly, this process also revealed how hard it is in practice for most landlords and tenants to access and understand that law. Most do not have ready access to the legal or other specialist advisers who might have the requisite knowledge. The law regulating international business enterprise may need to be complex; but those who engage in such activity do so with the guidance of expert legal advice. Even those who buy long leasehold interests in residential property will usually take legal advice to ensure that, in making a substantial capital investment, they are not falling into any kind of legal trap. These considerations do not apply in the rented sector of the housing market, particularly the private rented sector. There is, therefore, a twin challenge: to make the law simpler; and, to find a means to ensure that those who rent (on both sides of the relationship) have a clearer understanding of their mutual rights and obligations. The Commission’s project seeks to deliver on both these objectives. All those who call for reform of the law ask for the law to be made simple. Those who have to recommend reform of the law quickly realise that a simplistic approach to simplification is not necessarily the most sensible basis for law reform proposals. Law needs to reflect the complexity of the various ways in which people lead their lives, not attempt to impose legal straitjackets that will not work in practice. Therefore, the Rented Homes Bill that accompanies the Commission’s final report has a lot of detail in it. Nonetheless, it simplifies the statute book by recommending the repeal of much existing legislation, and replacing it with a single code of housing status and related rights. In addition, through the creation of the model agreements (which run to around 24 pages), a relatively straightforward statement of rights and obligations is made available to both landlords and tenants. The Commission is aware that, however much Parliament legislates on issues that affect the public, the public’s awareness of that protective legislation is often extremely limited. Current strategies, for example, offering consumer protection by implying certain protective terms into contracts, do not work unless those affected know what those statutory provisions imply. In the housing context, protective rules on, for example, rent levels; security of tenure; repair and other matters often go by default because too many people do not know about them. The Commission’s recommendations offer a mechanism for ensuring that all landlords and occupiers get an agreement which contains a statement of legal rights and obligations which is underpinned by statute. This will be a significant improvement on the present position, where tenancy agreements are often wholly at variance with the strict legal position.
Housing Law: The Future 225 Further, where the government wants to change the rules (as for example it is proposing to do on the definition of overcrowding23 or energy efficiency24), the Commission’s scheme provides a direct line of communication to those affected, through a model agreement which can be swiftly amended to reflect changes in substantive law. It meets all the objectives of the government’s focus on ‘better regulation’. In addition, as discussed above, the principle of landlord neutrality offers a completely new legislative flexibility within which housing policy (and its accompanying legislation) can be accommodated. There are, of course, other areas of housing law apart from those addressed by the Law Commission. If enacted, however, the Rented Homes Bill will go a long way to creating a code of law on rented housing, the need for which has become increasingly apparent over the last 40 years.
THE PRACTICE OF HOUSING LAW
If the recommendations of the Law Commission are put into effect, they will clearly change the substance of housing law. But, the future of the practice of housing law is also subject to potentially profound change. In part, this will derive from the second of the Law Commission’s housing projects, on dispute resolution; in part from developments in the funding of legal aid being advanced by the Legal Services Commission.
Housing Dispute Resolution The Law Commission’s dispute resolution project grew out of its renting homes project. The Commission had always anticipated that one issue it would need to revisit after it had completed the rented homes project would be the law on unlawful eviction and harassment. Indeed, this was one element in the original terms of reference for the Commission’s work. However, it also recognised that it would be a very narrow project. During the consultation phase on renting homes, the Commission heard many complaints about the way in which the courts operated. Adverse comparisons were made with other common law jurisdictions, particularly Australia, New Zealand, and Canada, where tribunals, rather than courts, had acquired specialist jurisdiction to deal with landlord/tenant disputes. The Commission, therefore, recommended in its November 2003 report that it should not confine itself to the narrow issue of unlawful eviction and harassment, but should undertake a broader project to consider current 23 24
Housing Act 2004 s 216. Ibid., s 217.
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arrangements for resolving housing disputes and whether they should be reformed.25 The recommended focus was on whether there should be a specialist housing court or tribunal. In discussion with officials in the Department for Constitutional Affairs (DCA), it became clear that they regarded even this as too narrow a project. They were developing a new strategy for the delivery of dispute resolution services, focussing on what the consumers of those services required, not what judges or the lawyers who practised in the courts were accustomed to deliver. The breadth of this new vision started to emerge into the public domain, with, first, the White Paper on the future of administrative justice26; more recently with the DCA’s five-year strategy document.27 Central to both is the concept of ‘proportionate dispute resolution’. They saw a project on the resolution of housing disputes as an opportunity to realise, in a practical context, their vision of a ‘holistic’ approach to problem-solving, and ‘proportionate’ ways of resolving disputes. The Commission started work on this part of its programme with a seminar, held in September 2004.28 Since then, the Public Law Team has been studying the research literature on problem-solving and dispute-resolution; it has been learning from experience abroad; and it has been sharing preliminary ideas with a variety of stakeholders, including the Association of District Judges, the Residential Property Tribunal Service, the Independent Housing Ombudsman and Local Government Ombudsmen, the Housing Law Practitioners’ Association, Citizens’ Advice, and bodies representing landlords and tenants. It has also been guided by a specialist practitioner group representing a variety of advice givers. An Issues Paper was published in April 2006. At the heart of the Commission’s approach are three key propositions which derive from the research literature.29 First is that there is a variety of ways in which problems may be solved and disputes resolved. Use of courts is one, but only one, of these ways. Courts (or a court-equivalent body such as a tribunal) may be needed in some contexts, in particular where unequivocal legal rights are in dispute, or where a coercive order is required, such
25
Law Commission, ‘Renting Homes’ (Law Com No 284, Cm 6018, 2003). Secretary of State for Constitutional Affairs and Lord Chancellor, ‘Transforming Public Services?Complaints, Redress and Tribunals’ (Cm 6243, 2004). The report is available at http://www.dca.gov.uk/pubs/adminjust/transformfull.pdf. (last accessed 10 April 2006). 27 DCA, ‘Delivering Justice, Rights and Democracy: DCA Strategy 2004–2009’ http://www.dca.gov.uk/dept/strategy, accessed 25 January 2006. 28 Law Commission, ‘Resolving Housing Disputes (Report of a Seminar held on 9 September 2004)’ http://www.lawcom.gov.uk/docs/report_from090904.pdf (last accessed 25 January 2006). 29 An analysis of the socio-legal literature on which it has relied is published in a separate document available on the Law Commission website at http://www.lawcom.gov.uk/docs/ further_analysis.pdf (last accessed 11 April 2006). 26
Housing Law: The Future 227 as a possession order or an injunction. Many housing problems and disputes do not, however, require this. Nor, indeed, should it be assumed that use of a court is always the best way of sorting the matter out. The remedies available from courts are limited to those which they have power to give. These may not always be what parties with a problem or dispute require. Second, the way in which people with problems or disputes set about doing something about them depends crucially on the person with whom they discuss the matter. Some advisers will have a natural tendency to think about certain ways that might be appropriate, but not consider other options. For example, lawyers will naturally ask whether the matter presented to them is something that can be shaped into an issue with which a court can deal; if it cannot, they may advise that nothing can be done. Others may consider different alternatives, such as the use of internal complaints procedures, or referral of an issue to an Ombudsman. There is at present a lack of structure about the ways in which such initial advice is shaped and provided. The Commission has also been strongly influenced by a key element in the DCA strategy that, where possible, problems should be prevented from arising in the first place. Therefore, the Commission is exploring ways in which different actors may be enabled, or even required, to learn from each other so that, for example, decision-taking procedures can be amended to prevent problems arising. The obvious example (and one which, given its history, is easier to state than to resolve) relates to the administration of housing benefit. Failures result in cash-flow problems for landlords, and proceedings against tenants for notional rent arrears without any fault on their part. This wastes resources and causes wholly unjustified stress. The proposed new possession protocol is an attempt to take those cases out of the system that should not come into it.30 There is, however, a potential problem with this approach. Under the present law, RSLs have a legal right to obtain a mandatory order for possession whenever there are two months’ arrears of rent,31 irrespective of the reasons why the arrears have arisen. The effect of the protocol could be to deny RSLs their ability to assert that right in court. It appears odd for a procedural innovation to seek to deny a right conferred by statute, however unfairly that right operates in practice. The third element in the Commission’s thinking relates to values. Dispute resolution procedures involve values, for example, that they should be fair, or speedy, or reasonably priced, or deliver accurate outcomes. These values are rarely articulated. More importantly, the conflicts between them are 30 For further information, see the Civil Justice Council website at http://www.civiljustice council.gov.uk/911.htm. (last accessed 10 April 2006). 31 See: Housing Act 1988 Sch 2 ground 8.
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rarely set out. A proportionate system of dispute resolution needs clarity on its underlying values, so that the choices that need to be made (for example, between the time taken to reach a decision and its accuracy) can be made rationally, rather than instinctively. The Commission recognises that many of the components of a proportionate system of problem-solving and dispute-resolution in the housing area are already in place. Citizens’ Advice Bureaux and other advice agencies already undertake much of the diagnostic work that needs to be done, though they are less attuned to feeding the implications of that work back to those who may be causing the problems that have arisen. There are also areas where mediation of disputes has become common place. The treatment of housing disrepair disputes dealt with in Birmingham County Court may be cited as an example where complaints against the local authority are now more or less routinely dealt with through alternative dispute resolution. The Independent Housing Ombudsman has developed a good track record in the RSL sector for dealing with problems that arise, at proportionate cost. He also takes up issues with landlords where he thinks changes of practice or procedure would be helpful. Large social landlords increasingly offer complaints-handling services which reduce the need for other forms of action, and from which the landlords themselves can learn. Any reformed system will be evolutionary rather than revolutionary. What is lacking at present is a coherent approach to the delivery of the range of problem-solving and dispute-resolution services that currently exists. If the preliminary ideas suggested by the Law Commission are supported following consultation, this is likely to lead to changes in the ways in which housing law is practised.
2. The Legal Services Commission—‘Making Legal Rights a Reality’ In this context, the Law Commission is not the only agency currently interested in reform. In particular, the Legal Services Commission is also engaged in a fundamental review of legal aid and devising a new strategy for the delivery of legal services in the context of civil disputes.32 It has made it clear that present patterns of funding legal aid, with the primary emphasis on litigation in court, cannot be sustained. It too is considering ways in which greater support can be given to those with problems to deal with them themselves. Other strategies for asserting rights will be developed.
32 See: Legal Services Commission, ‘Making Legal Rights a Reality, the Legal Services Commission’s Strategy for the Community Legal Service’, 2006–2011 (London, 2006).
Housing Law: The Future 229 Any reform of the Community Legal Service will inevitably affect the basis on which housing law is practised. Equality at law requires legal aid lawyers to be as good as the best of the private sector, because the client lacks any effective ability to shop around. Legal aid lawyers are, however, barely accountable to anyone in their conduct of litigation. The client is very rarely in a position to hold them to account; to know whether a good job is being done; or, to compare with others. At most, practitioners are accountable to the public funding authorities. There is a tension here; one that can never be wholly resolved. One can call for more self-control by publicly funded housing lawyers. Yet, the job of the housing lawyer representing tenants is aggressively to defend the home (including to advance living conditions within it).33 At its most basic, every added day in a home is a success. Use of law can add many such days, even if ultimately eviction is inevitable. A similar point can be made about housing conditions. Every uplift is a benefit, even if to achieve a small advantage in an individual case calls for the array of an army of arguments, superficially more suited to greater and more substantive gains. Again, to quash an adverse homelessness decision, even though reconsideration will (near) certainly lead to the same end is still an advance.34 In any of these cases, the cost is, on its face, fully justified in the eyes of the occupier, but disproportionate in the eyes of both the landlord/authority and the government which must pay for the defending lawyer. It is very difficult indeed to distinguish between poor quality lawyering which leads repeatedly to cases being lost (adding to the legal aid bill, adding to the pressure to make cuts) and an imaginative, creative approach representing a proper use of public funds. That makes housing law as an area of practice especially vulnerable to the pressure on public funds. The importance of the investment that the Legal Services Commission, and its predecessors, has made in housing law cannot be overstated. It has undoubtedly contributed to the development of the subject as a distinct area of practice: it would not otherwise have been possible. There are other examples of such investment also leading to the development of important areas of practice: two of these are family and immigration. There are, however, areas of law where the lack of investment means that the importance of the subject has not achieved the same profile: these include social security, community care, and law relating to the treatment of the elderly. 33 See: A Arden, ‘A Time To Change’ [2004] Journal of Housing Law 81, 83: ‘It is a very difficult issue. Every client is entitled to a defence or to the advancement of housing rights. Sometimes that leads one to take points that are at the edges of accepted law. It is unquestionably proper. To fail to do so can be unprofessional or even negligent; to fail to consider doing so is to fail the client.’ 34 This was effectively acknowledged in Begum (Rikha) v Tower Hamlets LBC [2005] EWCA Civ 340, [2005] 1 WLR 2103.
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There is a risk that the achievements of the last 40 years in the creation of a specialist housing law practice35 will be put at risk by the withdrawal of public funding for housing disputes.36 The argument for funding some part of the delivery of housing advice and assistance through less costly, more proportionate, means is plainly right and in any event in practice irresistible. It is also important, however, to ensure that such mechanisms neither divert those cases which need the closer scrutiny, and forensic facilities, of litigation from being able to access it. Nor should their use deprive the practice of housing law of so much work that there is no one left to practice it, whether because existing practitioners are driven out or there is nothing left with which to attract new entrants and allow them to gain the experience essential to operate at the highest levels. Those who practice as housing lawyers face an enormous challenge. To defend the present position without concession is likely to be interpreted as protectionism and will not in the end be successful. To fail to engage with those developing proposals for change will represent a missed opportunity that might well hasten the demise of housing law. Practitioners need to ensure that, while accepting the realities of the funding crisis facing the Legal Services Commission, they offer their own ideas about how the future practice of housing law should be shaped to accommodate the interests and values which have been discussed. They may otherwise find that the world is shaped for them, in ways that will not only affect themselves, but also the interests of the clients they have set out to serve.
PROMOTING BEST PRACTICE
The third issue to be considered here, and the third component of the Law Commission’s work, relates to the mechanisms needed to encourage parties to occupation agreements to adhere to the terms of their contracts. Many respondents to the Law Commission’s initial consultation paper wondered how the rhetoric of the consumer protection approach should be realised in practice. Those consulted asked how it could be expected that landlords and contract-holders would adhere to the terms of their agreements. It often did not happen now: why should it in the future? This project, which is still in its early stages, will consider the role of law, not just to provide sanctions when things go wrong, but also in helping to create positive incentives to engage in good and sensible practice.
35 A development that seems not to have occurred to any significant extent in other countries with less generous legal aid schemes. 36 A Arden, ‘A Time To Change’ (n 32); and, A Arden, ‘Housing Law vs Mediation— A Suitable Case For ADR—’ [2005] Journal of Housing Law 45.
Housing Law: The Future 231 It is often suggested that economics is a more powerful discipline for providing positive incentives than law. While financial incentives may be particularly effective, they often need legislation to give effect to them. For example, if Government wanted to use housing benefit to promote good landlord behaviour, such as by providing that landlords who had undertaken an accreditation course would receive preferential treatment in the provision of housing benefit, or would be passported through any statutory licensing requirements, legislative change would be necessary. In undertaking this work, the Commission will be drawing on a large literature on law and regulation which has previously developed principally in the context of substantial corporate activity. It will be exploring the extent to which lessons from that research can be adapted to the very different organisational framework of the rented sector, where the private sector is particularly fragmented and lacking in cohesion. The Commission wants to build on initiatives that are already operating in practice. These include: local authority landlord accreditation schemes (which reward landlords who demonstrate a commitment to accepting and abiding by defined standards of behaviour); tenant accreditation schemes (which may offer tangible rewards to those, for example, paying their rent promptly and regularly); landlord association schemes (designed to promote good landlord practice); and, agency schemes (designed to promote good practice amongst letting agents). The Law Commission will be studying the impact of bodies such as the Audit Commission on landlord behaviour, especially in the social rented sector. It will also consider the effect of policies such as those relating to Beacon Councils.37 The Commission will explore the extent to which there may be a need for the development of a national (legislative) framework for such initiatives, or whether they are best left to local initiative. There will be clear links between these issues and the new landlord licensing schemes which are arising out of the passing of the Housing Act 2004. The precise impact of any of these ideas on the practice of housing law is, at present, unclear. However, the proposals that eventually emerge from the Commission may be another facet of the changing face of housing law and practice that will develop in the years ahead.
CONCLUSION
As an area of substantive law, there will continue to be a significant body of law, irrespective of whether the recommendations of the Law 37 See: DETR, ‘Modern Local Government: In Touch With The People’ (Cm 4014, 1998); and DETR, ‘The Beacon Council Scheme Prospectus’ (London, DETR, 1999). Beacon Council status remains an administrative provision, co-ordinated by the Local Government Improvement and Development Agency (IDeA), designed to disseminate information about best local authority practices.
