Rent Act 1977 — Statutory tenants — Tenancy granted in contravention of prohibition in mortgage deed — Tenancy granted for a term of nine months after which tenants became statutory tenants — Mortgagees sought possession of mortgaged premises and county court judge made order for possession in mortgagees’ favour — Statutory tenants, second defendants in action, appealed — The first defendant, the mortgagor, did not contest the claim for possession — Judge’s decision upheld by Court of Appeal — Previous doubt as to mortgagees’ paramount rights against statutory tenants removed
from Dudley and District Benefit Building Society v Emerson that where a
mortgagor had granted a tenancy in breach of the terms of the mortgage the
mortgagee could recover possession under his paramount title against the
tenant, even if the latter was protected under the Rent Acts — At any rate this
was clear if the tenancy was contractual — The position was open to some doubt
if the tenancy had become statutory, although Somervell LJ in the Emerson case,
by way of dictum, considered that there would be no anomaly in applying the
same rule to a statutory tenancy
present case the main argument on behalf of the appellants was that the Emerson
decision did not apply to statutory tenants — It was submitted that a statutory
tenancy was different in kind from a contractual tenancy and that, accordingly,
a mortgagee’s title paramount put the mortgagee in no better position than the mortgagor
— In support of this view the appellants cited Jessamine Investment Co v Schwartz, where
it had been held that a statutory subtenancy did not terminate against the head
landlord where possessory title was acquired against the tenant — The appellants
also argued that, by reason of being statutory and not contractual tenants, a
possession order could be made against them only under the provisions of
section 98 of the 1977 Act, irrespective of whether proceedings were brought by
the landlords or by the mortgagees as holders of title paramount — The court
was not, however, convinced by the appellants’ submissions — In Jessamine
Investment Co v Schwartz (itself a difficult decision) the Emerson decision was not
cited — In Quennell v Maltby, although the point was not argued, Templeman LJ (as he then
was) clearly assumed that the title paramount was effective against a statutory
tenant — Section 98 of the Act of 1977, which the appellants had invoked,
equated ‘protected’ and ‘statutory’ tenants so far as security of tenure was
concerned — The present decision of the Court of Appeal seems to remove any
doubt that may have remained about the paramount rights of the mortgagee
against statutory tenants
submission made by the appellants, as an alternative to the first, was that the
court should, under section 36 of the Administration of Justice Act 1970,
adjourn the action for such period as it thought reasonable, subject only to
the likelihood of sums due under the mortgage being paid within a reasonable
time — The court held, however, that if section 36 applied to tenants at all,
it did not apply to statutory tenants, who were not contemplated by the
definitions in section 39(1) of the 1970 Act — Appeal dismissed
The following
cases are referred to in this report.
Bolton
Building Society v Cobb [1966] 1 WLR 1;
[1965] 3 All ER 814
Dudley
& District Benefit Building Society v Emerson
[1949] Ch 707; [1949] 2 All ER 252; (1949) 65 TLR 444, CA
Jessamine
Investment Co v Schwartz [1978] QB 264;
[1977] 2 WLR 145; [1976] 3 All ER 521; (1976) 33 P&CR 346, CA
Lloyd v Sadler [1978] QB 774; [1978] 2 WLR 721; [1978] 2 All ER
529, CA (1978) 35 P&CR 78; [1978] EGD 291; 246 EG 479, [1978] 1 EGLR 76, CA
Quennell v Maltby [1979] 1 WLR 318; [1979] 1 All ER 568; (1978) 38 P&CR
1; [1979] EGD 363; 249 EG 1169, [1979] 1 EGLR 106, CA
Tarn v Turner (1888) 39 ChD 456
This was an
appeal by Prakash Kumar Amin and Nitin B Amin, statutory tenants of premises at
12A Stuart Tower, Maida Vale, London W9 (and second defendants in the county
court action), from the decision of Judge Dobry QC, at Bloomsbury County Court,
granting possession of the premises to Britannia Building Society, mortgagees
of the premises, plaintiffs in the county court and respondents to the appeal.
