The Law Commission

PART 1

INTRODUCTION

1.1      Renting homes is big business. Almost a third of the population rent their homes. Despite the attention paid to the owner-occupied sector, rented housing remains a significant part of the housing market in England and Wales. An active, well-run rental market is needed:

(1) to provide choice for those who want to rent;

(2) to meet social need by providing housing for those who cannot afford to buy;

(3) to increase flexibility in the accommodation and labour markets by enabling people to move quickly to take up job opportunities or to explore new housing options.

1.2      It is generally accepted that the rented housing sector needs regulation. Market mechanisms cannot redress imbalances in the bargaining power of landlords and occupiers. At the same time, the regulatory framework must be one that works and can be delivered in a cost-effective way.

1.3      At the heart of our recommendations – the result of one of the largest consultation exercises ever undertaken by the Law Commission^[1] - are two radical changes to the legislative approach to the regulation of rented housing. These recommendations are encapsulated in the Rented Homes Bill which we are publishing alongside this Report.

1.4      First, we recommend the creation of a single social tenure. At present, local authorities can only let on secure tenancies; registered social landlords only on assured tenancies. Our recommendations are "landlord-neutral". They enable social housing providers, referred to in the Bill as "community landlords", and those private sector landlords who so wish to rent on identical terms. This has long been sought by local authorities and registered social landlords. This offers the prize of vastly increased flexibility both to policy makers and landlords in the provision and management of social housing.

1.5      Secondly, we recommend a new "consumer protection" approach which focuses on the contract between the landlord and the occupier (the contract-holder), incorporating consumer protection principles of fairness and transparency. Thus our recommended scheme does not depend on technical legal issues of whether or not there is a tenancy as opposed to a licence (as has usually been the case in the past). This ensures that both landlords and occupiers have a much clearer understanding of their rights and obligations.

1.6      The terms of the contract, underpinned by our statutory scheme, will be set out in model contracts that we anticipate will be free and easily downloadable.^[2] They will benefit landlords by explaining their rights and obligations, thus reducing the ignorance many landlords have about their responsibilities. They will benefit occupiers who will also have a clear statement of their rights and obligations, which sets out the basis on which they occupy accommodation, and the circumstances in which their rights to occupy may come to an end.

TERMS OF REFERENCE

1.7      Our original terms of reference were:

To consider the law relating to the existing forms of housing tenancies in the rented sector and their creation, terms and termination, with a view to its simplification and reform; and in particular to review the law on

(1) the forms of housing tenancy let by:

(a) local authorities and other social landlords, and

(b) private landlords,

with a view to providing a simple and flexible statutory regime for both the social and the private housing sectors;

(2) the remedies available in respect of harassment and unlawful eviction;

(3) tenants' statutory rights of succession; and

(4) such other aspects of Housing Law as may be agreed between the Law Commission, the Department of the Environment, Transport and the Regions and the Lord Chancellor's Department.^[3]

1.8      It was always envisaged that the project would be undertaken in two phases. The original intention was to deal with item (1) in the first phase, leaving items (2) and (3) to the second. As phase one progressed, it became clear that succession could not be left to phase two. Nor could other issues about how people live in their homes, specifically joint occupation and transfer, be omitted. They were added to phase one.

OUR GENERAL APPROACH

1.9      In carrying out our work, the Commission has had three principal objectives in mind:

(1) simplification;

(2) increased comprehensibility;

(3) flexibility.

Simplification

1.10      The provision of housing has long been subject to regulation, initially by the common law, but over the last 100 years increasingly by statute. Most, if not all, advanced countries have housing legislation. The question is not whether there should be regulatory intervention, but how it can be done well rather than badly.

1.11      In this country, there is widespread agreement that the current law regulating rented housing is too complicated. This has significant drawbacks. A legal framework that is too complicated cannot achieve its policy objectives.^[4] Those whom the law is designed to protect cannot use its protection. Those whose behaviour is sought to be regulated are not influenced by what they cannot understand.

1.12      The Better Regulation Task Force^[5] says simplification includes three elements:

(1) "Deregulation" – removing regulations from the statute book, leading to greater liberalisation of previously regulated regimes;

(2) "Consolidation" – bringing together different regulations into a more manageable form and restating the law more clearly. By improving transparency and understanding, it should reduce compliance costs;

(3) "Rationalisation" – using "horizontal" legislation to replace a variety of sector specific "vertical" regulations.

1.13      Our Bill achieves all these objectives. It offers a fundamental restatement of the law that significantly improves transparency and understanding – particularly through the use of model contracts.^[6] It rationalises sector-specific rules (for example current legal distinctions between local authorities and housing associations, and between the public sector and private sector) to eliminate unnecessary differences between them. This enables both the social and private sectors of the rental housing market to operate with greater freedom. Although our draft Bill does not include schedules of repeals, enactment will result in the repeal of a great deal of existing legislation.

