Airbnb and similar short term lettings platforms have made huge inroads both in London and all over the UK. While there are many advantages to these platforms, quiet locations may not want a constant flow and turnover of occupants.  Freeholders and other managers of properties may want to know exactly who is occupying the different flats  and other properties under their control. Can freeholders use the terms of long leases to control and, if necessary, prevent the use of properties for Airbnb and other short term lettings?

In Nemcova v Fairfield Rents Ltd [2016] UKUT 303(LC) the Upper Tribunal determined that short term letting was in breach of the covenant in the lease not to use the property “for any purpose whatsoever other than as a private residence.”   A problem with the Tribunal though is that it cannot grant an injunction preventing the further use of a flat in breach of covenant.  The Tribunal can only make a declaration which a freeholder can use in a later s146 Notice and forfeiture proceedings.  This is, to say the least, a rather cumbersome way of controlling the problem.

The civil courts on the other hand can grant an injunction restraining a lessee from continuing with behaviour which is in breach of lease.  Now we have a decision on appeal in Bermondsey Exchange Freeholders Limited v Koumetto (as Trustee in Bankruptcy of Kevin Geoghegan Conway) (unreported) Central London County Court 1 May 2018, which upheld a decision at first instance that letting on Airbnb and similar platforms was in breach of lease and granting an injunction to restrain further subletting.

Both in Nemcova and in Bermondsey Exchange the freeholder relied on so-called “user” covenants in the leases.  Drafted in the days before the internet, let alone Airbnb and similar platforms were invented, user covenants  now sound rather quaint and old fashioned, using such phrases as “single private residence” and “for the occupation of one family only.”  The Tribunal in Nemcova and the court  in Bermondsey Exchange though were able to interpret the user covenant to decide that using Airbnb and similar platforms was a breach.  The catch however is that slight variations in the wording of user covenants may be all important in deciding  whether the lessee is in breach.  In Bermondsey Exchange the user covenant was different from Nemcova and prohibited use “….otherwise than a residential flat with the occupation of one family only.”   The court found that short term letting was a breach of that covenant.

For a freeholder /manager who is less than enthusiastic about a property being used for short term letting, Bermondsey Exchange will be welcome news that, in many circumstances, something decisive can be done.

[Andrew Brookes acted for the successful claimant in Bermondsey Exchange.]

Andrew.brookes@anthonygold.co.uk

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

You may be able to change the management of your building if you’re unhappy with the way it’s being run and you live in a leasehold flat. You can either:

-ask a tribunal to appoint a new manager; or

-take over the management responsibilities, known as your ‘Right to Manage’

The RTM Company must be limited by guarantee, and its Articles of Association must follow a specified form as is laid down by legislation.

It is the directors of the company that are responsible for the management/running of the RTM company and it is a majority of the directors who make decisions.

The directors may nominate one person or appoint a professional managing agent to undertake the management functions.

The RTM company’s functions will typically be administered by a combination of Directors and Members meetings.

The directors may call general meetings and, on the request of members pursuant to the provisions of the Companies Act, (and in any event within twenty-one days) proceed to convene an extraordinary general meeting for a date not more than twenty-eight days after the date of the notice convening the meeting.

An annual general meeting or an extraordinary general meeting called for the passing of a special resolution or a resolution appointing a person as a director shall be called by at least twenty-one clear days’ notice. All other extraordinary general meetings shall be called by at least fourteen clear days’ notice but a general meeting may be called by shorter notice if it is so agreed,

(a)in the case of an annual general meeting, by all the members entitled to attend and vote; and

(b)in the case of any other meeting, by a majority in number of the members having a right to attend and vote, being a majority together holding not less than ninety-five per cent of the total voting rights at the meeting of all the members.

The notice shall also include or be accompanied by a statement and explanation of the general nature of the business to be transacted at the meeting.

The notice shall be given to all the members and to the directors and auditors.

Members may by special resolution make a director refrain from specified action. A special resolution is a resolution of the company’s shareholders which requires at least 75% of the votes cast by shareholders in favour of it in order to pass.

A quorum of at least 20% is required to hold a meeting of the members.

