Co-ops, equity and void leases

Berrisford v Mexfield Housing Co-Operative Ltd [2010] EWCA Civ 811

We reported on the High Court appeal in this case here. By the time it reached the Court of Appeal it had turned into quite a different case altogether. At the High Court, Ms Berrisford was unrepresented and summary judgment was given against her on Mexfield’s possession claim, on the basis that, as a tenant of a fully mutual housing co-op, her tenancy was outside Housing Act 1988 and was terminable on notice to quit. At first instance, Mexfield had been refused summary judgment on the basis that Ms B’s tenancy agreement said that possession proceedings would only be brought in specified circumstances, including rent arrears. There may also have been Human Rights issues raised at first instance, but these did not surface at the High Court (again, Ms B being unrepresented).

Ms B – now represented again, appealed to the Court of Appeal.

At the Court of Appeal, the central issue were clauses in the ‘occupancy agreement'; between Mexfield and Ms B (and according to Mexfield, many others) which stated that:

5. This Agreement shall be determinable by the Member giving the Association one month’s notice in writing.
6. This Agreement may be brought to an end by the Association by the exercise of the right of re-entry specified in this Clause but ONLY in the following circumstances:-
a) If the rent reserved hereby or any part thereof shall at any time be in arrear and unpaid for 21 days after the same shall have become due …
b) If the member shall at any time fail or neglect to perform or observe any of the stipulations conditions or provisions contained in this Agreement which are to be performed and observed by the Member
c) If the Member shall cease to be a member of the Association
d) If a resolution is passed under … the Association’s Rules regarding a proposal to dissolve the Association
THEN in each case it shall be lawful for the Association to re-enter upon the premises and peaceably to hold and enjoy the premises thenceforth and so that the rights to occupy the premises shall absolutely end and determine as if this Agreement had not been made (but without prejudice to any right of action or remedy of the Association).

These were the only clauses dealing with ending the agreement, which was otherwise for a monthly periodic tenancy.

The previous purported justification by Mexfield for serving notice – rent arrears – had fallen away. There was no suggestion before the Court of Appeal that Mexfield was entitled to possession for breach of the clause and the appeal proceeded on the basis that a bare notice to quit had been served.

The point of Ms B’s appeal was that these clauses were enforceable in contract or, if the clause had no effect in common law, it should be enforceable in equity.

Mexfield – perhaps surprisingly – argued that the occupancy agreement (and with it hundreds of other such agreements entered into since 1992) was entirely void. The House of Lords decision in Prudential Assurance Co Ltd v. London Residuary Body [1992] AC 386 meant that the purported grant of lease failed because the conditions in clause 6 meant it was for an uncertain term. What Ms B had was to be implied from the conduct of the parties because the express tenancy agreement was void. The implied tenancy could only be a tenancy subsisting month to month, determinable on Notice to Quit. (As noted before, Mexfield as a fully mutual housing co-op could not grant an assured or secure tenancy, so outside statutory protection).

BY a 2:1 majority, the Court of Appeal found for Mexfield, such that the hundreds of occupancy agreements it had granted after 1992 – the Prudential decision – were indeed void. Mummery LJ and Aikens LJ agreed that the effect of the Prudential decision was to render the agreement void. There could not be both a monthly periodic tenancy AND a contract for a tenancy for an uncertain period that could be mutually enforced between the parties, but this was the effect of Ms B’s argument. In any event, a contract that purported to grant a lease that failed could not be given effect:

What follows from the conclusion that the Occupancy Agreement failed, as a matter of law, to grant Ms Berrisford a lease on the terms set out in that agreement? Can effect be given to the Occupancy Agreement as a contract, bearing in mind that the aim of the Occupancy Agreement, on this first argument, is to grant Ms Berrisford an interest in land? Considering the matter in principle, in my view if the object of the original contract between the parties is to create an interest in land and that object is not achievable at law because the interest of land created would be of an uncertain term, then neither law nor equity should be able to enforce the contract between the original parties. It seems to me that, as a matter of principle, it is both illogical and unsound to suggest that a contract which aims to grant an interest in land, which grant fails because it is of uncertain term, can nevertheless survive as a separate and free-standing contract, which can be enforced as if it were the lease which cannot be made because of an uncertain term. [Aikens LJ at 56]

