Industry comment, updates and news from the Websters team.
In his ‘Tip of the Week, David Wells of DAC Beachcroft reports that the recent case of Friends Life Management Services Limited and A&A Express Building Limited reinforces the point that a landlord either has to spend monies it receives by way of service charge within the service charge year a lease terminates or return it to the tenant.
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Dominic Cunliffe of Macfarlanes notes that, unless the lease makes express provision to the contrary, a tenant will not be able to recover from its landlord any prepaid rent or other sums, which relate to the period after a break date.
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Inside Housing reported that ‘coalition MPs defeated an amendment to the Consumer Rights Bill last night, to ban letting agent fees, by a majority of 53 votes. The Labour proposal was defeated 281 to 228 with all but three Conservative and Lib Dem MPs voting against it. The government released its own amendment yesterday – letting agents will have to publish all fees charged in comprehensive detail or face fines. The Communities and Local Government department statement about the amendment said it will be added to the bill at a later date. Stella Creasy, Labour MP for Walthamstow, tabled the opposition’s motion and said before the vote: ‘It is a fundamentally anti-competitive corporate practice. We want to do something about it.’
King & Wood Mallesons has reported that CRAR (Commercial Rent Arrears Recovery) – the new rules for seizing a tenant’s goods – comes into force on 6 April 2014 in England & Wales, replacing the ancient common law rules of distress for rent. CRAR is designed to be fairer to tenants, but will it be an effective remedy for landlords and are there any alternatives?
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Shoosmiths has reported that, in Siemens Hearing Instruments Limited v Friends Life Limited, the High Court has held that a break notice which failed to comply with the express provisions of the break clause was nonetheless valid. The key lesson for landlords is to ensure that, if you intend to make non-compliance with the terms of a break clause fatal, you must say so. From the tenants point of view, not a great deal has changed. It is essential to follow break clauses to the letter but, if something goes awry, the language of the clause may just be flexible enough to rescue the break.
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Hill Dickinson has recently focused on the problems of dilapidation, when a new lease is negotiated. In this case, the main focus of tenants and landlords is upon the financial payments to be made throughout the lease term, such as rent and service charge. Quite often the parties do not realise that failure to understand and deal with dilapidations, which are essentially the breach of repairing/decorating obligations within the lease, can have serious financial implications in the future.
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BBC Business News reported this week that the Office of Fair Trading is to look into the relationship between leaseholders and their freeholders and, in particular, will look into the way in which charges are made for the management and maintenance of leasehold homes. This investigation will cover councils and housing associations , as well as private freeholders.
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No. 1 Deansgate (Residential) Limited v No. 1 Deansgate RTM Co. Limited
In Eversheds ‘Top 5 cases of 2013, it was reported that the decision in this case was that, for the
purposes of the Commonhold and Leasehold Reform Act 2002, a building can be
attached to another and still be considered to be ‘structurally detached’, so long as the
attachment is not of a structural nature. The relevance of this finding is because
qualifying leaseholders of flats are entitled to establish and join a Right to Manage
company (‘RTM company’) if they all occupy a ‘self contained’ building. The building in
this case was a 14 floor block of flats which was originally a stand alone building but
over time neighbouring properties had been connected to it. The leaseholders formed
an RTM company and sought to acquire the Right to Manage which was denied.
However it was held that as the neighbouring buildings derived no structural support
from the building in question, it could be regarded as structurally detached and the
Right to Manage application could proceed. The cases which considered the phrase
‘structurally detached’ when looking at the Leasehold Reform Act 1967, were irrelevant
for this purpose. Residents will now have to consider not whether their building is joined
or touches another building, but if it gains any real support from that building before
making an application.
Websters has been specialising in the production and audit of service charge accounts for nearly forty years. When we started this work, service charge audits were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment. Some of the advantages of an audit are:-
We now act for a very large number of landlords, who recognise that independently audited accounts can remove a major cause of conflict with their tenants
Landlords should remember the following:
When a tenant applies for licence to assign a new lease, under what circumstances does the lease allow the landlord to
demand an authorised guarantee agreement (AGA)? Even if the landlord can request an AGA, it may not be worthwhile, for example, if the outgoing tenant is in financial difficulty.
Think before pursuing a former tenant or guarantor. If the former tenant or guarantor pays in full they will be entitled to
an overriding lease. It may be better to persevere pursuing the current tenant, or to forfeit the lease if there is a chance
of re-letting the premises at the same or higher rent.
Remember that varying a lease can release guarantors, including former tenants who have entered into an AGA.
Guarantors should, where possible, be joined in as a consenting party to a variation.
Giving time to a tenant in a binding way which will allow the tenant to pay rent late or not at all could operate to release
a guarantee.
