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Section 13 rent increases hit the headlines again

by | 20 Jul, 2015 | Blog

In this post I am going to look at the recent case Helena Partnerships Limited v. Brown [2015] UKUT 324 (LC), which is of relevance to a significant number of registered providers of social housing who use the National Housing Federation model assured tenancy agreement and who seek to increase the rent.

The issue

In the case of Helena Partnerships Limited v. Brown case the Upper Tribunal (Lands Chamber) was asked to consider whether the references in a tenancy agreement to sections 13 and 14 of the Housing Act 1988 constituted a contractual rent review mechanism falling within section 13(1)(b) of the 1988 Act, the effect of which was to exclude the jurisdiction of the First-Tier Tribunal Property Chamber (‘FTT’).

The law

Assured tenancies can either be for a fixed term or periodic.

Where an assured tenancy is for a fixed term it will either contain a contractual provision for rent review or regular rent increases to predetermined amounts, or the rent will be at the same level throughout the term.

Where, however, the tenancy is a periodic assured tenancy (either a contractual periodic tenancy or a statutory periodic tenancy), sections 13 to 14B of the 1988 Act apply and govern the determination of rent. Section 13(2) of the 1988 Act allows the landlord to propose a new rent. If the tenant disagrees with the proposed rent, section 13(4) of the 1988 Act allows them to ask the FTT in England, or a rent assessment committee (‘RAC’) in Wales, to assess the open market rent for the property. The basis on which the FTT or RAC is to determine the rent is set out in section 14 of the 1988 Act.

By section 13(1)(b) of the 1988 Act, where there is a contractual provision in the tenancy agreement for increasing the rent (whether it be for a fixed increase (for example, by reference to the change in the retail price index, or stepped increases to predetermined figures) or for an increase by reference to an objective standard such as open market value), section 13 does not apply. In the leading case on the subject, Contour Homes Limited v. Rowen [2007] EWCA Civ 842, the Court of Appeal considered the scope of the exclusion in section 13(1)(b) of the 1988 Act and held that:

  • the exclusion applies both to cases where the rent increase is set by the tenancy agreement and cases where the tenancy agreement only provides a mechanism for increasing the rent; and
  • the parties are not able to confer by agreement jurisdiction on the FTT or RAC to resolve any dispute over a proposed rent increase.

Facts

Michael Brown is the assured periodic tenant of a flat under a tenancy agreement dated 3 November 2003. His tenancy agreement is drafted in a user-friendly informal style and based on the National Housing Federation’s model assured tenancy agreement.

The tenancy agreement requires Mr Brown to pay rent and service charges and contains the following provisions in relation to rent increases:

1.10.1 We will increase your rent on the first Monday in April following the grant of this tenancy by no more than the change in the Retail Price Index (all items) for the previous 12 month period announced in the October before your rent increase (“RPI”) plus half a percent.

1.10.2 Thereafter we can (in accordance with Sections 13 and 14 Housing Act 1988) increase your rent at any time if we give you at least one month’s notice in writing of the increase. You must then pay the full amount shown in the notice unless either we and you agree to an alternative figure or you ask a rent assessment committee to set a rent for you. This rent will be the most we can charge for one year from the date specified in the notice unless you and we agree otherwise.

1.10.3 Save as set out in clause 1.10.1 above we will not increase your rent more than once a year and no increase shall take effect less than a year after the last increase.

1.12.1 We may increase your service charge (if it applies) at any time if we give you at least one month’s notice in writing, but not more than once a year unless there is a change in the services provided or it is necessary to meet the actual cost of the services provided.

The remainder of clause 1.12 provides for an annual RPI increase in the service charge in April in the year following the grant of the tenancy and thereafter for Mr Brown to pay “a service charge based on our estimate of the sum we are likely to spend in providing services to you over the coming year”. There was to be an adjustment of the service charge for the following year if it transpired that more or less had been spent “on providing services for you”; in other words, his landlord was operating a variable service charge regime.

At the commencement of his tenancy Mr Brown paid a weekly rent of £48.56, which included a small service charge of £0.62 per week for grounds maintenance and communal lighting. Although the tenancy agreement provided space to record additional charges for a list of services comprising general counselling and support, “Care Line/Sheltered”, heating and furniture, no charge was shown against any of those items in Mr Brown’s agreement.

In 2010 the landlord introduced additional services, which it described as as “specialist housing related support to existing and new tenants who require advice and assistance to help them manage their tenancies”. The cost of these additional services was initially met by the landlord from its general revenue but from 7 April 2014 the landlord sought to defray the expense by introducing a weekly service charge of £33.02, of which £0.97 was for the grounds maintenance and communal lighting and the balance for the new services. At the same time the landlord gave notice to Mr Brown under section 13(2) of the 1988 Act proposing a new rent for the tenancy of £77.65 in place of the previous rent of £72.87. The effect of these measures was to increase the sum payable by Mr Brown as rent and service charges from £73.81 a week to £110.67 a week.

