The FSA reviewed 22 firms and its overall assessment pulls no punches from the outset:

The review identified widespread poor practice among SRB firms. The main conclusion is that the majority of SRB sales were either unaffordable or inappropriate. This means consumers have entered into agreements that have either already led to a detrimental outcome, or are highly likely to in the future. This is unacceptable, and we are taking immediate action to address this. (para 1.3)

For property lawyers, the key findings are likely to be as follows:

a) Most files examined did not show that the lender had agreed to the letting to the seller (para 2.4; grrrrrrrrr);

b) The contract documents did not comply with the UTCCRs and the FSA’s MCOB requirements (para 2.6);

c) “Some tenancy agreements contained a term that gave the landlord a broad discretion to terminate the agreement if the tenant breached of any of the terms. In our view, such a broad discretion may indicate that a term is likely to be unfair and could mislead consumers about their rights” (id, fourth bullet);

d) The tenancy agreements contained: broad discretion to vary the rent; financial penalties; no provision for the seller/tenant to determine the tenancy on three months notice with no other conditions;

e) inadequate fact-finding processes by the seller to determine if the transaction was appropriate;

f) the involvement of unauthorised private investors which gave rise to additional risks (eg unafforability, shorter tenancy terms than required) (paras 2.18-22).

For welfare lawyers, the key finding will be that some firms based their projection of affordability on entitlement to housing benefit (para 2.1(f)).

Wainwright Cummins LLP are recruiting for an experienced housing paralegal (with a view to a training contract for the right individual) to work in our social housing team.

Our housing team are members of the Housing Law Practitioners’ Association and have been recognised as a ‘leading practice team’ for our social housing tenant work in the recent edition of the ‘Legal 500’. We advise tenants on all aspects of housing law and endeavour to provide a high quality service striving to ensure clients achieve the best possible outcome possible in their cases.

We are referred many of our clients through community and voluntary advice organisations and frequently organise talks with advice agencies to enable them to better assist those with housing problems when required. Our team are also involved in pro-bono projects such as the London South Bank Advice Clinic.

Salary; £16-18k dependent on experience.

The Job Specification can be downloaded here.

For more details as to the work we do please visit our website

Applications (CV and covering letter) to be sent to Emma Prescott at emma.prescott@wainwrightcumins.co.uk by 4pm Friday 17 February 2012.

Tower Hamlets Law Centre is seeking both a permanent Housing Supervisor and a Housing Caseworker (6 months fixed-term) for its busy office in Whitechapel.

The closing date for applications is Monday, 20 February 2012 at 9am. Details and application materials can be found at the Law Centres site at:

Caseworker

Supervisor

In the first decision ([2011] UKUT 144 AAC), Judge Mark held that it did not [we discussed that decision here NL].  It was a void agreement because EM’s dad clearly knew that she lacked capacity (citing Hart v O’Connor [1985] AC 1000).

However, in somewhat dramatic fashion, Judge Mark returned to the matter ([2012] UKUT 12 (AAC) – not on BAILI yet but we have seen the judgment thanks to a friend of the blog)  in accordance with Rule 45(1)(a), Tribunal Procedure (Upper Tribunal) Rules 2008, which enabled him to re-open the decision if he had overlooked a legislative provision or binding authority which could have a material effect on the decision.  At this hearing EM brought an entirely new ground to the table, so to speak: contracts for necessaries, either under section 7, Mental Capacity Act 1995 or the common law position as exemplified by In Re Rhodes (1890) 44 Ch D 94.  And he also had the redoubtable Nathalie Lieven QC and David Blundell acting for EM (presumably pro bono, although this isn’t stated).

Although Judge Mark was in some doubt as to whether section 7 covered this matter (is the provision of accommodation “goods and services”?), he held rightly that the common law would cover this matter if the provision of this accommodation was a necessary.  Wychavon argued that it wasn’t necessary because EM had previously lived in the garage and could do so again; but, as Judge Mark pointed out, that flew in the face of the evidence which had been accepted by the judge in the first tier tribunal and was in some respects uncontested.

As Judge Mark points out, HB is not only payable where a person is liable for rent but in respect of payments for the dwelling which is occupied as a home, and EM was so liable.  Wychavon submitted that such matters were best dealt with through the Court of Protection.  Judge Mark agreed but was also right in saying that such applications take many months and, pending that application, a person without capacity should not be left without necessaries.