This was the case in law, but also in equity. On review of the (venerable) precedent cases raised, none found that a contract for a tenancy was enforceable as to its terms in equity, although it may give rise to a form of proprietary estoppel, not pleaded in this case. Of the precedents:

none support the bare proposition that if two parties enter into a contract by which A purports to agree to grant to B a tenancy of premises for an uncertain term (e.g. “for as long as you continue to pay the rent”) which is therefore void as a lease, and B enters possession and pays rent on a monthly basis, then, as between A and B, equity will enforce that contract by granting B an injunction against A when A attempts to obtain possession from B having given a valid notice to quit. I accept, of course, that B may be able to retain possession on such grounds as equitable or proprietary estoppel, but those arguments are not relied on in this case. [Aikens LJ at 70.]

Nor did the occupancy agreement take effect as a contractual licence. Per Lace v Chantler [1944] IKB 368

The court is not then justified in treating the contract as something different from what the parties intended and regarding it merely as a contract for the granting of a licence. That would be setting up a new bargain which neither of the parties ever intended to enter into. The relationship between the parties must be ascertained on the footing that the tenant was in occupation and was paying a weekly rent. Accordingly, it must be the relationship of weekly tenant and landlord and nothing else.

Mummery LK concurred with Aikens LJ

Wilson LJ’s dissent takes a different view of the argument that Ms B could rely on the Occupancy Agreement in equity. He notes that:

Following the decision in the Prudential case, however, Mexfield does not appear to have considered its impact on the validity of this form of agreement in general and on clause six in particular; nor is there evidence that any lawyer advising a prospective member/tenant did so. So, for the next 18 years, Mexfield and its prospective members/tenants, such as Ms Berrisford, continued to enter into agreements in the same form; and one assumes in Mexfield’s favour that, until a very late stage (possibly at around the time of issue of the present proceedings), it understood, as no doubt its members/tenants understood, that clause six constituted a valid term of the tenancy.

He considers that five authorities: Warner v. Browne (1807) 8 East 162 and (1807) 14 Ves Jun 156; Parker v. Taswell (1858) 27 LJ (Ch) 812; In re King’s Leasehold Estates (1873) LR 16 Eq 521; Zimbler v. Abrahams [1903] 1 KB 577; and Siew Soon Wah v. Yong Tong Hong [1973] AC 836 established a line of equity upholding specific performance of agreements for leases that the parties had mutually intended, albeit that they were void for term uncertain. (These are the same cases that Aikens LJ considers and rejects as establishing anything more than a potential estoppel).

For that reason, Wilson LJ found:

Ms Berrisford had a right to specific performance of the Occupancy Agreement, in particular of clause six. Although it may be, for example, that in 1993 she agreed to rent the property only as a result of the security of tenure afforded to her by clause six (or, for example, agreed to pay a rent as high as that stipulated therein in light of the security afforded to her thereby), Ms Berrisford did not need to establish detrimental reliance upon the clause. Having provided consideration for the agreement, equity would, subject to the scrutiny which it generally applies to applications for the exercise of its discretion, have ordered specific performance of clause six. Where the obligation to be enforced is, as in clause six, of a negative character, the equitable remedy will generally take the form of an injunction; but where, more particularly, the obligation to be enforced is, as in clause six, not to take proceedings save in specified circumstances, the remedy will take the form of a dismissal of any proceedings taken in breach of it.

Comment
I would have to confess to finding myself in the minority on this decision. Although the counter argument that there cannot be a concurrent (implied) tenancy and a (failed but enforceable) agreement for a tenancy for the same parties has some strength, so does Wilson LJ’s view that, given both parties clear intention, the agreement that Ms B entered into should remain enforceable in equity, for all that it was not in law.

However, there is also a point in the argument that what is established in the (failed) agreement is a proprietary estoppel. And, given that this is the Court of Appeal’s decision, anyone with a similar case (housing co-op tenant or other contractual tenancy void for term uncertain), would be well advised to consider pleading a proprietary estoppel.

Human Rights arguments don’t get a look in here and, unless or until there is an expanded view of the Court’s own duty as a public body, rather than a reliance on landlords being a public authority, housing co-ops – for all that they are creatures of statute – are unlikely to face a credible Art 8 or Art 1 Protocol 1 challenge. The fact remains that fully mutual Housing Co-op tenants have less security of tenure than any other tenant with a rent under the ‘Assured’ annual rent limit (£25K now, £100K from 1 October 2010).

p5rn7vb
Posted in FLW case note, Housing law - All, Licences and occupiers and tagged , , , , , , , .

