There has been a further development on an old problem that has been largely ignored until the Court of Appeal suddenly set off the alarm bells in July 2010. It relates to leases without terms.
Most leases have terms – eg they run for 99 years from 1st April 2002 – or are periodical eg they are weekly or monthly tenancies that can be terminated on notice by either party.
However, some standard leases from Fully Mutual Housing Associations do not have a term. They sometimes include an option to take a long lease. The forms of agreement were first drafted many years ago. The exact wording varies slightly, but a typical example provides:
1. In consideration of …the Landlord grants to the Tenant a tenancy of the Premises commencing from the Date of possession upon the terms and conditions herein contained until such tenancy shall be determined in accordance with the provisions hereof.
2 The Tenant shall:
2.1 Occupy the Premises as his principal home upon the terms and …
a) any monies due hereunder….shall be unpaid for 21 days after becoming payable…
b) any covenant on the part of the Tenant shall not be performed…
(and other similar clauses)
Then it shall be lawful for the Landlord to re-enter the Premises and this Agreement shall immediately determine….
10.2 The Tenant may at any time serve six months written notice upon the Landlord determining this Agreement….
The key feature is that there is no fixed term to expire, and the Landlord cannot end the term by notice except in certain circumstances. So in theory the lease could run on for ever. And although the law has no trouble with a 999 year lease, (or indeed a 9999 year one) this is the point that causes the problem.
The Court of Appeal decided in Berrisford v Mexfield Housing Co-Operative Ltd EWCA Civ 811 in July 2010 that a very similar clause in a lease granted by a fully mutual housing association (which is also a housing co-op) and which provided that the letting was
from month to month until determined as provided in this agreement
and the agreement allowed termination by the Tenant on one months notice, but by the landlord only if the tenant was in default etc, was void, and wholly ineffectual as it was in breach of the 500 year old requirement that a lease must be for a defined term. Instead the CA held that there was no agreement, no security of tenure, and the tenant was treated as occupying the premises on a plain monthly tenancy, terminable on one month’s notice to quit. The court do not say which (if any) of the other terms of the agreement were binding.
This decision follows the case of Prudential v London  AC 386 when the House of Lords held that an agreement to let a small piece of pavement until it was needed for road widening was invalid and could be terminated by notice anyway. The full significance of the decision was overlooked until the recent highlighting by the Court of Appeal.
The situation is clearly very unsatisfactory – Mexfield indicated that they had several hundred properties let out in this way- and other Housing Associations have a considerable number too. The Berrisford case was given leave to appeal to the Supreme Court, and a hearing date has now been fixed for two days from 4th October 2011. The decision is likely to be several months later.
Points that a landlord would need to consider which occurred to us when the CA decision came out were:
- Should you continue to use this form of agreement?
- Could it be easily amended to comply by, say, expressing itself to be a monthly periodic tenancy, or a yearly tenancy, terminable by agreed notice on either side, and which could be ended by forfeiture in case of default?
- Is the current form a term longer than 21 years (and so needing the LVT to approve a forfeiture notice)?
- How enforceable are the other terms, such as the calculation of the repayment of the initial payment on termination at, say, death?
- Should anything be said about this to the residents? (almost certainly not)
- Or your Board and Auditors?
- Does the fact that Mexfield are a Co-Op make any difference?
- How does this tie in with the Human Rights Act, and especially the right to a home under Article 8 of the Convention?
Clearly the best course now in nearly all cases is to sit and await the result – possibly delaying any possession proceedings in the meantime. But the end result may mean a lot of egg on faces, and complicated unravelling, especially as a lot of these schemes are for older residents, who would often have difficulty in understanding any remedial suggestions put forward.
Fortunately most mutuals only try and terminate these agreements for breach, and the residents are hardly likely to want to say that they have no rights to occupy their homes. However, it is necessary to invoke the help of the courts on occasions because of non-payment of rent, breach of covenants, or because of difficulties arising out of infirmity and death, and one could never be sure how a court may respond, especially now that this problem has been spot lit by the specialist media, such as the website Nearly Legal, and there will be further publicity arising out of this Supreme Court hearing.
Ultimately the position will be clarified, but exactly how is very difficult to predict. We shall see.