In this section
Practice Note 3 : Valuation of Interests Encumbered by Tenancy or Licence : The Nature of the Encumbrance: Law as at July 1994
- The quantum of the valuation of an interest often depends materially upon whether or not, in a hypothetical sale, it could be offered with vacant possession.
- For Revenue valuations, the material date is often a time when in fact someone was in occupation of the subject property, so the valuer cannot point to the fact of vacancy to prove that VP would have been available.
- In the vast majority of cases there is no difficulty over the question, there being either an obviously encumbering tenancy or an owner-occupier who could clearly give VP and who does not contest it. These are the black and white cases.
- However, there are occasions when the contrast is not so sharp and the shading between these extremes needs to be considered. Particularly in IHT death cases, it is often contended that a resident had rights that would have prevented a VP sale; and in agricultural cases it is often contended that a member or members of the resident family had a tenancy from, for example, the resident father.
- Anyone occupying a property in any way has some named status. The significance lies in the way and ease by which that status can be terminated without purchase, and whether the hypothetical vendor could have been expected to have obtained VP as part of the preparations for sale. One of the first things to remember is that the Revenue valuation hypothesis includes the assumption that all preliminary arrangements have been made for the sale (Duke of Buccleuch v IRC.(CA)) and these would include the removal by the hypothetical vendor of any persons who could legitimately be removed without notice and without having to purchase their interest to do so.
- Even where removal without purchase of the encumbering interest cannot be expected, there are shadings of status from the ephemeral through to more than lifelong statutory protection and it will be for the valuer to consider how the hypothetical purchaser, taking the interest subject to such encumberance, would view the possibility of gaining early VP and how one would discount the VP value for this in making the bid.
- The purpose of the following notes is first to help a valuer to identify the nature of such an encumbering interest and then to examine its effect as an encumbrance. The first step is to consult the flow chart. In the boxes are the questions and the paragraph numbers containing the relevant advice. The following notes are not intended to be read as a narrative but to be used only in conjunction with the flow chart overleaf.
- These notes are not intended to be comprehensive, and it will still be necessary to refer to relevant Acts. If a dispute arises regarding the basis of occupation the papers should be returned to CTO for them to resolve the matter before proceeding (see Section 35: para 35.7)
Valuation of Interests Encumbered by Tenancy or Licence Nature of the Encumbrance Identification and Effect Flowchart
1.1 Tenancy or Licence?
The distinction between a licence and a tenancy depends on the truth of the relationship between the parties involved, not the label which they choose to put upon it (see Street v Mountford (1985) 274 EG 821).
An occupier who does not have exclusive possession of the demised premises cannot be a tenant, and unless a trespasser, should be regarded as a licensee and the licence "path" followed on the flowchart.
The occupier who does have exclusive possession may prima facie be regarded as a tenant unless there are factors tending to demonstrate a licence, eg (a) where there has been something in the circumstances such as a family arrangement, an act of friendship or generosity or such like to negate the intention to create a tenancy, and (b) where the usual features of a tenancy (especially a fixed or periodic term) are absent.
The same considerations apply in ascertaining the occupational status of an employee occupying the premises of an employer, with one exception. Despite a fixed term and regular payment of rent an employee may be regarded as a 'service occupier' (a species of licensee) if either:-
- it is essential that the employee lives in a particular dwelling to perform their duties, or
- although not essential for the employee to live in a particular house the employee can perform their duties better by living there and it is an express term of the contract of employment that they do so.
In such circumstances the employer is regarded as retaining paramount occupation of the property.
Difficulties in distinguishing between a tenancy and a licence may particularly arise where a property is jointly occupied by two or more occupiers. Whether the occupiers together have a joint tenancy or whether they each have individual licences will depend on the particular circumstances of the case but assistance can be gained from the House of Lords' decisions in A G Securities v Vaughan & Others (1988) and Antoniades v Villiers & Another (1988) (8847 EG 193).
Cases may arise where it is not possible to determine with any certainty whether the occupier is to be regarded as tenant or licensee. Where different interpretation results in materially different valuations, DVs should submit cases for advice via Region to CEO. Where no significant valuation differences emerge a common sense approach should be adopted, (eg the identification of an occupancy as being either a licence or an unprotected tenancy at will does not significantly affect the prospects for obtaining possession).
