Thankfully, the law of appropriation is relatively clear and established. It was explained in good detail in the Court of Appeal case[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest'] Thomas v Ken Thomas Ltd [2006] EWCA Civ 1504 where at para 19 it was stated (author added words [landlord] and [tenant]):

19.  The relevant principles are accurately set out in Chitty on Contracts, 29th Edition Vol 1 at paragraph 21.059-21.061:

“21.059: Rights to appropriate payments. Where several separate debts are due from the [tenant] to the [landlord], the [tenant] may, when making a payment, appropriate the money paid to a particular debt or debts, and if the [landlord] accepts the payment so appropriated, he must apply it in the manner directed by the [tenant]; if, however, the [tenant] makes no appropriation when making the payment, the [landlord] may do so.

“21.060: Debtor’s rights to appropriate. It is essential that an appropriation by the [tenant] should take the form of a communication, express or implied, to the [landlord] of the [tenant's] intention to appropriate the payment to a specific debt (or debts) so that the [landlord] may know that his rights of appropriation as [landlord] cannot arise. It is not essential that the [tenant] should expressly specify at the time of the payment, which debt or account intended the payment to be applied to. His intention may be collected from other circumstances showing that he intended at the time of the payment to appropriate to a specific debt or account. ….

“21.061: Creditors’ right to appropriate. Where the [tenant] has not exercised his option, and the right to appropriate has therefore devolved upon the [landlord], he may exercise it at any time “up to the very last moment” or until something happens which makes it inequitable for him to exercise it. [I omit the rest of the paragraph].”

Therefore, if the tenant when paying the £200.00 says “this payment is for my new tenancy” (or similar) then, the landlord is bound by that statement. However, if the tenant remains silent, it is for the landlord to decide where to appropriate the amount (unless it can be somehow implied as to which tenancy the payment was for). Of course, the landlord should always appropriate to the previous tenancy because that way the new tenancy is developing arrears making the section 8 notice on rent arrears grounds easier.

Where an appropriation is done by the landlord, it would very wise to insert details of the appropriation on any receipt issued as this would assist with any questions that may arise later and would also help with any question of “implied” appropriation.

Housing Benefit

One unanswered question (by the courts) though is what about a housing benefit payment? The cheque or statement will always contain the dates to which the payment relates. Are these dates appropriating the amount to those specific dates and no other? I would respectfully submit no. Our view is that the law of appropriation remains as described above and that the dates on the cheque or statement are nothing more than showing the dates of the tenant’s “entitlement” to housing benefit and are not necessarily dates showing the actual “rent” being paid. It is therefore still acceptable for a landlord to appropriate a housing benefit payment to an earlier tenancy for example in our view.

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(5) Nothing in this section (or in section 14 below) affects the right of the landlord and the tenant under an assured tenancy to vary by agreement any term of the tenancy (including a term relating to rent).

There are certain variations that will operate as a surrender and re-grant of a tenancy which include:

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• Where the extent of the demise is increased [Well Barn Farming v Backhouse [2005] 3 E.G.L.R. 109]
• Where the length of the term is increased [ibid]
• The substitution of one suite of rooms for another operates as a surrender and re-grant. [Giles v Spencer (1857) 3 C.B.N.S. 244]

However, terms that do not operate as a surrender and re-grant but instead are a simple continuation of the existing tenancy include:

• A mere increase in rent does not operate as a surrender and re-grant [Doe d. Monk v Geekie (1844) 5 Q.B. 841; Jenkin R. Lewis v Kerman [1971] Ch. 477; Friends Provident Life Office v British Railways Board [1996] 1 All E.R. 336]

I would hold … In the absence of an increase in the extent of the premises demised or of the term for which they are to be held, both of which would change the legal estate, I can see no reason why the lessor and assignee could not achieve the changes they desired in the terms of the lease without the law implying its surrender and a re-grant for the remainder of the term of the lease. [Beldam L.J. Friends Provident Life Office v British Railways Board [1996] 1 All E.R. 336]

• A reduction in rent is no surrender [Crowley v Vitty (1852) 7 Exch. 319; Buttery v Pickard (1946) 174 L.T. 144.][/amember_protect]

A failure to provide such an address results in any rent or service charge otherwise due from the tenant to the landlord shall .. be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply.

