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Mortgage Repossessions (Protection of Tenants Etc.) Bill

Volume 718: debated on Tuesday 30 March 2010

Second Reading

Moved by

My Lords, I am honoured to be taking forward this Bill, which was introduced in another place by Dr Brian Iddon, Member of Parliament for Bolton South East. I pay tribute to his diligence and hard work in steering this Private Member’s Bill through all its stages in the other place, liaising with the Government and working with all the various bodies concerned with the issues covered by the Bill. I also thank the four charities that have campaigned for this legislation—Citizens Advice, Shelter, Crisis and the Chartered Institute of Housing—and I declare my own interest as chair of the Property Ombudsman Council, which seeks to resolve disputes between tenants, landlords and managing agents, as well as handling complaints against estate agents.

I am also extremely grateful to the government Whips for finding the time for the Second Reading of this Bill, which should enable its progression into law before the end of this Parliament. The good that I believe will flow from the enactment of this legislation can be attributed to Dr Iddon, to the charities that have persisted in arguing the case and to the genuinely honourable politicians from all parties who have given it their support.

Fortunately, my comments on this Bill can be brief, first, because consultation on the Bill’s content last summer, which was organised by the Department for Communities and Local Government, took on board important points raised by relevant professional bodies and associations—the Bill has the backing of the Residential Landlords Association, the British Property Federation, the National Housing Federation, the Royal Institution of Chartered Surveyors and the National Landlords Association, among others—and, secondly, because the Bill has strong cross-party support: the Government have given their full backing and the CLG has given expert input; the Liberal Democrats in this House have urged progress in bringing forward this legislation; and the Conservatives in the other place have been extremely supportive of the measures in the Bill. I will therefore confine myself to a short description of the significance of the Bill and I will be very willing to respond in my closing remarks to any points raised by your Lordships.

The Bill seeks to protect the so-called unauthorised tenants of residential-turned-let—RTL—tenancies who are at risk of sudden eviction because their landlord has fallen into arrears and the lender has commenced repossession proceedings. In these cases, the landlord has rented out a property without the consent of the lender, who is almost always an owner-occupier who pays a lower rate on their borrowing than buy-to-let landlords. The tenants are unprotected by the relevant legislation and, when the lender seeks to repossess the property, tenants may be given no notice, even if they are only part-way through the fixed term of a tenancy agreement.

Citizens Advice has furnished me with numerous examples of the problems that this brings. A citizens advice bureau in the north-east reported a client who was given 24 hours to vacate the property. He was a single man in receipt of incapacity benefit with no savings. The bailiffs arrived before he could even get all his possessions out of the house and several precious items were lost in the process. A CAB in the north-west reported the case of a couple who received a visit from the bailiffs, without any prior notice, to repossess their flat due to the landlord’s mortgage arrears. Their possessions were locked inside and they had to spend the night in a hotel.

Tenants who have been required to pay rent in advance face the added blow of standing to lose substantial sums. A Surrey CAB reported the case of tenants who had paid not only the deposit but six months’ rent in advance. When they returned from overseas, the locks had been changed and their belongings were locked in the flat. The landlord promised to refund the rent, but this did not happen. Sometimes, unbeknown to the tenant, the landlord has already been in serious arrears before letting the property. A Wiltshire CAB reported the case of a couple with two children who took on a 12-month fixed-term tenancy in September 2009, unaware that the landlord was in mortgage arrears of some £6,000. The couple are now awaiting the outcome of possession proceedings.

The Department for Communities and Local Government has estimated that there could have been more than 2,500 repossession cases of this kind last year, but advice agencies think that this is the tip of an iceberg. CLG estimates that some 330,000 RTL households are at risk of short-notice eviction if their home is repossessed. Since many of these households will never apply to a local authority for housing, they are unlikely to end up in any official statistics. There seems a real danger in these difficult economic times of more repossessions in the owner-occupied sector. If so, the number of RTL evictions could rise further.

The Bill does not provide any long-term security for RTL tenants, but it does allow the courts to delay evictions for up to two months. First, the Bill provides that after the notice of court proceedings is sent to a property informing any occupier that repossession is a possibility, tenants who pick up this letter, usually addressed to the tenant or occupier, will have the right to be heard at the possession hearing. The Bill gives the judge discretion to delay the repossession for up to two months at that hearing.

