by Mark Pawlowski
In the concluding part of this article, the author outlines further provisions of the Rent Act 1977 with reference to avoidance of full Rent Act protection.
The provisions contained in para 2 of Schedule 2 provide:
During any period when —
(a) the interest of the landlord under the tenancy referred to in section 12(1) is vested in trustees as such, and
(b) that interest is or, if it is held on trust for sale, the proceeds of its sale are held on trust for any person who occupies as his residence a dwelling-house which forms part of the building referred to in section 12(1)(a), the condition in section 12(1)(c) shall be deemed to be fulfilled and, accordingly, no part of that period shall be disregarded by virtue of paragraph 1 above.
Para 1(c) of Schedule 2 to the Act provides inter alia:
In determining whether the condition in section 12(1)(c) of this Act is at any time fulfilled with respect to a tenancy, there shall be disregarded —
…
(c) any period of not more than 2 years beginning with the date on which the interest of the landlord under the tenancy becomes, and during which it remains, vested —
…
(ii) in trustees as such;
Para 1 appears to allow a resident landlord simply to vest the legal estate in the building in bare trustees for himself and then to go and live somewhere else for two years. Moreover, on the expiration of the two years’ period the landlord would appear to be entitled to vest the legal estate in a different body of trustees for a further period of two years and, thereafter, at regular two-yearly intervals, merely resuming residential occupation when he wished to rely on the exclusion to gain possession. During the intervening period, his position would be preserved by the fact that, under para 1, his non-residence is disregarded for the purposes of section 12(1)(c).
The provisions contained in para 2 take the matter one step further where the circumstances are such that there is a beneficiary under the trust resident in the premises, in which case there is deemed to be the requisite residence by the landlord’s trustees. A number of matters call for comment. First, the phrase “vested in trustees as such” indicates that the legal estate must be held in joint ownership and not merely by a solitary owner. This would, of course, prevent a sole landlord from claiming the benefit of the provision. Otherwise, the phrase seems to mean no more than vested in trustees as and in the capacity of trustees, whether the trust arises inter vires or under a will or intestacy: see Williams v Mate (1982) 263 EG 883 at p 884, relating to para 1(c)(ii) of Schedule 2 to the 1977 Act.
Second, under para 2(b), occupation by one of several beneficiaries appears to be sufficient, the words “any person” suggesting that it was not intended to confine the provision to trusts with only a solitary beneficiary. In this connection, it is pertinent to refer to Cooper v Tait (1984) 271 EG 105, where the Court of Appeal held that residence by only one of several joint landlords was sufficient for the purposes of section 12(1)(b) and (c) of the 1977 Act. However, the words “held on trust” may well fall to be construed as restricting the provision to beneficiaries with an interest in possession and not, for example, a mere contingent interest in remainder. It is also to be observed that on the death of a resident beneficiary there is no provision for any deeming in respect of his interest vesting in his personal representatives under para 2A of Schedule 2 for he is not the “landlord” for the purposes of the provision and no provision for any disregard appears applicable.
It is also curious that para 2 limits its deeming provision to the continuous residence condition contained in section 12(1)(c) of the Act. The effect of this is that trustee landlords are still obliged to be in residence personally at the moment when the tenancy is granted in order to comply with section 12(1)(b) but thereafter (presumably, in the scintilla temporis following execution of the agreement) the deeming provisions would take effect so as to permit constructive occupation by a resident beneficiary.
It is also to be noted that there is no provision in para 2 expressly covering the grant of a tenancy by a resident beneficiary. This would cause no problem in the case of a tenant for life under the Settled Land Act 1925 (who will have the requisite powers of leasing under sections 41 and 42 of that Act) or where there is a delegation of powers of management by trustees for sale within section 29 of the Law of Property Act 1925. Equally, there would be little problem where the resident beneficiary had neither any interest in the premises nor any power entitling him to grant tenancies but none the less did so. This is because the provisions of the Rent Act are applicable to tenancies arising by estoppel.