1.2 Statutory Protection
Instances where statute confers on the tenant a degree of security are as follows:-
- Housing Act 1988
Tenancies created on or after 15 January 1989 may be either assured tenancies, assured shorthold tenancies or assured agricultural occupancies under Part I of the HA 1988. The Act does not however repeal the Rent Act 1977 or the Rent (Agricultural) Act 1976 and tenancies entered into before 15 January 1989 are still covered by those Acts.
(i) Assured tenancies
S.1 HA 1988 provides that a tenancy under which a dwelling-house (which may be a house or part of a house) is let as a separate dwelling is an assured tenancy for the purposes of the Act provided the tenant is an individual, the dwelling is occupied as his only or principal home, and the tenancy is not excluded by Part I of Sch 1 of the Act.
Part I of Sch 1 of the Act sets out tenancies which cannot be assured tenancies:-
Para 1 tenancies entered into before 15 January 1989.
Para 2 tenancies entered into before 1 April 1990 of dwellings with a rateable value over £1500 in Greater London or £750 elsewhere, or tenancies entered into after 1 April 1990 under which the rent payable exceeds £25,000 pa.
Para 3 tenancies entered into before 1 April 1990 under which the rent payable is less than two-thirds of the RV on 31 March 1990, or tenancies entered into after 1 April 1990 under which the rent payable is £1,000 pa or less in Greater London or £250 pa or less elsewhere. The absence of rent is not conclusive against an assured tenancy, if an adequate rent is payable but has been waived by the landlord. The rent must be expressed in money terms, even if it is paid in another form.
Para 4 if the tenancy is a business tenancy within Part II of the Landlord and Tenant Act 1954.
Para 5 dwellings which are on licensed premises.
Para 6 dwellings let together with agricultural land exceeding two acres.
Para 7 dwellings comprised in an agricultural holding and occupied by the person responsible for the control of the farming of the holding.
Para 8 lettings to students by specified institutions.
Para 9 holiday lettings.
Para 10 lettings of part of a building where at the date of letting and at all times since (except as provided by Part III of Sch 1 of the Act) the landlord occupied another part of the building as his only or principal residence.
Para 11 the landlord's interest belongs to the Crown.
Para 12 the landlord's interest belongs to a Local Authority, Housing Association etc
Para 13 protected tenancies etc within the Rent Act 1977 and the Rent (Agriculture) Act 1976 and secure tenancies.
(ii) Assured shorthold tenancies
S.20 HA 1988 provides that an assured tenancy will be an assured shorthold tenancy provided it is granted for a fixed term of not less than six months, there is no provision for the landlord to terminate the tenancy at any time earlier than six months, and an appropriate notice is served on the tenant before the tenancy is entered into.
(iii) Assured agricultural occupancies
An assured agricultural occupancy is a tenancy or licence of a dwelling-house which complies with the qualifying conditions in s.24(2) HA 1988 and for which the agricultural worker condition of Sch 3 of the Act is fulfilled (see Practice Note 4, Part 2).
- Rent Act 1977
S.1 RA 1977 provides that "a tenancy under which a dwelling-house (which may be a house or part of a house) is let as a separate dwelling is a protected tenancy for the purposes of the Act". Ss. 4-16 RA 1977 provide for certain circumstances where protected tenancies will not arise; these consist of:
S.4 dwellings with a RV above the relevant limit on the appropriate day, ie 23 March 1965 or the date on which it was first entered in the Valuation List, if later. The relevant limits are as follows:-
When the appropriate day is on or after 1 April 1973: RV £1,500 in Greater London, £750 elsewhere.
When the appropriate day is on or after 22 March 1973 but before 1 April 1973:
(i) on that day
RV £600 in Greater London, £300 elsewhere
and (ii) on 1 April 1973
RV £1,500 in Greater London, £750 elsewhere
When the appropriate day is before 22 March 1973:
(i) on that day
RV £400 in Greater London, £200 elsewhere
and (ii) on 22 March 1973
RV £600 in Greater London, £300 elsewhere
and (iii) on 1 April 1973
RV £1,500 in Greater London, £750 elsewhere
S.5 the rent payable is below two-thirds of the RV on 'the appropriate day'. The appropriate day is 23 March 1965 or the date on which the hereditament first appeared in the Valuation List, if later; but if the appropriate day falls before 22 March 1973 and on that date the RV exceeded £400 in Greater London, £200 elsewhere, 22 March 1973 is substituted as the 'appropriate day' for the purpose of s.5. The rent payable is the whole amount paid by the tenant including rates where the tenant pays an inclusive rent. The absence of rent is not conclusive against a protected tenancy, if an adequate rent is payable but has been waived by the landlord. The rent must be expressed in money terms, even if it is paid in another form.