The first defendant in the county court action, Anthony John Earl, the
mortgagor, did not contest the claim for possession and was neither present nor
represented before the judge.
Brian Keith QC
and Miss A McAllister (instructed by Daniel & Harris) appeared on behalf of
the appellants; David Neuberger QC and Miss Fiona Graham (instructed by Howard
Kennedy) represented the respondents.
Giving the
first judgment at the invitation of Butler-Sloss LJ, McCOWAN LJ said:
This is an appeal against a judgment of His Honour Judge Dobry QC given at
Bloomsbury County Court on February 17 1989 whereby he ordered that the
appellants give up possession of premises known as 12A Stuart Tower, Maida
Vale, London W9, within 28 days of the date of his order.
The
respondents to this appeal (the plaintiffs in the action) were the mortgagees
of the premises under a mortgage deed between themselves and the mortgagor, one
Anthony John Earl, who was the first defendant in the action. The mortgage deed
was dated October 4 1985 and the total amount advanced was £43,630. By the date
of the hearing of the action the mortgage payments due to the plaintiffs from
the first defendant were in the region of £5,000. The first defendant did not
contest the claim for possession and was, indeed, neither present nor
represented before the judge.
However, after
the plaintiffs had brought the proceedings, at that stage against the first
defendant alone, it was discovered that two brothers called Amin were in
occupation of the premises and they were joined as second defendants. They are
the appellants before this court. It emerged — and these facts were not in
dispute before the learned judge — that a bare three weeks after entering into
the mortgage deed the first defendant let the premises to the second
defendants, who have lived there ever since and paid rent to the first
defendant for so doing in accordance with their tenancy. The first they heard
of these proceedings, or that the tenancy had been granted to them after the
date of the mortgage and in breach of it, was when they were served with a
notice that the warrant of possession was about to be executed. They promptly
applied for the warrant to be suspended (and the registrar of the court so
ordered) and that they be joined as second defendants.
Their tenancy
was for nine months from October 25 1985. It is not in dispute that after the
expiry of that period, as between the first and second defendants, the second
defendants became statutory tenants.
On the other
side of the coin, however, these facts were undisputed:
1 The mortgage deed pre-dated the tenancy
agreement;
2 The mortgage deed prohibited any purported
letting of the property without the consent of the plaintiffs; and
3 No such consent was sought or obtained by the
first defendant.
In those
circumstances, three arguments were advanced on behalf of the second defendants
before the learned judge. One of those has been abandoned before us. Of the two
that remain, the first is put like this: it is said that by reason of being
statutory and not contractual tenants a possession order can be made against
the appellants only under the provisions of section 98 of the Rent Act,
irrespective of whether proceedings are brought by the landlords or by the
mortgagees as holders of the title paramount.
It is
necessary that I should have regard to certain sections of the Rent Act 1977.
Section 1 reads:
1. Subject to
this Part of this Act, a tenancy under which a dwelling-house (which may be a
house or part of a house) is let as a separate dwelling is a protected tenancy
for the purposes of this Act.
Any reference
in this Act to a protected tenant shall be construed accordingly.
Section 2(1):
(1) Subject to this Part of this Act —
(a) after the termination of a protected tenancy
of a dwelling-house the person who, immediately before that termination, was
the protected tenant of the dwelling-house shall, if and so long as he occupies
the dwelling-house as his residence, be the statutory tenant of it . . . .
I need not
read further in that section, but I turn to section 98 of the Act. Subsection
(1) reads:
(1) Subject to this Part of this Act, a court
shall not make an order for possession of a dwelling-house which is for the
time being let on a protected tenancy or subject to a statutory tenancy unless
the court considers it reasonable to make such an order and either —
(a) the court is satisfied that suitable
alternative accommodation is available for the tenant or will be available for
him when the order in question takes effect, or
(b) the circumstances are as specified in any of
the Cases in Part 1 of Schedule 15 to this Act.
