Landlord and tenant — Assured tenancy — Statutory relief under section 138 of County Courts Act 1984 — Whether assured tenant entitled to relief under section 138
The plaintiff owned a property that was let to the
defendants for a 10-year term from 1 December 1989. The tenancy was an assured
tenancy under the Housing Act 1988. By April 1998 the defendants owed £2,239.92
in arrears of rent. Following the service of a notice under section 8 of the
1988 Act, relying on grounds 8 and 10 of Schedule 2, and the issue of
possession proceedings, the district judge, on 29 June 1998, made an order for
immediate possession. On 5 August 1998, and following the payment of all the
arrears, the defendants’ application for suspension of the possession order was
dismissed. On 23
were entitled to invoke the relief provided for by section 138 of the County
Courts Act 1984; he set aside the two orders. The plaintiff appealed.
allowed. The express words of section 5(1) of the 1988 Act make it abundantly
clear that the order for possession ipso facto brings the assured
tenancy to an end. The terms of the 1988 Act expressly rule out a claim for
forfeiture, first, by virtue of section 5(1), which provides the only route for
bringing an assured tenancy to an end, and, second, by virtue of section 45(4),
which makes an express declaration to this effect for the avoidance of doubt.
Furthermore, section 7(3) is explicit, obliging the court mandatorily to order
possession if the court is satisfied that any of the grounds in Schedule 2
Part
1984 Act.
No cases are referred to
in this report.
This was an appeal by the plaintiff, Artesian
Residential Investments Ltd, from a decision of Judge Nicholas Mitchell in
Telford County Court, allowing appeals by the defendants, Nick Beck and
another, from two orders of the district judge in possession proceedings
brought by the plaintiff.
Edward Denehan (instructed by Finers) appeared for
the appellant; Jan Luba (instructed by R Gwynne & Sons, of Shrewsbury)
represented the respondents.
Giving judgment, HIRST LJ said: This case raises an important point of
principle, namely whether a tenant is entitled to invoke the relief provided
for by section 138 of the County Courts Act 1984, in relation to an order for
possession validly made against him as an assured tenant of the demised
premises within the meaning of section 1 of the Housing Act 1988.
On 23 October 1998 Judge Mitchell in Telford
County Court held that he is so entitled, and consequently set aside the orders
made on 29
Beck, should give the plaintiff, Artesian Residential Investments Ltd,
possession of 42 The Hobbins, Bridgnorth, Shropshire.
These two orders had been made respectively by
District Judge Garrett and District Judge Schroeder, and the latter, while
expressing sympathy for Mr Beck, expressly held that the court had no such
power.
It is against Judge Mitchell’s order that the
landlord presently appeals, and there is also a respondent’s notice.
The facts are not in dispute, and I gratefully
adopt the summary in the judge’s judgment, which is as follows:
The facts that lead to this matter are not in
dispute. The plaintiffs are freehold reversioners of a property known as No 42
The Hobbins, Bridgnorth, Shropshire (which I will refer to as ‘the property’).
By a written agreement, the plaintiffs’ predecessors in title demised the
property to the defendant for a fixed term of 10 years from 1
1989. The initial rent payable under the terms of the tenancy agreement was at
the rate of £2,700 pa, but that rent is subject to review by means of an
index-linking provision. The rent is payable monthly in advance. The tenancy
agreement incorporated letting terms that include [as clause 4(a)(i)] a proviso
for re-entry and determination if the rent is at any stage 14 days in arrears.
The defendants have throughout occupied the property
and continue to do so as their only principal home. The tenancy accordingly is
an assured tenancy within the provisions of the Housing Act 1988.
The defendants duly paid the rent and performed
the terms of the tenancy until some time in around 1996 they encountered
financial difficulties when the first defendant was made redundant. By this
time, the monthly rent payable had increased to a rate of £313 per month. By
April 1998 the arrears of rent amounted to £2,239.92 and no payment at all had
been made since December 1997.
On 15 April 1998 the plaintiffs served notice on
the defendants, pursuant to the provisions of section 8 of the Housing Act
1988, of their intention to seek possession on the grounds numbered 8 and 10 in
Schedule 2 to the Act. Proceedings were then issued on 14 May 1998, and on 29
June 1998 those proceedings came on for hearing before Mr District Judge
Garratt, who made an order for immediate possession together with judgment for
the arrears of rent in accordance with County Court Form N26.
