Switaj -v- McClenaghan [2024] EWCA Civ 1457

The Court of Appeal recently considered whether or not fees which were paid by a tenant before the enactment of the Tenant Fees Act 2019 (“TFA”) could preclude a landlord from recovering possession under s.21 of the Housing Act 1988.

Facts

The Appellant, Ms Switaj, was the tenant of a flat in Holloway. She originally took up occupation of the flat in April 2018, pursuant to the grant of a 12-month AST (“Original AST”). The Respondent, Mr McClenaghan, was the landlord.

In addition to the payment of rent and a security deposit, the Original AST required payment of the following sums: (a) £120 plus VAT in respect of an “admin fee” for preparing any documents relating to any renewal of the tenancy; and (b) an unquantified “check out fee” (together the “Original Fees”). The Original Fees were paid by Ms Switaj to the landlord’s agents in March and April 2018.

In April 2020, after the TFA came into force, Ms Switaj entered into a new AST of the flat, for an initial 12 months and thereafter from month to month. The terms of the AST required payment of a security deposit, but not payment of the admin or check out fees. As the Court of Appeal explained in their judgment, the tenancy agreement was “…carefully remodelled so as not to fall foul of the TFA”. In April 2021, the parties entered into a further AST, for another 12-month fixed term, on the same terms as the 2020 AST.

In June 2023, Mr McClenaghan served a s.21 notice and subsequently issued a claim for possession. Ms Switaj defended that claim on the basis that the payment of the Original Fees meant that the section 21 notice was invalid.

First instance decision

In the county court, Ms Switaj argued that the requirement to pay the Original Fees carried over into the subsequent tenancies and particularly, into the 2021 AST, applying the reasoning in Superstrike Ltd -v- Rodrigues (2013) EWCA Civ 669 by analogy. In Superstrike, the Court of Appeal found, inter alia, that the requirement to pay a security deposit which was contained in the terms of an original AST arose again, when the original AST was replaced by a new statutory periodic tenancy on the same terms.

At first instance, DJ Redpath-Stevens, sitting at the County Court at Clerkenwell & Shoreditch, dismissed that defence and found that the subsequent tenancies simply did not “require” the payment of the Original Fees and therefore there was no contravention of the TFA.

Issues on appeal

There was no dispute between the parties that the Original Fees would fall foul of the TFA as prohibited payments if they had been required by the landlord after 1 June 2019.

The issues before the Court of Appeal were therefore as follows:

1. Was the first instance judge correct to distinguish Superstrike from the present case?
2. In circumstances where the Original Fees had never been returned by the landlord, could the retention of those funds be considered as a payment pursuant to a requirement of the successive tenancies, which would contravene the TFA and preclude the Respondent landlord from serving a s.21 notice?

The first issue

In his leading judgment, Lewison LJ notes that a payment can still be treated as being “required” for the purposes of the TFA, even where the tenancy agreement does not contain a contractual payment obligation.

However, mere silence does not amount to a requirement, which must entail “…some overt act or utterance”. As such, the mere retention of the Original Fees by the landlord after the TFA came into force and absent a requirement for the payment of the same in the successive ASTs, or otherwise by the landlord, did not contravene the TFA.

The second issue

In relation to the second issue, Ms Switaj ran an “ingenious and elegant” argument which required the Court to draw a number of factual inferences about the basis upon which the landlord had retained the check-out fee after the expiry of the Original AST and after the TFA came into force.

Dismissing the appeal in relation to the second issue, the Court of Appeal held that Ms Switaj had been required pay the check-out fee long before the TFA came into force and had never been required to pay that sum again. The fact that the landlord may have set aside the sum which had been paid originally in that regard did not amount to a requirement nor to a payment in consideration of the grant of a tenancy after the coming into force of the TFA. Furthermore, that argument rested on assertions based on notional facts that the District Judge never found and inferences that he was not obliged to draw.

Finally, the Court of Appeal held that:

• The wording of s.1(6) TFA was deliberately phrased in contractual terms. In most cases, the requirement arises pursuant to a term of the tenancy. Where a payment is made “in consideration of the grant”, that phrase takes its meaning from the contractual context in which it is used. In this case, “the grant” in question, meant the grant of the Original AST; and
• Section 17(1) TFA is drafted in sequential terms, the effect of which is that “the requirement” must cause the payment. Even if there was a notional payment under the successive tenancies, it was not caused by a requirement.

Comment

This decision is the latest clarification of the law in relation to the validity of s.21 notices. It will hopefully provide reassurance to landlords who wish to avail themselves of the s.21 procedure whilst they still can.

Article by Victoria Dacie-Lombardo