S.6 dwelling let together with other land (but see also s.26 RA 1977).
S.7 bona fide letting at rent which includes payment in respect of board or attendance forming a substantial part of the rent.
S.8 lettings to students by specified institutions.
S.9 holiday lettings.
S.10 dwellings comprised in an agricultural holding and occupied by the person responsible for the control of the farming of the holding.
S.11 letting of dwellings which are on licensed premises.
S.12 lettings on or after 14 August 1974 where at date of letting and at all times since (except as provided by Sch 2 para 1 RA 1977) the landlord occupied another part of the building as his residence. See 1.3(b) below.
S.13 landlord's interest belonging to the Crown.
S.14 landlord's interest belonging to a Local Authority.
S.15 landlord's interest belonging to a Housing Association etc.
S.16 landlord's interest belonging to a Housing Co-operative.
Full protection is also excluded for tenancies falling within s.51 Housing Act 1980 (shorthold), s.67 (lettings by servicemen) and also for "assured tenancies" (s.56(5)). The Housing Act 1988 however converted all 1980 Act "assured tenancies" into 1988 Act "assured tenancies" on 15 January 1989.
- Rent (Agricultural) Act 1976
See s.2 R(A)A 1976 for the definition of a protected occupancy. It should be noted that in certain circumstances a licence may be a protected occupancy. (The provisions of this Act are described in greater detail in Practice Note 4, Part 2).
- Landlord and Tenant Act 1954
Part 1 applies to long tenancies of dwellings at low rents which would in other respects qualify for protection under the Rent Act (namely to tenancies granted before 15 January 1989). S.2 LTA 1954 specifies that 'long tenancy' means a term of more than 21 years and low rent means less than two-thirds of the RV at the appropriate day (see 1.2.(b) above).
Part 2 applies to 'business tenancies' as defined in s.23. The business user must be significant, not incidental to residential use. Exceptions include: agricultural holdings, mining leases, on-licensed premises other than those where the sale of alcohol is not the major part of the business (but for tenancies granted on or after 11 July 1989 see Landlord and Tenant (Licensed Premises) Act 1990), any tenancy granted by reason of the tenant's employment provided that, if granted after 1954, it is in writing and specifies the purpose for which it is granted. Tenancies at will are also excluded, as are most tenancies for a term certain not exceeding six months (see s.43(3) LTA 1954 as amended by s.12 Law of Property Act 1969).
- Local Government and Housing Act 1989
S.186 and sch.10 LGHA 1989 applies to long tenancies of dwellings at low rents granted on or after 15 January 1989. Low rent is defined in Sch. 10 para 2(4) as
(a) if no rent is payable
(b) for tenancies entered into on or after 1 April 1990 under which the rent payable is £1000 pa or less in Greater London and £250 or less elsewhere
(c) for tenancies entered into before 1 April 1990 under which the rent payable is less than two-thirds of the RV as at 31 March 1990 (where the dwelling had an RV).
- Agricultural Holdings Act 1986
This Act applies to the letting of an agricultural holding, which is defined as "land (whether agricultural land or not) comprised in a contract of tenancy which is a contract for an agricultural tenancy", provided that such land is not "let to the tenant during his continuance in any office, appointment or employment held under the landlord". Agricultural tenancies are defined in s.1(2) AHA 1986.
S.3 AHA 1986 provides that a tenancy of an agricultural holding for a term of two years or more will not terminate on expiry of the term without due notice to quit.
S.2 AHA 1986 contains a similar provision in respect of an interest less than a tenancy from year to year (this includes a tenancy for one year exactly). Unless the letting or grant was approved by the Minister or is a mere mowing or grazing licence for part of the year, it takes effect, whether tenancy or licence, as if it were a letting from year to year and therefore termination requires a notice to quit.
It should be noted that a tenancy for a fixed term of more than one year but less than two years escapes protection unless it carries on without notice into a third year. For this purpose the tenancy must be treated as starting at the date of grant and not, if different, at the date from which the term is expressed to run.
