When rent is not payable: Coastal Housing Group Ltd v Mitchell

This is the first substantive post on this blog, and it’s a cracker which will have reverberating implications for housing law and policy in Wales: Coastal Housing Group Ltd v Mitchell [2024] EWHC 2831 (Ch).  It’s the first High Court judgment (and, therefore, a court of record, with precedent setting implications) on the Renting Homes (Wales) Act 2016, and involves a range of housing associations – Coastal plus Valleys to Coast, Bron Afon, Trvallis, and Wales and West – accounting for a significant proportion of the social housing stock in Wales outside local authorities.  The Welsh government intervened.  The Defendant occupiers were apparently selected because they had converted tenancies (having had assured tenancies when the Act came into force), and I understand that the occupiers were also tenant board members.  Over £50 million is at stake here – but that is just the half of it (and maybe even less than a half of it):

Coastal Housing Group Ltd estimate that between £8 million and £9.5 million might be at risk for them. Tai Calon Community Housing Ltd estimate a figure of a little over £5 million in potential loss of rent. Valleys to Coast Housing Ltd approximate a figure of a little less than £13.4 million. Bron Afon Community Housing Ltd put the risk for them at a little under £20 million. All these figures exclude interest and legal fees and costs. They say that losses in this scale will affect future investment in social housing and will be to the detriment of the community.

And that is likely to be just the start of it.  Other social landlords will be scratching their chins and it may be that accountants/credit agencies etc considering the effect of this case may start thinking about downgrading assessments.  So, in short, this is really serious stuff which places Renting Homes firmly in the soup (or, more accurately, the failure of landlords to do what the Act and regulations told them to do puts them firmly in the firing line).  The Welsh Government’s arguments and position in the litigation were also pretty interesting (see issue 5 below).

Basically, the Claimant social landlords had failed to give electrical condition reports to their occupiers as required by the Act and the contracts.  They were supposed to have been provided to the occupiers within 14 days of the contract start date or within 14 days of the inspection: The Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022, Reg 6(3)-(4).  They weren’t.  Under the Act, the converted contracts had a deemed occupation date for Reg 6(3) of 1st December 2023 (more on this below), so the reports were required within 14 days of that date; but the occupiers were provided with the reports in or around mid-March 2024.

The Regulation provides that the property is “to be treated as unfit for human habitation at a time when the landlord is not in compliance with a requirement imposed by this regulation” (Reg 6(6)) – that provision is not in the occupation contract.  Under the Renting Homes Act, the landlord is under an obligation, in relation to leases of less than seven year, to ensure that dwellings are fit for human habitation and have an obligation to keep dwellings in repair (ss 91-2).

The Renting Homes (Supplementary Provisions) (Wales) Regulations 2022 provides at Reg 11 that “The contract-holder is not required to pay rent in respect of any day or part day during which the dwelling is unfit for human habitation”.

Accordingly, on the face of it, in the absence of the electrical condition report, rent is not required to be paid.

And that is what Griffiths J and HHJ Jarman KC found to be the case with those financial consequences.

The argument is wide-ranging and also deals with the extent required for the electrical condition reports, so its importance goes well beyond that headline.  Although the case turns on statutory and contractual interpretation, with clever arguments being put for the Claimant, the headlines are really important.  So here they are:

• Rent is not required to be paid if the electrical condition report (assuming it has been done) is not provided to the contract holder
• The expression “not required to be paid” means not lawfully due
• If the landlord does provide the electrical condition report late, that doesn’t cure the earlier breach, ie rent was not required to be paid during the breach
• The electrical condition report must extend at least as far as those installations which directly or indirectly serve the dwelling and in which the landlord has an interest or control over
• The electrical condition report had to be provided to converted contract holders on or before 14 days after 1st December 2023; but, where “investigatory or remedial work had been carried out” after 1st December 2022, the landlord had to provide written confirmation of the works within 14 days of the work being confirmed to them
• It remains an open question whether Regs 6(3)-(5) engage and breach Article 1 of the First Protocol such that they should be read as being compatible with the right to the protection of property.  That question is likely to depend on whether occupiers who have paid rent are entitled to have the rent repaid to them.

Issue 1

Coastal’s first set of arguments was that they had obtained the reports, they just hadn’t provided them to the occupiers.  That meant that the occupiers were still required to pay rent and, even if they weren’t, the occupiers had chosen to pay anyway.  This was about the effect of Reg 6(6), and Coastal’s arguments were (essentially) that principles of construction meant that, as Reg 6(6) wasn’t in the contracts, the parties didn’t agree the deeming provision and so the actual condition of the property was the key criterion; further, it would be absurd to deem unfit for human habitation a property that was fit for human habitation and that had all the relevant condition checks in place.  The Defendants and Welsh Ministers pleaded the usual canons of statutory interpretation and that Reg 6(6) was designed for a purpose and must have consequences.

The Court agreed with the Defendants and the Welsh Ministers.  Coastal’s valiant argument met with the fact that Reg 6(6) is in general terms and there was no reason to limits its application.  This was in accordance with the statutory purpose of securing rights of contract holders in a fair, transparent and straightforward way.

The contract-holders are entitled, not only to live in fact with electrical installations which are safe, but to know that they are safe, or to know (if they are not safe) what needs to be done in order to make them so. They are the people with the strongest interest in this information and it is reasonable and fair that their rights to it are linked (as in the case of actual unfitness for human habitation) to the payment of rent.

Reading the rules in this way was consistent with the statutory purpose and not absurd.