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +

31 Comments

  1. back in the late 1970s some HAs granted security of tenure by contract in similar manner to some mutual coops after the 1980 act.

    one does hope this goes to the supreme court and they treat this as a monthly tenancy [and thereby does not break the rule as to duration unlike the duration of war leases as each period is a month] coupled with a contractual term not to exercise their right to serve NTQ except in certain circumstances.

    in addition to do otherwise would be to put form before substance as a 1000 year lease terminable on 1 months notice provided the specified circumstances attain would be valid.

    a perpetually renewable lease was valid lease with no definite duration under common law. [under the LPA22 these are now 2000 year lease unless a sublease]

  2. One for their lordships I agree.

    Though the CA got it right surely. Can’t have equity making mockery of common law. There is public policy behind rule as to certainty of term – either it’s right or it isn’t. If right, there’s no place for equity to say otherwise; if wrong, then the common law needs to change.

  3. It is a shame that the art 14 point wasn’t raised as it was in Nettleton v Joseph or the estoppel point, because the majority decision on the pleaded case is plainly right.

    I don’t see how you can have an equitable “tenancy” where one of the key characteristics of a tenancy is missing.

  4. Given that mexfield is not a public authority I fail to understand how a tenant of a fully mutual co-op which is not a public body can plead a “proprietry estoppel”. Can you please explain?

    • P

      Yes. Proprietary estoppel is an equitable remedy which has nothing at all to do with whether the party against whom the estoppel is sought is a public body or not. An estoppel can be sought against a private individual or organisation, or indeed a public body.

  5. NL. However proprietry estoppel I understand requires that the landlord somehow re-affrirm security of tenure for example when rent is increased. I fail to understand how a PE defense could be argued in most Co-op cases.

    • Not so again, P, I’m afraid – although depending on the specifics of the representation given. “I won’t evict you as long as you pay £57.15 a week” may need re-affirming if the rent increases, but “I won’t evict you as long as you pay the rent” wouldn’t at all, in my view. The latter was more or less the term in this case (and would be more common than a term with a specific figure, I would have thought).

      If there is some representation by a Co-op, in the tenancy agreement or indeed elsewhere, that possession would not be sought if the rent was paid, then I don’t see any reason why a proprietary estoppel could not be pleaded. Of course, if there was such a term in the tenancy agreement, it is probably void as a tenancy for term uncertain, as in this case.

  6. Yes but in the case of Miss Berrisford she had broken her agreement by falling behind with her rent albeit as a result of housing benefits.

    • And, hopefully for the last time: P, wrong again. As you noted yourself back in September, any arrears had been remedied. From the case report above, I quote myself “There was no suggestion before the Court of Appeal that Mexfield was entitled to possession for breach of the clause and the appeal proceeded on the basis that a bare notice to quit had been served.”

      I rarely get snappish, but you have made a whole series of wrong and sweeping assertions now. What is your particular issue here?

      • While I suggest that local courts might be unwilling to enforce on these grounds, preferring to treat a NTQ as a NOSP and staying or adjourning the case, surely the issue would be whether there were arrears at the time the NTQ was served ? My understanding was that, though the point is often ignored, there is no facility for withdrawing a NTQ once served, other than by an agreement by both parties that it was not served – silly them…). I understand that for assured and secure tenants, the tenancy now expires when the court orders so, but did this change affect co-op contractual tenancies ?

        In this case though, Clause 6 does not mention a NTQ, it talks about re-entry, presumably destroying the exclusive possession while giving the Co-op clear administrative control of the situation.

        One is based on the collective assertion of rights over communal property – very old cooperative thinking – and the other a contractual commitment to follow a legal process.

        Is there any suggestion as to what the correct form of tenancy might actually be ? Or is UK law inconsistent with the rights of a Co-op to house its members ?

          • My apologies, I thought I had found and read all the various threads on this topic before posting.