S.26 AHA 1986 provides that notice to quit shall be effective only in certain specified circumstances (see 2.1(e) below).
1.3 Restricted contracts
Restricted contracts are defined in ss.19 and 20 Rent Act 1977. Broadly they include the following:-
- any contract (provided that it does not create a protected tenancy) whereby one person grants another the right to occupy a dwelling for rent which includes a payment for use of furniture or services subject to certain exceptions defined in s.19. It should be noted that the right of occupation need not be that of a tenant; a contractual licence may be a restricted contract if it satisfies the requirements of s.19.
- S.20 provides that any tenancy which is denied protection on account of s.12 RA 1977 (Resident Landlord) shall be treated as a restricted contract.
- S.21 provides that any tenancy of premises where some accommodation is shared with the landlord shall be a restricted contract.
As from 15 January 1989, when Part I of the Housing Act 1988 came into force, no new restricted contracts can be created but those already in existence continue with the same rights under the Rent Act 1977. However if the occupier under a restricted contract enters into a new contract on or after 15 January 1989, by for example agreeing to a variation in the level of rent, the new contract will be unrestricted.
1.4 Nature of Tenancy
If it is established that a tenancy does not come within the protection of the statutes mentioned in 1.2 and is not a restricted contract it will be necessary to examine its nature before it can be established how soon the landlord may obtain possession. It will fall into one of the following categories:-
- Lease for fixed period the period may be of any length but it must be certain.
- Tenancy from year to year this may be expressly created but may also be inferred where a person occupies land with the owners consent and rent measured with reference to a year is paid and accepted. A yearly tenancy may therefore arise when a tenant under a lease for a fixed term holds over after expiry and continues to pay a yearly rent.
- Tenancy from week to week (or other period less than 1 year) this may be expressly created but may also be inferred from the payment and acceptance of rent measured with reference to week, month or quarter etc.
- Tenancy at Will this may be expressly created but may also arise where a tenant holds over with the landlord's consent after the expiry of a previous tenancy without having paid rent on a periodic basis. A tenant at will has no fixed term, but caution should be exercised in identifying a tenancy at will merely from the absence of any fixed or periodic term; in recent years the Courts have tended to regard such arrangements as licences.
- Tenancy at sufferance this cannot be expressly created and arises only where a tenant having entered under a valid tenancy holds over without the landlord's assent or dissent.
1.5 Nature of Licence
Licences may be classified as bare (normally gratuitous) or contractual. The distinction depends upon whether or not they are supported by contract; a contract may be accepted to exist where supported by written evidence, but even where the original contract was merely oral it will be sufficiently evidenced by the payment and acceptance of a licence fee.
1.6 Statutory Protection available for certain contractual licences
Two types of contractual licence are afforded a degree of statutory protection;
(i) A licence for exclusive occupation of a dwelling or part of a dwelling where the licence fee includes payment for use of furniture or services may be a "restricted contract" as defined in s.19 Rent Act 1977.
(ii) A contractual licence of any duration to occupy an agricultural holding may be converted into an agricultural tenancy (see s.2 Agricultural Holdings Act 1986). Any licence however which may be regarded as an agreement for mowing or grazing only, during any specified period less than 1 year is excluded. Specific ministerial consent will also exclude a licence.
2.1 Protected Tenancies
- Housing Act 1988
An assured tenancy cannot be brought to an end by the landlord except by obtaining a Court Order. The grounds for obtaining possession are contained in Sch 2 HA 1988 and are divided into Grounds 1-8 on which the Court must order possession and Grounds 9-16 on which it may order possession if it considers it reasonable to do so.
If the assured tenancy is for a fixed term an order for possession cannot take effect during the term unless Grounds 2, 8 or 9-16 are established and there is provision in the tenancy for it to be brought to an end on the Ground in question.
Many of the Grounds are similar to the Cases for possession under the Rent Act 1977 but it should be noted that Ground 6 may enable a landlord to obtain possession if he intends to demolish, reconstruct or carry out substantial works to the dwelling. This Ground cannot however be used by someone who purchased the landlord's interest after the tenancy was created.
