Please note that the decision reported on in this Legal Update was overturned and the updated report on that decision is found in our later Legal Update here. Accordingly, the content of this Legal Update is now out of date and should not be relied upon.

In the recent case of Northwood Solihull Ltd -v- Fearn & Ors [2020] EWHC 3538 (QB), decided in the week leading up to Christmas, the High Court confirmed what is required of a corporate landlord (or agent), eg, a company or limited liability partnership (LLP), when signing possession notices and tenancy deposit certificates. Whilst the case specifically concerned a notice served under Section 8 of the Housing Act 1988 (the fault-based procedure for possession), a parallel can be drawn with Section 21 notices (no-fault procedure for possession), and it is safe to assume that these principles will apply equally to both types of notices.

Background

The background facts are not important, save to say that the relevant Section 8 notice was signed by the landlord’s property manager (who was not a director of the landlord company or the agency), who had also signed the certificate accompanying the prescribed information relating to the deposit paid by the tenant. The questions for the Court were whether the Section 8 notice and/or the prescribed information certificate had to be signed in accordance with Section 44 of the Companies Act 2006. Earlier County Court decisions, which are persuasive but not binding, had decided that Section 44 would apply in these circumstances.

Section 44 Companies Act 2006

Section 44 provides that (emphasis added) :-

(1) Under the law of England and Wales or Northern Ireland a document is executed by a company—

(a) by the affixing of its common seal, or

(b) by signature in accordance with the following provisions.

(2) A document is validly executed by a company if it is signed on behalf of the company—

(a) by two authorised signatories, or

(b) by a director of the company in the presence of a witness who attests the signature.

(3) The following are “authorised signatories” for the purposes of subsection (2)—

(a) every director of the company, and

(b) in the case of a private company with a secretary or a public company, the secretary (or any joint secretary) of the company.

Section 44 applies equally to LLPs by virtue of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, with reference to a ‘director’ being replaced by a ‘member’. Accordingly, Section 44 requires documents to be executed by LLPs either by signature of two members, or a member and a witness.

The Section 8 Notice

The prescribed form of Section 8 notice (referred to as Form 3, the current version which can be found here) provides for signature either by the landlord (or licensor, whichever is applicable), or its agent. It is the same for a Section 21 notice (referred to as a Form 6A notice, the current version which can be found here).

There was, therefore, no dispute that an agent could sign the Section 8 notice. The agent had, however, indicated when signing the notice that it was doing so as ‘landlord’ and not as the ‘landlord’s agent’, as was of course the case.

The Court accepted the decision of the judge at first instance, that there was no statutory requirement for the landlord to sign the notice and, given that the notice could be signed by a landlord’s agent, this strongly indicated that less formal methods would have been considered as acceptable by the lawmakers. This was especially considered the case given that the notice itself was seen as a preliminary warning to the tenant, akin to a letter before action, which does not require formal execution under Section 44.

Further, the Court did not consider the fact that the agent had (incorrectly) stated that he was signing the notice as ‘landlord’ was “a determinative matter” and held that the notice was nonetheless valid.

The prescribed information certificate

The prescribed information had been given to the tenants in July 2014. At that time, it was a requirement under the relevant Regulations that the prescribed information contained a certificate “signed by the landlord” that (i) the information was true to the best of his knowledge and belief and (ii) that he had given the tenant an opportunity to sign and confirm that the information was also true to the best of the tenant’s knowledge and belief.

Accordingly, the Court decided that, by contrast to the position with the Section 8 notice, Section 44 did apply to the prescribed information certificate, as the relevant legislation specified who must sign the certificate. As the landlord was a company, this required signing of the certificate either by two directors, or a director and company secretary, or a director and a witness, in compliance with Section 44. Where the certificate had not been so signed, the landlord was open to financial penalties (of up to three times the value of the deposit) for failure to comply with the requirements of the scheme, and would be prevented from serving a Section 21 notice until such time as a valid certificate was furnished to the tenants.

However, changes introduced to the Regulations by the Deregulation Act 2015 relaxed the requirement for the certificate “signed by the landlord”, such that the certificate could instead be signed by “the initial agent” of the landlord, where the initial requirements of the scheme had been dealt with by a person on the landlord’s behalf (referred to as “the initial agent”). This change applied retrospectively to the introduction of the tenancy deposit regulations, so where a certificate was signed by an agent at a time where only a signature by the landlord would suffice, once the Deregulation Act 2015 changes came into effect on 26 March 2015, that validated the previously invalid certificate.

Unfortunately, to add confusion, this was not a matter considered by the Court, which (incorrectly) looked only at the pre-Deregulation Act 2015 position (eg, the requirement that the certificate be “signed by the landlord” only). It is possible, therefore, that the decision is open to challenge on this point. However, the oversight may have little practical effect, if (as appears to be the case) the deciding factor was that the relevant legislation prescribes a person (eg, the landlord or the initial agent) to sign the certificate. In that case, where the landlord is a corporate entity, it must comply with Section 44 and formally execute the certificate. This differs to the position with the Section 8 notice (and, indeed, Section 21 notices), where the Housing Act 1988 does not prescribe who must sign the notice.

As the Court did not consider the post-Deregulation Act 2015 position, it also did not consider whether the same applies where the certificate is signed by the landlord’s agent. However, given that there is a statutory authority for an agent to sign the certificate (where the agent has dealt with the deposit on behalf of the landlord), it is expected that by extension, agents will also be held to the same standard of account and where the agent signs the certificate, that signature must also comply with Section 44.

Conclusion

The decision clearly provides welcome clarity that Section 8 notices do not need to be signed in accordance with Section 44. It is assumed that the decision extends to Section 21 notices also, given that neither of these provisions of the Housing Act 1988 prescribe who has to sign such notices. Bearing in mind that possession notices are regularly issued by agents on behalf of landlords, the decision avoids an otherwise cumbersome requirement for such notices to be signed by at least one director of the company, who may otherwise not be involved in the day to day management of portfolios including dealing with possession notices.

The position is sadly not as clear-cut with the prescribed information certificates, given the failure of the Court to correctly consider the post-Deregulation Act 2015 position. However, it is expected (and, indeed, it is safest to assume) that such certificates do have to comply with Section 44, as the legislation does prescribe who (ie, a landlord or initial agent) can sign the certificate.

Of course, the same practical implications above apply, namely arranging for directors to sign such certificates (either with another director, or company secretary, or in the presence of a witness). However, corporate landlords and agents should take note of the decision and ensure that procedures are in place for such certificates to be signed in accordance with Section 44, to avoid situations where a landlord is prevented from serving a Section 21 notice, or faces a claim for a significant financial penalty by the tenant, for failure to provide a valid certificate.

If you or your clients would like further advice on the implications of the Northwood case, please get in touch with Faye Didcote on faye.didcote@kdllaw.com or 01435 897297.

Disclaimer

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