Rent Arrears and Possession Problems - Part One

Your tenant faithfully promises to pay the rent but the cheque never arrives.  The rent arrears mount and telephone calls are never answered.  In the meantime, the tenant moves his Alsation dog into the spare bedroom - it is every landlord's and agent's nightmare.

Landlords may well take fright in such situations but agents who are paid to manage the landlord's affairs cannot afford to delay and pontificate.  Letting professionals need to be well-versed in the possession procedures and be able to advise and act with confidence and experience when the situation arises.

In the following series of articles, we shall study the law of evictions and the basic procedures that can be taken to regain possession with assured and assured shorthold tenancies (ASTs).  In this first part, we will look at the initial stages of the possession process.  The second article will cover actual possession proceedings and court procedure in more detail.  The third and final article will look at enforcement of the possession order.

Hopefully most landlords and letting agents will never need to start a possession action against a defaulting tenant.  Careful background work in selecting and vetting tenants plays an important part in avoiding future problems; but even in the best run business, the unexpected can occur and it is important to understand the procedures and pitfalls.

Negotiation

Before immediately embarking into a lengthy and potentially costly eviction process, it is important to check that problems cannot first be resolved by gentle negotiation and persuasion.

If there are rent arrears problems, discuss the matter with the tenant - there are commonly rent delays when the tenant is receiving housing benefit.

A defaulting tenant may be persuaded to leave by negotiation (as long as it is professionally conducted and does not constitute harassment).  Sending rent reminders is perfectly legitimate but sending an open fax to the tenant's work address citing grossly inflated rent arrears has been held to constitute harassment.  Explaining that the tenant will be responsible for considerable legal fees and court costs following any possession action can also motivate tenants to leave voluntarily.  A defaulting tenant will also cause considerable harm to his credit rating and potential for future financial references if a county court judgement (CCJ) is obtained and remains unpaid.

We recently came across a case where a tenant was defaulting on the rent, was living between two rented properties, and refusing to move out.  The landlord of the first property persuaded the tenant that it was in his best interests to move out of his property by the end of the week - he had followed the tenant to his second address and threatened to pass on address details to the tenant's various creditors that were pursuing the illusive fellow.  With a little resourcefulness, it is often possible to find solutions which  are both legal and faster than resorting to the courts.

Ending a tenancy

Possession work is complex because only a court may bring a tenancy to an end and cause a tenant to be evicted2.  As we shall see, this process does not necessarily require the use of professional legal assistance, although there are certain situations where such support or advice is necessary.  The process is, at times, convoluted and it is essential that the correct procedure is followed and, where required, any prescribed notices served.

Protection from eviction

In law, tenants are given a broad degree of protection to their rights of 'quiet enjoyment'.  The relevant law is:

  • Protection from Eviction Act 1977.  It is a criminal offence for the landlord or his agent to evict a tenant without an appropriate court order.
  • Housing Act 1988. ss27/28 allow for significant damages to be awarded against a landlord where harassment or unlawful eviction has taken place.

The legislation was introduced to protect tenants against unscrupulous landlords; but, similarly, there are unscrupulous tenants who are well versed in the provisions and capitalise on the protection provided to add significant delays and inconvenience in the path of a landlord attempting recovery of possession and associated rent-arrears.  More about this in a later article.

Before possession can be legally demanded and court possession proceedings can be started, it is a requirement that a tenant must be given notice of such proceedings.  There are specific statutory requirements regarding the service of such notices and what information they are required to contain.  Much of this first article explains the formalities for the correct service of the notices.  Broadly, there are two main statutory procedures for service of possession notices under the Act:

1) Section 21 Housing Act 1988 process - for an Assured Shorthold Tenancy (AST)

2) Section 8 Housing Act 1988 process - for assured tenancies generally.

AST Possession - the s21 process

Where the tenancy agreement is an AST, the landlord has an absolute right to possession of the property at the end of the fixed term3.  The landlord must give the tenant at least two months' notice stating that he requires possession of the dwelling-house (s21(1)b).  Where the tenancy is periodic, then similar rules apply, and the rules under s21(4)a should be followed.  

It should be noted that the s21 process does not assist the landlord seeking possession during the fixed term (e.g. following rent arrears).  In this case, it would be the standard possession procedure for assured tenancies under section 8 that applies (see below).

