SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN
SA431/13
Decision of Sheriff Marysia Lewis
in Small Claim of
Michael Cross and Others v Aberdeen Property Leasing
Aberdeen, 20th November 2013
1. This case raises an important question about the meaning of "a premium" in the context of residential leasing. In 2009 Michael Cross attended the University of Aberdeen to undertake studies there. He did not hale from Aberdeen and so required lodgings. He, along with Callum Archibald, Gary Marshall and Shane Carlton, approached the defender hoping to find a property suitable to accommodate them for a period of 1 year.
2. The defender specialises in residential letting in and around Aberdeen and Aberdeenshire and is a local business of some repute. It acts as an agent for landlords. One of the properties available to let from the defender was 61 Elmfield Avenue, Aberdeen, AB24 3NU. Michael Cross, Callum Archibald, Gary Marshall and Shane Carlton decided to lease that property. They completed an application form supplied by the defender relative to lease of that property. The application form reveals that the rent is to be £1,300 per month, and that a deposit of £1,300 and an "Admin fee" of £125 plus VAT thereon are to be paid prior to entering into the lease. Michael Cross, Callum Archibald, Gary Marshall and Shane Carlton paid the deposit and each of them paid the sum of £35.94 being their respective contributions towards the administration fee. On 15 June 2009 they entered into a lease in respect of 61 Elmfield Avenue and were granted an assured tenancy of the property.
3. Michael Cross, Callum Archibald and Gary Marshall, the pursuers, have raised a small claim for payment. They say that the administration fee is an illegal premium and they seek the return of their money. The defender says that the administration fee is perfectly legitimately charged. Shane Carlton is not a party to this action.
4. This case called before me on 14 October 2013 for proof. Mr Cross represented himself and his fellow pursuers. Ms Lang represented the defender. At the outset of the proof I was told by parties that the facts which I have summarised above are not in dispute. I heard evidence from only one person - Marjory Eileen Davidson, the long standing property leasing manageress of the defender. The defender acts for landlords. The service which it provides to landlords includes finding tenants for particular properties; meeting with prospective tenants and discussing with them their requirements; taking prospective tenants to view properties; assisting them in completing the application forms; checking credit references; making sure that the property is ready for occupation and ensuring that all utilities are available at date of entry; negotiating the terms of and preparing the lease. These are time consuming administrative tasks, some of which are for the benefit of the tenant, and the cost of which is covered by an administration fee. She confirmed that the defender charged an administration fee of £125.00 plus VAT in respect of 61 Elmfield Avenue and that each of the tenants paid an equal share of that fee. In 2009 it was common practice for landlords and their agents to impose administration fees provided the fee was reasonable and this reflected advice from the Association of Residential Letting Agents. In her view the amount of the administration fee was reasonable. She explained that due to a change in the law, administration fees are now prohibited. Now the defender absorbs some of the costs of the administrative tasks and passes on the rest of the costs to the landlords.
5. Given the importance of the subject matter to both parties, I instructed them to lodge written submissions. They did so and the submissions are now part of process.
Decision
6. The statutory framework is contained in sections 82 and 90 of the Rent (Scotland) Act 1984 ("the 1984 Act"), section 27 of the Housing (Scotland) Act 1988 (the 1988 Act"), and section 32 of the Private Rented Housing (Scotland) Act 2011 ("the 2011 Act"). Section 82 of the 1984 Act prohibits premiums being charged in connection with the grant of a protected tenancy and this protection was extended to assured tenancies by section 27 of the 1988 Act. In its original form section 82(1) of the 1984 Act provided that "any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section". The words highlighted in bold were repealed by section 32(1)(a) of the 2011 Act. Section 90 of the 1984 Act provided (prior to amendment) that "premium was defined as including any fine or other sum and any other pecuniary consideration in addition to the rent". Section 32(3) of the 2011 Act amended section 90 of the 1984 Act. Section 90 now provides ""premium" means any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge."
