Criminal liability under the Landlord and Tenant Act
Until recently there had never been an attempted prosecution under the Landlord and Tenant Act 1987. That has now changed, and according to B P Collins’ property disputes team, this attempted prosecution should give landlords pause for thought. Civil consequences have always been present but, criminal liability could now be a real risk for any failure to comply with the right of first refusal provisions under the 1987 Act.
Where a landlord is proposing to sell their interest in a building containing flats in relation to which the qualifying criteria set out in the 1987 Act applies, the landlord must first offer their interest to the tenants before any sale to a third party takes place. The landlord is required to serve a formal section 5 notice on the tenants informing them about the impending sale and provide time for them to consider the offer. The landlord cannot sell to another party during that time, nor offer the interest to anyone else at a price less than that proposed to the tenants or on different terms.
Are you at risk of a criminal offence?
Failing to offer the tenants a right of first refusal (without a reasonable excuse) is a criminal offence, with a potentially unlimited fine. In addition, if the landlord sells without complying with the conditions under the 1987 Act, the tenants can serve a notice on the new owner demanding details of the transaction, including the price paid. They can then take action to force the new owner to sell to them at the price they paid.
Notable case
While there are many reported decisions of tenants taking action to recover the landlord’s interest from new owners, where the landlord has breached their obligations under the 1987 Act, until recently there was no record of any case that came close to prosecution. In this inaugural case, the landlord disposed of a block of flats at an auction and the subsequent completion took place one month later. The landlord breached their obligations under the 1987 Act by failing to give the tenants the right of first refusal to purchase the interest being disposed of at auction. Consequently, the local housing authority (the body tasked with prosecuting offences of this nature) issued a summons against the landlord six months after the date of completion.
While the local housing authority sought to prosecute the landlord for their breach, the landlord successfully argued that the summons had been issued outside of the required time limit under section 127(1) of the Magistrates Courts Act 1980 when it has to be served within six months of a summary offence being committed. In this case, the landlord successfully argued that under section 4A of the 1987 Act, the disposal took place on the date of the auction and not on the date of completion. As such, the summons was served seven months after the offence, meaning it was out of time. The summons was withdrawn and the prosecution dropped.
While the landlord escaped prosecution, the action taken by the local housing authority should serve as a very clear reminder to landlords disposing of assets that if they fail to comply with the provisions of the 1987 Act, they could face criminal prosecution. A previously considered toothless clause has now shown that its bite is as bad as its bark.
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