Coventry View

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Posts Tagged ‘leases without terms

Beware of the Notice

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Landlords have to know about all sorts of notices if they are going to be able to manage their properties effectively. I haven’t had time to even try to find them all, but even a brief search turns up a surprising number.

s47 L&TA 87 – Notice of the Name and Address of the landlord, which must be given on all demands for rent or other monies due under the lease, together with an address for service in England and Wales if the address is otherwise abroad. The notice can of course be given by their agent, who can give their details as well but not instead of the landlord’s. This is where the landlord in Beitov Properties v Elliston Martin [2012] UKUT 133 (LC) came unstuck. Until the details are given any monies other than rent that are claimed are not legally due.

s48 L&TA 87 – Address for service in England and Wales of any notices to the landlord, which must be given to the tenant before any monies including rent are due. Doesn’t have to be landlord’s true address (as in s47) and can be the agent’s address – and normally is. This, like s 47, applies to all residential tenancies that are not business tenancies.

s153 C&LRA 02 – Notice in prescribed form (including size of print – no smaller than 10 point) of tenant’s rights in relation to service charges, and which must be delivered with any demand for service charges, otherwise they are not due. There is a similar notice (although with slightly different prescribed wording) which must be delivered with any demand for administrative charges, such as a demand for the costs. This applies to all long residential leases.

s146 LPA 25 –Notice warning of threat of forfeiture. The most famous of the notices, certainly the statutory ones. Applies to all tenancies where the landlord is seeking to enforce a right of re-entry or forfeiture because of the breach of a term of the lease, other than to pay rent. Must inform the tenant of the alleged breach, require it to be remedies within a reasonable time if it is capable of remedy, and require compensation for the breach. Can’t be served in long residential leases unless the matter complained of is admitted, or determined by a court or the LVT beforehand.

s8 HA 88 – Notice Seeking Possession. The necessary first step to recover possession of an Assured Tenancy, including an Assured Shorthold Tenancy. Has to specify the breach and also set out in full the ground under Sch 2 that is being relied upon, and if more than one, all of them. It also has to give the date after which the proceedings may be issued, and it runs for 12 months, so you can rely on an old notice provided that they still apply.

s21 HA 88 – Notice Requiring Possession. Not to be confused with the above. 2 months’ notice ending on the end of a rental period means that the court must grant possession on an AST provided everything is in order. Date for notice crucial – note a tenancy that runs from the 1st of the month ends on the 31st (or whatever) of the month, and that is the date that must be given. There is a different form if the notice is served during any fixed term. And the notice is invalid if the tenant’s deposit hasn’t been properly protected and the appropriate notices etc haven’t been served in time  – ie within 30 days of the deposit being received.

And finally the Notice to Quit – which is a creature of common law and the oldest by a long way. It brings a periodic tenancy to an end, provided that it isn’t an assured or secure one, or a business tenancy protected by Part II of the Landlord and Tenant Act 1954 (which has its own forms of notices). The most common reason for serving one is to terminate a periodic assured tenancy where the tenant is no longer living in the property as their principal dwelling house, and so it is no longer assured.

There is one common thread to all these notices: they have to be served on the tenant. And then the landlord has to be able to prove that they have done so. Most tenants will deny receiving them, so just sticking them in the post is not a good idea on the whole. The best way is personal service, with a signed acknowledgement, failing which with a witness or a professional server. However, a well-drawn lease will include the deemed service provisions from s23 L&TA 1927 that allows a notice sent by Recorded Delivery to the tenant’s last know place of abode in England and Wales to be good service on posting, as decided by the ChD in Beanby Estates Ltd v Egg Stores (Stamford Hill) Ltd.

Not the most exciting topic, I’m sure you’ll agree. But an important one.

Berrisford v Mexfield – the Supreme Court Speaks

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The Problem

Mexfield Housing Co-Operative are a fully mutual housing association and tenants have no security of tenure. In 1993 they bought Mrs Berrisford’s house from her as a mortgage rescue and re-let it to her for £89/week on a lease that was expressed to run “from month to month” and which allowed her to terminate it by a month’s notice, but only allowed Mexfield to do so if she failed to pay the rent or breached other terms. She got behind with the rent but instead of exercising the forfeiture clause (which would have failed as she soon paid up the arrears) they decided to argue that the whole lease was invalid because it was a lease without a term, that this sort of lease had been invalid since the 15th Century, and that they could therefore give the statutory 28 days notice and recover possession. They served the notice in 2008 and issued proceedings in the County Court shortly afterwards.

The County Court Judge, in a commendably practical way, rejected the claim, but Mexfield appealed and won in the High Court and the Court of Appeal. In all fairness to them by this stage they had agreed to grant her another lease in valid terms if they won, and the battle was being fought as a test case. But this did not alter the prospect to the wider world.

The case had caused considerable alarm in housing circles. And not only because it seemed unfair, but because there are many  thousands of properties let in this way throughout the country, often to older residents, and the thought that all their leases were, or even might be invalid didn’t really bear thinking about.

