Case 1 of Schedule 15 to the Rent Act 1977 – Lease of flat providing for forfeiture upon bankruptcy – Statutory tenancy arising upon expiry of lease – Tenant going bankrupt – No rent owing – Whether tenant under obligation not to go bankrupt – Whether such obligation continuing under statutory tenancy – Tenant appealing against possession order – Appeal dismissed
The respondent landlord owned a flat in Lower Sloane Street, London SW1. The appellant tenant occupied the property under the terms of a statutory tenancy, which arose upon the expiry of a lease, dated August 1979, made between the parties’ predecessors. The lease provided for forfeiture in certain events, including the bankruptcy of the tenant.
On several occasions, the landlord had to resort to court proceedings in order to recover arrears of rent. In March 1998 the tenant was made bankrupt. At that time, there were no arrears on the rent as payments were being made by the tenant’s daughter, who lived with him in the flat.
In April 1998 the landlord brought proceedings for possession, relying upon the tenant’s bankruptcy alone as a ground for possession under Case 1 of Schedule 15 to the Rent Act. The county court judge proceeded upon the basis that the bankruptcy adjudication was, in the language of the schedule, a breach of an “obligation of the previous protected tenancy which is applicable to the statutory tenancy”. After considering the tenant’s payment record, the judge could find no (discretionary) reasons for not making a possession order.
Without challenging the discretionary ruling, the tenant appealed to the Court of Appeal against the finding that he had breached an obligation. It was contended that: (i) he was under no “obligation” not to go bankrupt, as the adjudication was no more than one of the events contemplated by the forfeiture clause; and (ii) in any event, the alleged obligation could not be imported into the statutory tenancy by section 3(1) of the 1977 Act, being inseparable from the forfeiture clause, which was manifestly incapable of operating after the end of the contractual protected tenancy. Those arguments were rejected, and the tenant appealed to the House of Lords.
Held: The appeal was dismissed.
1. There would have been much force in the tenant’s arguments had the Act been an ordinary conveyancing statute. However, the Act was a consolidation of a remarkable sequence of enactments going back to the First World War. They had not been framed with any scientific accuracy of language, and it was essential that, wherever possible, they should be construed in a broad, practical, commonsense manner: see the numerous judicial observations cited by RE Megarry in The Rent Acts (1988 ed) pp14-18. It was, accordingly, unimportant that Schedule 15 spoke of obligations while section 3 required a statutory tenant to observe “the terms and conditions” of the original contract: see per Sir Raymond Evershed MR in RMR Housing Society Ltd v Combs [1951] 1 KB 486 at p493. While it was technically inaccurate to describe bankruptcy as a breach of an obligation, it was no more accurate to speak of it as a breach of a condition. Nevertheless, bankruptcy had been so treated for other purposes: see section 146 of the Law of Property Act 1925, as considered in Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 EGLR 26, and section 52 (1)(a) of the Housing Act 1980, as considered by the Court of Appeal in Paterson v Aggio [1987] 2 EGLR 127.
2. The earliest Rent Acts did not affect a right to forfeit, whether for reasons of bankruptcy or otherwise. The requirement that, even in such cases, the judge must consider it reasonable to make a possession order was first imposed by the Mortgage Interest Restrictions (Amendment) Act 1933. There was no reason to suppose that parliament had intended to exclude forfeiture for bankruptcy from the material provisions.
3. Per Lord Hutton: The forfeiture clause consisted of two elements, the obligation not to become a bankrupt and the power of the landlord to re-enter in such an event. The latter was inconsistent with the Act, but the former would continue to bind the statutory tenant provided that it was not so inconsistent. Having regard to the reasonableness requirement, the continuance of the obligation as a term of the statutory tenancy could not be seen to be inconsistent with the Act.
4. Per Lord Millet, dissenting: The tenant’s bankruptcy was not freestanding. It was attached to the right of re-entry, and was found only in a term that was not carried over into the statutory tenancy. Nor was it obviously fair to make it a term of the statutory tenancy, given that the landlord was only concerned with the rent, and the tenant had no (proprietary) interest capable of being preserved for the benefit of creditors. In those circumstances, there was no reason why the tenant and his family should lose their home so long as the rent was being paid.
Peter Griffiths (instructed by Edwin Coe) appeared for the appellant; Anthony Radevsky (instructed by Lee & Pembertons) appeared for the respondent.
Alan Cooklin, barrister