On the death of an assured tenant, who was not himself a successor, s. 17 HA 1988 provides a right of succession to a spouse who was residing in the dwelling immediately before the death (ignoring temporary absence). A person living with the tenant as his or her wife or husband is treated as a spouse. If there is no surviving spouse the assured tenancy can pass to another person by inheritance but the landlord may recover possession within one year of the tenant's death under Ground 7.
With an assured shorthold tenancy, in addition to Grounds 1-16, a landlord can recover possession under s. 21 HA 1988. This provides that where the fixed term of the assured shorthold tenancy has expired and the landlord has given the tenant two months notice to quit a court must make an order for possession.
The recovery of possession of an assured agricultural occupancy is the same as for an assured tenancy except that Ground 16 is not available. Also by virtue of s. 26 HA 1988, the rehousing provisions of s. 27 Rent (Agricultural) Act 1976 are applicable to assured agricultural occupancies and can therefore be used by landlords to secure suitable alternative accommodation.
The series of 'Housing Booklets' published by the DOE outline the main provisions of the HA 1988. These include:-
'Assured tenancies' - booklet No 19
'Letting rooms in your home' - booklet No 22
'Notice that you must leave' - booklet No 24
- Rent Act 1977
S.98 RA 1977 provides that the Court has an overriding discretion in that it must be satisfied that it is reasonable to make an order for possession on the grounds either that suitable alternative accommodation is available to the tenant or that one of the Cases specified in Part I of Sch 15 applies. Note especially that Case 8 applies to service tenancies, which in all other respects enjoy full protection.
It further provides that the Court must grant possession in any one of the Cases 10-18 also specified in that Schedule, as amended by s.66 Housing Act 1980.
S.55 Housing Act 1980 provides a further mandatory Case 19, applicable only to shorthold tenancies. S.67 Housing Act 1980 provides a further mandatory Case 20, permitting certain servicemen landlords to recover possession. Ss. 56, 57, 58 Housing Act 1980 excluded assured tenancies from full protection and conferred on them the security of tenure provisions of the Landlord and Tenant Act 1954 Part II, subject to modifications, but as from 15 January 1989 all these tenancies become "assured tenancies" within the Housing Act 1988 Part I.
Unless possession is granted by the Court on one of the above grounds the tenancy will end only with the death of the tenant and even then certain persons may succeed to the protected tenancy. The rules governing succession under the RA 1977 were amended by s. 39 and Part I of Schedule 4 of the Housing Act 1988 and where the original tenant dies after 15 January 1989 the following may now 'succeed' to the protected tenancy.
(i) surviving spouses (including a person who was living with the original tenant as his or her wife or husband) residing in the dwelling immediately before the death (ignoring temporary absence)
(ii) if there is no surviving spouse residing in the dwelling, a person who was a member of the original tenant's family and who was residing with him or her at the time and for two years prior to death. Prior to the Housing Act 1988 the qualifying period was only six months and there is a transitional provision to protect the rights of persons who had been residing with the original tenant for six months as at 15 January 1989. If such a person continues to reside in the dwelling they will be allowed to succeed even if the original tenant dies before another 18 months have passed.
A person who becomes a statutory tenant by succession on the death of the original tenant is known as the first successor. On his death while still a statutory tenant, a further survivor may become a second successor but they become an assured tenant under the Housing Act 1988. To qualify the person must have been a member of both the original tenant's family and the first successor's family and resided in the dwelling with the first successor for two years prior to death. There is a transitional provision similar to that described in (ii) above to protect the rights of persons who had resided with the first successor for six months as at 15 January 1989. There can be no further transmission on the death of the second successor.
The DOE 'Housing Booklet No. 25' - 'Regulated Tenancies' outlines the main provisions governing such tenancies.
- Rent (Agricultural) Act 1976
S.6 provides that an order for possession will only be given in the Cases in Sch 4.
- Landlord and Tenant Act 1954
Part 1 provides that in order to regain possession at the end of a long lease of a dwelling at a low rent the landlord must serve notice to quit and apply for an order for possession. An order may be obtained on the following grounds:-
(1) that possession is required in order that redevelopment may be carried out and the landlord is a public body
or (2) other grounds set out in Sch 3 LTA 1954.
If the tenancy is not terminated in this way it will, unless the tenant surrenders or serves notice to quit, continue on the same terms after the expiry date until converted into a statutory tenancy on the landlord's application.