There is a parting salvo because it was clear that the issue here was not between EM and Wychavon but between Wychavon and Worcestershire CC, which had effectively passed the matter on: “It is very unfortunate if that is the case, and if this series of appeals at public expense has been made necessary because of arguments between different authorities as to from whose budget essential provision should be made”.

Threats to pursue wasted costs tend to be waved around rather too often by some solicitors, perhaps overly convinced of their own rightness. Usually what is at issue is actually a valid point of dispute. Personally, I think these threats tend to backfire, at least if the recipient is reasonably sure that an application would fail. Nothing shrieks of a lack of strength in a position so much as a big blustery threat.

However, there are times when a wasted costs order is certainly merited and where the solicitors have been really very naughty indeed. One such case has landed on the NL virtual desk and, although not strictly housing related – being a business lease – it is an opportunity to remind ourselves of the criteria for wasted costs orders.

Odihambo v Gooch Birmingham County Court, 24 October 2011 [Not available on Baili. We've got a transcript]

Mrs O had a commercial lease of a property, trading as a restaurant. The lease was excluded from protection (and renewal rights) under the Landlord and Tenant Act 1954 and Mrs O had signed a statutory declaration stating that she was not entitled to claim compensation for loss of the premises – this was agreed to be the case by Ms O’s previous solicitors in discussions about remaining in the property. It was a 3 year lease and expired in October 2009.

Mrs O stayed on, paying rent as before. She was a tenant at will, as accepted by her previous solicitors. Discussions on new terms took place but failed. In November 2010 a notice to quit was served, taking effect in March 2011. By March 2011, IEI Solicitors were acting for Mrs O. Come the date in March, Mrs O did not leave. After further letters, the landlord, Mrs G, made a peaceable re-entry to the property on 5 April 2011.

On 6 April, Mrs O, through IEI Solicitors, issued a Part 8 Claim and an application for an injunction for re-entry. The claim simply said that the landlord “without complying with the Landlord and Tenant Act 1954″ and without rent being owed, had entered the property and changed the locks. An accompanying claim for costs had an affidavit from Mrs O saying that she was ‘amazed to discover’ that the landlord had entered without a court order, repeating that the landlord had ‘failed to follow the due process of law under the Landlord and Tenant Act 1954′.

When the application and claim came before a CJ on 8 April 2011, Counsel for Mrs O only advanced one argument, that the acceptance of rent between the service of NTQ and the date it expired constituted acceptance of a new tenancy at will by the landlord. This was, as noted in this judgment, a ‘hopeless’ argument, with no chance of success. The hearing was adjourned, by consent, to 9 May 2011 in front of HHJ David Cooke, supposedly on this point alone. Mrs O re-entered under the terms of this agreement.

The claim and application was abandoned on 6 May (a Friday) and the hearing proceeded on costs alone. At the hearing Counsel for Mrs O indicated that he had informed IEI after the previous hearing that the argument was hopeless. Costs of £8882.40 were ordered against the Claimant. HHJ Cooke made an order that IEI should show cause why a wasted costs order should not be made.

The relevant part of the CPR is Rule 48.7. Para 53.4 of the Practice Direction to Rule 48 states:

It is appropriate for the court to make a wasted costs order against a legal representative, only if –
(1)the legal representative has acted improperly, unreasonably or negligently;
(2)his conduct has caused a party to incur unnecessary costs, and
(3)it is just in all the circumstances to order him to compensate that party for the whole or part of those costs.

The notes to the PD in the White Book raise Saif Ali v Sydney Mitchell & Co [1980] AC 198 to the effect that “improper” covers conduct which would result in debarment, striking off, suspension or other serious professional penalty. “Unreasonable” describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case and it makes no difference that the conduct was the result of excessive zeal and not improper motive. “Negligence” is to be taken in the non-technical sense of a failure to act with the competence reasonably expected of ordinary members of the profession.

It is also necessary that there should have been a breach of the lawyer’s duty to the court. There must be more than mere negligence.

Following Persaud v Persaud [2003] EWCA Civ 394, the question of hopelessness is to be considered on the basis of whether no reasonably competent legal representative would have continued with the action. A case which is not hopeless but is quite proper to argue will not be an appropriate basis for a wasted costs order if the case is discontinued.

The Court set about applying these principles to the present case.

