The Law of Agency - some essential principles
Following the deregulation of the private sector in 1989, most landlords want to let properties on assured shorthold tenancies. Agents often have to deal with paperwork and with problems arising during the tenancy itself. This article looks at the legal rules governing the relationship between landlords and agents and sets out the circumstances when agents are liable for apparently wrongful acts.
The Law
The law relating to agency is a mixture of common law rules developed through case law, with statute intervening in particular areas. For example, the Housing Act 1988 (or Housing (Scotland) Act 1988) amended section 1 of the Protection from Eviction Act 19771 so that section 1 of the PEA now applies to agents as well as landlords.Establishing an agency relationship
A genuine relationship of agency requires a principal, usually the landlord or owner of the premises, to authorise an agent to act on the landlord's behalf. Authority to negotiate the terms of the tenancy, prepare the paperwork, sign a contract and agree a lease all fall within the relationship of agency.Where the tenancy or lease itself does not have to be granted by means of a deed (a written instrument signed and delivered) the authority passing from landlord to agent does not itself have to be created formally.
Tenancies or leases granted for three years or less, including periodic tenancies and all shortholds do not have to be created by deed.4 Under the Powers of Attorney Act 1971 if the landlord wants the agent to deal with leases which have to be executed by deed, the agent and the landlord must have entered into a deed themselves setting out that the agent has this authority.
Pre-tenancy agreement
In some cases the landlord will have specifically appointed the agent to undertake a range of matters in relation to the tenancy in accordance with the standard terms of management produced by the agency itself. Such agreements may be limited in scope with the agent's role ending once the tenancy has been negotiated and entered into. If the relationship of agency ends at that point then enquiries about repairs or any dispute are dealt with by the landlord. The agent would then not have the authority to deal with such matters.Agent throughout the tenancy
It is common to find agents who have been given authority to deal with day to day problems such as disrepair and maintenance of installations and services. Agents should note that the landlord will be bound by the acts of the agent acting under actual authority granted by the management agreement. For example a landlord will not be able to avoid liability for an agent acting with actual authority who arranges ineffectual repairs or who incurs greater expense than the landlord may be inclined to pay.As long as the management agreement between the landlord and agent is clear then it should be possible to determine the scope of the actual authority the agent has. This authority will come from the written terms of the agreement, express words passing between the landlord and the agent or it will be implied from the conduct of the parties. For example where the landlord tells the agent to manage the property on a day to day basis, the agent will be authorised to deal with things that arise within the usual scope of day to day management.5 Authority could be extended to collecting rent, chasing arrears or dealing with an advice agency in the event of a dispute about repairs. Implied authority would almost certainly not extend to issuing legal proceedings for possession or the recovery of arrears which might involve the landlord in expense.
Such steps would normally require actual authority being given expressly. If an agent did issue proceedings without authority she/he would risk being sued by the landlord for any loss incurred resulting from the proceedings. The tenant could also take action for breach of the implied warranty that the agent did have the authority to act in this way. (See Lack of Authority)
Lack of Authority
If a tenancy is granted without authority the landlord will not be bound by the tenancy agreement.6 If the agent has only been instructed to identify a suitable prospective tenant the landlord will not be bound by the contract entered into by the agent. The tenant will in fact be a trespasser. If the agent has maintained to the tenant that s/he does have the authority to grant the tenancy where she/he does not, s/he will be deemed to have impliedly warranted that authority exists and so the tenant can hold the agent liable for breach of warranty.7 The tenant could seek damages for the value of the tenancy lost. For example in an assured shorthold case, the assessment of damages would start with the value of a right of occupation in the premises for at least six months and any time the occupier might have expected to stay on thereafter. General damages for distress and inconvenience could also be claimed.The law recognises that the landlord can decide to ratify the agent's actions and if s/he does so the agent's actions are deemed to be authorised8 Ratification is not necessarily straightforward, but the law will recognise it where it takes place expressly or impliedly. Expressly where the landlord has communicated to the agent that the tenancy can go ahead. Implied authority will arise if the landlord accepts rent or takes no steps to evict the tenant.9
There could be scope for arguing that although a landlord seems unwilling to proceed with that particular tenancy, the agent did in fact (and in law) have apparent or ostensible authority rather than actual authority. That is " the authority of the agent as it appears to others ". This type of case would normally arise where the tenant contacts the landlord who tells the tenant that the agent is responsible for dealing with the tenancy on the landlord's behalf. This would result in the landlord being bound by the acts of the agent. For example if the tenant contacts the landlord about a burst pipe and is told to contact the agent, the landlord will be bound by the acts of the agent and be liable for any expense incurred if the agent subsequently calls out the plumber. The landlord cannot claim and is estopped from claiming that s/he is not bound by the what the agent has done.10
It does not matter in these circumstances whether the agent had actual authority to hire the plumber. The landlord cannot lawfully refuse to pay the bill.
