Comment

High Court rules on possession notices and deposit certificates given by company landlords

Tuesday, January 19, 2021 - By Sarah Cummins, Solicitor at Anthony Gold

Sarah Cummins, Solicitor at Anthony Gold

The High Court recently handed down its decision in Northwood Solihull Ltd v Fearne & Ors [2020] EWHC 3538 (QB). This is an important case for corporate landlords as it explores the requirements for companies when signing notices seeking possession and deposit prescribed information certificates. In the case the judge, Mr Justice Saini, found that a section 8 notice given by a company does not need to be ‘executed’ in accordance with the formal requirements of the Companies Act 2006. However, a deposit prescribed information certificate given by a company landlord prior to 26 March 2015 does need to be signed in a way which complies with the formal requirements of the Companies Act 2006. This decision will have wide-reaching ramifications for landlords and agents which trade as a limited company.

Background

For a several years tenants and their advisers have challenged notices seeking possession in the county court by arguing that s.8 and s.21 notices given by company landlords need to be executed in accordance with the Companies Act 2006. Furthermore, tenants have successfully argued that s.21 notices are rendered invalid where deposit prescribed information served by a company landlord has not been signed in accordance with the Companies Act 2006.

Section 44 Companies Act 2006 states that a company can execute a document by affixing its common seal or by signature if it is signed by two authorised signatories (such as two directors or a director and the company secretary) or by a director in the presence of a witness who attests the signature. Therefore, it is not sufficient for a single director to execute a document without his or her signature being witnessed.

In the 2016 Central London County Court decision of Bali v Manaquel Company Limited, a tenant successfully argued that deposit prescribed information given under the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 was not valid as the certificate, which is required to be given by the landlord, had not been validly executed in accordance with the Companies Act provisions.

Facts of the case

The case originated as a possession claim brought by a company landlord against two assured shorthold tenants and their guarantor for rent arrears. The landlord sought possession on Grounds 8,10 and 11 of Schedule 2 of the Housing Act 1988 (the rent arrears grounds) and served a s.8 notice. The notice was signed by the company landlord’s property manager, who was not a director of the company.

The tenants defended the claim arguing that the notice was invalid, as the company had not executed it properly and as a result the county court could not make a possession order. The tenants also made a tenancy deposit penalty counterclaim on the basis that the deposit prescribed information given to them was defective as there was no validly signed certificate confirming the accuracy of the information given. The certificate had only been signed by single director with no witness. The deposit was paid in July 2014 and the deposit prescribed information given shortly after.

At first instance, the county court judge found for the landlord on the s.8 notice issue, holding that the notice was valid and made a possession order. However, the judge found for the tenants on the deposit prescribed information issue deciding that the deposit information had not been certified correctly and was therefore defective, entitling the tenants to a penalty for their landlord’s breach of the tenancy deposit protection legislation, such sum to be set off against the rent arrears.

Issues for the High Court to determine on appeal

One of the tenants appealed the county court judge’s decision in relation to the s.8 notice and the landlord cross-appealed the judge’s decision on the deposit prescribed information. The High Court therefore had two key issues to decide:

1. Must a section 8 notice seeking possession served by a company landlord be formally executed in accordance with s.44 Companies Act 2006 in order to be valid?

2. In order to comply with the Housing (Tenancy Deposits)(Prescribed Information) Order 2007 must a deposit prescribed information certificate given by a company landlord be formally executed in accordance with s.44 Companies Act 2006?

Section 8 Notice

The judge held that a section 8 notice served by a company landlord does not need to be formally executed in accordance with the Companies Act 2006 and therefore the notice signed by the landlord’s property manager was valid. In reaching his decision the judge considered the 2010 Court of Appeal case of Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] EWCA Civ 314 which concerned the validity of a statutory notice given by a corporate tenant under s.13 of The Leasehold Reform Housing and Urban Development Act 1993. In that case a notice signed by one director whose signature had not been witnessed was found to be invalid as it had not complied with the Companies Act 1985 (the predecessor to the 2006 Act which contained the same execution provisions). Considering Lloyd LJ’s decision in the Hilmi case, Saini J explained that the broader underlying principle to be applied was that if the legislation expressly requires a signature by the relevant person itself (i.e. the company and not the company’s agent), there is no other way of a corporate person satisfying that requirement other than by way of complying with the Companies Act.

Saini J therefore concluded that it was significant that a section 8 notice is not required to be signed by the landlord serving the notice. The notice can be signed by an agent on behalf of the landlord. If the tenant’s interpretation was correct it would lead to the absurd result whereby a company director could not sign the notice without a witness but a third party agent could. Saini J was therefore satisfied that the section 8 notice was valid.