Increased comprehensibility

1.14      Central to our recommendations is an emphasis on what we call the consumer protection approach. In many contexts, Parliament passes legislation which implies protective terms into consumer contracts. We have taken this a step further. In the same way that Parliament has provided that employers must provide employees with a copy of their employment contract, so here we recommend that landlords should provide their occupiers with a written statement of their occupation contract. We want both landlords and occupiers to be able easily to find out their rights and obligations. The written statement expressly sets out those matters which Parliament wants to regulate.

1.15      The impact of our approach can be seen in the illustrative model contracts we have provided. In just over twenty pages we have shown that is it possible to set out a statement of rights and obligations that reflects the legal relationship – as regulated by Parliament – between landlord and occupier. These will be supplemented by guidance which explains those matters which it is hard to summarise in the contract or which do not readily fit into it. Many local authorities and registered social landlords already adopt this practice; and, for the private sector, there is already a good range of guidance booklets available from the Office of the Deputy Prime Minister.^[7] Such publications can be adapted to the scheme we recommend. Thus the recommended scheme will ensure that all occupiers benefit from the provision of this information.

1.16      Many landlord-tenant disputes currently arise from ignorance. Our recommended scheme, with its emphasis on written model contracts, drafted in plain language, enables both landlords and occupiers to discover easily their respective rights and responsibilities. This will reduce the need to seek legal advice and facilitate the resolution of problems and disputes. All parties gain from this approach which leads to significantly reduced compliance costs.

Flexibility

1.17      Finally, and most important, our recommendations bring much-needed flexibility to the operation of the rented sector. Existing distinctions between the different branches of the rental market – with different rules, but with similar objectives – are replaced by a single framework that allows far greater freedom to policy makers.

1.18      Our approach has a number of important outcomes.

(1) Technical legal distinctions between those who rent from local authorities and those who rent from housing associations are removed.

(2) Opportunities for local authorities and housing associations to enter new partnerships and other forms of agreement for the development and management of social housing are increased.

(3) Community landlords are able to manage their housing assets more satisfactorily, while protecting the fundamental interests of those who live in social housing. This results in the better use of publicly funded investments.

(4) Private sector landlords who wish to do so can let on exactly the same terms as social landlords.^[8]

(5) Private landlords are able to respond even more flexibly to different demands for rented accommodation at market rents.

(6) Registered social landlords are able to provide housing at market, or sub-market, rents in those areas where this is needed, to provide accommodation for key workers.

(7) Occupiers of rented housing have clearer information about their rights and obligations, what they can expect from their landlords, and the circumstances in which contracts may be brought to an end.

(8) For the first time, there is a legal structure designed to assist the most socially excluded to move from supported housing to housing independence, while giving the providers of such housing a practical legal framework to achieve this goal.

(9) Generally, the provisions in the Bill increase the options available for ensuring that the rental sector plays its proper role in the creation and maintenance of sustainable communities.

1.19      These objectives were strongly endorsed by those who responded to our consultation.

TWO KEY FEATURES

1.20      We now consider in more detail the two features of the scheme mentioned above: landlord-neutrality and the consumer protection approach.

Landlord-neutrality

1.21      At present local authorities can only let on secure tenancies;^[9] registered social landlords can only let on assured tenancies.^[10] Both play a similar role in the housing market, but the regulatory framework is quite different. Our recommendations break the link between the identity of the landlord and the statutory rules that apply to agreements entered into by that landlord.

1.22      Under our scheme, both local authority and registered social landlords (and private landlords) are able to enter occupation contracts on identical terms. This enables the interface between local authorities, arms-length management organisations, and other social landlords – whether registered or unregistered – to become much more permeable. It facilitates the development of new partnerships between social sector and private sector landlords in the provision of social rented housing.^[11]

1.23      Under our scheme, there are circumstances in which landlords are required to use one or other of the two types of contract we are creating. But these apply across the board, and are not generally confined to a specific type of landlord.

1.24      This approach gives the Government much greater scope for the development of new housing policy initiatives. For example, our recommendations could create opportunities for social landlords to enter new sectors of the housing market (as some registered social landlords already do). These might address some of the difficulties surrounding the provision of accommodation for key workers in areas of high housing demand. They could also be used in combination with new equity sharing schemes.

Consumer protection approach^[12]

1.25      The consumer protection approach^[13] is designed to ensure that all landlords and occupiers have a written statement of their contract, setting out the rights and obligations of the parties.

