Housing — Secure tenancy — Local authority freeholder acquires by surrender lease subject to Rent Act protected tenancy — Whether tenant holds secure tenancy from local authority
By a lease
dated April 10 1984 the plaintiff council granted a lease of premises to L for
a term of 15 years; the premises were business premises within Part II of the
Landlord and Tenant Act 1954. In breach of covenant L converted part of the
premises into a residential flat and let these to the defendant tenant; the
tenant became a protected tenant as against L under the Rent Act 1977. In
November 1990 L surrendered his lease to the council. In proceedings for
possession of the flat, the council obtained a declaration that the tenant did
not have a secure tenancy under the Housing Act 1985. The tenant appealed.
ambulatory effect: occupiers may be liable to pass in and out of secure tenant
status depending upon whether their landlord for the time being is or is not a
local authority. Upon the acquisition of the intermediate lease by the council,
the tenant was no longer protected by the Rent Act, but acquired the status of
a secure tenant.
The following
cases are referred to in this report.
Bromley
Park Garden Estates Ltd v George [1991] 2
EGLR 95; [1991] 37 EG 139, CA
Cow v Casey [1949] 1 KB 474; (1949) 65 TLR 84; [1949] 1 All ER
197, CA
Pittalis v Grant [1989] QB 605; [1989] 3 WLR 139; [1989] 2 All ER
622; [1989] 2 EGLR 90; [1989] 28 EG 126
This was an
appeal by the tenant, Mr Paice, from the decision of Judge Brodrick, in
Basingstoke County Court, when he declared in possession proceedings brought by
the respondents, Basingstoke and Deane Borough Council, that the tenant did not
have a secure tenancy.
Keith Wylie
(instructed by Doggett Hawke Wright, of Basingstoke) appeared for the
appellant; Jeffrey Widdup (instructed by the solicitor to Basingstoke and Deane
Borough Council) represented the respondents.
Giving
judgment at the invitation of Stuart-Smith LJ, WAITE LJ said: This
appeal is brought by the tenant of a dwelling-house owned by a local authority.
His tenancy was not originally granted to him by the council. It was created by
a private landlord who was the holder as intermediate lessee of a business
tenancy — comprising larger premises of which the dwelling-house formed only a
part — from the council as headlessor. The time came when the intermediate
lessee surrendered the mesne tenancy to the council, with the result
that the appellant became, by operation of law, the direct tenant of the
council. He claimed that, having thereby acquired a local authority as his
landlords, he was entitled to have his tenancy treated as a secure tenancy
under the Housing Act 1985. The council obtained a declaration from Judge
Brodrick in Basingstoke County Court on February 18 1993 that he was not a
secure tenant, from which declaration the tenant now appeals to this court.
The facts are
not in dispute. By a lease dated April 10 1984 (‘the lease’) the plaintiff
council (‘the council’) demised to Mr Jacques L’Heureux (‘the mesne
landlord’) garage premises at Coronation Road, Basingstoke (‘the main
premises’), for a term of 15 years from August 1980 at an annual rent (subject
to periodic review) of £6,000. The lease included a covenant by the mesne
landlord not to underlet the main premises or any part thereof and to use them
only for the purposes of a garage business. The main premises were business
premises within Part II of the Landlord and Tenant Act 1954.
In the course
of 1985 the mesne landlord, in breach of covenant and without (at first)
the council being aware of it, converted part of the office portion of the main
premises into a residential flat (‘the flat’). He allowed the appellant Mr
Paice into occupation of the flat at a rent which was payable weekly. The flat
was a dwelling-house for the purposes of the Rent Acts and accordingly Mr Paice
became a protected tenant of the flat as against the mesne landlord
under the Rent Act 1977.
In November
1990 the mesne landlord surrendered the unexpired term of the lease of
the main premises to the council. By then the council had become aware of Mr
Paice’s occupation and knew that the mesne landlord had made
unsuccessful efforts to regain possession of the flat. They had served a notice
under section 146 of the Law of Property Act 1925 on the mesne landlord
relying on the unlawful subletting, but they did not in the end take any steps
to forfeit the lease. Instead they decided to negotiate a termination of the
lease by way of surrender. Once the surrender had been effected, the council
sought at first to treat Mr Paice as a trespasser. On January 11 1991 they
brought these possession proceedings against him. While the hearing was still
pending, they served him with a notice to quit on August 29 1991.