Mr Brown did not consider that he would benefit from the new services. He was not in need of housing related support, intensive or otherwise, and had successfully sustained his tenancy for more than ten years. He therefore referred the notice of increase of rent to the FTT using the form prescribed under section 13(4)(a) of the 1988 Act. Notably, he did not separately challenge his liability to pay the increased service charge. Instead, in a subsequent letter to the FTT regarding the scope of his challenge he wrote:

I agree to the rent of £77.65 but do not agree with the increase of £32.05 for services that are not required, agreed or used. The landlord challenged the FTT’s jurisdiction to entertain Mr Brown’s application to determine the rent, arguing that his tenancy agreement was an excluded agreement within section 13(1)(b) of the 1988 Act.

The FTT dismissed the landlord’s challenge, finding that “the tenancy agreement entitled the landlord to increase the services provided to the tenant and the service charge and the rent, but did not include a detailed formula for increasing either.” The FTT determined the rent payable as £32.98 with effect from 7 April 2014, recording that variable service charges were not included in that figure which it assumed would be payable in full. The net effect of the decision was that Mr Brown’s combined rent and service charged was reduced to £66 per week.

The landlord appealed to the Upper Tribunal (Lands Chamber) solely on the question of the FTT’s jurisdiction, submitting that clauses 1.10.1 and 1.10.2 of the tenancy agreement constituted “…a provision, for the time being binding on the tenant, under which the rent for a particular period of the tenancy will or may be greater than the rent for an earlier period” so that the agreement fell within the exception in section 13(1)(b) of the 1988 Act and the rent could not be referred to the FTT by Mr Brown.

The Upper Tribunal’s decision

The Upper Tribunal dismissed the landlord’s appeal and held that the FTT had jurisdiction to determine the rent. It rejected the argument that clauses 1.10.1 and 1.10.2 of the tenancy agreement amounted to contractual provisions for increasing the rent.

It said that clause 1.10.1 of the agreement provided for a single increase with effect from 1 April 2004 and had no continuing effect after that date. When Mr Brown referred the notice of rent increase to the FTT in 2014, clause 1.10.1 could not be said to be “a provision, for the time being binding on the tenant.” By that time the provision was spent and did not exclude the tenancy from the application of section 13.

It noted that the tenancy agreement includes a number of statements of the general law which are nothing more than information to the tenant regarding his rights. Clause 1.10.2 is a simple statement of the effect of the general law under which, after the first year of the tenancy, the landlord will have the right to increase the rent under sections 13 and 14 of the 1988 Act. As such, clause 1.10.2 has no independent contractual force. The landlord’s ability to invoke the statutory rent review procedure does not convert that procedure into a contractual rent review clause, which would then prohibit access to the statutory procedure.

Commentary

This is a sensible decision from the FTT but one which is likely to be of significant relevance for registered providers of social housing due to the fact that Mr Brown’s tenancy agreement is based on the National Housing Federation model agreement and thus in widespread use.

If the Upper Tribunal had agreed with the landlord that clause 1.10.2 contained a contractual provision for increasing the rent that engaged section 13(1)(b), it would have had a perverse effect. Following Contour Homes Limited, contractually the landlord would not have been able to use clause 1.10.2 to increase the rent in accordance with sections 13 and 14 of the 1988 Act despite the fact that this is what clause 1.10.2 provided. Therefore, the contractual mechanism by which the rent was to be increased would have broken down, but its presence (if it had engaged section 13(1)(b)) would have denied the parties access to the statutory procedure for determination of the rent.

The position, therefore, is that absent a specific contractual rent review mechanism, sections 13 to 14B of the 1988 Act will apply. It must follow from this that if landlords have erroneously been working working on the basis that they have a contractual rent review mechanism they may not have complied with the strict requirements of the 1988 Act as regards the giving of notice of a proposed rent increase, thereby calling into question the validity of historic rent increases. Only time will tell whether this is a problem but you can imagine it being a point taken by creatively thinking tenant lawyers.

As an aside, and unknown to Mr Brown who was acting in person, his challenge should have been made pursuant to section 27A of the Landlord and Tenant Act 1985, which permits a tenant to apply to the FTT to determine whether a service charge is payable.

Further information

The full decision of the case can be read here. If you require any assistance in reviewing your tenancy agreements in light of this decision then please get in touch.

Please note that my posts are no more than an immediate response to a recent decision or other legal development in England and Wales intended for general information purposes only. As such, they do not constitute professional advice (legal or otherwise) nor should they be used as such for any specific situation. Neither my firm nor I can accept responsibility for any act and/or omission based on my posts. You should therefore seek advice if proposing to take any action based on what you have read. Any views expressed are my own and not necessarily those of my firm.