Subject to qualifying criteria, a tenant of a residential flat has a right to a new lease under the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act).
The new lease will include an extended Term of 90 years plus the remainder of the Term of the existing lease and will be granted at a peppercorn rent.
Save for some modifications provided for by the 1993 Act, the other terms of the new lease mirror the existing lease. Modifications may be permitted where the terms of the existing lease are defective or unreasonable.
The recent case of Jones & Anor v Roundlistic Ltd [2018] EWCA CIV 2284 raises some interesting issues in respect of the interplay between the provisions of the 1993 Act and the Unfair Terms in Consumer Contracts Regulations 1999 (1999 Regulations) in the context of lease extensions. It also highlights the differing approaches of the courts towards these issues.
Facts
- The appellants purchased the long lease of the lower maisonette in a building containing two maisonettes.
- The lease acquired had been extended under the 1993 Act in 2012 and had been granted by the respondent landlord. It contained the same covenants as the previous lease of the maisonette (1978 Lease) which included a covenant not to use the premises "other than as a single private dwelling in the occupation of the lessee and his family". This effectively prohibits subletting.
- The 1978 Lease specified that the upper maisonette would be let on similar terms and subject to the same covenants and stipulations. In fact, the respondent landlord did not let the upper maisonette on a long lease but let it on a short term basis.
- In 2015 the appellants sublet their lower maisonette on an Assured Shorthold Tenancy.
- The respondent landlord applied to the first tier tribunal (FTT) for a determination that the appellants were in breach of the user covenant.
FTT Decision
The FTT held that the covenant constituted an unfair term so far as it imposed more onerous terms on the tenant, as consumer, in relation to the lower maisonette than applied to the landlord in respect of the upper maisonette as, contrary to the requirement of good faith, it caused a significant imbalance in the rights and obligations of the parties. The landlord appealed.
Upper Tribunal Decision
The upper tribunal allowed the respondent's appeal against that decision holding that the covenant was not rendered invalid by the 1999 Regulations so the grant of the shorthold tenancy of the lower maisonette in 2015 was a breach of covenant. The tenants then appealed.
Court of Appeal Decision
The appeal was dismissed. A majority agreed that the 1999 Regulations could apply to leases granted under the 1993 Act as the exact terms of the lease were not prescribed by statute.
However, in this particular case the user covenant was not unfair within the meaning of the 1999 Regulations as it did not breach the requirement for good faith.
Matters for consideration
The case highlights the need for tenants to take proper advice on lease renewals and also before subletting a property.
The case also highlights the reluctance of the courts to challenge a clause which had been specifically agreed upon. The tenant had agreed to the user covenant in the 1978 Lease and had not tried to challenge it in the negotiation of the 2012 Lease.
Although the challenge to a perceived unfair contract term was not successful on these facts, the case does not rule out future challenges under the regulations.
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