Charles Terence Estates Ltd v Cornwall Council [2012] EWCA Civ 1439 concerns the extent to which local authorities can rely on flaws in their own procedures when faced with private law claims from parties with whom they have contracted. The High Court judgment had worrying implications for anyone contracting with local authorities and has now been reversed. The case has considerable significance for public bodies and those who deal with them, and the property industry has welcomed the Court of Appeal’s decision with sighs of relief. The case concerned a local authority’s claim that its statutory predecessors had taken long leases of properties at arbitrary rents. It claimed that its predecessors’ failure to consider market rents rendered the leases void. The trial judge upheld the claim. He agreed that local authorities owe a fiduciary duty to local taxpayers and must exercise their statutory powers with this in mind, but the Court of Appeal has overturned the decision. It ruled that the judge had been wrong to find that the leases were void because the councils had failed to take account of market rents. There was neither a legal nor an evidential basis for the judge’s conclusion in the circumstances of this case. It helped that the landlord had acted in good faith throughout. It had bought and refurbished properties to provide temporary accommodation for the homeless. The tenants, who were councils, entered into the leases to reduce their expenditure on bed and breakfast accommodation, and were then replaced by a new unitary local authority. The unitary authority inherited the councils’ contractual rights and responsibilities. It continued to use the properties, but stopped paying rent and demanded immediate repayment of the sums that had already been paid. It argued that the councils had wrongly accepted rents that were fixed by reference to housing benefit rates, without attempting to discover what the open market rental values of the properties might be. The Court of Appeal decided that the councils had done what they were empowered to do by statute and refused to accept that the councils were in breach of their fiduciary or quasi fiduciary duties. However, it went on to make completely sure of the position by ruling that the councils would still have had the capacity to enter into the leases, were they, in fact, to have acted in breach of their fiduciary duties. The councils had not made a gift or present to the landlord, and had obtained an improved service at reduced cost, as opposed to adding to the ratepayers’ burden. The authority’s case depended on reading the words “at a reasonable price” into provisions in the Housing Act 1985, but it had failed to provide any evidence that the rents were unreasonable. More importantly, it will rarely be appropriate to imply such a limitation into a statutory power because this might mean that a local authority’s capacity would be ascertainable only by judicial determination of the reasonableness of a price. The court accepted that there was room for further guidance as to when the unlawful or improper exercise of powers will nullify contracts made by local authority, but chose to leave this for another occasion. Allyson Colby is a property law consultant
Charles Terence Estates Ltd v Cornwall Council [2012] EWCA Civ 1439 concerns the extent to which local authorities can rely on flaws in their own procedures when faced with private law claims from parties with whom they have contracted. The High Court judgment had worrying implications for anyone contracting with local authorities and has now been reversed. The case has considerable significance for public bodies and those who deal with them, and the property industry has welcomed the Court of Appeal’s decision with sighs of relief.
The case concerned a local authority’s claim that its statutory predecessors had taken long leases of properties at arbitrary rents. It claimed that its predecessors’ failure to consider market rents rendered the leases void. The trial judge upheld the claim. He agreed that local authorities owe a fiduciary duty to local taxpayers and must exercise their statutory powers with this in mind, but the Court of Appeal has overturned the decision. It ruled that the judge had been wrong to find that the leases were void because the councils had failed to take account of market rents. There was neither a legal nor an evidential basis for the judge’s conclusion in the circumstances of this case.
It helped that the landlord had acted in good faith throughout. It had bought and refurbished properties to provide temporary accommodation for the homeless. The tenants, who were councils, entered into the leases to reduce their expenditure on bed and breakfast accommodation, and were then replaced by a new unitary local authority.
The unitary authority inherited the councils’ contractual rights and responsibilities. It continued to use the properties, but stopped paying rent and demanded immediate repayment of the sums that had already been paid. It argued that the councils had wrongly accepted rents that were fixed by reference to housing benefit rates, without attempting to discover what the open market rental values of the properties might be.
The Court of Appeal decided that the councils had done what they were empowered to do by statute and refused to accept that the councils were in breach of their fiduciary or quasi fiduciary duties. However, it went on to make completely sure of the position by ruling that the councils would still have had the capacity to enter into the leases, were they, in fact, to have acted in breach of their fiduciary duties.
The councils had not made a gift or present to the landlord, and had obtained an improved service at reduced cost, as opposed to adding to the ratepayers’ burden. The authority’s case depended on reading the words “at a reasonable price” into provisions in the Housing Act 1985, but it had failed to provide any evidence that the rents were unreasonable. More importantly, it will rarely be appropriate to imply such a limitation into a statutory power because this might mean that a local authority’s capacity would be ascertainable only by judicial determination of the reasonableness of a price.
The court accepted that there was room for further guidance as to when the unlawful or improper exercise of powers will nullify contracts made by local authority, but chose to leave this for another occasion.
Allyson Colby is a property law consultant