IEI sent a letter to the Court for the wasted costs hearing, arguing that their client had instructed them to bring proceedings for re-entry because “the manner of her eviction was not palatable for her business” (I adore this line, and I propose a sustained campaign to bring in the ‘palatability’ defence alongside proportionality).

IEI then said that following the hearing of 8 April, they had been telephoned by Counsel saying that the client had been asked to re-enter and to send the rent to them to pay on to the Defendant. Counsel said that a skeleton argument had been directed and he would deal with it They did not get the Order from the Court. They were then surprised to be contacted on 18 April, presumably by the Defendant, seeking a skeleton and agreed statement of facts. They were then contacted by Counsel on 4 May to say that there were no prospects. They stated that they then immediately contacted the other side.

In short, they tried to put the blame on the client and on Counsel.

This didn’t get them very far. On the evidence it appeared likely that IEI had known that Mrs O’s lease was excluded from the 1954 Act either before issuing the injunction application, or in any event by 7 April.

It was therefore a ‘grave concern’ that the Part 8 claim and injunction application were in the form that was issued. There was a suggestion of a rent dispute and a suggestion that the 1954 Act was engaged, but no mention of the notice to quit, 3 months notice and tenancy at will. When the matter came before the court on the initial injunction hearing, there was a duty of full and frank disclosure to the Court of all relevant matters and the application and affidavit fell far short of this. Mrs O had professed herself to be ‘amazed’ to find the landlord had re-entered, when she was fully aware that she had been required to vacate on 25 March. There was a serious degree of misrepresentation by omission which amounted to an abuse of process. Either IEI knew before the claim was issued or they knew before it was heard on 8 April. The fact that Counsel had managed to obtain an adjournment on different and extremely flimsy grounds didn’t alter that.

IEI then appeared to give the matter no further consideration until they received Counsel’s note on 4 May and took no steps to inform themselves of what had taken place after Counsel’s initial call. The ground put forward by Counsel was so flimsy that no competent solicitor or barrister could have properly maintained it.

In view of the urgency of the proceedings brought, it was simply not acceptable that the Claimant’s solicitors appeared not to have taken any substantive steps to prepare for the later hearing or to chase up counsel.

And then, even after being told there was no case on 4 May, IEI did not contact the Defendant’s solicitors until 6 May, after the Defendant had had to brief Counsel for the Monday 9 May hearing. What is more, IEI had offered to discontinue on the basis of no order as to costs, which was of course going to be wholly unacceptable to the Defendant. There was no excuse for the delay or for making a proposal that they must have known would be unacceptable and would mean the hearing going ahead.

The claim was therefore initiated in circumstances that made it an abuse of process and the solicitors acted improperly and unreasonably in doing so. The solicitors then effectively abandoned the claim to Counsel and were negligent in doing so, not even giving the most basic consideration to the merits. The solicitors had caused loss to the Defendants in terms of the whole costs of defending the proceedings. Indeed, had proper consideration been given to the case in the first place by the solicitors, they would have advised Mrs O not to pursue an action, despite their instruction that it was ‘not palatable’ to her to be evicted. If they were still instructed to bring the claim, then the full facts should have been presented to the Court at first instance.

As it was extremely unlikely that Mrs O was going to pay the Defendant’s costs it was just that the solicitors should be ordered to do so on a joint and several basis with the Claimant.

In the transcript that we have seen, there follows a fragment of a thoroughly entertaining discussion between the CJ and Counsel for the Defendant. Having had £8,800 costs of the April and May hearings awarded, the Defendant sought costs of £12,528 for subsequent costs up to this hearing. Whether they got them or were assessed down, we shall probably never know, alas.

The CJ notes that Mrs O’s claim bore all the hallmarks of being brought with a view to pursuing a negotiating position, where there was no justification in law. That seems likely.

The lesson to be drawn, should it need drawing, is that one should never make a threat – let alone bring proceedings – that one cannot to some degree make good on. That applies to threatening wasted costs applications, as noted at the start, but also and with rather more force to threats to bring proceedings or within proceedings. Above all, one shouldn’t be be so catastrophically daft as to attempt to make good on an empty and groundless threat!

*Ian Dury and the Blockheads: ‘What a waste‘

In November 2007, through no fault of its own, the Appellant management company found itself with a gas bill in the region of £100,000. This arose because the Appellant had mistakenly been paying EDF Energy for the supply of gas, when EDF were not responsible for the supply of gas to the block (this was unsurprising as the developer had told the Appellant EDF supplied the gas). Moreover, EDF had been under charging. Even when EDF paid Total Energy (i.e. the company who had been supplying the gas) there still remained a shortfall of £100,000, which the Appellant demanded from its leaseholders under the service charge five months later on 28 April 2008.

