Negligence in Residential Leasehold Conveyancing – Dealing with Protected Residential Tenancies

“The field of residential leasehold conveyancing is an area fraught with pitfalls for the unwary. In a high proportion of residential transactions, the value will be modest, and the incautious solicitor may be tempted to undertake a lower level of due diligence than in a transaction of a higher value.”

This article will look at just one of the (numerous) issues of which transactional solicitors need to be aware when dealing with residential conveyancing: protected residential tenancies. The following samples the chapter on Residential Leasehold Conveyancing in the Law Society’s latest publication: Risk & Negligence in Property Transactions edited by John de Waal KC.

Although the law recognises an element of flexibility as to the standard of care for solicitors (see Balamoan v. Holden & Co [1999] NLJ 898), these cases will be rare.  The courts will not generally sanction a two-tier system of service-levels solely because the fees charged by the solicitor were unremunerative (Inventors Friend Ltd v. Leathes Prior (A Firm) [2011] EWHC 711 (QB)).  Sometimes solicitors take on cases as loss-leaders; other times, a fee that was perceived as ‘reasonable’ at the outset becomes less-so when problems arise during the transaction.

In any case, it is imperative that the solicitor dealing with the transaction knows what to expect. What follows are examples of some of the issues to ‘watch out for’ when acting for a prospective landlord seeking to acquire land in which a protected tenancy is floating around in the background.

Protected Residential Tenancies?

What is meant by the term ‘statutorily protected residential tenancies’? This is a catch-all, which covers a multitude of, invariably shorter, leases that are subject to a certain measure of statutory protection and regulation. Some of the more common ones include: Assured Tenancies (including Assured Shorthold Tenancies), protected under the Housing Act 1988; Secure Tenancies, protected by the Housing Act 1985; and Introductory Tenancies, pursuant to the Housing Act 1996.  Of decreasing occurrence nowadays are Rent Act Tenancies (including both protected and statutory tenancies), protected by the Rent Act 1977.

Information from the Vendor

Of course, at the very outset the solicitor acting for the landlord should ensure that he or she is in receipt of the full facts concerning the nature of any derivative interests. This will include the type of tenancy, the duration of the tenancy, the obligations on the landlord (with particular focus on any onerous ones).  If information and supporting documentation is lacking, then this should form the basis of additional enquiries.

Regulation of Tenancies

Nowadays very many short-term protected tenancies are subject to additional statutory regulation, the responsibility for which falls upon the landlord. The solicitor acting for any prospective landlord will need to ensure that the previous landlord has complied with the wealth of statutory regulation concerning such lettings, and will need to ensure that copies of any documents are passed to the purchaser prior to exchange of contracts.

One could write a treatise on the regulations applicable to such tenancies; they are ever-changing and often vary depending on when the tenancy in question was actually granted. By way of example, currently the ‘right to rent’ regulations require checks prior to the grant of a tenancy so as to ensure properties are not let to illegal immigrants; recent requirements for the provision of Energy Performance Certificates and Gas Safety Certificates should be noted.  The relevant authority when enforcing such regulations will not be sympathetic to a landlord saying that he or she was unaware of the law; a solicitor acting on the conveyance should expect no better treatment from the courts if faced with a negligence action.

In respect of assured shorthold tenancies, the area is particularly heavily regulated: landlords now need to comply with various statutory requirements, including the provision of written details of the tenancy (HA 1988, s.20A) and the provision of the current form of the ‘How to Rent Guide’ to tenants (HA 1988, s.21B). Deposit regulations for ASTs (as provided for in HA 2004 and the Deregulation Act 2015) are particularly important; a failure to comply may give rise to an obligation on the landlord to return any deposit plus payment of a penalty of between one and three times the value of the deposit.

Licences and HMOs

In a similar vein, the solicitor acting for a prospective landlord of residential properties will need to consider whether the current landlord has all necessary licences in place to permit any existing lettings.

Part 2 of the HA 2004 sets out licence requirements in respect of houses in multiple occupation (HMOs). Such properties include homes which (i) comprise three or more storeys; (ii) are occupied by five or more persons; and (iii) are occupied by persons living in more than one household. It ought to be a simple matter to ensure that all necessary licences are present; however, this is a matter often overlooked when dealing with a large transaction which may involve a number of properties.

Part 3 of the HA 2004 introduced a new form of selective licensing for residential properties, which enables the local authority to designate areas as being subject to separate selective licences (often called ‘private rented property licences’). These forms of licenses are gaining in popularity (especially in Central London) and it is not uncommon for a purchaser to acquire a ‘buy-to-let’ property without appreciating the administrative (and sometimes financial) burden in obtaining such a licence.  Even worse would be the position of the purchaser who takes over an existing property in which such a licence is required, and finds him or herself immediately subject to sanction as soon as the sale completes.

Succession

The concept of succession is often overlooked (by clients and legal advisers alike). Several of the above tenancies render it difficult for a landlord to retake possession, meaning that the landlord may well be burdened with a tenant for a number of years.  It is not uncommon for purchasers (in particular in respect of any remaining Rent Act tenancies) to acquire the freehold in anticipation of the lease terminating upon the death of the tenant.

When such a landlord acquires the property, they are taking a risk as to when the lease will determine. It is simple, however, to overlook the rules on succession, which may entitle a family member to succeed to the tenancy on the death of the tenant.  This may have a profound effect on the value of the reversion.  The solicitor will wish to ensure that this is spelled out explicitly to their client.

The Transaction Generally

When considering the above, it may be thought that there are so many regulations and pitfalls (the surface of which has only been scratched by this article) that no sane purchaser would get involved in such a transaction. Although this may be an overstatement for the majority of purchases, in respect of certain transactions this might well be the conclusion.

To this end, in some scenarios, a solicitor may come under an obligation to advise the client on the commercial wisdom (or otherwise) of the proposed transaction itself. Although, in general, a solicitor has no duty to advise on such matters, certain factors may give rise to an enhanced duty to actively advise the client of the risks associated with the transaction.

Conveyancers and transactional solicitors alike should pay heed to the helpful guidance from Donaldson LJ in Carradine Properties Ltd v. D J Freeman & Co (A Firm) [1999] Lloyd’s Rep PN 483:

“A solicitor’s duty to his client is to exercise all reasonable skill and care in and about his client’s business. In deciding what he should do and what advice he should tender the scope of his retainer is undoubtedly important, but it is not decisive. If a solicitor is instructed to prepare all the documentation needed for the sale or purchase of a house, it is no part of his duty to pursue a claim by the client for unfair dismissal.

But if he finds unusual covenants or planning restrictions, it may indeed be his duty to warn of the risks and dangers of buying the house at all, notwithstanding that the client has made up his mind and is not seeking advice about that. I say only that this may be his duty, because the precise scope of that duty will depend inter alia upon the extent to which the client appears to need advice.

An inexperienced client will need and will be entitled to expect the solicitor to take a much broader view of the scope of his retainer and of his duties than will be the case with an experienced client.”

Almost two decades on, these words remain as compelling a warning call as ever to everyone working in this field.

Jamal Demachkie is the author of the chapter on Residential Leasehold Conveyancing in Risk & Negligence in Property Transactions edited by John de Waal KC.