However, once a notice providing a suitable address has been served, [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']all the rent then accruing becomes due and the statutory purpose of the notice is satisfied. Lindsey Trading Properties Inc v Dallhold Estates (UK) Pty Ltd (1995) 70 P. & C.R. 332.

In Zafar v Goddard, Bristol County Court, 13 December 2010, the question arose as to what the position was if the landlord served a section 48 notice “after” the tenancy had ended.

There were rent arrears in this case but the landlord had failed to furnish the tenant with an address in England or Wales. After the landlord lost proceedings against the tenant for non payment of rent, he provided such a notice and commenced fresh proceedings. However, by this time the tenancy had ended.

DDJ Batstone held that the wording in section 48 relates to “landlord” and “tenant” and as such the notice will have no effect if served after the tenancy has ended because there is no longer a “landlord” nor “tenant” to furnish the notice to.

See also the nearlylegal article

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Set off

One of the main problems of the notice seeking possession (section 8 notice) usually used for rent arrears claims is the tenant’s make a claim against the landlord for random disrepair issues, often never previously notified to the landlord (I had exactly this type of case where the tenant pleaded in court that he had had no heating or hot water for 12 months which on immediate investigation turned out that his gas meter had been removed by the gas board!)

The tenant is entitled to set off against a claim for rent a counterclaim for damages for breach of the landlord’s repairing obligations[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest'] [British Anzani (Felixstowe) v International Marine Management (U.K.) [1980] Q.B. 137; Melville v Grapelodge Developments [1979] 39 P. & C.R. 179; Asco Developments v Gordon [1978] 248 E.G. 683.] Equally, a landlord is entitled to set off a claim for rent or service charges against a tenant’s claim for damages for disrepair. Filross Securities v Midgeley [1998] 3 E.G.L.R. 43.

A set off is a true equitable defence; and accordingly may be relied on even if it would otherwise be statute barred (Filross above)

The time of the set off

If there are genuine disrepair issues at the hearing, it is lawful for the tenant to seek that any damages be set off from rent owing. This can, depending on the amounts in question, extinguish the rent and make the section 8 claim fail (because the tenant may no longer be two months or more in arrears).

It is important however to know the date of when the set off takes place i.e. is it when the disrepair became an issue or is it at the time of the court hearing (when there will likely be more arrears than the first option)?

In Fearns, the High Court held that except where there is an agreement between the parties setting a date of set off, it is for the Court to set the date. Also, while it can decide to set the offset of the liability to some earlier or later date CPR 40.13(2) the starting point for the date of offset must be the date of the order itself, as that is the point at which the liabilities were finally determined.

Therefore the correct approach in the rent arrears/disrepair scenario is for the Court to establish the arrears of rent, to establish the amounts due as compensation for disrepair, calculate the interest due on both sums, AND THEN offset the two sums against one another. If the tenant wishes to argue that the offset should happen at some other date then it is for them to do so and the Court has a discretion to allow it.
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This page offers guidance on obtaining a charging order and in particular guidance on completing form N379.

What is a charging order?

It is an order of the court placing a ‘charge’ on the judgment debtor’s property, such as a house or a piece of land. The charge will be the amount you are owed. The charging order will not normally get you your money immediately, but it may safeguard your money for the future.

If the judgment debtor owns stocks or shares or has a fund or money in court, the court can also put a charge on these in much the same way as on property.

How does it do that?

A charge on a property means that if the property is sold, the charge has usually to be paid first before any of the proceeds of the sale can be given to the judgment debtor. You should note, however, that a charging order does not compel the judgment debtor to sell the property.

If there are already charges on the property when your charge is registered, for example, arising from a mortgage, then that charge will be paid first.

When can I apply for a charging order?

[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']You can apply at any time after you have obtained judgment. However, the judge who considers your application will not make an order unless the judgment debtor:

has failed to pay the amount of the judgment when it was due; or
has failed to pay one or more of the instalments due under the terms of the judgment.
What do I have to do to apply for a charging order?

You must complete Form N379 (Application for charging order on land or property). You can also get a copy free from any county court.

If you are seeking a charging order against stocks and shares, or money in court, you must complete Form N380 (Application for a charging order on securities).

What information will I need to complete the application form?