1.26      At present, many landlords do not provide clear tenancy agreements. Agreements frequently fail to mention the effect of protective legislation. In order to understand the exact legal relationship between landlord and occupier, parties have to read their agreements alongside a complex body of statute and case law. Not surprisingly, many cannot discover what their true legal position is. Our recommendations transform this unsatisfactory situation.

1.27      Our approach has a number of practical consequences.

(1) The regulatory framework governing the relationship between landlord and occupier applies wherever there is a contract (other than an excepted contract) giving the right to occupy premises as a home.

(2) The principles underlying the Unfair Terms in Consumer Contracts Regulations 1999^[14] are extended to all landlords and occupiers.

(3) Fundamental terms, and supplementary terms which incorporate supplementary provisions without modification, reflect mandatory statutory provisions and as such are not subject to the Unfair Terms in Consumer Contracts Regulations.^[15] Terms relating to key matters will not be subject to the regulations so long as they are in plain intelligible language.^[16]

1.28      In addition to fairness and transparency, this approach has other benefits. In particular, the recommended scheme encourages a new professionalism amongst private landlords and their agents, not only those with substantial property portfolios, but also small "hobby" landlords. By emphasising the mutual recognition of each party's rights and responsibilities,^[17] our recommendations provide a foundation for improving relationships between occupiers and landlords. While there may be some initial start-up costs, overall costs should quickly reduce. There should be significantly reduced compliance costs.

1.29      Implementation of the consumer protection approach in the Bill is achieved in a variety of ways. Two introductory points are made here.

Provisions and terms

1.30      The provisions of the Bill which set out the most important rights and obligations of the parties to an occupation contract have a dual function. They are statutory provisions. But they are also incorporated into occupation contracts as terms of the contract. As terms they will be readily accessible to the parties, because they are set out in the written statement of the contract. This is a central part of our consumer protection approach.

1.31      The provisions of the Bill which are incorporated in this way are referred to as "fundamental provisions". When incorporated as terms of a particular contract, they form the "fundamental terms" of the contract.

1.32      The appropriate authority (the Secretary of State or the National Assembly for Wales) has power to prescribe further provisions for incorporation as terms of occupation contracts. We intend this power to be used to deal with issues which are of less crucial importance than those dealt with in the fundamental provisions, but which need to be addressed to make the contracts work.^[18]

1.33      Provisions prescribed by the appropriate authority are referred to as "supplementary provisions". When incorporated as terms of a particular contract, they form the "supplementary terms" of the contract.

1.34      In addition, parties will be free to add their own additional terms to address particular issues relevant to the agreement.

Relationship of the scheme to consumer protection law

1.35      Our adoption of the consumer protection approach is based on the fact that, from 1999, the Unfair Terms in Consumer Contracts Regulations 1999^[19] applied to tenancy agreements. In Renting Homes we said that we wanted to extend the principles contained in those regulations to all occupation contracts.^[20] Those principles should apply across the board, not just to those who under the 1999 regulations are "suppliers" and "consumers".^[21]

1.36      Details of how these principles are to be put into effect will appear in regulations. The Bill gives the Secretary of State power to make regulations relating to unfair terms in occupation contracts.^[22] In particular, regulations may make provision for the parties to whom and the occupation contracts to which the unfair terms regulations may apply. This enables the Secretary of State to ensure that the regulations apply to all landlords and all contract-holders.^[23] In the Bill, the general term "unfair terms regulations" is used to refer to both the existing 1999 regulations and these Rented Homes-specific regulations.^[24] We follow that usage in this report.

1.37      There is also power to define circumstances in which the unfair terms regulations do not apply to a term of an occupation contract, or where the landlord may not rely on the terms of the occupation contract. In these cases, the regulations may also provide for the terms which are to apply in those circumstances.^[25]

1.38      Fundamental provisions incorporated as terms of the occupation contract, and supplementary provisions incorporated as terms without modification, cannot be challenged under the unfair terms regulations as unfair.^[26] Only additional terms or supplementary provisions which are incorporated as terms with modifications, will be subject to challenge as being unfair. These recommendations address concerns expressed to us by many landlords that they did not know exactly where they stood in relation to the Unfair Terms in Consumer Contracts Regulations 1999 and the interpretation of those regulations, in particular by the Office of Fair Trading.^[27]

DEVELOPING THE SCHEME: CONSENSUS AND CONTROVERSY

1.39      From the start, we were asked to assume that the disposition of rights and obligations, and the balance of rights and obligations as between landlords and occupiers, that existed under the current law should remain broadly the same. In particular, changes to the regulation of the private rented sector introduced by the Housing Acts of 1988 and 1996 should be retained.