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Commission are implemented or not. The pioneering work of the 1980s and 1990s has clearly established the basis for a more comprehensive code of rights and obligations. It is hoped that this will be the final outcome of the Law Commission’s projects. It is hard to imagine that, reformed or not, housing will disappear as a significant body of law, though the detail may change significantly. As an area of practice, it will continue. However, there is every likelihood that it will not retain its current shape. It is important for those currently practising in the area to think imaginatively about the nature and scope of their practice. It is especially important that there is continuing investment in the provision of legal services in housing law so that, as those who started practice some years ago retire, they are replaced by a new cadre of lawyers willing to undertake work in this area. This may be the critical challenge. The following developments may be anticipated: — It will be easier for (lay) advice services to offer landlords and contract-holders basic advice on rights and obligations. They will get more funding to do so. They will need legal support but there may be reduced demands for lawyers to be engaged in front-line advice services. — There will be greater use of IT (both phone and internet) to deliver advice. — There will be more use of IT in court/tribunal processes; for example, the new ‘possession on-line’ service currently being developed by DCA. — There must be additional resources for public education on housing rights and obligations. This is something that has been much discussed, and is an issue that is now rising up the policy agenda. — Trends to reduce litigation and find other appropriate alternatives for resolving disputes will be maintained. — Services provided by lawyers will concentrate on the more complex issues. — New government economic initiatives may offer new investment opportunities in which lawyers would be heavily involved. — Better integration of courts/tribunals with other dispute resolvers.
12 Recent Developments in Australian Residential Tenancies Laws MARCIA NEAVE*
INTRODUCTION
T
HE BRIEF FOR this chapter is to provide an overview of recent trends in Australian landlord and tenant law. This is a challenging task, both because there are significant variations between the landlord and tenant laws which apply in different states and territories, and because different legislation governs various types of tenancies. Australian law has evolved from a stage when all landlord and tenant relationships were regulated by the common law (with only minor statutory modifications), to a situation where there are now distinct statutory regimes covering retail tenancies,1 residential tenancies, and various types of Crown leases.2 This chapter focuses on residential tenancy legislation, which was introduced in most states in the 1980s and 1990s.3 This focus is timely, as it allows comparison between Australian laws and the proposals for housing law reforms made by the Law Commission of England and Wales. The Law Commission’s 2003 report ‘Renting Homes’ deals with issues which are
* I gratefully acknowledge the assistance provided to me in the preparation of this paper by Dr Maryann Wulff, AHURI Monash University, Natasha Stojanovich, an intern, and Daniel Evans, a Research and Policy Officer at the Victorian Law Reform Commission. 1 Retail Leases Act 1994 (NSW); Retail Leases Act 2003 (Vic); Retail Shop Leases Act 1994 (Qld); Retail and Commercial Leases Act 1995 (SA); Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA); Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas); Leases (Commercial and Retail) Act 2001 (ACT); and, Business Tenancies (Fair Dealings) Act 2003 (NT). 2 For an overview, see: AJ Bradbrook, SV MacCallum and AP Moore, Australian Real Property Law, 3rd edn, (Sydney, Lawbook, 2002) ch 6. 3 Residential Tenancies Act 1987 (NSW); Residential Tenancies Act 1980 (Vic) (now Residential Tenancies Act 1997); Residential Tenancies Act 1994 (Qld); Residential Tenancies Act 1978 (SA) (now Residential Tenancies Act 1995); Residential Tenancies Act 1987 (WA); Residential Tenancy Act 1997 (Tas); Residential Tenancies Act 1997 (ACT); and Residential Tenancies Act 1999 (NT).
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central to residential tenancy law, including how to achieve a fair balance between the rights and obligations of landlords and tenants; the grounds on which landlords can recover possession; the extent to which tenants are guaranteed security of tenure and the relevance, if any, of human rights principles in the context of housing.4 This chapter explains the background to the introduction of residential tenancy laws in Australia, and describes the way they address the central concerns of landlords and tenants. An overview of this kind exposes both the strengths and weaknesses of the Australian federal system. On the one hand, the federal system allows states and territories to respond to the local political climate, and to experiment with a variety of legislative approaches to typical problems which arise in the context of residential tenancies. On the other hand, the lack of uniformity it creates means that tenants (and other categories of occupants) receive different levels of protection in the various states and territories. The chapter identifies positive features and deficiencies in the various state laws, drawing on examples from different jurisdictions. It makes particular reference to the Victorian Residential Tenancies Act 1997, which in certain respects provides the highest level of protection to tenants and other categories of occupants.
RESIDENTIAL TENANCY LAWS—THE HISTORICAL AND SOCIAL CONTEXT
As other chapters in this volume illustrate, laws which regulate landlord and tenant relationships reflect the social and political context in which they are enacted. Legislation limiting rent increases and giving residential tenants some security of tenure was introduced by the Australian federal government during the Second World War,5 and continued by the states when the Commonwealth repealed its legislation in 1948. Apart from this rent control legislation, however, it was not until the late 20th century that residential tenancy law in Australia ceased to be governed by the same common law rules that applied to other types of leases. Two reports published as part of a Federal Commission of Inquiry into Poverty provided the impetus for the introduction of statutory regimes for residential tenancies. Bradbrook’s research report on ‘Poverty and the
4
Law Commission, ‘Renting Homes’ (Law Com No 284, Cm 6018, 2003) [2.11]. National Security Act 1939 (Cth); and National Security (Landlord and Tenant) Regulations 1941 (Cth). The provisions generally applied to premises which were let between specified dates. The provisions remain in force in Victoria and NSW, but now apply only to a tiny number of protected tenants. The English history of rent control laws is similar. 5
Recent Developments in Australian Residential Tenancies Laws 235 Residential Landlord and Tenant Relationship’ argued that landlord and tenant laws reflected ancient principles designed for agricultural tenancies, and explained how these principles produced unjust outcomes when applied to residential leases.6 The Report ‘Law and Poverty in Australia’, written by Professor Ronald Sackville in the dying days of the Whitlam Labor Government, examined a range of laws which reinforced financial and social deprivation.7 Sackville argued that land law principles required reform because they contributed to the social disadvantage of poor tenants: Housing is a basic human need. In our society all people need to obtain, and to be reasonably secure in, housing of an acceptable social standard. It is a crucial government responsibility to see that poverty does not prevent people from meeting that need.8
The recommendations of the Sackville Report led to the introduction of residential tenancy legislation by a South Australian Labour Government in 1978.9 A Victorian Liberal (conservative) Government followed suit in 1980.10 All States and Territories have now enacted residential tenancies legislation.11 Residential tenancy laws were initially opposed by landlord and real estate agent organisations, but their existence is now generally accepted. However, lobbying about the precise content of the legislation, and differences in the political climate in particular states and territories, has contributed to a lack of uniformity in the regimes in force in different parts of Australia. Tenants’ unions and landlords associations’ continue to disagree about whether particular legislative provisions achieve a ‘fair balance’ between the respective rights of landlords and tenants. The former argue that the law should give tenants greater security of tenure and more effective remedies against landlords who behave unfairly, while the latter often suggest the law gives them insufficient protection against tenants who flagrantly breach their obligations.12 Political debate around the introduction and amendment of the legislation has usually focused on whether the reforms achieve
6 AJ Bradbrook, Poverty and the Residential Landlord-tenant Relationship (Canberra, AGPS, 1975). 7 R Sackville, Law and Poverty in Australia: Second Main Report (Canberra, AGPS, 1975) 1–3. 8 Ibid, p 57. 9 RTA 1978 (SA) (now RTA 1995 (SA)). 10 RTA 1980 (Vic) (now RTA 1997 (Vic)). 11 In addition to the Acts cited in (n 9) and (n 10), see: RTA 1987 (NSW); RTA 1994 (Qld); RTA 1987 (WA); RTA 1997 (Tas); RTA 1997 (ACT); and, RTA 1999 (NT). 12 AJ Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (1998) 20 Syd L Rev 402, 405. See also J Tooher, ‘Recent Developments in Residential Tenancy Law in Victoria: The Residential Tenancies Act 1997 (Vic)’ (2000) Aust Bus L Rev 150.
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a ‘fair balance’13 between the rights of landlords and tenants, and legal writing on landlord and tenant law often ignores the broader human rights implications of housing issues. The reforms proposed in the Sackville Report were expressly designed to address the housing needs of the poor. Even in Victoria and South Australia, where tenants receive the highest level of protection, this goal has only been partially realised. In general, the legislation provides only limited security of tenure. No state gives tenants any right to purchase the freehold title of premises if the landlord wishes to offer it for sale. Though journal articles may draw attention to the problems experienced by tenants, legal literature rarely links this with a discussion of homelessness, housing availability, and the social effects of eviction.14 Legal aid is not usually available to tenants who have a dispute with their landlord and, unlike the situation in England, ‘housing law’ is not recognised as a distinct body of legal practice or academic discipline in Australia. There is no legislation which imposes obligations on public authorities to house homeless people.15 Emphasis on ‘balancing’ landlords and tenants’ rights helps to conceal public policy issues about ensuring secure rental housing for low income tenants. This difference in approach to residential tenancies in England and Australia is attributable to historical differences in the Australian and English housing market, and perhaps also, to the lack of a legal framework for human rights within which such issues can be discussed in Australia. Until recently, there were significant differences between the context in which residential tenancies laws operate in England and Australia. In the latter half of the 20th century, most Australians occupied homes they owned or had purchased subject to a mortgage. State and Federal government housing policies helped families on modest incomes to acquire property subject to a mortgage, and pay it off over the ‘breadwinner’s’ working life. As a result, private renting was seen as a transitional stage in the progression towards home ownership for the majority of the Australian population.16
13 For example, see: Second Reading Speech of Residential Tenancies (Amendment) Act 2002 (Vic) by Ms Bronwyn Pike (Minister for Housing) (Hansard, Legislative Assembly, 14 May 2002) 1398. 14 For an example of an article which does discuss these issues, see: Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12). 15 Under the Housing Act 1996 (UK), a local housing authority is required to provide temporary accommodation in certain circumstances. 16 M Wulff, ‘Rent Assistance Recipients and the Private Rental Market: Who Are They and How Do They Fare?’ (2003) 7 Flinders J of L Ref 75.
Recent Developments in Australian Residential Tenancies Laws 237 State and Federal governments funded some public housing, but the social housing rental sector has always been much smaller than the private rental sector in Australia. Around 30 per cent of households live in rented properties, but only 4.9 per cent of renters have a state housing authority as a landlord.17 In Australia, there are relatively few large institutional landlords in the private rental market. Income tax law allows residential property investors to ‘negatively gear’ by setting off interest on the loan used to buy the property against rental income. Historically, many wages and salary earners have been able to invest in a rental property. Wulff comments that: the most unusual feature, by international standards, is the dominance of individual landlords, most of whom own only one or two properties. About three-fifths of properties are rented out by individual landlords and others by small, familybased partnerships or small companies. Australian landlords generally use rental properties to supplement their income, rather than provide their main source of income.18
Research into the private rental market suggests that this group of landlords ‘do not respond in a classic economic way to the laws of supply and demand’.19 The dominance of small landlords may make it difficult to ensure compliance with requirements imposed by residential tenancy legislation. In most states of Australia, residential tenancies legislation applies to both private and social landlord/tenant relationships.20 Within the particular state or territory, the rights and obligations of landlords and tenants are clearly set out in a single piece of legislation. This can be contrasted with the situation in England, where a number of different regimes regulate different sectors of the rental housing market21 and the rights and obligations of landlords and tenants vary according to whether the landlord is a local housing authority, a housing association, a registered social landlord or a private landlord.22 The predominance of private landlords in the Australian housing market, the high proportion of small landlords, and the lack of differentiation between social and private landlords in residential tenancy legislation, may
17
Australian Social Trends 2005 (Canberra, Australian Bureau of Statistics, 2005) 159. Ibid, p 75. 19 V Kupke, et al, ‘An Analysis of the Private Rental Investment Market: Some Preliminary Findings’ (2003) 7 Flinders J of L Ref 41, 43. 20 Most states and territories provide that the legislation binds the Crown: RTA 1987 (NSW) s 15; RTA 1997 (Vic) s 4; RTA 1994 (Qld) s 15; RTA 1995 (SA) s 5; RTA 1987 (WA) s 4; RTA 1997 (Tas) s 5; and RTA 1999 (NT) s 5. 21 For a detailed historical account see: Part 2 of the Law Commission, ‘Renting Homes–1: Status and Security’ (CP No 162, 2002). 22 Ibid, [3.11]–[3.30]. 18
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help to explain the lack of security of tenure which exists under Australian residential tenancy law, compared with the protection which applies to tenants in the social housing sector in England. The constitutional division of powers between State and Federal government in Australia may also have indirectly contributed to this lack of protection. Public housing funds are jointly provided under agreements made between the states and the Federal Government. These agreements include ‘strategic directions’ for social housing, but do not cover policies related to residential tenancy laws. As the content of residential tenancy laws is the responsibility of the states, policy debates about their content may occur separately from debates about making housing available for people on low incomes. Today, the Australian and English housing market are becoming more alike. In both Australia and Great Britain, about 70 per cent of households are occupied by people who own their own homes, or who are paying off a mortgage.23 Home ownership has increased in Great Britain, in part because of government policies which assisted social renters to purchase their homes, but it is declining in Australia, particularly among younger people and people on low incomes.24 A boom in house prices has meant that fewer people can afford to buy a home.25 Demographic changes, including delayed marriage and increased divorce rates, have probably also increased the demand for rental properties. Although most tenants in Australia rent from private landlords, around the same proportions of households in Australia and Great Britain now live in rented accommodation. As in Britain, the private rental market is becoming increasingly segmented.26 Young upwardly mobile professionals are able to pay high rents for good quality housing, and are in a relatively strong bargaining position. These tenants are advantaged by a rental market, in which lease terms are relatively short, desirable properties are conveniently located, and they can move if their landlord does not comply with the terms of the lease.
23 For Australian figures, see: Australian Social Trends 2005 (n 17) 159. Note that there are also differences between states, with Victoria (the second largest state), SA and the ACT having 75% of dwellings occupied by owner-occupiers. For the English situation, see Office of National Statistics, ‘Housing Tenure’, http://www.statistics.gov.uk/cci/nugget.asp?id=1105, accessed 5 January 2006. 24 S Baum and M Wulff, Housing Aspirations of Australian Households (Melbourne, Australian Housing and Urban Research Institute, 2003). The report is also available at http://www.ahuri.edu.au/attachments/final_housingaspire.pdf. Between 1976 and 1999, home ownership declined from 65% to 48% among 25–34 year olds. 25 M Berry and T Dalton, ‘Housing Prices and Policy Dilemmas: A Peculiarly Australian Problem?’ (2004) 22(1) Urban Policy and Research 69. 26 In Britain, more social housing may assist renters on low incomes.
Recent Developments in Australian Residential Tenancies Laws 239 Between 30 per cent to 50 per cent of private rental households have a sufficiently low income to receive a rent assistance payment from the Federal Government.27 Demand for low cost housing exceeds supply in many areas.28 Low income tenants are likely to have little bargaining power in areas of high demand, and are disadvantaged by the typically short terms of leases and lack of security of tenure. Residential tenancy databases are increasingly being used by real estate agents to select ‘good tenants’. Low income tenants may find it impossible to keep up their rental payments if they lose their job, or they separate from a spouse or partner. A tenant who is identified on a database as having defaulted under a previous lease may find it very difficult to rent suitable accommodation. There has been a decline in the availability of public housing in Australia, both because governments have moved away from building public housing towards providing rental subsidies for people on low incomes,29 and because eligibility requirements have become stricter. The proportion of low income renters in the private sector is likely to increase. The supply of low income housing is falling in the main cities, as inner city localities become gentrified.30 In the future, these changes in the housing market may create pressure for further changes to Australian residential tenancy laws.
TRENDS IN AUSTRALIAN RESIDENTIAL TENANCY LAWS
Australian residential tenancy laws now generally treat tenancies as consumer contracts for the provision of housing rather than as estates in land. It should be noted, however, that landlord/tenant relationships, which fall outside the residential tenancies legislation, continue to be regulated by common law principles. Fixed term leases for more than 5 years are not covered by residential tenancy laws.31 This exclusion affects few tenants, because long term residential leases are uncommon in the Australian context. Other tenancies which are typically excluded from the various state residential tenancy laws include: premises on properties let for farming purposes; premises which are part of a building let to the tenant for a trade or business carried on by the tenant; holiday lets; student accommodation; and tenancy agreements created under a contract of employment.32
27 Some of these people live in someone else’s household or are in nursing homes, retirement villages or boarding houses: Wulff (n 16) 76. 28 Kupke, et al. (n 19) 44. 29 Ibid. 30 Wulff (n 16). 31 For example, RTA 1997 (Vic) s 6. 32 For example, ibid, s 8 (see also: ss 7, 10–12 and 21).
