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You are here: BAILII >> Databases >> The Law Commission >> RENTING HOMES 1: STATUS AND SECURITY (A Consultation Paper) [2002] EWLC 162(2) (28 March 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/162(2).html Cite as: [2002] EWLC 162(2) |
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Part II
the evolution of housing law
2.1 In thinking about how housing law might be developed, we must first understand how the law has evolved into the current complex body of rules so heavily criticised by Lord Woolf.[1] We do not intend to provide a detailed account of the history of housing law and policy over the last 150 years, but rather to highlight the principal issues addressed during that period and see how they have changed. We need to consider the various legislative techniques that have been used and the extent to which they have achieved the results intended for them. In short, we need to learn the lessons of history to ensure that our proposed new framework will, so far as we can predict, be able to meet future needs.
(1) first legislative initiatives – the 19th century,
(2) the regulation of the private rented sector, 1915-1980,
(3) the development of the public rented sector, 1920-1980,
(4) the development of the housing association sector to 1980, and
(5) developments from 1980 to the present day.
Finally we draw out the principal lessons we think can be learned from the historical account.
2.3 The Industrial Revolution led to a major restructuring of society. Significant movements of the population, from rural communities into the newly industrialised conurbations, took place. These new concentrations of populations into often very poor quality housing created major problems of disease and overcrowding.[2]
2.6 The quality of much rented housing was not high. Housing conditions and the concomitant problems of public health became the focus of criticism by many leading social reformers of the day.[3] There was no statutory security of tenure.[4] The potential for social unrest became increasingly obvious.
2.7 The first legislative interventions in the 19th century were, by modern standards, modest. Nevertheless, they laid the foundation for future developments. These initial Acts of Parliament were principally concerned with questions of public health[5] and, in particular, the development of powers for local authorities to control disease.[6]
2.9 Such rehousing was largely undertaken by “model dwelling companies” and philanthropic trusts, such as the Peabody Trust. By 1914 such bodies had built 50,000 dwellings. The Housing of the Working Classes Act 1890 expanded the powers available to local authorities to build themselves and they began to do so. However, by 1914, total local authority stock was only about 28,000 new dwellings.[7]
2.10 While local authorities were given powers to regulate housing conditions, and to provide housing, little was done by government to intervene in the contractual relationship that existed between landlords and tenants. This remained a relationship whose consequences were determined by common law.[8] Problems arising from the inequality of bargaining power that existed between landlord and tenant went largely unchecked.
2.11 The first major statutory interventions in the contractual relationship between landlord and tenant occurred during the First World War. Shortages of urban housing in key locations enabled landlords to increase rents significantly. While this might have been an economically appropriate/logical response to the balance between supply and demand, it created severe political problems. Munitions workers, especially in Clydeside, threatened strike action. With no alternative sources of social housing available, and no scheme for providing public subsidies to assist meeting housing costs, the Government’s only practical option was to introduce legislation to restrict the right of landlords to set or alter rent levels.[9] At the same time, to prevent landlords circumventing these measures of rent control by demanding capital sums of rent in advance, requests for premiums (colloquially called “key money”) were also outlawed.[10] In order to ensure that landlords would not simply evict tenants who attempted to enforce their rights, for example by complaining that they were being charged rents in excess of the legal limit, the legislation also provided that tenants should have security of tenure.[11]
2.12 Two particular points may be noted about this early legislation. First, it was originally intended only as a temporary war-time emergency measure, rather than as a long-term intervention in the freedom of landlords and tenants to contract. Second, it did not apply to all rented dwellings but only those which fell below defined “net rateable value” limits.[12] It was clear from the debates in Parliament that this early legislation was only intended to protect the poor.
2.13 Despite the fact that the legislation was conceived as a temporary phenomenon, continuing housing shortages – and the social and political pressures that resulted from them – after the end of the Great War resulted in the original legislation being retained. Over the next four decades no Government found it could afford, politically, to repeal the legislation. Instead the core legislation was subjected to frequent and detailed amendment. Successive Acts of Parliament sought to fine-tune the regulatory framework. During that period, many Committees looked at the problem and recommended specific changes to the law.[13] As a result, at some stages more dwellings were brought within the scope of the legislation;[14] at other times defined categories of dwelling were moved out of it.[15]
2.14 The outbreak of the Second World War led to yet further measures being taken, covering a much wider range of dwellings.[16] By 1953 it was estimated that over 90% of dwelling-houses in England and Wales fell within the rateable value limits; most unfurnished tenancies fell within the scope of the protective legislation.[17]
2.15 The Rent Acts had, from an early stage, sought to exclude from protection accommodation provided on what was usually regarded as a short-term rather than a long-term basis. Thus accommodation in relation to which the rent included payment for board, attendance or the use of furniture fell outside the scope of the Rent Acts.[18]
2.16 Although this remained the position in relation to arrangements dealing with board and attendance, a new set of rules providing some limited statutory protection for lettings of furnished accommodation was introduced in 1946.[19] These rules established a system of rent tribunals to determine “reasonable” rents for furnished premises. Rent tribunals were also able to postpone the operation of notices to quit, which had the effect of giving limited security of tenure. But this fell far short of the security available under the Rent Acts. This development reflected a view that, while this sector of the housing market should be subject to some regulation, there should be special rules for more informal accommodation arrangements.[20]
2.17 Steps to deregulate the private rented sector occurred in the 1950s. First, the Housing Repairs and Rent Act 1954 provided that any dwellings newly built or newly converted for the purpose of letting should be outside rent control. Second, and more far-reaching, the Conservative Government’s Rent Act 1957 provided that all dwellings with rateable values in excess of £30 (£40 in London) should be decontrolled at once; and that other dwellings should be decontrolled when they became vacant.[21]
2.18 These latter measures led to acute social and political problems. Allegations were made of sharp practices by landlords eager to “encourage” their tenants to vacate their dwellings, particularly in areas of high housing demand.[22] These allegations in turn led to the establishment of the Milner-Holland Committee, which looked in particular at the effects of the de-control legislation on the housing market in London.[23]
2.19 The newly elected Labour Government responded to these developments by passing the Protection from Eviction Act 1964. This was the first Act to make it a criminal offence for a landlord to “harass” a tenant into vacating a property.[24] The Act, which was in any event set to expire at the end of 1965, was replaced by the Rent Act 1965 which retained the criminal offence, albeit cast in different words.