Secondly, it is possible that the tenant did not see the notice, which may have been missed among the usual junk mail; perhaps, following reassurance from the landlord, the tenant did not expect a possession to be granted and has taken no action; or, indeed, the tenancy may have started after the notice was served. The Bill therefore requires the lender to give notice at the property after an order for possession has been granted by the courts and before it is executed. This allows tenants who did not apply for a two-month postponement at the possession hearing to do so at this later stage. It is entirely at the discretion of the judge whether any period of notice will be granted and the court may make this conditional on rent payments continuing between the tenant and the lender. Alternatively, the lender may agree to the tenant continuing in situ and can appoint a receiver of rent to manage the property. The Bill does not inhibit them from doing this.

The Bill will protect thousands of RTL tenants from becoming homeless by providing a breathing space of up to two months for them to search for alternative accommodation. In every respect, this seems a much needed and significant reform to end an unintended injustice. I strongly commend the Bill to your Lordships. I beg to move.

My Lords, I support the thought that lies behind the Bill and I have one or two short points to make about it. The first point is that the Bill achieves for unauthorised tenants the sort of delay that has been available under rules of court for a long time in relation to squatters and their unauthorised occupation of premises.

There is an important distinction between an order for possession and a warrant for possession. An order for possession is binding on the parties to the litigation—in the ordinary case where it is a mortgagee’s application, the party will be the mortgagor—but it is not binding on anyone else. A warrant for possession, on the other hand, is binding on everybody in occupation of the property. A litigant, a claimant, who gets an order for possession has then to go and obtain a warrant for possession in order to execute the order that he has. All one really needs in order to control an unreasonable use of the eviction procedure is to require notice to be given to everyone in occupation, with a delay to allow them to intervene in the proceedings and to assert, if they wish to do so, a right to be there which the claimant—in the case we are considering, the mortgagee—is bound to respect.

Of course, there will be some who cannot do that, and the Bill provides for a delay of up to two months in that category. However, all of this could, I respectfully suggest, have been achieved quite easily through amendment to rules of court. It may be that it is simpler now to proceed with the Bill, but it could have been done by rules of court without bothering Parliament to legislate on the matter.

My second point is that the Bill is directed to the position of persons claiming to be tenants but not to have tenancies which are binding on the mortgagee. The persons in occupation may claim to be tenants, but the putative landlord through whom they claim may have nothing whatever to do with the mortgagor. It is not necessarily going to be the mortgagor who granted the tenancies; it may be some unauthorised person, some squatter in the first instance who, finding the property empty, has moved in with friends and then purported to grant tenancies to others.

The Explanatory Memorandum proceeds on the footing that it is going to be the mortgagor, or somebody claiming under the mortgagor, who has granted the unauthorised tenancies, but it is important to recognise that that may not be the case. The tenancies may have their origin in some other source; from a squatter or someone who has simply moved in, finding the property empty. The language of the Bill draws no distinction between those two categories, but the Explanatory Memorandum and the Short Title to the Bill appear to do so. I wonder whether the drafting needs to be looked at again, either to make it clear that it comprehends both types of unauthorised tenants—those claiming through the mortgagor and those claiming through a person unconnected with either mortgagor or mortgagee.

Those are the only two points I wanted to make on this otherwise entirely supportable Bill.

My Lords, I cannot follow the noble Lord in matters of law. Looking at the intention of the Bill as it has been presented to me, the possibility that a legal process might unintentionally make people homeless, or at least involve them in great expense or inconvenience, is something that, where it can be avoided, should be avoided. I believe that the intention behind the Bill is to prevent somebody finding themselves, at sometimes only a few hours’ notice, thrown on the streets. That is something we should all support. People employed in our Whips’ Office have experienced this: through no fault of their own, they suddenly discover that the property they thought they had legal possession of is being taken away and they are exposed—this is somebody who has been paying rent.

This is a comparatively modest measure and if I had to quibble at all, I would say that three months would be better than two. Possibly on a short-term tenancy, two months might be adequate, but three months might have given more flexibility. That would seem to be a very sensible course of action. It may also end up saving the Government money, since they would not have to worry about emergency accommodation, although, as has been pointed out, many of those affected by this are probably sorting things out themselves, but probably at considerable expense. The loss of deposits and, indeed, rent already paid, will happen, as the noble Lord, Lord Best, said. Somebody who has got themselves into arrears on a mortgage is probably not the best person to chase up for a lost deposit, which is a common area of disagreement between tenants and landlords.