Directors meetings

Can be called by any director by giving notice of not less than 7 days, but the directors can waive the formalities of the formal notice requirements. Meetings do require a minimum quorum of 2 directors. A proper record of decisions made should be kept.

An ordinary resolution of the members is required to elect a director. There is no requirement to be flat owner to be a director.

An ordinary resolution is a resolution passed by the shareholders of a company by a simple or bare majority (for example more than 50% of the vote) either at a convened meeting of shareholders or by circulating a resolution for signature.

The chairman of meetings has a casting vote on issues where there is disagreement.

What is it?

The new Pre-Action Protocol for Debt Claims came into effect on 1 October 2017 and has made some important changes to the procedure for recovering debts. The protocol is primarily aimed at businesses seeking money from individuals, including residential landlords pursuing unpaid rent from tenants.

As with other Practice Directions and Pre-Action Protocols, the main objective of this protocol is to reduce the number of cases which progress to court. It strongly encourages the early communication between landlords and tenants to clarify their dispute and resolve matters through the use of other dispute resolution methods. The proposition set by the protocol, not only endeavors to save the court’s time and financial resources, but seeks to achieve quick and efficient outcomes between parties who know their own positions better.

It is important to bear in mind that the courts will expect all claimants for debt matters, including landlords, to have complied with the protocol should the matter reach litigation. If claimants have failed to comply with the protocol, the courts will impose sanctions by limiting legal costs or awarding them against the person making the claim, possibly even where they have won the case.

How do I use the protocol?

The protocol requires that a detailed letter before claim must be served on the debtor. The letter should provide all the necessary information forming the basis of the claim. The letter should include the following details: the amount of money that is owed; whether interest is chargeable on the arrears; the type of agreement the debt arises from; details of the claimant and the debtor; and details on how the rent arrears can be paid. An Information Sheet, Reply Form, Standard Financial Statement and an updated rent schedule should also be enclosed.

Once the letter has been served on the debtor, they must be given the chance to respond within 30 days using the Reply Form. You should also allow the debtor to request further information, if necessary.  This could include a request for a breakdown of rent payments that have been made to date. It is worth noting that you will only be entitled to commence legal proceedings once the 30 day period has lapsed and if you have had no response to your letter.

In the circumstance that the tenant has failed to complete the Reply Form fully, it is for you to discuss the inadequacy of the response with your tenant.  In effect, the protocol recognises that an incomplete response is better than no response.

The debtor has offered to pay:

If the debtor has offered to pay a sum towards the arrears, you will need to try to reach an agreement as to how much should be paid. You should always consider whether the proposed amount is actually affordable for the debtor. You should be able to determine what is affordable from the information they have provided in their Financial Statement.

I cannot come to an agreement:

If you do not agree with the debtors’ proposals and fail to come to an agreement, you are expected to provide the debtor with a full, written explanation of your refusal. Once you have done so, you will then be entitled to commence legal action. Ideally, you should provide 14 days’ notice of your intentions to do so to the debtor.

What does this mean for landlords?

In essence, bringing court proceedings should be your last resort and it is down to you and your tenant to find a cost effective and speedy resolution. Even after issuing court papers, you and your tenant will still be required to review your respective positions in a bid to prevent litigation from taking place.

You will need to produce sufficient evidence and documents to prove that your claim exists and why it exists. We recognise that the new procedure is cumbersome for landlords in recovering rent arrears expeditiously but it does mean tenants may be able to identify where and what they have erred on at an earlier stage.

What about eviction using a section 8 notice for rent arrears?

This protocol does not replace the section 8 rent arrears process. But it does connect with it and it should be used as part of that process. Remember that a section 8 notice is usually issued when there are 2 months of arrears whereas the debt protocol can be used whenever any debt arises. Therefore, a landlord should ideally be using a debt protocol compliant letter as soon as the arrears arise and seeking to engage with the tenant to prevent the situation escalating. The 30 day window to respond can start at that point.

Once the second month of arrears has arisen then it is unlikely that any further negotiation is going to be productive. The landlord can tell the tenant that they are proposing to go to court, giving them 14 days’ notice of this through a section 8 notice.

At Anthony Gold, we can advise you on recovering rent arrears, guiding you on how you could update your debt recovery procedures and instructing you on the documents you should send to your tenants to ensure full compliance with the protocol.