On 7 July the defendants applied for a suspension
of that order saying that with the aid of a friend they would be able to clear
the arrears in full within a matter of days. On 10 July 1998 they did indeed
clear those arrears fully by means of a banker’s cheque. Since that time the
monthly rent has been paid on the due date and is now up to date.
On 5 August the defendants’ application for
suspension came on for hearing before Mr District Judge Schroeder…
The case turns almost entirely on the construction
of the relevant sections of the Housing Act 1988, and its interrelation with
section 138 of the County Courts Act 1984.
It is common ground that the defendants’ tenancy
was
which is the opening section of Part I Chapter I of the Act, the chapter being
headed ‘Assured Tenancies’. Section 5(1), which is headed ‘Security of Tenure’,
provides as follows:
5.–(1). An assured tenancy cannot be brought to
an end by the landlord except by obtaining an order of the court in accordance
with the following provisions of this Chapter… or, in the case of a fixed term
tenancy which contains power for the landlord to determine the tenancy in
certain circumstances, by the exercise of that power and, accordingly, the
service by the landlord of a notice to quit shall be of no effect in relation
to a periodic assured tenancy.
Section 7, headed ‘Orders for Possession’, which
is one of the key sections for present purposes, provides as follows so far as
relevant:
7.–(1). The court shall not make an order for
possession of a dwelling-house let on an assured tenancy except on one or more
of the grounds set out in Schedule 2 to this Act; but nothing in this Part of
this Act relates to proceedings for possession of such a dwelling-house which
are brought by a mortgagee, within the meaning of the Law of Property Act 1925,
who has lent money on the security of the assured tenancy.
(2) The following provisions of this section have
effect, subject to section 8 below, in relation to proceedings for the recovery
of possession of a dwelling-house let on an assured tenancy.
(3) If the court is satisfied that any of the
grounds in Part I of Schedule 2 to this Act is established then, subject to
subsections (5A) and (6) below, the court shall make an order for possession…
(6) The court shall not make an order for
possession of a dwelling-house to take effect at a time when it is let on an
assured fixed term tenancy unless —
(a) the ground for possession is Ground 2 or
Ground 8 in Part I of Schedule 2 to this Act or any of the grounds in Part II
of that Schedule, other than Ground 9 or Ground 16; and
(b) the terms of the tenancy make provision for
it to be brought to an end on the ground in question (whether that provision
takes the form of a provision for re-entry, for forfeiture, for determination
by notice or otherwise).
Section 8, headed ‘Notice of proceedings for
Possession’, provides, so far as relevant, as follows:
8.–(1). The court shall not entertain proceedings
for possession of a dwelling-house let on an assured tenancy unless —
(a) the landlord or, in the case of joint
landlords, at least one of them has served on the tenant a notice in accordance
with this section and the proceedings are begun within the time limits stated
in the notice in accordance with subsections (3) to (4B) below, or
(b) the court considers it just and equitable to
dispense with the requirement of such a notice.
(2) The court shall not make an order for
possession on any of the grounds in Schedule 2 to this Act unless that ground
and particulars of it are specified in the notice under this section; but the
grounds specified in such a notice may be altered or added to with the leave of
the court.
(3) A notice under this section is one in the
prescribed form informing the tenant that —
(a) the landlord intends to begin proceedings for
possession of the dwelling-house on one or more of the grounds specified in the
notice; and
(b) those proceedings will not begin earlier than
a date specified in the notice in accordance with subsections (4) to (4B)
below; and
(c) those proceedings will not begin later than
twelve months from the date of service of the notice.
Ground 8 in Schedule 2 Part I, which is headed
‘Grounds on which Court must order Possession’, is in the following terms:
Both at the date of the service of the notice
under section 8 of this Act relating to the proceedings for possession and at
the date of the hearing —
(a) if rent is payable weekly or fortnightly, at
least eight weeks rent is unpaid;
(b) if rent is payable monthly, at least two
months rent is unpaid;
(c) if rent is payable quarterly, at least one
quarter’s rent is more than three months in arrears; and
(d) if rent is payable yearly, at least three
months’ rent is more than three months in arrears;
and for the purpose of this ground ‘rent’ means
rent lawfully due from the tenant.