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Although there are significant differences on matters of detail, the legislation: — sets out the duties of landlords and tenants (which generally cannot be excluded by contract); — provides remedies for tenants if property is not kept in repair; — prohibits certain payments by tenants and regulates the taking, holding and return of security deposits; — imposes some controls on rent increases; — regulates the grounds for recovery of possession and the procedures which apply; and, — (in some states) establishes a body with specialist jurisdiction to deal with landlord/tenant disputes. The provisions are discussed below. In addition, reference is made to recent legislation which imposes controls on residential tenancy databases. Residential Tenancies as Consumer Contracts The Research Paper on ‘Poverty and the Landlord and Tenant Relationship’ argued that deficiencies in residential tenancy laws resulted from their treatment as ‘estates in land’, rather than as consumer contracts for the provision of housing.33 Along similar lines, the Law Commission Report proposes abandonment of: The historic linkage between principles of property law and housing legislation … : instead a new approach based on contract which incorporates principles of fairness and transparency is proposed34
Historically contractual doctrines such as frustration of contract, the requirement to mitigate damages and the doctrine of repudiation were inapplicable to leases.35 Residential tenancies legislation now applies these principles.36 In the past, tenants also had difficulty in enforcing their legal rights against landlords.37 Even when there were legislative provisions intended to protect them, these could often be avoided by landlords entering into occupancy agreements which did not confer exclusive possession. 33
Bradbrook, Poverty and the Residential Landlord–Tenant Relationship (n 6) 15. Law Commission (UK), ‘Renting Homes’ (n 4) [2.5]. 35 Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 403–4. Case law has now applied some contractual principles to leases. The leading Australian cases are: Shevill v Builders Licensing Board (1982) 149 CLR 620 (HC); Progressive Mailing House v Tabali (1985) 157 CLR 17 (HC); and Wood Factory v Kiritos [1985] 2 NSWLR 105 (CA), which applied the contractual doctrine of repudiation to leases. See also: J Effron, ‘The Contractualisation of the Law of Leasehold: Pitfalls and Opportunities’ (1988) 14 Monash L Rev 83. 36 For example, see: RTA 1987 (NSW) s 15 (duty to minimise loss) and s 61 (frustration of agreement by destruction or uninhabitability of premises). 37 Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 402–3. 34
Recent Developments in Australian Residential Tenancies Laws 241 Both legislative provisions and administrative arrangements have reduced the distinction between tenancies and other types of occupancy agreements. In addition to the provisions applying contractual principles to residential tenancies mentioned above, this trend is reflected in the expansion of protection to occupants who are not tenants and is apparent in the application of consumer protection provisions to leases and other housing contracts. The treatment of residential tenancies as housing contracts is also reflected in the duties which the legislation imposes on landlords and tenants, and in the grounds for termination of tenancies. These are discussed in more detail below. Reducing the Significance of the Right to Exclusive Possession Under Australian case law, the existence of a right to exclusive possession was always the criterion which differentiated between a lease and a licence.38 Australian courts seem to have been more reluctant than their English counterparts to give effect to occupancy arrangements used by property owners to avoid legislation designed to protect tenants. Initially, residential tenancy laws applied only to people who occupied property under ‘tenancy agreements’.39 Some states now explicitly provide that the legislation applies, whether or not a person is given a right to exclusive possession.40 In addition, some states have enacted legislative provisions which protect specific categories of licensees, for example people who occupy rooming houses,41 and residents of caravans in caravan parks.42 Most states also have separate legislation to protect occupants of units in
38 Radaich v Smith (1959) 101 CLR 209 (HC). It is arguable that the decision does not actually unequivocally support the exclusive possession test, but it has subsequently been cited extensively in support of it. In this respect, Australian case law differed from English case law prior to Street v Mountford [1985] AC 809 (HL). In England for many years, an alternative test based on the intention of the parties applied: Somma v Hazelhurst [1978] 1 WLR 1014 (CA). 39 For example, see: RTA 1980 (Vic) s 4. 40 For example, see: RTA 1987 (NSW) s 3 (definition of residential tenancy agreement) and RTA 1997 (Tas) s 10. 41 These are large houses in which people rent a room and have access to common kitchen and bathroom facilities. They are frequently in poor condition and are often used by disadvantaged people, for example those on low incomes or with a mental illness, who would otherwise be at risk of homelessness. 42 For example, see: RTA 1997 (Vic) Part 3 (Rooming Houses—Residency Rights and Duties); Part 4 (Caravan Parks and Movable Dwellings—Residency Rights and Duties). For a discussion of the extension of the Victorian Act to cover rooming houses, see: C Power and P Mott, ‘A Tale of Two Cities: Legal Protection for Rooming/Boarding House Residents in Victoria and New South Wales’ (2003) 7 Flinders J of L Ref 137. The rooming house provisions were originally held to apply only to residents who had exclusive possession of a room: Fisher v Aboriginal Hostels Ltd [1998] VSCA 130. However, the effect of this limitation has been overcome by legislation which protects both residents of shared rooms and residents who have an exclusive occupancy right: Residential Tenancies (Further Amendment) Act 2005 (Vic). Cf RTA 1987 (WA) s 5(2)(d) which explicitly excludes boarders and lodgers.
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retirement villages who fall outside tenancy regimes.43 While these provisions do not necessarily treat licensees as favourably as tenants, they place some limits on eviction, and impose more onerous duties on owners of premises than would have applied at common law. The inclusion of occupants who are not, strictly speaking, tenants, was recommended by the ‘Law and Poverty Report’44 which recognised that ‘boarders, roomers and lodgers’ were often particularly disadvantaged. A similar approach was recommended by the United Kingdom Law Commission: Unless there are compelling reasons for excluding them, all occupation agreements should come within the scope of the scheme … . For this purpose the historic distinction between a lease and the licence will no longer be of importance.45
Application of Consumer Protection Provisions General consumer protection legislation now applies to tenancies, as well as to other occupancy agreements. In Victoria, for example, an application can be made by a tenant,46 or the resident of a rooming house or caravan park,47to the Victorian Civil and Administrative Tribunal,48 for an order declaring that the terms of an agreement are invalid, or varying the agreement, because it is harsh and unconscionable. In addition, state Fair Trading Acts allow a court or Tribunal to declare unfair contractual terms invalid. These provisions apply to tenancies and leases,49 as well as to other occupancy agreements. A term is unfair if, contrary to the requirements of good faith and in all the circumstances of the case, it creates a significant imbalance in the parties’ rights and obligations, to the detriment of the consumer.50 Although these provisions have received a relatively restrictive
43 The first provisions were in the Retirement Villages Act 1999 (NSW); and Retirement Villages Act 1986 (Vic). For other legislation, see: Retirement Villages Act 1999 (Qld); Retirement Villages Act 1987 (SA); Retirement Villages Act1992 (WA); Retirement Villages Act 2004 (Tas); and, Retirement Villages Act 1995 (NT). 44 Sackville (n 7) 60. The report pointed out that in poor inner-city suburbs at least 5% of the population were living in single room accommodation and that legal changes were particularly important for this group. 45 Law Commission (UK), ‘Renting Homes’ (n 4) [14]. 46 RTA 1997 (Vic) s 28 (tenants). 47 Ibid, s 94A (rooming houses) and s 144A (caravan owners and residents of caravans). 48 This body now has the jurisdiction previously exercised by the Residential Tenancies Tribunal. 49 Note that the Commonwealth Trade Practices Act 1974 (Cth) Part V protects consumers against various unfair practices by corporations or individuals acting in the course of interstate trade. States have enacted mirror provisions in fair trading legislation. For example, Fair Trading Act 1999 (Vic) s 3 (The definition of ‘consumer contract’ and ‘services’ includes rights in relation to and interests in real property. Part 2B of the Act applies to consumer contracts). 50 Fair Trading Act 1999 (Vic) s 32W. Cf The Unfair Terms in Consumer Contracts Regulations 1999 (UK).
Recent Developments in Australian Residential Tenancies Laws 243 interpretation, their application to leases exemplifies the treatment of tenancies as consumer contracts rather than interests in land. Bureaucratic arrangements have also been made to oversee compliance with the legislation. Typically, a government department, or specialised government body, is required to provide consumer information about the rights and obligations of landlords and tenants (and other occupants). The body may also be empowered to receive, investigate and in some cases conciliate complaints about unfair practices, and oversee compliance with the legislation.51
Duties of Landlords and Tenants At common law, the covenants which were implied into residential tenancies were heavily weighted towards protecting the interests of landlords. For example, landlords had no implied obligation to put or keep unfurnished residential premises in repair.52 Tenants who were in a weak bargaining position because they were poor, or because rental premises were in short supply, were unable to insist on more favourable terms. Although there are some differences in detail, all states have now set out the main rights and obligations of landlords and tenants in their residential tenancies legislation. For example, under Part 2 of the Victorian Residential Tenancies Act 1997 (Vic),53 the landlord must: — give the tenant a written statement of the rights and duties of the landlord and tenant, and details of any agent acting for the landlord; — ensure that the premises are vacant, and in a reasonably clean condition when the tenant enters; — take reasonable steps to ensure the tenant has quiet enjoyment of the premises;
51 For example, Consumer Affairs Victoria, ‘Renting’, http://consumer.vic.gov.au/ CA2565000644CE/page/Renting?OpenDocument&1=910-Renting~&2=~&3, accessed 6 December 2005. See also: Office of Fair Trading (NSW); Residential Tenancies Authority (Qld); Office of Consumer and Business Affairs (SA); Department of Consumer and Employment Protection (WA); Consumer Affairs and Fair Trading (Tas); Consumer Affairs Bureau (ACT); and, Tenancy Unit, Consumer and Business Affairs (NT). 52 No term that premises were fit for human habitation was implied into leases of unfurnished premises at common law see: Cruse v Mount [1933] Ch 278 (Ch). Recent Australian case law has imposed a duty of care on landlords in relation to persons on tenanted premises: Jones v Bartlett (2000) 205 CLR 166 (HC); and P Handford, ‘Through a Glass Darkly: Jones v Bartlett in the High Court’ (2001) 30 West Aust L Rev 75. 53 The RTA 1997 (Vic) also sets out the rights and duties of rooming house occupants, and occupants of caravan parks: Part 3 Div 5 (rooming houses) and Part 4 Div 5 (caravan parks and moveable dwellings).
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— keep the premises and common areas in good repair; — provide locks to secure doors and windows; and, — not unreasonably withhold consent to assignment or sub-letting, or require a fee for giving consent.54 The tenant must: — pay rent; — pay electricity, gas, oil and water charges related to the tenant’s use of the premises; — not use premises for illegal purposes; — not use or permit the use of premises in a way that causes a nuisance; — not use or permit visitors to use the premises or common areas in a way that interferes with the ‘reasonable peace, comfort or privacy’ of occupiers of neighbouring premises; — take care to avoid damage to premises or common areas and give notice to the landlord if he or she becomes aware of any damage; — keep premises in a reasonably clean condition, except to the extent the landlord is liable under the tenancy agreement to do so; and, — not install or make any alteration to the premises without the landlord’s consent. The duties imposed on landlords and tenants reflect the fact that the premises are used by the tenant as his or her home.55 Tenant’s needs are recognised in the obligation imposed on the landlord to ensure that the premises are clean and in a good state of repair at the time of letting, and that they are kept in repair throughout the tenancy.56 Some states also impose repair obligations on rooming house and caravan park owners.57 Repair obligations are reinforced by provisions relating to urgent repairs which are discussed below. Western Australia is the only state which allows the parties to contract out of the landlord’s duty to keep premises in repair.58 The use of premises for housing purposes is also reflected in the duties imposed on tenants not to behave in a way which interferes with the comfort, peace or privacy of neighbours.59
54 In addition, if an appliance that uses or supplies water at the premises needs to be replaced it must have an appropriate water saving rating: see RTA 1997 (Vic) s 69. 55 Bradbrook argues that a more onerous obligation should be imposed on landlords to ensure that premises are secure: Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 412. 56 RTA 1987 (NSW) ss 25–26; RTA 1997 (Vic) s 68; RTA 1994 (Qld) ss 103 and 106; RTA 1995 (SA) ss 68–69; RTA 1987 (WA) ss 38 and 42; and, RTA 1997 (Tas) s 32. 57 RTA 1997 (Vic) s 120 (rooming house owner); s180 (caravan or caravan park owner). See also the obligations of rooming house residents (ss 114 and 116) and caravan occupants (ss 171 and 173). 58 RTA 1987 (WA) s 82(3). 59 RTA 1997 (Vic) s 60.
Recent Developments in Australian Residential Tenancies Laws 245 In most states, a provision which excludes, modifies or restricts the operation of the legislation is invalid,60 but this does not prevent the inclusion of additional terms in the lease (for example, terms prohibiting the keeping of pets).61 This can give rise to difficulty when the tenancy is not in writing. Since tenancies in Australia are usually granted on a periodic basis or for a (relatively short) fixed term,62 oral tenancies are not uncommon. Most states make it an offence for a landlord or a tenant to prepare a tenancy agreement in writing which is not in the prescribed form, but breach of this provision does not make the tenancy unenforceable.63 In the case of oral tenancies, disputes may arise over whether or not additional terms to those in the legislation were included. For example, there may be a dispute about whether the tenant agreed not to keep pets on the premises. A provision requiring that an agreement should be made in writing could reduce the volume of disputes about contractual terms. However, in practical terms, this would be difficult to implement in the Australian context, as premises are often let by non-institutional landlords, without the involvement of an estate agent. Even when the parties sign a lease, there may be a misunderstanding about the terms negotiated between the parties before the document was signed. This is said to be a common cause of disputes. Bradbrook argues that Tribunals should be able to make an order incorporating terms in the agreement which were orally agreed by the parties, but were omitted from the document. In his view, this approach is justified because it is uncommon for residential tenants to have legal advice before they enter into a tenancy.64 Such a provision could provide a practical remedy in the Australian context, where small landlords often deal directly with tenants.
60 For example, see: ibid, s 27. This is also the case in relation to the rights and duties of licensees and occupants of rooming houses and mobile homes. 61 In Tasmania, however, keeping of pets is prohibited without permission of the owner or unless permitted under the agreement: RTA 1997 (Tas) s 64B. 62 Short-term oral tenancies are generally enforceable. For example, under Property Law Act 1958 (Vic) ss 52–54, leases taking effect in possession for a term not exceeding three years are exempted from formalities requirements. In any case, an informal lease is enforceable under the principle in Walsh v Lonsdale (1882) LR 21 Ch D 9 (CA) if the tenant has entered into possession and paid rent. 63 RTA 1997 (Vic) s 29. 64 Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 422. In the absence of a specific provision dealing with this matter, the Tribunal could only imply a term which was necessary to give business efficacy to the agreement, or perhaps exercise its jurisdiction in relation to harsh and unconscionable agreements.
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Repairs Historically tenants on limited incomes faced practical difficulties in enforcing landlord’s obligations. Most states now allow tenants to serve a notice terminating the tenancy if the landlord breaches his or her duties, and provide other practical remedies for breach of the obligation to keep premises in repair.65 This remedy may not assist tenants who cannot find suitable alternative accommodation at a price they can afford. The extent of these remedies varies. Some states allow the tenant to carry out repairs and seek reimbursement of the cost if the landlord is notified and does not carry out the repairs within a specified time.66 Other jurisdictions confine this right to urgent or emergency repairs, and/or limit the amount for which reimbursement may be sought.67 While this enables tenants to deal with problems affecting the quality of their housing, it does not assist people living in poor conditions who cannot afford to expend money on repairs themselves. The Victorian Act provides a number of practical remedies which are not available elsewhere. If the landlord has been notified by the tenant that repairs are needed and does not carry out the repairs within 14 days, the tenant can apply to the Director of Consumer Affairs to investigate whether the landlord is in breach of the duty to keep the premises in repair.68 Following receipt of a report of the investigation, the tenant can apply to the Tribunal for an order requiring the landlord to carry out repairs,69 and can also seek an order authorising the payment of rent or a hiring fee into a Special Account held by the Tribunal (where it will be held until the landlord carries out the repairs).70 There are also parallel provisions which allow the landlord to notify the tenant that the tenant must repair damage he or she has caused, and which allow the landlord to carry out these repairs at the tenant’s expense.71 Provision is also made for tenants to carry out urgent repairs to cover matters, such as burst water services, broken lavatory systems, serious roof leaks, dangerous electrical faults, and failure of cooking or hot water facilities. A tenant or other occupant can carry out urgent repairs,72 up to a cost of AU$1000 (approx £400), and seek reimbursement from the landlord (or equivalent person), if reasonable steps to have the landlord carry out the 65 RTA 1987 (NSW) s 58; RTA 1997 (Vic) ss 239–40 (repeated breaches required); RTA 1994 (Qld) s 186A (repeated breaches required); and RTA 1997 (Tas) s 38 (no apparent requirement of repeated breach). 66 RTA 1995 (SA) s 68. 67 RTA 1994 (Qld) ss 123A–128. 68 RTA 1997 (Vic) s 74. 69 Ibid, ss 75–76. 70 Ibid, s 77 (tenant). See also: ss 131–34 (rooming houses) and ss 190–93 (caravan parks). 71 Ibid, ss 78–79. 72 For the definition of urgent repairs, see: ibid, s 3.
