Part II              

the evolution of housing law

Introduction

                             2.1              In thinking about how housing law might be developed, we must first understand how the law has evolved into the current complex body of rules so heavily criticised by Lord Woolf.[1] We do not intend to provide a detailed account of the history of housing law and policy over the last 150 years, but rather to highlight the principal issues addressed during that period and see how they have changed. We need to consider the various legislative techniques that have been used and the extent to which they have achieved the results intended for them. In short, we need to learn the lessons of history to ensure that our proposed new framework will, so far as we can predict, be able to meet future needs.

                             2.2              We have decided against setting out a simple chronological account. Rather we have decided to adopt a sectoral approach – looking at developments in the different sectors of the rented housing market. We divide the discussion into

                                                        (1)      first legislative initiatives – the 19th century,

                                                        (2)      the regulation of the private rented sector, 1915-1980,

                                                        (3)      the development of the public rented sector, 1920-1980,

                                                        (4)      the development of the housing association sector to 1980, and

                                                        (5)      developments from 1980 to the present day.

Finally we draw out the principal lessons we think can be learned from the historical account.

First legislative initiatives – the 19th century

Housing conditions and public health

                             2.3              The Industrial Revolution led to a major restructuring of society. Significant movements of the population, from rural communities into the newly industrialised conurbations, took place. These new concentrations of populations into often very poor quality housing created major problems of disease and overcrowding.[2]

                             2.4              At that time, and in sharp contrast to the position today, the predominant form of tenure for residential purposes was the provision of rented accommodation. Only a small percentage of the population had the resources to enable them to buy their properties.

                             2.5              The accommodation was provided principally by private landlords, who dominated the market. This source of supply was modestly augmented by a number of enlightened employers and housing charities. Housing provision was not seen as a function for Government. The housing market was largely unregulated by Government legislation.

                             2.6              The quality of much rented housing was not high. Housing conditions and the concomitant problems of public health became the focus of criticism by many leading social reformers of the day.[3] There was no statutory security of tenure.[4] The potential for social unrest became increasingly obvious.

                             2.7              The first legislative interventions in the 19th century were, by modern standards, modest. Nevertheless, they laid the foundation for future developments. These initial Acts of Parliament were principally concerned with questions of public health[5] and, in particular, the development of powers for local authorities to control disease.[6]

                             2.8              Concerns over insanitary conditions also resulted in widespread demolition of the housing inhabited by the poor. In this context, a significant development was the enactment of the Artizans’ and Labourers’ Dwellings Improvement Act 1875 which entitled (but did not oblige) local authorities to arrange rehousing on these sites.

                             2.9              Such rehousing was largely undertaken by “model dwelling companies” and philanthropic trusts, such as the Peabody Trust. By 1914 such bodies had built 50,000 dwellings. The Housing of the Working Classes Act 1890 expanded the powers available to local authorities to build themselves and they began to do so. However, by 1914, total local authority stock was only about 28,000 new dwellings.[7]

                          2.10              While local authorities were given powers to regulate housing conditions, and to provide housing, little was done by government to intervene in the contractual relationship that existed between landlords and tenants. This remained a relationship whose consequences were determined by common law.[8] Problems arising from the inequality of bargaining power that existed between landlord and tenant went largely unchecked.

The regulation of the private rented sector 1915 – 1980

Rent control, illegal premiums and security of tenure

                          2.11              The first major statutory interventions in the contractual relationship between landlord and tenant occurred during the First World War. Shortages of urban housing in key locations enabled landlords to increase rents significantly. While this might have been an economically appropriate/logical response to the balance between supply and demand, it created severe political problems. Munitions workers, especially in Clydeside, threatened strike action. With no alternative sources of social housing available, and no scheme for providing public subsidies to assist meeting housing costs, the Government’s only practical option was to introduce legislation to restrict the right of landlords to set or alter rent levels.[9] At the same time, to prevent landlords circumventing these measures of rent control by demanding capital sums of rent in advance, requests for premiums (colloquially called “key money”) were also outlawed.[10] In order to ensure that landlords would not simply evict tenants who attempted to enforce their rights, for example by complaining that they were being charged rents in excess of the legal limit, the legislation also provided that tenants should have security of tenure.[11]

                          2.12              Two particular points may be noted about this early legislation. First, it was originally intended only as a temporary war-time emergency measure, rather than as a long-term intervention in the freedom of landlords and tenants to contract. Second, it did not apply to all rented dwellings but only those which fell below defined “net rateable value” limits.[12] It was clear from the debates in Parliament that this early legislation was only intended to protect the poor.

                          2.13              Despite the fact that the legislation was conceived as a temporary phenomenon, continuing housing shortages – and the social and political pressures that resulted from them – after the end of the Great War resulted in the original legislation being retained. Over the next four decades no Government found it could afford, politically, to repeal the legislation. Instead the core legislation was subjected to frequent and detailed amendment. Successive Acts of Parliament sought to fine-tune the regulatory framework. During that period, many Committees looked at the problem and recommended specific changes to the law.[13] As a result, at some stages more dwellings were brought within the scope of the legislation;[14] at other times defined categories of dwelling were moved out of it.[15]

                          2.14              The outbreak of the Second World War led to yet further measures being taken, covering a much wider range of dwellings.[16] By 1953 it was estimated that over 90% of dwelling-houses in England and Wales fell within the rateable value limits; most unfurnished tenancies fell within the scope of the protective legislation.[17]

Exclusions – payments for board, attendance and the use of furniture

                          2.15              The Rent Acts had, from an early stage, sought to exclude from protection accommodation provided on what was usually regarded as a short-term rather than a long-term basis. Thus accommodation in relation to which the rent included payment for board, attendance or the use of furniture fell outside the scope of the Rent Acts.[18]

                          2.16              Although this remained the position in relation to arrangements dealing with board and attendance, a new set of rules providing some limited statutory protection for lettings of furnished accommodation was introduced in 1946.[19] These rules established a system of rent tribunals to determine “reasonable” rents for furnished premises. Rent tribunals were also able to postpone the operation of notices to quit, which had the effect of giving limited security of tenure. But this fell far short of the security available under the Rent Acts. This development reflected a view that, while this sector of the housing market should be subject to some regulation, there should be special rules for more informal accommodation arrangements.[20]