Section 45(4) of the Act provides as follows:
For the avoidance of doubt, it is hereby declared
that any reference in this Part of this Act (however expressed) to a power for
a landlord to determine a tenancy does not include a reference to a power of re‑entry
or forfeiture for breach of any term or condition of the tenancy.
Section 138 of the County Courts Act 1984, under
the heading ‘Provisions as to Forfeiture for non-payment of Rent’ provides, so
far as relevant, as follows:
(1) This section has effect where a lessor is
proceeding by action in a county court (being an action in which the county
court has jurisdiction) to enforce against a lessee a right of re-entry or
forfeiture in respect of any land for non-payment of rent .
(2) If the lessee pays into court not less than 5
clear days before the return day all the rent in arrear and the costs of the
action, the action shall cease, and the lessee shall hold the land according to
the lease without any new lease.
(3) If —
(a) the action does not cease under
subsection (2); and
(b) the court at the trial is satisfied
that the lessor is entitled to enforce the right of re-entry or forfeiture,
the court shall order possession of the land to be
given to the lessor at the expiration of such period, not being less than 4
weeks from the date of the order, as the court thinks fit, unless within that
period the lessee pays into court or to the lessor all the rent in arrear and
the costs of this action.
(4) The court may extend the period specified
under subsection (3) at any time before possession of the land is recovered in
pursuance of the order under that subsection.
(5) If —
(a) within the period specified in the
order; or
(b) within that period as extended under
subsection (4),
the lessee pays into court or to the lessor —
(i) all the rent in arrear; and
(ii) the costs of the action,
he shall hold the land according to the lease
without any new lease.
The judge expressed the view that it required very
careful consideration before a decision is arrived at that the provisions of
the Housing Act 1988 should ‘remove by a sidewind’ protection that is afforded
to any other tenant or lessee for a term of years, all the more so because of
the exclusion of the discretion to adjourn, stay or suspend any order or
proceedings pursuant to section 9(6).
He then went on as follows:
It would be odd indeed, and I would for my part
say repugnant, anomalous and unjust, that one class of tenant should be
excluded from the right to relief from forfeiture; and, even more so, where, as
here, there is a blameless tenant who has performed satisfactorily for many
years but is then faced with losing his entire tenancy for what may be a long
term of years yet remaining (not as it happens in this case, but as it may well
be, particularly where one is considering, as has been observed by the editors
of the Encyclopedia of Housing, a term that would be likely to be
attractive to a mortgagee) and that in these circumstances the tenant would
lose that long term of years and find himself forfeited and expropriated as the
result of a temporary difficulty in payment of the rent that was beyond his
control, and might indeed be a very temporary difficulty — only two months’
arrears being required to meet the conditions of ground 8.
In the upshot, he held that section 138 of the
1984 Act did apply stating:
In my judgment, it cannot be gainsaid that what
the plaintiff in substance is seeking to do here is to enforce a right of
re-entry for non-payment of rent. That is a right to which section 138(1) of
the County Courts Act expressly applies. Without that right the plaintiffs
would not arrive at all at the provisions of subsection 7(6)(b) of the Housing
Act 1988 if… subsection 7(6)(b) does apply to the provisions for re-entry or
forfeiture in standard form, notwithstanding the provisions of subsection
45(4). As I say, in my judgment, in substance the landlord is seeking to
enforce a right of forfeiture or re-entry.
He concluded as follows:
The appropriate form of order, it being
undoubtedly just and equitable to grant the tenants relief in these
circumstances and in any event being mandatory under section 138, would have
been an order in form N27 of the County Court Forms. That form of order would,
in the circumstances of the Housing Act, be sufficient to resolve both the
contractual tenancy and also the statutorily governed assured tenancy under the
1988 Act. If the tenants pay within the stipulated period, the intermediate
stage of termination of the contractual tenancy is, in those circumstances, not
passed. But, if they do not pay within the stipulated period, the contractual
tenancy is then struck down, together also with the security of tenure of an
assured tenant under the Housing Act 1988.
The plaintiff’s particulars of claim are contained
in the appropriate county court form headed ‘Summons for Possession of
Property’, and, having alleged that the property was let under an assured
tenancy agreement, and that the defendant was currently in arrears of rent
totalling £2,552.92, claimed possession, inter alia, under ground 8.