You will need:

• details of the judgment, that is, when it was made, at what court and under what claim number;
• the full name and address of the judgment debtor;
• the amount of the judgment, including any costs and interest; the amount owing at the time of your application, again including any interest, and the total amount of any instalments, if any, which have not been paid;
• the address of the property or land on which you want to impose a charge (and proof from the land registry);
• information as to whether the judgment debtor owns the property solely or jointly with someone else, and evidence to prove it;
• details of any other creditors you know the judgment debtor has, that is, their names and addresses and the nature of their debt;
• details of any other person who has an interest in the property;
• details of any additional reasons, apart from the fact you are owed the money, you want the court to take into account when deciding whether or not to grant your application; and,
• details of sources of information, that is, who within the organisation supplied the necessary information. But only if you are a company, corporation or firm.

The application contains a statement of truth. You will have to sign it to confirm that the facts stated in it are true. Remember that proceedings for contempt can be brought against you if you sign the statement without an honest belief in its truth.

You must also attach a copy of the details obtained from the land registry (see below).

A sample completed form N379 is available to download here.

Will I have to pay a fee?

Yes, £100.00 payable to HMCTS

How do I get the evidence about the property and ownership?

Some, but not all, land or property may be registered at HM Land Registry. If there is a registration you should obtain a copy of the entry and attach it to your application.

You can obtain information about how to do this by visiting their website www.landregistry.gov.uk.

What will the court do when it receives my application for a charging order?

Court staff will issue your application and refer it to a judge. If the judge is satisfied with the information you have provided, the judge will make an interim charging order. The order will be drawn on Form N86 (Interim charging order). A copy will be sent to you and the judgment debtor.

The order will include the date and time of a hearing at which the judge will decide whether or not to make a final charging order. You must attend that hearing, otherwise the judge may dismiss your application.

If the judge is not satisfied with the information you have given in your application the court will let you know.

Is there anything I should do when I receive the interim charging order?

Yes there is. To make sure the charge is effective immediately, you must register. Information about the procedures and fees charged by the Land Registry can be obtained by visiting their website www.landreg.gov.uk and viewing Practice Guide 19.

(Guidance coming soon …)

What will happen if the judgment debtor objects to the making of a final charging order?

If the judgment debtor (or anyone else who has been served with the interim charging order), wishes to object to the making of a final order that person must file written evidence and serve a copy on you not less than 7 days before the hearing.

You should note that the judgment debtor can make an application for the hearing to take place at another court nearer to his home or place of business.

What will happen at the hearing at which the judge considers whether or not to make a final charging order?

The judge will consider your application and any evidence the judgment debtor or any other person served with your application has filed. If objections have been raised, the judge can deal with them there and then, or give directions for a hearing later on. Directions tell you what you must do to prepare for that hearing. If the judge feels that the objections are justified, your application may be dismissed. If that happens you may not be able to recover the fee you paid to issue the application, and you may have to pay the costs of the party who raised the objections.

If your application is successful, any fees you paid are usually recoverable from the judgment debtor by being added to the judgment. An order will be drawn on Form N87 (Final charging order). You and any other party will be sent a copy.

Do I have to contact the Land Registry after the hearing?

Yes, you do. The Land Registry or (the Land Charges Registry) must be made aware of the making of a final charging order. You must also contact them if your application is dismissed to make sure that the interim charging order is removed from the register.
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But it has been suggested that the landlord may refuse to accept a tender by a third party such as a surety where he would be prejudiced by accepting the tender. [Richards v De Freitas (1974) 29 P. & C.R. 1. See also Smith v Co [1940] 2 K.B. 558; Bessa Plus Ltd v Lancaster (1998) 30 H.L.R. 48, CA.] The benefit of a covenant of suretyship runs with the reversion, and is enforceable by the landlord from time to time [Swift (P. & A.) Investments v Combined English Stores Group [1989] A.C. 643; approving Kumar v Dunning [1989] Q.B. 193; Pinemain v Welbeck Engineering [1984] 2 E.G.L.R. 91 and Re Distributors & Warehousing [1986] 1 E.G.L.R. 90 must now be treated as having been overruled. See also Coastplace v Hartley [1987] 2 E.G.L.R. 43]
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Understanding the legal changes from 1 October on high rents and HMOs and planning.

The Guild of Residential Landlords is assisting Training for Professionals with a free of charge webinar on 27 October 2010.

Join us for a Webinar on October 27

A problem that this can cause is that the tenant attends the hearing and states that they paid the landlord x amount in cash three days ago which of course is more often than not a lie.