I need not read
more of this section.
In this
context the respondents rely on a passage in Fisher and Lightwood’s Law of
Mortgage, 10th ed at p 358. It reads:
The mortgagor
being unable to confer on another a greater right than he himself possesses,
his tenant claiming under a lease made after the mortgage without the privity
of the mortgage, was, and in cases outside section 99 of the Law of Property
Act 1925 still remains — like his lessor, liable to be ejected without notice,
and he has no remedy except against the mortgagor.
The
respondents also rely on the decision of the Court of Appeal in the case of Dudley
and District Benefit Building Society v Emerson, which is reported
in [1949] Ch 707. In that case the court held that a contractual tenancy
granted by a mortgagor after the date of the mortgage which excluded the
mortgagor’s statutory power of leasing was liable to be defeated by the
assertion by the mortgagees of their paramount title. At the beginning of his
judgment (at p 711 of the report) Sir Raymond Evershed MR said:
The case is
not by any means, in my view, free from serious difficulty, and it is perhaps
surprising that there has been no similar case before the court since the rent
restriction legislation first operated; for the point, put in its briefest
form, is this: Can a person in occupation of premises within the monetary
limits prescribed by the Act, by virtue of a contract of tenancy between
himself and a mortgagor, claim the protection of those Acts against a mortgagee
claiming to assert his rights as mortgagee, where by the terms of the mortgage
section 99 subsection (1) of the Law of Property Act 1925 has been expressly
excluded? Vaisey J came to the
conclusion that such a tenant could so claim protection and it is with natural
diffidence that I find I have reached a different conclusion.
In the middle
of p 718 the Master of the Rolls continued:
The question
has been debated whether the result would be the same if the mortgagor,
Emerson, had determined the contractual tenancy, which he undoubtedly did
create between himself and Goodlad, so that at any rate as between himself and
Goodlad a statutory tenancy had arisen. I prefer for my part to express no view
whether the result would be different if Goodlad could say: ‘My right to remain
here is not by virtue of any contract, or any estate which I derive from
Emerson, but is by virtue of the statutory right to possession which, as
between me and Emerson, the Act has conferred’. Mr Heathcote-Williams suggested
that in that event the mortgagees could not succeed in ousting Goodlad, but I
must not be taken to assent to that. As I have said, I find it unnecessary to
decide it. It may be that there is an anomaly, but I am certainly not satisfied
that, if there had been a statutory tenancy created in the way I have
indicated, that would have been necessarily sufficient to defeat the
plaintiffs’ rights.
I turn next to
the concluding paragraph of the judgment of Somervell LJ which is to be found
on p 723 of the report:
The only
other point on which I would like to add a word is this. It relates to the last
argument of Mr Heathcote-Williams. It was suggested, and I think probably
rightly, that if the mortgagor in a case like this sought to get possession as
against someone to whom he had let the mortgaged property in the circumstances
which we are considering, that person, if the property was a dwelling-house
separately let, could assert as against the mortgagor the benefits conferred by
the Rent and Mortgage Restrictions Acts, and, if he did so successfully, he
would become a statutory tenant. It is unnecessary to decide what would be the
position if a mortgagee, as against someone who had reached that position,
sought to assert the right which the mortgagee is asserting in this case. All I
want to say is that at the moment I do not myself feel that there would be any
anomaly in coming to the same conclusion in those circumstances. Mr
Heathcote-Williams submitted that there would be an
argument did not affect me in the conclusion to which I have come with regard
to the other points. For these reasons, I think that this appeal must be
allowed.
Jenkins LJ agreed
with the other two judgments.
The court was
also referred to the case of Bolton Building Society v Cobb
[1966] 1 WLR 1, where it was held that the Protection from Eviction Act 1964
did not protect a tenant in a situation comparable to the present as against
the mortgagee.