2.20 In addition, the Rent Act 1965 extended the circumstances in which a landlord was required to obtain a court order to recover possession. The Act adopted the principle that tenants should not be forced out of their accommodation without “due process”. Where an occupier remained in residence after the end of the contractual term, the landlord was required to obtain an order from the court before physical possession of the premises could be regained.[25] These provisions were imposed for all tenants, not only those falling within the scope of the Rent Acts.
2.25 Second, for the first time, the Government enacted the Rent Act 1965 on the basis that it would be a permanent legislative measure. Earlier Acts had continued to be regarded as essentially temporary, emergency provisions to allow conditions in the housing market to stabilize; but this in practice never happened sufficiently to allow the legislation to be fully repealed.[26] The new legislation at least brought some greater certainty to this sector of the housing market.
2.27 First, it brought most furnished tenancies within the full Rent Act scheme. Second, it introduced the new concept of the “resident landlord”. In tenancies – not falling within a purpose-built block of flats – in which there was a resident landlord, the full Rent Act regime did not apply. Instead, an adapted version of the less stringent regime – formerly governing furnished lettings – applied. Contracts subject to this adapted regime were labelled “restricted contracts”.[27]
2.30 The Rent Act 1977 and the Protection from Eviction Act 1977 consolidated earlier legislation.
2.31 A number of very important developments were also taking place outside the framework of the Rent Acts. First, the Government came to recognise that a new approach to the subsidising of the housing costs of the poor was necessary. Rent control and rent regulation have the effect of reducing rent levels below that which can be achieved in the market place, at least for those categories of dwellings which come within the scope of the protective legislation. Thus, to a degree, these measures have the effect of forcing landlords to subsidise the rents of their tenants.[28]
2.32 The forerunners of what is now known as housing benefit were initially made available only for council tenants, renting from local authority landlords. These schemes were not universal, but were introduced on a discretionary, local basis. Following an initiative taken by Birmingham City Council – which introduced a scheme of rent allowances for private sector tenants in 1968[29] – the Government expanded the scope of its thinking on rent rebates to embrace the rents of private sector tenants as well as public sector tenants.The first national scheme of rent rebates and allowances was introduced by the Housing Finance Act 1972.
2.33 This proved to be a key first step in the process which led ultimately to the refocusing on market rents, and away from statutory regulation of rents in the private sector, found in the Housing Act 1988.[30]
2.35 There have been four principal means by which it has been sought to achieve this objective. First, increasingly strict Building Regulations sought to improve the quality of newly-built housing.[31] Second, local authorities were given increasingly comprehensive powers to enforce housing standards where the accommodation was unfit.[32] Third, a number of terms – relating to housing conditions – were implied into tenancy agreement by statute.[33] Fourth, public health law came to be used as a means to tackle poor quality housing accommodation which amounted to a “statutory nuisance”.[34]
2.36 A number of comments may be noted in relation to these legislative initiatives.
2.37 First, despite the fact that in the period 1915 to 1980 a considerable body of protective legislation was introduced to afford legal protections to tenants, there was nevertheless considerable evidence that either tenants did not know their rights[35] or did not seek to take advantage of those rights, either through fear of upsetting the landlord or because they were relatively content with their situation.[36] It might thus be suggested that the law did not work particularly well.
2.39 A third, related, effect of the expansion of the scope of the Rent Acts in particular was that they encouraged landlords to enter into agreements that they hoped might fall outside the scope of the legislation, so that their properties were not subject to rent regulation and their occupiers did not have long-term security of tenure. Most notable were the attempts by landlords to provide accommodation under licences (which fell outside Rent Act protection) rather than leases (which were clearly within the scope of the legislation). These evasive devices in turn provoked a considerable amount of litigation. Over the years the decisions of the Courts developed a jurisprudence, the broad outcome of which was that the courts were able to ensure that the primary objectives of this area of social legislation were not subverted by “sham agreements”.[37] But these outcomes were not always predictable, and in some instances could only be achieved by some straining of the canons of statutory interpretation. This led to uncertainty in the application of the law. It was not conducive to the development of a structured code of housing law in which landlords and tenants might know at the outset of their relationship where they stood.
2.40 Fourth, although not the sole cause,[38] there is little doubt that one consequence of all this legislation was that many private landlords voted with their feet and left the market.
2.41 During the same period, significant changes were also occurring in the housing market. The provision of what would now be described as “social housing” – which at the start of this period was provided by a small number of housing charities – was supplemented by increasingly substantial housing provision by local authorities. In the period 1920–1980, council house provision rose from a few thousands to slightly over 5 million out of a total of 17.6 million dwellings.[39]
2.42 In contrast to the private rented sector, which became increasingly subject to detailed legislative regulation, local housing authorities were regarded as “model landlords” who were left largely free to manage their housing services as they wished. On the crucial question of security of tenure – a key aspect of how local authorities manage their estates – there was little legislative intervention.[40]
2.44 There were legal requirements to fix “reasonable” rents, but in practice this gave considerable discretion to local authorities to determine rent levels.[41] They did not amount to anything like the provisions on rent control or rent regulation found in the private sector.
2.45 In relation to the quality of the accommodation provided, local authorities were also subject to provisions relating to housing conditions,and to public health legislation. However they were not subject to other provisions of public law on housing standards which local authorities were entitled to use against non-local housing authority landlords.[42]
2.46 A number of reports in the 1960s began to raise the question whether this rather unregulated, discretionary approach was sufficient to ensure that local authorities were in fact using the housing resources that were available to them to address questions of housing need. The culmination of these concerns was reflected in a report from the Central Housing Advisory Committee, published in 1969.[43]
2.49 The other significant development – already mentioned in passing above[44]– which also occurred towards the end of the period under consideration, was the introduction of increasingly comprehensive schemes of rent rebates to subsidise the housing costs of the poor.