Although this article doesn’t get rid of that argument altogether, it is helpful for a landlord to remind the court of section 9, Civil Evidence Act 1995 which provides that the records of a business (which includes a rent statement) may be given as evidence “without further proof”.

A document shall be taken to form part of the records of a business if there is produced to the court a certificate to that effect signed by an officer of the business [s.9(2)].

Below is a suggested certificate for the benefit of members which may also be downloaded in word format. The certificate should be signed and attached to the court bundle at the point of commencing proceedings. If proceedings have already been commenced, then the certificate should be taken in on the day of the hearing.

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Certificate that rent statement forms part of business records

Section 9, Civil Evidence Act 1995

I, the claimant hereby certify that the rent statement provided with the section 8 notice served on the tenant and the rent statement(s) provided to the court form part of the records of my business.

Signed …………………………………………………………………………….

Dated ………………………………………………………………………………

Civil Evidence Act 1995
9.— Proof of records of business or public authority.

(1) A document which is shown to form part of the records of a business or public authority may be received in evidence in civil proceedings without further proof.

(2) A document shall be taken to form part of the records of a business or public authority if there is produced to the court a certificate to that effect signed by an officer of the business or authority to which the records belong.

For this purpose—

(a) a document purporting to be a certificate signed by an officer of a business or public authority shall be deemed to have been duly given by such an officer and signed by him; and

(b) a certificate shall be treated as signed by a person if it purports to bear a facsimile of his signature.

(3) The absence of an entry in the records of a business or public authority may be proved in civil proceedings by affidavit of an officer of the business or authority to which the records belong.

(4) In this section—
“records” means records in whatever form;
“business” includes any activity regularly carried on over a period of time, whether for profit or not, by any body (whether corporate or not) or by an individual;
“officer” includes any person occupying a responsible position in relation to the relevant activities of the business or public authority or in relation to its records; and
“public authority” includes any public or statutory undertaking, any government department and any person holding office under Her Majesty.

(5) The court may, having regard to the circumstances of the case, direct that all or any of the above provisions of this section do not apply in relation to a particular document or record, or description of documents or records.

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Hi Adrian

When returning only a portion of a tenants deposit by chq in the post, if it was accompanied by a letter stating “please find enclosed the balance of your deposit as full and final settlement relating to the tenancy of xxxxxxx” and the ex-tenant then cashed/banked the chq would mean the ex-tenant could not change their mind or dispute the deducted amount.

I had heard using the phrase “full and final settlement” and the chq then being banked meant the person accepted it was final and there was no recourse.

Is there any legal merit in that and if so do you think the deposit schemes would accept it if there was a issue?

Many thanks

Answer:

There are two different situations covering this type of scenario and both have different results. Firstly, if there is no dispute in relation to the amount, then providing a cheque for a lower amount than the tenant is entitled to with a letter saying “full and final settlement” will not be binding (see below). However, if there is a dispute over the amount in question, the position will depend on the actions of the tenant on receipt of the money (see further below).

No dispute over the amount due

Take for example the position where there is a £600.00 deposit. There is no rent arrears or damage and therefore no dispute that the tenant is entitled to the full amount. However, despite this, the landlord sends a cheque for £400.00 with a letter saying “if you cash this cheque it will be deemed full and final settlement”. In this case, the tenant will not be deemed to have accepted the payment as full and final settlement because there was no consideration (or benefit to the tenant by doing so) and so not a binding contract.

payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe, etc. in satisfaction is good… [as] more beneficial to the plaintiff than the money. [Pinnel's Case (1602) 5 Co. Rep. 117a].

This principle was applied in a modern dispute.  In D & C Builders Ltd v Rees [1965] 2 QB 617. The small firm had done some work for Mr. Rees but weren’t paid the £482. After a few months of being asked for the money, Mrs. Rees, acting on behalf of Mr. Rees, offered to pay them £300. She knew that they needed the money desperately but told them that it was the £300 or nothing. D & C successfully sued for the balance because she had not provided sufficient consideration.

Where the amount is in dispute

Now take an example of a £600.00 deposit paid by the tenant and at the end of the tenancy, the landlord alleges damage to the sum of £150.00. The tenant though disputes the £150.00 damage. The landlord sends a cheque for £400.00 as “full and final settlement”. Now what is the position?

The position now depends on [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']the actions of the tenant because the tenant now has consideration (or a benefit) because he may wish to accept the payment and put an end to any on-going arbitration or legal cases.