In implementing the section 21 process, there are two different court procedures that can be followed; the standard procedure for possession and rent arrears and the alternative accelerated possession procedure.  These will be dealt with in more detail in the second part of our article on court procedures.

When should I issue the s21 notice?
There are differing opinions and practice on when a notice under s21 should be issued. Some landlords and agents automatically serve tenants with the s21 notice requiring possession immediately on signing the tenancy agreement as a matter of course.  Other landlords simply wait until possession is definitely required. The latter course is preferable for the following reasons:

Firstly, unless it is known in advance that the landlord wants the property back immediately on expiry of the tenancy, serving the section 21 is unnecessary.  It is better etiquette to simply wait until the landlord requires possession, or otherwise decides that he does not want to relet the property to the same tenants.

Secondly, immediate service of the section 21 may lead to complications later in the tenancy.  In one recent situation we are aware of, a landlord who had previously served a s21 notice at the outset of a tenancy was advised that this might jeopardise the service of a subsequent notice under section 8 for rent arrears expiring before the date of the original notice.

s21: Legal requirements

The legal requirements relating to the relevant notices and possession procedure under section 21 are a frequent cause of confusion and little guidance is provided by the Act.  The main requirements relating to the section 21 notice are that:

1. NOTICE.  The landlord shall give the tenant at least TWO months' notice.  Where the tenancy is periodic, the notice must expire at the end of a period.4

2. AFTER COMMENCEMENT.  The notice must be given after the commencement of the tenancy.  Some landlords have been known to issue the s21 notice at the same time as the tenancy agreement.  This is unlikely to constitute a valid notice since one cannot serve notice on a tenancy before it has begun.   

3.  AFTER EXPIRY.  Possession proceedings cannot be brought until the notice has expired.5

Practitioners should also note that unlike the notice under s8, there is no prescribed form for notices under section 21 although standard forms are available.6

Section 21(1)b - Fixed Term tenancies
If the landlord wishes to serve the section 21 notice during the initial fixed term that he requires possession at the end of the tenancy, then it is section 21(1)b of the Act that applies and he should serve notice under this section.  The requirements of this section are:

'a) that the assured tenancy has come to an end and no further assured tenancy ... is for the time being in existence, other than a statutory periodic tenancy.'

'b) the landlord.... has given to the tenant not less than two months' notice stating that he requires possession of the dwelling house.'

Notice under this subsection can be served on a tenant at any time during the fixed term of the tenancy (but not before the fixed term begins) provided that the tenant receives the minimum of two months' notice.  This is the case even if the two months' notice ends after the tenancy agreement has expired.  For example, if a notice requiring possession is served on the last day of the tenancy agreement, the tenant does not have to give up possession of the dwelling-house until two months after the date that the notice was served, or until the date written in the notice if it is more than two months away.

Spencer v Taylor 2013 has made a new interpretation of section 21 regarding statutory periodic tenancies.  Landlords may now use s21(1) when issuing a notice for possession for tenancies where the tenant holds an expired fixed term tenancy.  Where landlords choose to use this route in county courts they should familiarise themselves with the case details and be armed with a copy of the transcript before entering possession cases until the ruling becomes established in lower courts.  It is understood that the ruling in Spencer v Taylor does not apply to contractual periodic tenancies.

Section 21(4)a - Periodic tenancies
Where the landlord wishes to serve notice after the end of the initial fixed term, the s21(4)a procedure should be used (unless the landlord has granted a new fixed term).  The requirements of section 21(4)(a) are: 'that the landlord  .... has given to the tenant a notice stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession of the dwelling-house is required by virtue of this section;'

Under the Act, a statutory periodic term automatically arises after the expiry of the fixed term and it can be seen that the procedure for serving notice under s21(4)(a) is slightly more complicated and additionally, the notice must:

  • specify a date on which possession is required, and
  • expire on the last day of a period.

The period of the tenancy is established with reference to the expiry date of the original tenancy and the rent payment interval.  The first day of a periodic tenancy will begin on the day following the end of the fixed term.  The length of the period is determined by the frequency of payment of the rent.  If the rent is paid monthly, then the period of the tenancy is one month. 

Example: if a monthly tenancy was originally granted on March 28 for six months (rent paid monthly), then the tenancy will end on September 27th.  Provided that no further fixed term has been agreed, then a monthly statutory periodic tenancy automatically arises starting on September 28th.

