Whilst the Renters' Rights Bill (the RRB) has understandably attracted much attention for its proposed abolition of "no fault" evictions, one aspect of the RRB that has not received as much coverage is the potential impact on shared ownership leases.
At present, following the judgment in Richardson v Midland Heart Limited [2007], any shared owner is treated as an assured tenant under the Housing Act 1988 (the HA 1988). This has been beneficial to landlords because, if the lease needs to be ended – or repossession threatened as a means to recover rent or service charge arrears – they can serve a notice seeking possession under section 8 of the HA 1988 (an NSP) before bringing possession proceedings, rather than needing to follow the generally lengthier and potentially more complicated forfeiture process.
The RRB proposes that fixed term tenancies of more than 21 years and fixed term tenancies of 7-21 years granted before or in the two months after the RRB becomes law 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 an NSP relying on the grounds for possession in Schedule 2 to the HA 1988. This will have an impact on landlords' ability to threaten possession as a means to recover rent and service charge arrears, resulting in a shift in income recovery processes for shared ownership.
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 obtain a determination of service charge arrears and/or non-rent breaches, 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 within a reasonable period, and should they fail to do so, the landlord can begin possession proceedings based on forfeiture. 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 higher and longer – 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 they do not "waive" the right to forfeiture.
The RRB does offer landlords some breathing space, as it provides that the changes will only come into force two months after the RRB is passed into law. Crucially, if possession proceedings relying on a valid NSP have commenced or have not commenced but 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 any proceedings that are based upon it have concluded.
We recommend that landlords review their arrears cases and act appropriately whilst the option of serving an NSP remains open to them within the two month implementation period. Landlords should also check that the forfeiture provisions in their precedent shared ownership leases are as robust as possible, review and update their current procedures for possession and familiarise themselves with the forfeiture process, in readiness for the RRB becoming law.