Moves to decontrol

                          2.17              Steps to deregulate the private rented sector occurred in the 1950s. First, the Housing Repairs and Rent Act 1954 provided that any dwellings newly built or newly converted for the purpose of letting should be outside rent control. Second, and more far-reaching, the Conservative Government’s Rent Act 1957 provided that all dwellings with rateable values in excess of £30 (£40 in London) should be decontrolled at once; and that other dwellings should be decontrolled when they became vacant.[21]

                          2.18              These latter measures led to acute social and political problems. Allegations were made of sharp practices by landlords eager to “encourage” their tenants to vacate their dwellings, particularly in areas of high housing demand.[22] These allegations in turn led to the establishment of the Milner-Holland Committee, which looked in particular at the effects of the de-control legislation on the housing market in London.[23]

New protective measures

Protection from unlawful eviction and harassment

                          2.19              The newly elected Labour Government responded to these developments by passing the Protection from Eviction Act 1964. This was the first Act to make it a criminal offence for a landlord to “harass” a tenant into vacating a property.[24] The Act, which was in any event set to expire at the end of 1965, was replaced by the Rent Act 1965 which retained the criminal offence, albeit cast in different words.

Due process

                          2.20              In addition, the Rent Act 1965 extended the circumstances in which a landlord was required to obtain a court order to recover possession. The Act adopted the principle that tenants should not be forced out of their accommodation without “due process”. Where an occupier remained in residence after the end of the contractual term, the landlord was required to obtain an order from the court before physical possession of the premises could be regained.[25] These provisions were imposed for all tenants, not only those falling within the scope of the Rent Acts.

                          2.21              In addition the common law on notices to quit was modified to provide that – irrespective of the term of the tenancy – at least four weeks’ notice had to be given. These provisions are now found in the Protection from Eviction Act 1977.

Fair rents

                          2.22              The Rent Act 1965 introduced a new regime for rent regulation. Instead of very inflexible rent controls based on tightly defined statutory formulae, it provided that rent levels should be fixed at a “fair rent” level, which sought to reflect market rent levels but discounting that element of the market rent which resulted from shortage of accommodation available for renting. Even though the rent for a dwelling had been agreed between the landlord and the tenant, these contractual rents could be referred to rent officers for determination. There was a right of appeal to rent assessment committees. There was provision for fair rents to be re-determined on a regular basis, initially every three [later every two] years.

                          2.23              Although the new fair rent system was more flexible than the former rent control system, it still had the effect of reducing the level of economic return available to landlords on their investment in the accommodation they were providing.

                          2.24              Two particular points should be noted about the changes made in 1965. First, the scope of the legislation was widened to embrace all dwellings of rateable value below £200 (£400 in London). The primary focus of the legislation was no longer on housing provided for the poor; it now embraced all rented housing, save the most expensive.

                          2.25              Second, for the first time, the Government enacted the Rent Act 1965 on the basis that it would be a permanent legislative measure. Earlier Acts had continued to be regarded as essentially temporary, emergency provisions to allow conditions in the housing market to stabilize; but this in practice never happened sufficiently to allow the legislation to be fully repealed.[26] The new legislation at least brought some greater certainty to this sector of the housing market.

Restricted contracts – resident landlords

                          2.26              As we have seen, furnished tenancies were for some time treated separately from unfurnished tenancies, and were subject to a much less stringent regime. The Rent Act 1974 made profound alterations to these provisions.

                          2.27              First, it brought most furnished tenancies within the full Rent Act scheme. Second, it introduced the new concept of the “resident landlord”. In tenancies – not falling within a purpose-built block of flats – in which there was a resident landlord, the full Rent Act regime did not apply. Instead, an adapted version of the less stringent regime – formerly governing furnished lettings – applied. Contracts subject to this adapted regime were labelled “restricted contracts”.[27]

Further measures to encourage letting

                          2.28              The 1974 Act also introduced new provisions designed to encourage private landlords to rent spare accommodation on a temporary/short-term basis. For example, it was provided that owner-occupiers who let their dwellings during temporary absences (for instance, where they went to work abroad) could, so long as certain procedural steps were followed, have a mandatory ground for possession, whereby they would be certain that they could get a court order for possession against any tenant who might hold over at the end of the agreed period of the tenancy. Winter lets of accommodation used during the summer for holiday lets (outside of protection) were given similar treatment.

Succession

                          2.29              In addition to all these measures, the Rent Acts also provided that, in defined circumstances, there should be rights for a person who lived with a protected tenant to succeed to the tenancy on the death of the tenant. These issues are not considered here but they will be the subject of a further consultation paper to be issued later this year.

Consolidation

                          2.30              The Rent Act 1977 and the Protection from Eviction Act 1977 consolidated earlier legislation.

Introduction of housing benefit – rent allowances and rent rebates

                          2.31              A number of very important developments were also taking place outside the framework of the Rent Acts. First, the Government came to recognise that a new approach to the subsidising of the housing costs of the poor was necessary. Rent control and rent regulation have the effect of reducing rent levels below that which can be achieved in the market place, at least for those categories of dwellings which come within the scope of the protective legislation. Thus, to a degree, these measures have the effect of forcing landlords to subsidise the rents of their tenants.[28]

                          2.32              The forerunners of what is now known as housing benefit were initially made available only for council tenants, renting from local authority landlords. These schemes were not universal, but were introduced on a discretionary, local basis. Following an initiative taken by Birmingham City Council – which introduced a scheme of rent allowances for private sector tenants in 1968[29] – the Government expanded the scope of its thinking on rent rebates to embrace the rents of private sector tenants as well as public sector tenants.The first national scheme of rent rebates and allowances was introduced by the Housing Finance Act 1972.

                          2.33              This proved to be a key first step in the process which led ultimately to the refocusing on market rents, and away from statutory regulation of rents in the private sector, found in the Housing Act 1988.[30]

Housing conditions

                          2.34              In addition to the measures set out above, which sought to regulate the landlord-tenant relationship, further measures, which built on 19th century precedents, attempted to improve the quality of housing conditions. Since these are not central to this project they will be mentioned only briefly.