Coastal’s second line was that the expression in Reg 11 that the contract-holder is “not required to pay rent” in these circumstances fell away when rent was in fact paid.  The Defendants argued that expression meant the same as the older expression that rent was not lawfully due (in line with the principle of the modernisation of statutory language).  The Court agreed with the Defendants, also noting that, “[if a fully informed occupier changes their mind about payment], or if the payment was not fully-informed, issues such as those raised in the counterclaims (alleging payment by reason of mistake of law and/or fact and claiming restitution) and the defences to counterclaims will come into play and require resolution”.

That left open what was to happen to the Defendant’s rent that they had paid – were they entitled to a counterclaim for repayment of rent.  They didn’t ask the court to determine that issue (which had significant consequences on Issue 5 – see below).  The Welsh Government submitted that such counterclaims “are unlikely to be successful”, but that was an argument for another day.  Complex principles of the law of restitution will be in play (as well as human rights considerations).

Issue 2

Coastal’s next argument was that it had cured the error by providing the reports late, and therefore they had retrospectively and prospectively cured the breach.  This was based on Reg 6(7)(b) which states that a landlord is in compliance with the provision “from the time” the contract-holder is given the electrical condition report.  The Court gave this argument relatively short shrift – the expression “from the time” was prospective, not retrospective, and to say otherwise would do considerable violence to the language.

… if regulation 6(7) does not mean what we have said it appears to mean, the consequences for a landlord who does not comply with the statutory deadlines are practically nil, even if the default continues for months or years. That appears to us to be contrary to the statutory purpose, which is not only to impose requirements (as to the provision of ECRs to tenants) but to enforce them with consequences (by providing that the tenant is not required to pay rent).

Issue 3

There was then a separate argument as to whether the electrical condition report had to cover common parts or communal areas of a building.  Although this may feel a bit surreal, it is a really important question in flats and shared accommodation.  It turns on what the word “dwelling” means because the electrical condition report has to cover the dwelling.  Was it just the flat or did it also include the structure of the building and the common parts?  If the latter, does a report given to the contract-holder covering the flat but not outside nullify the report itself (giving rise to the statutory consequences)?  Frustratingly, the Court did not address these questions because the actual facts of the case before them didn’t raise it.  They said that dwelling included installations which directly or indirectly served it in accordance with Reg 6(8).  That, they said was the starting point.  The Regulation says:

…where the dwelling forms part only of a building, an electrical service installation which directly or indirectly serves the dwelling, and which either –

(a) forms part of any part of the building in which the landlord has an estate or interest, or

(b) is owned by the landlord or is under the landlord’s control

Section 91(2) says that, where a dwelling forms part of a building, it includes the structure and exterior and the common parts.

Section 246(3) says: “Dwelling, in relation to an occupation contract, means the dwelling subject to the contract”.

The Court said that the starting point was the  definition in Reg 6(8) and that s. 91(2) of the Act appeared to apply as well; but “We see force in the submission of the defendants that section 243 does not have to be read as conflicting with and, therefore, potentially excluding the operation of section 91(2) on the scope of regulation 6. However, we make no decision on the point because the facts of the case do not engage it”.

I appreciate that the earlier issues will grab the headlines, but this is the most important practical issue going forward.  Not to make a decision because of the facts of the case leaves these important questions open for the future and gives no guidance to the parties.

Issue 4

The next issue gets into the nitty gritty of electrical condition reports.  First, there is no requirement to serve a Minor Electrical Installation Works Certificate on the contract-holder.  However, there was a live issue as to the relevant date (ie the date from which time starts to run for service of the electrical report in converted contracts): is it the 1st December 2022 (commencement date of the Act and the occupation date) or 1st December 2023 (because the regulations prescribe that the occupation date is 12 months after the conversion date)?  Regulation 7(4) applies the latter date to Regulation 6(3).

All I can say is that this was the most difficult question and turns to an extent on whether there was a drafting mistake in the Act and Regs, or was intended; but even if it was intended, there was a question whether the relevant date was in 2022 or when the converted contract was originally granted.  No party seriously argued the latter but it was raised as a possible interpretation.

The outcome was that the occupation date for the electrical condition report in a converted contract was 1st December 2023.  However, if there had been other “investigatory or remedial work … carried out on or in relation to an electrical service installation in the dwelling” (Reg 6(5)) (presumably including that which directly or indirectly serves the building if the dwelling is a flat) after 1st December 2022, then the landlord had to give written confirmation of the work to the contract holder within 14 days of the landlord receiving confirmation of the works required.  This was because there was a clear distinction drawn in the Regulations between, on the one had, the period of grace given for the first electrical condition report to be given to existing tenants, and, on the other hand, the situation in Reg 6(5).

The Court’s interpretation makes sense and saves the blushes of the WG and the Office of Legislative Counsel.  But, wow, that was a close run thing and different people could rationally have decided differently (although I think the Court’s interpretation was right and makes sense, just about).

Issue 5

The final issue went undecided, and it is a really significant issue.  It is whether Coastal and the other RSL’s human rights to the protection of property under Article 1 of the First Prot0col of the European Convention on Human Rights were engage and breached.  The RSLs said they were.  They wanted Reg 6(3)-(5) to be read and given effect compatibly with A1P1 (or alternatives) – see [306]).  The Welsh Government’s position had been based on its success on the second part of Issue 1, and it hadn’t made other submissions – even then, their position was quite remarkable (the A1P1 claim appeared to be conceded).  The court decided it would be wrong to decide this issue on an assumption about the counterclaims and, therefore, left it open.