[Note: a Supplemental Response was also
submitted.]
This Society has about a thousand
members, mostly solicitors in practice within the area of its name.
The paper is very warmly
welcomed. This subject has been very
long overdue for reform. Apart from
all questions of efficiency and fairness, the proposals have the enormous
benefit of making the termination procedure logical and comprehensible, for the
first time in centuries. We strongly
support the principal recommendations in the Consultation Paper. We have misgivings on one only of them, and
we have also one entirely new proposal.
The following is the only
recommendation on which we have serious misgivings.
12.11 (1). Where premises are let as a dwelling, a
failure to pay a service or administration charge shall not comprise tenant
default unless the tenant has admitted that the amount is owing or the court,
or tribunal, has made a final determination to that effect.
1. We
are unhappy about this proposal. It may tend to make the procedure slow,
expensive and artificial. There will be
a great number of cases where the amount of the service charge, though not
admitted, is not seriously in dispute, and the only problem is the tenant’s
inability or unwillingness to pay.
2. The unpaid landlord must, under the
proposals, take a large number of steps:-
(a) Send
a detailed letter before action, specifying the requirements of the lease, and
the particulars of the service charge imposed.
At present there is no specific
pre-action protocol defining or giving guidance on the requirements of such a
letter in a claim for recovery of a service charge. Protocols are designed to
give time for defendants in a real dispute to attempt to resolve it without
proceedings, but
inevitably they increase the scope for unjustified delay. The Protocol Practice Direction suggests that
in general a month should be allowed for the defendant to respond in cases not
covered by a specific approved protocol (see PRO 1.4 in the Civil Court
Practice). There is no guidance on what should be done where there is no
apparent dispute and the proceedings are for the enforcement (as opposed to the
determination) of the claimant’s rights. There is now in all civil litigation a
very strong policy of
‘front-loading’ duties (and costs) on claimants. It may therefore
be unwise to assume that if the letter before action gives a seven-day
ultimatum the courts will regard that as long enough.
(b) Upon
expiry of that ultimatum, issue and serve proceedings for a money judgment.
(c) Obtain
a judgment by default, or if the claim is defended proceed to a hearing.
(d) Serve
the pre-action notice for termination order proceedings, based on non-payment
of the judgment debt.
(e) Issue and serve a second set of
proceedings for a termination order. In it much of the evidence will be
duplicated.
(f) Proceed
to judgment for a remedial termination order.
3. By
way of background, it is not always true that the landlord is a person of
substance and the tenant the more vulnerable party. A good example is that of the
company set up by the residential long leaseholders of a building
to acquire the reversion and manage the property. Many such companies are very
small, without cash reserves or income other than that raised from service
charges. Many have no professional management. Failure by a tenant to pay the
charges promptly can have a devastating effect on his neighbours.
4. Another
general point is that a long or complex procedure does not usually benefit a
defendant, because at the end of the day the costs usually fall on him. A process designed to protect tenants in a
few circumstances ought not to be allowed to place unnecessary expense on all
defaulting tenants.
5. We wholly support the objectives of
section 81 of the Housing Act 1996, as amplified in respect of administration
charges by section 158 and Schedule 11 of the Commonhold and Leasehold Reform
Act 2002. We respectfully adopt the
Commission’s analysis of its objectives in paragraph 2.72 of the Consultation
Paper.
“This provision is clearly directed against the
mischief of landlords seeking to terminate residential tenancies based on
failure to pay service or administration charges which are still the subject of
dispute with the tenant concerned. Only in circumstances where the dispute has
been finally resolved is the landlord entitled to use forfeiture as a means of
enforcing payment of the sums due”.
Indeed, we would add a further
mischief, namely
harassment by way of premature threat of forfeiture. Under our proposal the principle remains
intact, and can be restated thus only very slightly rephrased: ‘Only when the dispute, if any, is finally resolved is the landlord entitled to apply for a termination order
as
a means of enforcing payment’. Under
the Commission’s scheme there can be no automatic forfeiture. The court must in all cases decide whether or
not a termination order is appropriate. It should be provided in the
legislation, and/or by rules of court, that where a termination order is sought
for non-payment of a service charge evidence must be
given by the claimant showing that the charge was reasonable. This proposal in no way goes back on
the reform made by section 81 of the Housing Act 1996. Under our proposal the service charge is
still determined first – see above. It
is only the procedure that is rationalised.