Clearly if the cheque is returned then there can be no acceptance by the tenant of the offer made by the landlord. However, if the cheque is cashed but promptly after, the tenant contacts the landlord and states the cashing of the cheque was not acceptance of the landlords offer, then it will only have been accepted as part payment [Day v McLea (1889) 22 QB 610] and not as full and final settlement.

This was also confirmed in Stour Valley Builders v. Stuart (1974) 2 Lloyds Reports p. 13 C.A where Lloyd LJ said:

As with any other bilateral contract what matters is not what the creditor himself intends but what by his words and conduct he has led the other party as a reasonable person … to believe

And also

Cashing the cheque is always strong evidence of acceptance especially if it is not accompanied by immediate rejection of the offer. Retention of the cheque without rejection is also strong evidence of acceptance depending on the length of delay But neither of these factors are conclusive; and it would … be artificial to draw a hard and fast line between cases where payment is accompanied by an immediate rejection of the offer and cases where objection comes within a day or two days

Timing is critical

In the Stour Valley Builders case, the builders cashed the cheque and it cleared on day 5. On day 7 the builders spoke to the customer and told him that the amount could not be accepted in full and final settlement. This delay of seven days was not considered fatal and it was held that the builders were entitled to treat the cheque as a payment on account.

A delay of four days after the cheque was cashed was also not considered as fatal and not an acceptance of the offer [Inland Revenue Commissioners v Fry - [2001] All ER (D) 434 (Nov)]

However, in Upfield v Marshall (Unreported 29 March 1976), there was a delay of seven weeks and this was found to be too long and accord and satisfaction was established.

It therefore appears, that the question to ask is whether the tenants conduct caused the landlord to think that the money was accepted in satisfaction.

Otherwise, if the cheque is cashed and noting else done, then, the cashing of the cheque will have been deemed as acceptance of the landlords offer of full and final settlement as was stated in Ferguson v Davies (1996) CILL 1208.

Cheques from third parties

Where a person accepts a cheque from a third party, see Bracken & Anor v Billinghurst [2003] EWHC 1333 (TCC). As a rule, acceptance from a third party will always be an acceptance of full and final settlement (whether there is a disputed amount or not).

Bank Transfers

One of the key points is there must be some act by the tenant accepting the full and final offer. This in normal cases is the cashing of the cheque and understanding that by doing so they are accepting it as full and final settlement of the disputed amount by reference to the covering letter enclosed with the cheque. However, if a landlord simply transfers the money into the tenants bank account, this may never be considered acceptance by the tenant because they will have done no action accepting the offer. It may well be argued that the tenant should promptly return the money but the point is that you are trying to prove acceptance of the original letter. You are not trying to prove “non” acceptance of the offer … if that makes sense? Basically, when offering a full and final settlement, only send a cheque!

Tenancy Deposit Schemes

Regarding the point whether a tenancy deposit scheme would accept this, it is submitted this is far too complicated for arbitrators to understand especially as there is no hearing to explain. As in all cases when disputes occur in relation to deposits, our advice is to never use the schemes dispute resolution.

It is also submitted, that the tenant will always have the right to refer a disputed amount to the schemes because the provisions contained in the Housing Act 2004 (and the scheme rules) will most likely overrule the common law principles outlined above.

Useful links

The Law – ‘Full and final settlement’

Show me the money: offers made in full and final settlement

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Since the introduction of tenancy deposit schemes, this can cause a surprising problem. It is well accepted that where a landlord claims that a payment of money was for rent in advance and not a deposit, this is deemed as a deposit for the purposes of the tenancy deposit legislation [Piggott v Slaven, Great Grimsby County Court 23 February 2009]

However, because of this and if a landlord takes six months rent in advance on a monthly tenancy, the landlord could be regarded as having taken five months worth of deposit which requires protecting. The penalty could be very serious if it were deemed a deposit.

There is a way to genuinely make the six months rent in advance rent lawfully due under the tenancy agreement by modifying the wording of an assured shorthold tenancy. The below pages are modified front pages of our tenancy agreements for the DPS and MyDeposit schemes. I haven’t yet produced one for the no deposit tenancy agreement but if anyone needs one I can quickly do this and add it to this page.

You should ensure that you follow the guidance shown on page 1 of the below documents. There is also a completed sample on page 3.

Download DPS replacement front page where multiple rent paid in advance

Download MyDeposits replacement front page where multiple rent paid in advance