by John Stephenson
The abolition of rateable values for residential property with effect from April 1 1990 has necessitated amendments to the various pieces of legislation governing residential leases and tenancies and, in particular, to the definitions in the respective Acts of the tenancies to which the main provisions of the Act in question do or do not apply. This article looks at each statute in turn to examine the consequences of the amending legislation, namely the references to Rating (Housing) Regulations 1990, made pursuant to section 117(8) of the Local Government Finance Act 1988 and sections 149 and 190 (1) of the Local Government and Housing Act 1989.
Long tenancies at low rents
Local Government and Housing Act 1989, Schedule 10 (“the 1989 Act”) and Landlord and Tenant Act 1954, Part I (“the 1954 Act”) These Acts confer security of tenure on residential tenants who hold under a “long tenancy at a low rent” as defined in the respective Acts. Which Act applies is governed by whether, but for the rent being too low, the tenancy would be an assured tenancy under the Housing Act 1988 (in which case the 1989 Act applies) or, if not, whether it would be a protected tenancy under the Rent Act 1977, in which case the the 1954 Act will apply. Because of the provision in para 1(1) of Schedule 10 to the 1989 Act that for the purposes of the 1989 Act tenancies entered into before January 15 1989 (the commencement date of the Housing Act 1988) are not excluded from the ambit of the 1989 Act, it will now be usual for the 1989 Act to apply; only if it does not, I submit, will one now look at the 1954 Act. The 1954 Act cannot in any event apply in cases where the original contractual tenancy was granted or contracted for on or after January 15 1989.
The definition of “long tenancy” remains unaltered in each case; that is, it must provide for a term of at least 21 years from the date of grant (as opposed to the nominal commencement date).
In the case of tenancies granted or contracted for before April 1 1990, and where the 1989 Act applies, the definition of a tenancy at a low rent is one where the rent payable for the time being under the tenancy is less than two-thirds of the rateable value of the property comprised in the tenancy. The relevant rateable value, where the 1989 Act applies, will now be that of the dwelling at March 31 1990, such rateable value applying for the whole duration of the tenancy. Where the 1954 Act applies, the maximum rent payable must be less than two-thirds the relevant rateable value calculated in accordance with the Rent Act 1977. In the case of all other tenancies (ie those not granted or contracted for before April 1 1990) the definition of “low rent” is much simpler; the maximum rent payable under the tenancy must not exceed £1,000 in Greater London and £250 elsewhere in England and Wales.
In the case of tenancies granted or contracted for before April 1 1990, the maximum rateable value limits stipulated in para 2A(b) of the Housing Act 1988 apply also to tenancies covered by the 1989 Act, namely £1,500 in Greater London, and £750 elsewhere. Where the 1989 Act does not apply, and it is sought to bring the tenancy within the 1954 Act, then the rateable value maxima for protection under the Rent Act 1977 will apply.
In the case of tenancies granted on or after April 1 1990, the tenancy will not benefit from the provisions of the 1989 Act or the 1954 Act (as applicable) if the premium paid at the commencement of the tenancy exceeds the relevant maximum premium for the length of term granted. The calculation is complex; R must exceed £25,000 under the formula where P is the premium paid, T is the term granted, and i is, for the present, 0.06, although the Secretary of State can by order vary this figure. I calculate that this yields the following:
Enfranchisement of long leases
Leasehold Reform Act 1967
This Act confers rights to purchase the freehold or to an extended lease on a leaseholder of a dwelling-house under a long tenancy at a low rent. The definition of “long tenancy” is essentially the same as for the 1954 Act and the 1989 Act (see above); but the definition of “low rent” differs, at least for tenancies granted before April 1 1990. To be a low rent, the rent must be less than two-thirds of the rateable value of the dwelling-house either on the appropriate day as defined in the Rent Acts or on the date of grant, whichever is the later. The rent must be less than £1,000 in Greater London and £250 elsewhere for those tenancies granted on or after April 1 1990.