2.52 The Housing Finance Act 1972 was the culmination of a process of the development of rent rebates for local authority tenants. The introduction of a national rent rebate scheme signalled a shift from the subsidising of the costs of providing the housing to subsidising the ability of the poor to pay (with the general level of council house rents being increased).[45]
2.53 A third sector – the housing association movement – also began to increase its role in the housing market. This sector has long historical roots, a consequence of which is that a wide variety of bodies describe themselves as housing associations. These include[46]
(1) almshouses founded in the Middle Ages by churches, colleges and private landowners,
(2) charitable bodies endowed in the 19th century by rich philanthropists to provide housing for the lower classes – such as the Sutton Trust, the Peabody Trust and the Joseph Rowntree Memorial Trust,
(3) commercial organisations motivated by what has been called “five percent philanthropy” – providing housing at less than cost for urban working classes by attracting investment from private sources at a low rate of return, and
(4) housing co-operatives of various kinds.
2.54 These were the forebears of the range of organisations which now describe themselves as “housing associations”. Indeed the range of bodies statutorily regarded as housing associations was made very broad as the result of the wide statutory definition, which required only that the organisation be concerned in some way with the provision of housing and was, broadly, non-profit making.[47]
2.58 Until 1954, housing associations that provided accommodation that fell within the relevant rateable value limits were subject to the security of tenure provisions of the Rent Acts. Section 33 of the Housing Repairs and Rents Act 1954 took a number of housing association tenancies outside the scope of regulation. The requirements which a housing association tenancy had to satisfy in order to be exempt altered a number of times subsequently.[48]
2.59 Under section 15 of the Rent Act 1977,[49] as amended,[50] the formal position was considerably simplified. Housing association tenancies were exempt if the housing association was registered with the Housing Corporation. Such tenancies, in that respect, were in the same position as local authority tenancies. No statutorily defined grounds for possession needed to be proved before possession proceedings could be started against the tenant. Tenants’ rights to security of tenure were essentially determined by the tenancy agreement.[51]
2.60 By contrast, those housing associations that were not registered with the Housing Corporation were not excluded from the security of tenure provisions of the Rent Act 1977.[52] They were treated on a par with private landlords.
2.61 Where tenancies granted by housing associations were subject to Rent Act regulation the rents they could charge were limited in the same way as private sector rents. The Housing Finance Act 1972 Part 8[53] extended the “fair rent” regime to some housing association tenancies which were not otherwise regulated.
2.63 In accordance with other developments relating to the provision of housing rebates and allowances, tenants of housing associations were, from 1st January 1973, entitled to rent allowances. [54] As with other sectors of the housing market, this was an important policy development, which was a precursor to other policy development.
(1) direct provision of dwellings by local authorities has fallen significantly,
(2) provision by housing associations (now labelled “registered social landlords”) has increased substantially,
(3) the decline of the private rented sector has been halted, and
(4) contributing to these developments and increasing the size of the owner-occupied sector, the “right to buy” programme has transferred the ownership of large numbers of local authority homes to their (former) tenants.
2.67 These changes in the housing market have been reflected in the upheaval of the regulatory regimes governing housing, which has also occurred. Three major Housing Acts have been enacted – the Housing Acts of 1980, 1988, and 1996 –and a further major piece of legislation has just received Royal assent.[55] In addition, there was the major programme of consolidation of housing legislation, undertaken by the Law Commission, which came to fruition in 1985.[56]
2.68 Although the bulk of these changes were introduced by Conservative administrations, the present Labour Government has indicated that it does not plan to reverse these reforms but rather to build on them by promoting choice in both the public and private sectors.[57] Indeed, this position of substantial party political consensus[58] has enabled the Law Commission to become involved in this project.
2.69 The Conservative Government radically altered the regulation of new tenancies in the private sector. Its priority was to increase the supply of private sector rented housing. It believed that the only way to achieve this was by relaxing the regulatory framework. Only this would encourage landlords to enter the market.[59]
2.70 The key tenure concepts – the assured tenancy[60] and the assured shorthold tenancy[61] – were introduced by the Housing Act 1988[62] and were subject to considerable amendment in the Housing Act 1996. The essential features of these tenures are that rents levels are no longer subject to fair rent regulation by the rent officer and rent assessment committee but are, in general, market rents agreed between the landlord and tenant. There was an increase in the number of grounds of possession available to landlords and a new summary procedure for obtaining possession of assured shorthold tenancies or tenancies where there were serious rent arrears was created.
28 February 1997.[63] Since that date all new residential tenancies have by default been assured shortholds; the landlord must take positive steps to ensure that the (non-shorthold) assured tenancy regime applies.[64] As a result, the assured shorthold is now the usual regime governing new private sector residential tenancies. The original assured tenancy is now primarily used by social landlords other than local authorities.[65]
2.72 The rent payable under an assured tenancy, or an assured shorthold tenancy, is, generally, that agreed between the landlord and tenant. Assistance for those unable to pay market rents is made available through the housing benefit scheme (as rent allowances are now called) rather than by imposing a cap on rents by way of statutory rent control or regulation.[66]
2.74 The very complex procedures for agreeing rent increases that were available under the Rent Acts have been replaced by provisions which encourage the parties to agree periodic rent reviews. In the absence of any such agreement, there is a statutory mechanism allowing for an annual rent review.[67]
2.75 The assured shorthold tenancy regime also provides a procedure which might, in theory, lead to limited regulation of an agreed rent. Under it, a tenant can ask a rent assessment committee to determine the rent “the landlord might reasonably be expected to obtain” – that is a market rent.[68] However, this right is only available in closely defined circumstances: the committee has no jurisdiction if there are not sufficient assured lettings in the locality (which can be used for purposes of comparison); the contractual rent must be “significantly higher” than the market rent and, in the case of assured shorthold tenancies entered into on or after 28 February 1989, it is only available in the first six months. These procedures may be best seen as a modest form of consumer protection applying to a tenant who, perhaps through ignorance of local market conditions, agrees an unrealistically high rent. In practice these procedures are little used.
2.77 Furthermore, with the introduction of the assured shorthold tenancy in 1988, the landlord was given an absolute legal right to regain possession of a dwelling, whether or not there had been any default on the part of the tenant.[69]
2.78 The rights of a tenant to bring a tenancy to an end are not abrogated by the assured tenancy regime. Accordingly, a tenant may give such notice as is specified in the contract[70] or invoke a break clause or surrender the lease.
