The Law of Appropriation

Appropriation can be an important legal principle for landlords as it reflects the apportionment of money where more than one debt is owed. In particular, it matters if there are rent arrears for a relatively long period, and between arrears, a renewal tenancy has been granted. 

If the landlord decides to serve a section 8 notice on rent arrears grounds, the question arises as to which payments were for which tenancy. 

For example, a tenant owes £800. A new tenancy (renewal) is granted, and the tenant pays £200.00. Does this £200 appropriate for the previous tenancy or the new tenancy? 

A similar problem can arise when a tenant moves address with the same landlord leaving arrears at the previous address. When a payment is made, which property is the amount allocated? Thankfully, the law of appropriation is relatively straightforward and established. It was explained in good detail in the Court of Appeal case 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.."

Therefore, if the tenant, when paying the £200.00, says, "this payment is for my new tenancy" (or similar), then that statement binds the landlord. However, if the tenant remains silent, the landlord must 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 the landlord does an appropriation, it would be very wise to insert details of the appropriation on any receipt issued. This would assist with any questions that may arise later and would also help with any question of "implied" appropriation. 

Housing Benefit 

However, one question 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 benefits and are not necessarily dates showing the actual "rent" being paid. It is, therefore, still acceptable for a landlord to appropriate a housing benefit paid to an earlier tenancy, for example, in our view.