                          2.35              There have been four principal means by which it has been sought to achieve this objective. First, increasingly strict Building Regulations sought to improve the quality of newly-built housing.[31] Second, local authorities were given increasingly comprehensive powers to enforce housing standards where the accommodation was unfit.[32] Third, a number of terms – relating to housing conditions – were implied into tenancy agreement by statute.[33] Fourth, public health law came to be used as a means to tackle poor quality housing accommodation which amounted to a “statutory nuisance”.[34]

The impact of protective legislation

                          2.36              A number of comments may be noted in relation to these legislative initiatives.

                          2.37              First, despite the fact that in the period 1915 to 1980 a considerable body of protective legislation was introduced to afford legal protections to tenants, there was nevertheless considerable evidence that either tenants did not know their rights[35] or did not seek to take advantage of those rights, either through fear of upsetting the landlord or because they were relatively content with their situation.[36] It might thus be suggested that the law did not work particularly well.

                          2.38              Second, despite the many changes to the legislative framework, the law was never comprehensive. There were always significant groups that fell outside the protective scope of the law, certainly as regards rent regulation and security of tenure. However, as the scope of protection expanded to wider categories of property, so too did the number of exceptions and exemptions increase. This served to increase the complexity of the law.

                          2.39              A third, related, effect of the expansion of the scope of the Rent Acts in particular was that they encouraged landlords to enter into agreements that they hoped might fall outside the scope of the legislation, so that their properties were not subject to rent regulation and their occupiers did not have long-term security of tenure. Most notable were the attempts by landlords to provide accommodation under licences (which fell outside Rent Act protection) rather than leases (which were clearly within the scope of the legislation). These evasive devices in turn provoked a considerable amount of litigation. Over the years the decisions of the Courts developed a jurisprudence, the broad outcome of which was that the courts were able to ensure that the primary objectives of this area of social legislation were not subverted by “sham agreements”.[37] But these outcomes were not always predictable, and in some instances could only be achieved by some straining of the canons of statutory interpretation. This led to uncertainty in the application of the law. It was not conducive to the development of a structured code of housing law in which landlords and tenants might know at the outset of their relationship where they stood.

                          2.40              Fourth, although not the sole cause,[38] there is little doubt that one consequence of all this legislation was that many private landlords voted with their feet and left the market.

The development of the public rented sector 1920-1980

                          2.41              During the same period, significant changes were also occurring in the housing market. The provision of what would now be described as “social housing” – which at the start of this period was provided by a small number of housing charities – was supplemented by increasingly substantial housing provision by local authorities. In the period 1920–1980, council house provision rose from a few thousands to slightly over 5 million out of a total of 17.6 million dwellings.[39]

                          2.42              In contrast to the private rented sector, which became increasingly subject to detailed legislative regulation, local housing authorities were regarded as “model landlords” who were left largely free to manage their housing services as they wished. On the crucial question of security of tenure – a key aspect of how local authorities manage their estates – there was little legislative intervention.[40]

                          2.43              The bulk of the legislation relating to the provision of council housing had an enabling role, designed to give local authorities the basic legal powers needed to enable them to finance and build the accommodation, rather than regulate the detail of the relationship between local authorities and their tenants.

                          2.44              There were legal requirements to fix “reasonable” rents, but in practice this gave considerable discretion to local authorities to determine rent levels.[41] They did not amount to anything like the provisions on rent control or rent regulation found in the private sector.

                          2.45              In relation to the quality of the accommodation provided, local authorities were also subject to provisions relating to housing conditions,and to public health legislation. However they were not subject to other provisions of public law on housing standards which local authorities were entitled to use against non-local housing authority landlords.[42]

Discretion v rights

                          2.46              A number of reports in the 1960s began to raise the question whether this rather unregulated, discretionary approach was sufficient to ensure that local authorities were in fact using the housing resources that were available to them to address questions of housing need. The culmination of these concerns was reflected in a report from the Central Housing Advisory Committee, published in 1969.[43]

Homeless persons legislation

                          2.47              Although there was no immediate response to this report, towards the end of the period under consideration there was one extremely significant development, which profoundly and radically affected the powers of local authorities to allocate their housing accommodation. This was the enactment in 1977 of the Housing (Homeless Persons) Act. What had hitherto been primarily a matter of policy and administrative discretion became a matter of legal duties and obligations.

                          2.48              The Act also had an impact on the policy of local authorities seeking possession against their own tenants, as it introduced circumstances in which, having obtained a possession order, the authority would immediately be required to provide accommodation to the dispossessed tenant.

A national rent rebate scheme – subsidising tenants

                          2.49              The other significant development – already mentioned in passing above[44]– which also occurred towards the end of the period under consideration, was the introduction of increasingly comprehensive schemes of rent rebates to subsidise the housing costs of the poor.

                          2.50              Council housing had been developed initially on the basis that housing was provided by a combination of public grants and loans – which had the effect of keeping the overall costs of council housing down. In effect there was public financial subsidy of the costs of building the accommodation.

                          2.51              Conservative Governments in particular came to think that this had the effect of creating substantial and undesirable differentials between the costs of private sector rented accommodation and public sector accommodation. They also felt that this method of subsidising housing costs did not target public support to those in greatest need.

                          2.52              The Housing Finance Act 1972 was the culmination of a process of the development of rent rebates for local authority tenants. The introduction of a national rent rebate scheme signalled a shift from the subsidising of the costs of providing the housing to subsidising the ability of the poor to pay (with the general level of council house rents being increased).[45]

The development of the housing association sector to 1980

                          2.53              A third sector – the housing association movement – also began to increase its role in the housing market. This sector has long historical roots, a consequence of which is that a wide variety of bodies describe themselves as housing associations. These include[46]

                                                     (1)         almshouses founded in the Middle Ages by churches, colleges and private landowners,

                                                     (2)         charitable bodies endowed in the 19th century by rich philanthropists to provide housing for the lower classes – such as the Sutton Trust, the Peabody Trust and the Joseph Rowntree Memorial Trust,

                                                     (3)         commercial organisations motivated by what has been called “five percent philanthropy” – providing housing at less than cost for urban working classes by attracting investment from private sources at a low rate of return, and

                                                     (4)         housing co-operatives of various kinds.

