Jane Fox-Edwards provides a simplified guide to the core provisions of the Landlord and Tenant Act 1987, as amended by the new Housing Act.
The Housing Act 1996 received royal assent on July 24. Among other things, it makes significant changes to the Landlord and Tenant Act 1987. This is the Act which gives residential tenants a right of first refusal when a landlord wishes to dispose of his interest in a property. The amendments are due to take effect on October 1.
It is well known that the 1987 Act did not effectively implement this concept. (See, for example, Barry Shaw’s article on the Housing Bill, Estates Gazette, March 23 1996, p122.) The 1996 Act now tightens up the procedures and makes it a criminal offence for a landlord to dispose of the reversion of premises to which the Act applies, without first complying with its provisions.
It is also arguable that any adviser or agent of the landlord who allows the property to be sold in breach of the Act may be guilty of conspiracy. The Act also introduces for the first time a special procedure for selling properties at auction when the Act applies. (See last week’s “Auction News”.)
The Act can no longer be ignored. Anyone who is or may be involved in selling freehold residential property needs to understand both the timing and procedures laid down by the amended Act.
Even as amended, however, the Act is not an easy read. In this article the section numbers are references to the Landlord and Tenant Act 1987 as amended, unless otherwise stated.
1. In what circumstances will the 1987 Act (as amended) apply? (section 1)
- The premises to be sold must comprise at least two flats held by qualifying tenants (QTs).
- The total number of flats held by QTs must exceed 50% of the total number of flats in the premises.
- The Act does not apply if (i) more than 50% of the internal floor area of the premises (disregarding common parts) is occupied or intended to be occupied for non-residential purposes; or(ii) the landlord is exempt. (See question 3 below.)
2. Who is a qualifying tenant? (section 3)
All tenants except:
- where the tenant’s landlord is a QT;
- protected shorthold tenants under the Housing Act 1980;
- business tenants under the Landlord and Tenant Act 1954;
- assured tenants or assured agricultural occupiers;
- service tenants; and
- tenants who would otherwise be QTs of at least three flats in the premises.
But note: (1) no residence is required;(2) no minimum length of lease is required.
3. Which landlords are affected by the Act? (sections 2 and 58)
- any immediate landlord of the QTs; and
- any superior landlord where the immediate landlord has a lease of less than seven years
except:
- resident landlords;
- local authorities;
- development corporations;
- housing associations;
- housing action trusts;
- charitable housing trusts.
4. How does a landlord sell his interest under the Act?
See Figure 1.Consequences of withdrawing
- If 2), 3) or 5) does not happen then the QTs/nominee is deemed to have withdrawn. The landlord is free to sell on the open market at £x or greater, for a period of 12 months without reference back to the tenants.
- If 4) or 6) does not happen then the landlord is deemed to have withdrawn. He cannot sell on the open market without starting again.
- Costs: if the nominee or the landlord withdraws (whether deemed or by notice), the other party is entitled to costs incurred for the period starting four weeks after 2) until withdrawal.
5. What happens if a landlord disposes of his interest without complying with the Act?
See Figure 2.
6. What about section 18 notices?
Section 18 of the 1987 Act remains in force unamended.
This entitles a prospective purchaser to serve notice on at least 80% of all the tenants in the premises before disposal, to ask if they would be interested in exercising their rights.
If less than 50% have responded positively within 28 days, the purchaser cannot be required to sell to the QTs after he buys the property. Before the 1996 Act, it was not unusual for the vendor and prospective purchaser to agree that a section 18 notice would be served instead of a section 5 notice because of the shorter time-scale and smaller number of tenants who had to be served (see, for example, Mainwaring v of Henry Smith’s Charity Trustees [6] 29 EG 110).
With the new criminal sanctions for failure to serve section 5 notices, section 18 can no longer be used as a replacement for section 5, although, in sales by private treaty, service of section 18 notices in advance of sale would still make sense.
7. Special provisions for selling at auction
See Figure 3.Consequences of withdrawing
If any of steps 2), 3) or 6) does not happen in time, QTs/nominee are deemed to have withdrawn.
Alternatively, QTs/nominee may serve formal notice of withdrawal.
Following QTs/nominee withdrawal the landlord is free to sell at auction (not by private treaty) within 12 months of withdrawal.
Jane Fox-Edwards is a partner in the property litigation group at City law firm Lawrence Graham