            Thinking about this, though, it becomes more convoluted. It’s now all okay because there is now a 90yr/lease for life (‘tenancy for life’ as the papers are calling it) – so long as the niceties, such as a suitable tenancy agreement are signed. If there is some laxity following a NTQ and rent continues to be accepted, then a new tenancy is extablished, except under these terms it cannot be. It could only be a simple periodic tenancy and they would not regain the same tenancy rights as other members until a new agreement was signed (presumably following some rapprochement).

            Sorry – I’ve just gone through my own circle of reasoning there, but if that is right, it would be quite a useful point for co-ops who have not followed up NTQs… (Presuming that the NTQs were valid in any case.)

            • It isn’t that straightforward.

              Where there is a tenancy agreement that would be a periodic tenancy except that an unlawful fetter has been put on the landlord’s right to determine (as in Mexfield) then it takes effect as a ‘tenancy for life’ (the 90 year lease). That can’t be determined by NTQ but only by forfeiture.

              However, if a Co-op has a tenancy agreement that doesn’t contain such a restriction on the right of the landlord to determine the tenancy, or does but in a way that allows the tenancy to be considered as being for a term certain, then the situation is different. It may just be a periodic tenancy. That would be determinable by NTQ.

              Acceptance of rent after an NTQ on a contractual tenancy, which includes Co-op tenancies, does not normally create a new tenancy, unless that is the intention of both parties. It may, however, constitute waiver of any breach of the tenancy conditions by the tenant complained of by the landlord.

              An NTQ in a contractual tenancy does not need any breach of tenancy condition. This was the issue in Mexfield – the tenancy agreement limited the times when an NTQ could be served to specified breaches of tenancy conditions. However, there were no rent arrears at the time of the service of the NTQ in that case. Mexfield relied upon it being a bare monthly periodic tenancy.

              Hope that clarifies things a bit.

  7. The case has now been listed for hearing by the Supreme Courtr for two days starting 4th October 2011, according to their case list. So we will know the answers shortly.

  8. It’s a 7 strong constitution too, presumably so that Prudential can be up for grabs – Hope, Walker, Hale, Mance, Neuberger, Clarke, Dyson.

  9. Interesting that Neuberger is sitting in on this as he appears to have been the unsuccesful advocate in the Prudential hearing before the House of Lords in 1992 arguing that a party ought to be bound by his contractual commitment freely entered into and that the law of contract recognises perpetual commitments in other areas. These points plainly prefigure the arguments unsuccessfully put forward by Mark Wonnacott to the Court of Appeal in the Mexfield case.

    Just in case anyone gets the wrong end of the stick it should be understood that Ms Berrisford is not under threat of a possession order as she has already entered into a new (legal) tenancy agreement. The case is being run by Mexfield as a kind of test case to clarify the position in relation to hundreds of other contracts.

  10. It became clear the Mexfield is not and claims never to have been a “Housing Association” nor registered with the Housing Corporation. In fact Mexfield is owned by Bradford & Bingly building society who have since issued another NTQ to another tenant purely on the terms that they wish to sell vacant possession.
    Ownership by B&B should make no difference to the Outcome as it is clear that when signing the contract niether party intended to create a monthly tenancy as B&B now claim.

    • This may be semantics, but if they are an Industrial and Provident Society 1965 Act organisation and provide housing on a not-for-profit basis then they would be described under the 1985 Housing Act S.5 as a housing association, with co-ops a clearly distinct subset of those. If Mexfield is owned by B&B then surely it is not a cooperative at all, unless it is meant that the PROPERTIES are owned by B&B, which seems more likely.
      Their website clearly states that they are a ‘fully mutual housing association’ (ie a co-op) and it is not for me to comment whether this is a sham, although it does depend on whether the management committee meets in accordance with its rules and has the power to appoint another managing agent. P – do you have any reference for your comment ?

  11. I am currently Manager for a Housing Co-operative and we have used a “Temporary Excluded Licence Agreement” for the past 7 years. However I recently ended a Memeber Tenants agrgreement and the local authority say they have an A.S.T. and I need to give 2 months notice. Is there any sense in this ??

    • I’m afraid that we can’t give direct advice via the blog. Besides, this is the kind of thing that we actually get paid for.

    • You sound as if you need some advice on a number of matters around housing management. If you’re employed through the authority, you might contact LACOG, if you’re managing other organisation’s property then LFHC or CCH might help you.
      Your first stop should be reading the member-tenancy agreement. Unless you own the property, whether Mexfield applies is very much a matter of circumstances and no-one is sure of the rules.

