Secure tenancy – Right to buy – Appellant tenant agreeing to sell lease to respondent at significant undervalue – Appellant holding lease on express trust for respondent for three years – Appellant refusing to transfer lease claiming undue influence – Whether appellant holding lease on constructive trust for respondent – Whether proprietary estoppel requiring judge to order transfer of lease – Appeal allowed
The appellant was a secure council tenant of a residential property under a 125-year lease. He had been unemployed for 27 years and had received incapacity benefit and housing benefits.
The appellant was in need of cash. Wishing to exercise his right to buy the property under the Housing Act 1985, he entered into an arrangement with the respondent whereby, on the date of completion of the purchase pursuant to his right to buy, he would make a declaration of trust of the lease and the deed of transfer in favour of the respondent. The premium of £47,000 paid to the council for the lease was discounted by £38,000 from the price fixed by the council at £85,000. The open market value of the lease was estimated at £100,000 at the date of completion.
The purchase was financed by a loan secured by a mortgage on the lease repayable over 300 months at a rate of £400 per month; the respondent agreed to assume liability under the mortgage. He also made cash payments totalling £27,000 to the appellant for the lease, which was to be held in the appellant’s name for three years in order to avoid the repayment of the discount to the council.
An issue subsequently arose as to the beneficial ownership of the lease. The appellant sought to have the transaction set aside on the grounds of undue influence, arguing that he had not understood what was going on and had been taken advantage of. The judge rejected the appellant’s case. Applying the doctrines of constructive trust and proprietary estoppel to the facts found, he held that the appellant held the lease on trust for the respondent. The appellant appealed.
Held: The appeal was allowed.
There was no basis for the judge’s conclusion that, from the date of the execution of the lease, the appellant held the lease on constructive trust for the respondent absolutely. A constructive trust could not be properly inferred or imposed by the court since that would be inconsistent with the express agreement of the parties that the lease would be held by the appellant on an express trust for a period of three years, after which the deed of transfer of the lease to the respondent would take effect. The terms of the express agreement between the parties did not allow for the insertion of a constructive trust: Yaxley v Gotts [1999] 2 EGLR 181 considered.
Furthermore, the judge had wrongly treated the doctrine of proprietary estoppel as requiring him to order the transfer of the lease to the respondent. That ignored the wide judicial discretion as to how an equity resulting from an estoppel should be satisfied. The true legal position was that the remedies for proprietary estoppel were flexible. The court’s discretion was exercised by taking account of all the circumstances, including the nature and extent of the detriment and the conduct, as well as the expectations, of the parties. Having regard to the equity that had been established, its extent and all the circumstances, the court should adopt a cautious approach and look for the minimum equity to do justice: Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 100 applied.
The minimum equity in the instant case was to reimburse the respondent for his expenditure on the property, rather than ordering a transfer of the lease. The detriment established by the respondent was quantifiable in financial terms and could easily be reversed by compensating him for the expenditure. To order the transfer of the lease to the respondent would enforce the performance of a transaction, which was not a binding contract for sale, at a substantial undervalue and in respect of which the transferor had received no independent advice.
Accordingly, the appellant would be declared the beneficial owner of the lease, subject to a charge in favour of the respondent for the cash sums paid by him in respect of the lease and the moneys expended by him on repaying the loan and refurbishing the property.
Adrian Jack (instructed by Wilson Barca LLP) appeared for the appellant; the respondent appeared in person.
Eileen O’Grady, barrister