In his speech at the Conservative party conference the Secretary of State for Communities and Local Government, Sajjid Javid, slightly unexpectedly stated that the government intended to regulate letting agents. This was something that had been called for by a range of groups for some time but the government had stated they thought it was unnecessary so the announcement came as something of a surprise.

Today the DCLG has published a consultation entitled “Protecting consumers in the letting and managing agent market: call for evidence“. This consultation states that it is seeking evidence as to whether “a new regulatory model” is needed in the lettings sector and what form this regulation could or should take. This appears to be a slight roll-back from the Secretary’s speech in that the DCLG is not stating that they are definitely going to regulate but asking if they should do so at all. They are also leaving open the exact mode of regulation and so they may conclude that existing redress schemes, possibly with more powers, are sufficient.

The consultation in fact has a pretty detailed analysis which concludes that there is an issue to be addressed, so it seems that DCLG are fairly committed to action. The consultation continues by reviewing minimum entry standards and seeking views on whether agents should be required to belong to a professional body and whether some minimum standard for that membership should be set.

The government has three proposals for regulation:

1. Requiring agents to join a professional body and setting some minimum standards for them;
2. As with option 1, having a requirement to join a professional body but then creating a new oversight regulator which will oversee those professional bodies, in a similar way to the Legal Services Board having oversight over the various legal regulators; or
3. Having a new regulator which agents have to join directly.

The consultation finishes by considering enforcement and empowerment options. There is clear consideration being given to making failure to join a scheme a criminal offence but there is also thought being given to more empowerment of long leaseholders to challenge the appointment of managing agents and ask the landlord to replace them.

The consultation runs until 29 November 2017. This does not mean that it will end up in legislation and any such legislation will be quite far down the road given the pressures on parliamentary time as we move toward Brexit. However, this is a definite step in the road to full agent regulation.

From 11 May 2017 Nationwide announced that it would no longer be lending to new build properties with unreasonable ground rents.  Unreasonable ground rents being those that double every 5, 10 or 15 years.  Instead, they will only lend to those with ground rents limited to 0.1% of the property’s value.  This is because they believe it is in their customer’s best interest to avoid unfair lease terms which will later impact the salability of their property.

With Nationwide leading the way with this new lending criteria, it will no doubt inaugurate a butterfly effect with other lenders following suit and changing the market perception of what constitutes an onerous ground rent.

If, as we suspect, most other mainstream lenders do adopt this new criteria on lending, this will open the floodgates on claims for existing leases under the Leasehold Reform, Housing and Urban Development Act 1993 to force the removal of onerous ground rents with landlords receiving considerable premium payments and professional costs for the loss of ground rent.

It will eventually coerce developers granting new leases to reevaluate their terms when drafting new Leases, Deeds of Variation and Deeds of Surrender and Re-Grant.  This is good news for leaseholders or those wishing to buy new build leaseholds but perhaps not such good news for freeholders that rely on large ground rents as a source of income.

There was a recent case of Taylor Wimpey including a ground rent clause in a lease starting at £295 per annum and doubling every 10 years.  This would mean in 50 years the ground rent would be £9,440 per annum which is totally unreasonable.  So we can see why Nationwide have brought in this restriction as ground rents cannot go on like this.

Nationwide have also stated that they will not lend on new leasehold properties with less than 125 years on the Lease.  In the past, most leasehold properties have started with 99 years so this is obviously another big change that freeholders will have to take into account when drafting new Leases.

If you are a leaseholder that already has an unreasonable ground rent there is still a way out of this.  You can serve a Section 42 Notice on your freeholder under the Leasehold Reform, Housing and Urban Development Act 1993 to extend your lease by adding an additional 90 years and removing the ground rent entirely.  Even if you do not urgently need your lease extended it is still a way to remove the unreasonable ground rent clause and if you have a long lease then the premium would not be too high anyway.

If you are thinking of extending your lease and your landlord is proposing unreasonable ground rent charges or you would like more information on removing an onerous ground rent please do not hesitate to contact the Leasehold and Enfranchisement Team at Anthony Gold.  We have a specialist team here that would be happy to help.  Or perhaps you are a landlord or property developer that would like help drafting new Leases, we would be more than happy to hear from you.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*