Against this
the appellants argue that a statutory tenancy is different in kind from a
contractual tenancy and, accordingly, that a mortgagee’s title paramount puts
the mortgagee in no better position than the mortgagor. In support of this
proposition they rely on passages in the judgments in the case of Jessamine
Investment Co v Schwartz [1978] QB 264. Giving the first judgment,
Sir John Pennycuick said, at the bottom of p 270 of the report, referring to
the provisions of the 1968 Rent Act:
The provisions
now contained in section 3(1) have been the subject of a long line of judicial
authorities which establish that the statutory tenant has no estate as tenant,
but a personal right to retain the property. That right is held not only
against his immediate lessor but also against persons under whom the immediate
lessor derives his title, as well, of course, as persons claiming under whom
the immediate lessor: see in this connection Keeves v Dean [1924]
1 KB 685, in the Court of Appeal, per Bankes LJ, where he says at p 690:
‘The person
who so seeks to assign has come to be known as a ‘statutory tenant,’ and I
think it is a pity that that expression was ever introduced. It is really a
misnomer, for he is not a tenant at all; although he cannot be turned out of
possession so long as he complies with the provisions of the statute, he has no
estate or interest in the premises such as a tenant has. His right is a purely
personal one’.
And per
Scrutton LJ, p 694:
‘This case is
another stage in the unwelcome task which Parliament has imposed upon the
courts of defining the position of the ‘statutory tenant’. My Lord has objected
to his being called by that name, on the ground that he is not a tenant at all.
But it is a convenient expression, and, although it is true that before the
passing of these Acts no one would have spoken of a person who after the expiry
of his tenancy remained in possession against the will of his landlord as a
tenant, Parliament has certainly called him a tenant, and he appears to me to
have something more than a personal right against his landlord. I take it that
he has a right as against all the world to remain in possession until he is
turned out by an order of the court, and that he could maintain trespass
against any person who entered the premises without his permission. However, it
does not much matter what he is called so long as it is clear that one is
speaking of a person who holds over after the expiry of his tenancy against his
landlord’s will.’
At the bottom
of p 272 of the report Sir John Pennycuick continued:
Mr Bromley
for the freeholder, asserted, what is certainly true, that, always assuming
section 18 to be inapplicable, there is in such circumstances no relation of
tenancy between the freeholder and the former sub-tenant. But then a statutory
tenancy does not involve such a relation, and indeed its existence negatives
such a relation in the strict sense. The relation is rather what has been
described as a status of irremovability, that status being enjoyed upon terms
analogous to those of a tenancy. I do not see any reason why this personal
status of irremovability should be regarded as inconsistent with the new
interest of the sub-tenant under his possessory title.
I turn next to
a passage in the judgment of Stephenson LJ to be found on p 276, beginning at
E:
By provisions
which are conceded to be no different in effect from section 3(1) of the Rent
Act 1968, Mrs Schwartz was, and would continue to be, the statutory tenant of
this house if and so long as she occupied it as her residence, and the house
was and continued to be subject to her statutory tenancy. She could lose her
statutory tenancy, and the house could lose the burden of being subject to it,
if she ceased to occupy it as her residence or if she was ordered out of
occupation by the court on one of the grounds (including non-payment of rent
lawfully due) set out in section 10 and the relevant provisions of Schedule 3
to the Rent Act 1968. She could also lose her statutory tenancy if the
character of her occupation became inconsistent with her occupation of the
house as her residence by virtue of her statutory tenancy. Without some such
change, she retained her status of irremovability, not only against Mrs David
but against all the world.
Mr Neuberger
for the respondents points out that the Dudley case was not cited before
that court.
However, from
the passages in the judgments to which I have referred, Mr Keith, for the
appellants, argues that a statutory tenant enjoys no more than a personal
right, a status of irremovability good against the whole world. The lack of a
legal estate, he says, is demonstrated in a number of ways. For example, a
statutory tenant has no interest in land capable of assignment or testamentary
disposition; a statutory tenancy cannot pass to the tenant’s trustee in
bankruptcy; and the ordinary law as to joint tenancy is not applied in its full
strictness to a statutory tenancy; see Lloyd v Sadler [1978] QB
774.