The legal basis for the argument was eminently respectable. Cases going back to Say v Smith (1563) and beyond  have held that a lease has to have a fixed or determinable length.  During WW2 the CA held, rather inconveniently, that leases expressed to last “for the duration of the war” were invalid – Lace v Chantler (1944) – and this needed to be reversed by temporary legislation. And in Prudential v London Residuary(1992) the HL approved this and held that a lease by a shop owner from the LCC of some forecourt “until it is needed for road widening” was not a lease because it was not for a fixed or determinable term. There are also cases holding that although you can restrict a landlord’s right to terminate a periodic tenancy (eg a monthly one) for a fixed period you cannot restrict it indefinitely.

However, there is no real reason why this has to be the case. It is just a historic quirk of English law. And it is perfectly possible to grant a lease of say 2,000 years, terminable on 3 months’ notice if the landlord needs the land for road widening. Or you can let the land on monthly periodic tenancies which can run on for as long as you like, provided nobody terminates them by notice, which could be for ever. And before 1925 you could even have perpetually renewable tenancies and freeholds which could be terminated for various reasons.

Furthermore, there is  the deep-seated concept of pacta sunt servanda – agreements are to be kept. Mexfield had agreed not to end her occupation except in certain circumstances, and here they were tearing up the agreement and saying that they had never been bound by it, despite having taken her rent for some 15 years. This can’t be right.

The Solution

Well, the Supreme Court has spoken ([2011] UKSC 52) and said that not only is the lease valid as a lease, but that Mexfield would in any event be bound by their agreement, even if for some reason the lease wasn’t valid. So Mrs Berrisford wins twice over, and there is a lot of relief all round.

It would be tempting to say that, like the giant computer Deep Thought in The Hitchhiker’s Guide to the Galaxy, the answer  (to life, the universe, and  everything) came out as 42 because nobody had thought of the question very much. Or that it is just an instance of what my Professor called Lord Denning’s Little Old Ladies rule (viz Little Old Ladies win). It would have been disappointing if the decision had gone the other way, given the intrinsic merits. However, this was no push-over, and the SC had to pull out some unusual arguments to get the right result.

Lord Neuberger, with whom the others basically agreed, held that this was not the time nor the case to abolish the common law need for tenancies to have terms.  It was old and basic to the 1925 status of land law – leaseholds are for terms, freeholds are for ever. If it was to be abolished it was up to parliament to do this.

However, the 1925 legislation had specifically provided for one fairly common species of indefinite tenancies- leases for lives. s149(6) of the Law of Property Act 1925 said that:

Any lease… at a rent…for life… or any contract therefor made before or after the commencement of the Act… shall take effect as a lease…for a term of 90 years determinable after the death … of the original lessee … by at least one month’s notice….

A lease to an individual for an uncertain term was regularly recognised before 1925 as a lease for life. Mrs Berrisford is an individual. Accordingly as Mrs Berrisford is still alive the tenancy continues.

Alternatively, the agreement was personally binding on the parties even if it was not a lease and could not really be a licence and it would not have been binding on say Mexfield’s successors in title. Pacta sunt servanda indeed.

Comment

Lord Hope commented that they do things better in Scotland, and that perhaps it was time to allow fully mutual housing associations to grant assured tenancies, while Lady Hale referred to Carrollean concepts  and said the position became “curiouser and curiouser”.  It is hard to disagree.

But what are the lessons to learn? Perhaps:

  • Avoid granting this form of lease in the future – it is easy to do so by granting a longer lease terminable by notice on death if this is what you want, and much easier to understand.
  • Remember that if the tenant is not a person – a company of some kind – they can’t have a lease for lives and the safety net provided here won’t work –  eg the tenant in Prudential.
  • And if the landlord sells their interest on then the binding agreement argument doesn’t work either.
  • It is always dangerous trying to do something which looks like sharp practice, and judges will always strain their utmost to avoid allowing this sort of thing to succeed.
  • And do not underestimate the skill and ingenuity of the Supreme Court. The judges, and the barristers appearing before them, pull the most unexpected rabbits out of hats when it really matters. And in this case only a month after hearing the argument, which is impressive in itself.

Written by Coventry Man

09/11/2011 at 23:47

Leases without Terms – Berrisford v Mexfield – Update

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Just a quick note to remind readers that the appeal on Berrisford v Mexfield is listed in the Supreme Court for 5th and 6th October. This is the case about whether leases that cannot be ended by the landlords unless the tenant defaults (and widely used by Housing Associations at one stage) are valid or not.

And, more interestingly, what happens if they are not valid.

The decision is not likely to be out much before Christmas, especially as it is a 7 member court, but there may be some indications of the way matters are pointing, and if anybody hears these I’d be very interested.

Written by Coventry Man

03/10/2011 at 16:32

Leases without Terms – Berrisford v Mexfield

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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 …

10.1  If

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 [2010]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 [1992] 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.

Written by Coventry Man

12/09/2011 at 16:28