1.40      As with all Law Commission projects, we consulted widely in developing our recommendations. We received over four hundred written submissions to our two Consultation Papers; and we spoke at numerous public meetings with landlords and tenants, lawyers and advisers, policy makers and administrators, and others interested in this area of housing policy.^[28] We wanted to build as much agreement as possible about both the approach and the detail of our recommendations. Analyses of the responses to our two Consultation Papers will be made available to the Office of the Deputy Prime Minister, and published on the Law Commission website.

1.41      Many of our initial ideas and thoughts were altered in the light of these responses. We have radically changed our thinking on the regulation of supported housing, where initially we failed to understand how that part of the housing market really operates. We did not pursue suggestions to abolish the suspended possession order, though we retain the idea of giving the Secretary of State power to pilot alternative forms of procedure for dealing with rent arrears. We amended our views on how to manage anti-social behaviour in the specific housing context (though this has been an area where law and policy has developed rapidly in any event).

1.42      In shaping our recommendations, however, we have had to adjust aspects of the existing law to create a more coherent and sensible whole. There are two particular issues where there is still controversy which we cannot duck, and which we highlight here.

The recommended abolition of ground 8 in the social rented sector

1.43      At present, where an assured tenant gets into serious (two months') rent arrears, the landlord can seek possession on what is known as ground 8. This provides that, if the relevant amount of arrears is established, a court is obliged to order possession. There is no judicial discretion.

1.44      Registered social landlords let on assured tenancies. Many, as a matter of policy, refuse to take advantage of ground 8 on the basis that use of ground 8 is not appropriate for social landlords. Where registered social landlords have acquired housing stock as the result of a large scale voluntary transfer, they undertake not to use ground 8. But some do use ground 8 and have expressed considerable concern about our recommendation to abolish it. They also draw attention to current proposals for the reform of housing benefit, which are intended to place much greater responsibility on renters for paying the rent themselves.^[29] If housing benefit is to be paid to tenants, rather than directly to landlords, registered social landlords are worried that housing benefit payments may be diverted to other items of household or personal expenditure. They are concerned that this could lead to an increase in rent arrears. Some would therefore like to retain ground 8 as a deterrent to tenants who might otherwise divert housing benefit payments to non-housing expenditure.

1.45      The Council of Mortgage Lenders, who represent the financial institutions that have provided the bulk of loan capital for the expansion of the registered social landlord sector, were also concerned. They argued that an inability to regain possession of premises where tenants were in serious arrears might have an adverse financial impact on the ability of registered social landlords to comply with their loan covenants.

1.46      When we discussed the issue with those who put this point of view, we were told that the principal reason why ground 8 should be retained was because of the difficulties, actual or perceived, of getting judges to exercise their discretion to make possession orders in serious rent arrears cases.

1.47      We have heard it suggested that use of ground 8 by registered social landlords is on the increase. We have found no hard empirical data to substantiate the claim. Such evidence as we do have suggests that use of ground 8 is, in fact, still relatively modest. But whether or not use of ground 8 is widespread, there is still the policy question whether its use is appropriate for landlords in the social sector.^[30]

1.48      One of the principal policy objectives for this project is to create a single social tenancy – a level playing field for the whole social rented sector. To achieve this, ground 8 would either need to be retained and extended to local authority tenants, or would have to be abolished. We took the view that the former option would be unacceptable both to local authorities and their tenants. In any event, we think our recommended secure contract should set the gold standard. It should be modelled on the existing secure tenancy, rather than the assured tenancy.

1.49      We have not ignored the concerns that were expressed to us. Thus we recommend that judicial discretion in possession proceedings should be structured. Before making a possession order, judges will be required consciously to balance the interests of those threatened with eviction against the interests of the landlord, and indeed of other occupiers who have paid the rent on time. We think that this addresses the principal worries of the registered social landlord sector.

1.50      In addition, if fears about the effect of reforms to housing benefit come to pass, this will affect the whole of the social rented sector, not just registered social landlords. In this case the Government can revisit the issue. But this is a policy matter for the future, not part of our reform programme.

The recommended abolition of the six-month moratorium

1.51      A second issue on which there is still controversy is the recommendation to abolish the rule – which we describe as the six-month moratorium - that forbids a court to order possession of a private sector assured shorthold tenancy before the end of the first six months of the agreement. This arises where a landlord seeks possession on the "notice-only" ground for possession,^[31] where the landlord does not have to prove that the tenant is in any way at fault. In our recommended scheme, standard contracts will replace assured shorthold tenancies.

1.52      Many, in particular lawyers who represent tenants, argued that the moratorium was an important measure of tenant protection. Others, in particular landlords, argued that it brought unwelcome inflexibility into the market.