In Stratford v Syrett [8] 1 QB 107, land was vested in trustees upon trust for sale and to hold the net proceeds of sale upon trust for the plaintiff for her life who was allowed into possession. The trustees did not delegate to her in writing the powers of management in the manner laid down by section 29 of the Law of Property Act 1925. However, she purported to let the premises to the defendant who went into possession and paid rent to the plaintiff for a period of 18 years. She then sought to recover possession on the ground that the house was required for occupation by her daughter and her husband. The Court of Appeal held that, apart from section 29 of the 1925 Act, a valid contract of tenancy had been created as between the plaintiff and the defendant and that she had succeeded in establishing her ground for possession. Rimer LJ in the course of his judgment said (at p 114):
… I am bound to say that I can see no ground whatever why the plaintiff should not be regarded as a landlord for all purposes as between himself and the defendant by virtue of the doctrine of estoppel, including the purposes of the Rent Acts. Nothing could be clearer than that, inasmuch as the plaintiff let the defendant into possession in 1939 in pursuance of a contract for tenancy and the defendant remained in possession for 18 years, paying rent to the plaintiff or her agent, at common law a tenancy by estoppel was created; nothing could be clearer than that, and I can see no reason why the landlord under such a tenancy is not a landlord for the purposes of the Rent Acts. There is no definition of “landlord” in any of the Acts which excludes such an idea…
The observations of the Court of Appeal in Stratford v Syrett (supra), were followed in Chetwynd v Boughey, an unreported Court of Appeal decision, December 14 1979, where one of several trustee-beneficiaries, who alone was resident, let a flat without the concurrence of her co-trustees. The Court of Appeal held that she was a “landlord” for the purposes of section 12 by virtue of an estoppel. Goff LJ put the matter this way:
It is clear that at common law the defendant is estopped from denying the plaintiff’s title. That would seem to enable the plaintiff to satisfy subsection (c), but it is suggested that in some way it does not because the section refers to the interest of the landlord. As I see it, the plaintiff has to satisfy two conditions under that subparagraph. She has to show that at all times since the tenancy was granted the interest of the landlord under the tenancy has belonged to a person who at the time he owned that interest occupied as his residence another dwelling-house… So there are the two elements. First had the plaintiff an interest under the tenancy and, second, had she continued to occupy another part of the premises as her residence? The first is affected by the question of estoppel, the second is a pure question of fact… So far as the first part is concerned, the estoppel precludes the defendant from denying that at the time when the tenancy was granted the landlord had a sufficient interest in the premises to enable her to grant the tenancy. Therefore, the defendant can gain no advantage from the use of the words “interest of the landlord” since she is precluded from denying that the landlord has the interest which I have just described. There has been no change in her position and therefore she continues to be unable to deny that interest as being vested in the landlord.
It may be pertinent, at this stage, to comment upon the provisions contained in paras 1(a) and (b) and para 2A of Schedule 2 to the 1977 Act. Under para 1(a) and (b), the interval between the departure of one resident landlord and the arrival of another is to be disregarded if it is a period of not more than 28 days beginning with the date on which the interest of landlord becomes vested in law and in equity in the incoming landlord. This period of disregard is capable of extension by a period of six months by the service of a notice by the incoming landlord during the first 28 days of the disregard period.
It is to be observed that the extension notice under para 1(a) and (b) must be served during the initial 28-day disregard period and not before or after. Since the provision refers to the material date as being the date when the interest of the landlord becomes vested “in law and in equity” in an individual, this must contemplate the actual completion date of the sale and purchase of the property. It would seem therefore, that the outgoing landlord must remain in residence until the date of actual completion for the disregard period to apply for the benefit of the new (incoming) landlord. Under para 2A, if the interest of a deceased landlord under the tenancy becomes vested in his personal representatives, then the requirement of residence is deemed to be fulfilled for a period not exceeding two years beginning with the date on which his interest becomes so vested.
It is unclear to what extent these “disregard” and “deemed residence” periods can be relied on consecutively. For example, assume that the resident landlord dies and, say, 23 months later his executor sells the building to an individual who gives notice of his intention to move in after five months. This situation involves combining paras 2A and 1(a) and (b) of Schedule 2 and, on the face of it, there appears to be nothing in the Act to prohibit this form of aggregation. On the same reasoning, it would appear that an aggregation of para 1(a), (b) and (c)(ii) and (iii) is permissible, where, for example, a resident landlord dies intestate and 23 months later an administrator is appointed who after a further 11 months makes an assent to the property vesting the legal estate to himself as trustee: see further, Megarry, The Rent Acts (11th ed) at pp 206-207.
