Woolwich Building Society v Dickman and others

Possession order — Tenants of mortgaged property — Tenants signing consent forms — Whether consent forms affecting operation of Rent Acts — First instance judgment for tenants — Building society appealing — Court of Appeal dismissing appealIn 1984, the first respondent, D, decided to purchase a leasehold flat, Flat 4, Franshams, Hartsbourne Road, Bushey, near Watford, for the future benefit of his children. The other respondents, Mr and Mrs Todd, were his parents in law. D installed them in the flat as his tenants. They were to refurbish it at their own expense, and pay him rent of £200 per month, on the basis that they would enjoy a tenancy for their lives. They entered into possession in January 1985. It was common ground that the tenancy thus created was subject to the protection of the Rent Acts. In 1986, D applied to the appellant building society for a loan of £50,000. His brokers reported to the society that the flat was occupied by the Todds, and the flat was inspected by its valuer, who reported that the flat was “at present occupied by a tenant …”. The valuation was accordingly below that of a vacant possession property. No further inquiries were made and a mortgage was issued subject to the requirement that the Todds should sign a consent form that “any right of occupation …is postponed to the Woolwich…”. The mortgage took the form of a legal charge on the flat and was registered against D’s title at the Land Registry in September 1986. D ran into financial difficulties and defaulted on his payments. He was adjudicated bankrupt in 1993 and did not defend the society’s possession proceedings. The Todds, however, defended the action on the grounds that the consents were ineffective to postpone their rights as tenants; and their tenure was in any event protected by the Rent Acts. The judge dismissed the possession claim on the validity of the consents and did not consider the applicability of the Rent Acts. The building society appealed. Held The appeal was dismissed. 1. The court accepted the society’s argument that there was a clear and unequivocal bargain, supported by writing and consideration, where a mortgagee was induced to lend money on the security of a property, which was subject to a tenancy, by a written agreement on the part of the tenant that his right of occupancy was to be postponed to the rights of the mortgagee. The court would therefore give it effect. 2. However, the court was then obliged to consider a second question, viz whether it had jurisdiction to make a possession order in favour of the building society where such an agreement with a tenant existed. 3. It could not do so except under section 98(1) of the Rent Act 1977, which expressly prohibited the making of a possession order except in specified circumstances, none of which was relied upon in the present case. 4. Further, whatever the result of the letters between the building society and the Todds, they had no effect on the property or charges registers at the Land Registry so as to preclude the Todds’ tenancy being an overriding interest under section 70(10) of the Land Registration Act 1925. 6. Thus their tenancy remained an overriding interest notwithstanding the letters of consent and the building society’s charge took effect subject to it. 7. The result was that the security for D’s debt was incumbered by the tenancy and the building society was unable to achieve the higher purchase price normally realised on a sale with vacant possession. Gordon Nurse (instructed by Sharman & Trethewy, of Bedford) appeared for the appellant building society; Marilyn Kennedy-McGregor (instructed by Matthew Arnold & Baldwin, of Watford) appeared for the respondents.