By the date of
the hearing the council had become willing to accept that Mr Paice was not a
trespasser, and were prepared to concede that following the surrender of the
lease he had become their direct tenant, holding over as a weekly tenant. There
were three issues in the proceedings at first, but two of them (a question of
possible estoppel and an issue as to the validity of a notice to quit served
after action brought for possession) have been disposed of and do not concern
this appeal. It was undisputed that Mr Paice could not set up statutory
protection under the Rent Acts against the council. The sole relevant issue,
therefore, for the judge at the hearing under appeal was — what kind of tenancy
did Mr Paice enjoy? Was it a secure tenancy under the 1985 Housing Act; or was
it a simple weekly tenancy capable of being brought to an end by one month’s
notice at common law?
Until the
coming into force of the Housing Act 1980, tenants of local housing authorities
had no statutory security of tenure. That Act introduced (and the 1985 Act
continues) an entirely new statutory creature which (as is pointed out in Woodfall’s
Law of Landlord and Tenant at para 25.001) imported elements from the Rent
Act 1977, but
secure tenancies include the fact that although the security is non-assignable
it may be made the subject of an exchange. Security carries with it the right
to buy the demised premises on favourable terms. They are subject (in the case of
periodic tenancies) to a wide power in the landlord council to impose
variations of the terms of the tenancy unilaterally upon the tenant.
There is
another distinguishing feature between the two codes which is directly relevant
to the present case. The Rent Act 1977 contains, but the Housing Act 1985 does
not, express provision to deal with the situation where subtenants become
tenants of the headlessor on the determination of the intermediate lease. In
particular there is no equivalent to be found in the 1985 Act of section 137(2)
of the 1977 Act, which provides:
(2) Where a
statutorily protected tenancy of a dwelling-house is determined, either as a
result of an order for possession or for any other reason, any sub-tenant to
whom the dwelling-house or any part of it has been lawfully sublet shall,
subject to this Act, be deemed to become the tenant of the landlord on the same
terms as if the tenant’s statutorily protected tenancy has continued
That
subsection (and its predecessor in the 1933 Act) has been construed in case
law, notably Cow v Casey [1949] 1 KB 474, as applying only to
cases where the mesne tenancy was itself a protected tenancy. The rigour
of that interpretation was modified when a new subsection (3) of section 137
was added to provide continuing protection for subtenants of protected
accommodation forming part of larger residential premises (not protected by the
Act) formerly held by a mesne lessor whose interest has determined. The
regime thus created by the Rent Act to give limited protection to subtenants
holding over after a surrender of the superior tenancy is not matched by any
express provision on the face of the Housing Act 1985 to confer secure tenant
status expressly on those who become direct tenants of a local authority
following surrender of an intermediate lease.
The hallmarks
of a secure tenancy are laid down by section 79 of the Housing Act 1985.
Subsection (1) provides:
(1) A tenancy
under which a dwelling-house is let as a separate dwelling is a secure tenancy
at any time when the conditions described in sections 80 and 81 as the landlord
condition and the tenant condition are satisfied.
The
residential character of a secure tenancy implicit in that definition is made
explicit by Schedule 1, para 11 (which excludes premises occupied for business
purposes).
Mr Jeffery
Widdup, for the council, concedes that in this case most of the requirements of
subsection (1) were fulfilled. The tenancy, he accepts, is of a dwelling-house;
and with a local authority as landlords and a tenant occupying the premises as
his main or principal residence, he acknowledges that the landlord and the
tenant conditions are both satisfied. But he says that there is one crucial
condition which is not fulfilled. The flat is not, he contends, a
dwelling-house ‘let as a separate dwelling’. He accepts that it is certainly so
let today. But what of the state of affairs prevailing at the moment of
surrender of the mesne landlord’s lease? At that moment (which he
submits is the crucial one) it formed an integral part of the main premises
which were held as a whole under the lease. As between himself and the council
(then still his headlessor although about to become his direct lessor) no
‘separate dwelling’ within the premises was involved. The only relevant
premises at that point were the main premises held by the mesne landlord
— and those were premises which were not ‘let as a separate dwelling’, and were
in any event business premises and therefore incapable of attracting secure
tenancy status.