Recent Developments in Australian Residential Tenancies Laws 247 repairs immediately have been taken and the repairs have not been done.73 If the tenant cannot meet the cost, if it exceeds AU$1000 (approx £400), or if the landlord refuses to pay the cost of repairs incurred by the tenant, an order can be obtained from the Tribunal (which must hear the matter within two business days after an application is made). The provisions on urgent repairs were ‘strongly opposed by landlords and developers.’74 It is also interesting to note that the Victorian legislation allows a landlord, rooming house occupier or caravan park owner to apply to the Director for financial assistance to carry out urgent repairs.75 Security Deposits and Advance Rent Historically, it was a common practice for tenants to be required to pay a lump sum premium (sometimes called ‘key money’) for the grant of a tenancy.76 Tenants are usually also required to deposit a sum of money (bond) as security for performance of their obligations, and to pay rent in advance. Rooming house residents and mobile home occupants may also be required to provide a bond. Until the enactment of residential tenancy laws, there was no limit on the amount of the bond which could be required. This requirement made it difficult for people on low incomes to rent premises, and tenants often had difficulty in recovering their bond from the landlord when they vacated the premises.77 Residential tenancies legislation now generally prohibits a requirement to pay key money,78 and limits the amount of bonds and rent in advance which the tenant can be required to pay.79 In Victoria, similar restrictions apply to bonds for a room in a rooming house,80 or a caravan.81
73 Ibid, s 72 (tenant); s 129 (rooming house occupant; but does not apply if there is no immediate danger to health and safety and rooming house); and s 188 (caravan park occupant). In the case of rooming house and caravan park occupants, the provision allowing the resident to carry out urgent repairs does not apply if the resident is able to use other facilities in the rooming house or communal facilities in the caravan park. 74 Bradbrook and others, Australian Real Property Law (n 2) 535. 75 RTA 1997 (Vic) s 497. 76 This practice has been common in Tasmania until recently: see S McCrystal, ‘Application Fees and Tenants––Teething Problems for Tasmania’s New Residential Tenancy Act 1997’ [1999] 7 Aust Prop LJ 10. 77 For data on the situation which existed prior to legislative reforms see: Bradbrook, Poverty and the Residential Landlord-tenant Relationship (n 6) ch 7. 78 RTA 1997 (Vic) s 51. See also: S 50. 79 For example, see: RTA 1997 (Vic) s 31 and 40. There is provision for the Residential Tribunal to increase the bond: s 33. High rental premises are exempted from the restriction relating to payment of rent in advance. Generally, the amount of the bond cannot exceed the equivalent of one month’s rent and only one month’s rent is payable in advance. In the case of a weekly tenancy, only two weeks rent in advance can be required: s 42. 80 RTA 1997 (Vic) ss 95 and 97. 81 Ibid, ss 146 and 150 .
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Nevertheless, the amounts required to be paid as a security deposit and rent in advance may be beyond the capacity of tenants on low incomes who are renting in the private market. In Victoria and South Australia, a government authority has power to advance this amount to a tenant, rooming house occupant or occupant of a caravan park, who satisfies income and asset limits.82 While all states have provisions limiting bonds and rent in advance, the Victorian legislation contains important provisions to minimise disputes about security deposits. First, the landlord must give the tenant a condition report on the state of the premises, and the tenant must agree or disagree with its contents within three days of entering the premises. The statement is conclusive evidence of the condition of the premises on the day specified in the report.83 Second, bonds must be lodged with a government body. The bond can be refunded at the end of the lease or occupancy agreement by the consent of the parties, or by an order of the specialist tribunal.84 An ingenious feature of the legislation is that interest on the money deposited is used to fund the operations of the tribunal.85 The form lodged with the bond includes information about rental payments and other matters. In Victoria, this is used by the Residential Tenancies Bond Authority to compile statistics and monitoring the operation of the private rental market.86 To assist consumers, quarterly data is published on private rentals in Victoria.87
Excessive Rents and Rent Increases The system of rent controls applicable to specified premises in the post-war period now has very limited application. However, residential tenancies laws limit the operation of market forces, to some extent.88 All states specify a period of notice which must be given of a rent increase and prohibit increases during the period of a fixed term lease, unless the agreement provides for an increase.89 Three states prevent rent increases at
82 Ibid, s 496 and Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 425. 83 For example, see: RTA 1997 (Vic) ss 35 and 36. See also: ss 97 and 98 (rooming house occupant); ss 148 and 149 (caravan park occupant). 84 RTA 1997 (Vic) ss 406 and 411. 85 Ibid, ss 437 and 493. 86 Ibid, s 431. 87 Second reading of the Residential Tenancies (Amendment) Bill 2003 (Vic) by Ms Bronwyn Pike (Minister for Health) (Hansard, Legislative Assembly, 9 October 2003) 901. 88 RTA 1987 (NSW) ss 46–49; RTA 1997 (Vic) ss 44–48; RTA 1995 (SA) s 56; RTA 1987 (WA) ss 30–32; RTA 1997 (Tas) s 20; RTA 1997 (ACT) s 38; and, RTA 1994 (Qld) ss 53 and 53A. 89 For example, see: RTA 1997 (Vic) s 44.
Recent Developments in Australian Residential Tenancies Laws 249 intervals of less than 6 months.90 Only South Australia gives the relevant Tribunal the general power to reduce excessive rent on application by the tenant.91 In most other states, the right to apply for a reduction of the rent is triggered by a notice of a proposed rent increase or by a change in terms and conditions, for example the withdrawal of services or facilities by the landlord.92 If these requirements are satisfied, the Tribunal can make an order declaring the maximum amount of rent which is payable for a specified period if it is satisfied that rent is excessive. In doing so, it must consider comparable rents paid to private landlords in the same locality, the state of repair and general conditions of the property and other conditions of the tenancy.93 In Victoria, the legislation allows a tenant who has been notified of a proposed increase, or who considers the rent is excessive because of changes to the premises, to apply to the Director of Consumer Affairs to seek an investigation and report on the rent. After receiving a report on whether the rent is excessive, the tenant can apply to the Residential Tenancies Tribunal, which can make an order. Relatively few tenants make such applications. In Victoria, 65,950 applications were made to the Residential Tenancies Tribunal in 2004–5, but only 6 per cent were made by tenants.94 Some rent disputes may be resolved by the Director of Consumer Affairs, making it unnecessary for tenants to seek an order from the Tribunal. Conversations with Tribunal members suggest that although tenants rarely seek a Tribunal order, the provisions have some effect in discouraging landlords from charging excessive rents, and that real estate agents who act for landlords generally advise them against doing so. By contrast, Bradbrook comments that these provisions have proved in practice to be ineffective as the legislation requires the tenant to prove the excessive nature of the increase by reference to a list of economic factors which would normally be beyond the tenant’s competence.95
The effectiveness of these provisions could only be assessed by an empirical study. 90 Victoria, SA and Tasmania; for example RTA 1997 (Vic) s 44(4A). This limit of two increases per year was introduced by the Labor Government (n 87). 91 RTA 1995 (SA) s 56. 92 RTA 1997 (Vic) ss 44–45. Note that notification of a proposed increase is not a ground for applying in Western Australia, and a change in the condition of the premises is not a ground in Tasmania. 93 RTA 1997 (Vic) s 47. 94 Victorian Civil and Administrative Tribunal, Annual Report 2004–2005 (Melbourne, 2004) 46. Of all applications received, 48% related to possession orders; 28% to payment of a bond; 10% to compensation or compliance orders; and 15% ‘other’ which would have included applications in relation to excessive rent. 95 Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 425.
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Termination of Tenancies Reference has already been made to the lack of security of tenure enjoyed by residential tenants in Australia. In most states, the landlord can terminate a periodic tenancy by giving a specified period of notice, without having to establish any grounds for termination.96 Where the legislation applies to social tenancies and private tenancies, the right to terminate without grounds is usually applicable.97 The required period of notice varies between jurisdictions. Victoria increased it from 90 days to 120 days following the election of a Labor Government.98 In jurisdictions where the period of notice is only 60 days, it may be easier for a landlord to obtain possession by serving a notice terminating the tenancy for no reason, than to take proceedings for breach. This undermines other rights which the legislation confers on the tenant. For example, if the landlord thinks that the tenant is asking for unnecessary repairs, he or she may simply terminate the tenancy without notice.99 Tenants who have complied with the terms of the tenancy may be evicted for no reason, and may have difficulty in finding suitable alternative accommodation. The legislation also codifies the other circumstances in which tenancies terminate. Although there are considerable differences in detail, tenancies may be terminated in circumstances where this would not occur at common law. The use of premises for housing purposes is reflected in provisions terminating the tenancy when the premises are abandoned by the tenant, or when the tenant gives the landlord a notice of intention to vacate because the premises are destroyed or become unfit for habitation.100 Tenants can also terminate a lease because the landlord has breached his or her obligations. For example, in Victoria this may be done when the landlord fails to comply with an order of the relevant Tribunal, or, in the case of a fixed term tenancy, if the landlord commits successive breaches of duties imposed by the legislation. A landlord can seek possession for nonpayment of rent, breach of the duties imposed by the legislation, and breach of orders made by the relevant Tribunal.101 Usually state laws allow termination of the tenancy, if a tenant causes serious damage to the property or
96
For example, see RTA 1997 (Vic) s 263. RTA 1987 (NSW) s 58 and 63A. For social tenants a shorter period of notice applies if alternative accommodation is offered: s 60H. 98 Residential Tenancies (Amendment) Act 2002 (Vic) s 26. 99 Some states prohibit the giving of notice for retaliatory reasons, but it is difficult to prove that this has occurred: RTA 1994 (Qld) ss 165 and 165A. 100 RTA 1997 (Vic) ss 220 and 238. 101 For example, see: RTA 1997 (Vic) ss 239–40 (tenant); ss 248–49 (landlord). For the tenancy to be terminable in these circumstances, the tenant must give the landlord notice of an intention to vacate and the landlord must have been in breach on two previous occasions. 97
Recent Developments in Australian Residential Tenancies Laws 251 injures the landlord or a person in occupation of adjoining premises.102 New South Wales has also introduced provisions under which social housing rentals can be terminated, if a tenant refuses to enter an acceptable behaviour agreement or seriously or persistently breaches the agreement.103 The importance of housing to the tenant is also reflected in provisions under which the relevant Tribunal must dismiss or adjourn an application for possession order made by the landlord, if the breach is trivial or if the tenant repays arrears of rent.104 These provisions replace the traditional equitable jurisdiction to grant relief against forfeiture. They are unpopular among landlords, who complain that they make it difficult to recover possession from tenants who constantly delay in paying their rent. Finally, some states allow the relevant tribunal to make an order terminating a tenancy, if it is satisfied that the landlord and/or the tenant would suffer severe hardship if the tenancy were not terminated.105 Tasmania has enacted legislation allowing the termination of a tenancy agreement made with a person who has had a family violence order made against him, and the grant of a new tenancy to the person affected by the family violence.106
Specialist Residential Tenancy Tribunals The establishment of specialist Tribunals to resolve disputes between landlords and tenants is a significant feature of residential tenancy regimes in some states.107 The Tribunals deal with large numbers of disputes quickly, informally and cheaply. In Victoria, the Residential Tenancies List in the Civil and Administrative Tribunal had an average waiting time from application to resolution of 20 days in 2004–5. Provision is made for applications to be lodged on line and allocated a hearing date. The fee for an application is AU$32.50 (approx £13), and fees may be waived in cases of financial hardship.108 Specialist tribunals are also well-equipped to offer a variety of dispute resolution processes including mediation and compulsory conferences.
102
RTA 1987 (NSW) s 68. RTA 1987 s 63I. 104 RTA 1997 (Vic) s 331–32. 105 For example, RTA 1987 (NSW) ss 69 and 69A; and RTA 1997 (Vic) s 234. 106 Family Violence Act 2004 (Tas) s 17. 107 There are specialist tribunals in NSW, SA and the ACT. In Victoria, the Residential Tenancies Tribunal has been replaced by a specialist list within the Victorian Civil and Administrative Tribunal, which has a broader jurisdiction. In other states and territories, tenancy disputes are dealt with in more generalist small claims courts. 108 See Victorian Administrative Appeals Tribunal, ‘Fees’, http://www.veat.vic.gov.au/ CA256DBB0022825D/page/Fees-Forums-Brochures-Fees?OpenDocument&1=15-FeesForums-Brochurs~&2=10-Fees~&3=~, accessed 5 January 2006. 103
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Despite some efforts to educate members of the public about the existence of the Tribunal, the vast majority of applicants are landlords. In Victoria in 2004–5, 94 per cent of applications were made by public or private landlords or people acting on their behalf.109 Approximately 52 per cent of applications related to possession orders. Legal representation is only permitted with the consent of the Tribunal, but the majority of landlords (68 per cent) who applied in 2004–5 were represented by estate agents or property managers.110 In the New South Wales context, it has been suggested that tenants do not apply because they are unaware of the existence of the Tribunal, ‘or are ignorant about procedures which is amplified by a fear and mistrust of authority.’111 Disadvantaged tenants may face difficulties in arguing applications on their own behalf, or fear reprisal from the landlord. Further empirical work is needed to establish the reason for the low rate of applications by tenants. One reason for the low number of tenants who appear may be that some grievances are dealt with before they come to the Tribunal. In Victoria, Consumer Affairs dealt with 1600 requests for inspections of property relating to repairs, and around 970 requests relating to rental in 2004–5.112 Some of these inspections would have resulted in resolution of disputes without the need for a Tribunal order. This suggests that various forms of dispute resolution should be provided by the specialist Tribunal, or by some other body, so that simple disputes can be resolved at an early stage.
A NEW PROBLEM—RESIDENTIAL TENANCY DATABASES
Legislation has recently been enacted in some Australian states to regulate residential tenancy databases on which information is stored about tenants and their rental histories. A number of commercial providers compile these databases from information provided by estate agents. Real estate agents and landlords can pay a fee to search for listings on prospective tenants, so that they can assess whether the tenant is likely to be a reliable payer, and whether or not they may damage the property. The vast majority of database listings are negative listings, for instance, for ‘undesirable tenants’. The reasons for a negative listing may include the fact that property has been damaged; that rent has not been paid; or, that 109 Victorian Civil and Administrative Tribunal, Annual Report 2004–2005 (n 94) 46. Bradbrook, ‘Residential Tenancies Law—The Second Stage of Reforms’ (n 12) 415 argues that there are likely to be more applications by landlords because they have to apply for an order where rent is unpaid or possession is sought and that applications by tenants are increasing across Australia. 110 Victorian Civil and Administrative Tribunal, Annual Report 2004–2005 (n 94) 46. 111 J Taylor, ‘Representing Tenants’ (1995) 20 Alternative LJ 81, 82. 112 Consumer Affairs Victoria, Annual Report 2003–2004 (Melbourne, 2004).
Recent Developments in Australian Residential Tenancies Laws 253 the tenant has left the premises. Some databases also list unspecified grounds, suggesting that the person searching the database should ‘refer to agent’. Once a tenant acquires a negative listing, it may be difficult, if not impossible, for them to find rental accommodation. At present, estate agents need to do little to substantiate their allegations against tenants, before they are listed as ‘undesirable’. There are also no clear guidelines as to what type of conduct is severe enough to warrant being listed on a database. It has also been suggested that tenants are reluctant to assert other rights under residential tenancies legislation for fear of being blacklisted on a database. Tenants are often unaware that they have been listed on a database. In the absence of legislation, real estate agents who intend to list a tenant have no obligation to inform tenants that they intend to do so. Tenants may only discover that they have been listed, when they are repeatedly refused rental properties in the private rental market. It is often very costly to find out whether one is listed on database. For instance, one major database operator charges AU$14.50 (approx £6) to conduct a search by post, or AU$5.45 per minute (approx £2) by phone. Listings are generally of indefinite duration, and there is no guarantee that even if the matter in dispute is resolved (such as a debt paid) that the listing will be removed. Since the Federal Privacy Act 1988 does not adequately deal with residential tenancy data bases,113 three jurisdictions have enacted legislation to control their use. Queensland, which was the first state to regulate databases, did so because of ‘unfair and inaccurate listings, the lack of any controls about what information is listed and the lack of any dispute resolution procedures.’114 There was also concern about the difficulty of tenants ‘accessing housing due to inaccurate or unjust listings on a tenancy database.’115 Residential tenancy databases in Queensland are now regulated by the Residential Tenancies Act 1994 (Qld).116 The legislation prohibits a person being listed on a data base, unless they were a tenant, the tenancy has ended and there is a prescribed reason for listing. The tenant must be notified of the proposed listing, and given a reasonable opportunity to review the proposed listing.117 A person who claims there has been a breach of this
113 Although the Act covers most operators of residential tenancy data bases it does not specifically cover their content or use. Instead it requires organisations to comply with 10 National Privacy Principles (NPPs) (or with approved privacy codes): Privacy Act 1988 (Cth) Div 3 ss 16A–F. 114 Explanatory Memorandum, Residential and Other Legislation Amendment Bill 2003 (Qld) 2. 115 Ibid. 116 The amendment was made by the Residential Tenancies and Other Legislation Amendment Act 2003 (Qld). 117 RTA 1994 (Qld) s 284C(1).