There were other entries on the summons on which
Mr Jan Luba relies in one of his additional grounds, to which I will refer in
due course.
At the outset of his submissions on behalf of the
landlord, Mr
section 138 had no application in the present case, because the plaintiff was
not proceeding to enforce against the defendant a right of re-entry or
forfeiture in respect of the premises for non-payment of rent, which under
section 138(1) is the prerequisite of the operation of the section. Otherwise,
section 138 does not come into play at all, and consequently it is a legal
impossibility for the tenant to succeed on the basis of that section.
The starting point in the 1988 Act, he submitted,
is section 5(1), which expressly provides that an assured tenancy cannot be
brought to an end by the landlord except by obtaining an order of the court or
(which has no application in the present case) in the case of a fixed‑term
tenancy by the exercise of a power for the landlord to determine the tenancy in
certain circumstances. The important aspects of those words, he submitted, were
twofold, viz:
(a) the order for possession in itself ipso
facto brings the tenancy to an end.
(b) any other means of bringing the tenancy to an
end, (eg forfeiture) is excluded.
This second aspect was, he submitted, underlined
by section 45(4), which declared, for the avoidance of doubt, that the power
for a landlord to determine the tenancy does not include a reference to a power
of re‑entry or forfeiture.
Section 7(1), he contended, precludes the court
from making an order for possession of a dwelling-house let on an assured
tenancy except on one or more of the grounds set out in Schedule 2. Section 7
then proceeds to spell out this requirement in the ensuing subsections, section
7(3) rendering it mandatory to make an order for possession if any of the
Schedule 2 Part I grounds is established, subject to, inter alia,
section 7(6). At this point Mr Denehan placed particular emphasis on the word
‘shall’ in subsection (3).
Section 7(6) lays down two further limitations:
(a) that the ground for possession is ground 8
(the only relevant one for present purposes); and
(b) that the terms of the tenancy make provision
for it to be brought to an end on the ground in question (whether that provision
takes the form of a provision for re-entry, for forfeiture, for determination
by notice or otherwise).
Pausing at this juncture, Mr Denehan drew
attention to the terms of clause 4(a)(i) of the lease, which prescribed:
The landlord may re-enter on the property and
immediately thereupon this agreement shall absolutely determine without
prejudice to other remedies of the landlord
(i) if the rent or any monies payable under the
agreement shall be in arrears or unpaid for at least fourteen days after the
same shall have become due (whether demanded or not)…
It is, he submitted, very important to appreciate
that section 7(6)(b) does no more than require provision for eg forfeiture to
be included in the terms of the tenancy (as it was here by clause 4(a)(i)), and
does not, he stressed, set up forfeiture as an independent ground for
terminating the tenancy.
Nothing turned on section 8, since it was common
ground that the notice served on 15 April 1998 complied with its requirements.
In a nutshell, he submitted that the judge had
been right in his interpretation of the 1988 Act, but wrong in applying section
138 of the 1984 Act, since the requirements of section 138(1) were not met,
there being no proceedings to enforce a right of re-entry or forfeiture.
Mr Luba’s submissions fell into two parts: first,
as to the general principles addressed by Mr Denehan; and, second, by reference
to the two points raised in his respondent’s notice, which turn not on general
principles but on the particular terms of the tenancy agreement and of the
summons in the present case. I propose first to consider and give my
conclusions on the general point of principle, before returning at the end of
this judgment to the points raised in the respondent’s notice.
Mr Luba submitted that, as a matter of principle,
a claim for possession under the 1988 Act and a claim for forfeiture operated
in parallel and against the same factual background, with the latter opening
the door to a section 138 application. A claim for forfeiture, he pointed out,
inevitably takes the landlord into the county court, since by virtue of section
2 of the Protection from Eviction Act 1977, the landlord is required, in such
circumstances, to bring proceedings in the county court. In order to bring the
lease to an end under its contractual terms, he submitted, it was incumbent on
the landlord to invoke the forfeiture provisions under clause 4(a)(i),
otherwise the lease would continue in being, with mutual contractual
obligations continuing in force, even though an order for possession had been
made pursuant to the 1988 Act. This approach was in full conformity with
section 7(6)(b), which he portrayed as, in effect, hallmarking forfeiture as a
parallel ground in any case where the lease is still in being when the 1988 Act
proceedings for possession are brought.
