Rent: Mistakes and arrears - the legal route to recovery

Let me start with a question.  What is one to do when a landlord or agent mistakenly fails to include any rent in a tenancy agreement?  After reading a blog where this happened I redoubled my determination that it would not happen to me. 

Below I explain both the means to prevent or overcome the problem addressed and any court action required – it is a challenging anecdote covering a variety of options and it will take a while to read.  So make a cup of coffee and ask a colleague to take your calls, then reciprocate for your colleague.

The scenario:

In this example, let’s say that the tenant is already a male pre-existing tenant.

He now wishes to renew for say a further year by signing a new tenancy. 

Let’s also say that the rent is £700 per month and this had not increased.

The tenant remains the same and continues to reside in the same property.

The tenant is dishonest and seeks to capitalise on the landlord’s innocent mistake by pointing to the £0 rent written in the tenancy whilst laughing with glee.

There are many solutions, I suggested to the blogger the following:

At court the landlord could easily argue the 'defence' of 'unilateral mistake' made in 'good faith' rendering the contract 'void ab inito' - i.e. ‘void as though it had never existed’.  The tenant, clearly acted in bad faith and, "must have realised" (Hartog v Colin & Shields 1939) that the property was not intended to be rent-free, before 'seizing upon' the unintended bargain, to cheat the 'innocent' landlord out of his rent.   The following maxim applies, "He who seeks equity must come with clean hands". One cannot demand justice having acted unjustly. The injustice is further evinced by the ‘course of dealing' having previously paid rent. Equity enforces the spirit, rather than the letter, of the law.  Judges avoid awarding in favour of guilty parties and seek to defend the innocent where the law permits.

Firstly, for a contract to exist there must be offeracceptance and payment (the latter payment is known legally as consideration).  In the absence of either three or if, as above stated, it is void, no new fixed term contract exists.  All that thus remains is the continuing expired fixed term contract, i.e. the fixed term would then default to a statutory periodic tenancy SPT

In England, landlords initiate ending both a SPT or fixed term tenancy by serving the appropriate S.21 Notice to Quit NTQ with two months notice.  The landlord cannot apply to court until the fixed term tenancy ends and must allow two months for the notice to expire (whichever is the latest).  The notice can be served anytime after (not at the same time as) the start of the tenancy. There are two S.21 notices.  One is served during the fixed term tenancy; the other, after the expiry of the fixed term tenancy, i.e. the default SPT

In this context it is very important to note that, if a statutory deposit is not protected, or if prescribed information is not sent to tenants and related persons, e.g. guarantors or a parent paying the deposit, then no Section 21 notice can be served until either the deposit is properly protected or returned to the tenant.  Only then can the Section 21 notice be served.  Only then does the clock start ticking for the eviction / possession.  So again it can be seen that it takes only a small error or omission to result in a catastrophe.  Should a student refuse to leave at the end of the tenancy he could argue any earlier NTQ was invalid as the deposit was not protected.  The tenant could insist on remaining until the deposit was returned and a new valid NTQ is served.  For students this could create a scenario whereby one group of tenants are entitled to remain and the new group of tenants are entitled to enter (but for the landlord or an agent’s negligence).  In reality the landlord / agent would have to find the new tenants alternative accommodation (even a hotel) resulting in the potential loss of a year’s rent.  The landlord would sue the agent!  The importance of the availability and validity of a S.21 notices cannot be understated.  Without this a landlord would not be able to evict a tenant unless the tenant in some way breaches the tenancy.  Currently there are political moves (Labour) to end the use of S.21s.  This would herald the return of sitting tenants also known as protected tenancies or assured tenancies.

After serving a section 21 notice and following expiry of the two months notice, landlords must submit a court ‘summons for possession’ - without claiming any rent arrears. Hence this is called an ‘Accelerated Possession’ i.e. the landlord just wants the tenant to leave without claiming rent arrears, either because there are no arrears or because landlords are unlikely to enforce recovery of them from a ‘man of straw’.  Landlords may simply desire vacant possession to secure a more suitable tenant from whom rent will be paid.

Alternatively – should landlords wish to claim possession and rent arrears – likely in this case, then, following two month’s rent arrears, landlords / agents must serve a Section 8  NTQ.  That is  Section 8 of the Housing Act 1988 and mandatory ground 8 - S.8, G.8.  As well as awaiting two month’s rent arrears before serving a NTQ the landlord must allow expiry of a minimum two months notice period before submitting a claim for a ‘summons for possession’.

These two routes are not mutually exclusive.  But section 8 must contain a breach of the tenancy whereas s.21 need not.  Either way S.21 'accelerated NTQ' is arguably barely quicker than S.8 depending on what the landlord seeks to achieve.  Some landlords serve both NTQs and await the first court hearing date, or attend both and claim the most favourable judgement, or a combination of the two. 