However, Mr
Keith conceded that what his argument entailed, looking at the facts of the
present case, was that in the course of the nine months of the contractual
tenancy — at which time the appellants were protected tenants under section 1
of the Rent Act 1977 — they would have had no right to possession as against
the respondents. But, on his argument, once the nine months were up and the
appellants became statutory tenants, the respondents could no longer recover
possession from them. I am bound to say I find this quite illogical.
Mr Keith spoke
of section 98 of the Rent Act 1977 (to which I have already referred) as
providing a complete code for recovery of possession of dwelling-houses. It is
to be noted, however, that this section equates ‘protected’ and ‘statutory
tenancy’ so far as security of tenure is concerned. Yet he is asking this court
to make a profound distinction between them as against mortgagees in the
circumstances here obtaining.
Mr Keith
further placed reliance on views expressed in an article entitled Statutory
Tenants and Mortgagees by Peter Smith, Faculty of Law, Manchester, in vol
41 of the Conveyancer, which support the views which he is submitting.
At the bottom of p 200 in that journal I read this passage:
The result
may be harsh on mortgagees. For their rights to possession may well depend on
the presence of a notice to quit given by a landlord, who had no power to grant
the lease, to a tenant who holds under a lease which was not binding on him
(the mortgagee). A court may be reluctant to find such a result. The opposite
conclusion is however no less harsh on a tenant who has regularly paid his
rent, only to be told he is a squatter and a trespasser.
However, the
remark that rejection of the opinion there expressed would be harsh on a
statutory tenant who has regularly paid his rent would equally apply to a
protected tenant who has regularly paid his rent. (Incidentally, Mr Neuberger
points out that in this very same volume of the Conveyancer is an
article by somebody else which argues a view contrary to that of Mr Smith.)
Our attention
was drawn by Mr Neuberger to some words of Templeman LJ (as he then was) in the
case of Quennell v Maltby [1979] 1 WLR 318, to be found at p
323H:
The lease to
the statutory tenant was made by the landlord after the date of the mortgage
without the consent of the bank, and was therefore in breach of the landlord’s
covenant contained in the mortgage. That lease was binding on the landlord but
void against the bank. On expiry of the lease the tenant became a statutory
tenant as against the landlord but not as against the bank.
Mr Neuberger
concedes that the point was not argued there, but none the less it is a very
persuasive authority and I respectfully follow it. I am, therefore, quite
unpersuaded by Mr Keith’s first point.
His second
point is put by him as an alternative to the first. It revolves around the
words of section 36 of the Administration of Justice Act 1970, subsection (1)
of which reads:
Where a
mortgagee under a mortgage of land which consists of or includes a
dwelling-house brings an action in which he claims possession of the mortgaged
property, not being an action for foreclosure in which a claim for possession
of the mortgaged property is also made, the court may exercise any of the
powers conferred on it by subsection (2) below if it appears to the court that
in the event of its exercising the power the mortgagor is likely to be able
within a reasonable period to pay any sum due under the mortgage or to remedy a
default consisting of a breach of any other obligation arising under or by
virtue of the mortgage.
(2) The court (a) may adjourn the proceedings, or
(b) on giving judgment, or making an order, for delivery of possession of the
mortgaged property, or at any time before the execution of such judgment or
order, may (i) stay or suspend execution of the judgment or order, or (ii)
postpone the date for delivery of possession for such period or periods as the court
thinks reasonable.
Mr Keith
further relies on the definition of ‘mortgagor’ in section 39(1) of that Act.
This reads:
‘Mortgagor’
and ‘mortgagee’ includes any person deriving title under the original mortgagor
or mortgagee.