2.79 A landlord wishing to evict the tenant, on the other hand, must go to court. This is because the tenancy cannot be lawfully brought to an end without obtaining a court order.[71] A fixed term tenancy which comes to an end by effluxion of time is automatically replaced by a periodic basic assured tenancy on similar terms.[72]
2.80 There are 17 grounds on which a landlord may apply for an order for possession set out in the legislation.[73] The first eight are mandatory – if the landlord makes one of them out, the court must grant the order sought.[74] The other nine are discretionary – if the landlord makes one of these out, the court is entitled to make an order if it considers it “reasonable” to do so.[75]
2.81 A landlord invoking one of the 17 grounds must first issue a “notice of proceedings for possession” to the tenant specifying (among other things) the ground on which he intends to rely.[76] This warning notice may be dispensed with by the court (save where the ground for possession is 2 months’ arrears of rent) if it would be just and equitable to do so. These provisions supplant any common law rules relating to notices to quit which now have no effect.
2.82 The tenant and landlord’s rights to terminate an assured shorthold are the same as under a fully assured tenancy,[77] with one important addition. Landlords have, in effect, an additional mandatory 18th ground on which they may rely. Where an assured shorthold, whether fixed or periodic, has come to an end[78] the landlord is entitled to a possession order, providing that (usually) two months’ written notice of the intention to seek the order has been given and the notice is in the prescribed form.[79] If only possession is sought, the order can be made on the basis of a judge simply reading the relevant papers – there is no need for a hearing.
2.83 As a result of the enactment of the Housing Act 1988, the Rent Act 1977 is, in general, irrelevant to any tenancy created on or after 15 January 1989. There are minor exceptions to this general rule to protect those who contracted to create a tenancy before that date or who already benefited from a Rent Act regulated tenancy and whose tenancy comes to an end in defined ways.[80]
2.84 Tenancies created before 15January 1989 are not included in the new assured tenancy regime.[81] These provisions result in a persistent, but decreasing, number of tenancies for which the rights of the landlord and tenant remain governed by the old Rent Act regime.
2.85 As we have seen, the 20th century saw a steady reduction in the availability of private sector rented housing. In the same period, the quantity of housing owned and rented out by local authorities increased enormously. By 1979 31.5% of all dwellings in Britain were owned by local authorities.[82]
2.87 The Housing Act 1980 (consolidated into the Housing Act 1985) made fundamental changes to this position. In particular, tenants of local authorities were, for the first time, granted statutory security of tenure.[83]
2.88 The mechanism by which the Housing Act 1985 grants security of tenure to a secure tenant is similar to that used for private sector assured tenancies in the 1988 Act described above. As under the private sector regime, the tenant’s common law rights to terminate the tenancy are not affected, but the landlord who wishes to evict must get a court order. In the case of a periodic tenancy, the landlord is unable to bring the tenancy to an end except by obtaining an order for possession from the court.[84] If a fixed term tenancy comes to an end, either by effluxion of time or by order of the court, it is replaced by a periodic tenancy on similar terms.[85]
2.89 As under the private sector regime, the landlord is only entitled to a court order if it is able to make out one of a number of grounds set out in a Schedule to the legislation.[86] Unlike the private sector, however, there are no mandatory grounds for possession – though there are certain circumstances where possession must be ordered if the landlord authority can provide suitable alternative accommodation.
2.90 As under the private sector regime, the landlord must issue the appropriate notice of intention to take proceedings (a “notice of seeking possession”) before going to court to recover possession.[87] This replaces the common law rules on notices to quit.
2.91 Public sector rents are set not by the market as such, but by local authorities which remain bound to charge “reasonable” rents. In setting rent levels, however, they must ensure that the relative rents of different local authority properties are in line with differentials in the private sector.[88]
2.92 Successive governments have sought to increase levels of council house rents to bring them closer to market rents. They have achieved this by introducing changes to the housing subsidy provisions.[89] The effect of this is that central government determines a rental figure which it “assumes” the local authority will charge. Subsidies bridge the gap between this assumed income and expenditure on housing. Thus a local authority that fails to set this assumed figure as the local rent level will find that its Housing Revenue Account starts to go into deficit. The details of housing finance are beyond the scope of this Paper. The Government is currently consulting on further proposals for changing the housing subsidy regime.
2.95 Introductory tenancies were introduced by the Housing Act 1996; they are a mechanism by which local authorities may let dwellings without conferring security of tenure (or right to buy) on the tenant for a period of up to one year. At the end of this “trial period” an introductory tenancy becomes a secure tenancy.[90] They are particularly used by local authorities to provide tenancies, on a probationary basis, to those whom the authority suspects may need some encouragement to act as a responsible tenant. The one procedural issue is that a local authority cannot create an introductory tenancy unless it has passed a resolution in the Council to do so. The effect of passing such a resolution is that, henceforth, all new tenancies granted by that authority have to be, at least initially, introductory – not just those for whom a probationary tenancy would seem most appropriate. Introductory tenancies transform themselves into secure tenancies after they have been in existence for a year.
2.96 A landlord may only bring an introductory tenancy to an end by obtaining an order of the court.[91] There are no formal grounds on which the landlord must rely; instead the local authority must give reasons.[92] The tenant is entitled to have the decision reviewed.[93] If the local authority fails to give reasons, or its reasons or its review of them is inadequate, its decision will on general principles be vulnerable to judicial review.[94]
2.97 When the Housing Act 1980 created statutory rights of security of tenure for local authority tenants, these same provisions were also applied to registered housing associations and a limited number of other housing associations.[96] Tenancies granted by housing associations which fell outside these two groups remained, as regards security of tenure, governed by the Rent Act. As regards rent regulation, however, the fair rent procedures of the Rent Acts continued to apply to all housing associations.
2.99 These arrangements were altered in the Housing Act 1988. It provided that, henceforth, housing association tenancies – both registered and unregistered – were to be assured tenancies and thus were to be treated legally as private sector tenancies, rather than be linked to the public sector regime as had happened between 1980 and 1988.[97]
2.100 As a result, housing association landlords became entitled to use grounds for possession available to private sector landlords, including, most notably, the mandatory grounds for possession (for example, for rent arrears) available to private sector landlords.[98] Similarly, housing associations fell outside the rent fixing regime that applied to local authority tenancies. They sought to charge “affordable rents” – a policy concept rather than a legal concept – which reflects their position as providers of social housing.[99]
2.101 The White Paper presaging this change stated that the Government’s aim was to increase access to private finance and that this would be assisted if housing associations were enabled to increase rents.[100] Interestingly, there was no suggestion that the landlord’s greater power to recover possession under the assured regime would improve access to private finance.
