Understanding Section 21 – video recording

 

Recording transcription:

Today’s session, we’re going to be helping you get a better understanding of Section 21 and some of the new changes to legislation that’s taken place.

 

My name’s Jason Charles, and I work for Rightmove. Today, I’m not going to be hosting this session. There’s a guy, David Cox, who’s waiting for me on the other end of the line, and he is the Managing Director for ARLA. So if there’s anyone that’s going to be an authority on this subject, it’s going to be David. So at this point, I’m going to hand over the controls. I’m going to pass it over to David, and he’s going to go through the current changes in legislation. Over to you, David. So should be live now.

 

David: Good evening, Jason. Good evening, ladies and gentlemen. Thank you very much. Yes, I’m going to spend the next few minutes talking to you about the recent changes to Section 21 and the new Retaliatory Eviction provisions that were created last year under the Deregulation Act of 2015, one of the last pieces of legislation passed by the coalition government before last year’s general election, and how they impact on yourselves as landlords to make sure that you’re as compliant as possible and so that you don’t have unnecessary time and expense if you need to regain possession of your property.

 

So let’s kick off with a little bit of background. I think the background is quite important to understand why the government have made the changes that they have. It really goes back to tenancy deposit protection legislation, actually, on the case of Superstrike vs Rodrigues. It’s a pretty famous case within the private-rented sector. I think some would probably call it an infamous case. And that was the case back in 2012 that rewrote tenancy deposit protection requirements, said that you had to start re-serving prescribed information, re-protecting deposits on renewals, which really ran completely contrary to the legislation that existed in the original spirit of tenancy deposit protection.

 

We also, in 2013, had a second case, Spencer vs. Taylor, that was all around the two calendar months in Section 21 so that you don’t any longer need to serve a Section 21 notice the ends at the end of rental period. Two calendar months from when you serve the notice is perfectly sufficient.

 

Now, the government accepted the case of Superstrike really wasn’t the spirit of the law, and therefore they agreed their first opportunity, they would overturn the legislation by an act of Parliament. At the same time, they were coming under increasing pressure from tenants’ rights groups around the issue of retaliatory eviction, and there had been calls that as many as 213,000 tenancies were at risk of retaliatory eviction. And just in case you’re not sure what that is, retaliatory eviction is effectively if a tenant makes a request to improve a property, if there are repairs, anything like that, instead of acting on the tenant’s request for repairs, particularly, the landlord served a Section 21 notice.

 

Now, certain organizations did claim that that hit as many as 213,000 properties and tenancies a year. ARLA used the government statistics, and that came out actually more about 7,120. Nonetheless, a Lib Dem MP by the name of Sarah Teather put forward a private members bill called the Tenancy Reform Bill of 2014, which outlawed retaliatory eviction. Now, when that came to the floor of the House of Commons, private members bills only have a certain amount of time they have to speak on the floor before they get voted on and then either go forward or really the bill dies at that moment in time.

 

A very old tradition known as a filibuster is where an MP will stand up and speak for such a long time that he manages to talk out the bill, the bill runs out of time, and it dies at that moment. And two Conservative MPs did that to Sarah Teather’s Tenancy Reform Bill. They disagreed with retaliatory eviction, they didn’t agree with the figures that were being provided, and therefore they managed to talk the bill out. And at that point in time, back in December of 2014, Sarah Teather’s retaliatory evictions and Tenancy Reform Bill lay dead on the floor of the House of Commons.

 

However, politics being politics, along came the Deregulation Bill. And the Deregulation Bill, at the time, it was the Deregulation Bill of 2014 that became the Deregulation Act of 2015, was really the last bill of the Coalition Government. It was literally passed and received the signature from the Queen the day before Parliament was dissolved for last year’s general election. That was a catch-all bill. It was all the little tiny pieces of legislation that the government wanted to fix that they hadn’t found a more appropriate legislation to do. It included things like ownership of space. It also included provisions around taxicabs in London not needing a bale of hay any longer. That was one of the bizarre statutes that still existed.