                          2.54              These were the forebears of the range of organisations which now describe themselves as “housing associations”. Indeed the range of bodies statutorily regarded as housing associations was made very broad as the result of the wide statutory definition, which required only that the organisation be concerned in some way with the provision of housing and was, broadly, non-profit making.[47]

                          2.55              Thus a housing association might be a trust, a company, a mutual co-operative or a society; it might be a charity registered under the Charities Act 1993, a society registered under the Industrial and Provident Societies Act 1965 or a social landlord registered under the Housing Act 1996 or all or none of these things; it might rent out, sell, build or rehabilitate housing or simply provide advisory services.

                          2.56              In the period to 1980 most housing associations confined themselves to providing what is now described as “social housing”, often for specific groups of individuals such as lone parents or recently released prisoners who found it hard to obtain council housing from local authorities.

                          2.57              What is notable about the history of the regulation of housing associations is how differently housing associations have been treated in the legislative provisions applicable to them at different times.

Security of tenure

                          2.58              Until 1954, housing associations that provided accommodation that fell within the relevant rateable value limits were subject to the security of tenure provisions of the Rent Acts. Section 33 of the Housing Repairs and Rents Act 1954 took a number of housing association tenancies outside the scope of regulation. The requirements which a housing association tenancy had to satisfy in order to be exempt altered a number of times subsequently.[48]

                          2.59              Under section 15 of the Rent Act 1977,[49] as amended,[50] the formal position was considerably simplified. Housing association tenancies were exempt if the housing association was registered with the Housing Corporation. Such tenancies, in that respect, were in the same position as local authority tenancies. No statutorily defined grounds for possession needed to be proved before possession proceedings could be started against the tenant. Tenants’ rights to security of tenure were essentially determined by the tenancy agreement.[51]

                          2.60              By contrast, those housing associations that were not registered with the Housing Corporation were not excluded from the security of tenure provisions of the Rent Act 1977.[52] They were treated on a par with private landlords.

Rent regulation

                          2.61              Where tenancies granted by housing associations were subject to Rent Act regulation the rents they could charge were limited in the same way as private sector rents. The Housing Finance Act 1972 Part 8[53] extended the “fair rent” regime to some housing association tenancies which were not otherwise regulated.

                          2.62              The process of housing associations obtaining fair rent registration was particularly important at this time, as the level of subsidy provided to housing associations was then based – broadly – on the difference between the fair rent and the actual cost of running the dwelling (including the cost of servicing the loans which had provided the capital for the buildings).

Rent allowances

                          2.63              In accordance with other developments relating to the provision of housing rebates and allowances, tenants of housing associations were, from 1st January 1973, entitled to rent allowances. [54] As with other sectors of the housing market, this was an important policy development, which was a precursor to other policy development.

Housing associations – a hybrid

                          2.64              In short, by 1980 housing associations were treated as a hybrid – in some respects on the same basis as local authorities, in others as private landlords. As with other aspects of the regulation of the housing market, this was all to change in the 1980s.

Developments from 1980 to the present day

                          2.65              When the Conservative Government came to power in 1979 some might have thought that, after many years of intervention, the broad shape of the housing market and its regulatory framework would have achieved a certain stability. At that time there was: an ever increasing owner-occupied sector, a substantial housing authority sector, a modest housing association sector and a declining privately rented sector.

                          2.66              The experience of the last two decades shows just how misconceived such a view would have been. There have been profound changes in the housing market and the law which regulates that market. Thus:

                                                        (1)      direct provision of dwellings by local authorities has fallen significantly,

                                                        (2)      provision by housing associations (now labelled “registered social landlords”) has increased substantially,

                                                        (3)      the decline of the private rented sector has been halted, and

                                                        (4)      contributing to these developments and increasing the size of the owner-occupied sector, the “right to buy” programme has transferred the ownership of large numbers of local authority homes to their (former) tenants.

                          2.67              These changes in the housing market have been reflected in the upheaval of the regulatory regimes governing housing, which has also occurred. Three major Housing Acts have been enacted – the Housing Acts of 1980, 1988, and 1996 –and a further major piece of legislation has just received Royal assent.[55] In addition, there was the major programme of consolidation of housing legislation, undertaken by the Law Commission, which came to fruition in 1985.[56]

                          2.68              Although the bulk of these changes were introduced by Conservative administrations, the present Labour Government has indicated that it does not plan to reverse these reforms but rather to build on them by promoting choice in both the public and private sectors.[57] Indeed, this position of substantial party political consensus[58] has enabled the Law Commission to become involved in this project.

The private rented sector

                          2.69              The Conservative Government radically altered the regulation of new tenancies in the private sector. Its priority was to increase the supply of private sector rented housing. It believed that the only way to achieve this was by relaxing the regulatory framework. Only this would encourage landlords to enter the market.[59]

                          2.70              The key tenure concepts – the assured tenancy[60] and the assured shorthold tenancy[61] – were introduced by the Housing Act 1988[62] and were subject to considerable amendment in the Housing Act 1996. The essential features of these tenures are that rents levels are no longer subject to fair rent regulation by the rent officer and rent assessment committee but are, in general, market rents agreed between the landlord and tenant. There was an increase in the number of grounds of possession available to landlords and a new summary procedure for obtaining possession of assured shorthold tenancies or tenancies where there were serious rent arrears was created.

                          2.71              The 1988 Act, as amended, contains the regime applying to most residential tenancies in the private sector entered into after it came into force on 15 January 1989.  It was further amended by the Housing Act 1996, which came into force on

28 February 1997.[63] Since that date all new residential tenancies have by default been assured shortholds; the landlord must take positive steps to ensure that the (non-shorthold) assured tenancy regime applies.[64] As a result, the assured shorthold is now the usual regime governing new private sector residential tenancies. The original assured tenancy is now primarily used by social landlords other than local authorities.[65]

Rent levels

                          2.72              The rent payable under an assured tenancy, or an assured shorthold tenancy, is, generally, that agreed between the landlord and tenant. Assistance for those unable to pay market rents is made available through the housing benefit scheme (as rent allowances are now called) rather than by imposing a cap on rents by way of statutory rent control or regulation.[66]

                          2.73              Further there are now no legal restrictions on landlords charging a premium, though the question of tenancy deposits – and the degree to which they should be subject to specific regulation – is currently under separate consideration within the Department for Transport, Local Government and the Regions.