2.103 Not all housing associations receive public funding, although for many this is a significant source of finance. The amount of public money available and the mechanism by which it reaches housing associations has altered over the years. Currently most funding from central government, both capital and revenue, is channelled through the Housing Corporation, a statutory corporation.[101] Some funding from central government is also provided directly.[102]
2.104 Public funding also comes from local authorities, which have power to fund registered social landlords directly[103] and are also entitled to assist housing associations which are not registered social landlords by lending money or subscribing for shares.[104]
2.105 In order to qualify for Housing Corporation grants, a housing association must register.[105] In so doing, a housing association submits itself to regulation and guidance issued by the Housing Corporation; further conditions and obligations are imposed on the receipt of funding.[106] In this way, the policies and behaviour of housing associations are to a great extent determined centrally.
2.106 Housing associations have a third source of finance in addition to public authorities and charitable donors, namely, commercial lenders. The Department for Transport, Local Government and the Regions estimates that, as at 4 December 2000, registered social landlords had received over £10 billion in private-sector loans.[107] It is the availability of such finance which is driving the current programme of transfers of housing from local authorities to housing associations.
2.108 Initially, two methods to encourage transfers of housing stock from local authorities to housing associations were introduced by the Housing Act 1988 – “tenants’ choice”[108] and housing action trusts.[109] The former was a procedure which allowed tenants to force the transfer of their houses to a new landlord approved by the Housing Corporation. The latter allowed the Secretary of State to set up a non-departmental government body to take over local authority housing in a particular area.
2.109 Neither of these initiatives proved popular. The “tenants’ choice” provisions were repealed by Housing Act 1996[110] and although the housing action trust provisions remain in force, the last of these to be created was Stonebridge Housing Action Trust in Brent in 1994. We understand that the Department for Transport, Local Government and the Regions expects this to be the last.
2.110 However, the large scale voluntary transfer programme,[111] which has been running since 1988, has been far more effective. Under this scheme housing associations (nearly always registered social landlords) buy housing stock from local authorities. The Department for Transport, Local Government and the Regions reports[112] that, as at 7 March 2002, over 597,000 homes have been transferred under this scheme. The current Government’s green paper[113] states that the Government will support the transfer of a further 200,000 dwellings a year. It has been estimated that by 2004 the majority providers of social housing will be registered social landlords.
2.111 Loans taken out by local authorities to invest in public sector housing must be included in the Public Sector Borrowing Requirement calculations, and are effectively prevented by the Local Government and Housing Act 1989. Loans taken out by housing associations are, by contrast, omitted from the Public Sector Borrowing Requirement and from statutory controls. This makes large scale voluntary transfers attractive to central government and to many local authorities. Not only do they bring in capital receipts and enable local authorities to fulfil their housing duties, without having to own and manage housing stock directly, but they are the only effective way local authorities often have of increasing capital investment in the housing stock.[114]
2.112 When a tenancy is transferred from a local authority to a housing association, the tenancy ceases to be a secure tenancy and becomes instead an assured tenancy.[115]
2.113 We have seen that the assured tenancy regulatory regime gives a somewhat lower level of security of tenure to tenants than the secure tenancy regime.[116] Tenants are in a position to block a proposed large scale voluntary transfer.[117] However, they do not tend to do so.[118] There appear to be four reasons for this:
(1) the proposal will often involve immediate capital investment in the tenants’ properties which is attractive to tenants,
(2) the proposal will often include a rent guarantee, usually limiting rent increases for the first five years,
(3) tenants’ right to buy is statutorily protected,[119] and
(4) housing associations typically undertake to transferring tenants not to take advantage of the mandatory grounds for recovering possession available under the assured tenancy regime.[120]
2.114 Most lenders interviewed for research conducted by the Chartered Institute of Housing stated that they would be as happy to lend on secure tenancies as on assured tenancies.[121] Research elsewhere has suggested that lenders are most interested in a steady rental stream, an adequate asset base and staff expertise.[122] It appears therefore that the availability of commercial loans does not depend on the change of regulatory status involved in large scale voluntary transfers. We welcome views and information on the extent to which lenders financing large scale voluntary transfer of housing stock from local authorities to registered social landlords are influenced by the fact that tenants of such stock change from secure tenants to assured tenants (with a protected right to buy).
2.115 A local authority is subject to public law and its housing decisions may, accordingly, be vulnerable to challenge by way of judicial review. On the other hand, whether a housing association is subject to public law will depend on the nature of the activity under scrutiny.[123]
2.116 In Poplar Housing and Regeneration Community Association Ltd v Donoghue[124] the Court of Appeal held that, for the purposes of section 6 of the Human Rights Act 1998, the role of the housing association in providing accommodation for the defendant and then seeking possession was so closely assimilated to that of the local housing authority that it was performing public functions and was, to that extent, a functional public authority. Although the decision did not relate to judicial review, the court stated that it had adopted a similar approach.
2.126 From then, the attempt to make private sector dwellings affordable through the use of rent regulation was largely abandoned.[125] Instead, subsidising rents by means of a national housing benefit scheme has come to be acknowledged as a better way to achieve this policy objective.[126] And landlords know that if their rent levels are at or above the levels at which mortgage finance can be secured, potential tenants will often prefer to buy rather than rent.
2.132 Second, the new strategic role of local housing authorities provides them with opportunities to agree practices with landlords at the local level. The recent Department for Transport, Local Government and the Regions paper on local accreditation schemes gives an indication of a way forward, particularly if appropriate incentives can be put in place to encourage private landlords to sign up to the scheme.[127] However these issues fall outside the scope of the detailed proposals we shall be making in this paper.
2.137 Housing associations have, as noted above, somewhat fallen between the private and public sectors – being treated at some times analogously to local authorities, at other times to private landlords and at yet other times simultaneously to both. The changing context here, too, is of importance. The large-scale transfers of local authority housing to registered social landlords suggest to us that the time has come to develop a single regulatory framework which would apply across the social rented sector;[128] but this will mean some important adjustments of detail on which consultees will be asked to comment.
