Landlord letting property by way of agreement expressed to be assured tenancy – Agreement containing clause stating rent to be £25,000 within two years – Clause designed to allow landlord to acquire possession under Housing Act 1988 – Whether clause valid – Judge finding clause valid and ordering possession – Appeal allowed
By an agreement in writing dated February 1994, the defendant tenants were granted a tenancy of flat 1, 54-55 Marine Parade, Brighton, from 15 February 1994 to 16 February 1995 at an initial rent of £4,680 pa, payable by equal monthly instalments of £390 per month. The agreement was expressed to be for an assured tenancy pursuant to the Housing Act 1988. The rent payable under the agreement was subject to increase, in accordance with clause 8(b), on “the review dates”, defined as 16 February 1995 and every 12 months thereafter. By clause 8(b)(iii), the annual rent was to be £25,000 as from 11 February 1996.
The tenants subsequently fell into arrears, and the claimant landlord issued proceedings seeking possession and the arrears. The judge granted possession, finding that clause 8(b)(iii) was permissible, despite being a device deliberately designed to allow the landlord to acquire possession under the Housing Act 1988 (by leading to the accrual of arrears of rent that nobody expected to be paid).
The tenants appealed, contending that clause 8(b)(iii) was not intended to create a real legal liability, but rather to ensure that the landlord could recover by contracting out of the Act. It was argued that: (i) in order for the clause to be enforceable, the landlord had to know that the tenant could pay; (ii) since there was no genuine belief that the term could be performed, it was a device without purpose and was therefore unenforceable; and (iii) the landlord could not, therefore, increase the rent other than in accordance with section 13 of the Act.
Held: The appeal was allowed.
1. (Per Arden LJ) Clause 8(b)(iii) was merely a device, masquerading as a provision for an increase in rent, to enable the landlord to bring the assured tenancy to an end when it chose and to obtain possession of the property. If it were valid, it would have the effect that the landlord did not have to give the tenants a last opportunity to pay the rent arrears to avoid an order for possession; the landlord would only have to make an application, which would be a formality as the rent was much higher than a tenant could be expected to pay. In such circumstances, clause 8(b)(iii) offended the mandatory scheme of the Act and was, accordingly, unenforceable as an unlawful contracting-out of the security of tenure provisions of the Act. Accordingly, the order for possession was to be set aside.
2. (Per Pill LJ) The scheme of the 1988 Act was not a mandatory scheme for tenancies such as gave rise to the concept of unlawful contracting out in its usual form. The parties had been free to contract out of the Act, and the case depended upon an analysis of the terms of the lease. The agreement contained the plainest indication that an assured tenancy agreement pursuant to the 1988 Act was intended, and it was, accordingly, to be construed as intending to give effect to the statutory purpose of long-term protection for the tenant. Clause 8(b)(iii) was inconsistent with, and repugnant to, that statutory purpose, and the clause had therefore to be ignored: AG Securities v Vaughan [1988] 2 EGLR 78 considered.
Clare Padley (instructed by Triggs Wilkinson Mann) appeared for the claimant; Stephen Knafler (instructed by Brighton Housing Trust) appeared for the defendants.
Thomas Elliott, barrister