Mr Burr argued before the LVT that he was not liable to pay the service charge because the cost of the gas supply had been incurred at the time it was supplied and therefore, as the demand for payment had been made for than 18 months after the cost had been incurred, the service charge was not recoverable. The LVT agreed. The Appellant appealed.

The Upper Tribunal allowed the Appellant’s appeal. The authorities showed that costs become incurred when they are either expended or become payable (see Brent LBC  v Shulem B Association Ltd [2011] EWHC 1663 (Ch) / Capital & Counties Freehold Equity Trust Ltd v BL plc [1987] 2 EGLR 49 / Hyams v Wilfred East Housing Co-Operative [2007] 1 E.G.L.R. 89); they did not become incurred merely because a liability to pay at a future date had arisen. Under s.20B costs would therefore be incurred on the presentation of an invoice or on payment. In this case the invoice had been demanded in November 2007 and the demand for payment had been made in April 2008. It followed that the service charges were recoverable.

Perhaps foreseeing that this definition could lead to more confusion in other cases (e.g. the invoice is served on the landlord 20 months before the service charge demand, but the cost is expended 14 months before the service charge demand), the Upper Tribunal indicated that this point will be a question of fact for LVTs to decide in each case on their own facts. The Upper Tribunal made clear, however, that where there was a long delay in the payment of the invoice and it appeared the landlord was prevaricating  to postpone the start of the 18 month period, other than in circumstances where there was a genuine dispute or the landlord had entered into negotiations to reduce the payment, the relevant date would be from the date of the invoice .

Comment

As a lawyer whenever I see a phrase in a judgment which says something like “this question is best left to the [insert lower court] to decide on a case by case basis” I always rub my hands with glee as this breeds uncertainty and therefore a need for lawyers.

However, as a common law lawyer I must accept that certainty is no bad thing really and I’m not sure the Upper Tribunal needed to leave the question open for LVTs to decide in this one. In Capital Counties, all the High Court said is that incurred is synonymous with both “becomes payable” and “expended” and it did not mean the liability had arisen. It didn’t say it can mean one or the other depending on the circumstances; it means both. Thus, surely if it means both, when an invoice has been received the cost is incurred and that should be the relevant date for s.20B.

Mrs Singer was the long leaseholder of a flat within a block of 30 flats. She, and her husband, had (as described by the lawtel note) “a long running service charge dispute” with the management company responsible for managing the block, albeit it appears that Mr Singer often conducted the litigation on Mrs Singer’s behalf.

This dispute resulted in the Singers making more than 30 applications to the LVT, the county and magistrates’ courts arising from the service charge. The Divisional Court noted, while the Singers had had limited success in the LVT, they had none in the county or magistrates’ courts and the applications rarely had any basis in law, tended to repeat arguments that already been unsuccessful and were often branded as being without merit. The appeals they pursued were also unsuccessful. The LVT, on their most recent application, had decided that the application was an abuse of process and vexatious. Not only that, Mr Singer had been prosecuted for harassment.

It followed that the Divisional Court had no doubt that the Singers satisfied the second limb of the test. The real question for them to decide appears to have been whether applications in the LVT were civil applications and if the LVT was an inferior court. Both questions were answered in the affirmative. The purpose of the LVT was to resolve proprietary disputes which would otherwise have been dealt with by the civil courts. Importantly the court noted that the county court could transfer proceedings to the LVT. Its functions were therefore plainly judicial in nature and it was also noted that the Court of Appeal had previously decided that the LVT and Lands Tribunal were courts for the purposes of Article 6 of the Convention (R (Sinclair Gardens Investments (Kensington Ltd) v Lands Tribunal [2005] EWCA Civ 1305).

The Divisional Court decided to exercise their discretion and make the order. There was no sign of the Singers’ behaviour abating. Despite the fact that it was Mr Singer who had mainly conducted the litigation, it was also appropriate to make an order against Mrs Singer because it was she who had signed the applications.

Comment

This decision would appear to be fairly uncontroversial. However, one can see that the damage had already been done before the Attorney General got involved and (even with this new rather interventionist Attorney General) it is likely to be a rare case where he deems conduct to be serious enough to warrant him getting involved.