S.186 Local Government and Housing Act 1989 is stated to have effect in place of Part 1 LTA 1954. However, for tenancies granted prior to 15 January 1989 and expiring prior to 15 January 1999, the 1954 Act will continue to apply.
- Local Government and Housing Act 1989
Sch. 10 para. 4 provides that in order to regain possession at the end of a lease to which the Act applies the landlord must serve notice to quit and apply for an order for possession. An order may be obtained on the following grounds:
(1) ground 6 of Sch. 2 HA 1988 ie. redevelopment. NB. This ground is not available to former LTA 1954 tenancies.
(2) grounds 9-15 of Sch. 2 HA 1988.
(3) grounds in paras 5(b) and (c) Sch. 10 LGHA 1989.
If the tenancy is not terminated in this way it will, unless the tenant surrenders or serves notice to quit, continue on the same terms after the expiry date until converted into an assured periodic tenancy on the landlord's application.
It should be noted that these provisions will only begin to have practical effect from 15 January 1999, for 1954 Act tenancies, and from 15 January 2010, for 1989 Act tenancies.
- Agricultural Holdings Act 1986
The AHA 1986 provides (see 1.2(e) above) that notice to quit is required to terminate any letting for a term of two years or more, or one year or less (including certain licences).
The AHA 1986 applies to notices to quit served in the above context, and also, as required by Common Law, where the landlord wishes to terminate a periodic tenancy. It provides that if the notice is contested the landlord must establish one of the five grounds set out in s.27(3) AHA 1986 to obtain the Agricultural Land Tribunal's consent to the operation of the notice. The Tribunal may however still withhold its consent if it appears that a fair and reasonable landlord would not insist on possession. If the notice specifies one of the eight cases in Sch.3 AHA 1986 (as amended by the Agricultural Holdings (Amendment) Act 1990) then the tenant cannot serve a counter-notice, although notices relying on Cases A, B, D or E may be referred to arbitration.
If a counter notice is not served, possession can be recovered from the tenant, and normally from any sub-tenants also.
For agricultural tenancies granted between 15 November 1976 and 12 July 1984, a limited number of close relatives who can satisfy the Agricultural Land Tribunal as to their having been deriving their principal source of livelihood from agriculture, without being the occupier of any commercial unit of agricultural land, and as to their suitability, may be granted a new tenancy in succession to that of the deceased. There are a number of circumstances where succession is prevented (see s.18(4) Agricultural (Miscellaneous Provisions) Act 1976).
As regards tenancies granted on or after 12 July 1984, there are no general succession rights, except either where a written contract specifically grants them, or where the deceased was the first successor, or where the tenancy was granted to a successor who had immediately, before 12 July 1984, held a previous tenancy of the whole or a substantial part of the same land (Practice Note 4, Parts I and IV describes the above succession and security of tenure provisions in greater detail).
2.2 Unprotected Tenancies
- A lease for a fixed period this automatically determines when that period expires. No notice to quit is required.
- A tenancy from year to year is determinable by notice. The period of notice may be agreed by the parties but in the absence of agreement it will be half a year expiring at the end of a completed year of the tenancy.
- A tenancy from week to week, month to month, quarter to quarter etc may be determined on the same basis as a yearly tenancy except the period of notice (unless otherwise agreed) shall be the appropriate period expiring at the end of the relevant week, month or quarter by reference to which rent is paid. However s.5 Protection from Eviction Act 1977 requires in the case of a dwelling that the period of notice shall not in any case, be less than 4 weeks.
- A tenancy at will may be determined by a demand for possession at any time. It automatically determines on the death of either party or on the alienation of the landlord's interest; thus a tenancy at will does not bind the landlord's successors in title.
- A tenancy on sufferance may be determined at any time.
2.3 Restricted Contracts
Where the contract is for a fixed term no notice to quit is required and the licence or tenancy will come to an end at the end of the fixed term. It may be necessary to obtain a Court Order to recover possession (see 3.4) and if the contract was originally made on or after 29 November 1980 s.69(2) HA 1980 provides that the Court may stay or suspend execution of the Order or postpone the date of possession for a period not exceeding 3 months. Where the contract features a periodic term, notice to quit (see 2.2(b) and 2.2(c) above) is required but the effect of such a notice may depend on when the contract was originally granted:-
- If the contract was granted prior to 29 November 1980 the tenant or licensee may apply to the Rent Tribunal to extend the notice for a period of up to 6 months. Repeated applications obtaining up to 6 months security at a time at the Tribunal's discretion may be made (ss.103-6 RA 1977). It may also be necessary to obtain a Court Order to recover possession (see 3.4) if the tenant has not quitted on expiry of the notice.