1.53      We found that, in practice, many landlords let for minimum periods of six or twelve months. In this case, the contract "trumps" the statute, rendering the moratorium redundant. There is no reason to think that landlords will alter their letting practices. Most landlords want to keep their tenants for as long as possible (to prevent voids); they are not interested in turning people out after a short time. And we received no evidence of any tenant taking advantage of the six-month period to assert their rights against a difficult landlord.

1.54      In a recent report,^[32] Shelter argues the case for increased security of tenure in the private rented sector. Insofar as the private rented sector is used to house the disadvantaged – lone parents, the elderly – this is clearly an important policy consideration. But the private rented sector also houses many more who do not fall into these groups. Indeed, the private rented sector is far more diverse than the social rented sector. Although ultimately a question for the Government, we do not think that a blanket extension of statutory security to the whole of the private rented sector will achieve the goal to which Shelter aspires. It will introduce inflexibility into this sector of the market which, in many cases occupiers do not want any more than landlords. This will in turn reduce the number of units of accommodation available for renting.

1.55      We acknowledge that security of tenure is an important issue. But we think it best addressed by focussing on the contractual rights between the parties (which are at the heart of our recommendations) rather than statutory rights. A number of local authorities, for example, are entering agreements with private landlords to provide housing for longer contractual periods. These could be, for example, for a fixed term;^[33] or until any children in the household reach the age of 16, or school-leaving age. All these options are possible under our scheme. They give flexibility in the use of contracts for particular classes of user of the private rented sector without affecting other groups who want to take advantage of the private rented sector. The private rented sector offers people choice and flexibility that the social sector cannot. To seek to make the private rented sector more like the social rented sector would only serve to remove the very things that make the private rented sector attractive in the first place.

1.56      In our future work on developing good landlord practices, we shall explore ways in which additional incentives can be given to landlords to enhance their contracts for the benefit of their occupiers.

Conclusion

1.57      We acknowledge that these matters are controversial. We have not found them easy to resolve. But we think our recommendations on these issues are practical and do not adversely affect the interests of, respectively, social landlords and tenants. And in our future work, we consider alternative ways to ensure that these specific reforms do not have undesired consequences. In the meantime, both these changes greatly assist the creation of the more rational and flexible regulatory framework that is the great prize of our recommendations.

CHANGES IN THE LEGISLATIVE CONTEXT

1.58      Since this project began, in 2001, there have been two significant legislative developments. The first relates to anti-social behaviour; the second is the Housing Act 2004.

Anti-social behaviour

1.59      Our original Consultation Paper^[34] contained a number of detailed proposals relating to anti-social behaviour. Some of these, in particular the concept of demotion, were taken up by Government and put into their own proposals. Our proposals were the subject of considerable criticism during consultation. But, in view of the other changes that have occurred, our recommendations in relation to anti-social behaviour are now limited to tidying up one or two procedural matters that arise where the anti-social behaviour impacts on an occupier's housing rights and obligations, and are designed to make the law operate more effectively. These are discussed below in Part 9.

Housing Act 2004

1.60      This is an enormous Act. Much of it does not relate to the rented sector at all: for example, the provision of Home Information Packs. The impact of the Act on the rented sector will be particularly felt in the following contexts.

Housing conditions

1.61      The new Housing Health and Safety Rating Scheme provides local authorities with a new set of criteria and a new set of procedures for dealing with unfit housing. Our scheme reinforces this legislation. We recommend that it should be a term in every occupation agreement that, from the outset, the accommodation meets the "category 1 hazard" standard. Thus, in addition to the public law remedies available through the local authority, occupiers will also have a private law remedy in breach of contract in cases where this term of the contract is broken. This is discussed in Part 8.

Licensing of houses in multiple occupation

1.62      Our scheme has no direct impact on the new law relating to the licensing of housing in multiple occupation. It does however offer considerable scope to reinforce the new law. Our scheme envisages that the contract between the landlord and occupier should be supplemented by guidance setting out other matters of importance to the landlord and tenant. Information about the licensing scheme can be published there. This will be an extremely cost-effective way of publicising the effect of the new scheme.

Selective licensing

1.63      This is another topic on which information can be provided in the guidance just referred to. Our future work on compliance and the promotion of good practice will complement and build on these new provisions.

Other control provisions relating to residential accommodation

1.64      The same point can be made. Landlords and occupiers can be given information about the new management and empty dwelling orders provided for in the 2004 Act through the guidance booklet.

Tenancy deposit schemes

1.65      We think our recommendations significantly strengthen the potential value of the provisions of the part of the Housing Act 2004 dealing with tenancy deposits, to the advantage of both landlords and occupiers. We discuss this at Part 11.

