Major changes are afoot in Landlord and Tenant work – whether it is residential or commercial, writes Grania Langdon-Down


A new scheme to protect tenants’ deposits has left solicitors who regularly hold them incensed after one of the providers decided to charge them a higher membership fee than surveyors or letting agents.



From 6 April, all deposits taken by landlords for assured shorthold tenancies have to be protected.



The Law Society took up the fight for the estimated 5,000 solicitors affected, who faced an annual membership fee of £1,600 after The Dispute Service, one of three companies awarded contracts to set up the protection schemes and the most appropriate one for solicitors, decided it did not have enough information to determine the level of default and dispute solicitors could cause.



After negotiations, the Society’s chief executive, Desmond Hudson, says the company has agreed to drop additional conditions, including the requirement to have an open indemnity and a cap on the number of disputes.



The Society also secured a 50% reduction in the fee, although it is still £300 more than for members of other self-regulatory bodies, such as the Royal Institution of Chartered Surveyors (RICS) and the Association of Residential Letting Agents.



Mr Hudson points out that the Legal Complaints Service did not receive any complaints about tenants’ deposits last year. ‘I do not regard the 50% reduction as satisfactory. But we hope to reach agreement on equal treatment, and therefore a lower price for next year, over the course of the next few weeks to ensure that solicitors are treated fairly as members of the scheme.’



Fleur Palmer, a senior assistant solicitor with City firm Rooks Rider – which is a founder member of the Leasehold Advisory Group – says: ‘It is pretty unacceptable for solicitors to be charged more simply because we are solicitors. It is appalling because we routinely hold deposits on clients’ behalf, which they are more than happy for us to do.



‘Some landlords don’t use agents, while tenants don‘t always like the landlord holding the money. If a solicitor holds the deposit, they can take comfort that we have professional conduct rules protecting it.



‘I can understand why the regulations were introduced but they need to be fair to everybody.’



Lawrence Greenberg, The Dispute Service’s chief executive, has said that it is doing its best to reach an accommodation ‘but there is a risk for us to manage’.



It is a busy time in the leasehold property world. As well as the upheaval over the tenancy deposit scheme, there is the launch on 1 June of home information packs (HIPs). Energy performance certificates will be required for all buildings that are constructed, sold or rented from October next year. On the commercial side, April saw some major changes with new codes of practice on commercial leases and service charges.



Ms Palmer says: ‘The government thinks HIPs will be a vote winner and it enables them to have a go at lawyers at the same time.



‘But it is not just solicitors moaning about the packs – everyone involved in the property industry is saying the same thing: that until the inherent problems are addressed, the packs are a waste of everyone’s time and money. However, the government isn’t going to back down, so solicitors have to prepare for them.’



David Sanderson is head of the landlord and tenant unit based at national law firm Shoosmiths’ Southampton office. ‘We are the honorary legal advisers to the Association of Residential Managing Agents, and HIPs are a hot topic for them. ‘The packs will affect property sales, as the general view is they are likely to slow things down rather than speed them up. It’s one thing getting your HIP together for a freehold property – it is going to be even more difficult with leasehold because very often getting information on service charge accounts is not straightforward.’



It was the complexities of landlords’ and tenants’ rights and obligations that prompted sole practitioner Tessa Shepperson to launch a website on this area of law (www.landlordlaw.co.uk) in 1999. But having decided to narrow her field of work to residential leasehold work, she found it has broadened her work-load.



Ms Shepperson says: ‘Through the question and answer section, I realised that a lot of people didn’t know about their rights and obligations, so I set up a subscription-based service in 2001, which has been really successful. The income is now more than I get from fee-earning.



‘Concentrating on this area of work has also opened up new avenues for me – I am writing a book on tenants’ rights and I do training and lecturing. For me, narrowing down has broadened things out.’