- If the contract was granted on or after 29 November 1980, the notice to quit will take effect on the day appointed, but it may be necessary to obtain a Court Order (see 3.4) to recover possession. If so s.69(2) HA 1980 empowers the Court to stay or suspend execution of the Order so as to postpone the date of possession for a period not exceeding 3 months.
Before 29 November 1980 it was much easier to recover possession at the end of a fixed term than during a periodic term. However, if a resident landlord sought to take advantage of this by granting a succession of tenancies with fixed terms in place of a periodic term s.12(3) RA 1977 brings the resulting tenancy within full protection (see 2.1(b) above).
The DOE 'Housing Booklet No 22' - 'Letting rooms in your home' deals with restricted contracts granted by resident landlords.
Licences are mere personal privileges. They do not in themselves confer any interest in the land. The privilege will therefore not usually survive alienation of the owner's interest or death of either of the parties. Licences cannot be assigned (except in the rare instance of licences coupled with a proprietary interest in land or chattels - such licences are irrevocable).
- Bare licences. Licences which are bare or gratuitous cannot usually be enforced against the landlord since there is normally no act of part performance to which the licensee can refer in order to render a contract enforceable. The landlord may therefore determine the licence at any time, with reasonable notice.
- Contractual licences are always enforceable against the licensor in accordance with the terms of the contract. But as with all licences the licensor's successors in title are not normally bound by the contract. Contractual licences may be revoked in accordance with the terms of the contract and may also be evaded by alienation of the licensor's interest. If the parties insist that the licensor's successors in title are bound, the DV should make a report setting out their contentions and the surrounding circumstances to CEO(Tax) via the RD.
2.5 Proprietary Estoppel
Proprietary estoppel can in certain circumstances convert licences whether bare or contractual into equitable interests and so render them enforceable against both licensors themselves and their successors in title. The estoppel arises where a licensor allows the licensee to expend a significant sum on the property other than on normal items of annual repair, in circumstances which raise a reasonable expectation that the licence will not be revoked. The Courts have in various circumstances awarded licensees a lien on the land to the extent of their outlay, a licence for life, or even the fee simple itself. DVs should avoid suggesting to parties that such an estoppel has arisen, but if the parties allege its existence, the DV should make a report setting out their contentions and the surrounding circumstances to CTO.
3.1 Tenancies protected by statute
Regard should be had to the prospects of obtaining possession by means of demonstrating to a court that one or more of the grounds or cases for possession is satisfied. It should be remembered when valuing the landlord's interest that whereas the tenant must be the actual tenant, the landlord is a hypothetical vendor who does not necessarily possess the characteristics of the actual landlord. Broadly the vendor would be expected to act prudently and, for example, take advantage of any reasonable opportunity to advertise to purchasers the possibility of obtaining possession.
3.2 Other Occupations: Need for Notice to Quit
In order to determine periodic unprotected tenancies and restricted contracts, notice to quit must first be served. It cannot be supposed that notice has been given, at the valuation date, if in fact it had not. It should therefore be supposed that notice would be given as soon as possible by the hypothetical purchaser.
Since licences do not normally bind third parties, the hypothetical purchaser will not normally have to serve notice on the licensee.
3.3 Need for Court Order for possession
The combined effect of the Protection from Eviction Act 1977 and Criminal Law Act 1977 is that a landlord cannot even after serving notice to quit, eject an occupier (whether tenant or licensee) without in most cases, obtaining a court order. However with effect from 15 January 1989 s. 31 HA 1988 excluded certain tenancies and licences from the Protection from Eviction Act 1977. A court order is therefore not now required to recover possession from tenants or licencees where accommodation is shared with the landlord or a member of his family, holiday lettings and rent-free accommodation. In the case of shared accommodation the landlord must occupy the premises of which it forms part on his only or principle home at both the time the tenancy or licence was granted and when it is terminated.
