ECR Compliance & Rent: Lessons from Coastal Housing

The recent High Court judgment in Coastal Housing Group Ltd v Mitchell and Anor [2024] EWHC 2831 (Ch) (08 November 2024) has created ripples across Wales' rental sector. This case clarifies landlords' obligations under the Renting Homes (Wales) Act 2016, especially regarding the provision of Electrical Condition Reports (ECRs) and the impact of non-compliance on rent payment. Below, we delve into the case and explain why Guild subscribers using Tenancy Builder remain unaffected.

Background

The Renting Homes (Wales) Act 2016 (in force since 1 December 2022) simplifies rental agreements across Wales by replacing traditional tenancy types with standardised occupation contracts. These contracts incorporate terms the Act mandates, including a fundamental obligation that landlords ensure their properties are "fit for human habitation" (section 91).

Regulations under the Act, notably the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022, introduce specific requirements. For instance, landlords must provide contract-holders with a valid ECR within 14 days of the "occupation date." Failure to meet this requirement deems the property unfit for human habitation under regulation 6(6), which includes the provision:

"A dwelling 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."

The supplementary term in the Welsh Government’s model contract states:

"You are not required to pay rent in respect of any day or part day during which the dwelling is unfit for human habitation."

This case arose because several Registered Social Landlords (RSLs) failed to deliver ECRs on time to their contract holders despite obtaining the reports. The landlords sought legal clarification on whether rent was due during non-compliance.

Key Issues

The court examined five issues, but the focus here is on Issue 1A, which addressed whether the non-provision of an ECR rendered rent payment unenforceable.

Landlords’ Arguments

The landlords argued that:

1. The statutory purpose of the Fitness Regulations was to ensure properties were substantively fit for human habitation, not to penalise landlords for procedural oversights. They had obtained valid ECRs, and the dwellings were, in fact, safe.
2. Regulation 6(6), which deems a property unfit when ECRs are not provided, should not override the principle that rent is only withheld when properties are objectively uninhabitable.
3. A narrow reading of the supplementary term was warranted. They claimed the term did not explicitly incorporate regulation 6(6) and should not apply to mere paperwork delays when properties were otherwise habitable.
4. Enforcing the supplementary term as written would lead to absurd financial consequences, with potential liabilities exceeding £50 million for the RSLs involved. This, they argued, would jeopardise their ability to maintain housing stock and fulfil their social responsibilities.

Defendants’ Arguments

The defendants, argued that:

1. The Fitness Regulations were unambiguous. A dwelling is unfit if landlords fail to comply with regulation 6(3), including providing an ECR. This deeming provision ensures accountability and incentivises landlords to comply promptly.
2. The supplementary term explicitly states that rent is not payable during periods of unfitness. This term reflected the intent of the regulations and was not open to reinterpretation.
3. The claimants’ interpretation would undermine the law’s consumer protection purpose, allowing landlords to avoid accountability for breaches while collecting rent.

The Court’s Conclusion

The court ruled in favour of the defendants, concluding that:

1. Regulation 6(6) Deems Properties Unfit for Human Habitation
   The court upheld that regulation 6(6) deems properties unfit during periods when landlords fail to comply with key safety requirements, including providing an ECR. The purpose of this deeming provision is to ensure tenants are informed about the safety of their homes and to incentivise compliance.
2. Rent Not Payable for Periods of Unfitness
   The contract's supplementary term unambiguously stated that rent was not required for periods when the dwelling was unfit. This applied to both actual unfitness and deemed unfitness under regulation 6(6). The landlords’ argument that the term did not incorporate deemed unfitness was rejected.
3. Statutory and Contractual Interpretation
   The court emphasised that statutory regulations dictate supplementary terms in occupation contracts. Since regulation 6(6) is integral to determining fitness under the Fitness Regulations, it automatically informs the operation of the supplementary term.
4. No Retrospective Compliance
   The court dismissed the landlords’ argument that providing ECRs late absolved past breaches. Non-compliance during the relevant period triggered the supplementary term, and the rent was not lawfully due for those days, regardless of later rectification.

Why Guild Subscribers Are Unaffected

In this case, the primary issue was the supplementary term remained in the contract as legislated. A supplementary term may be changed by the agreement of all the parties, even if that change is not beneficial to the contract holder.

From the day the Act was implemented, Guild contracts have been structured to avoid the pitfalls highlighted in this case. Our contracts included an edited version of this term requiring rent to be payable even if the property is deemed unfit.

This case highlights one of the many reasons why landlords should never use the model contract (which contains all the legislated terms without modification in one place). Landlords and agents should always choose a professionally drafted contract, like the Guild's Tenancy Builder.

Lessons for Landlords

This case underscores the critical importance of compliance with the Renting Homes (Wales) Act and its supplementary regulations. Here are key takeaways for landlords and agents:

1. Deliver ECRs Promptly
   Establish systems to ensure ECRs are provided to contract-holders within the statutory 14-day period.
2. Understand Deemed Unfitness
   Recognise that non-compliance with safety documentation requirements can render properties unfit for human habitation, even if no physical defects exist.
3. Review Occupation Contracts
   Ensure you use professionally drafted occupation contracts when providing the written statement.
4. Utilise Expert Resources
   Subscribing to trusted services, such as the Guild of Residential Landlords, helps landlords anticipate regulatory changes and ensure compliance from the outset.