I suggest that the Bill be given a fair passage, as a very sensible way of dealing with a very real problem. If we have it in place, we may well be able to avoid a degree of discomfort and probably homelessness as well. I recommend that we give it all speed.

My Lords, I declare that I have interests in property rental. I, too, welcome the Bill of the noble Lord, Lord Best. I shall keep my comments brief, because the Bill is largely uncontroversial and, indeed, passed through the other place with cross-party support. My honourable friend Stewart Jackson MP described the Bill in Committee as,

“very much for the public good”.—[Official Report, Commons, Mortgage Repossessions (Protection of Tenants Etc.) Bill Committee, 10/2/10; col. 6.]

As the noble Lord, Lord Best, made clear, the Bill is required because circumstances in the housing market have moved on a bit since Parliament last legislated for the protection of tenants, and a loophole has become apparent. That loophole may affect around 2,000 to 3,000 people a year. That might not seem like very many, but given that the consequences may be a family being thrown out of their home on to the street, it is extremely important that we move to close it. As has been said, estimates from the homeless charities Shelter and Crisis put the figure at a possible 224,000 unauthorised tenants who are at risk. If the figure is accurate, it makes the case for this Bill even more pressing.

As the noble Lord has explained, the Bill is designed to protect a category of tenants who are renting properties which they should not be because the landlord has acted in contravention of his agreement with the mortgage lender. If the landlord defaults, the mortgagee will begin to claim possession against the property, leaving any tenant in a difficult position. The problem will not be the same with buy-to-let properties because the mortgagee will know at the outset that there is going to be a tenant in the property and therefore protections will apply.

Where the mortgagee is ignorant of the tenants, perhaps because of bad faith on the part of the landlord mortgager, the noble Lord, Lord Best, is asking that we approve a two-month notice period to be given to the tenant. We fully support that idea because two months does not significantly delay the mortgagee’s claim on the property. It would be different if the tenant could apply repeatedly for a stay under the Bill, and I understand that both the noble Lord and the sponsor of the Bill in another place, Brian Iddon, have worked closely with the department to get the wording right. Only one postponement is permitted on an application by the tenant to the court. In order to make an application, of course, the tenant will need to know that moves on the property are afoot. I am pleased to see that the noble Lord has considered that point because under Clause 2, the mortgagee must give the tenant notice of the execution of any possession order, and specifically he must give notice,

“at the property of any prescribed step taken for the purpose of executing the order”.

But the prescribed steps are to be defined by the Secretary of State, so can the noble Lord, Lord Best, or the Minister give some indication of what those prescribed steps may be?

Despite that request for clarification, I can give the Opposition’s support for the Bill and I congratulate the noble Lord on bringing forward these sensible proposals. We hope very much that this Bill will be allowed to pass into law.

My Lords, I am grateful to the noble Lord, Lord Best, for bringing forward this measure. The Government became aware of the issue of unauthorised tenants and short notice evictions just over a year ago, and since then have been 100 per cent supportive of any measures to ensure that tenants who find themselves unexpectedly subject to short notice eviction as a result of landlords’ arrears and repossessions have adequate time to find an alternative home and move into it. It is a testament to the robustness of the legislation that this Bill has come from another place unchanged from when it was first published. It has not had to be redrafted to take account of any amendments, and this in itself says something about the need for and urgency of this legislation.

The noble Lord, Lord Best, has explained why it is needed and I do not intend to repeat that, but the Council of Mortgage Lenders has recently revised its forecast for possessions in 2010 to 53,000. The Government have a package of support in place for home owners who are in arrears and under threat of repossession. Help is available to ensure that repossession is always a last resort. However, some of these repossessions will be from landlords unable or unwilling to meet their mortgage payments, and some of these properties at risk will contain tenants where the landlord has not obtained consent to let from the lender. This makes the tenant unauthorised and puts them at risk of losing their home in a very abrupt manner. It is only by legislating in the way proposed in the Bill that unauthorised tenants will be protected if their landlord falls into arrears and is subsequently repossessed by the lender.

An unauthorised tenant is often stuck in a form of no-man’s-land where neither the mortgage lender nor a judge in a possession case is able to recognise the tenant’s existence or take account of them and their circumstances. This is a strange, historical quirk of our mortgage and property law that can easily be resolved by the Bill before us. As we have heard, the legislation will give unauthorised tenants affected by landlord repossession an opportunity to seek a delay to that repossession in order to find an alternative home. If they are a genuine tenant, they should find a lender who is sympathetic to their situation. The Bill gives some protection to tenants in that if the lender in question is less than sympathetic and refuses to recognise the tenant, they have the ability to engage with the court to resolve the issue. This offers a level of comfort and assurance to any tenants in this position that there are means for fair consideration and, if necessary, an independent process to consider and remedy their situation.