Valuation of properties subject to unprotected occupations will therefore normally be based on a vacant possession value abated to reflect the need for service of notice to quit and/or the need for a court order to recover possession, if appropriate -
A pragmatic approach should be adopted and where it is reasonable to suppose that vacant possession will be readily available, as where the occupiers are members of the taxpayer's household, the vacant possession value should be adopted, without abatement.. It may, in such cases, sometimes be necessary to resist suggestions by taxpayers that in fact vacant possession would not be available.
The various statutes which provide security of tenure also include provisions which have a bearing on the level of rent which protected tenants may be charged:-
- Housing Act 1988
The initial rent under an assured tenancy is whatever open market rent is agreed between the landlord and tenant and a lease for a fixed term may include whatever rent review provisions the parties agree.
Under a periodic tenancy where no provision is made in the agreement for an increase (or the statutory periodic tenancy that arises after the expiry of a fixed term tenancy) the landlord can increase the rent by serving an appropriate notice but if the tenant feels the proposed increase is excessive the tenant can refer the matter to the Rent Assessment Committee S. 14(1) HA 1988 requires the Committee to determine the rent that might reasonably be expected in the open market by a willing landlord under an assured tenancy. Any sitting tenant value, certain tenant's improvements and any reduction in value due to the tenants breach of covenants have to be disregarded.
The initial rent under an assured shorthold tenancy can be referred to the Rent Assessment Committee by the tenant during the term of the fixed term tenancy (s. 22 HA 1988). The Rent Assessment Committee are required to determine the rent which the landlord might reasonably be expected to obtain under the assured shorthold tenancy but they can only make a determination if there is sufficient evidence of similar dwellings let on assured tenancies (whether shorthold or not) to demonstrate that the rent payable is "significantly" higher than that which might reasonably be expected.
After the fixed term of the assured shorthold tenancy has ended a periodic shorthold tenancy may arise and the landlord can then increase the rent by serving an appropriate notice. As with assured tenancies the matter can be referred to the Rent Assessment Committee if the tenant feels the proposed increase is excessive.
The rents under assured agricultural occupancies are governed by the same principles as assured tenancies.
- Rent Act 1977
For tenancies covered by the provisions of the RA 1977 the rent recoverable is limited to the registered "fair rent" (s. 70 RA 1977). The fair rent will usually be less than the open market rent because s. 70(2) RA 1977 requires any local scarcity of accommodation for rent to be disregarded (but see BTE Ltd v Merseyside and Cheshire Rent Assessment Committee (1992) 9216 EG 111).
The rent under a restricted contract can be referred to the Rent Tribunal to fix a "reasonable rent" (s. 78 RA 1977) although in practice the occupier's lack of security usually deters any such applications.
- Rent (Agriculture) Act 1976
The rent for tenancies covered by the R(A)A 1976 cannot exceed any fair rent registered for the dwelling or, if none is registered, the annual equivalent of the weekly or other periodical payment must not exceed a prescribed multiple of the rateable value or its rental value on that basis where the dwelling had no RV on 31 March 1990 (s.12(9) R(A)A 1976 as amended by the References to Rating (Housing) Regulations 1990).
- Landlord and Tenant Act 1954
Under Part 1 the rent payable under a long tenancy will continue until the tenancy is terminated in accordance with the Act, or it is converted into a statutory tenancy on the landlord's application.
The rent under a statutory tenancy will be a fair rent under the Rent Act 1977. It should be noted that from 15 January 1999 all conversions of LTA tenancies will be to assured tenancies (see 2.1(d) above).
Under Part II the rent payable during the term will be that agreed between the landlord and tenant or determined in accordance with any rent review provisions in the lease. If following the expiration of the tenancy the landlord and tenant are unable to agree the rent for any new tenancy under the Act, the Court will determine an open market rent, having regard to the terms of the tenancy but disregarding the matters specified in s.34(1).
- Local Government and Housing Act 1989
Under Sch. 10 the rent payable under a long tenancy to which the LGHA applies (see 2.1(d) and (e) above) will continue until the tenancy is terminated in accordance with the Act, or it is converted into an assured tenancy on the landlord's application.
- Agricultural Holdings Act 1986
The rent payable under tenancies covered by the AHA 1986 is that agreed between the landlord and tenant or, in the absence of agreement that determined by an arbitrator.
The arbitrator must determine a rent having regard to the provisions set out in s.12 and Sch.2 AHA 1986 (These provisions are described in Practice Note 4, Part 5).