Negligence
However, if the agent undertakes the work her/himself and acts negligently, making the leak worse so the tenant's home is flooded, then the agent will be liable for the negligent acts and the loss which results from them. The agent could then be sued for damages by the tenant. The landlord will still be liable for breach of contract under the tenancy agreement, however, if the tenant can show that the landlord was responsible for the repair of the relevant pipe, for example by pointing to a repairing clause in the tenancy agreement.A considerable number of landlords rely heavily on the skill and expertise of the agents who they appoint to act for them. The agent is under a duty to exercise reasonable care and skill in carrying out their duties and in advising the landlord.
Case Example:
In a recent case, Helling v Parker Breslin Estates [1994], the landlords wished to let a flat. They were concerned to obtain vacant possession when the tenant left. The agents assured them that possession was obtainable using a particular ground - that of saying the letting was one to which Case 11 of Schedule 15 of the Rent Act 1977 applied.
Case 11 says that when a person who previously lived in a house and then let it could obtain possession only where the court is satisfied that the dwelling is required as a residence for the owner-occupier. Case 11 as a ground for possession was added to the standard tenancy agreement. The owners subsequently decided that they were dissatisfied with the tenant but because they did not wish to resume possession the Case 11 point was not argued when they tried to obtain a possession order. A suspended possession order was given - suspended on the terms that the tenants pay the arrears. When they sued the agents, the landlords argued, and the court was satisfied that the landlords would never have let the flat if they had been informed that possession could not be recovered at the end of the term.
The failure by the agent to explain the circumstances under which possession could have been obtained under Case 11 amounted to a failure of skill in their duty of care to their client landlord. The landlords could not sell the house and sued for diminution of value of the property because it could not be sold with vacant possession.
Tenancy signed by agent
If the agent is also the landlord there is no problem, a straightforward relationship of landlord and tenant is established. However where the agent has signed and either has not informed the tenant that s/he is the agent or where the tenant believes in good faith that the agent is the landlord and the actual landlord, the principal, is undisclosed, the tenant can sue the agent. The agent in such cases can be sued as if they were the landlord.11 The real landlord, the undisclosed principal may identify her/himself at a later stage but this does not absolve the agent who remains personally liable under the tenancy agreement.Do not forget that if the tenant or their advisor requests the identity of the landlord and their address under sections 1 and 2 of the Landlord and Tenant Act 1985 of any person demanding or collecting rent, that this request has to be complied with. They can further request that the identity of all of the directors and company secretary of a company under section 3 of the same act. For further details, see October issue of Letting Update. Local authorities have the power to prosecute under the act for failure to supply this information.
Deposits
Disputes sometimes arise at the end of a tenancy where agents refuse to hand over deposits or where the firm goes into liquidation. In nearly all cases the agent will have actual authority to take a deposit from a tenant at the beginning of the tenancy agreement and hold it as agent for the landlord. If the agent simply refuses to return the deposit or disappears with the money the landlord remains liable to return the deposit to the tenant.12Taking Money for Addresses
The Accommodation Agencies Act 1953 penalises agents if they take details from a prospective tenant and register that person on their books as seeking a tenancy, or take money in return for providing a prospective tenant with addresses of places to let2. In 1974 the House of Lords decided that this part of the Act did not create an offence if accommodation is actually taken. If the introduction arranged by the letting agency is successful so that the tenancy is entered into, payment by the tenant to the agency is not unlawful. No offence is committed where the agent demands or accepts payment from the owner of the premises where the agent is genuinely acting for that owner.3Safety Regulations
The Gas Safety (Installations and Use) Regulations 1994 which largely came into force on 31 October, 1994 say that the landlords, suppliers and maintainers of gas appliances, meters, pipework etc., are required to ensure that all gas appliances and fittings should conform to these regulations.Two issues emerge from these and similar regulations regarding the relationship between a landlord and his agent. Firstly, an agent could be held to be negligent in not informing a landlord of his obligations under these and similar regulations. An agent should take steps to make this information available to landlords (e.g. a leaflet). Secondly, by virtue of the Health and Safety at Work Act 1974, the agent also holds responsibility under the new gas safety regulations.
See our Letting Facts (inserted in the October issue for further information about these regulations). Failure to comply is a criminal offence punishable by a fine or up to two years in prison.
References
1. Section 1(3A) of the Protection from Eviction Act 1977
2. Section 1 (a) and (b) Accommodation Agencies Act 1953
3. Saunders v Soper 1974 and section 1(2) Accommodation Agencies Act 1953
4. Section 52(1) of the Law of Property Act 1925
5. Hely Hutchinson v Brayhead Ltd. [1968]
6. Taylor v Plumer (1815)
7. Starkey v Bank of England [1983]
8. Warboys v Carter [1978]
9. Re: Seymour Fielding v Seymour [1913]
10. Freeman Lockyer v Buckhurst Park Properties [1964]
11. Chapman v Smith [1907]
12. Goding v Fraser [1968]