The formula of section 81 was dictated by the artificial and misleading
nature of the present law of forfeiture.
(Maitland would have termed it suppressio veri and suggestio falsi. In a residential lease the proviso for re-entry,
like Maitland’s mortgage deed, “does not in the least explain the
rights of the parties; it suggests that
they are other than really they are”).
At present termination of the tenancy is operated by unilateral act of
the landlord, typically by service of a claim form for possession. Only afterwards can the court exercise limited powers to give relief. The court cannot alter the date or the fact
of the act of forfeiture. So the
statutory safeguards had to be structured so as to operate before the
landlord’s initial unilateral act, and duplicated proceedings were unavoidable.
6. The
second objective is to protect the tenant from harassment or intimidation by
threatening him with forfeiture at a time when termination could not in fact be
obtained. There is ample scope for
reviewing the wording of the pre-action notice to make clear the tenant’s right
to question the amount of the charge before any possibility of termination
arises.
7. The
proposed structure is artificial. The
real default on the part of the tenant is his failure to pay the original
service charge, not non-payment of the judgment debt. It is this that gives rise to the
cumbrousness of the proposal.
8. It
would preferable for the landlord to be able to claim in his claim form
“payment, and if necessary a termination order”. But that is impossible under the Commission’s
proposed formula, because until the first judgment has been obtained and not
complied with there are no grounds for a termination order. A claim cannot be commenced on a cause of
action that has not yet arisen, nor can it be amended if the amended claim
could not have been made at the outset.
9. We
respectfully question whether the conclusions and recommendations in paragraphs
11.4 to 11.6 really follow from the Commission’s approach in paragraph
11.3. Rather, we propose that
non-payment of a service charge should be treated as tenant default, and that
the pre-action notice for such a case should be worded so as to explain the
tenant’s position more clearly. It is
suggested that this is very much in keeping with the Commission’s general
approach, outlined in 6.21:-
We would hope,
however, that the court may be able to deal with the grant of a
remedial order by means of a paper
application, at least where the tenant admits
being in default and accepts the remedial action which
is being required by the
landlord. We are firmly of the view
that the number of hearings should be kept to
a minimum, and where the landlord realises that the
court is unlikely to make an
absolute order he or she should
expressly seek a remedial order.
10. We have also an entirely new proposal:
Upon an application for a termination order
the court should have power instead to order a sale.
11. The Consultation Paper highlights the mischief of evicting
unnecessarily a tenant from a residential property. But there is also a separate and distinct
mischief in the present law of forfeiture, that the landlord may receive a
windfall profit, over and above the amount owing, at the expense of the
defaulting tenant. Under the proposals
the risk of this happening is reduced, because the remedial order procedure will
usually give the tenant time to sell the lease if it has value. However there will always be exceptional
situations where the tenant appears unable to help himself by selling. He may
be elderly, incapacitated, absent or simply negligent of his own affairs.
12. It is the strong policy of modern law that people, especially
the vulnerable, should be protected wherever possible from excessive
consequences of their own omissions. If
the lease has value the court may prefer to order sale, probably with conduct
of the sale to the landlord,
who will then be obliged to account to the tenant for the surplus
proceeds.
13. Historically, the requirement that an unpaid mortgagee should
sell rather than foreclose developed from equity’s reluctance to permit a
windfall profit at the expense of the borrower.
It is submitted that the same device should be introduced into the field
of tenant default.
14. In most situations sale would be unsuitable as a remedy for
any number of reasons. We do not propose
sale as a normal alternative. It would
be for consideration whether, if such a power is given to the court, there
should be some form of statutory restriction on its exercise. For example, it
might be enough to provide that some ‘special reason’ must be present, to
emphasise that the remedy should be exercised sparingly.
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