7. Parties are agreed that the amendments to sections 82 and 90 came into force on 29 November 2012. Ms Lang argues that the 2011 Act extending the definition of "a premium" to include "an administration fee" and that in 2009 "an administration fee" was not prohibited by the existing law provided it was reasonable and was a reflection of actual costs incurred on behalf of the tenant. Mr Cross says that section 32(3) of the 2011 Act simply clarified the meaning of "a premium" and that this clarification was necessary because of confusion on the part of some landlords about what they could and could not charge and because of poor and inconsistent practices adopted by many landlords in relation to the imposition of charges and fees in addition to the rent and refundable deposit.
8. I was taken through the historical background to the introduction of a prohibition on premiums from WW1 up to the current date with reference to a series of cases and other material [MacDonald v John Laing & Son 1954 SLT (St Ct) 77; Woods v Wise [1955] 2 QB 29; Elmdene Estates Ltd v White [1960] AC 528; Farnell v Alexander [1976] AC59; Robson - Residential Tenancies (3rd Ed., 2012; The Policy Note on The Rent (Scotland) Act 1984 (Premiums) Regulations 2012; the Introductory Note to the Private Rented Housing (Scotland) Act 2011; The Private Rented Housing (Scotland) Bill; the Policy Memorandum on the Private Rented Housing (Scotland) Bill].
9. It seems clear to me from the material mentioned above that the Scottish Parliament, whilst acknowledging the excellent work of many good private landlords, was concerned about the variable, and sometimes dubious, practices of rogue landlords who had scant regard to their duties and responsibilities and who had no hesitation in imposing charges over and above the rent and returnable deposit as a condition of granting a lease and filling their properties with tenants to bursting point. To address over-crowding, improving the tenant's and landlord's awareness of their duties and responsibilities and cracking down on "the illegal pre-tenancy premiums that are often charged by unscrupulous agents or landlord while clarifying the situation for responsible businesses" the Scottish Parliament decided to legislate. The result is the Private Rented Housing (Scotland) Act 2011 which came into force on 29 November 1012.
10. The facts of the matter are straightforward. To obtain the rental of a property from the defender, the pursuers had to complete an application form. The application form had to be accompanied by payment of an administration fee of £125.00 plus VAT. The administration fee was imposed by the defender in addition to the rent and their returnable deposit and was a condition of the grant of the assured tenancy of 61 Elmfield Avenue. Ms Lang is correct that neither sections 82 nor 90, prior to amendment, made mention of "administration fees" whereas section 90, as amended, does prohibit such a charge. I do not accept her contention that the amendment was to clarify the position for landlords going forward. She says that if the definition included "administration fees" then there would have been no need for amending legislation. In my opinion the definition was not changed - it was improved to make it crystal clear to all involved in residential leasing that administration fees ought not to have been imposed and ought not to be imposed. The administration fee imposed by the defender is "a pecuniary consideration in addition to the rent" (s90 of the 1984 Act - prior to amendment). I asked Ms Lang if she could explain to me what the administration fee of £125 could possibly be if not "a pecuniary consideration in addition to the rent". She has yet to answer that question. I have concluded that the administration fee imposed by the defender was a prohibited payment and accordingly the pursuers are entitled to the return of it.
11. Lest I am wrong about that, there is also an issue about the reasonableness of the administration fee. It may well be that the defender was advised by the Association of Residential Letting Agents that in 2009 reasonable administration fees reflective of the actual costs incurred were permitted. Although Ms Davidson explained to me the general administrative services provided by the defender to tenants and landlords, she did not tell me which of those many services were provided to the pursuers in this case, leaving me to speculate about that. She did not tell me what actual costs were incurred by the defender relative to the letting of 61 Elmfield Avenue nor did she give me any sort of breakdown of the administration fee which would allow me to determine if it was reasonable or not. Without that information, her position is untenable.
12. For the foregoing reasons I grant decree in favour of the pursuers with interest and expenses. The pursuers seek interest from the date on which they paid the administration fees. The defender says that interest ought to run from the date of citation (Dean Warwick Limited v Borthwick 1983 SLT 533). Based on the authority quoted, I agree with the defender's contention in that regard and accordingly interest will run from date of citation.