Mr Widdup
supports the restrictive construction of ‘let as a separate dwelling-house’ for
which he thus contends (ie determining the status of separateness at the point
of time immediately before the surrender of the intermediate lease takes effect
and looking to the relevant ‘letting’ as being that which subsists between the
headlessor and the mesne lessee) by claiming that it would, in relation
to subtenants holding over after surrender, bring the Housing Act regime into
line with the Rent Act regime by imposing in both cases the limitation to which
section 137(2) is subject — namely that the surrendered lease must itself have
been entitled to statutory protection. He points to the anomalies — I think he
would even call them disasters — which he says would result from giving section
79 any other construction. The presumed purpose of the 1985 Act must, he
claims, have been to give secure tenant status to those who have been council
tenants directly from the outset, not to those who merely become so
fortuitously. Otherwise tenants would pass in and out of ‘secure tenant’ status
from one day to another, depending on the accident of whether their immediate
landlord in the leasehold chain happened at any given moment to be a local
authority or not. He suggested that it might have very serious consequences for
the estate management of commercial property in local authority ownership if
people in the position of Mr Paice, holding over after the falling-in of the mesne
lease, were to be ‘foisted’ on a local authority reversioner as a secure tenant
occupying what might be only a small corner of large commercial premises, but
enjoying the statutory right to buy that corner for themselves. ‘Flying
freeholds’ might spring up in all kinds of places where no reasonable authority
would ever voluntarily locate them. All these objections, it was suggested,
would disappear if the subtenancy provisions in the two Acts were harmonised by
adopting the proposed construction of section 79.
This was the
argument which commended itself to the judge. He said (according to the agreed
note of his judgment): ‘I should look at the [Housing] Act and guidance of
decided cases under the Rent Acts’. He then recited the facts and decision in Cow
v Casey, referred to Pittalis v Grant [1989] QB 605* and Bromley
Park Garden Estates Ltd v George [1991] 2 EGLR 95, and continued:
*Editor’s
note: Also reported at [1989] 2 EGLR 90.
In my
judgment those authorities are applicable by analogy. Conclusion I reach is
that this tenancy is not a tenancy [of a dwelling house] let as a separate
dwelling — one should look at the broader picture. Look at whole not part.
Looking at the broader picture Landlord and Tenant Act 1954 applies. Since Part
II Landlord and Tenant Act applies, not a secure tenancy.
He then
proceeded on that basis to grant the declaration now under appeal — namely that
Mr Paice does not have a secure tenancy within the meaning of the 1985 Act.
With respect
both to the judge and to Mr Widdup, this approach is, in my view, mistaken. In
the first place, it is contradicted by the language of the section itself. The
use of the term ‘at any time’ in section 79(1) shows that the section is to
have ambulatory effect. Occupiers, that is to say, may be liable to pass in and
out of secure tenant status — depending upon whether their landlord for the
time being is or is not a local authority; or upon changes in the tenant’s own
circumstances taking him in and out of the tenant condition.
Second, there
is no real substance in the supposed mischief which is claimed to provide the
justification for placing this gloss on section 79(1). The role of local
authorities as statutory providers of housing for public occupation (and
purchase by occupiers) is not, in my judgment, threatened or diminished if they
are liable from time to time to acquire secure tenants by operation of law as a
result of their acceptance of surrenders of commercial leases of which they
happen to be reversioners. If that is thought to be an undesirable state of
affairs, the real moral of this case is that local authorities who engage in
the leasing of commercial premises should be careful, when negotiating a
surrender of the mesne lease, to ensure that, before the surrender takes
effect, notices to quit have been served to terminate the contractual tenancy
rights of any occupying periodic subtenants of residential parts of the
property.
Third, it does
not seem to me that the professed objective for applying the proposed
interpretation of section 79 — namely harmonisation of the rights of subtenants
under the two Acts — would in fact be achieved. No doubt some correspondence
would be gained with section 137(2). But what of subsection (3)? Mr Widdup did
not suggest any way in which the judge’s interpretation of section 79
would enable the policy introduced by that subsection (providing protection for
subtenants becoming direct tenants of private landlords after surrender of an
unprotected mesne tenancy of residential premises) to be matched by an
equivalent exception according a status of security under the 1985 Act for subtenants
becoming direct tenants of a local authority.
For these
reasons I would allow the appeal and substitute for the declaration granted by
the judge a declaration that Mr Paice is a secure tenant of the flat.
MILLETT and STUART-SMITH LJJ agreed and did not add anything.
Appeal
allowed.
