Bower Terrace Student Accommodation Ltd and another v Space Student Living Ltd

Mortgage – Appointment of receivers – Claimants owning properties used for student accommodation – Receivers appointed pursuant to charge over properties in favour of bank – Receivers seeking to take over management of properties to facilitate sale and seeking injunctions accordingly – Defendant company claiming to have lease with security of tenure pursuant to management and letting agreements – Whether lease created – Whether binding on receivers  Injunctions granted The claimants and the defendant were three companies involved in the business of providing student accommodation. The companies shared several directors and one of those directors, M, was the driving force behind all three companies. The claimants respectively owned two properties, containing studio apartments for students, which they had acquired with the assistance of loans from a bank. Each property was subject to a registered charge granted in 2010 to secure those loans, in terms that prohibited any disposal of the property, any grant of a lease or licence or any parting with or sharing of possession without the bank’s consent. In 2012, the bank appointed receivers in respect of the properties; by then, the claimants owed sums of £6.394m and £5.954m respectively. Under the terms of the charges, the receivers were to act as the agents of the claimants and were entitled to carry on the claimants’ business at the properties and to enter, take possession of and generally manage those properties. The receivers proposed to sell both properties complete with lettings to occupiers and sought to take over the management of the properties in order to facilitate that objective. However, the defendant claimed that they could not do so since it was the tenant and manager of the properties under 10-year management and letting agreements dated June 2011. It claimed to be entitled to exclusive possession under those agreements and to security of tenure under the Landlord and Tenant Act 1954. The receivers maintained that the terms of the agreements were so vague and inconsistent as to be void and that they did not, in any event, confer any tenancy or other proprietary interest; they further asserted that the agreements were not binding on the bank since they had been made without its knowledge or consent. They applied to the court for injunctions accordingly. Held: The application was allowed. Whatever the legal nature of the management and letting agreements, each post-dated the bank’s charge and had been made without its prior consent. There was a close relationship between the claimants and the defendant. The directors of the claimants had, at all material times, been aware that they had no right to convey or create any kind of proprietary interest in the properties in favour of any other party without the consent of the bank. The defendant, with some of the same directors as the claimants, would thus have had knowledge that the management and letting agreements could not lawfully convey a proprietary interest. It should have been appreciated that the agreements could do no more than confer management rights and responsibilities. That meant that, while the agreements might be effective as between the claimants and the defendant, neither the bank nor the receivers were under any obligation to accept them. Moreover, the agreements could not operate as leases at law since they exceeded three years and were not created by deed: see sections 52(2) and 54(2) of the Law of Property Act 1925. They could not give rise to an equitable lease since that depended on the courts being willing to grant specific performance. The courts would not do so since that would require the claimants to act in breach of the terms of their charges to the bank. It would involve the claimants entering into leases that were prohibited by the charges, and to which the bank would not consent since that would have an effect on the value of the properties, which was the very thing that the receivers were attempting to realise for the bank: Warmington v Miller [1973] QB 877; (1973) 226 EG 299 applied. Any claim of the defendant to hold a contractual licence failed for the same reasons. Finally, the defendant could not claim to have a periodic tenancy by virtue of having entered into possession and paid rent. The possibility of such a tenancy being created through the payment and acceptance of regular periodic payments was negated by the fact that each party knew that creating such a tenancy would be unlawful because of the prohibition in the charges. Moreover, there was no evidence of rent payments to support such a claim. The receivers had established that the agreements, whatever their status, were no impediment to their responsibilities and were biding neither on them nor on the bank. They were entitled to the injunctions sought. Wayne Clark (instructed by Berwin Leighton Paisner LLP) appeared for the claimant; Jonathan Small QC and Stephanie Tozer (instructed by Key2Law LLP) appeared for the defendant. Sally Dobson, barrister