The relevant level of rent in both cases is that payable at the time of the giving of the notice to enfranchise, whether or not it is capable of subsequent increase beyond the level payable at that time; in other words, a London leaseholder under a tenancy granted on or after April 1 1990, paying a ground rent of £600 with a provision for future increase to £1,200, will fall within the provisions of the Act, but only while the rent remains at the lower level. The enfranchising tenant must, of course, also have occupied all or part of the property under the tenancy as his only or main residence for the previous three years, or three of the previous 10 years.
Where the tenancy is granted or contracted for prior to April 1 1990, the additional requirements relating to the value of the property remain as before, namely that the property must have a rateable value not exceeding the specified limits respectively for Greater London or elsewhere, such limits depending on whether the appropriate day as defined in the Act for the assessment of the rateable value falls before April 1 1973, and (if not) whether the tenancy was granted on or before February 18 1966.
In the case, however, of tenancies granted or contracted for, on or after April 1 1990, the same formula is used as with the 1954 Act and the 1989 Act (see table) and if the premium paid exceeds the relevant figure for the term granted, rights to enfranchise under the Act will not apply.
There are also necessary variations to the calculation of the purchase price for higher value properties within the Act’s protection, by which I mean those where the premium paid exceeds 65.332% of the maximum premium as shown in the table above (section 9(1A)(d)).
Again, the Secretary of State can by order vary the premium limits, the rent maxima, and the percentage referred to in the previous paragraph.
Other tenancies
Assured tenancies governed by the Housing Act 1988
This Act confers security of tenure and measure of rent control on qualifying tenants of separate dwellings, under tenancies not first granted or contracted for before January 15 1989.
A tenancy granted on or after April 1 1990 which fulfils all other criteria for an assured tenancy which remains unaltered (ie disregarding the provisions relating to rateable value) will nevertheless not fall within the provisions of the Act if the rent payable for the time being exceeds £25,000 pa. Assured tenancies are not subject to the same degree of rent control as protected tenancies, and therefore it is possible, and much more likely than with protected tenancies, that the rent might be reviewed to a figure which takes the tenancy out of protection. One would expect that, if this happened frequently, the Secretary of State would by order increase the maximum rent payable for protection to apply.
Just as there is a maximum rent, so is there a minimum rent payable to obtain Housing Act protection; the annual rent for the time being must exceed £1,000 in Greater London or £250 elsewhere, if a tenancy not granted or contracted for before April 1 1990 is to be an assured tenancy. Again, the Secretary of State can by order vary the minimum rent payable.
In the case of assured tenancies entered into or contracted for on or before March 31 1990, the rent must be at least two-thirds of the relevant rateable value to enjoy protection and the relevant rateable value of the dwelling must not exceed £1,500 in Greater London or £750 elsewhere. The relevant rateable value will now be that at March 31 1990, whether or not this is the same as it was at the grant of the tenancy, and this will apply for the whole duration of the tenancy.
Protected tenancies governed by the Rent Act 1977
This Act confers security of tenure and rent control upon qualifying tenants of separate dwellings under tenancies first granted or contracted for prior to January 15 1989.
As a preliminary point, it should be remembered that, under the Housing Act 1988, the only protected tenancies which can now be created are successive tenancies to existing protected tenancies (excluding protected shortholds).
Subject to this fundamental point, a tenancy granted or contracted for on or after April 1 1990, which fulfils all other criteria for a protected tenancy, which remains unaltered (ie disregarding the provisions relating to rateable value), will be protected only if the rent payable for the time being does not exceed £25,000 pa. Note that this leaves the door open, in theory at least, for rent to be increased by the operation of the Rent Act provisions relating to fair rents and the increase thereof to a figure such as to take the tenancy out of Rent Act protection. In practice, I submit, such an event is most unlikely.
Just as there is now a maximum rent, so is there a minimum rent payable to obtain Rent Act protection; the annual rent for the time being must exceed £1,000 in Greater London or £250 elsewhere, if a tenancy not granted or contracted for before April 1 1990 is to be a protected tenancy. Again, the Secretary of State can by order vary the maximum or minimum rent payable for protection to apply. Protected tenancies granted or contracted for before April 1 1990 are not affected by the new provisions.