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provision can apply to the Tribunal for removal of an incorrect or misleading listing. The Tribunal can also remove a listing where ‘the inclusion of that tenant’s name or other personal information about the tenant in the database is unjust in the circumstances.’118 This may include, for instance, the case where listing occurs because of an incident of domestic violence. If a real estate agent is convicted of an offence under the provisions, he or she may be required to pay compensation to the tenant for an inappropriate listing.119 New South Wales and the Australian Capital Territory have also enacted legislation regulating residential tenancy data bases.120 The Victorian Law Reform Commission has recommended that similar reforms should be made in Victoria.120a
CONCLUSION—RECOGNISING A RIGHT TO HOUSING
The statutory reforms made following the Sackville Report have improved the position of residential tenants in Australia by imposing duties on landlords which did not apply at common law, including the duty to ensure that residential premises are kept in a decent standard of repair.121 In some states, the extension of protective provisions to people who live in boarding houses and caravan parks has improved the position of marginalised groups who face extreme disadvantage in the housing market. Tenants are also assisted by the restriction on the landlord’s right to refuse to let premises to a person on the ground that they have a child.122 The creation of specialist tribunals allows tenants to seek a remedy against a recalcitrant landlord at a low cost, though these remedies are infrequently used. However, the lack of uniformity in state laws means that tenants do not receive the same level of protection in all parts of Australia. In terms of the original goals of the Sackville Report, the legislation has important limitations. The fines imposed on landlords for breach of the legislation (for example, the requirement that a tenancy agreement in writing must be in a prescribed form or the provisions limiting bond payments) are generally low, and breach of these provisions is rarely prosecuted.
118
Ibid, ss 284C and 284E. Ibid, s 284H. 120 Property, Stock and Business Agents Amendment (Tenant Databases) Regulations 2004 (NSW). See also: Property, Stock and Business Agents Regulations 2003 (NSW) Sch 6A ss 4–5; and, RTA 1997 (ACT) ss 107E–107H. 120a Victorian Law Reform Commission, I (2006). 121 Sackville (n 7). 122 For example, see: RTA 1997 (Vic) s 30. 119
Recent Developments in Australian Residential Tenancies Laws 255 Although procedural safeguards apply to the termination of tenancies for breach, or because the premises are required for specified purposes of the landlord,123 tenant’s security of tenure is undermined by provisions allowing the landlord to bring a tenancy to an end by serving a notice, without requiring any reason for doing so. The ability to terminate for no reason undermines other rights which the legislation confers on the tenant. The Law Commission Consultation paper commented that the principle that the State should guarantee tenant’s security of tenure irrespective of the terms of the contract has become a central principle of housing law,124
though this guarantee is not absolute. The Law Commission has proposed that the existing secure tenancy regime should continue to apply to Type 1 agreements. Type 1 agreements will generally apply to tenants of social landlords, and will only be terminable for breach of the agreement or on ‘estate management grounds’, in which case the landlord will have to show other suitable accommodation is available to the tenant.125 If the landlord wishes to recover possession, the court will have to balance the interests of the occupier, and the landlord in deciding whether to terminate the agreement and make an order for possession.126 Australian residential tenancies do not provide tenants this level of protection. This lack of security of tenure reflects the legislative history of residential tenancy laws in Australia, and differences in the Australian and English housing markets which have been discussed above. These include the dominance of social landlords as housing providers in England, and the transitional role of tenancies in Australia. The absence of constitutional or legislative Charters of Rights,127 may also have contributed to the weaker
123 For example, see: Ibid, s 254 (fixed term tenancy where premises were previously landlord’s principal residence); s 255 (where landlord intends to repair, reconstruct or renovate the premises); s 256 (intention to demolish the premises); s 257 (premises to be used for business); s 258 (premises to be used by landlord or landlord’s family); s 259 (premises to be sold); s 262A (tenants in transitional social housing, where requirements have been published for tenants to seek alternative accommodation, and the tenant has unreasonably refused to do so, or has refused an offer of alternative accommodation). 124 Law Commission (UK), ‘Renting Homes––1: Status and Security’ (n 21) [1.20]. 125 Law Commission (UK), ‘Renting Homes’ (n 4) [9.25–9.38]. By contrast, Type 2 agreements are modelled on the assured short hold tenancy regime, which allows the landlord to serve a notice on the tenant indicating that an application will be made for a possession order. The court must also order possession if the tenant has accrued two months arrears in rent [9.40]–[9.45] and will have discretion to make an order for possession if the tenant commits other breaches [5.14]. 126 Ibid, [3.33]–[3.41]. 127 This is the case although Australia is a signatory to the ICCPR and the ICESCR. The ACT is the only jurisdiction to have a legislative Charter of Rights, but only civil and political rights are included in this Charter.
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position of tenants vis-a-vis landlords. Though neither the European Convention on Human Rights or the United Kingdom Human Rights Act 1998 includes social and economic rights, the existence of these provisions has perhaps contributed to a human rights awareness (which indirectly supports security of tenure). The Law Commission Report explicitly refers to the need to comply with human rights principles.128 Australia has no provision equivalent to Article 8 of the Convention which protects the right to respect for a home, or Article 6 which provides the basis for applying procedural protections to tenants.129 It remains to be seen whether the approach recommended by the 1975 ‘Law and Poverty Report’,130will ever be fully accepted in Australia.
128
Law Commission (UK), ‘Renting Homes’ (n 4) [2.11]. The effect of these provisions is discussed in Law Commission (UK), ‘Renting Homes––1: Status and Security’ (n 21) Part V. 130 Sackville (n 7) 81 and 102–3 and recommendations 22–29. 129
13 Impoverished Tenants in 20th Century America RICHARD H CHUSED*
INTRODUCTION
A
MERICAN LANDLORD – TENANT law has little of the complexity that has enveloped English practice in the second half of the 20th century. Sharp statutory differences in the treatment of agricultural and commercial leaseholds, widespread use of long-term residential ground leases, and legislated security of tenure for some types of property occupants have come to dominate the English law of leaseholds—to the point where there is now a specialised bar that deals with the issues on a regular basis. Few analogous developments arose in the United States. Those that did were largely responses to wartime or economic emergencies that disappeared in fairly short order. Indeed, by comparison to England, American law is naively simple. With the exception of a few aspects of residential tenancies, private contract law governs the operation of most leaseholds. Differences in the handling of agricultural, office, shopping centre, commercial and ground leases have arisen in response to tax law, business needs and custom rather than legislative mandate.1 The lack of complexity is itself an important commentary on the nature of American private property law—a legal culture dominated by market forces, heavily dependent upon private bargaining and only sporadically responsive to the needs of those least able to prosper in an individualist environment. For a legal historian, therefore, the most interesting moments
* I extend thanks to Georgetown University Law Centre for supporting my research with a summer writer’s grant and to my research assistant, Daniel Swanwick (Georgetown University Law Centre Class of 2007) for his help in gathering supporting materials for this paper. 1 Statutory intervention has certainly had an impact on American property law. But most of the statutes are related either to public law aspects of property, such as land use, zoning, historic preservation and the like, or to confirming the validity of new ownership forms, as in the horizontal property regimes regulating the development of condominiums and the structure of ownership interests in their common areas.
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in the development of landlord–tenant law are often those when the poor appeared on judicial or legislative radar screens. That is the sort of history which this paper presents. American private law’s treatment of poor tenants during the 20th century is largely a ‘before and after’ tale. Before 1970, impoverished tenants were the orphans of American law, left to fend for themselves in a largely hostile judicial environment. As the 20th century opened, residential eviction law was governed by a strange amalgam of English common law; American statutory changes designed to assist in the development of urban apartment complexes; and, procedural limitations on the issues that could be raised when landlords sought possession of property due to non-payment of rent or the expiration of a lease. The combination allowed landlords to rid themselves of non-paying or holdover tenants in speedy proceedings, where the only justiciable issues were whether the rent had been paid or the lease had expired. Through the first two-thirds of the 20th century, urban landlord–tenant courts evicted tens of thousands of tenants from their houses and apartments. The courts evinced no sympathy for the plight of tenants, even in the face of substantial evidence that rented premises were in terrible condition, or that evictions were being sought for arbitrary reasons. By the time of the urban riots in the mid-to-late 1960s, landlord–tenant courts became one of many sources of racial discontent and tension—out of touch with widespread changes in other areas of consumer law; dominated by bias in favour of landlords; and, wanting in empathy for the urban poor. After 1970, a series of changes appeared—some beneficial and some harmful to the interests of renters. The historical cusp was the appearance of the implied warranty of habitability. Beginning in 1970, a deluge of state court opinions appeared giving tenants the right to raise defences based upon the quality of their housing, when landlords brought actions to evict them for non-payment of rent.2 In an historical blink of an eye, the tone, though not always the reality, of tenants’ private legal status changed. While private eviction law stagnated through the first two-thirds of the 20th century, a few reforms in the status of tenants appeared early in the century—most notably, the adoption of building and housing codes forcing the construction of higher quality housing, and the alteration of rules governing liability of landlords for injuries to tenants. Public housing subsidy
2 The first two cases to clearly provide such a defence were Javins v First National Realty Corp 428 F 2d 1071, 138 US App DC 369 (DC Cir, 1970); and Marini v Ireland 56 NJ 130, 265 A 2d 526 (1970). Javins is the more famous of the two, and is now a staple in introductory property courses taught in American law schools. For a comprehensive history of the case, see: RH Chused, ‘Javins v First National Realty Corporation’ (2004) 11 Georgetown J on Poverty L & Pol 191. In the following decade, Javins and Marini were followed by decisions in many states, including Massachusetts, California, New York and Pennsylvania. Lower courts, in many states, also began to use the implied warranty long before the highest courts of their states formally approved the practice.
Impoverished Tenants in 20th Century America 259 programs first appeared during the Great Depression and grew rapidly after the Second World War. Spurred on by a war-generated housing shortage; a post-war boom in birth rates; and, the return of tens of thousands of soldiers in need of housing, the federal government began to organise and pay for the construction of new housing. After 1970, the trends reversed. Just as the implied warranty of habitability and other changes arrived, support for subsidised housing waned. The political consensus changed, and the focus of attention shifted from poor to middle class renters. The shift in focus, when combined with a reduction in housing available for the poor, left those at the bottom of the economic ladder in a precarious position. It may be that the status of deeply impoverished tenants is only marginally better now than it was in 1900.
BEFORE THE CUSP
The 19th Century Private Law Backdrop At the turn of the 20th century, American eviction law was a strange mixture of the common law of ejectment, and statutory developments designed to enhance the power and authority of residential landlords. The historical tone of private residential landlord–tenant law in the first two-thirds of the 20th century was indelibly linked to the structure of law in the 19th century. Even today, legal structures dating well back into the 1800s dominate the operation of most eviction courts. Tenants most commonly came into contact with the legal system when landlords sought their eviction for non-payment of rent. Actions were brought less frequently for holding over after the expiration of a lease. Two other types of disputes—actions by landlords seeking rent from tenants who abandoned their rented living quarters, and by tenants seeking recovery for damages to person or property occurring during their occupancy of rented property—arose from time to time, but they were irrelevant to the daily lives of most 19th century renters. Eviction actions brought during the early 19th century were usually styled as ejectment cases. The ejectment rules America inherited from England came laden with a number of restrictions, including sometimes lengthy pleading contests; six-month waiting periods; and, other complications that limited the ability of landlords to rid themselves quickly of non-paying or holdover tenants.3 While this sort of structure made some sense in agricultural settings where eviction meant loss of a tenant family’s livelihood, landlords in new American cities quickly began to complain that their wellbeing was endangered by the inability to 3 Self-help remedies were available in some circumstances. But penalties associated with their erroneous use substantially reduced the utilization of non-judicial procedures.
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quickly remove non-paying lessees. New York modified its ejectment statutes in 1820, and many other quickly growing states followed suit before the century was half over.4 By 1900, the eviction actions across the country were routinely summary in nature, and tenants living in urban areas who failed to pay their rent or held over were brought to special courts designed to quickly evict them. A combination of substantive property rules and procedural limitations on the ability of tenants to raise defenses to their eviction resulted in hearings in which the only issue was whether rent was actually unpaid or the lease was really over. Though the summary eviction courts came to be seen as procedurally anomalous and unfair by 1970, they fit quite comfortably with pleading systems in 19th century America. States relied on versions of the English writ system, in some cases until the middle of the 20th century. That meant that causes of action, and the responses that could be made to them, were limited and formalised. Ejectment actions, for example, tried only the right to possession. Other issues, including any promises made by landlords to maintain rented premises, were deemed extraneous to the action. Tenants with claims about such matters had to bring separate actions. Similarly, since counterclaims were unknown, a tenant could not set off against rent claimed by the landlord in eviction cases damages arising from personal injuries caused by the owner’s negligence. The courts processed the cases quickly; handled a large volume of disputes; and, almost always, issued judgments for landlords. Tenants were given a very short period of time (usually about 10 days) to appear in court after they were served with a summons and complaint. If all went well, a landlord could rid themselves of a tenant in less than a month. The combination of the substantive ejectment law, as modified by summary eviction statutes, and the procedural limitations on pleading, led to a quite narrow view of the landlord–tenant relationship. A lease was a simple exchange of the right to possession for a period of time, in return for the payment of rent. Landlords fulfilled all of their obligations by transferring possession to their tenants. Tenants were obligated to continue paying rent, even when the premises were no longer habitable.5 Only if the landlord was responsible for the rented premises becoming uninhabitable, was the tenant said to be constructively evicted from the property, and, if they completely
4 For more details on the early history of American eviction law and the history of New York’s summary dispossess statutes, see: RH Chused, ‘Landlord–Tenant Court in New York City at the Turn of the Nineteenth Century’ in W Steinmetz, (ed), Private Law and Social Inequality in the Industrial Age: Comparing Legal Cultures in Britain, France, Germany and the United States of America (Oxford, OUP, 2000) 411. 5 The common law rules held that a tenant was responsible for rent even, if the building was destroyed by fire, storm, or other natural cause. That result was altered by statute throughout the US in the 19th century. For examples of cases involving the obligation to repair, see: Schmidt v Pettit 8 DC 179 (1873); and Murry v Albertson 50 NJL 167, 13 A 394 (1888).
Impoverished Tenants in 20th Century America 261 departed from the premises, excused from the duty to pay.6 Landlords were under no obligation to make repairs, or to protect tenants from injuries to person or property. Indeed, if the tenant failed to maintain the premises, an action in waste could be brought by the landlord to recover for the decline in the property’s fitness.7 Other contractual undertakings, including any promises by landlords to make repairs or maintain the premises, were deemed ‘independent’ of the leasehold agreement and irrelevant in eviction proceedings. The adoption of summary dispossess remedies, which removed limitations on ejectment actions and speeded up the eviction process, left impoverished urban tenants at the mercy of their landlords. Those not paying their rent were summoned to court. Those who showed up were asked if they had paid their rent.8 If the answer was ‘No’, then judgment was entered for the landlord without further ado. The best the tenant could do was plead for a few extra days to find another place to live. Eviction court was not a happy place.
20th Century Contract and Tort Reforms As the 20th century opened, the struggles of tenants, especially those living in newly cacophonous American cities, came onto the radar screens of Progressive Reformers. Muckrakers wrote savage articles and books about the tragic lives of tenement house occupants and impoverished workers in New York City.9 Scandals flared and fires killed and injured many unable to escape from overcrowded buildings.10 New York was the first state to intensively review the urban housing situation, and the subject of tenement house reform was frequently on the legislative agenda of the New York legislature.11 Acts were passed in 1867, 1879, 1887 and 1901. The early 6 Some courts even required a showing that the landlord intended to make the property unusable before excusing the tenant from the obligation to pay the rent: Stewart v Childs 86 NJL 648, 92 A 392 (1914). Constructive eviction was irrelevant in eviction cases: it was only a defence when a tenant left the premises and was then sued for unpaid rent. 7 For example, Moore v Townshend 33 NJL 284 (1869). 8 Many, of course, did not show up. Some did not understand the legal papers they received. Others were not served with process, declined to go to court, moved before the hearing date or were simply scared to go. The same barriers still exist. In many contemporary urban eviction courts, most tenants still do not appear at their hearings. 9 The most famous are: J Riis, How the Other Half Lives (New York, NY, Charles Scribner’s Sons, 1890); L Steffens, The Shame of the Cities (New York, NY, McClure Phillips, 1904); and U Sinclair, The Jungle (New York, NY, Doubleday Page, 1906). 10 See: H Bonner, Tenement House Fires in New York (New York, NY, Evening Post Job Printing House, 1900). 11 The classic histories are: R Lubove, The Progressives and the Slums: Tenement House Reform in New York City 1890–1917, 2nd edn, (Westport, CT, Greenwood, 1962); and S Andrachek, ‘Housing in the United States: 1890–1929’ in G Fish, (ed), The Story of Housing (New York, NY, Macmillan, 1979).
