In Sahota v Prior and another [2019] EWHC 1418 (Ch); [2019] PLSCS 119, the High Court was asked to determine whether a landlord who acquired her tenants’ property through a sale and rent back transaction was estopped from asserting any right to possession of the property, save in circumstances of non-payment of rent, during the tenants’ lifetime.
The transaction
Michael and Lesley Prior had resided in their home for 35 years. They fell into financial difficulties, resulting in steps being taken to repossess their home. They saw an advert in The Sun newspaper placed by a business called Red 2 Black, which offered a sale and rent back scheme. The Priors believed it was a solution to their problems.
They were visited in their home by Ms Dhillan, a director of Red 2 Black. She gave assurances that, as long as the Priors paid their rent, they could live in the property for the remainder of their lives. She also represented that Red 2 Black would be liable for repairs to the property.
The Priors executed a TR1 form of transfer in blank, with the transferee unidentified. They signed a five-year fixed-term assured shorthold tenancy agreement commencing on 9 December 2010. The tenancy agreement was signed on behalf of the landlord by its stated agent, Red 2 Black. When the Priors queried the length of the tenancy agreement, they were reassured it was simply to ensure they paid the rent.
Unbeknown to the Priors, the completed TR1 identified Ms Sahota as the transferee. She, therefore, became their landlord. Sahota was Dhillan’s sister-in-law. Dhillan had informed Sahota of the investment opportunity and made all the arrangements on her behalf. The Priors were only informed that their property was valued at £90,000, when the actual figure was £130,000.
In 2012, the Priors discovered the fraudulent activities of the directors of Red 2 Black. Subsequently, they were contacted by Sahota who repeated Dhillan’s assurances. Yet, on expiry of the Priors’ fixed-term tenancy, Sahota commenced possession proceedings under section 21 of the Housing Act 1988.
First instance
Judge Hampton dismissed Sahota’s claim. She found that Sahota was estopped from asserting any right to possession of the property, save for non-payment of rent, during the Priors’ lifetime or for as long as they wished to reside in the property.
Red 2 Black had acted as Sahota’s agent. She was, therefore, bound by its unequivocal representations. The Priors had reasonably acted on the representations made and executed in the TR1. They had suffered detriment because the sale of their property was at an undervalue and they had incurred costs in repairing the property.
Agency
Sahota appealed. She argued that Red 2 Black was not her agent and she had no knowledge of the representations made. Additionally, she argued that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act) did bar the Priors’ proprietary estoppel defence. Unsurprisingly, Falk J gave short shrift to Sahota’s contention that Red 2 Black had not acted as her agent.
She found that Judge Hampton had been entitled to reach that conclusion based on the facts. The close family connection between Sahota and the directors of Red 2 Black coupled with the role of Dhillan in making all the arrangements for Sahota gave rise to an agency. Additionally, on Sahota’s own evidence, Red 2 Black had signed the tenancy agreement as her agent.
Falk J also found Sahota could not deny knowledge of the representations made by Dhillan. By reason of her conduct, Sahota had given the appearance that Red 2 Black and Dhillan had full authority to act on her behalf.
Section 2 and estoppel
Pursuant to section 2 of the 1989 Act, a contract for the sale or other disposition of an interest in land is rendered void if it is not in writing or does not incorporate all the terms expressly agreed (subject to irrelevant exceptions).
Relying on Yaxley v Gotts [2000] Ch 162 and Cobbe v Yeoman’s Row Management Ltd [2008] 3 EGLR 311, Sahota argued that for public policy reasons, proprietary estoppel could not be used to make an agreement enforceable, which section 2 of the 1989 Act had declared void. The Priors’ proprietary estoppel defence was therefore barred.
As in Cobbe, Sahota argued that the parties in the present case were dealing in a commercial arm’s length transaction. Any terms that they had relied on should have been incorporated into the contract. Allowing a defence of proprietary estoppel to succeed would harm the policy reasons behind section 2.
In dismissing this ground of appeal, Falk J commented that, factually, it was difficult to categorise the transaction between the parties as an arm’s length commercial transaction. The Priors were not business people and their transaction was domestic in nature.
Section 2 of the 1989 Act only rendered void contracts for the sale or other disposition of land that did not comply with its stated requirements. Both the TR1 and tenancy agreement were actual dispositions and not contracts for the sale or other disposition of land. The Priors were not trying to enforce a contract for the sale or other disposition of land, but merely seeking to rely on the representation made to the effect that they would not be evicted during their lifetime if they paid their rent.
Although it was correct that proprietary estoppel could not be used to avoid the effect of section 2, it did not prohibit other legal consequences from attaching to the circumstances surrounding any such transaction.
Elizabeth Dwomoh is a barrister at Lamb Chambers
