Premium element in contract for assignment of protected tenancy and purchase of assignor’s chattels–Purchasers allowed into occupation before completion held entitled to ignore notice to complete on the illegal basis and sue for specific performance of the contract’s legal elements–‘Does not follow that every purchaser of a protected tenancy at a premium is entitled to specific performance’
This was a
claim by Mr Jack Albert Ailion, of Penywern Road, Earl’s Court, London SW5,
against Mr Eric Spiekermann and his wife, Mrs Joan Spiekermann, of 59 Oakwood
Court, Kensington, London W14, for possession of those premises and for a
declaration that a contract of April 8 1974 for assignment of a leasehold term
thereof had been validly rescinded. The defendants counterclaimed specific
performance of the contract to the extent that it was legal.
Mr R Pryor
(instructed by Alfille & Co) appeared for the plaintiff, and Mr L Hoffmann
(instructed by Davenport, Lyons & Co) represented the defendants.
Giving
judgment, TEMPLEMAN J said that the contract of April 8 1974 provided for
assignment by Mr Ailion to Mr and Mrs Spiekermann of the balance of a lease of
59 Oakwood Court expiring on December 24 1976 at a yearly rent of £850. There
was the usual consideration consisting of covenants to indemnify the vendor,
but the contract also required the purchasers to pay £3,750 for certain
chattels subsequently valued at £604.75. This valuation had not been proved or
accepted, but it was common ground that the chattels were worth much less than
£3,750. It was also common ground that at the date of the contract the vendor
and the purchasers were aware that the chattels were not worth £3,750 and that
it was not lawful for the vendor to require or receive more than their value.
The vendor wanted the money, and the purchasers needed the flat. The illegality
in question arose from the fact that the lease of the flat constituted a
protected tenancy within the Rent Act 1968. Section 86 (1) provided that any
person who as a condition of the assignment of a protected tenancy required the
payment of any premium was guilty of an offence. By section 88, where the
purchase of any furniture had been required as a condition of the assignment of
a protected tenancy, then, if the price exceeded the reasonable price of the
furniture, the excess would be treated as if it were a premium required to be
paid as a condition of assignment. Offering furniture at a price the vendor
knew, or ought to know, was unreasonably high was an offence under section 89
(1). After contract in the present case the purchasers were allowed into
possession of the flat as licensees on the terms of a letter of April 26
requiring them to ‘vacate the premises on demand in the event of them failing
to complete the purchase in accordance with the contract.’ The date for completion was May 6, but the
purchasers had trouble raising the money, and on May 16 the vendor served
notice to complete; he also revoked the purchasers’ licence to occupy the flat
and demanded possession by the following day. The present litigation followed,
in which the vendor claimed possession and rescission, while the purchasers
counterclaimed specific performance of the contract on payment of a reasonable
value for the chattels.
For the
present purpose it did not matter whether the vendor committed all the offences
alleged. It was admitted, and it was sufficient, that the contract originated
in an illegal offer by the vendor under section 89 and could not be completed
without an illegal receipt by the vendor under section 86 (2). The vendor had
fallen foul of the statutory control of rented residential accommodation; the
court was not concerned with the merits or demerits of the matter, and merely
observed that one of the objects of the Rent Act 1968 was plainly to protect a
purchaser requiring accommodation from a vendor seeking to exploit the
financial value of the controlled rent and security of tenure established by
Parliament. Thus, for example, section 90 of the Act provided that an excess
premium should be recoverable even after it was paid. If the purchasers here
had kept quiet and paid the £3,750, they could after taking the assignment,
have sued successfully for the recovery of the amount by which the £3,750
exceeded the reasonable value of the chattels. Their argument in these
proceedings was that they were only seeking to achieve, without further breach
of the law, the result which section 90 was designed to produce, an assignment
without the illegal premium. The argument for the vendor was that the contract,
being illegal, could not be performed according to its terms, and that the
court had no power to inflict a different bargain on the parties. Severance of
the good and bad portions of the contract was, it was said, impossible or
unprecedented.
He (his Lordship)
thought that the effect of the legislation was to divide the contract into
three separate elements. The vendor was contractually and legally bound to
assign the lease in return for a covenant of indemnity; he was bound to
transfer the chattels in return for their reasonable value; and he was
contractually but illegally entitled to a premium higher than the value of the
chattels. Parliament having effected this clear and distinct division between
the illegal elements of the contract, the court was not powerless to remove the
gilt and leave the gingerbread. The absence of precedent did not worry him
(Templeman J) as long as there was no lack of principle. Where there were legal
and illegal elements in a contract which were capable of severance, the jurisdiction
to enforce the legal elements would only be exercised in a proper case. The
fact that the purchasers knew of the illegality at the outset was a powerful
reason why they should not obtain any relief, but the Rent Act was designed to
protect persons in the position of the purchasers. They could not insist on the
elimination of the illegal premium from the draft contract without losing the
flat. They had no choice if they needed somewhere to live. They committed no
offence. Again, if the purchasers, by obtaining specific performance without
payment of the illegal premium were able to put themselves in a better position
than if they had completed the contract according to its terms, that would in
general be a good reason for the court declining assistance;
illegality or not, he could recover his illegal payment.
It did not
follow that every purchaser of a protected tenancy at a premium was entitled to
specific performance. The remedy was discretionary. If the vendor was ignorant
of the facts or the law, or if the purchaser tempted the vendor with a cheque
book, or if the vendor changed his mind before the purchaser altered his
position in reliance on the contract, the court might decline to make a
specific performance order. It all depended on the circumstances. In the
present case the initiative came wholly from the vendor, and he now wanted to
recoil from the contract because he could not obtain the illegal payment on
which, until the illegality became public, he insisted. Moreover, the
purchasers had been allowed to go into the occupation of the flat. If they were
now evicted it would appear that they had been turned out because they failed
to raise and pay an illegal premium and to keep quiet about the illegality
until after the contract had been completed by an assignment. That appearance
was not consistent with the purpose of the Act or the administration of
justice. If he (his Lordship) made no order either for possession or for specific
performance, washing his hands of a contract containing an illegal element, the
vendor would remain liable for the rent and covenants under the lease and the
position of both the vendor and the purchasers would be unsatisfactory. In
these circumstances there would be an order for specific performance of the
contract to assign the lease and to transfer the chattels in return for the
consideration to which the vendor had been confined by Parliament.