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enactments, which required that buildings be constructed with fire escapes and windows in each room, lacked enforcement mechanisms, and, therefore, only had marginal impacts. By the end of the century, widespread discussion arose about housing conditions in New York City. The publication of Jacob Riis’ ‘How the Other Half Lives’ in 1890, generated widespread discussion of tenement house districts. In response to Riis’ work, as well as scandals arising from ownership of large numbers of tenement houses by the Trinity Church, a major institution with many famous members, the New York General Assembly’s Tenement House Committee, produced a massive report during the 1894 session of the state legislature.12 Despite many calls for the enactment of reform legislation, the first major reform, largely generated by Lawrence Veiller and his work with the Charity Organisation Society of the City of New York, was not adopted until 1901. The Charity Organisation Society installed an exhibition about tenement house life which ran for only two weeks in 1900. Despite its short lifespan, the exhibit was seen by thousands of visitors, many of whom lived far from the slums and had no prior exposure to the plight of their residents. Veiller and the Society also put together a major report with detailed legislative recommendations. The exhibition and report caused widespread discussion, and led the state legislature to act.13 The statute, adopted in 1901, imposed room size requirements, and required the installation of plumbing facilities in new buildings. But, most importantly, it also established a Tenement House Commission to enforce both the previously adopted and new regulations.14 The Triangle Shirt Waist Factory fire in 1911,15 created additional pressure for regulation of housing and factory buildings.16 The adoption of legislation in 1901 led to major changes in the way tenement houses were built and regulated in New York.17 Other states followed New York’s lead.18 Though these changes had a deep impact on the way housing
12 Report of the Tenement House Committee (NY, Assembly Documents, 18th Sess No 37, 1895). 13 Veiller was very active in the deliberations. See: L Veiller, Housing Conditions and Tenement Laws in Leading American Cities: Prepared for the Tenement House Commission (New York, NY, Evening Post Job Printing House, 1900); and L Veiller, Tenement House Reform in New York, 1834–1900 (New York, NY, Evening Post Job Printing House, 1900). 14 For a summary of the events leading to the adoption of the 1901 Act, see: A Dolkart, ‘The Tenement House Act’, http://www.tenement.org/features_dolkart.html, accessed 8 August 2005. 15 L Stein, The Triangle Fire (Philadelphia, PA, Lippincott, 1962). 16 D Von Drehle, Triangle: The Fire That Changed America (New York, NY, Atlantic Monthly, 2003); Stein (n 15). 17 The classic older histories of the tenement reforms include: R DeForest and L Veiller, (eds) The Tenement House Problem (New York, NY, Macmillan, 1903); and L Veiller, ‘The Housing Problem in American Cities’ (1905) 25 Annals of the Am Academy of Pol & Soc Sciences 248. 18 For example, Report of the New Jersey Tenement House Commission (Somerville, NJ, Unionist-Gazette, 1904); and JE Kemp, Report of the Tenement House Commission of Louisville (Louisville, KY, 1909).
Impoverished Tenants in 20th Century America 263 was built in New York and other cities, they made only marginal changes in the daily lives of most tenants.19 The Progressives, who authored the reports and supported the tenement reform legislation, were deeply committed to a series of views about the impact of environmental factors on human behaviour, and the need for reforms to protect the interests of middle and upper class Americans. It was widely assumed across the political spectrum that individuals were responsible for their own moral and economic wellbeing, and that creating a healthy environment for children was crucial to the future health of the nation.20 The times were littered with movements—right, centre and left—seeking improvement in deportment and morals through changes in society. However, none of these reform movements paid very much attention to the daily housing or other needs of the poor. While ‘radicals’ running settlement houses like Jane Addams’ famous Hull House in Chicago struggled against the tide to provide services to immigrants,21 and blacks trying to eke out a living in the festering slums of early 20th century America, the most influential reformers paid such people little heed. Interested in large-scale environmental factors that endangered the wellbeing of the middle and upper classes, and prone to blaming immigrants, minorities and the poor for their own predicaments, most Progressives ignored the one place where tenants most commonly came in contact with the legal system—summary eviction courts. It is a bit counterintuitive that Progressives paid so little attention to eviction courts. But the tolerance and empathy of many of the reformers for the impoverished residents of urban slums mirrored the attitudes of the time— rife with racial and ethnic biases and laissez-faire politics. Servicing the daily needs of disfavoured groups populating summary eviction courts was never a high priority of the major reformers. Indeed, a strong argument may be made that most Progressives were much more interested in protecting the middle class from the behaviour of those living in the slums, rather than in taking steps to help the poor directly. This was certainly true of those advocating the adoption of zoning in the early 20th century.22 Changes did begin to occur, however, in the law of some jurisdictions dealing with the liability of landlords to tenants. Spurred by the availability of contingent fees, some lawyers took on cases where the poor (or working poor) were seriously injured while in residential property. Their 19 There is now a ‘Tenement House Museum’ in New York City with a terrific website: http://www.tenement.org, accessed 8 August 2005. A ‘Tenement House Encyclopedia’ is available http://www.tenement.org/encyclopedia.pdf, accessed 8 August 2005. 20 The best history of positive environmentalism is: P Boyer, Urban Masses and Moral Order in America, 1820–1920 (Cambridge, MA, Harvard University Press, 1978). 21 For example, R Shpak-Lissak, Pluralism and Progressives: Hull House and the New Immigrants, 1890–1919 (Chicago, IL, University of Chicago Press, 1989). 22 See: RH Chused, ‘Euclid’s Historical Imagery’ (2001) 51 Case Western Reserve L Rev 597.
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persistence did not pay off quickly. Even in the face of serious and deadly problems, the old common law rules barring landlord liability for tenant injuries were enforced by the courts of New York and other states well into the 19th, and sometimes the 20th, century. When, for example, sewer systems were constructed without proper venting so sewer gas seeped into apartments, liability was rarely found.23 Late in the 19th century, the common law rules excusing landlords from responsibility for injuries to their lessees were slightly modified to take the invention of the apartment building into account. Landlords were deemed responsible for the maintenance of common areas in their buildings over which tenants had no control.24 The first cases in the early 20th century, indicating that tenement house reforms might lead to changes in the rules limiting landlord liability, involved falls in badly lit hallways in New York apartment buildings. Although the injuries occurred in common areas and therefore could have been decided by recourse to the standard late 19th century rules, the courts looked to the tenement house legislation as a source of law for defining the landlord’s duty of care to tenants. If the codes required landlords to maintain their apartments at a certain level of repair, courts read that obligation as creating a duty of care to tenants and, therefore, as a repeal of the 19th century rule that landlords were not responsible for their negligent actions causing injury to tenants.25 The breathtakingly brief opinion in the breakthrough case of Altz v Leiberson, now a classic in the history of American landlord–tenant law, was written by Justice Cardozo.26 Relying upon standards established by the housing codes, his Honour held that a landlord was responsible for injuries caused to a tenant when a bedroom ceiling collapsed. Cardozo’s explicit use of tenement house reforms to establish that landlords owed a duty of care to their tenants did not immediately become the national norm. It took until the middle of the 20th century before all states fell into line.27 Washington DC, for example, did not adopt a comprehensive housing code until 1955. A few years after the code went into effect, Judge Bazelon, explicitly relying in Whetzel v Fisher Management Company on the ground
23 Early cases provided tenants with no relief. The first breakthrough case, decided by a New York trial court, followed the path taken later by Judge Cardozo’s opinion in Altz v Lieberson, discussed shortly in the text. In Bradley v Nestor 67 How Pr 76 (NY Com Pleas, 1884), a tenant moved out of an apartment because it was filled with sewer gas. The tenant successfully defended a later suit for rent on constructive eviction grounds, noting that an administrative order to make repairs had been issued. 24 Jaffe v Harteau 56 NY 398 (1874); and Schwartz v Apple 48 NYS 253 (NY City Ct, 1897). 25 For example, Ziegler v Brennan 78 NYS 342 (NY App Div, 1902); Gillick v Jackson 83 NYS 29 (NY App Div, 1903); and Bornstein v Faden 133 NYS 608 (NY App Div, 1912). 26 233 NY 16, 134 NE 703 (1922). 27 MA Wolf, (ed), Powell on Real Property (Newark, NJ Matthew Bender, 2003) §1.2–16B.04. For a more complete telling of this story, see: MJ Davis, ‘A Fresh Look at Premises Liability as Affected by the Warranty of Habitability’ (1984) 59 Washington L Rev 141.
Impoverished Tenants in 20th Century America 265 broken decades earlier by Justice Cardozo in Altz, used the newly adopted regulations to impose a duty on landlords to maintain the safety of their premises.28 In a telling example of the slow progress of tort reform, 19th century rules were still being used in New Jersey until the 1950s. Even the future Justice Brennan, writing as a state appellate judge before his rise to prominence, expressed no dismay as he wrote a formalist opinion excusing a landlord from liability for injuries to a guest who fell on the front steps outside a dwelling.29 An Altz-like result was not rendered by the New Jersey Supreme Court until 1958.30 The slow progress of landlord–tenant tort reform mirrored the continued use of summary eviction proceedings into the middle of the 20th century. Other areas of civil law, however, changed more rapidly. The reforms created noticeable dissonance between the way American law treated tenants on the one hand, and consumers of other goods and services on the other. The notion endemic in landlord–tenant law that different parts of a contract were independent of each other,31 for example, disappeared from basic contract law before the Great Depression.32 Justice Cardozo, as in so many other important areas of American civil law, did the major work in the 1920s.33 Contract and commercial law shed a number of old rules that seriously limited the ability of merchants to deal flexibly with market needs. In a famous series of opinions, the New York Court of Appeals, taking note of the importance of commercial usages and expectations in construing contractual terms, viewed the deals, even if they dealt with series of events occurring over a significant period of time, as unified contracts with dependent, rather than independent, covenants.34 Product liability rules, especially important to the developing automobile industry of the early 20th century, 28 282 F 2d 943, 108 US App DC 385 (1960). In two earlier cases that arose before the adoption of the housing code, Judge Bazelon failed to muster a court majority to impose a duty of care on landlords to maintain their properties in a safe and sanitary manner: Hanna v Fletcher 231 F 2d 469, 97 US App DC 310 (1956); and Bowles v Mahoney 202 F 2d 320, 91 US App DC 155 (1953). 29 Patton v Texas Co 13 NJ Super 42, 80 A 2d 231 (1951). 30 See: Michaels v Brookchester 26 NJ 379, 140 A 2d 199 (1958). Later, the New Jersey Supreme Court took the next logical step and imposed a duty on landlords to compensate for injuries caused by their negligence, even when state or local statutes did not establish a performance standard: Braitman v Overlook Terrace Corp 68 NJ 368, 346 A 2d 76 (1975). The court also imposed an implied warranty of fitness on developers of new housing sold to the general public: Schipper v Levitt & Sons Inc 44 NJ 70, 207 A 2d 314 (1965). 31 See text following (n 7). 32 For more on this transition, see: WH McGovern Jr, ‘Dependent Promises in the History of Leases and Other Contracts’ (1978) 52 Tulane L Rev 659. 33 Jacob & Youngs v Kent 230 NY 239, 129 NE 889 (1921). 34 For example, three famous opinions by Justice Cardozo: Wood v Lucy, Lady DuffGordon 222 NY 88, 118 NE 214 (1917); Jacob & Youngs v Kent 230 NY 239, 129 NE 889 (1921); and Sun Printing and Publishing Association v Remington Paper and Power Co Inc 235 NY 338, 139 NE 470 (1923). For commentary, see: A Corbin, ‘Mr Justice Cardozo and the Law of Contracts’ (1939) 39 Columbia L Rev 56; and W Pratt ‘Contract Law at the Turn of the Century’ (1988) 39 South Carolina L Rev 415.
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also emerged,35 and required payment to those who were injured by defects in consumer goods.36 Finally, the Federal Rules of Civil Procedure, filled with provisions dramatically expanding the availability of counterclaims and other devices expanding the scope of litigation, were promulgated in 1938. By mid-century, the landlord-oriented operation of summary eviction courts was significantly out of sync with the operation of standard civil courts on both substantive and procedural levels. The foundation for reform had been laid.
Public Support for Housing While the law governing evictions stagnated through the first two-thirds of the 20th century, government expenditures for housing gradually increased after the onset of the Great Depression. The downturn in economic standards during the 1930s produced the first, limited, political consensus calling for the federal government to construct housing.37 Millions of middle-class Americans were pushed into poverty after 1929. Traditional American instincts to blame the poor for their predicament were marginally suppressed by a sense that the plight of the newly impoverished had little to do with their pluck and grit. The Wagner Steagall Act 1937 was the result.38 Heavily opposed by the real estate industry and labelled ‘socialist’ by the right wing, it was so filled with limitations that the poorest did not benefit. The Act was viewed mostly as a slum clearing effort to provide housing for the working poor. New housing could be built only if it replaced destroyed units. In addition, no operating subsidies were included in the grants to local housing authorities. As a result, only those with some income could afford to rent the units.39 The program, however, gradually grew. Spurred by desperate housing needs during and after the Second World War, Congress gradually removed some of the restrictions on eligibility, and increased construction budgets. As a result of significant sums of money placed in the pipeline beginning in 1948, new public housing starts reached a peak of about 70,000 units in 1951. However, the post-war interest in public housing faded during the 35 The best known of the early cases is Justice Cardozo’s work on products liability in MacPherson v Buick Motor Co 217 NY 382, 111 NE 1050 (1916). 36 The most trenchant summary of the changes may be found in G Gilmore, ‘Law, Logic and Experience’ (1957) 3 Howard LJ 40. 37 The first public housing program run by the US arose during the First World War. Various states also undertook housing programs during the 1920s and 1930s. For more on this early history, see: MS Fitzpatrick, ‘A Disaster in Every Generation: An Analysis of Hope VI: HUD’s Newest Big Budget Development Plan’ (2000) 7 Georgetown J on Poverty L & Pol 421. 38 50 Stat 888 (1937). 39 The best summary history of early public housing programs in the US is L Friedman, ‘Public Housing and the Poor: An Overview’ (1966) 54 California L Rev 642.
Impoverished Tenants in 20th Century America 267 Eisenhower years. Under the onslaught of defence needs during the Korean War and political assaults during the McCarthy Era, new starts fell almost to zero by 1956.40 However, the same forces that were to later generate enormous pressure to change the operation of summary eviction courts, led to a gradual reinvigoration of the public housing program. Healthy tax receipts, growing pressure from the civil rights movement, and increasing sensitivity to the great disparities in wealth between rich and poor produced policy changes and larger budget allocations for housing. Federal rules barring racial discrimination in public housing programs were announced in 1962,41 and operating subsidies to try to improve the terrible maintenance programs in many public housing projects were first made available in 1969.42 In 1970, construction began on over 100,000 public housing units,43 an indication of the widespread sense that change in national housing policies toward the poor was long overdue.44 Eviction court reform was also in the wind.
THE CUSP
In many ways, the United States was the only show in town after the Second World War. Much of the previously industrialised world was left devastated by the conflict. American manufacturing capacity emerged from the war unscathed, and fully able to supply the world with industrial and consumer goods. The economy began a 25 year period of unprecedented growth, and much of the population had high expectations for improvement in their economic, family and spiritual lives. Blacks returning from overseas military service, as well as their families, friends and peer communities also expected, and demanded, their share of the national wealth. Bolstered by the desegregation of the armed services45; the integration of the federal 40 A nice graphical presentation of public housing starts through 1970 is available in HJ Aaron, Shelter and Subsidies: Who Benefits from Federal Housing Policies (Washington DC, Brookings Institution, 1972) 110. 41 ‘Equal Opportunity in Housing’ (Exec Ord No 11,063, 27, Fed Reg 11,527) (20 November 1962). 42 Aaron (n 40) 113; Fitzpatrick (n 37) 431. 43 Aaron (n 40) 110. 44 Expenditures on other recently adopted programs also increased dramatically in 1970. Interest subsidy programs supporting purchase and rental of below market rate housing by the near poor resulted in the construction of another 200,000 units. The programs became embroiled in scandal, as various officials and developers obtained subsidies without fulfilling rehabilitation or other obligations. Foreclosures of badly run projects left hundreds of buildings, many abandoned, in the hands of the federal government: RA Hays, The Federal Government and Urban Housing: Ideology and Change in Public Policy (Albany, NY, State University of New York Press, 1995) 112–21. 45 President Truman announced this decision on 2 February 1948. It was formalised in ‘Establishing the President’s Committee on Equality of Treatment and Opportunity in the Armed Services’, (Exec Ord 9981, 13 Fed Reg 4,313) (26 July 1948).
