Grant — Overriding interest — Owners of flat selling to first defendants for two-thirds of its value — Defendants granting them “licence” to live rent-free in flat for their lifetimes — First defendants raising mortgage on the flat from plaintiffs — Asserting that flat having vacant possession — First defendants failing to keep up mortgage repayments — Plaintiffs seeking possession — Judge at first instance finding in owners’ favour and holding licence sham — Finding that owners having paid premium by reducing value of flat for their lifetime grant — Taking effect as lease — Court of Appeal upholding that judgment
The first defendants were registered proprietors of a flat at 184-186 Acre Road, Kingston-upon-Thames. They carried on a business known as the Mortgage Advice Centre. Mr and Mrs B, the second and third defendants, had lived in the flat since 1973, when they were registered as proprietors. Mr B ran into financial difficulties and he consulted the first defendants, who agreed to buy the flat for £26,000. They granted a license, by deed, to occupy the flat for their joint lives and the life of the survivor. It confirmed that “at no time shall the licensees enjoy exclusive physical possession of the property as against the licensors”.
In June 1989, the licence was cancelled by Mr B, acting alone and signing for his wife. He was prevailed upon to do so by the first defendants. However, that cancellation was followed by a letter from the Mortgage Advice Centre confirming that they might remain in the property rent free for the rest of their lives. The first defendants then applied to the plaintiffs for a mortgage advance secured on the flat of £56,000. They informed the plaintiffs that the property was vacant and not subject to any existing tenancy. The surveyor for the plaintiffs stated that the property was worth £80,000 and the loan was duly made. The instalments were not kept up and an order for possession was made in the plaintiff’s favour in October 1990 as against the first defendants.
Mr B then applied to set aside the order on the ground that he and his wife were protected tenants under the Rent Act 1977. The judge found in their favour and held that the reality was that Mr and Mrs B were to have exclusive use of the flat for the rest of their lives having parted with their ownership for a very much reduced sum. He further found that the grant was caught by section 149(6) of the Law of Property Act 1925 that “any lease at a rent or in consideration of a fine for life or lives … shall take effect as a lease … for a term of 90 years determinable after the death of the survivor … of the original lessees …”. The word “fine” was to be taken in its old-fashioned sense and included the premium which in reality had been paid by Mr B for the grant of that “licence”. The plaintiff appealed.
Held The appeal was dismissed.
1. The finding of the judge on the facts was clear on the evidence before him and could not be disturbed.
2. The grant was caught by section 149(6) of the Law of Property Act as stated in the judgment.
John Behrens (instructed by Charlesworth Wood & Brown, of Skipton) appeared for the appellant building society; Mark Cunningham (instructed by Cotter & Co, of Kingston-upon-Thames) appeared for Mrs Brown; Mr Brown appeared in person.