Overcrowding

1.66      If the powers to redefine overcrowding^[35] are implemented, these can be directly communicated to landlords and occupiers through amendments to the terms of the occupation contract.

Energy efficiency

1.67      The Housing Act 2004 requires the Secretary of State to take "reasonable steps" to ensure that the general level of energy efficiency of residential accommodation in England is increased by 20% by 2010. Clearly, information will be key to delivering that target. The guidance booklet will be a direct source of information. Should the Secretary of State wish to go further, he could, by simple legislative amendment, use our scheme to introduce a new fundamental provision which would make specific contractual provision on energy efficiency relating to rented housing.

Grants to bodies other than registered social landlords

1.68      Our scheme makes clear that secure contracts can be entered into by any landlord who so wishes. All secure contracts have identical statutory underpinning.^[36] It would be straightforward to adapt these new powers to ensure that grants were made for investment in the provision of accommodation to be rented under secure contracts.

IMPLEMENTATION IN WALES

1.69      In our 2003 Report, we considered whether, in the light of devolution, it would have been appropriate to have made different provision for Wales. We concluded that, in general, it was appropriate for the National Assembly for Wales to have the same powers as the Secretary of State in England. In one important area, however, we recommended that the National Assembly should have greater powers. The draft Bill therefore gives the National Assembly a broad power to amend the rules as to when a community landlord is required to use a secure contract (clause 9). That was based on the devolution settlement set out in the Government of Wales Act 1998.

1.70      The position would be substantially changed if the current Government of Wales Bill receives Royal assent in its current form. The current Bill makes provision (among other things) for legislative competence to be extended to the National Assembly for Wales on a case by case basis. Schedule 5 to the Bill sets out a series of "fields" covering the areas of policy devolved to the Assembly. Housing is one of those fields. It is envisaged that under each field, "matters" will be added. Once a matter is added, the Assembly will be empowered to make legislation (in the form of "Assembly Measures") in relation to the matter. The Bill itself only adds matters to the field entitled "National Assembly for Wales", which concern various areas internal or incidental to the functioning of the Assembly. Matters related to substantive policy areas will be added in the future. Matters can be added by primary legislation, or by an order in council. Before such an order can be made, a draft of it must be approved by, first, the Assembly, and then both Houses of Parliament.

1.71      Our draft Bill is drafted on the basis of the law as it is now. However, it would be wrong to ignore the proposals in the Government of Wales Bill. Apart from broader considerations, our recommendation to give greater powers to the National Assembly than to the Secretary of State would no longer be appropriate – the Government of Wales Bill also provides a statutory underpinning to the split between a legislative Assembly and an executive Welsh Assembly Government, and gives secondary legislative powers to the executive. We felt it justified to give greater powers to the Welsh institutions when that power was exercised by the democratically elected Assembly. That would not be the case if secondary legislative power lay with the Welsh Ministers, who would be in a similar position in relation to the Assembly as the Secretary of State is to the UK Parliament.

1.72      We must, therefore, consider the issue of legislative competence for the Assembly. First, we recognise that there are significant differences in housing between England and Wales. We pointed to some of these in the first Renting Homes Consultation Paper.^[37] The Welsh Assembly Government and the National Assembly are of course in a better position than the UK Government to take account of these in relation to Wales when implementing policy.

1.73      More importantly, devolution to Wales is designed to give people in Wales the democratic and Governmental structures necessary to come to their own conclusions on the policy choices facing them in the devolved areas. Even if objective conditions are identical in Wales and England, the logic of devolution is that the Welsh political institutions may choose a different path to that chosen in England.

1.74      Housing is a devolved field, and housing tenure policy sits at the centre of that field. We have never seen Rented Homes as providing a once and for all solution to all problems. Rather, it is designed to give policy makers the appropriate tools with which to implement policy changes that have an impact on tenure law, without each time having to interfere with the underlying legal structures involved. That in the future housing policy makers in Wales may take different paths from those in England is inherent in the idea of devolution.

1.75      We conclude, therefore, that if the current Government of Wales Bill becomes law in its current form, legislation taking forward our recommendations should extend legislative competence to the National Assembly. However, we still consider that what we are recommending is the right structure, in detail as well as in its broad thrust, for Wales, just as we do for England.

1.76      We therefore recommend that the Rented Homes recommendations be implemented for both England and Wales in a single Government Bill, but that that Bill should include housing tenure as a "matter" under the field of "housing", allowing the National Assembly future legislative competence.

1.77      It may be that the Welsh Assembly Government and the Office of the Deputy Prime Minister come to differing conclusions about whether to accept our recommendations, or as to the priority to be accorded to implementing them. In particular, the Office of the Deputy Prime Minister may reject them while the Welsh Assembly Government accepts them. Or, if both accept them (with or without modifications), the Welsh Assembly Government may wish to accord them greater priority. In the first of these situations, it would be right for the National Assembly to be able to legislate on its own for Rented Homes. In the second, it would be right for the National Assembly to legislate in advance of the legislation for England.