 

They used the opportunity to include into that bill the overturning of Superstrike, which we were very pleased about, but they also were aware that they got a general election coming up. And at that point, they were expecting to have to form a coalition government, as it had been two Conservative MPs that had killed Sarah Teather’s Tenancy Reform Bill. They were expecting to be in coalition with the Lib Dems. They picked up her bill from its deathbed in the House of Commons and put it into the Deregulation Bill as a government measure. At the same time as they changed Superstrike that included this, they also took an additional opportunity to make some changes to Tenancy Deposit and so to Section 21 that they felt were necessary, and they wanted to enshrine the case of Spencer vs. Taylor onto the statute books.

 

So let’s see what they did. Now, all of what I’m going to be talking about came into force on the 1st of October last year, and it applies to tenancies that began on or after the 1st of October. Any existing tenancies that were started before the 1st of October last year, these rules do not apply to them. Now, first and foremost, before you can issue a Section 21 notice, you have to provide certain documents to the tenants in order for you to validly and lawfully serve that Section 21. First one is an energy performance certificate. Now, that you’ve had to serve the EPC for many years, but it’s now a requirement of a service of a Section 21. So if you haven’t served the EPC, you won’t be able to issue your Section 21 notice.

 

Just as a point of aside and few top tips since this legislation has come into force, it is possible to serve things like EPCs and other requirements that are later down the slide by email. However, if you do serve it by email, you have to get the tenant’s consent to service by email. So we would recommend that you have some sort of agreement with the tenant in writing that they’re happy to accept the various legal documents, tenancy agreements, etc., etc., everything that’s listed on this slide, by email so that you can validly serve it.

 

Now, one thing that I would also point out with things like EPCs and also the DCLG How to Rent booklet that is later down the slide, if you are going to be serving these by email, make sure you serve them as attachments. So you download it from the government website, you download it from other websites, and you attach it to the email. You download it from the National EPC Register in the case of EPCs. Don’t serve a link to the EPC Register. A letting agent, quite recently, got fined £52,000 for just serving a link to the National EPC Register. And this is because you can’t actually guarantee that that website will always be live, and for valid service, the tenant, in this case, will always need to be able to access that document. So make sure, when you’re serving the documents that are listed here, you serve them as PDFs, you serve them as attachments to emails, not just links to web pages.

 

The other aspects that you need to serve on the tenant before you can issue a Section 21 is a valid gas safety certificate if the property has got gas. If you’re letting a property that is subject to mandatory licensing, so a mandatory HMO, mandatory license for HMO, or you’re in a council area that has additional or selective licensing and your property needs to obtain a license from the council, you need to make sure that you serve those licenses on the tenants before issuing a Section 21 notice. And again, tenancy deposit protection certificates, these you’ve had to serve since 2007, but you can’t issue a Section 21 notice unless you’ve served the tenancy deposit protection certificate and the prescribed information correctly. Otherwise, you will be liable to both the penalty for TDP up to three times the deposit plus the return of the deposit, but you also won’t be able to regain possession under Section 21.

 

While we’re talking about tenancy deposit protection, I think it’s important to remember you need to serve the tenancy deposit protection certificates on everybody that is living in the property and any guarantors, whether or not they’ve actually paid the deposit. In fact, we’ve had a case recently that I’m aware of, where the tenant paid the deposit herself, moved her boyfriend in. The prescribed information wasn’t served on the boyfriend. When he moved out, he demanded three times the deposit plus the full return of the deposit, despite the fact that he hadn’t paid a penny towards that deposit and his girlfriend, the original tenant, was staying in the property. In that case, the court did find in their favour, and the landlord had to pay up. I think it was about one and a half times the deposit, was the fine in the end. So do remember about serving up everybody that lives in the property, not just the person that paid the deposit.

 

Let’s go and look at further down the page and look at the How to Rent booklet. Now, this is something that is available on the DCLG, the Department of Communities and Local Government website on gov.uk. You just need to Google “how to rent,” and it’ll pop up as the first option. You have to serve that on all tenants that are going to be living in the property on any tenancy that started on or after the 1st of October last year. You also have to re-serve that document if it is changed when you come to renew the tenancy. If it hasn’t changed, then there’s nothing to worry about. You don’t need to re-serve the document. But if it has changed, you need to re-serve that document.

 

Something I would say, if you’ve had tenancies that started really in October, November, December, or January of this year, when it comes up to the end of the tenancy and you’re renewing it for another 6, 12-month, you do need to re-serve that document because the booklet changed on the 1st of February this year. So do keep an eye on the gov.uk website for when there are updates available. If you’re members of any of the landlord associations, I’m sure they will keep you up-to-date.