2.138 Developments in the housing market cannot, however, be seen in isolation. The last 30 years has seen a revolution, throughout the service economy, in attitudes towards consumers, designed to protect them from unfair trade practices and unfair contractual provisions. Historically, the provision of housing has not been widely regarded as a sector of the economy to which principles of consumer protection would naturally apply. However we are not convinced that, for example, the principle that something should be “fit for purpose” (which applies in the context of the sale of goods) should not equally apply to the provision of housing. We have already developed arguments on these lines in the work we did on the landlord’s liability to repair.[129]
2.139 We note that in the United States, case law has gone even further down this path through the development of a “warranty of habitability”.[130] This approach has played a very significant part in the development of tenants’ rights in the US. The use of contract law to bring actions for breach of tenancy obligations has also been a significant feature of housing law practice in this country, especially in the area of disrepair.
2.140 We see much advantage in conceptualising housing law as a branch of consumer law, albeit a specialist one. In this paper, therefore, we shall be developing arguments that the importance of the contract between the landlord and tenant – which earlier housing law, particularly the Rent Acts, perhaps rather diminished – should be reasserted, but with the proviso that such contracts must comply with the essential principles of fairness that underpin key parts of consumer law. We will therefore be asking consultees to comment on proposals for the adoption of agreements which comply with the Unfair Terms in Consumer Contracts Regulations 1999.[131]
2.145 The present Government is developing a number of measures in its Supporting People programme which have implications for the regulation of the housing market.[132] We need to be sure that our proposals fit with these ideas.
[1]As noted at para 1.1, note 1 above Lord Woolf was not the first judge to draw attention to this problem.
[2]Cf eg Enid Gauldie, Cruel Habitations: A History of Working-Class Housing 1780-1918 (1974).
[3]Cf eg Sir Edwin Chadwick’s, Report to HM Principal Secretary of State for the Home Department, from the Poor Law Commissioners, on an Inquiry into the Sanitary Condition of the Labouring Population of Great Britain HL(1842) Vol 26-28; HL (1843) Vol 32.
[4]Modest constraints on the use of the remedy of forfeiture by landlords were developed by the courts. The provisions of the Small Tenements Recovery Act 1838 also provided some limited procedural protection.
[5]Cf eg Public Health Act 1848.
[6]Resulting in eg the Artisans’ and Labourers’ Dwellings Act 1868, also known as the Torrens Act, and Artizans’ and Labourers’ Dwellings Improvement Act 1875, also known as the Cross Act.
[7]David Hughes and Stuart Lowe, Social Housing Law and Policy (1995) at p 9.
[8]Though the Housing of the Working Classes Act 1885, s 12 did imply into leases for low rent a term that the property should be “at the commencement of the holding in all respects reasonably fit for human habitation”.
[9]Increase of Rent and Mortgage Interest (War Restrictions) Act 1915. There had been intervention in the agricultural sector before then: Agricultural Holdings (England) Act 1875.
[10]To demand such was made a criminal offence: Increase of Rent and Mortgage Interest (Restrictions) Act 1920, s 8.
[11]Increase of Rent and Mortgage Interest (War Restrictions) Act 1915, s 1(3).
[12]£35 or below in London, £26 or below elsewhere according to the Increase of Rent and Mortgage Interest (War Restrictions) 1915, s 2(2).
[13]Cf eg M Partington and J Hill, Housing Law, Cases, Materials and Commentary (1991) pp 110 to 115.
[14]Eg the Increase of Rent and Mortgage Interest (Restrictions) Act 1920, which brought the great majority of houses under control.
[15]Eg the Rent and Mortgage Interest Restrictions (Amendment) Act 1933 and the Increase of Rent and Mortgage Interest (Restrictions) Act 1938 automatically decontrolled more valuable houses and prevented progressive decontrol of other less valuable ones.
[16]The Rent and Mortgage Interest Restrictions Act 1939.
[17]M Partington and J Hill, op. cit. p 113.
[18]See proviso to s 2(2), Increase of Rent and Mortgage Interest (War Restrictions) Act 1915.
[19]Furnished Houses (Rent Control) Act 1946.
[20]It also led to the problem of landlords seeking to evade the more stringent provisions of the Rent Acts by claiming to be furnished, accommodation that was – to say the least – spartan in character. Payments for furniture had to be a “substantial proportion of the rent”. For discussion of this test see Palser v Grinling [1948] AC 291.
[21]These provisions never came into effect in quite the way planned. The Landlord and Tenant (Temporary Provisions) Act 1958 had the effect of postponing the impact of the 1957 Act until 1 August 1960
[22]“Rachmanism” is defined by the Concise Oxford Dictionary (1990) as “the exploitation and intimidation of slum tenants by unscrupulous landlords” and is the term used to describe these practices, deriving from the activities of the notorious private landlord Perec Rachman.
[23]Report of the Committee on Housing in Greater London (1965) Cmnd 2605.
[24]Rent Act 1965, s 30. See now Protection from Eviction Act 1977, s 1.
[25]Protection from Eviction Act 1964, ss 1(1)-(3). See now Protection from Eviction Act 1977, s 3.
[26]Cf the speech of Richard Crossman, then Minister of Housing, on the second reading of the Rent Bill 1965: Hansard (HC) 5 April 1965, vol 710, cols 33 to 34.
[27]Under this regime, rent was subject to control by rent tribunals. Such security of tenure as was provided was achieved, not by the mechanism of the “statutory tenancy” as under the Rent Acts, but by postponing, for limited periods, the operation of any notice to quit issued by the landlord.
[28]This was in stark contrast to what happened in Europe, where landlords were both regulated and subsidised by Government: D V Donnison, The Government of Housing (1967) p 86.
[29]It was given powers to do this in the Birmingham Corporation Act 1968.
[30]See paras 2.69 to 2.75 below.
[31]The latest version is in the Building Regulations SI 2000 No 2531, made under the Building Act 1984; they have a long history, which can be traced back to the Town Improvement Clauses Act 1847.
[32]Cf Housing Act 1985, Parts VI (repair notices) and IX (slum clearance).
[33]Cf Landlord and Tenant Act 1985, ss 8 and 11.These were the subject of work by the Law Commission in 1996: Landlord and Tenant: Responsibility for State and Condition of Property (1996) Law Com No 238 (HC 236, 1996).
[34]Cf the Environmental Protection Act 1990.
