A recent case has exposed a very unfortunate loophole in the law which might have harsh consequences for certain long leaseholders.
Certain long leaseholds are protected under the terms of Part 1 of the Landlord & Tenant Act 1954. The qualification for this protection was that the tenancy was for more than 21 years and the tenant would otherwise have fallen under the protection of the Rent Act 1977 save that the rent was too low too qualify for that protection. At the end of the term of such tenancies the tenant would originally have gained the protection of the Rent Acts. These provisions are being phased out after the introduction of the Local Government and Housing Act 1989 and a wholly new scheme set out in Schedule 10 applies. This scheme provides that the original lease continues until specified notices are served at which stage the tenancy changes into an Assured periodic tenancy under the Housing Act 1988. Part of this process includes a process by which the parties are to agree a new monthly rent and if they cannot agree the Rent assessment Committee has the power to set an appropriate rent. Quite properly, when setting the rent the RAC is required to exclude from its consideration any increase in the rent that would be attributable to improvements the tenant has made to the property. Therefore if the tenant has fitted a new kitchen during the long lease the landlord cannot take advantage of it to seek a higher rent once the tenancy becomes Assured.
Naturally, once the tenancy has become Assured the landlord is entitled to increase the rent to a market level every 12 months using the normal procedure supplied by section 13 of that Act. Bizarrely, although the RAC is required to exclude consideration of tenants improvements on the initial setting of the rent it is not permitted not do so on any subsequent determination of the rent. Therefore although a tenant who fits a new kitchen will not be liable to pay a higher rent for that improvement when he or she first gets the Assured tenancy, the landlord will be able to seek a higher rent due to that improvement 12 month later using the usual section 13 process.
Essentially this is precisely what has occurred in the case of Hughes v Borodex which came before the Court of Appeal a few months ago. The Court of Appeal held, with regret, that it had no power to change the rent assessment of the RAC which had taken into account the tenant’s improvements on setting the rent under a section 13 notice. What makes this case even more unjust is that the RAC determination took the rent over the sum of £25,000 per annum making it possible for the landlord to evict the tenant as the Housing Act 1988 no longer applied to her tenancy.
Regrettably, if all this had occurred just a few months later the tenant would have been protected by the increased rent threshold for Housing Act 1988 tenancies that will be introduced on 1 October 2010.