 

Also, make sure that you can demonstrate service. Leaving these documents just at the property, you’re not going to be able to demonstrate to a court that you have served on a tenant. So service by email is the easiest because then you can provide the email, that it was sent on this date at this time to this tenant. Proof of postage, as well. If you’re going to post them out to tenants, that might be another option, but do remember that you will need to demonstrate to the court that you have served these documents on the tenant.

 

Now, let’s talk about some of the other aspects that have been changed under Section 21. First and foremost, landlords won’t be able to issue a Section 21 notice in the first four months of the tenancy, so I’m afraid gone are the days of when the landlords would sign the contract, they’d give the AST, the tenancy agreement, to the tenant, and then a Section 21 notice as well. That is deemed unlawful. It will be completely unenforceable. So you can’t serve it until the first day of month five, and it is then only valid for six months. So again, in times past, you could serve a Section 21 at any point in time during the tenancy, and as long as it was legally and correctly served, it would now have no time limit. You will be able to use it five, six, seven years later, and we are aware of possession cases that have been based on Section 21 notices that were served seven years previously.

 

Many people have asked, “Well, does that mean I need a minimum of a seven-month tenancy?” No, you don’t because we’re going back to the case of Spencer vs. Taylor, which the government did enshrine into the Deregulation Act. That’s the second bullet point down. You only need to serve a Section 21 with two calendar months’ notice. So it doesn’t matter when the end of the rental period is, when the start of the rental period is. As long as it’s beyond the first four months, you can and less than two months before the end of a fixed term if a fixed term’s longer than six months. All you have to do is give two calendar months’ notice, which should make serving the Section 21 notices a lot easier than it has been in the past and will reduce the number of court cases that end up getting thrown out because landlords have accidentally put the wrong date on the Section 21 notice.

 

But you do have to still remember about dates of service. So for example, if you’re issuing a Section 21 notice on the first day of month five, you have to give two days and two working days, as well, for service if you’re posting it. And therefore, it ends on day three of month seven, and that is when they have to leave the property. So do bear in mind two calendar months’ notice, plus if you’re posting it, two working days for service as well.

 

All tenancies that began on or after the 1st of October last year, you now need to use the new prescribed government form for Section 21 notices. Those landlords and agents that have been regaining possession of the property using Section 8 and trying to claim rent arrears will be used to the standard Section 8 form. This is just doing exactly the same as the Section 21 form. Now, on the Section 21 form, if you’ve got existing tenancies, so those that started before the 1st of October last year, you can use the new form. That’s perfectly allowable, but you don’t have to. The tenancies that started on or after the 1st of October last year, you have to serve it and you have to use the Section 6A form.

 

Some may have read in the Trade Press this morning and in the Property Press this morning, ARLA has recently written to the Department of Communities and Local Government highlighting a possible error on the form. I wouldn’t worry too much about that at the moment. It is a legally prescribed form, and therefore, the courts do have to take the form as is. There is the potential for slight technical error on the form, but we’ll be getting back to people as soon as we know a little bit more.

 

Lastly on this, we have the rent return in certain circumstances. So if we think about the two calendar months’ notice, because it doesn’t need to end at the end of the rental period, it could end part-way through the rental period. A good tenant, having paid the rent for that full rental period, will actually be leaving having already paid for a few extra days’ rent. In those circumstances, what landlords need to do, and you’re legally required, is to refund for the days that the tenant has paid for that they’re not living in the property. And you do that by working out how many days there are in the calendar month and the rent, dividing one by the other so that you get a day rate, and paying the dates that the tenant hasn’t lived in the property back to the tenant.

 

I’m sorry. I’m going through this at a little bit of a whistle-stop pace. Let’s move on to retaliatory eviction. Now, you should have a handout on your screen. It’s very similar to the little picture that you’ve got. This pops up on the slide here so that you can take that away as effectively a flow chart that ARLA has put together with a company called Fixflo to help you navigate what you need to do in relation to retaliatory evictions. But effectively, in a nutshell, if a tenant complains about repairs and you, as the landlord, don’t provide an adequate response within 14 days, the local authority then issues an improvement notice. You will not be able to use a Section 21 notice for six months. And there will be an outright ban on regaining possession through Section 21 for six months after that improvement notice is served.