The effect on security of tenure of any period disregard or deemed residence may briefly be summarised as follows. During any such period, the tenancy remains a restricted contract within the meaning of section 19 of the 1977 Act and, accordingly, liable to termination by the expiry of a notice to quit (or otherwise) in the usual way: Landau v Sloane [1] 1 All ER 705. However, in these circumstances, the landlord cannot evict, save on proof of Rent Act grounds, unless (but only in relation to deaths occurring after November 28 1980) the interest of the landlord is vested in personal representatives during the requisite two-year period in which case the personal representatives may evict without proof of such grounds since the requirement of continued residence in section 12(1)(c) is deemed to be fulfilled. If the period of disregard expires without the tenancy being terminated and without a landlord moving into residence at the appropriate time only then will the tenancy become fully protected.
Finally, it may be pertinent to refer to the Housing Act 1988, which has made important changes to the resident landlord exclusion in respect of tenancies entered into on or after January 15 1989 (the exclusion is retained and remains unaffected in respect of tenancies entered into before this date). The 1988 Act excludes tenancies created by resident landlords after January 15 1989 from any form of security of tenure (including assured tenancy status) other than protection from harassment and unlawful eviction. It also excludes them from any form of rent regulation or rent control and (unlike the Rent Act 1977) does not classify them as “restricted contracts”: see para 10 of Schedule 1 to the 1988 Act. There are similar periods of “disregard” contained in Part III (paras 17 to 22) of Schedule 1 to the 1988 Act. However, where a period of disregard is operated by Part III, proceedings to evict the tenant cannot be brought until after that period has expired unless those proceedings would be justified in the case of an assured tenant under the Act. After the period has expired, the tenant may be evicted, even if no new resident landlord has moved in, provided that notice to quit was served during the period in question.
One significant distinction between section 12 of the Rent Act 1977 and para 10 of Schedule 1 to the Housing Act 1988 is that the latter requires the landlord (who must be an individual and, hence, not a company or institution) to occupy another dwelling-house in the flat or building (as the case may be) “as his only or principal home” as opposed to merely “as his residence”. This, of course, marks a significant change in terminology from the Rent Act 1977 and derives from the condition which a public sector tenant must satisfy to qualify as a secure tenant: see section 81 of the Housing Act 1985. The Rent Act case-law must, therefore, be viewed with some caution when applying the same to the new legislation under the 1988 Act. Undoubtedly, occupation of a dwelling-house does not require continuous presence and clearly physical absences (even if prolonged) will not necessarily jeopardise the status of a resident landlord under the 1988 Act.
Where the absence is prolonged, it seems likely that the elements of an intention to return coupled with the requisite symbol of occupation may be prayed in aid in establishing continued occupation despite a lack of physical presence at the premises: see Poland v Earl Cadogan (1980) 250 EG 495 on the meaning of the similar phrase “only or main residence” used in section 1(2) of the Leasehold Reform Act 1967 and Crawley Borough Council v Sawyer (1987) 20 HLR 98 decided under the 1985 Act. However, not only must the landlord occupy the dwelling-house under para 10 but he must also occupy it as his only or principal home. Accordingly, the absent landlord may lose his privileged status, not because he has ceased to occupy the premises in law, but because he is living somewhere else during the time of absence and that somewhere else is found to be his principal home.
Undoubtedly, where there is a genuine case of a landlord occupying two homes, it will be a question of fact and degree which of the two is the principal one. For example, in Frost v Feltham [1] 1 WLR 452, Nourse J held that a publican who lived above his pub, which was rented, and who spent two or three days a month in a house he owned in Wales (being the only property he actually owned) was entitled to claim the house in Wales as his “only or main residence” for the purposes of mortgage interest relief under the income tax legislation. The house in Wales was his “more important” residence of the two and the issue depended on looking at all the circumstances and not just the way in which the taxpayer divided his time between the two residences: see also Fowell v Radford (supra), where Lord Denning MR accepted that the whole history and circumstances were all relevant factors in the equation.
What is absolutely clear, however, is that, unlike under the Rent Act 1977, it would be quite contrary to the intention of the draftsman under the 1988 Act to permit a landlord to qualify under para 10 in more than one property.