1.78      If our recommendations are accepted in Wales but not for England, or if the Welsh Assembly Government wishes to implement them earlier, we recommend that the First Minister should initiate the order in council procedure. Legislative competence could thereby be extended to the National Assembly in order to introduce Rented Homes as an Assembly Measure.

REGULATORY IMPACT

1.79      All Bills are subject to a Regulatory Impact Assessment. The Law Commission does not currently have the expertise and resources to carry out a full RIA. Our consultees identified a number of issues that must be faced.

(1) Local authorities and registered social landlords have concerns about the initial costs of preparing new occupation contracts.

(2) Private landlords have anxieties about the costs of implementation.

(3) There was agreement on the need for a generous budget for publicity and training, prior to the introduction of any new scheme (The importance of not forgetting private landlords and occupiers was stressed.)

(4) There was agreement on the need for adequate resources to enable proper advice to be given, both at the start of the new scheme and on a continuing basis, both to landlords and to occupiers.

Notwithstanding these matters, consultees broadly supported our proposals, which they considered carried substantial public benefit.

1.80      While there will be start-up costs, this is a key investment which, in the short to medium term, will reduce overall costs. This will be achieved by:

(1) the creation of model contracts, reducing the need for individually drafted agreements;

(2) better use of IT enabling much of the present cost (for example, posting copies of the agreement) to be significantly reduced;

(3) the standardisation of agreements, allowing advisors to deal with issues more easily;

(4) added clarity, enabling occupiers and landlords to discover their legal position more readily without the need to obtain costly advice; and more generally

(5) the commercial opportunities for investment in housing that follow from the creation of a more flexible regulatory regime.

OUTLINE OF THE REPORT AND BILL

1.81      Part 2 provides an outline of the scheme. This is followed by specific Parts relating to: the formation and variation of occupation contracts (Part 3); the termination of occupation contracts (Part 4); the powers of the courts (Part 5); dealing with occupation contracts (Part 6); survivorship and succession (Part 7); repairs and improvements (Part 8); prohibited conduct (Part 9); supported housing (Part 10); and other rights and obligations (Part 11). The Bill is published separately so that it can be read alongside the analysis of its provisions set out here.

1.82      Our Bill does not deal with all of the consequential issues that arise. A number of discrete issues which rely on current tenancy types fell outside our terms of reference. They include:

(1) the right to buy, a free-standing right exercisable by local authority tenants;

(2) the right to acquire, which is exercisable by tenants of registered social landlords;

(3) certain rights provided for in the Housing Act 1985, which derive from the "Tenants' Charter" such as council tenants' right to improve their homes;

(4) the right of council tenants (but not tenants of registered social landlords) under the Housing Act 1985 to insist on the management of their housing being contracted to a tenant management organisation; and

(5) agricultural occupancies.

We have not included provision in our Bill to translate these schemes into renting homes terms. In respect of (1), (2), (3) and (5) above, we think the Government will want to consider how the underlying policies should be adapted to reflect the renting homes scheme.

1.83      As regards the right to manage, we repeat the recommendations we made in Renting Homes:^[38]

(1) the existing right to manage should be retained for local authority secure contract-holders;

(2) the appropriate authority should have power to bring defined registered social landlord housing within the right to manage, as if the landlord were a local authority;

(3) that registered social landlords could voluntarily opt-in to the right to manage; and

(4) that the appropriate authority be given a broad power to either create a single scheme for both local authorities and registered social landlords; or to create different schemes for each.

1.84      What this Report, and the draft Bill do is show how our recommendations can be translated into practical reality, which will benefit landlords and occupiers, by making the rules regulating their relationship much clearer, and benefit the Government by creating a robust but much more flexible legal framework within which to develop their housing policies.

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Note 1    We published two Consultation Papers: Renting Homes 1: Status and Security (2002) Law Commission Consultation Paper No 162, in April 2002, http://www.lawcom.gov.uk/docs/cp162.pdf; Renting Homes 2: Co-occupation, Transfer and Succession (2002) Law Commission Consultation Paper No 168, in September 2002, http://www.lawcom.gov.uk/docs/cp168.pdf (last visited 15 March 2006). We addressed over 70 public events; we received over 400 written responses to the Consultation Papers. The essential contribution made by consultees was acknowledged in our Report Renting Homes (2003) Law Com No 284, at Annex D.    [Back]

Note 2    Two sample model contracts appear at the end of this Report (Appendix B).    [Back]

