The changing face of section 21

It is arguable that the most important legislative clause in the development of the private housing sector is section 21 of the Housing Act 1988. And now, some 25 years after the Act came into force, it’s changed. What’s going on?

Strong security

Section 21 allows landlords to recover possession of their property as of right, even if the tenant is not at fault. Once this was really understood (which took a few years), it changed the face of private renting forever.

Under the Rent Act 1977, which was the governing legislation until the Housing Act came into force in 1989, once you let a property to a tenant, it was very difficult to get it back again. One of my clients once described it as “expropriation without compensation”.

Tenants had strong security of tenure and the main ‘mandatory’ ground for eviction was for people renting their own homes, which was not a lot of use for the professional investor/landlord.

Coupled with the inability of landlords to charge a proper rent due to the ‘fair rent’ system, the private rental sector had shrunk to about 7 to 8
per cent of households by the late 1980s.

However, with section 21 you could serve a notice on a tenant and, provided you got the notice right, you were guaranteed to get your order for possession in due course.

It would take you a while: the notice had a minimum notice period of two months, the claim for possession could only be made after the fixed term had ended, and court procedures were not quick (a three to six-month period would be normal). However, the tenants would eventually have to go.

This, coupled with the right of landlords to charge a proper rent, unshackled by the Rent Service (whose rent officers are responsible for setting the fair rents), allowed the private rental sector to develop into what we have today: a sector which houses between 12 and 20 per cent of households and which is now bigger than the social housing sector.

The most important words above are ‘provided you got the notice right’, because it was very easy to get the notice wrong, in which case you would not get your order for possession. Judges, quite rightly, expect landlords to get their paperwork right before they make an order which will render someone homeless.

Many a landlord has left court muttering grimly about the law being an ass while their tenants (who will often owe them large sums in unpaid rent) dance a jig in the court lobby, secure in the knowledge that they cannot be evicted for at least another two to three months.

The main problem with section 21 notices is that there is no ‘prescribed form’, which means that we have all had to make them up as we go along. Inevitably, many landlords have got them wrong.

Here’s how they worked, under the old interpretation:

1. If you served your notice during the fixed term of the tenancy, section 21(1) applied. Here, you had to give a notice period of no less than two months and the notice had to expire after the end of the fixed term. The notice did not have to end on any particular date so long as enough notice had been given to the tenants. These notices are relatively straightforward and few landlords made mistakes with them.

2. If you served your notice after the fixed term, then section 21(4) applied. You still had to give
a notice period of not less than two months. However, these additional rules would apply:

• the notice must say that possession is required ‘by virtue of this section’;
• it must state that possession is required ‘after a date specified in the notice, being the last day of a period of the tenancy’; and,
• the date in the notice must not be ‘earlier than the earliest day on which, apart from [section 5 which says you can’t use notices to quit for these tenancies], the tenancy could be brought to an end by a notice to quit given by the landlord on the same date as the [section 21 notice]’.

What does that all mean?

The first point is easy: the notice must refer on its face to section 21 of the Housing Act 1988. It’s the others which have caused the problem, in particular the requirement to give a date which is ‘the last day of a period of the tenancy’.

Many landlords are not clear about what the period of the tenancy is (assuming they know what a periodic tenancy is in the first place), or when it ends, and so have just given a straight two-month notice period, which is unacceptable unless the notice has a saving clause.

The last point is aimed at periodic tenancies with longer periods. So, for example, if you have a quarterly periodic tenancy, you must give not less than three months’ notice, and if you have a six-month or annual periodic tenancy, you need to give no less than six months’ notice. However, most periodic tenancies nowadays will have monthly periods.

New rules

The new rules come from the Court of Appeal decision in Spencer v Taylor in 2013. In this case, the landlord served a section 21(1) notice after the fixed term had ended coupled with a saving clause. The tenant contested.

The Court of Appeal found for the landlord. A big part of the judgment concerns the saving clause and the decision confirms these can be used.

However, the interesting part of the judgment concerns the issue of whether the section 21(1) notice could be used during the periodic tenancy. According to Lord Justice Lewison, we have all been reading the Act wrongly. Section 21(1) and 21(4) notices are not mutually exclusive. And the Act does not say that section 21(1) notices are confined to fixed terms.

So, now you can serve a valid section 21(1) notice during a periodic tenancy.

Or can you?

There are still complications. Section 21(1) refers to a fixed term, so the section 21(1) notice cannot be served if there has never been a fixed term at all. This is quite rare, but it does happen.

There is also the problem that not all periodic tenancies are ‘statutory’: some of them are ‘contractual’. The difference between the two is that a contractual periodic tenancy is when you have a periodic tenancy because your tenancy agreement says that this is what will happen. If your tenancy agreement is quiet on the subject, then your periodic tenancy will arise because section 5 of the Housing Act 1988 says it will.

The wording of section 21(2) appears to tie the use of a section 21(1) notice to a statutory periodic tenancy, so the general view is that even though you can (now) serve a section 21(1) notice during a statutory periodic tenancy, you can’t use it during a contractual periodic tenancy. That being said, it is not entirely clear, and it would be nice to have some judicial comment on this.

However, it looks as if the rules are now as follows:

1. Section 21(1) notices (the easy one) can be served:

n during a fixed term; and,

n during any following statutory periodic tenancy arising under section 5 of the Housing Act 1988.

2. Section 21(1) notices cannot be served:

• in respect of a tenancy where there has never been a fixed term at all; or
• (probably) during a contractual periodic tenancy.

If in doubt about the type of periodic tenancy you are dealing with, the best course of action is to serve a section 21(4) notice (coupled with a saving clause) as this will always be valid, assuming everything else is correct.

In Spencer v Taylor, the tenant, Miss Taylor, attempted to appeal the decision to the Supreme Court, but her appeal was rejected, so we can now be sure that the decision is good law.

The next problem for landlords is the possibility that section 21 will be compromised if Sarah Teather’s proposed Private Member’s Bill (now supported by the government), which attempts to outlaw retaliatory eviction, comes into force – depending on the details of the how the Bill is drafted.

However, if the Bill ever comes into law, that will be another issue altogether. SJ