Mortgagor letting basement flat to plaintiff without obtaining written consent required by mortgage deed – Mortgagor in default – Mortgagee appointing receiver – Receiver collecting rent from plaintiff and others – Defendants buying house with no warranty of vacant possession – Plaintiff suing defendants for wrongful eviction – Whether bank had accepted plaintiff as tenant – Whether such acceptance precluded by section 109 of Law of Property Act 1925 which deems receiver to be agent of mortgagor
In 1998 C bought a large freehold house with the aid of a bank mortgage loan. The terms of the mortgage included a standard clause that prohibited the mortgagor from leasing without the bank’s written consent, while permitting the bank to grant leases without restriction. The bank was nevertheless aware that C intended to convert the house into flats for letting. On April 25 1992, C, proceeding without such written consent, granted an assured tenancy of the basement flat to the plaintiff. Shortly thereafter C ran into financial difficulties and surrendered the property to the bank, which, on July 20 1992, appointed a receiver under the Law of Property Act 1925. Having been advised that the house was probably tenanted and that it would be difficult to obtain vacant possession, the bank, acting on the advice of the receiver, marketed it at a correspondingly reduced price, whereupon the receiver proceeded to collect rent, from the plaintiff and another, which had accrued both before and after his appointment.
In the autumn of 1992 the property was inspected with a view to purchase by the defendants who were informed by the bank’s solicitors that vacant possession could not be offered. On that basis contracts were exchanged on February 12 1993 and completion took place on February 26 1993. During the following three weeks, the plaintiff’s electricity and water supplies were cut off. On March 30 1998 the plaintiff returned to the flat after a brief absence abroad to find that it was occupied by builders and that his furniture and possessions had been removed. He took county court proceedings under sections 27 and 28 of the Housing Act 1988 for unlawful deprivation of his accommodation. In awarding the plaintiff damages exceeding £2,500, the trial judge ruled that, notwithstanding the prohibition in the mortgage deed, the bank must be taken to have accepted the plaintiff as its tenant and accordingly the defendants could not treat the plaintiff as a trespasser. The defendants appealed primarily on the ground (not advanced in the court below) that none of the acts of the receiver could be treated as acts of the bank, because, by virtue of section 109(2) of the Law of Property Act 1925, the receiver was deemed to have been acting as agent of the mortgagor, namely C.