[35]Cf M Zander “The Unused Rent Acts” New Society 12 Sept 1968; recent research suggests that little has changed: H Genn, Paths to Justice (1999).
[36]Cf the Report of the Committee on the Rent Acts (1971) Cmnd 4609 at pp 15 to 19, chaired by H Francis.
[37]Most notable was the series of cases which culminated in the decision of the House of Lords in Street v Mountford [1985] AC 809; even this did not answer all the issues, as subsequent litigation shows. Cf eg A G Securities v Vaughan [1990] 1 AC 417. Similar issues arose in the context of holiday lets and company lets.
[38]Rising standards of living led to vastly increased demand for owner-occupation.
[39]Department for Transport, Local Government and the Regions, Housing Statistics Postcard (July 2001), see further: www.housing.dtlr.gov.uk/research/hss.index.htm.
[40]The Increase of Rent and Mortgage (Restrictions) Act 1920 conferred security of tenure on local authority tenants whose housing was constructed prior to 1919. However, the Rent and Mortgage Interest Restrictions Act 1939, s 3(2)(c) removed most local authority housing from regulation.
[41]Housing Act 1925, s 67(2), Housing Act 1936, s 83(1) and Housing Act 1957, s 111(1). Cf the Housing Act 1985, s 24.
[42]R v Cardiff City Council, ex p Cross (1983) 81 LGR 105.
[43]Council Housing: Purposes, Procedures and Priorities (1969). The chairman of the Committee was Professor J B Cullingworth.
[44]See paras 2.31 to 2.32.
[45]Under the Housing Finance Act 1972 it was intended that all council housing would be fair rented by rent officers, acting under similar principles which applied to private sector rent levels. This programme, which was to have been introduced in stages, was halted when the Labour Government was returned to power in 1974.
[46]These are identified by J Adler and C Handy, Housing Associations: the Law of Social Landlords (3rd ed 1997) p 34.
[47]Cf Housing Associations Act 1985, s 1.
[48]Cf eg Rent Act 1957, Sched 6, para 26(1); Rent Act 1968, s 5(5) and (6); Housing Rents and Subsidies Act 1975, s 17(4), Sched 5, para 1.
[49]This derived from the Rent Act 1968, s 5 which was itself derived from Housing Repairs and Rent Act 1954, s 33.
[50]Housing Act 1980, s 74; Housing (Consequential Provisions) Act 1985, Sched 2, para 35.
[51]There was a similar exclusion of housing co-operatives: Rent Act 1977, s 16.
[52]It is not known how many associations fell into this category.
[53]Now replaced by Rent Act 1977, Part 6.
[54]The date when the relevant provision of the Housing Finance Act 1972 came into force. For these purposes, tenants of housing associations were specifically treated as private sector tenants: ibid s 19.
[55]The Homelessness Act 2002, which received Royal Assent on 26 February.
[56]Report on the Consolidation of the Housing Acts (1985) Law Com No 144; Scot Law Com No 94; (1985) Cmnd 9515 – which led to the Housing Act 1985, the Housing Associations Act 1985 and the Landlord and Tenant Act 1985.
[57]Department for Transport, Local Government and the Regions, Quality and Choice: A Decent Home for All, The Way Forward for Housing(December 2000).
[58]There is not a total consensus – eg the new Homelessness Act 2002 reverses certain provisions enacted by the Conservative administration. Proposals for licensing schemes for housing in multiple occupation and private landlords are unlikely to have been promoted by a Conservative Government.
[59]See Housing: The Government’s Proposals (1987) Cm 214.
[60]The regulation of which is governed by the Housing Act 1988, Part I, Ch 1: ss 1 to 19.
[61]In the Housing Act 1988, Part II, Ch 2: ss 19A-23. Notwithstanding the term “shorthold”, there is no statutory limit on the length of any fixed term granted by an AST. Most long leases will however be excluded from the definition on the basis that the rent payable is a low rent: ibid Sched 1, para 3.
[62]The first steps in this direction – the protected shorthold tenancy – an be found in the Housing Act 1980, s 20 but this was a rather different concept and, being essentially of historical interest only, is not discussed here.
[63]Housing Act 1988, s 141(3); Housing Act 1996 (Commencement No 7 and Savings) Order SI 1997 No 225. These dates can be extremely important in practice since crucial questions, particularly relating to security of tenure depend on the date on which tenancies were created.
[64]Housing Act 1988, s 19A and Sched 2A.
[65]See para 2.99below.
[66]To prevent abuse of the housing benefit scheme, powers have been given to rent officers to make determinations which have the effect of limiting the amount of rent payable to private landlords under the housing benefit scheme: see the Housing Benefit (General) Regulations SI 1987 No 1971, Reg 11(as amended).
[67]Housing Act 1988, ss 13-14. Under this procedure the landlord may issue a notice setting out the proposed new rent; the tenant has the right to refer this notice to the rent assessment committee if he or she feels that the new rent proposed would be above the market rent level (the rent officer does not get involved in this process). The rent assessment committee can, in these limited circumstances, determine the market rent.
[68]Housing Act 1988, s 22.
[69]See para 3.15 to 3.16below.
[70]Subject to the statutory minimum of four weeks under the Protection from Eviction Act 1977, s 5(1).
[71]Housing Act 1988, s 5. Although s 5(1) allows the landlord to terminate a fixed term assured tenancy in accordance with the tenancy agreement, s 5(2) automatically creates a statutory periodic assured tenancy to take its place, which can only be terminated by a court order.
[72]Ibid, s 5(2).
[73]Ibid, Sched 2. The court may not make an order on any other ground according to Housing Act, s 7(1) and an order for possession will terminate the statutory periodic tenancy when it comes into force according to s 7(7).
[74]Ibid, s 7(3).
[75]Ibid, s 7(4).
[76]Ibid, s 8.
[77]See paras 2.78to 2.81above.
[78]It is important to recognise that a tenant under an assured shorthold is protected from eviction in precisely the same way as the tenant under a basic assured tenancy during the currency of the tenancy. It is only after the term of the tenancy comes to an end that the tenant becomes more vulnerable to eviction.
[79]Housing Act 1988, s 21(1) and (4).
[80]Ibid, s 34.
[81]Ibid, Sched 1, para 1 which came into force on 15 January 1989. Cf Housing Act 1996 (Commecement No 7 and Savings) Order SI 1997 No 225.