Note 3    Now the Office of the Deputy Prime Minister and the Department for Constitutional Affairs, respectively.    [Back]

Note 4    An early comment on the effects of excessive complexity in housing law is to be found in Parry v Harding [1925] 1 KB 111. Lord Hewart CJ observed (at p 114): “It is deplorable that in dealing with such a matter as this, a Court, and still more a private individual, and most of all a private individual who lives in a small tenement, should have to make some sort of path through the labyrinth and jungle of these sections and schedules. One would have thought that this was a matter above all others which the Legislature would take pains to make abundantly clear.”    [Back]

Note 5    Regulation – Less is More: Reducing Burdens, Improving Outcomes (March 2005).    [Back]

Note 6    Model contracts are considered below in Part 3.    [Back]

Note 7    For booklets for landlords and tenants renting privately, see the Office of the Deputy Prime Minister website at http://www.odpm.gov.uk/index.asp?id=1151894, and for booklets on social renting see http://www.odpm.gov.uk/index.asp?id=1152108 (last visited 15 March 2006).    [Back]

Note 8    This is subject to one exception, namely the right of secure contract-holders of community landlords to transfer the contract to another secure contract-holder of a community landlord.    [Back]

Note 9    Housing Act 1985.    [Back]

Note 10    Housing Act 1988.    [Back]

Note 11    For example, it could be a condition of the receipt publicly funded grants that private sector landlords would have to enter contracts on the same terms as other social landlords.    [Back]

Note 12    For further background on the consumer protection approach, see Renting Homes (2003) Law Com No 284 Part 4.    [Back]

Note 13    This builds on the fact that the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) already apply to tenancy agreements.    [Back]

Note 14    SI 1999 No 2083.    [Back]

Note 15    Cls 13 and 23(1), and Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) reg 4(2).    [Back]

Note 16    Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083), reg 6(2).    [Back]

Note 17    Adoption of many of the ideas floated in The Joseph Rowntree Foundation – Shelter Commission on the Private Rented Sector, Private Renting: A new settlement: A commission on standards and supply (Shelter, 2002) would be greatly facilitated by the introduction of the scheme recommended here.    [Back]

Note 18    We set out in Appendix A our recommendations on the terms that should be included as supplementary terms.    [Back]

Note 19    SI 1999 No 2083.    [Back]

Note 20    (2003) Law Com No 284.    [Back]

Note 21    Compare with the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) reg 4(1).    [Back]

Note 22    Cl 205.    [Back]

Note 23    Cls 205(1) and (2)(a).    [Back]

Note 24    Cl 236.    [Back]

Note 25    Cls 205(2)(b) to (d).    [Back]

Note 26    See below, at paras 3.44 and 3.46.    [Back]

Note 27    The uncertainties currently facing many landlords are revealed in the Office of Fair Trading Report Guidance in Unfair Terms in Tenancy Agreements Revised ed. Sept 2005.    [Back]

Note 28    See Renting Homes (2003) Law Com No 284, Annexes C and D at http://www.lawcom.gov.uk/docs/lc284.pdf and above n 1.    [Back]

Note 29    Recent press reports suggest that the Government may not proceed with these reforms at least in relation to the social rented sector: see the article by Keith Cooper, "U-turn on direct payment" (28 October 2005) Inside Housing p 1.     [Back]

Note 30    One likely procedural change is the development of a new Possession Protocol, drafted by the Housing Committee of the Civil Justice Council. If adopted, this will require social landlords to demonstrate that all housing benefit problems have been sorted out before any court proceedings are started. Judges find it particularly hard to order possession against a tenant in rent arrears through no fault of theirs, but simply inefficient administration of housing benefit.    [Back]

Note 31    Housing Act 1988, s 21(5) as inserted by Housing Act 1996, s 99.    [Back]

Note 32    Safe and Secure? The private rented sector and security of tenure (Shelter, 2005)    [Back]

Note 33    Changes to the rules relating to the provision of accommodation by private landlords to the homeless are an example of this principle in practice: Housing Act 1996, s 193 (amended by the Homelessness Act 2002). This principle could apply more generally.    [Back]

Note 34    Renting Homes 1: Status and Security (CP 162) in April 2002 http://www.lawcom.gov.uk/docs/cp162.pdf.    [Back]

Note 35    Housing Act 2004, s 216.    [Back]

Note 36    Other than the right to transfer to another secure contract-holder which applies only to secure contracts with community landlords.    [Back]

Note 37    See Renting Homes 1: Status and Security (CP 162) April 2002, paras 1.74 to 1.77 http://www.lawcom.gov.uk/docs/cp162.pdf.    [Back]

Note 38    (2003) Law Com No 284.    [Back]

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