She says the big issue of the moment is the tenancy deposit scheme. ‘I don’t hold damage deposits, so it won’t affect me personally. But tenancy agreements will now need to take account of the scheme and solicitors are going to have to ditch their old precedents on damage deposit clauses.’



On the commercial side, one important development is the latest edition of the code of practice on commercial leases. It focuses on issues such as upwards-only rent reviews and is intended to protect smaller tenants, with the government insisting that lawyers and agents acting for landlords should be required to tell the tenants on the other side of the deal about the code, unless their landlord clients specifically ask them not to.



Philip Freedman, who was awarded a CBE for services to property law in 2005, is a senior property partner with Mishcon de Reya in London. A member of the Law Society’s conveyancing and land law committee, he chaired the joint working group which produced the code.



He says the government has made it clear that it reserves the right to legislate if the industry does not make leases more flexible and suitable for tenants. ‘There is nothing in the code that would be surprising to a solicitor who is well versed in negotiating business leases. It is not rocket science. However, there are many tenants who end up with leases that could have been more in their favour if they had been negotiated more strongly.’



Warren Gordon, head of real estate know-how at London firm Olswang, says: ‘My personal view is that the industry cannot afford to ignore the new commercial lease code, given the government’s veiled threat that it is reserving its legislative options. Will the code achieve its aims? Those behind the code consider it will make matters more transparent and fair. As to whether landlords will abide by it will depend on their perspective. Whilst the code is voluntary, the ultimate “sanction” for non-compliance is new legislation.’



While the code is designed to protect smaller tenants, Anthony Shalet, who specialises in commercial property with Rooks Rider, says: ‘I suspect there is a view that it is also there to protect the larger multiple retail interests who have a strong negotiating clout with the institutional landlords.’



Robert Sweet, a partner with London commercial firm KSB Law and author of a textbook on commercial leases, has his doubts about the impact codes can have. ‘I think things will carry on much as they do now, though there is a possibility that if landlords don’t follow the code, it could lead to legislation.’



The other big issues, he says, are service charges and rent reviews. The RICS code of practice for service charges in commercial property came into effect on 1 April.



Neil Sagoo, a property solicitor with City firm Reynolds Porter Chamberlain, says this code will be met with dismay by many commercial landlords. ‘It advocates that a landlord has a duty of care to its tenants. However, the code has been designed with larger commercial properties in mind and the tenants who will benefit the most from its introduction will be some of the largest and most powerful companies within the UK.’



When it comes to the commercial property market, Mr Sweet says: ‘We are waiting for the downturn but it is still strong at the moment. My clients are redeveloping their [shopping] centres and they wouldn’t be putting in millions of pounds if they weren’t expecting more tenants to come along.’



Mr Shalet agrees. ‘There must be a correction eventually, which is why people are increasingly looking towards Europe where they can get a better return, though the risk is greater because it is not such a mature market. But there is still so much foreign money coming into the UK, with the next wave likely to be from China, that it is keeping the market buoyant.’



For those specialising in this area, the key is to enjoy property law and be commercially aware.



Mr Sweet says the first priority is to be a skilful negotiator. ‘You have to be flexible but you also need your bottom line. You can’t afford to give way on a service charge or rent review clause which might prove detrimental to your client in five years’ time.’



For Mr Shalet, the requirements are ‘speed and communication – clients want you to be a step ahead of the situation and to keep them informed. I would say those come above price’.



There is also lot of legislation and case law involved. Johnny Kelly, professional support lawyer with City firm Macfarlanes, keeps the property team up to date with all the changes.



However, he adds: ‘You can’t get too worked up about the law otherwise you forget to do the deal.’



For Ms Palmer, it is important to enjoy property law ‘otherwise it would probably bore you to death’.



She explains: ‘You have to have an eye for detail. Like conveyancing, it’s an area which is often overlooked or even derided by some because it’s not blingy. It’s not fashionable but it is very important to a lot of people and its tentacles spread far and wide.’



Grania Langdon-Down is a freelance journalist