                          2.74              The very complex procedures for agreeing rent increases that were available under the Rent Acts have been replaced by provisions which encourage the parties to agree periodic rent reviews. In the absence of any such agreement, there is a statutory mechanism allowing for an annual rent review.[67]

                          2.75              The assured shorthold tenancy regime also provides a procedure which might, in theory, lead to limited regulation of an agreed rent. Under it, a tenant can ask a rent assessment committee to determine the rent “the landlord might reasonably be expected to obtain” – that is a market rent.[68] However, this right is only available in closely defined circumstances: the committee has no jurisdiction if there are not sufficient assured lettings in the locality (which can be used for purposes of comparison); the contractual rent must be “significantly higher” than the market rent and, in the case of assured shorthold tenancies entered into on or after 28 February 1989, it is only available in the first six months. These procedures may be best seen as a modest form of consumer protection applying to a tenant who, perhaps through ignorance of local market conditions, agrees an unrealistically high rent. In practice these procedures are little used.

Grounds for possession

                          2.76              The number of grounds for possession – in particular mandatory grounds – was increased. There were no less than three grounds – one mandatory, two discretionary – enabling landlords to seek possession orders if the tenant did not pay the agreed rent in a timely fashion.

                          2.77              Furthermore, with the introduction of the assured shorthold tenancy in 1988, the landlord was given an absolute legal right to regain possession of a dwelling, whether or not there had been any default on the part of the tenant.[69]

Security of tenure under the assured tenancy

                          2.78              The rights of a tenant to bring a tenancy to an end are not abrogated by the assured tenancy regime. Accordingly, a tenant may give such notice as is specified in the contract[70] or invoke a break clause or surrender the lease.

                          2.79              A landlord wishing to evict the tenant, on the other hand, must go to court. This is because the tenancy cannot be lawfully brought to an end without obtaining a court order.[71] A fixed term tenancy which comes to an end by effluxion of time is automatically replaced by a periodic basic assured tenancy on similar terms.[72]

                          2.80              There are 17 grounds on which a landlord may apply for an order for possession set out in the legislation.[73] The first eight are mandatory ­– if the landlord makes one of them out, the court must grant the order sought.[74] The other nine are discretionary – if the landlord makes one of these out, the court is entitled to make an order if it considers it “reasonable” to do so.[75]

                          2.81              A landlord invoking one of the 17 grounds must first issue a “notice of proceedings for possession” to the tenant specifying (among other things) the ground on which he intends to rely.[76] This warning notice may be dispensed with by the court (save where the ground for possession is 2 months’ arrears of rent) if it would be just and equitable to do so. These provisions supplant any common law rules relating to notices to quit which now have no effect.

Security of tenure under the assured shorthold tenancy

                          2.82              The tenant and landlord’s rights to terminate an assured shorthold are the same as under a fully assured tenancy,[77] with one important addition. Landlords have, in effect, an additional mandatory 18th ground on which they may rely. Where an assured shorthold, whether fixed or periodic, has come to an end[78] the landlord is entitled to a possession order, providing that (usually) two months’ written notice of the intention to seek the order has been given and the notice is in the prescribed form.[79] If only possession is sought, the order can be made on the basis of a judge simply reading the relevant papers – there is no need for a hearing.

Rent Act tenancies – a residual category

                          2.83              As a result of the enactment of the Housing Act 1988, the Rent Act 1977 is, in general, irrelevant to any tenancy created on or after 15 January 1989. There are minor exceptions to this general rule to protect those who contracted to create a tenancy before that date or who already benefited from a Rent Act regulated tenancy and whose tenancy comes to an end in defined ways.[80]

                          2.84              Tenancies created before 15January 1989 are not included in the new assured tenancy regime.[81] These provisions result in a persistent, but decreasing, number of tenancies for which the rights of the landlord and tenant remain governed by the old Rent Act regime.

The local authority sector

                          2.85              As we have seen, the 20th century saw a steady reduction in the availability of private sector rented housing. In the same period, the quantity of housing owned and rented out by local authorities increased enormously. By 1979 31.5% of all dwellings in Britain were owned by local authorities.[82]

                          2.86              As we have also seen, until 1980, the legislation which empowered local authorities to provide accommodation did not impose any substantial degree of regulation on how they should treat their tenants. Public sector landlords were assumed to be “model landlords”. The primary measure which restricted local authority discretion was the Housing (Homeless Persons) Act 1977, which imposed obligations to provide housing for defined categories of person who were homeless or threatened with homelessness.

                          2.87              The Housing Act 1980 (consolidated into the Housing Act 1985) made fundamental changes to this position. In particular, tenants of local authorities were, for the first time, granted statutory security of tenure.[83]

Security of tenure under the secure tenancy

                          2.88              The mechanism by which the Housing Act 1985 grants security of tenure to a secure tenant is similar to that used for private sector assured tenancies in the 1988 Act described above. As under the private sector regime, the tenant’s common law rights to terminate the tenancy are not affected, but the landlord who wishes to evict must get a court order. In the case of a periodic tenancy, the landlord is unable to bring the tenancy to an end except by obtaining an order for possession from the court.[84] If a fixed term tenancy comes to an end, either by effluxion of time or by order of the court, it is replaced by a periodic tenancy on similar terms.[85]

                          2.89              As under the private sector regime, the landlord is only entitled to a court order if it is able to make out one of a number of grounds set out in a Schedule to the legislation.[86] Unlike the private sector, however, there are no mandatory grounds for possession – though there are certain circumstances where possession must be ordered if the landlord authority can provide suitable alternative accommodation.

                          2.90              As under the private sector regime, the landlord must issue the appropriate notice of intention to take proceedings (a “notice of seeking possession”) before going to court to recover possession.[87] This replaces the common law rules on notices to quit.

Rent under a secure tenancy

                          2.91              Public sector rents are set not by the market as such, but by local authorities which remain bound to charge “reasonable” rents. In setting rent levels, however, they must ensure that the relative rents of different local authority properties are in line with differentials in the private sector.[88]

                          2.92              Successive governments have sought to increase levels of council house rents to bring them closer to market rents. They have achieved this by introducing changes to the housing subsidy provisions.[89] The effect of this is that central government determines a rental figure which it “assumes” the local authority will charge. Subsidies bridge the gap between this assumed income and expenditure on housing. Thus a local authority that fails to set this assumed figure as the local rent level will find that its Housing Revenue Account starts to go into deficit. The details of housing finance are beyond the scope of this Paper. The Government is currently consulting on further proposals for changing the housing subsidy regime.

