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Housing Act Threshold Increase

It is now being widely reported that the maximum Housing Act 1988 rent threshold is to be increased to £100,000 as from 6 April. Some commentators are incorrectly calling this a retroactive change. A retroactive change is one that applies backwards in time. This does not. What is occurring is that the threshold is being changed for all tenancies. Therefore the change will apply to currently existing tenancies. While this is not retroactive it does mean that tenancies which are already in place where the annual rent is in excess of £25,000 but below £100,000 will automatically become ASTs. The date of change for currently existing tenancies is uncertain and has been variously reported as 6 April and 1 October. Tenancies that fall outside the Housing Act 1988 for other reasons, such as lettings to companies, will be totally unaffected.

Tenancies that fall into the Act as from the changeover date will need to have their deposits put into protection with an authorised scheme immediately unless they were already protected (the TDS scheme has been dealing with deposits on non-Housing Act tenancies since inception) and such tenancies will need to follow the usual provisions for termination by service of section 21 notices etc from that date.

There are several interesting problems raised by this change.

For one it could be argued that all tenancies falling into the tenancy deposit regime after 6 April or 1 October (whichever it is) will automatically be in breach of the requirements to protect deposits as they will have had their deposits placed into protection more than 14 days after they were received. This problem was raised in the Draycott v Hannells case (see paras 47-49) but the Court made no ruling on the point.

Secondly, there will be difficulty with tenancies that are due to end less than 2 months after the changeover date. Landlords will not be able to serve valid section 21 notices giving the statutory minimum two months notice to end the tenancy after the date to bring such tenancies to an end at the end of their fixed terms. It is not clear if a notice served before changeover would be valid for the purposes of s21 and it could only be so if the deposit had already been protected prior to service.

Thirdly, forfeiture actions for rent arrears may also be in some difficulty. Actions commenced prior to the changeover date will fall under the provisions of the Act after that date and so tenancies which have technically been ended by the service of a claim form (which is the rule in forfeiture cases) may be held to have been revived by the legislative change. If so the action can only proceed on the service of a valid section 8 notice unless the Court exercises its discretion to dispense with the service of such a notice.

Finally, the various tenancy deposit protection schemes will face a sudden rise in the number of tenancies being registered with them and, presumably, in the number of disputes they have to resolve. Those disputes will, naturally, be for greater sums of money and will inevitably be more complex. This may prove hard for schemes to deal with under their current financial and business constraints.

There is a tendency to blame the Government. However, it is not clear that they had much choice. The Housing Act 1988 simply gives a power to change the threshold figure from one number to another and not to get creative as to the implementation of that process. Admittedly, there were other legislative routes to dealing with the issue but they would all have taken more time. This is a change that needed to be made and it would have been difficult at any time. However, there is still a feeling of an unseemly dash to push through these changes in advance of a presumed election in May.

However, the Government could certainly have done far more to make the position clear by publicizing the changes more aggressively and also by (simply) publishing the legislation in good time so that we can actually take a look at it.

PainSmith Solicitors are running a seminar looking at the changes in London on the evening of 25 March. More information at www.painsmith.co.uk/seminars.

UPDATE: We are now given to understand that the necessary statutory instruments have yet to be finalised to bring the threshold change into force. However, the Government is intending to have these in place in time for 6 April with the intention that the actual changeover date will be 1 October.

4 Comments

  • David 15th March 2010 at 9:30 am

    Thanks for the news. Accepting the tenancies change at the date decided, is it actually true that deposits will have to be covered as the trigger for compliance is within 14 days of receipt?

    When the deposit was received there was no AST and since the AST there has been no receipt. The recent case where the deposit was received after the commencement (and after the section 21 notice was served) confirmed that the start date of the AST is irrelevant, it is the date the money is received that matters? (O’Brien v Hill).

    We did not have to protect deposits for existing tenancies when TDS legislation came in (as there has been no new receipt) but it was required for renewals, would the same not apply (unless they manage to sort out some clear transitional provisions!)

    • PainSmith 15th March 2010 at 9:49 am

      This is a fair point. It is uncertain. The argument has been raised in relation to tenancies that pre-existed the original 2007 introduction that deposits should have been protected at that stage but the Courts have given it short shrift. Ultimately, the argument is available all over again and will no doubt be raised by someone.

  • Jane 15th March 2010 at 10:19 am

    thanks for the update. I presume that we will now have to get them all to sign a Prescribed Info form too when we register the deposits?

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