The section 8 route means awaiting a minimum of two months accumulated rent arrears before serving the Notice to Quit NTQ. This must amount to 2 months arrears both at the time of serving notice and at the time of the court hearing. Should the tenant pay say £1 to the landlord at the court entrance thereby reducing the arrears to under two month’s rent, then the hearing cannot take place – the landlord must reissue a new NTQ.  Following such tactical delays, before submitting a further summons for possession to court two months arrears must again be evident.
Once any rent arrears exceeds two months, landlords having served an new NTQ must again await a further two months for the NTQ to expire.   So it can be seen that this well established delay tactic could draw-out proceedings indefinitely.  Should this happen preventing use of mandatory ground 8, a landlord could in the alternative rely on the discretionary ground 11, ‘persistent late payment of rent’.  A judge must award possession of a mandatory ground but need not award possession for a discretionary ground.
Mathematically, this means four months pre court activity is the minimum time to elapse prior to issuing NTQ S8,g8.
Following issuing the summons landlords must wait say two more months for a hearing (depending on how busy the court is) and if it is a straight forward case, with no adjournment delays the judge will grant the possession order.  However, the order is likely to be suspended for a further 2 to 4 weeks to allow the tenant to vacate.

So the total number of months of unwanted occupation becomes seven months!

And, it does not end there!  Should the tenant refuse to leave, the landlord must return to court to instruct bailiffs to enforce the possession order adding circa another month i.e. now 8 months if there are no adjournments or requirement for witnesses or further evidence or tactical delays.

The S.21 route might be a few weeks quicker but if the tenancy duration is say one year, then landlords can issue the S21 NTQ anytime after the start of the tenancy (avoid the same day to prove it was after), but unlike Section 8 must await the expiry of the remaining tenure or term before applying to court for a possession order. A S21 NTQ is more certain but not necessarily quicker as the term escalated suggests. 

What all this reveals is that following a simple mistake it can take months or years to resolve.  Meantime the landlord is losing rent and the agent is being sued for negligence (Tort Law) and damages (money).  Thus agents must be proactive to prevent such mistakes.  Everyone makes mistakes, but they are less likely if systems of checking are in place with supervisors checking as a failsafe measure.

Having established the legal position above (prior to digressing about remedies) I suggested to the blogger that she use this knowledge as a lever to reason a more pragmatic approach with the tenant: 

Send the tenant this email: "We both now know that no court would enforce a voidable contract. So let's be sensible. If you agree to pay the rent as before and amend and initial the amendment in the AST, I will ask the landlord to desist from instigating eviction proceedings. You remain a valued tenant; the landlord does not need to find new tenants - sorted? This gracious approach allows the tenant to descend gracefully albeit sheepishly. It obviates involvement of courts and costs all round! No pride: no problem! In other words do not matters more difficult than necessary.

This would be my first approach - however if unsuccessful, and court action was required, one could pontificate as to other options, so lets have some fun with the less likely but possible alternatives: 

The tenant could claim 'non-monetary' 'consideration' - and thus claim (dubiously) 'Promissory Estoppal' based on the tripart criteria that the tenant: 
1. 'having altered their position' (by remaining in occupation) 
2. 'in reliance upon the landlord's promise' (to rent for free) and 
3. 'did so to their detriment'. (e.g. the tenant might now aver that they declined an option to rent cheaper comparable accommodation in favour of free rent!) 
The tenant, if successful, could claim the equitable remedy of 'specific performance' (to remain in residence rent free for the duration of the term). 
It would be hard for the tenant to argue 'detriment', having benefited from free rent and harder still for equity having acted inequitably! 

In addition, it is arguable, in the alternative, that no rent in the AST has two effects: 
1. zero consideration equals zero contract, 
2. any agreement for rent below £250 pa (£1000 in London) is not a statutory AST/ lease but a common law agreement and, due to the 'low rent tenancy' is a mere licence. This is the opposite of a high rent common law tenancy i.e. over £100k pa. 

low rent tenancy affords minimal tenant-protection from eviction requiring only 'reasonable notice' to quit. 

This scenario has a silver lining (not for the blogger but for those who learn from others’ “mistake(s))”.  It reveals both the importance and prudence of  insisting that a supervisor checks the three Ps when drafting tenancies: Property - address is entered correctly, Parties - that all names are included and have signatures where appropriate and Price - perhaps to enter rents both in words and figures.  However, the latter price if entered twice creates further scope for error or discrepancy if the two erroneously fail to match - the tenant might argue for the lower mistaken amount.

It is also prudent to conduct spot checks on all such matters including credit checksguarantor signatures (a regular source of fraud – childlike writing can be a giveaway), witness details (tenants signing in person as a witness) etc.

The above anecdote can be overcome because the mistake is obvious £0 rent. However, had rent been say £70 as opposed to £0 (or the intended £700) pm a new AST would exist.  It would still be possible to argue ‘void for mistake’ but more problematic to evince. Had it been a new tenant and a new AST, one would have had to establish an audit trail of communications (course of dealing) to evince the mistake; as opposed to the scenario above where the continuing tenant had no real defence for non payment by capitalising on the obvious mistake.  So it is also important that agents ensure retention of accurate records of all telephone and email correspondence.