                          2.93              Notwithstanding these developments, local authority rents still remain below market rents in most areas.

                          2.94              As in the private sector, financial assistance for tenants on low incomes is provided by housing benefit.

Introductory tenancies

                          2.95              Introductory tenancies were introduced by the Housing Act 1996; they are a mechanism by which local authorities may let dwellings without conferring security of tenure (or right to buy) on the tenant for a period of up to one year. At the end of this “trial period” an introductory tenancy becomes a secure tenancy.[90] They are particularly used by local authorities to provide tenancies, on a probationary basis, to those whom the authority suspects may need some encouragement to act as a responsible tenant. The one procedural issue is that a local authority cannot create an introductory tenancy unless it has passed a resolution in the Council to do so. The effect of passing such a resolution is that, henceforth, all new tenancies granted by that authority have to be, at least initially, introductory – not just those for whom a probationary tenancy would seem most appropriate. Introductory tenancies transform themselves into secure tenancies after they have been in existence for a year.

Security of tenure under the introductory tenancy

                          2.96              A landlord may only bring an introductory tenancy to an end by obtaining an order of the court.[91] There are no formal grounds on which the landlord must rely; instead the local authority must give reasons.[92] The tenant is entitled to have the decision reviewed.[93] If the local authority fails to give reasons, or its reasons or its review of them is inadequate, its decision will on general principles be vulnerable to judicial review.[94]

The housing association/registered social landlord sector

Housing Act 1980[95]

                          2.97              When the Housing Act 1980 created statutory rights of security of tenure for local authority tenants, these same provisions were also applied to registered housing associations and a limited number of other housing associations.[96] Tenancies granted by housing associations which fell outside these two groups remained, as regards security of tenure, governed by the Rent Act. As regards rent regulation, however, the fair rent procedures of the Rent Acts continued to apply to all housing associations.

                          2.98              The effect of the 1980 Act was therefore that the tenants of most housing associations were treated on a par with the tenants of local authorities for the purpose of security of tenure, but on a par with private sector tenants for the purpose of rent regulation.

Housing Act 1988

                          2.99              These arrangements were altered in the Housing Act 1988. It provided that, henceforth, housing association tenancies – both registered and unregistered – were to be assured tenancies and thus were to be treated legally as private sector tenancies, rather than be linked to the public sector regime as had happened between 1980 and 1988.[97]

                      2.100              As a result, housing association landlords became entitled to use grounds for possession available to private sector landlords, including, most notably, the mandatory grounds for possession (for example, for rent arrears) available to private sector landlords.[98] Similarly, housing associations fell outside the rent fixing regime that applied to local authority tenancies. They sought to charge “affordable rents” – a policy concept rather than a legal concept – which reflects their position as providers of social housing.[99]

                      2.101              The White Paper presaging this change stated that the Government’s aim was to increase access to private finance and that this would be assisted if housing associations were enabled to increase rents.[100] Interestingly, there was no suggestion that the landlord’s greater power to recover possession under the assured regime would improve access to private finance.

                      2.102              None of these changes was retrospective. Accordingly, tenants of housing associations may, depending on the date of the creation of their tenancy, be regulated under the Rent Act regime, the secure tenancy regime or the assured tenancy regime. This is another source of complexity for tenantsand managers of social housing.

Funding and regulation by the Housing Corporation

                      2.103              Not all housing associations receive public funding, although for many this is a significant source of finance. The amount of public money available and the mechanism by which it reaches housing associations has altered over the years. Currently most funding from central government, both capital and revenue, is channelled through the Housing Corporation, a statutory corporation.[101] Some funding from central government is also provided directly.[102]

                      2.104              Public funding also comes from local authorities, which have power to fund registered social landlords directly[103] and are also entitled to assist housing associations which are not registered social landlords by lending money or subscribing for shares.[104]

Registration with the Housing Corporation: registered social landlords

                      2.105              In order to qualify for Housing Corporation grants, a housing association must register.[105] In so doing, a housing association submits itself to regulation and guidance issued by the Housing Corporation; further conditions and obligations are imposed on the receipt of funding.[106] In this way, the policies and behaviour of housing associations are to a great extent determined centrally.

                      2.106              Housing associations have a third source of finance in addition to public authorities and charitable donors, namely, commercial lenders. The Department for Transport, Local Government and the Regions estimates that, as at 4 December 2000, registered social landlords had received over £10 billion in private-sector loans.[107] It is the availability of such finance which is driving the current programme of transfers of housing from local authorities to housing associations.

Large Scale Voluntary Transfers

The development of the policy

                      2.107              Much more recently, a number of new housing associations have been formed specifically to receive and manage housing transferred from local authorities under section 32 of the Housing Act 1985.

                      2.108              Initially, two methods to encourage transfers of housing stock from local authorities to housing associations were introduced by the Housing Act 1988 – “tenants’ choice”[108] and housing action trusts.[109] The former was a procedure which allowed tenants to force the transfer of their houses to a new landlord approved by the Housing Corporation. The latter allowed the Secretary of State to set up a non-departmental government body to take over local authority housing in a particular area.

                      2.109              Neither of these initiatives proved popular. The “tenants’ choice” provisions were repealed by Housing Act 1996[110] and although the housing action trust provisions remain in force, the last of these to be created was Stonebridge Housing Action Trust in Brent in 1994. We understand that the Department for Transport, Local Government and the Regions expects this to be the last.

                      2.110              However, the large scale voluntary transfer programme,[111] which has been running since 1988, has been far more effective. Under this scheme housing associations (nearly always registered social landlords) buy housing stock from local authorities. The Department for Transport, Local Government and the Regions reports[112] that, as at 7 March 2002, over 597,000 homes have been transferred under this scheme. The current Government’s green paper[113] states that the Government will support the transfer of a further 200,000 dwellings a year. It has been estimated that by 2004 the majority providers of social housing will be registered social landlords.

