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Offsetting rent arrears

This content applies to England & Wales

Whether rent arrears can be offset against damages for disrepair.

In possession cases where there is disrepair it may be possible to argue that rent arrears should be 'set-off' against the damages for disrepair, reducing or completely cancelling out any arrears.[1] Similarly, tenants who are not facing eviction may also be able to deduct the costs incurred from accumulated rent arrears using the procedure outlined on the page on Withholding rent.[2] It may be possible to offset rent arrears in this way even if the property is sold to a new landlord.[3]

The types of damages available are explained on the page on County court action. It is not necessary to be able to quantify the amount of damages in order to use set-off as a defence to a rent arrears action.

When arrears can be offset

This option will only be available if the landlord was in breach of her/his obligation to repair before the court proceedings started.[4] If the disrepair occurred later, then, although it can still be raised in court, the landlord will be able to argue that it should be heard as a separate issue and cannot be used as a defence.

In order to argue successfully for set-off, the tenant needs to show that the set-off arises due to a breach of a condition of the tenancy, and that it would not be equitable (ie fair) to allow the landlord to recover the arrears claimed. The judge will look at the past conduct of both parties in relation to the tenancy, as well as whether the case is proved.

This procedure has the advantage that it takes account not just of the cost of the repair works but also of the damages that the tenant is entitled to as a result of the landlord's failure to carry out the repairs.

If a term in the tenancy agreement states that the tenant cannot offset rent arrears, it may constitute an unfair term, which will not be binding on the tenant.[5]

[1] British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137.

[2] Asco Developments Ltd. v Lowes, Lewis and Gordon [1978] 248 EG 683.

[3] Smith v Muscat [2003] EWCA Civ 962.

[4] Televantos v McCulloch (1990) 23 HLR 412, CA.

[5] For tenancies which started before 1 October 2015 see Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 and Guidance on Unfair Terms in Tenancy Agreements, Office of Fair Trading, September 2005; for tenancies which started on or after 1 October 2015, see Part 2 of the Consumer Rights Act 2015; Unfair terms in consumer contracts guidance (CMA37), Competition and Markets Authority, July 2015; and Consumer protection law guidance for lettings professionals (CMA31) Competition and Markets Authority, June 2014.

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