Shop premises mortgaged to bank by freehold owner – Mortgage excluding statutory power of leasing – Freeholder nevertheless granting tenancy – Plaintiff taking assignment from tenant – Plaintiff sub-letting to defendant – Bank having no knowledge of lettings – Freeholder in arrears – Bank exercising power of sale – Bank giving notice to occupier – Defendant purchasing property from bank – Plaintiffs seeking possession – Whether plaintiff evicted by title paramount – Whether defendant estopped from denying plaintiff’s title – Judgment for plaintiff – Appeal of defendant allowed.
The freehold owner of shop premises mortgaged them to a bank. The mortgage excluded the mortgagor’s statutory power of leasing. Nevertheless the freeholder granted a lease to a tenant from whom the current tenant, the plaintiff, took an assignment. The lease was due to expire in 2006. The plaintiff lessee sub-let to a sub-tenant, the defendant, at a profit rent. The bank knew nothing of these transactions. The freeholder fell into arrears with the mortgage payments and the bank, by then aware that an unauthorised party had been let into occupation, exercised its power of sale, having given notice to ‘the occupier’ that it was treating any tenancies as void. The party who purchased the freehold from the bank was the defendant, the sub-tenant. From the date of his purchase he claimed to be entitled to evict the plaintiff lessee, and put an end to the lease and sub-lease by virtue of his new role as owner. The plaintiff maintained that although the defendant might now be owner of the freehold reversion, he was entitled to possession because his sub-tenancy had become forfeited through denial of his lessor’s title. The plaintiff brought an action for arrears of rent, possession and mesne profits. The judge held that the interest of the plaintiff lessee had not been determined because there had been no eviction of the plaintiff by title paramount of the bank, the estoppel in the defendant’s underlease which bound him the accept the plaintiff lessee’s title continued to the moment when he acquired the freehold by purchase from the bank as mortgagee and continued thereafter as he was taking the property subject to his own rights of occupation, and the defendant had failed to make out a case by affirmative evidence that his purchase was not part of a collusive arrangement of the kind equity would intervene to prevent on the principle of Quennell v Maltby [1979] 1 WLR 318. The defendant appealed.
Held The appeal was allowed.