The rationale of the large scale voluntary transfer programme

                      2.111              Loans taken out by local authorities to invest in public sector housing must be included in the Public Sector Borrowing Requirement calculations, and are effectively prevented by the Local Government and Housing Act 1989. Loans taken out by housing associations are, by contrast, omitted from the Public Sector Borrowing Requirement and from statutory controls. This makes large scale voluntary transfers attractive to central government and to many local authorities. Not only do they bring in capital receipts and enable local authorities to fulfil their housing duties, without having to own and manage housing stock directly, but they are the only effective way local authorities often have of increasing capital investment in the housing stock.[114]

Change of status

                      2.112              When a tenancy is transferred from a local authority to a housing association, the tenancy ceases to be a secure tenancy and becomes instead an assured tenancy.[115]

                      2.113              We have seen that the assured tenancy regulatory regime gives a somewhat lower level of security of tenure to tenants than the secure tenancy regime.[116] Tenants are in a position to block a proposed large scale voluntary transfer.[117] However, they do not tend to do so.[118] There appear to be four reasons for this:

                                                     (1)         the proposal will often involve immediate capital investment in the tenants’ properties which is attractive to tenants,

                                                     (2)         the proposal will often include a rent guarantee, usually limiting rent increases for the first five years,

                                                     (3)         tenants’ right to buy is statutorily protected,[119] and

                                                     (4)         housing associations typically undertake to transferring tenants not to take advantage of the mandatory grounds for recovering possession available under the assured tenancy regime.[120]

                      2.114              Most lenders interviewed for research conducted by the Chartered Institute of Housing stated that they would be as happy to lend on secure tenancies as on assured tenancies.[121] Research elsewhere has suggested that lenders are most interested in a steady rental stream, an adequate asset base and staff expertise.[122] It appears therefore that the availability of commercial loans does not depend on the change of regulatory status involved in large scale voluntary transfers. We welcome views and information on the extent to which lenders financing large scale voluntary transfer of housing stock from local authorities to registered social landlords are influenced by the fact that tenants of such stock change from secure tenants to assured tenants (with a protected right to buy).

Judicial review

                      2.115              A local authority is subject to public law and its housing decisions may, accordingly, be vulnerable to challenge by way of judicial review. On the other hand, whether a housing association is subject to public law will depend on the nature of the activity under scrutiny.[123]

                      2.116              In Poplar Housing and Regeneration Community Association Ltd v Donoghue[124] the Court of Appeal held that, for the purposes of section 6 of the Human Rights Act 1998, the role of the housing association in providing accommodation for the defendant and then seeking possession was so closely assimilated to that of the local housing authority that it was performing public functions and was, to that extent, a functional public authority. Although the decision did not relate to judicial review, the court stated that it had adopted a similar approach.

                      2.117              In arriving at its decision the court attached importance to the fact that the tenancy in question had been transferred to the defendant housing association and also suggested that its decision might have been different if the regulatory regime governing the tenancy in question had been different.

                      2.118              Although it is not within our remit, or power, to alter the circumstances in which the decisions of housing associations are subject to judicial review, we must be alert to the effect of our tenure proposals on this issue.

Conclusions: lessons of history

The need for regulation

                      2.119              Perhaps the first conclusion to draw from this account is that the history of the last 150 years demonstrates that there are potential imbalances in the relationship between landlords and tenants which cannot be corrected solely by the operation of market forces. There is a role for the Government in the regulation of that relationship. Indeed, it is not only in the context of tenancies of residential accommodation that Governments have intervened.

                      2.120              History also suggests that if the legislative framework changes too frequently or is not perceived as striking a fair balance between the interests of landlords and the interests of tenants then this introduces considerable uncertainty into the legal environment in which housing services are provided. This uncertainty may well reduce the willingness of investors to invest in this sector of the economy.

                      2.121              Three key issues have emerged as the subjects for regulation. First is what mechanisms should be used to ensure that the rent that may be charged for rented accommodation can be afforded by those who wish or need to rent their accommodation. Second is what are the circumstances in which and the procedures by which landlords may regain possession of the accommodation they have rented. Third is what means should be adopted to ensure that accommodation that is rented is in a condition that is fit for human habitation. Although the principal focus of this consultation paper is on the second of these issues, the other two must not be forgotten.

Legislative strategies

                      2.122              The legislative strategies for attempting to redress imbalances between landlord and tenant have varied over the years, as the context within which housing regulation has operated has changed. Early legislation, developed in relation to the private sector, placed the emphasis on using detailed statutory provisions to over-write contractual provisions set out in tenancy agreements. This has resulted in a vast body of law, of considerable complexity which is largely inaccessible to the majority of landlords, tenants and even their advisers. In addition, it has meant that terms appearing in tenancy agreements have not been a true reflection of the legal position as between landlord and tenant. Complexity and opacity have been two of the main reasons why the Law Commission has been asked to undertake this project.

                      2.123              The justification for this approach, in the early days, was that the predominant provider of rented accommodation was the private landlord; there were no alternative suppliers. Owner-occupation was not, 100 years ago, a realistic option for the bulk of the population; and there was no social rented sector as we know it today.

                      2.124              The dominant place of private landlords in the housing market gave them the ability to exploit shortages in housing provision and where – as happened in the First World War – this led to accusations of profiteering, the political pressure for the Government to intervene proved irresistible. Arguably, capping rent levels and increasing security of tenure for tenants at the poorer end of the market was then both justifiable and, indeed, the only form of regulatory response – at least in the short-term.

Changing contexts 1: the private sector

                      2.125              That context has changed dramatically in the interim: nearly two-thirds of the population now own their housing, there is a very substantial social rented sector and the provision of housing by private landlords is currently much more limited. Their power in the market place has therefore changed. However the essential legislative strategy established in 1915 remained the same until the major changes introduced in 1988.

                      2.126              From then, the attempt to make private sector dwellings affordable through the use of rent regulation was largely abandoned.[125] Instead, subsidising rents by means of a national housing benefit scheme has come to be acknowledged as a better way to achieve this policy objective.[126] And landlords know that if their rent levels are at or above the levels at which mortgage finance can be secured, potential tenants will often prefer to buy rather than rent.

                      2.127              Statutory security of tenure has also been severely reduced. While the principle of possession not being granted without a court order remains, in many cases private landlords are entitled to regain possession by means of a summary procedure only – without the delay and expense of a court hearing.

Deregulation

                      2.128              The scope of this de-regulation, arguably, means that many of the justifications for the extensive exclusions from the regulatory framework – which has been the source of much of the complexity of housing law – now fall away. We shall be seeking consultees views on this issue in context below.