Should the landlord decide to end the tenancy at some point during this first monthly period, then he may give this notice at any time during the period - what is important is that the notice shall expire at the end of a period and at least two months' shall be given.  In this example then, the earliest expiry date on the notice that the landlord can validly give his tenant is December 27th.  Further, such notice could be served on the tenant at a time up to and including October 27th. 

First day / last day rule
A notice served on 1 March for expiry on 30 April was held to be invalid7 since it is the normal rule relating to periodic tenancies that the first day or the last day of the notice is disregarded; if two months' notice is required, this means two clear months.

Possession under section 8

AST possession is generally only applied for under the section 8 procedure when the tenant has defaulted on the tenancy in some way, and the landlord is claiming possession of the tenancy.  Section 8 is also used for possession of assured tenancies and the Act8 provides for 17 different grounds for possession which a landlord may use.

Also, where the tenancy is an ordinary assured tenancy, the landlord must apply for possession under section 8.

Grounds for possession
Before applying to court, it is important to establish that the landlord holds proper 'grounds' for claiming possession.  The most commonly used grounds are grounds 8, 10 and 11 which relate to rent arrears, and ground 12 which covers other tenant default such as rent arrears, damage to the property, or use of property by others or for uses not included on the original tenancy agreement.

Some of the grounds are mandatory, which means that if the landlord proves that one of the grounds applies, the court must award him possession.  The other grounds are discretionary, and the court will only award the landlord possession if it thinks it is reasonable to do so.

When the assured tenancy is a fixed term tenancy which has not yet come to an end, the number of grounds on which possession may be obtained is fewer than usual (Grounds 2, 8 and 10 to 15 inclusive are available) and there must also be provision in the terms of the tenancy for it to be brought to an end on the ground in question9 - this is generally called a forfeiture clause.

Possession may also be needed at the end of the term of an assured tenancy, either due to the natural effluxion of time or under one of the specified grounds.  For example, the landlord may wish to regain possession to live in the house (Ground 1) or possession proceedings may be brought by the building society as mortgagee (Ground 2) where the owner is in arrears.

Prior notice grounds
Some of the grounds, called prior notice grounds, can only be used if the landlord told the tenant in writing before the tenancy started that he intended one day to ask for his property back using these grounds.

The court may waive the notice requirement and grant possession if it considers that it is just and equitable to dispense with this requirement10 (unless he was using Ground 3, 4 or 5).

Rent Arrears

Given the prevalence of arrears as one of the main grounds, we shall first consider the specific rules applying to rent arrears. For rent arrears, the landlord is generally relying on one of the three statutory grounds 8, 10 and 11. Ground 8 is a mandatory ground and thus the most powerful ground to use since the court must grant possession if this ground applies.  However, the practical drawback with relying on this ground alone is that the tenant can pay off part of the arrears shortly before the hearing and render the ground (and thus the possession proceedings) unsuccessful.

In a recent case [Coltrane v Day 2003 EWCA Civ 342] the tenant sent a cheque for all the arrears to the landlord's solicitors but it had not been cleared.  The Court held that "an uncleared cheque delivered to the landlord or his agent at or before the hearing and which is accepted by him, or which he is bound by an earlier agreement to accept, is to be treated as payment at the date of delivery provided the cheque is subsequently paid on the first presentation."  There is therefore some advantage to waiting for three months of arrears to accrue and starting proceedings under all three grounds.  The relative merits of each choice are beyond the limited scope of this article.11

What constitutes rent arrears?
The tenancy agreement should clearly define the period of the tenancy (e.g. monthly), the date throughout this period when the rent is due (e.g. 1st of every month) and whether the rent is due in advance or arrears. 

If the rent has not been received by the due date, then the rent is technically in arrears.  Allowing for normal bank payment delays, clearing and weekends etc. it is common to give a few days of grace; fourteen days is commonly specified in tenancy agreements.

Quantification
If you are seeking possession under s8 as a result of rent arrears, it is important, on serving the notice, that the amount of arrears outstanding is clearly indicated or may be readily ascertained from the information given on the notice12.

Issuing the s8 notice (Notice of Seeking Possession)

A landlord seeking possession from an assured (or AST) tenant under the Act should serve a notice under Section 8 in the prescribed form.  The court may (unusually) waive with this notice requirement where it considers it just and equitable13 except where possession is sought under Ground 8  (the mandatory ground for non-payment of rent).  NB. Where the tenant(s) is in arrears of rent, it is important that a brief schedule is included specifying the amount claimed to be in arrears.  