Mr Luba frankly recognised that section 45(4)
presented him with a problem, but he submitted none the less that section
7(6)(b) was the dominant provision. In the result, he submitted, the judge’s
approach in applying section 138 was correct.
I am unable to accept Mr Luba’s argument
substantially for the reasons advanced by Mr Denehan.
In my judgment, the problem that Mr Luba poses as
to the termination of the contractual tenancy is met by the express words of section
5(1) itself, which make it abundantly clear that the order for possession ipso
facto brings the assured tenancy to an end. This construction is also borne
out in another provision of the Act (section 7(7)). This provides that when the
court makes an order for possession on grounds relating to a fixed-term tenancy
that has come to an end, any ensuing statutory periodic tenancy that has arisen
on the ending of the fixed-term tenancy shall end (without any notice or
regardless of the period) on the day on which the order takes effect, thus
bringing the situation where the contractual tenancy has come to an end into
line with my interpretation of section 5(1) as just described.
This construction of section 5(1) removes the main
foundation of Mr Luba’s argument that a parallel claim for forfeiture is
necessary in order to avoid the contractual tenancy continuing after the
granting of the order for possession under the 1988 Act.
Next, I am quite satisfied that the terms of the
1988 Act expressly rule out a claim for forfeiture, first, by virtue of section
5(1) itself, which provides the only route for bringing an assured tenancy to
an end (ie by obtaining a 1988 Act order for possession), and, second, by
virtue of section 45(4), which makes an express declaration to this effect for
the avoidance of doubt.
Furthermore, section 7(3) is explicit, obliging
the court mandatorily to make an order for possession if the court is satisfied
that any of the grounds in Schedule 2 Part I is established, subject, inter
alia, to section 6: this same stringency is reflected in the heading
to Part I (grounds on which the court must order possession).
Section 7(6) itself provides, in my judgment, two
stepping-stones that the landlord must traverse in order to achieve his goal of
an order for possession, with section 7(6)(b) itself requiring no more than
that there be provision in the terms of the tenancy itself for it to be brought
to an end on the ground in question, (eg by forfeiture). Mr Luba’s submission
as to the construction of subsection (b), ie treating it as in effect a
separate ground, seems to me wholly untenable in the light of both section 5(1)
and section 45(4).
Thus, as a matter of principle, I am satisfied
that there was no room for applying section 138 of the 1984 Act, since the
requirements of section 138(1) were not met.
I can well sympathise with the judge’s anxiety, as
expressed in his very clear judgment, as to the consequences of this
interpretation upon a tenant’s position under an assured tenancy as contrasted
with other types of tenancy. But I am driven to the conclusion I have reached
by the express terms of the 1988 Act as I have analysed them above.
The stringency of the scheme laid down in the Act
is exemplified not only by the mandatory requirement of section 7(3), but also
by the provision in section 9(6) of the Act (to which the judge referred),
which provides that the extended discretion of the court to adjourn, stay or
suspend proceedings for possession, as set out in section 9(1) to (5), does not
apply if the court is satisfied that the landlord is entitled to possession of
the dwelling house on any of the grounds of Part I of Schedule 2 of the Act
(including, of course, ground 8).
I now turn to the two points raised by Mr Luba in
his respondents’ notice. First, he contends that the compilation of the
summons, when read with reference to the side notes for guidance on the summons
form, indicates that this was a claim for forfeiture as well as for possession
under the 1988 Act. This was a somewhat tenuous argument in view of the express
reliance on the Act in the plea that I quoted earlier in the judgment, but in
any event the argument cannot stand in the light of my conclusion that the Act
itself debars a claim for forfeiture in the case of an assured tenancy.
The second point raised is that clause 4(a)(i) in
the tenancy agreement did not meet the requirements of section 7(6)(b) because
it did not spell out precisely the requirements of ground 8(b) in a case such
as the present where the rent is payable monthly. However, in my judgment, the
notification by reference to the rent being in arrears or unpaid ‘for at least
14 days’ was sufficient for this purpose.
I cannot leave this case without expressing my
admiration and gratitude for the admirable arguments addressed by Mr Denehan
and Mr Luba, both in their skeleton arguments and in their crisp and persuasive
oral submissions.
For all these reasons I would allow this appeal.
MANTELL LJ agreed and did not add anything.
Appeal allowed.