                      2.129              Much of the justification for this de-regulation of the private rented sector can be said to derive from the role which the private landlord now plays in the rental market. There are considerable numbers of people who seek accommodation on a relatively short-term basis, for whom renting remains a preferable option.

                      2.130              At the same time, however, there is a part of the private sector that is having to deal with some of very difficult categories of tenant – in particular, those who have been removed from the social rented sector (for example, because they have failed to pay their rent or have engaged in anti social behaviour) or who for other reasons fall outside the scope of the social rented sector. One of the challenges for the future is to see how, within the private rented sector, such groups may be encouraged to develop a more socially responsible approach to meeting their housing needs. If the private sector focuses too much on those seeking short-term accommodation, how will those who need stability in their lives – which security of tenure may provide – obtain it?

Future developments?

                      2.131              Three possibilities immediately spring to mind. The first is that, as has occurred in other sectors of the economy, more encouragement should be given to the suppliers of rented housing to work together. There are groups, such as the British Property Federation and the Small Landlords Association, which are seeking to develop standards of good letting practice. But the fragmentation of the supply side is such that their impact has, to date, been limited.

                      2.132              Second, the new strategic role of local housing authorities provides them with opportunities to agree practices with landlords at the local level. The recent Department for Transport, Local Government and the Regions paper on local accreditation schemes gives an indication of a way forward, particularly if appropriate incentives can be put in place to encourage private landlords to sign up to the scheme.[127] However these issues fall outside the scope of the detailed proposals we shall be making in this paper.

                      2.133              A third possibility is that the Housing Corporation – which has, historically, had the task of setting standards for the housing association/registered social landlord sector – might develop a more universal role in the establishment of standards of good practice for all providers of rented housing. Again this idea goes far beyond our terms of reference, but is we think part of the changing context within which our own proposals should be considered.

Changing contexts 2: the local authority sector

                      2.134              In relation to public sector housing, Governments began by creating a legislative framework that empowered local authorities to provide residential accommodation to the poor at affordable prices. Subsidies of the costs of providing the housing have been replaced by housing benefit, which is now used to subsidise individual tenants’ housing costs where necessary.

                      2.135              The earlier discretion as to how local authorities should manage the estates has, however, been replaced by statutory codes, in particular relating to the allocation of housing and security of tenure. Indeed legislative trends in relation to the public sector have been the reverse of those seen in the private sector.

                      2.136              Although there may be those who would wish to return to the days before statutory security of tenure, this is not currently regarded as a serious political option. Indeed, the impact of the Human Rights Act – another of the ways in which the context for regulating housing has significantly changed – might even undermine attempts to repeal statutory protections relating to security of tenure and possession proceedings.

Changing contexts 3: housing associations

                      2.137              Housing associations have, as noted above, somewhat fallen between the private and public sectors – being treated at some times analogously to local authorities, at other times to private landlords and at yet other times simultaneously to both. The changing context here, too, is of importance. The large-scale transfers of local authority housing to registered social landlords suggest to us that the time has come to develop a single regulatory framework which would apply across the social rented sector;[128] but this will mean some important adjustments of detail on which consultees will be asked to comment.

The rise of a consumer perspective

                      2.138              Developments in the housing market cannot, however, be seen in isolation. The last 30 years has seen a revolution, throughout the service economy, in attitudes towards consumers, designed to protect them from unfair trade practices and unfair contractual provisions. Historically, the provision of housing has not been widely regarded as a sector of the economy to which principles of consumer protection would naturally apply. However we are not convinced that, for example, the principle that something should be “fit for purpose” (which applies in the context of the sale of goods) should not equally apply to the provision of housing. We have already developed arguments on these lines in the work we did on the landlord’s liability to repair.[129]

                      2.139              We note that in the United States, case law has gone even further down this path through the development of a “warranty of habitability”.[130] This approach has played a very significant part in the development of tenants’ rights in the US. The use of contract law to bring actions for breach of tenancy obligations has also been a significant feature of housing law practice in this country, especially in the area of disrepair.

                      2.140              We see much advantage in conceptualising housing law as a branch of consumer law, albeit a specialist one. In this paper, therefore, we shall be developing arguments that the importance of the contract between the landlord and tenant – which earlier housing law, particularly the Rent Acts, perhaps rather diminished – should be reasserted, but with the proviso that such contracts must comply with the essential principles of fairness that underpin key parts of consumer law. We will therefore be asking consultees to comment on proposals for the adoption of agreements which comply with the Unfair Terms in Consumer Contracts Regulations 1999.[131]

                      2.141              Nevertheless, we think that greater reliance on the contractual relationship between landlord and tenant, albeit mediated by provisions on unfair terms, would do much to stress the fact that both landlords and tenants have duties as well as obligations in relation to the premises they rent. It is important that proper recognition is given to the balance of interests to both sides of the contract.

Other issues

                      2.142              There may also be other issues which we have not taken fully into account. We are, for example, very aware of the sharp distinctions there are in the housing market in different parts of the country. Severe pressures on the housing market in one area are balanced by the opposite in other areas. We think that a new framework of housing law should reflect these differences and should be flexible, rather than act as a straightjacket to apply in all cases irrespective of local factors.

                      2.143              Similarly, there may be environmental issues. Rigid rules on security of tenure, for example, may hamper the further development of an area in ways which would be socially beneficial to that community.

                      2.144              There are also broader issues of social policy to be considered. There are significant demographic changes to be taken into account. The fact that people live longer and that more people are living alone obviously impacts on the housing market in general, but will also have more specific impact on the rented sector and the regulatory framework of that sector.

                      2.145              The present Government is developing a number of measures in its Supporting People programme which have implications for the regulation of the housing market.[132] We need to be sure that our proposals fit with these ideas.

                      2.146              More generally, the Government is committed to addressing the question of social exclusion. The provision of accommodation and the ability of individuals to take responsibility for their housing needs is a key element in assisting the inclusion of the socially excluded.

                      2.147              Not all these issues are directly related to the specific exercise which is the focus of this paper. And while we must be aware of the broader picture, our proposals have been developed independently of the Government and its priorities. But if the structure we propose is to be robust enough to meet the challenges of the coming years, we must take into account not only how the context has already changed but how it may change in the future.