Full text of grounds
The Act states that the Notice of Proceedings must specify the ground and any particulars of it14.  It is important that you should use the full and exact wording of the grounds for possession to be found in the Act when citing them on the Section 8 form.  One possession case15 was unsuccessful because this was not done.  The full wording of the Grounds are available in Section 4, appendix B of  the Letting Handbook or on the Letting Centre website at www.letlink.co.uk.

When do I serve the notice?
In some cases, it may be possible for the tenant to remedy the circumstances which caused the original default and, once resolved, the tenancy can continue without further problem.  In other cases, the breach is so fundamental and irreparable, that the landlord will wish to repossess the property at the earliest opportunity. 

In the case of rent arrears, agents and landlords often allow the arrears to build up to a significant level (perhaps totalling several months) before taking any formal legal action.  Given the additional delays of bringing a case to court, the build up of arrears could result in the loss of several months' rent to the landlord.  Early action is recommended and the formality of issuing the statutory notice to the erring tenant is often sufficient to ensure that rent arrears are paid.

Secondly, it costs nothing to issue the Section 8 notice and so getting the notice out at the earliest opportunity wins time for the landlord.  The notice can always be revoked should the rent subsequently be forthcoming.

Effective service
The notice must be served on the tenant, and in the case of a joint tenancy on all tenants.  There are certain provisions concerning what constitutes 'effective service' of a notice.  In the absence of express agreement or statutory provision, a notice will, in law, have been served only where it can be proved that it has been brought to the attention of the recipient16. Section 196(4) Law of Property Act 1925 provides that a notice is sufficiently served, if it is sent by post in a registered letter addressed to the tenant at the aforesaid place of abode, business, office etc. and if that letter is not returned undelivered, service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.

In practice, service of notices can take several forms.  Clearly the most effective method is to serve the notice on the tenants personally.  Some landlords use recorded delivery but this has the drawback that the notice will be returned if the tenant is away or wants to be awkward and simply refuses delivery.  A letter sent by first class post is accepted by the courts as adequate, especially if used in conjunction with an express term in the tenancy agreement such as "any notice served shall be sufficiently served if sent by standard first or second class post to the Tenant at the Property or the last known address of the Tenant or left addressed to the Tenant at the Property"

Evidence that the notice was sent by post will be sufficient evidence of service unless the contrary is shown.  To provide evidence of service in a possession case, the person who effected service should give evidence to that effect, either orally, or by affidavit17. Many now use an effective 'belt and braces' system; when serving notices of seeking possession, they get the server to complete an affidavit to the effect that the notice has been posted.

Period of notice
Where the landlord wants possession on grounds 3,4,8, 10, 11, 12, 13, 15 or 17, he or she must give at least two weeks' notice. 
If a landlord is seeking possession on any of the other grounds (except ground 14), the landlord must give at least two months' notice.  For ground 14 (nuisance), the landlord may commence proceedings as soon as notice is served.
Once the notice has been served, the landlord has twelve months to commence proceedings.

Next steps
In many cases, issue of the notice and the implied threat of court action is sufficient to cause rent arrears to be immediately forthcoming or for other unwanted activities to cease.  If, however, at the expiry of the notice period, no further progress has been made, then the landlord's only recourse is to start court proceedings.  More of this in the next article.

References
1. Source: Lord Chancellors Department.
2. s2, Protection from Eviction Act 1977.
3. s21, Housing Act 1988.
4. s21, Housing Act 1988.
5. Lower Street Properties Ltd v Jones [1996] 48 EG 154, CA
6. Letting Centre, Oyez, Stat-Plus etc.
7. Symons v Warren, 1995, CA.
8. Schedule 2, Housing Act 1988.
9. s7(6), Housing Act 1988.
10. Schedule 2, Housing Act 1988.
11. Possession and Rent Arrears Pack - The Letting Centre.
12. Marath v MacGillivray [1996], CA
13. s8(1)b, Housing Act 1988.
14. s8(2), Housing Act 1988.
15. Mountain v Hastings 1993, CA
16. Wandsworth LBC v Atwell 1995, CA
17. Civil Evidence Act 1968
18. DOE Housing Booklet 19.

Rent Arrears and Possession Pack
Material in this article is reproduced with permission from the Letting Centre's Rent Arrears and Possession Professional Pack.