This same process will of course protect lenders from spurious and vexatious applications by individuals who do not have a genuine tenancy. The Bill will put unauthorised tenants on a level playing field with authorised tenants, giving the former the rights that they have always believed they had. It is unfair that unauthorised tenants should have to suffer short notice eviction or the risk of it where the situation is not of their making, but that of a landlord who has failed to comply with the terms of his or her mortgage.

Perhaps I may pick up on a couple of points that have been made. The noble and learned Lord, Lord Scott of Foscote, suggested that these amendments could be made by rules of court rather than by legislation. We have been advised that this would be a lengthy process and we could not take that route as it would not be appropriate to confer benefits on tenants through court rules. This has to be done through legislation. He also asked whether the Bill applies to all types of unauthorised tenant, those who have a relationship with the mortgagee and mortgager and those who do not. I should say that squatters, who he mentioned, are excluded by Clause 1(8) because unauthorised tenancies are defined as those tenants who have an agreement with their landlord that does not bind the lender. Obviously, squatters would not have any agreement on which they could rely to use the protections of the Bill.

My Lords, the problem arises where an original squatter purports to grant tenancies to others, who take him to be a person who can grant the tenancies.

My Lords, I think it is a question of with whom the tenancy agreement is made; that is the advice I have received.

The noble Earl, Lord Cathcart, asked whether we could give an indication of the prescribed steps. These are outlined in the draft secondary regulations and explain the time periods for all parties to follow in serving the notice and acting upon it. It is not intended to be burdensome or difficult.

The decision to legislate is not one that should be taken lightly. Unfortunately, regulation and good practice are inadequate in this case, so legislation is the only way to remedy the legal gap in protection for unauthorised tenants who find themselves being evicted as a result of their landlord’s arrears and repossession. The Government therefore continue to support the Bill and I commend it to the House.

My Lords, I am grateful for the support expressed on all Benches for the Bill, and perhaps I may respond to some of the points that have been made. The expert input of the noble and learned Lord, Lord Scott, has been answered at least in part by the Minister. I think he would agree that even if an amendment to the rules of court might have been a better route, at this stage in the proceedings it is probably best to do it in the way being proposed.

I take the point that if a squatter entered empty premises and then issued something that appeared to be a proper tenancy agreement to others, those others would not be covered by this legislation. I suppose that such cases are relatively rare, and perhaps the Bill cannot do everything that it might. I fear that under Clause 1(8), it is likely that they would be ruled out when the case went to court and the two months’ period was asked for.

Surely these people would not be ruled out; rather that they would fall within it. I hope that the intention is that they should.

The point is that the judge has absolute discretion in these matters and would probably interpret his responsibilities as not giving, in those cases, the period of two months’ grace before an eviction took place. But the noble and learned Lord, Lord Scott, is absolutely correct to say that perhaps it would be up to the judge to make a decision on the merits of the case before him or her.

The noble Lord, Lord Addington, expressed his support for the Bill and made the point that possibly a period of three months would be better than two months. However, the two-month period at least has symmetry with assured shorthold tenancies which have the opportunity, once the tenancy is running, for two months’ notice to be granted. It is the same period as for tenants in those circumstances, so there is logic behind it. Again, I am grateful to the noble Lord for his support and that of his Benches.

The noble Earl, Lord Cathcart, made the point that this absolutely prevents repeated postponements, which was an anxiety of those representing lenders; this allows a two-month postponement and no more. He also asked about the prescribed steps for notifying occupiers the second time around. I know that there has been debate as to whether, for example, the envelope should say on the outside that it has come from the courts—drawing special attention to it—or whether that would be rather alarmist; should it instead be in a plain envelope? It will at least be addressed to the tenant or occupier, not just to the occupier, which may slightly distinguish it from other mail. We are yet to have the full details, which will be in regulations, and these will give us an opportunity to ensure they come out correctly.

I am also very grateful to the Minister, not just for his comments but for giving this Bill the Government’s absolute backing from the beginning, without which it would not have been possible. I conclude by asking the House to give the Bill a Second Reading.

Bill read a second time and committed to a Committee of the Whole House.