[82]David Hughes and Stuart Lowe, Social Housing Law and Policy (1995) p 36.
[83]These were accompanied by the creation of a range of other rights including the option of purchasing the house or flat they occupied, at a discount, under the right to buy scheme cf Housing Act 1985, Part V.
[84]Housing Act 1985, s 82.
[85]Ibid, s 86.
[86]Ibid, Sched 2.
[87]Ibid, s 83. Proceedings must actually be commenced within 12 months from the date stated in the notice.
[88]Ibid, s 24.
[89]Discussed in detail in A Arden and M Partington, Housing Law (2nd ed 1994) ch 4.
[90]Housing Act 1996, s 125(1)–(2).
[91]Ibid, s 127.
[92]Ibid, s 128(3).
[93]Ibid, s 129(1).
[94]Cf R (on the application of McLellan) v Bracknell Forest Borough Council [2001] EWCA Civ 1510; [2002] 1 All ER 899. Such review must take place, if it takes place at all, in the Administrative Court and not the County Court which has to make the possession order.
[95]These provisions were consolidated into the Housing Act 1985.
[96]A registered housing association was deemed to satisfy the “landlord condition” in the Housing Act 1980, s 28 and subsequently the Housing Act 1985, s 80. The latter was amended by the Housing Act 1988.
[97]Housing Act 1988, Ch V, Sched 18.
[98]Though, in practice, the use of ground 8 by housing association landlords is limited by the ethos or constitution of the housing association itself.
[99]In the years since the Housing Act 1988 was passed many housing associations have developed their business so that they no longer exclusively provide social housing at affordable rents, but also provide some ordinary private housing at market rents. The profits from these are used to subsidise other activities and services provided by housing associations.
[100]Housing: The Government’s Proposals(1987) Cm 214, p 12.
[101]Funding may either come directly or from local housing authorities, acting as agents for the Housing Corporation under the Housing Act 1996, s 18(4).
[102]Under s 429A of the Housing Act 1985, the Secretary of State may provide funding directly in respect of public sector housing or housing transferred from the public sector.
[103]Under Housing Act 1996, s 22.
[104]Housing Associations Act 1985, s 58.
[105]Registration is under Housing Act 1996, s 1.
[106]Much of which can be obtained from the Housing Corporation website: http://www.housingcorp.gov.uk/
[107]Housing Factsheet No 5, Housing Corporation and Registered Social Landlords (December 2000). See further: http://www.housing.dtlr.gov.uk/factsheet/rsl/.
[108]In Part IV of the Housing Act 1988.
[109]In Part III of the Housing Act 1988.
[110]It has been reported that as few as 981 homes in England took advantage of these provisions: Somerville, “Empowerment through residence” (1998) vol 13 No 2 Housing Studies at p 245.
[111]Sales under the scheme are made under the power in s 32 of the Housing Act 1985.
[112]http://www.housing.dtlr.gov.uk/transfers.
[113]Department for Transport, Local Government and the Regions, Quality and Choice: A Decent Home for All (April 2000) para 7.19.
[114]It is worth noting, however, that this increased investment is likely to be funded by what is, ultimately, public money; the interest paid to commercial lenders by housing associations are financed by rental revenue streams which, although nominally paid by the tenants, are often in practice reimbursed by the Government in the form of housing benefit.
[115]By virtue of Housing Act 1988, s 38. Cf the position with tenancies entered into by housing associations after the Housing Act 1980 came into force and before the Housing Act 1988 came into force. As we have seen, these were subject to the secure tenancy regime on creation, and this status was not altered by the Housing Act 1988. Seen para 2.97 to 2.98above.
[116]See paras 2.80and 2.89above.
[117]Local Councils are obliged to consult affected tenants on transfer proposals and the Secretary of State will not consent to a transfer if a majority of tenants object: Housing Act 1985, s 106A and Sched 3A.
[118]Mullins, Niner and Riseborough, Evaluating Large Scale Voluntary Transfers of Local Authority Housing (1995) reported that two thirds of the ballots which had taken place under large scale voluntary transfer rules were in favour of transfer.
[119]Housing Act 1985, s 171A to 171H.
[120]Though whether such an undertaking would be legally enforceable by the tenant is doubtful. See Rogers v Hyde [1951] 2 KB 923 at p 931, per Lord Asquith: “Parties cannot of their own volition oust or reduce the jurisdiction of the courts to grant orders for possession”.
[121]Chartered Institute of Housing, Marianne Hood, One for All – A Single Tenancy for Social Housing? (1998), p 21.
[122]R Chaplin et al, Rents and Risks: Investing in Housing Associations (1995).
[123]For a discussion cf J Alder and C Handy, Housing Associations: The Law of Social Landlords (3rd ed 1997) p 30 to 32. Cf also R v Servite Houses, ex p Goldsmith [2000] EWHC Admin 338; [2001] LGR 55.
[124][2001] EWCA Civ 595; [2002] QB 48. The case is further discussed at Part V paras 5.46 to 5.52 below.
[125]The role of rent officers in determining maximum rents for housing benefits purposes can be said to represent a new form of rent regulation: see M Partington, “The Re-Introduction of Rent Control?” (1997) 1 JHL 8.
[126]Although there is great concern in Government about the current housing benefit scheme, and options for radical change are being considered, there are no suggestions that the re-introduction of rent control is one of the options.
[127]Department for Transport, Local Government and the Regions, Developing a voluntary accreditation scheme for private landlords: A guide to good practice (August 2000). Cf http://www.housing.dtlr.gov.uk/information/voluntary/index.htm.
[128]We remain anxious to ensure that those private landlords who are not registered social landlords but who wish to adopt letting policies akin to registered social landlords and local authorities should be enabled to do so, should they so wish.
[129] Landlord and Tenant: Responsibility for State and Condition of Property (1996) Law Com No 238 paras 8.34 – 8.59.
[130]Javins v First National Realty Corp (1970) 138 App DC 369.
[131]SI 1999 No 2083. These apply in any event to residential tenancy agreements: cf Office of Fair Trading, Guidance on Unfair Terms in Tenancy Agreements (November 2001) Cf also http://www.oft.gov.uk/News/Publications/Leaflet+Ordering.htm under the Reports link.
[132]For guidance on the programme cf http://www.supporting-people.dtlr.gov.uk/.