Property – Mortgage sale and leaseback agreement – Possession – First defendant purchasing property from second and third defendants under sale and leaseback agreement – First defendant in arrears with mortgage payments – Claimant mortgagee seeking possession of property – Whether second and third defendants having overriding interests in property by virtue of agreement under sale and leaseback scheme – Claim dismissed
The second defendant owned a property that he had occupied with his wife, the third defendant, and children for over 20 years. In 2005, he fell into arrears with his mortgage repayments. He responded to an advertisement in the local newspaper entitled “Repossessions Stopped”, under which the first defendant and her partner, trading in partnership, offered to buy properties from owners who were in arrears, pay off their mortgages and grant tenancies to the former owners to enable them to remain in their homes. The second and third defendants agreed to sell their home to the first defendant on that basis, following which the first defendant mortgaged the property to the claimant.
The claimant subsequently brought an action for possession of the property pursuant to its rights under a mortgage deed that it had entered into with the first defendant. The claim against the first defendant was not defended but the second and third defendants resisted the claim for possession against them. They contended that they had been induced to sell their home by misrepresentations of the nature of the transaction made by the first defendant’s partner and that the transaction was an unconscionable bargain. In any event, should the transaction not be set aside, they were assured tenants entitled to various rights by way of estoppel.
The claimant argued that: (i) the transaction could not be set aside; (ii) it could not be set aside against the second and third defendants; (iii) it was not bound by any of the rights that the second and third defendants might have; and (iv) they were merely assured shorthold tenants. During the course of the trial, the claimant conceded that the second and third defendants were entitled to set aside the transaction against the first defendant on the ground of misrepresentation.
Held: The claim was dismissed.
On its true construction, the tenancy agreement entered into by the second and third defendants under the sale and leaseback scheme was an assured tenancy and not an assured shorthold tenancy.
As a general rule, under section 19A of the Housing Act 1988, an assured tenancy entered into after 28 February 1997 was an assured shorthold tenancy unless it fell within, inter alia, paragraph 3 of Schedule 2A to the Housing Act 1988. Paragraph 3 required the court to identify the agreement and search for a term to the effect required. That excluded precontractual representations and left open the question of whether the agreement might be written, oral or partly oral. The court was left to identify the terms of the tenancy in the particular case. Where the agreement was in writing, it had to contain the term to be relied on. However, the paragraph did not have to be in writing in all instances and it was not necessary to read in that requirement to meet the purposes of the provision or to make it work. It was a question of what was contained within the agreement: Andrews v Cunningham [2007] EWCA Civ 762; [2008] HLR 13 considered.
In the instant case, looking at the terms of the written agreement, the second and third defendants could be said to have an assured tenancy that contained a provision to the effect that the tenancy was not an assured shorthold tenancy within para 3 of Schedule 2A to the 1988 Act. Read as a whole, the tenancy agreement contained inconsistent provisions but the landlord appeared to have deliberately altered the standard form by describing the tenancy as a “Short Assured Tenancy”. That was what the parties had agreed and the tenancy was governed by that express description and agreement, which was a provision to the effect that the tenancy was not an assured shorthold tenancy. The inclusion of an inappropriate term did not change the essential nature of what was being agreed.
Moreover, the second and third defendants were entitled to the right claimed by way of proprietary estoppel founded on the representations that had been made to them that prevented the first defendant from denying that, following the sale, the second and third defendants were entitled to live in the property as tenants subject to paying rent; in effect, on the terms of the assured tenancy, with the right of their daughter to succeed and with the option to buy back set out in a covering letter. They also had a right to set aside the sale for fraud.
Looking at the substance of the transaction rather than its form, as the court was required to do, the rights of the second and third defendants were overriding interests that, pursuant to paras 1 and 2 of Schedule 3 to the Land Registration Act 2002, took priority over the mortgage: Abbey National Building Society v Cann [1991] 1 AC 56 and Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480 applied.
In any event, the tenancy was binding on the claimant as a consequence of the registration gap by virtue of sections 23(1)(a), 24(b), 27(2)(b)(i) and 29 of the 2002 Act.
The minimum equity to do justice to the situation required that the second and third defendants should benefit from the representations made as to their daughter’s right to succeed and their right to buy at a discount: Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 8 and 100 applied.
Adam Rosenthal (instructed by Halliwells LLP, of Manchester) appeared for the claimant; the first defendant did not appear and was not represented; Andrew PD Walker (instructed by Shelter Legal Services) appeared for the second and third defendants.
Eileen O’Grady, barrister
