Recovery of arrears of rent - tenant withholding rent pending repairs being effected by landlord - equitable remedy of set-off for damages for disrepairs by former landlord maintainable by tenant against new landlord

Smith v Muscat: CA (Lords Justice Ward, Buxton and Sedley): 10 July 2003

The defendant, a statutory tenant of a terraced house, withheld payment of rent pending repairs being effected by his landlord.

In 1999, the landlord, not having completed the work, sold the property together with assigned rent arrears of 3,860 to the claimant who thus became the defendant's current landlord.

A judge in the county court made a possession order against the defendant, stayed pending appeal, holding that no equitable right of set-off in respect of the rent arrears was available to the defendant against the claimant in respect of breaches of repairing covenants by his predecessor in title.

The defendant appealed.

Nicholas Nicol (instructed by Balogun Kirvan) for the defendant; Edwin Johnson (instructed by ASB Law, Croydon) for the claimant.

Held, allowing the appeal, that if the arrears were as claimed, the possession order was unappealable; but that, since unliquidated damages could be set off against an assignee if flowing out of, and inseparably connected with, transactions giving rise to the assignment, the defendant was entitled to set off against the claimant's claim for rent arrears any damages due in respect of the former landlord's repairing obligations because the debt, a chose in action, vested in the current landlord as assignee, subject to all equities which had been available to the defendant against his former landlord; and that, accordingly, in the circumstances no grounds existed for making a possession order.

(WLR)