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work force; and, the Supreme Court’s disavowal of segregated schools,46 the Civil Rights Movement hit its stride in the 1950s.47 Black Americans and some of their white peers began to hit the streets demonstrating against segregated restaurants, movie theatres (and other facilities), public buildings, libraries (and other publicly funded institutions), and segregated work places and unions. Congress resisted the pressure to adopt major civil rights legislation until the 1960s, when it adopted the Civil Rights Act 1964,48 the Voting Rights Act 196549 and the Fair Housing Act 1968.50 These ‘Civil Rights Acts’ were only a part of an array of changes that marked one of the most important reform eras in American history. The rapidly growing wealth of the nation made the contrasts between rich and poor, and white and black citizens, starkly visible. A broad based national movement to assist the less fortunate emerged for the first time since the Great Depression. President Johnson’s remarkable ‘War on Poverty’51 spawned a Legal Services Program, so that, for the first time in American history,52 large numbers of impoverished people (including many tenants sued in summary eviction cases) could appear in court with lawyers. Lack of legal assistance had been one of the major reasons why eviction reforms had lagged behind other legal changes. With the availability of grants for legal assistance to the poor, new legal services offices sprouted up all across the nation.53 The stage was set. The 46
Brown v Board of Education 347 US 483, 74 S Ct 686 (1954). There are many Civil Rights Timelines online. For instance, the Mississippi Humanities Council http://www.usm.edu/crdp/html/cd/intro.htm, accessed 6 January 2006; and the Public Broadcasting Service websites http://www.pbs.org/wnet/aaworld/timeline/civil_01.html, accessed 6 January 2006. 48 PL 88–352, 78 Stat 252 (2 July 1964). 49 PL 89–110, 79 Stat 437 (6 August 1965). 50 PL 90–284, 82 Stat 81 (11 April 1968). 51 Announced in a speech given on 16 March 1964, Johnson called for and gained passage of the Economic Opportunity Act 1964: LB Johnson, Papers of US Presidents, Lyndon B Johnson, 1963–1964, Vol 1 (Washington DC, Government Printing Office, 1965) 375–80. The short-lived Office of Economic Opportunity it created gave grants to a variety of local efforts to organize poor people and, most importantly for our purposes, established offices to provide legal services for the poor. The office was abolished in 1974 by President Nixon. Two of the programs it spawned (Head Start and the Legal Services Program) survived and were transferred to other agencies. 52 Low-level representation programs had been around for quite some time. Early in the 1960s, the Ford Foundation began to fund a few experimental offices. In 1964, Edgar and Jean Cahn published a law review article advocating the establishment of a nationally-funded legal services program: ES Cahn and J Cahn, ‘The War on Poverty: A Civilian Perspective’ (1964) 73 Yale LJ 1317. It was widely read and discussed. The Cahns were also friends of Sargent Shriver, the first person to run the Office of Economic Opportunity. They heavily influenced the way he ran the agency. In a major initiative, a large grant program for legal assistance to the poor was created in 1965. 53 For the history of publicly funded legal services, see: E Johnson Jr, Justice and Reform: The Formative Years of the American Legal Services Program (New Brunswick, NJ, Transaction, 1973); AW Houseman, ‘Civil Legal Assistance for Low-income Persons: Looking Back and Looking Forward’ (2002) 29 Fordham Urban LJ 1213; and J Mahoney, ‘Green Forms and 47
Impoverished Tenants in 20th Century America 269 new lawyers representing the poor, often recent law school graduates, were well schooled in eviction law issues, and eager to challenge extant practices. The few relevant law review articles were widely studied in law school property courses of the era.54 Meetings and conferences to develop eviction court litigation strategies also occurred across the country. As the lawyers talked, the black neighbourhoods exploded. On 11 August 1965, looting and burning decimated much of the Watts area in Los Angeles. It was the first in a series of events that rocked Detroit, Chicago, Cleveland, Newark, Washington DC and many other American cities. Complaints about housing were amongst the most serious causes of the urban riots.55 The availability of legal services, in combination with the civil rights pressures and violence in black neighbourhoods, made changes in eviction courts inevitable. Despite improvement in the overall quality of housing stocks in the United States during the 20th century,56 many judges Legal Aid Offices: A History of Publicly Funded Legal Services in Britain and the United States’ (1998) 17 St Louis U Public L Rev 223. The program reached its funding peak in the 1970s. Taking inflation into account, federal funds available for legal services programs in 2001 amounted to about half of the amount available in 1980, when Ronald Reagan was elected President: Houseman (n 53) 1222. 54 The first two articles were by Hiram Lesar: H Lesar, ‘Landlord and Tenant Reform’ (1960) 35 NYU L Rev 1279; and H Lesar, ‘The Landlord–Tenant Relation in Perspective: From Status to Contract and Back in 900 Years?’ (1961) 9 U Kansas L Rev 369. Two more important pieces appeared mid-decade: J Sax and FJ Hiestand, ‘Slumlordism as a Tort’ (1965) 65 Michigan L Rev 869; and R Schoshinski, ‘Remedies of the Indigent Tenant: Proposal for Change’ (1966) 54 Georgetown LJ 519. There was also one case that got much attention. Pines v Perssion 14 Wisc 2d 590, 111 NW 2d 409 (1961), ordered the return of a security deposit to tenants who had declined to take possession of a house because of code violations. The court used implied warranty language in its opinion. By 1970, Pines was routinely cited by judges writing opinions leading to changes in eviction courts. 55 The ‘Kerner Commission’ was created by President Johnson to investigate the urban disturbances. It concluded that housing problems were a significant contributing cause of the unrest: US Advisory Commission on Civil Disorders, Report of the National Advisory Commission on Civil Disorders (Washington DC, Government Printing Office, 1968) 257–63. 56 Many general measures support this point. First, the percentage of housing units lacking complete plumbing systems (hot and cold piped water, a bathtub or shower, and a flush toilet) has fallen from 45.3% in 1940 to 1.1% in 1990: US Census Bureau, ‘Historical Census of Housing Tables: Plumbing Facilities’ http://www.census.gov/hhes/www/housing/census/historic/ plumbing.html, accessed 4 September 2005. Second, crowding declined significantly between the end of the Depression and 1980, after which it levelled off or even rose slightly. ‘Crowded’ is defined as one or more persons per room. ‘Severe crowding’ is more than one and one-half persons per room. Here is data for 1940 and 2000, taken from US Census Bureau, ‘Historical Census of Housing Tables: Crowding’, http://www.census.gov/hhes/www/housing/ census/ historic/ crowding.html, accessed 5 September 2005. CROWDING IN HOUSING UNITS Year
Total Units
No. Crowded
% Crowded
No. Severely Crowded
% Severely Crowded
1940
34,447,032
6,964,894
20.2
3,085,922
9.0
2000
105,480,101
6,057,890
5.7
2,873,122
2.7
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were concerned that judicial unresponsiveness to the needs of the poor placed the legitimacy of the American judicial system at risk. The dam finally broke in 1970. Within 11 days of each other, the United States Court of Appeals for the District of Columbia Circuit and the New Jersey Supreme Court, held in Javins v First National Realty Corporation,57 and Marini v Ireland,58 that tenants could plead a breach of an implied warranty of habitability as a defence to an action to evict for non-payment of rent. Other courts followed in short order.59 Though Javins is by far the better known of the two cases,60 Marini is actually a better indication of the height of the legal hurdles that the courts were willing to cross in their desire to reform summary eviction law. In both cases, the courts refused to apply the old independent covenant approach to leases; declared that warranties of quality were implied in rental housing agreements as in other areas important to consumers; and, refused to limit the jurisdiction of eviction court to the simple question of whether or not rent had actually been paid. But this last step, namely broadening the jurisdiction of the courts, was infinitely more difficult to accomplish in Marini, than it was in Javins. The New Jersey summary eviction statute (at issue in the Marini case) barred appeals from evictions except on the ground of lack of jurisdiction.61 In a summary eviction case, all a landlord needed to allege in order to provide a jurisdictional foundation was that there was a landlord–tenant relationship; that the tenant was in possession; and, that rent was due.62 In the standard case, the only practical way for a tenant to contest the case was to claim that the rent had actually been paid. But that factual contest did not challenge the court’s jurisdiction. In fact, it relied on the court’s jurisdiction to contest the landlord’s claim for possession. If the trial court did not believe the tenant’s testimony that the rent had been paid, taking an appeal was barred by the New Jersey statute. Given all the events swirling around the New Jersey Supreme Court in the late 1960s (riots, violence, racial anger, urban disarray), the judges were desperate to find a way to change the operation of the landlord–tenant court.63 When Marini was brought to the court by attorneys from Camden 57
428 F 2d 1071 (DC Cir 1970). 265 A 2d 526 (NJ 1970). 59 See n 2. 60 The fascinating background of the parties, lawyers, judges and events behind the case is in Chused ‘Javins v First National Realty Corporation’ (n 2). 61 Civil Actions in County District Courts: Proceedings Between Landlord and Tenant NJS §2A: 18–59. The statute still has not been amended since 1970. 62 Ibid, NJS §2A: 18–53(a). 63 The strength of their desire for reform was obvious in Reste Realty Corp v Cooper 53 NJ 444, 251 A 2d 268 (1969). Reste was a constructive eviction case involving a commercial, not residential, lease. It easily could have been decided by using old common law constructive eviction rules. Instead, the court wrote a dicta filled opinion saying that lease covenants were dependent rather than independent, that landlords warranted the conditions of their premises, and that caveat emptor views of leaseholds were dead. 58
Impoverished Tenants in 20th Century America 271 Regional Legal Services, Judge Haneman wrote a unanimous opinion holding that whether rent was due and owing was a jurisdictional issue! Despite centuries of understandings that a well pleaded complaint provided a jurisdictional foundation for litigation of factual disputes, Haneman J’s astounding view in Marini was that: The jurisdictional issue, ie, the statutory basis for removal, can be twice raised in a dispossess action. First, by motion directed at the complaint for failure to accurately allege the necessary facts with particularity. Second, on trial failure to adduce adequate proof to corroborate the allogations of the complaint.64
Without the overwhelming historical and cultural forces pushing the court to act, this result was unthinkable. The New Jersey Supreme Court, like many other tribunals and legislatures around the country,65 wanted to act and it did.66 AFTER THE CUSP
The national consensus that had emerged during the 1950s and 1960s as to the unacceptability of long-standing cultural wrongs and the need to 64
265 A 2d, 530. For other court decisions, see n 2. State legislatures also quickly stepped into the breach. The Model Residential Landlord-tenant Law was published in draft form by the American Bar Foundation in 1969. Three years later, the Uniform Residential Landlord–Tenant Act was approved for state enactment by the National Conference of Commissioners on Uniform State Laws. Between 1972 and 1978, 18 states adopted the act: Alaska, Arizona, Connecticut, Florida, Hawaii, Iowa, Kansas, Kentucky, Michigan, Montana, Nebraska, New Mexico, Oklahoma, Oregon, South Carolina, Tennessee, Virginia and Washington. The Act contains a variety of terms obligating landlords to provide services to tenants and allows tenants to raise the landlords’ violation in eviction actions brought because of non-payment of rent. As noted at the beginning of the next section of this paper, sympathies for reform ebbed quickly after 1970. Only two states adopted URLTA after 1978: Mississippi and Rhode Island. 66 At about the same time, three other less important reforms also appeared. First, landlord tort liability rules changed. While the early 20th century cases used housing and building codes to establish duties of care benefiting tenants, later cases applied standard negligence rules. The most important were premises liability cases in which negligent lapses in security arrangements allowed malefactors to enter buildings. The most famous case is Kline v 1500 Massachusetts Avenue Apartment Corp 439 F 2d 477 (DC Cir, 1970). The same rule was applied later in commercial buildings: Jane Doe v Dominion Bank of Washington 963 F 2d 1552 (DC Cir, 1992). Second, courts and legislatures all over the country responded to the arbitrary eviction of periodic tenants by creating a retaliatory eviction defence barring owners from removing tenants after they complained about housing code violations. The best known of the early retaliatory eviction cases is Robinson v Diamond Housing Corp 463 F 2d 853 (DC Cir, 1972). Finally, procedural limitations on the eviction of tenants from public housing were approved. The well-known case of Goldberg v Kelly 397 US 254, 90 S Ct 1011 (1970) required that a fair hearing be provided to welfare recipients before their benefits were terminated. Shortly before Goldberg was decided, the Supreme Court took a case to decide whether the Constitution imposed hearing requirements on public housing providers before they evicted tenants. When the government issued regulations requiring that tenants be told why eviction was being sought and that hearings be provided prior to their removal, the Court remanded the case to consider the impact of the new rules: Thorpe v Housing Authority of the City of Durham 393 US 268, 89 S Ct 518 (1969). The regulations were codified in 1981. 65
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improve public housing was short lived.67 The sympathies of many in the middle class changed quickly after the breakout of urban riots in the 1960s, and the appearance of major scandals in public housing subsidy programs during the 1970s.68 By 1980, when Ronald Reagan was elected President, many programs that were previously viewed as useful efforts to help and support the poor became branded as giveaways to those, often black, who did not deserve the benefits of public assistance. Public housing programs, originally created to house middle class tenants forced into poverty by the Depression, fell out of favor. As brilliantly chronicled by Lawrence Friedman: [W]hat would happen to public housing if a rising standard of living released the submerged middle class from dependence on government shelter? Public housing would be inherited by the permanent poor. The empty rooms would pass to those who had at first been disdained—the unemployed, ‘problem’ families, those from broken homes. The program could adapt only with difficulty to its new conditions, because it had been originally designed for a different clientele. To suit the programs to needs of the new tenant would require fresh legislation; and yet change would be difficult to enact and to implement precisely because the new clientele would be so poor, so powerless, so inarticulate. The political attractiveness of public housing would diminish. Maladaptations to reality in the program would disenchant housing reformers; they would declare the program a failure and abandon it to search out fresh cures for bad housing and slums.
All this is precisely what happened.69 During the 1970s, domestic and international economic pressure, along with double-digit inflation rates,70 meant that even non-poor Americans felt squeezed. The long-running cultural assumption of the middle class, that anything was affordable, fell apart, as did the willingness to be generous to the less fortunate. The consequences were far reaching. Middle-class demands to protect their housing investments, and reduce huge rent increases proliferated. Opposition to welfare assistance, public housing, legal assistance for the poor, civil rights, the ‘War on Poverty’ and a host of other programs, intensified. Cuts in federal support for housing programs were among the most Draconian of the myriad cuts imposed during the following decade. Between 1979 and 1990, budget authority for subsidised housing programs fell from about US$25 billion per year (approx
67
The consensus was not universal. On the housing scandals, see: n 44. Friedman (n 39) 649. The same process occurred in welfare assistance as the body politic came to see the program as a giveaway to often black, undeserving poor. 70 Average inflation between 1970 and 1979 was 11.35%. See: ‘Average Annual Inflation Rates by Decade’, http://inflationdata.com/inflation/Inflation_Rate/DecadeInflation.asp, accessed 6 January 2006. 68 69
Impoverished Tenants in 20th Century America 273 £14 billion) to US$10 billion (approx £5.5 billion). In addition, most of the budget authority was for support of rental assistance programs, not construction of new public housing—an ideological reallocation of expenditures toward ‘free enterprise’ that helped fewer households per dollar spent.71 Further changes in housing programs were enacted in the 1990s during the Clinton Presidency, reallocating most housing expenditures to ‘Hope VI’ programs designed to integrate the poor into newly constructed, mixed income communities.72 Unfortunately, many of these projects have been built on land previously occupied by now demolished public housing projects. The net effect often was, and is, to reduce the number of subsidised units in the area. Indeed, a strong argument may be made that the Democrats under President Clinton did little, if anything, to improve the availability of publicly supported housing for the poor.73 As programs for the poor faded and inflation rose,74 changes benefiting middle-class renters proliferated at the state and local level.75 Though war-time rent controls were adopted during both World Wars, few rent regulations existed outside of New York City after the 1950s. The dramatic inflation rates of the 1970s, however, led to some remarkable shifts in policy. In a move never seen in peacetime, federal rent controls went into effect in 1970 under the Economic Stabilisation Act of 1970, part of a broad ranging program designed to curb inflation.76 They lasted only a short time,77 but many local governments adopted their own controls after the federal rules lapsed.78 By the mid-1980s, hundreds of communities had adopted rent ordinances.79
71 A summary of these events is in MA Stegman, More Housing More Fairly: Report of the Twentieth Century Fund Task Force on Affordable Housing (New York, NY, Twentieth Century Fund Press, 1991) 25–28. 72 For a detailed analysis of this program, see: Fitzpatrick (n 37). 73 For example, RG Bratt, Housing for Very Low-income Households: The Record of President Clinton, 1993–2000 (Cambridge, MA, Harvard University Joint Center for Housing Studies, 2002). The study is available at http://www.jchs.harvard.edu/publications/ homeownership/ W02-8_Bratt.pdf, accessed 6 January 2006. 74 See, for example, reductions in public housing funds: ‘83 Federal Programs: A Profile of Reagan Targets’ New York Times, 20 February 1981, A11. 75 The Reagan administration also tried to move funds intended for poor tenants to a new program designed to help the middle class. For example, M Hunter, ‘Plan for Middle-income Rent Subsidies is Killed’ New York Times, 25 September 1980, A8. 76 84 Stat 799 (1970). 77 The act expired of its own terms in 1974. 78 For these developments, see: MD Bergman, ‘Property Law: Recent Developments in Rent Control and Related Laws Regulating the Landlord–Tenant Relationship’ [1989] Annual Survey of Am L 691; Note, ‘The Constitutionality of Rent Control Restrictions on Property Owners’ Dominion Interests’ (1987) 100 Harvard L Rev 1067; and Note, ‘Rent Control and Landlord’s Property Rights: The Reasonable Return Doctrine Revived’ (1980) 33 Rutgers L Rev 165. 79 E Rabin, ‘The Revolution in Landlord-tenant Law: Causes and Consequences’ (1984) 69 Cornell L Rev 517, 527–29.
