Landlord and tenant: statutory tenancy

Case 1 of schedule 15 to Rent Act 1977 - lease of flat providing for forfeiture upon bankruptcy - statutory tenancy arising upon expiry of lease - tenant going bankrupt - no rent owing - whether tenant under obligation not to go bankrupt - whether such obligation continuing under statutory tenancy - tenant appealing against possession order - appeal dismissedCadogan Estates Ltd v McMahon: House of Lords: Lord Steyn, Lord Hoffmann, Lord Hutton, Lord Millett, Lord Bingham of Cornhill: 26 October 2000

The respondent landlord owned a flat in Lower Sloane Street, London SW1.

The appellant tenant occupied it under a statutory tenancy, which arose upon the expiry of a lease, dated August 1979, made between the parties' predecessors.

The lease provided for forfeiture in certain events, including the tenant's bankruptcy.

The landlord had been to court to recover rent arrears several times.

In March 1998 the tenant was made bankrupt.

There were no rent arrears, as the tenant's daughter, who lived with him in the flat, was paying the rent.

In April 1998 the landlord brought proceedings for possession, relying upon the tenant's bankruptcy alone as a ground for possession under Case 1 of schedule 15 to the Rent Act.

The county court judge proceeded on the basis that the bankruptcy adjudication was, in the language of the schedule, a breach of an obligation of the previous protected tenancy which is applicable to the statutory tenancy.

After considering the tenant's payment record, the judge could find no (discretionary) reasons for not making a possession order.

The tenant, without challenging the discretionary ruling, appealed to the Court of Appeal against the finding that he had breached an obligation.

It was contended that: (i) he was under no obligation not to go bankrupt, as the adjudication was no more than one of the events contemplated by the forfeiture clause; and (ii) in any event, the alleged obligation could not be imported into the statutory tenancy by s.3(1) of the 1977 Act, being inseparable from the forfeiture clause, which was manifestly incapable of operating after the end of the contractual protected tenancy.

The arguments were rejected, and the tenant appealed to the House of Lords.

Held: The appeal was dismissed.

1.

There would have been much force in the tenant's arguments had the Act been an ordinary conveyancing statute.

But the Act was a consolidation of a sequence of enactments going back to the First World War.

They had not been framed with any scientific accuracy of language, and it was essential that, wherever possible, they should be construed in a broad, practical, common-sense manner: see the numerous judicial observations cited by RE Megarry in The Rent Acts (1988 ed) pp14-18.

It was thus unimportant that schedule 15 spoke of obligations, while s.3 required a statutory tenant to observe the terms and conditions of the original contract: see per Sir Raymond Evershed MR in RMR Housing Society Ltd v Combs [1951] 1 KB 486 at p493.

It was technically inaccurate to describe bankruptcy as a breach of an obligation, but no more accurate to speak of it as a breach of a condition.

Nevertheless, it had been so treated for other purposes: see s.146 of the Law of Property Act 1925, as considered in Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 EGLR 26, and s.52 (1)(a) of the Housing Act 1980, as considered by the Court of Appeal in Paterson v Aggio [1987] 2 EGLR 127.

2.

The earliest Rent Acts did not affect a right to forfeit, for reasons of bankruptcy or otherwise.

The requirement that, even in such cases, the judge must consider it reasonable to make a possession order was first imposed by the Mortgage Interest Restrictions (Amendment) Act 1933.

There was no reason to suppose parliament intended to exclude forfeiture for bankruptcy from the material provisions.

3.

Per Lord Hutton: The forfeiture clause consisted of two elements, the obligation not to become a bankrupt and the power of the landlord to re-enter in such an event.

The latter was inconsistent with the Act, but the former would continue to bind the statutory tenant provided it was not so inconsistent.

Having regard to the reasonableness requirement, the continuance of the obligation as a term of the statutory tenancy could not be seen as inconsistent with the Act.

4.

Per Lord Millet, dissenting: The tenant's bankruptcy was not free-standing.

It was attached to the right of re-entry, and was found only in a term that was not carried over into the statutory tenancy.

Nor was it obviously fair to make it a term of the statutory tenancy, given that the landlord was only concerned with rent, and the tenant had no (proprietary) interest capable of being preserved for creditors' benefit.

In those circumstances, there was no reason for the tenant and his family to lose their home so long as the rent was being paid.

Peter Griffiths (instructed by Edwin Coe) for the appellant; Anthony Radevsky (instructed by Lee & Pembertons) for the respondent.