Deposit Prescribed Information

However, the judge reached the opposite conclusion in relation to the deposit prescribed information certificate, although he applied the same reasoning.

The High Court made its decision on the basis that the applicable legislation was the Housing (Tenancy Deposits)(Prescribed Information) Order 2007 as originally enacted which states at  Article 2 (1)(g)(vii) that “confirmation (in the form of a certificate signed by the landlord” is required as part of the deposit prescribed information.  This expressly states that the certificate must be signed by the landlord. In this case, the certificate had been signed by a single director of the company, not in compliance with s.44 Companies Act 2006. Applying the same analysis as he had undertaken in relation to the s.8 notice, Saini J concluded that as the legislation in this context expressly required the certificate to be signed by the landlord, it had to be executed in accordance with the Companies Act 2006. The judge therefore agreed with the earlier county court decision of Bali v Manaquel.

The landlord also argued that even if the deposit information certificate was defective because of the invalid signature, this defect could still be saved pursuant to s213(6)(a) Housing Act 2004 on the basis that the certificate given was “in a form substantially to the same effect” as a certificate executed in accordance with s.44 Companies Act. This was also an argument that had been advanced by the landlord in the Bali case.  However, Saini J took the same view as the judge in Bali that the signature requirement was not something that could be “substantially achieved.” He stated, “It is a binary matter. Either it is done, or it is not.” The judge also observed that the signature requirement is not “information” which allows errors to be corrected pursuant to the “substantially to the same effect” principle. It is a separate document that confirms the accuracy of the prescribed information provided by the landlord. Therefore the failure to execute the certificate properly was fatal to the validity of the deposit certificate entitling the tenant to a penalty award.

Consequences of decision

This is an important decision for a number of reasons. It clarifies the issue of serving property notices and company landlords will be pleased that the strict execution formalities do not apply to s.8 notices. Had the Court held that the Companies Act 2006 had to be complied with then this would have invalidated many s.8 notices already served and resulted in possession claims based on these notices failing. While the High Court decision only deals with s.8 notices, it is thought that the same reasoning would apply to s.21 notices as these can also be signed by landlords or their agents.

The position in respect of deposit prescribed information is much more complicated and problematic. While this decision appears to create a binding precedent that the deposit confirmation certificate must be executed in accordance with the Companies Act 2006, it seems that the decision actually applied the incorrect wording of the Housing (Tenancy Deposits)(Prescribed Information) Order 2007.

Section 30(3) of the Deregulation Act 2015 amended the Order to allow it to be signed by either a ‘landlord or the initial agent’ and this change was retrospective (except in cases which were already before the courts). Therefore the judge should have been asked to consider the amended version of the legislation and not the Order in its original form. This means that it would potentially have been open to the landlord to argue that the certificate was validly signed by the director as an ‘initial agent’ for the company.  However, it is far from clear whether such argument would succeed where a deposit is protected by the company in the company’s name rather than by the director in his or her own name. Nonetheless, it is possible that the Court would have reached a different decision had the amended wording of the Order been applied but since the amended wording was not considered, the Court gave no guidance on how to apply the rules relating to certificates signed by agents.

The High Court’s decision therefore leaves a number of questions unanswered including whether corporate agents also need to ensure that these certificates are executed in accordance with the Companies Act 2006.  It is also important to note that an agent cannot simply sign on behalf of the landlord if they have not protected the deposit. The agent has to be the one complying with the initial requirements of the deposit scheme to be an ‘initial agent’ and entitled to sign the certificate.

Where the deposit has not been properly protected the landlord would need to rectify the position if they wish to serve a s.21 notice either by re-serving corrected prescribed information or returning the deposit. However, the breach would still entitle the tenant to bring a claim or potentially multiple claims for a penalty award under s.214 Housing Act 2004. Where the landlord is relying on a s.8 notice for rent arrears, a deposit counterclaim may be sufficient to reduce the rent arrears and defeat the landlord’s entitlement to a possession order.

Overall, while the High Court’s decision provides some good news for landlords it reveals once again the complexities of the law surrounding tenancy deposits and their impact on both s.21 and s.8 claims. Landlords and their advisers will need to scrutinise the deposit information carefully prior to commencing any possession claim at Court to consider whether the tenant has a potential defence or counterclaim and what steps can be taken to rectify any breach prior to starting court action.

The author of this blog, Sarah Cummins, is a Solicitor in the Housing Team at Anthony Gold. His email is scm@anthonygold.co.uk.

Please note that the views and opinions expressed in these blogs are those of the author and do not necessarily represent the views of London Property Licensing. These blogs are designed to stimulate discussion and debate within the property industry. This article does not represent legal advice and should not be treated as such.

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