  12. This may be material for a feature length Monty Python film!
    Meanwhile, thousands of contractual tenancies are in place and ASB, rent arrears and re-lets are daily occurrences. It would be interesting and educational to hear from people involved in managing this kind of tenancy.

    • Come to the London Federation of Housing Co-ops open Forum on this and similar matters starting at 10:30am on Saturday 12th May 2012 at the Tenant’s Centre at 140 Copenhagen Street. The majority there will be lay people, but it will be the main ‘open’ discussion that you can access at the moment.

  13. We have had a number of comments relating to a fully mutual co-op which is to have a meeting about the tenants (now 90 year lease holders)and housing benefit. I have taken down those comments as they related to a particular and ongoing matter. As our comment policy states:

    We cannot offer advice on individual’s situations and cannot allow others to respond to comments containing individuals’ legal problems or situations. Comments by individuals seeking advice or assistance will be deleted without notice.

    However, it is certainly the case that there is a question mark over housing benefit entitlement and 90 year leases.

    The Confederation of Co-operative Housing received the following advice from the DWP (set out in their notes on the Mexfield case here:

    Although the Department for Work and Pensions has overall responsibility for the scope and structure of the Housing Benefit (HB) and Council Tax Benefit (CTB) schemes, local authorities have full statutory responsibility for their day-to-day administration. This Department cannot give an authoritative interpretation of the regulations; that is a matter for authorities to decide subject to any court ruling and depending on the circumstances of each individual case. I hope, however, that you find the following comments helpful.

    We are responsible for offering our interpretation of the HB regulations but your enquiry concerns tenure legislation. Therefore, I can only advise you to seek your own legal advice on the status of this liability but offer the following views.

    Housing Benefit can only be paid to a person who has a legally enforceable liability to pay rent on the dwelling they occupy as their home. I understand that the indeterminate duration of the tenancy may effectively grant a tenancy for life to the tenant. A tenancy that has no prescribed term of years and effectively terminates on the death of the claimant is in law a tenancy for 90 years and therefore has the appearance of a long tenancy for benefit purposes. Payments under a long tenancy are not eligible for Housing Benefit, a long tenancy being defined as one originally granted for more than 21 years, Housing Benefit regulation 12(2)(a) refers. Those with a long tenancy are treated as owners, for benefit purposes, and help with their housing costs is available through Income Support, income based Jobseekers Allowance, Employment Support Allowance or Pension Credit on much the same basis as Housing Benefit. The above regulation therefore acts as a means for determining, for benefit purposes, whether a person is a tenant or owner. A legal distinction is made between a lease originally made for more than 21 years and one for less. Essentially the distinction is between a short term tenancy that ends on the departure or death of the tenant and a long term tenancy which runs its course and which can be renewed, passed on or sold on. This effectively determines the difference between a tenant and an owner/leaseholder, which is picked up in the income related benefits. HB helps with the housing costs of the former and the others (IS, JSA, ESA or SPC) help the latter.

    However, there is case law for Jobseekers Allowance (CJSA/2746/2008) that clarifies the situation a little more. The Judge in that decision highlights that a long tenancy should be made by deed and be registered with the Land Registry. If that is not the case then the tenancy would not satisfy the definition of long tenancy in HB regulation 2(1) and therefore eligible for HB so long as all other conditions are met.

    From this, it appears that the DWP position is that a ‘Mexfield’ style lease falls into something of a grey area. While a lease for longer than 21 years, it is not saleable, renewable or inheritable. It is unlikely, at this stage at least, that any will be registered with the Land Registry and the tenancy agreements are unlikely to be by deed.

    Certainty on the issue may have to await an Upper Tribunal decision.

    I’ve also copied this comment to the post on Mexfield v Berrisford in the Supreme Court

  14. So what rights would a fully mutual co op member who is a member (with a share) but not named on the tenancy (e.g. a partner) have? Come to think of it, can you be a tenant member without being a tenant?

    • I don’t understand your question, but it sounds like a general one about Co-ops, rather than anything to do with Mexfield, so falls under the ‘we can’t give advice’ heading…

Add a comment. (Our comments policy)

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>