 

Let’s look at this in a little bit more detail. So how do you trigger the provisions? The provisions and the requirements under retaliatory eviction start off with the tenant making a request for repairs. Now, they have to make that request before a Section 21 notice is issued, so if they complain about repairs after you’ve issued a Section 21 notice, then it doesn’t trigger these provisions at all. Therefore, they have to do it before the notice is issued. They have to do it in writing with one caveat unless they don’t know your postal address or your agent’s postal address.

 

So make sure you put on your tenancy agreement your address. Therefore, before the notice is issued, must be in writing. And if you’re a landlord that owns, for example, a mansion block, where you’ve got multiple properties, maybe a converted period, three-story period property, converted into three flats, it also includes things like the stairwells and communal areas if you are the landlord that controls those communal areas. So it’s not just within the flat. It’s in the communal parts as well.

 

So the tenant makes that request. Landlords then have to provide what is known as an adequate response, and you’ve got 14 days to provide that. Now, the adequate response is not fixing the problem. It is merely saying that you acknowledge, “Thank you for letting us know about the problem. I’m going to rectify it by doing A, B, and C, and I’m going to do it within the next X number of days.” That is the adequate response, as long as you tell them what you’re going to do to fix the repair, fix the problem, the estimated time that you’re going to take. That is your adequate response. If you do use an agent, they can do it on your behalf.

 

However, if you haven’t provided an adequate response within 14 days, the tenant can complain to the local authority, and they have to complain to the local authority on the same issue that they’ve made to you about the repairs. If they go to the local authority about something else, that doesn’t trigger the provisions. But if they go to the local authority, they complain about the issue that they’ve already complained to you about, the local authority will come out and undertake a property inspection. It’s called an inspection under the Housing, Health, and Safety Rating System, or HHSRS. And if the local authority takes the view that the tenant’s complaint is justified and they do issue you with an improvement notice, from the date of that notice, you won’t be able to use a Section 21 notice for six months. So it won’t be from when the tenant originally complained. It will be six months from when the actual improvement notice is served.

 

Now, relevant improvement notice is one issued under the Housing, Health, and Safety Rating System, which is part of the Housing Act 2004, and it contains 29 hazards, some which are known as Category 1, which are immediate danger to the health and safety of the occupants, or Category 2 that may be. I’ll give you an example of Category 1 hazard. It will probably be a broken boiler. A Category 2 hazard will be a wobbly banister. So do bear in mind these provisions can kick in for very minor repair issues. A wobbly banister would be classed as Category 2 hazard and could trigger the retaliatory eviction provisions.

 

Now, got to look at the effect of this. The retaliatory eviction provisions were designed to really eliminate that tiny minority of rogue landlords that don’t care about property standards. They let terribly unfit properties to vulnerable tenants, and therefore, only a very small number of landlords should really be hit by these provisions. What we actually have in the government’s Deregulation Bill is a lot simpler and lot fairer piece of legislation, that which was in Sarah Teather’s Tenancy Reform Bill.

 

We should also notice that when a local authority comes out and does a Housing, Health, and Safety Rating System inspection, they will generally give landlords, depending on what they find, 14 to 28 days to actually remedy any defect before they issue the improvement notice. So even if we get to the local authority stage, there’s still an opportunity for landlords to avoid these provisions as long as they fix the property. And I would note that, even if you do get this ban on Section 21, you can still use a Section 8 notice.

 

Now, conscious, this has been very much a whistle-stop tour. I’m sure there’s quite a few questions out there. I’m more than happy to answer the questions. I think, Jason, we’ve probably got about 5 or 10 minutes left. So with that, I will say thank you very much.

 

Jason: Okay, perfect. Thank you very much for that, David. So I’m just going to switch back over to myself there, and as you said, quite rightly, yes there’s been quite a few questions that have come in. It’s been quite a busy session. So thank you for those of you that have taken some time out of your evenings. Not to worry, you can settle down for your dinner in just a few minutes.

 

So, David, there’s been a fair number of questions, so as previously, I’m just going to try and band those together. Quite a few people have asked for a copy of the slides, and so we have recorded today’s session, and we’ll send that out for you so you can get a link to watch this video back tomorrow. So do check your inboxes for that. There’s been quite a few questions that are about specific cases. We probably won’t go into those here and now, but what we will do is pass those on so that, I guess, I can get back to you shortly in relation to those.