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Another wave of enactments imposed limitations on the owner’s ability to evict tenants living in buildings that owners wished to convert to condominiums or cooperatives.80 These changes also assisted mostly middle class tenants. Some of the limitations contained in the Uniform Condominium Act, such as a minimum 120-day notice to vacate rule and a requirement that tenants be given the right of first refusal to buy their unit, have been adopted in one form or another by over 20 states since its promulgation in 1980.81 A number of states have adopted tougher restrictions. New Jersey, for example, delays eviction from a building being converted for one year, if moving and relocation expenses are paid to tenants, and up to five years, if the owner does not provide comparable rental housing.82 Indeed, the late 20th century history of tenancy regulation in New Jersey presents a radical version of the pressure generated by middle class tenants nationwide. The densely populated state provided ‘bedrooms’ for many thousands of people who worked in Philadelphia and New York.83 Reasonably priced, good quality rental housing was difficult to find in many areas of the state. During the late 1960s and early 1970s, a powerful statewide tenants’ organisation appeared. The New Jersey Tenant Organisation (NJTO) came into being while the nation was faced with double digit inflation rates and soaring housing costs. It sought a number of changes from the legislature, including rent controls, restrictions on common law rules allowing for easy termination of periodic tenancies,84 limits on condominium conversions, and protections for elderly tenants.85 The group quickly grew to become a major force in state politics. During the 1974 legislative session, four major landlord–tenant reform statutes were adopted, including an Anti-Eviction Act which required landlords to demonstrate ‘good cause’ before evicting any tenant.86 Statewide rent
80 An overview of these is in BV Keenan, ‘Condominium Conversion of Residential Units: A Proposal for State Regulation and a Model Act’ (1987) 20 U Michigan J of L Reform 639. 81 For information on adoptions of Uniform Acts, see the Uniform Business and Financial Laws Locator http://www.law.cornell.edu/uniform/vol7.html, accessed 11 September 2005. 82 Civil Actions in County District Courts: Proceedings Between Landlord and Tenant NJS §2A: 18–61.11. Rent increases during a tenant’s continued occupancy must be ‘reasonable’. 83 In the 1980s, New Jersey was the most densely-populated state. Bureau of the Census, US Department of Commerce, Statistical Abstract of the United States 1986 (Washington DC, Government Printing Office, 1985) 12. The population density in 1984 was 1,006 persons per square mile. 84 Many leases held by the poor were oral month-to-month periodic tenancies, terminable on one month’s notice. No stated reason was required to end the lease. As inflation rose, landlords terminated tenancies and raised the rent more frequently. This led to widespread demands to curb lease terminations. 85 For a history of the New Jersey Tenant Organisation, see: KK Baar, ‘Rent Control in the 1970s: The Case of the New Jersey Tenants’ Movement’ (1977) 28 Hastings LJ 631. 86 Civil Actions in County District Courts: Proceedings Between Landlord and Tenant NJS §2A: 18–61.1 et seq.
Impoverished Tenants in 20th Century America 275 controls were not among the measures adopted in 1974. Pressure to adopt such a measure was significantly reduced by the time the legislature met. The federal government adopted rent guidelines in 1970, and just about as they expired three years later, the state Supreme Court ruled that localities had the authority to adopt rent and eviction control ordinances under existing local government statutes.87 The court’s ruling led to the adoption of dozens of rent and eviction control plans by local governments throughout the state.88
CONCLUSION
Poor tenants in America were in a precarious position as the 20th century ended. Public expenditures for housing support remained at a low level. National welfare programs had been significantly narrowed in the 1990s. The rejuvenation of many inner city neighbourhoods led to dramatic increases in urban housing costs. Homelessness increased, as did grant programs to provide assistance for shelters and other emergency programs. The nation applied ‘band-aids’ to problems created by its own unwillingness to support the construction of enough housing to provide for those in need. And what of landlord–tenant courts? Despite the dramatic doctrinal change accomplished by Javins, Marini and their imitators around the country, evictions in many locations continued pretty much as before. As the 1990s unfolded, most tenants sued for possession of their apartments because of non-payment of rent either failed to appear in court or did so without legal assistance. The courts, not obligated to provide counsel to the poor in civil cases, routinely declined either to raise defences on behalf of the unrepresented, or assign counsel. Cuts in legal service programs made it very difficult for poverty lawyers to reach out to those needing assistance. Law school clinical programs could not fill the vacuum. Eviction orders continued to be issued at a high rate.89
87 Inganamort v Borough of Fort Lee 62 NJ 521, 303 A 2d 298 (1973). Rent control ordinances must provide the landlord with a ‘just and reasonable return’: Helmsley v Borough of Fort Lee 78 NJ 200, 394 A 2d 65 (1978) and Mayes v Jackson Township Rent Leveling Board 103 NJ 362, 511 A 2d 589 (1986). 88 At the time of the decision in Inganamort, 18 rent control ordinances were in effect: ‘Jersey Towns Win on Rent Control’ New York Times, 5 April 1973, 93. Six months later, that number shot up to about 60: ‘Tenants Enter Political Arena’ New York Times, 23 September 1973, 77. Today, hundreds of cities have rent control in place, including some of the largest municipalities in the country: Rabin (n 79) 527–29. 89 Washington DC, is a prime example of the problem. Both attorneys from legal service programs and student practitioners from law school clinical programs are available in court to help tenants. The court’s judges, however, will not ask tenants if they want legal assistance until after the roll of cases is called and those present are given an opportunity to settle their
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Were poor tenants better off in 2000 than they were in 1900? Housing conditions in the nation certainly improved during the century. And the legal rules surrounding tenancies changed for the better. However, the lack of public support for housing the poor, and the failure of courts to ensure that the new legal rules were vigorously enforced, rendered much of the improvement for naught. Much work is left to be done.
differences. The agreements reached during the period of negotiation rarely raise implied warranty of habitability issues and the judges rarely inquire if such issues exist when they approve the settlements. Though hundreds of cases are heard every day, only a tiny number are referred for legal assistance. A full report on court practices is available in Final Report of the DC Bar Public Service Activities Corporation Landlord Tenant Task Force (DC Bar Washington DC 1998) (on file with the author).
Index
agricultural holdings, 11–12, 111–27, 129–45 See also security of tenure, agricultural holdings; dispute resolution, agricultural holdings; European agricultural policy; farm business tenancies. compensation on quitting, 12, 112, 114, 115, 123, 134 contracting out, 3, 115, 118 fixtures,12, 114, 123 freedom of contract, 112, 114, 118, 122, 123, 135, 137, 144, 145 grazing, 118 meaning of, 118 rent review, see under rent review succession, see under succession tenant right, see compensation on quitting TRIG, 124, 134, 135, 136, 140, 143, 144,145 agriculture, meaning of, 118, 130, 135, 139, 141, 142, 143 alterations, 73 anti-social behaviour, 204–5, 206, 220, 251 Article 6, see under human rights Article 8, see under human rights Article 14, see under human rights Article 1 of Protocol 1, see under human rights assignment, 4–6, 72–4, 95–6, 99–100, 102–4, 109 absolute prohibition, 73, 74, 95, 104 consent, 4–6, 72–4, 87–8, 95–6, 103, 244 covenant liability, 6, 74–6 see also covenants Landlord and Tenant Act 1927 s 19, 4, 87–8
Landlord and Tenant Act 1988, 4–6, 88, 100 Subletting, 95–6, 99, 102–4, 109 assured shorthold, see under residential tenancies. break clauses, see under business tenancies. business tenancies, 8–11, 46–9, 65–82, 83–110 see also assignment; assignment, subletting; security of tenure, business tenancies. break clauses, 93–5, 99, 102, 108 Code of Practice 10, 91–3, 95, 96, 99 drafting, 88, 90, 107–8 improvements, see improvements, compensation for, business tenants length, 85, 93–5, 96, 99, 102, 108, 173 policy, 49 property market, 9, 83–7 registration, 88 Regulatory Reform Order, 10, 48, 49, 71, 102 rent review, see rent review small business tenants, 48, 84, 92, 98–9,100, 105, 106–8, 109 space requirements, 87 taxation, 90–1 valuation, 86 change of use, 73 Civil Rights Movement, 267–8 Code of Practice for Commercial Leases, see under business tenancies. commonhold, 169, 171, 178, 180–6, 189
278
Index
commonhold assessment, 183, 189 commonhold association, 166 problems with, 164, 181–5 flying freeholds, 182 condominium, 274 consumer approach: See also long residential leasehold, consumer protection Australia, 239, 240–3 housing law, 206–7, 217–220, 224, 230 contracting out: agricultural, 115, 118, 121 business tenancies, 47–8, 62, 70–1, 89, 96–8 101–2 Australia, 245 co-ownership 34–6 covenants: authorised guarantee agreements, 6, 75, 76, 95, 100, 104 continuing liability, 6, 75, 85, 91, 93, 95 independent, 265, 270 Landlord and Tenant (Covenants) Act 1995 6, 74–6, 88, 95, 100, 103 Law Commission and reform of, 74–6, 91 Curry report, 124, 137 dispute resolution: agricultural holdings, 104, 105, 123, 124 Australia, 240, 245, 246, 249, 251 housing law, 230, 232 Law Commission project, 214–5, 225–8 mediation, 228, 251 Ombudsman, 226, 227 proportionate, 226
nature of, 32–4 role of intention in finding, 33–4, 52 farm business tenancies, 12, 122–4, 126, 139 diversification, 123, 124, 125, 127, 134, 135, 137, 140–6 food production 112, 116–8, 125, 126, 129–30, 138–40 forfeiture: See also termination, Law Commission report denial of title, 8 derivative interests, 81 discretion, structuring court’s, 82 doctrine of re-entry, 79 Law of Property Act 1925 s 146, 8 Leasehold Property (Repairs) Act 1938, 8 long residential leases, 162, 167, 168–9, 176 order for sale, 82 relief from, 8, 80–1 self-help, 79, 80, 81, 82 tenant default, 81 waiver, 8, 80 good husbandry, 103, 140, 142 Ground 8, 220, 227
homelessness, 197, 198–200, 203–4, 208, 220 allocation, 206 housing benefit 200, 227, 231 rent assistance, Australia 239 housing law, 191–212, 213–32 See also residential tenancies; Law Commission, housing law; consumer approach, housing law. drift from landlord and tenant law, diversification, see under farm business 191, 196–7, 217, 241 tenancies, diversification. practice, 194, 196, 202, 207–8, duty of care, 264 225–31, 232 America, 269 ejectment, 259–61 reform, 213–225 environment, protecting the, 124, 134, human rights, 201, 208–12, 234, 236, 139, 140–6 256 European agricultural policy, 117, 120, Article 6, 208, 209, 210, 256 125, 129–33, 137, 138, 139, 141, Article 8, 201, 208, 209–12, 256 144–5 Article 14, 208, 209, 210 exclusive possession: Article 1 of Protocol 1, 208 as requirement of tenancy, 3, 20, 175, possession and, 209–12 241
Index 279 ‘non-estate’, 3 termination, see termination lease-licence distinction, 20–31, 50–63, 196 see also pretence doctrine; exclusive possession, as requirement of tenancy. labelling, 20, 21, 23, 26, 31 moving in cases, 23–5, 50–4 role of intention, 20, 22, 28–30, 52–4 role of policy, 28, 38, 56, 61 role of statute, 22, 56 staying on cases, 25–7, 54–60 term, need for, 23, 27 leasehold enfranchisement, 13–7, 18 See also long, residential leasehold, problems with long leases; Nugee Committee avoidance, 162 collective rights, 16, 165, 167, 179, 187, 189 Jenkins Committee, 1, 10, 14, 69, 158, difficulties with, 165 159 flats, 160–2, 163–7 judicial reasoning, 42–4, 52–4 purchase price, 159–60, 166, 184 business tenancies, 44 residency test, 159, 164, 166, 175 legislative interpretation, 42 abolition of, 15, 166, 175 role of policy, 42, 52, 61 Right to Enfranchise, 17, 163, 166, 167 landlord neutrality, 220–2, 225 Right to Freehold, 188, 189 Law Commission, 2, 18, 89 RTE company, 188 see also repair, Law Commission; Legal Action Group 194–5 covenants, Law Commission and legal aid, 202, 228–30 reform of. Australia, 236 business tenancy reform, 48, 65–82, America, 268, 169, 272, 275 101 Legal Services Commission, 228–30 codification, 66 housing law reform, 13, 49, 68, 191, licence: see also lease-licence distinction 213–4, 232, 233–4, 255 as avoidance, 2, 240, 241 housing disputes project, see under see also pretence doctrine dispute resolution housing compliance project, 214–5, literature, 17, 192, 194, 195, 202 Australia, 236 230–1 America, 269 rented homes project, 67, 78, long residential leasehold, 147–69, 214–25 171–90 unfair contract terms, 107 See also reform, leasehold enfranlease: chisement; forfeiture, long residensee also lease-licence distinction; tential leases ancy abolition of? 17, 171 as contract, 3, 49, 239, 243 building lease, 148, 150–7 as device, 175–7 consumer protection, 168–9 as property, 4, 217, 239, 240 conversion to commonhold, 185–6 division of interests, 172–3 conversion to 999 year leases, 187 interpretation of, 3, 9 improvements: compensation for, business tenancies, 89, 101 compensation for, agricultural tenancies, 124 intention, role of in finding tenancy, see leaselicence distinction quo animo, 22 to create legal relations, 21–2, 28 interpretation: of leases, see under lease of legislation, see under judicial reasoning, legislative interpretation investment: agricultural tenancies, 126 business tenancies, 48, 83–6, 103, 105 residential tenancies, 13
280
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problems with long leases, 155, 159, rent: see also rent review; housing benefit 161, 163, 164, 165, 176, 178 control, right of compulsory acquisition,162 Australia, 234, 240, 248–9 rights to enfranchise, see under leaseAmerica, 273, 274–5 hold enfranchisement fair rent, 193, 203 right of first refusal, 16, 162 Right to Manage, 162, 168, 176, 180, rent review, 37 agricultural holdings, 12, 119, 122, 187, 188 123, 124 right to new lease, 164, 167, 176, business tenancies, 3, 9, 10, 48–9, 180, 187 84–5, 91, 92, 93, 96, 100, 104–6, service charges, 16, 161, 163, 165, 108 167, 168, 169, 179 repair, 7, 96, 101, 243, 244, 246–7, 254 tenant management 163, 189 fitness standard, 77, 206, 219, 244 Housing Act 2004, 78, 206, 219, 231 Milner-Holland Inquiry into Housing, Landlord and Tenant Act 1985, 7, 210 193 Law Commission, 7, 76–8, 89 multiple occupation, see under Street v residential tenancies, 76–8 Mountford risk assessment, 77–8, 206, 219 statutory obligation, 196, 244 Northfield report, 133 unfit, 250, 260 Notices: warranty of habitability, 77, 258–9 technicality, 3–4, 17, 18, 69 residential tenancies, 12–3 to quit, 11, 119, 201, 223 See also consumer approach, housing Nugee Committee, 16, 162 law; homelessness, allocation; housing benefit; housing law; Law original tenant liability, see covenants, Commission, housing law reform; continuing liability possession; rent, fair rent; Right to Buy; repair. periodic tenancy, presumption of, 21–2, assured shorthold, 203, 216 56 databases, Australia, 239, 252–4 possession: model agreements, 218–20, 224 see also security of tenure; human market principles, 202–3 rights, possession and policy, 46, 49 structured judicial discretion, 222, 223 Rent Acts, 12 protocol, 227 security of tenure, see security of pretence doctrine, 36–8, 54, 201 tenure, residential tenancies privity of contract, see covenants, consingle social tenancy, 214, 220–2 tinuing liability stock transfer, 203 public housing program, 266–7, 272 Right to Buy 12, 13, 15, 45, 163, 197, 200, 206 race, 258, 268, 270, 272 Australia, no, 236 reform: American residential tenancies, Sackville Report, 235–6, 254 261–76 service charges, see under long residenAustralian residential tenancies, tial leasehold 233–56 security of tenure: business tenancies, 68–72 see also contracting out Law Commission, 13, 65–82 agricultural holdings, 2, 11, 116, 117, leasehold enfranchisement, 13, 148–9, 118, 119, 120, 123 153–60 avoidance of, 2–3, 11–12, 21, 53–4, politics and, 6, 75–6, 263 121, 135, 201 remedies, 2, 77, 78
Index 281 see also pretence doctrine business tenancies, 2, 69, 88, 96–8 residential tenancies, 12–13, 48, 197, 200, 203, 208, 216, 220 see also residential tenancies, assured shorthold Australia, 234–5, 238, 250, 255 Street v Mountford 3, 19–40, 41–64, 201 application to moving in cases, 21–5 application to staying on cases, 25–7 multiple occupation, 34–6 special circumstances, 30 tolerated trespass, see tolerated ttrespasser succession: agricultural holdings, 11, 121–2, 124, 134, 143 residential tenancies, 221 surrender, 8
tenant at sufferance, 62 tenancy at will, 20, 53–4, 55, 62 tenancy by estoppel, 3 tenancy deposits, 219 Australia, 240, 247–8 tenant right, see agricultural holdings, compensation on quitting term, see under lease-licence distinction termination, see also forfeiture; security of tenure Law Commission report 7–8, 78–82, 89, 101 tolerated trespasser, 26, 27–30, 38, 55, 57–60, 62, 223 reconciling with Street v Mountford, 28–30 policy, 28, 31, 59 tort reform, 261 TRIG, see under agricultural holdings
tenancy: unfair terms, 107, 207, 218, 219 see also lease-licence distinction Australia, 242 exclusive possession, need for, see unlawful eviction and harassment, 193, exclusive possession 225 intention, role of in finding, see leaselicence distinction