Mr Keith
further placed reliance on the case of Tarn v Turner (1888) 39 Ch
D 456. The headnote reads:
Prior to the
Conveyancing Act 1881 a mortgagor, without the consent of his mortgagee,
contracted in writing to grant T a lease of the mortgaged premises for a term
of years. T entered into possession under the contract and subsequently, on
notice from the mortgagee, paid rent to him. The mortgagee having refused to
concur in the lease to D, it was held (affirming the judgment of Kekewich J),
that T was entitled to redeem the mortgage.
On p 468 Fry
LJ said:
Therefore, it
appears to me that according to the general law of the land a person who claims
as lessee under a mortgagor after the mortgage, and has thereby derived an
interest in the equity of redemption, has the right to redeem.
At p 470 Lopes
LJ said:
Since the
mortgage by Wilson, the defendant, the plaintiff has agreed to become tenant of
the mortgagor and is entitled to a lease. There is no binding agreement for any
tenancy between the plaintiff and the mortgagee, the defendant Turner. The
position of the plaintiff, therefore, is this, that unless he is allowed to
redeem he may be evicted by the defendant. In these circumstances, has he a
right to redeem? I think he has. It is
clear that the assignee of the mortgagor can redeem; and I can see no difference
between the assignee of the whole estate of the mortgagor and an assignee by
demise such as the plaintiff in this case. The plaintiff has an interest in the
equity of redemption and can therefore redeem.
It seems to me
that, having regard to the characteristics of a statutory tenant (which is the
foundation of Mr Keith’s argument under his first point), a statutory tenant
has not got an estate or interest in the land. In any event, Mr Keith agrees
that he is not suggesting that the appellants should redeem the mortgage. They
ask only that the court should adjourn the action for such period as it thinks
reasonable, subject to it being likely that sums due under the mortgage would
be paid within a reasonable time. He says he relies on the case of Tarn
v Turner only as showing that a tenant is entitled to be treated as the
mortgagor.
Both parties
referred the court to another passage in Fisher and Lightwood’s Law of
Mortgage. This passage is to be found at p 350. It reads:
It has been
argued that a tenant of the mortgagor may be able to rely on these statutory
powers. If the tenancy is binding on the mortgagee there would be no need to
rely on the powers. If the tenancy is not binding on the mortgagee, it seems
rather strange that such tenant could rely on the circumstances relevant to
another, ie the mortgagor.
Mr Neuberger
submits that section 39(1), the definition section, applies only to assignment
of the property and does not include tenants. He says that if he is wrong about
that and it does include tenants, it does not include statutory tenants who do
not derive title at all. I would accept those submissions. But Mr Neuberger has
a further point if those are wrong. He says that the very existence of the
tenancy in this case is a breach of an obligation arising under the mortgage.
The only ground for seeking possession here against the mortgagor was the
arrears, but unknown to the mortgagee there was another perfectly good ground,
namely, the breach of the covenant against leasing, of which breach the mortgagees
were unaware.
This leads him
to his third point. He submits that the power can be exercised under section
36(1) only if the breach can be remedied. The present default, he says, cannot
be remedied save by the departure of the tenant. Mr Keith seeks to counter this
by submitting that the words in subsection (1) of section 36 ‘any other
obligation’ should be construed as obligations ‘affecting the mortgagee’s
security’. For my part, I see no justification for construing the phrase ‘any
other obligation’ as if those words were added. ‘Any other obligation’, in my
judgment, means what it says. Consequently, in my judgment, Mr Keith’s second
point fails.
I would
therefore dismiss the appeal.
BUTLER-SLOSS
LJ agreed and did not add anything.
The appeal
was dismissed, application for costs (other than legal aid taxation) being
adjourned. Leave to appeal to the House of Lords was refused. Stay of execution
was granted with liberty to apply and extension of stay if petition to the
House for leave to appeal presented within two months from date of this
judgment.
[The House of
Lords Appeal Committee dismissed a petition for leave to appeal.]
