There has been much discussion in recent months regarding the Renters (Reform) Bill. Most attention has understandably concerned the abolition of "no fault" evictions. However, one aspect of the Bill that has not received as much coverage is the potential impact on the management of shared ownership properties.
If the Bill is passed in its current guise, fixed term tenancies of more than seven years will no longer be treated as assured tenancies for the purposes of the Housing Act 1988 (the 1988 Act). This will mean that landlords of shared ownership properties will be unable to serve a Notice of Seeking Possession (an NSP) relying on the possession grounds in the 1988 Act. This will have a major impact on landlords ability to threaten possession as a means to recover rent and service charge arrears, resulting in a significant shift in income recovery processes for shared ownership.
At present, following the judgment in Richardson v Midland Heart Limited [2007], any shared owner is treated as an assured tenant for the purposes of the 1988 Act. This has been beneficial to landlords, as they can simply serve an NSP following the accrual of rent and/or service charge arrears, and, following the expiry of such a notice, begin possession proceedings. In particular, the ability of landlords to rely on ground 8 (the mandatory rent arrears ground for possession) has meant the Court has no choice but to grant possession.
The current legal position means a shared owner has less legal protection than a typical "long leaseholder". The Bill seeks to address this situation for shared owners – and for leaseholders with ground rents high enough to meet the legal threshold of an assured tenancy – by providing that fixed term tenancies of more than seven years cannot be treated as assured tenancies. If the Bill is passed, landlords will have to follow the forfeiture procedure should they wish to threaten repossession as a way to recover arrears.
The forfeiture process is more convoluted than the process used for possession of assured tenancy properties. Please contact us if you require guidance on the forfeiture procedure but, in short, the process requires a landlord to bring a debt claim, prior to serving a notice pursuant to section 146 of the Law of Property Act 1925. This notice provides that the leaseholder must remedy the breach of the lease (usually the non-payment of service charges) within a reasonable period, and should they not do so, the landlord can begin forfeiture possession proceedings. The costs and timescales involved in the forfeiture of a long lease compared to the current process for possession of a shared ownership lease will be much higher – effectively two sets of Court proceedings will be required, one for the debt claim and one for possession based on forfeiture.
To add to this, mortgage lenders typically only look to step in to pay the arrears after a landlord has served the section 146 notice, as opposed to the current process for shared owners where most lenders will pay the arrears following the service of the NSP. Landlords will also need to navigate the potential legal trip wire of ensuring it does not waive the right to forfeiture.
The draft Bill does offer landlords some breathing space, as it provides that the changes will only come into force two months after the Bill is passed into law. Crucially, if possession proceedings relying on a valid NSP have commenced (or have not commenced and have not been time-barred, i.e. the usual 12 month period has not lapsed), the shared ownership lease will remain an assured tenancy and the NSP remains valid until when such proceedings have concluded. There is no guarantee that this window will remain open to landlords in the final version of the Bill. However, the best course of action for landlords is to review their arrears cases and act appropriately whilst the option of serving NSP remains open to them. Landlords should also begin to review their current procedures and familiarise themselves with the forfeiture process, in readiness for the Bill becoming law.
