Life tenancy — Planning permission to construct bungalow — Option to require surrender of tenancy if bungalow not built within three years — Whether option agreement procured by undue influence — Appeal allowed
The appellant lived in a caravan on land that he owned subject to significant mortgage debts. He had previously occupied a bungalow on the site that had been condemned by the local planning authority. He was granted planning permission to construct a new bungalow, on condition that construction should commence within five years, that is, by February 1999. However, the appellant lacked the financial means to begin the development, and, in 1996, he transferred the land to the respondents at an undervalue, in return for a rent-free, non-assignable life tenancy. The appellant paid off the mortgage with the proceeds of sale.
By January 1999, construction on the bungalow had still not been started. In order to prevent the planning permission from lapsing, the respondents arranged for trenches to be dug and foundations to be laid. They then obtained the appellant’s agreement to an option under which, if the appellant did not complete the bungalow within three years, they would be entitled to enforce a surrender of the life tenancy upon payment to the appellant of £5,000.
At the end of the three-year period, the respondents sought to exercise the option and, when the appellant refused, brought proceedings to enforce the agreement. The appellant argued that the agreement should be set aside on the ground that it had been procured by the undue influence of the respondents. Rejecting that argument, the judge held that the appellant had not made out the necessary elements for a prima facie case of undue influence because he had not shown that: (i) he reposed trust and confidence in the respondents, or that they held a position of ascendancy over him; and (ii) the transaction was to his “manifest disadvantage”. The judge expressed doubt as to whether the contractual relationship of landlord and tenant could ever give rise to an undue influence claim. The appellant appealed.
Held: The appeal was allowed.
Circumstances could arise where a contractual relationship of landlord and tenant did not tell the whole story, and where one party was placed in a position of ascendancy. In the present case, the respondents had been aware that the appellant did not have the means to construct the bungalow. They had driven a hard bargain on the basis of the financial disparity between the parties’ respective bargaining positions. The judge had therefore erred in finding that they did not have some ascendancy over the appellant.
The judge had applied the wrong test when referring to a “manifest disadvantage” to the appellant. The proper question was whether, in all the circumstances, the agreement was such as to require explanation. Whichever test was applied, the judge had erred in finding that it had not been made out. The appellant was clearly disadvantaged under the option: if he wished to continue to enjoy the life tenancy, he was required to do something — namely construct the bungalow — that before had been optional. If he failed to do so, he risked losing the life tenancy, in return for a payment of only £5,000. Given the appellant’s financial position, that outcome had been likely. The appellant had successfully raised a prima facie case of undue influence: Royal Bank of Scotland v Etridge(No 2) [2002] UKHL 44; [2002] 2 AC 773 applied.
Karen Walden-Smith (instructed by Rowberry Morris, of Reading) appeared for the appellant; Gary Pryce (instructed by Pitmans, of Reading) appeared for the respondents.
Sally Dobson, barrister