 

So the first real question-answer, James has asked, “Our system has a log in the area and for the tenant to download tenancy agreements, documents, attachments, EPCs, and so forth. Is this going to be sufficient, or do we need to email certificates prior to serving the Section 21?”

 

David: That is a very interesting question actually. It’s legally ambiguous, I would probably suggest. If you want a belt and braces approach, I would serve the documents by email, but you may well get away with all the documents are up there for the tenant to download. I think it would depend on the county court judge that you come before as to whether they would consider that sufficient to be deemed service. So if I were you, I would take the belt and braces approach at this point in time because we do have to factor in that this legislation is still new. There’s absolutely no case law on it at all at the moment, and I’m sure none of you would want to be the landlord or the agent that is the test case.

 

Jason: That’s prompted a few questions, which is, “How should you record the issuing of the Section 21 notice?” What’s the best case scenario for that?

 

David: I think one of the best case scenarios is if you can get the tenant themselves to actually sign for it. So when you’re going around to sign the tenancy agreement with the tenant, you should, at that point, already have the gas safety certificate, already have the EPC. You actually get the tenant to sign that they’ve received those documents. You can serve the How to Rent Guide at that point in time as well. You can serve the property license at that point in time. Because all of those should be in your possession before you sign the tenancy agreement. The only thing that might require an additional signature is when you provide them with the tenancy deposit protection certificate after you’ve protected the deposit. So that’s probably the best. Proof of postage is probably another one or email, as long as the tenant has accepted service by email.

 

Jason: Perfect. Thank you very much. So we’re running short on time, so I’m only going to ask a couple more questions, so apologies if we don’t get around to answering yours. I will try and band them together into groups as much as possible. So the next question that we’re going to ask is probably a tricky one, “What if the rent is paid on a different date to what the tenancy started? So rent is paid on the 1st of the month, and AST started on the 15th.”

 

David: That doesn’t actually matter in relation to these provisions, and I’m assuming the questioner was probably talking about the rently payment aspects. Because in the event that the tenant has paid the full month’s rent and you want them to leave partway through the month and the Section 21 notice expires partway through the month, you just work out and there’s still six days left to go. They’ve paid X amount in rent. Their daily rent is X pounds. Therefore, I need to repay them six days. And it really works no matter how many days the tenant has paid. If they’ve overpaid, you have to give them the money back. They’re not in occupation. So I don’t think it really matters that much when the rent is actually payable. It’s about what has been paid.

 

Jason: Okay, perfect. So last question for you today, David. “How quick does a tenant need to report any repair issues to a local authority?”

 

David: It all comes to the question of reasonableness. What is reasonable under the circumstances? Now, in these provisions, we would argue that if you complain to the landlord, the landlord has not done anything in the 14 days, hasn’t provided the adequate response, and maybe the tenant waits a few more days after that and reports to the local authority at that point in time. Unfortunately, the legislation is entirely silent on that, and therefore, it effectively gives the tenant an open-ended ability at that point in time.

 

So that’s a difficult question to answer because one of the points that we did see on the slide is that if a Section 21 notice is issued after a tenant has made a complaint, but before a local authority has issued an improvement notice, unless you’ve gone all the way through the possession process and regained possession of the property, if a local authority serves an improvement notice at any point during that process, it will invalidate Section 21 notice and will reset that six-month clock. So it is an open-ended question. It’s a difficult one to answer. I think courts will take into account the tenant’s reasonableness in this, as well as the fact that the landlord hasn’t provided an adequate response.

 

Jason: Okay, so it sounds like there’s lots of variables that could come into play. I’m just sorry to work on such a tricky question. So I am going to have to call time on there so everyone can get off and enjoy their evenings and their dinners hopefully. So I want to, firstly, thank all of you for taking part in today’s session, and for all your questions, and donating some of your time to try and learn some more about the industry that you’re involved in. Thank you, David, for taking some time out to share some of your knowledge and answer all of those questions. We really do appreciate that.

 

So we’re just going to wish you all a great evening. There is a survey at the end of the webinar, so when we close up, we do encourage you to fill out that survey. We do genuinely take on board your feedback, and we all make changes. And hopefully, we can create more of these sessions which are more valuable to you moving forward. So from us at Rightmove, thank you very much, and thank you to you, David, for all of your help.