Housing Law – Getting in the Rent

By : Alastair Redpath-Stevens

There are many aspects of rent collection and arrears control over which RSL managers may have little direct influence, including the all-too-familiar difficulties with the processing and payment of housing benefit claims, as well as the vagaries of the court process when it comes to possession claims.
 
There is, however, one key aspect over which RSLs do have control, but which continues to cause problems: the process by which rent increases are implemented for assured periodic tenancies.
 
For those relevant tenancies where there is no contractual provision, and in the absence of any other agreement between landlord and tenant, Housing Act 1988, s.13 provides a statutory mechanism for increasing the rent.
 
Section 13, as originally drafted, caused considerable difficulties. It provided that no rent increase could take place earlier than the anniversary of the last increase. This meant that it was not possible to set a fixed day, such as the second Monday in April, when the increase would occur, as in some years this would violate the statutory provisions, albeit only by one day. This lack of flexibility, and the fact that the date of the annual increase tended to drifted year-on-year, was a source of great inconvenience.
 
As a result the section was amended by the Regulatory Reform (Assured Periodic Tenancies) (Rent Increases) Order 2003 (SI 2003/259), thereby enabling a landlord of an assured periodic tenancy with a period of less than one month – and typically, an RSL tenancy will be weekly – to set a fixed date when a rent increase would occur.
 
This amendment has resolved many of the issues formerly encountered by RSL landlords, and generally speaking problems should not occur if the prescribed notice (Form 4B of the Assured Tenancies and Agricultural Occupancies (Forms) Regulations 1997 (SI 1997/194), as amended by the Assured Tenancies and Agricultural Occupancies (Forms) (Amendment) (England) Regulations 2003 (SI 2003/260)) is used, and the relevant notice periods are observed.
 
A further problem may occur where the rent increase notice issued to a tenant does not conform to the contractual rent variation date contained in the tenancy agreement, as happened in Riverside Housing Association v. White [2005] EWCA Civ 1385.
 
Riverside’s tenancy agreement provided that the rent would be increased annually from the first Monday in June each year by giving four weeks’ notice in writing, and furthermore, that the agreement could be changed only with the written consent of both parties or by following a prescribed consultation process. In 2000 there was a Housing Green Paper which suggested that rents increases should be limited to inflation. In fact, Riverside’s tenancy agreement provided for a rent increase which was the higher of the General Index of Retail Prices + 2% or the Index of Average Earnings + 2%. The Association foresaw a serious impact on their income stream. Accordingly, the decision was taken to change the rent increase date to the first Monday in April of each year. As no rent increase had been levied for June 2000, this would have the benefit of generating an extra 9 weeks of higher income within the financial year. Furthermore, it would bring the date of increase in line with Riverside’s financial year and mean that the Association’s financial arrangements would be more in line with those of the Housing Corporation and the local authorities with which it worked.
 
Riverside were well aware that this new arrangement did not accord with the contractual term, but had “checked with solicitors whose view is that, since the delay is in the tenants’ favour, we are able to defer the rent increase date from the date fixed in the tenancy agreement.” As a result, Riverside did not take the necessary contractual steps to amend the tenancy agreement but simply sent out a notice to increase the rent from April 2, 2001. In subsequent years, further notices were sent out all of which increased the rent from the first Monday in April.   
 
Things came to a head when Riverside commenced possession proceedings against Mr and Mrs White for non-payment of rent. The substantial part of the arrears of about £900 depended on the validity of the rent increase notices, which was challenged by the Whites. In the county court, Riverside advanced six separate arguments in favour of the validity of the rent claimed as arrears, all of which were rejected by the court save for one: that the date of the first Monday in June was not critical, on the basis that there was a presumption that time was not of the essence in such a contract.
 
The Whites’ appeal was allowed, with the Court of Appeal holding that the presumption did not apply to the rent variation date. That date was unalterable, other than by changing it using the mechanism provided by the tenancy agreement. That mechanism had not been used: in fact deliberately so, as Riverside were anxious to avoid having to “go out to consultation again with all 12,000 tenants on assured tenancy agreements to change the tenancy agreement again.”
 
The Court also rejected Riverside’s attempt to uphold the county court judge’s decision on other grounds, including that the parties had entered into a new agreement; that the Whites had waived their right to object to Riverside’s failure to observe the terms of the tenancy agreement; and, that the Whites were estoppped, either by convention or by acquiescence, from disputing the validity of the notices, the new rent variation date or the new rents.
 
It is the estoppel argument which is of particular interest. Although, for example, the ingredients for an estoppel by convention were present, viz. that: both parties assumed that the notices were valid; on that basis they regulated their subsequent dealings; and, Riverside would suffer a detriment if the Whites were permitted to resile from that convention, Riverside were caught by the legal doctrine that such an estoppel could not be used as a sword – that is it could not be used to claim that the arrears were lawfully due, and thereby to found a cause of action for possession – but could only be used as a shield, i.e. a defence.
 
Curiously, however, the very fact that the estoppel may be used as a defence might assist a landlord such as Riverside in a case where a tenant were to seek to recover rent by reason of the invalidity of rent increase notices. Although this might appear to offer some ray of hope, the fear would be that, like the Whites, tenants might simply withhold the increased rent in the knowledge that their landlord would be unlikely to have a cause of action against them.  
 
Riverside have petitioned the judicial committee of the House of Lords for permission to appeal.