There is a change taking place which will affect Houses in Multiple Occupation (HMO’s) and will take effect from 6^th April 2010.

 There has been concern, from residents and community representatives amongst others, that some areas of our larger towns and cities are experiencing a high percentage of shared, rented properties – Houses in Multiple Occupation. This is clearly very prevalent in towns with a high student population and the effect of this has often been a marked change to the character of the areas in question and the demand for and usage of the services in that area.  The Government has listened to these concerns and has a result has now published changes to the planning regulations to try to deal with these situations.

 At present some HMO’s do require planning permission but a large number of smaller HMO’s fall outside of the existing requirements for planning permission and the result has been the proliferation of such shared properties referred to above. The new regulations will now introduce a new separate class specifically for HMO’s and which will use the definition of an HMO that has been defined in the Housing Act 2004.

 What this means therefore is that:

• Planning consent will be required for HMO’s.
• The definition of an HMO is any property occupied by three or more sharers who constitute two or more households and where rent is payable.
• This will take effect from 6^th April 2010.

 What this means for landlords and agents is that from 6^th April planning permission will be required for lets to, for example:

• Three sharers
• Two sharers one of whom is a single mother with a child
• A couple with a (permitted) lodger.

 It is not yet clear if this will also apply to tenancies already in existence on this date.

 This is likely to have a major effect upon a great deal of the stock of properties that letting agents in certain areas have ‘on their books’.

 However if planning permission has been granted for use as an HMO further permission will not be needed if a landlord then subsequently wants to revert to letting to a single household (ie an individual or a family). This will be considered as Permitted Development.

 We will keep you advised of updates when we have more information on this topic.

It has been apparent for a long time that a large number of tenant’s deposits have not been protected simply because the annual rent is more than the maximum where deposit protection is a legal requirement. Some of these properties have been large prestigious properties but a much greater number have been ‘normal’ properties in places such as London where rents are so much higher. For some time the Government has been under pressure to correct or at least reduce this anomaly.

 To this end the Government has just published the Statutory Instrument which will require the maximum rent threshold for tenancies under the Housing Act 1988 (Assured Shorthold Tenancies) to be increased to £100,000 per annum.

 This will

• take effect on 1^st October 2010
• apply to England only (at least at present)
• apply to all new tenancies from that date
• apply also to all existing tenancies.

 So tenancies in existence on or from 1^st October 2010 with an annual rent not exceeding £100,000 per annum will have to be Assured Shorthold Tenancies (AST’s). However do bear in mind that just because the rent is below £100,000 per annum does not automatically mean that an AST must be created. The normal exceptions still apply such as a Company let or a situation when the rented property is not the tenant’s main or principal home

 Tenancies already in existence which are above an annual rent of £25000 per annum and less than £100,000 per annum will automatically convert to an AST on that date.

 This means in turn that the obligations of The Housing Act 2004 to protect the deposits of all new tenancies from 6^th April 2007 will therefore apply to all these newly created AST’s.

 What this means for agents is that

• An Assured Shorthold tenancy can exist where annual rent is up to a maximum of £100,000per annum
• There will be the usual legal obligation to protect deposits in all these cases
• You will need to make sure that you protect deposits for all new tenancies that apply from 1^st October.
• As all existing tenancies at that date will also need to have their deposits protected you will need to start planning this as soon as possible.

 In practical terms there are various things for agents to think about. Perhaps you may need to amend your Terms of Business and other marketing material to reflect the new requirements.

 In addition you need to identify which tenancies will convert on 1^st October and put strategies in place to deal with this. You will need to keep your   landlords and tenants informed but also may need to prepare your administrative procedures to deal with the protecting of the deposit and the provision of the prescribed information.

 There are some potential problems looming that may well be dealt with before 1^st October. These include

• A situation where a tenancy is already in existence on 1^st October and which automatically converts to an AST with the deposit being correctly protected on or before that date. The tenant could still argue, correctly, that the deposit was not protected at the beginning of the tenancy.
• What happens when a tenancy is due to end shortly after 1^st October and there is not the necessary two months to serve a notice under Section 21? Will any notice served prior to the date be valid?
• A situation where Court proceedings appropriate for a non-AST have been commenced prior to 1^st October and are proceeding at that date. The notices served will not be the relevant ones at the date of the conversion.

 It is to be hoped that greater clarity will emerge on these issues during the next six months and we understand that CLG will be issuing guidance to the Ministry of Justice in due course. However one potential way of avoiding at least some of the problems may be to start protecting deposits of those new tenancies that commence in the intervening period and that you know will convert to AST’s on the 1^st October.

There has just been a decision handed down by the High Court concerning the tenancy deposit scheme. This is the first decision by a higher Court on this matter and is binding on all lower (County) Courts.

The case is Draycott v Hannells Letting Ltd. The facts of the case were undisputed and basically were that Hannells registered a deposit with The DPS (the custodial scheme) more than 14 days after receipt. The claim was brought against the agents.

The original decision taken by a Circuit Judge held that the claim for not protecting the deposit within 14 days could be brought against the agents. He further decided that the failure to protect the deposit within 14 days was in breach of the requirements of section 213 of the Act and was in itself enough to trigger the penalties of an award of three times the deposit as laid down in the Act. In his judgement the judge stated that suggesting otherwise would be akin to ‘driving a coach and horses’ through the intention of the Act and would be tantamount to allowing a landlord not to register a deposit until they were challenged about this in Court.

The High Court looked at two main issues.

1) Could an agent be held liable for a failure to protect a deposit or was it entirely the responsibility of the landlord.

2) Should the failure to register the deposit and provide the prescribed information within the14 days automatically trigger the penalties as laid out in section 214 of the Act.

The Court confirmed the original decision and decided that the agents, were liable to protect the deposit citing the wording of the Act that states that ‘references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies…’

On the second issue the Court decided that while a failure to protect a deposit with a scheme is certainly a breach of the Act it is not the same as the requirement to protect the deposit within 14 days.

The judgement looked at the rules of the particular scheme used by the agents in this case – that operated by the DPS. The distinction was made between the ‘initial requirements of the Scheme’ and other requirements. The Court decided that the DPS rules stated that there was an initial requirement only to make payment in to the Scheme and that the requirement to do so within 14 days was not an initial requirement of that Scheme. The Court decided that the penalties as laid down in the Act could only be imposed if the initial requirements of an authorised scheme have not been complied with.

So where does this leave things?

This is the first binding decision on the whole issue of Tenancy Deposit Protection and does seem to clarify some hitherto grey areas. In particular agents must be aware that it has now been made clear that it is they as well as landlords who bear a responsibility for protecting the deposit. It would also appear that agents must be clear what are the rules of the particular scheme that they use.

While there is the suggestion that landlords are left without fear of penalty it is still the case that no valid Section 21 Notice can be served while the deposit is not protected.

However leave has been granted to take this to appeal and it is still possible that this option will be taken and the decisions could yet be altered or overturned. In addition there are also other cases waiting to be heard that may also take different views.