However, in the county court there should be no need for the Attorney General to get involved. Under CPR3.11, the county courts have the power to make a civil restraint order against vexatious litigants. Of course the CPR is of no application in the LVT and the LVT procedure regulations do not give LVTs the power to make similar orders. It would appear therefore that the LVT’s hands are tied.

Yet, such orders are not a species of the CPR, but rather stem from the 19th century authority Grepe v Loam (1888) L.R. 37 Ch. D. 168. In Bhamjee v Forsdick [2003] EWCA Civ 1113, the Court of Appeal affirmed the principle that there is a power vested in every court (not just the High Court) to protect its processes from an abuse of process. This begs the question: if the LVT is an inferior court does it not have the power to make an order barring vexatious applicants from making future applications?

(a) the tenant sought to sub-let their flat; and,

(b) the leases prohibited this without the consent of the landlord/management company.

In some of the leases, there was a further express provision requiring the tenant to pay the costs of the consent and/or a registration fee. In all cases, the landlord/management company sought to impose a charge for consent and/or registration of between £135 and £105, with a further £75 for registering the consent.

The LVT disallowed the charges in all cases, relying on s.19, Landlord and Tenant Act 1927. This provides as follows:

19 Provisions as to covenants not to assign, &c. without licence or consent.

(1)In all leases whether made before or after the commencement of this Act containing a covenant condition or agreement against assigning, underletting, charging or parting with the possession of demised premises or any part thereof without licence or consent, such covenant condition or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject—
(a)to a proviso to the effect that such licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with such licence or consent; and
(b)(if the lease is for more than forty years, and is made in consideration wholly or partially of the erection, or the substantial improvement, addition or alteration of buildings, and the lessor is not a Government department or local or public authority, or a statutory or public utility company) to a proviso to the effect that in the case of any assignment, under-letting, charging or parting with the possession (whether by the holders of the lease or any under-tenant whether immediate or not) effected more than seven years before the end of the term no consent or licence shall be required, if notice in writing of the transaction is given to the lessor within six months after the transaction is effected.

The Upper Tribunal allowed the appeals by the landlords/management companies:

(a) it was not a  case under s.19(1)(b), as the premium for the lease was not in consideration of the errection (etc) of the building, but in consideration of the grant of the lease;

(b) nor was it a case under s.19(1)(a) as this did not prohibit a landlord for charging for a consent; a charge could be levied regardless of whether there was an express term in the lease for such a charge.

In reality, the charges were administration charges under Sch.11, Commonhold and Leasehold Reform Act 2002 and, in particular, variable administration charges (being charges neither specified in the lease not calculated in accordance with a formula in the lease): see here. Such charges are required to be reasonable and, as no-one had yet considered that point, the parties were invited to make submissions on that point.

In addition, in Re: Bradmoss, the President noted that the LVT had referred to a decision (of his) refusing permission to appeal. He wanted to make “clear that decisions on applications for permission to appeal should not be treated as laying down guidance” and should not be relied upon.

So, what to make of these: The point on permission decisions is clearly right, although, perhaps, I might have tempered it a bit. In quite a few areas we simply don’t have many LT/UT decisions, and so permission decisions are all there are. Not ideal but, if the choice is between saying to a client/LVT “there is no law on this” or “there is a permission decision on this point”, I suspect most people would take the latter course. Perhaps the correct position is that such decisions should not generally be cited unless they’re the only thing on point (which, from memory, is what the Practice Direction on Citations says).

Then we turn to the wider points. So, these are variable administration charges are they? Well, lets take a step back. Apologies, but this is going to get messy.

The President says that a charge for a consent is clearly an “administration charge”, see Sch.11, para.1(1)(a), 2002 Act, as being a charge for or in connection with the grant of an approval. I think I’d agree with that. But then, to be an administration charge, it also has to be “payable”. Here, the President says that the charge is payable because either (a) there is an express term providing for it or (b) it follows from the fact that there is a right to withhold that a condition of grant can be the levying of a fee. I’m not so sure about (b). Surely the absence of an express contractual right is fatal?

Never mind, lets move on. He then decides it is a variable administration charge. This is defined as a charge which is neither specified in the lease, nor calculated in accordance with a formula specified in the lease. The formula bit is out, but surely in at least some of these leases, the charge was specified in the lease. There was an express right to charge. What is that if not “specified”? What the President means, I think, is that the amount of the charge wasn’t specified in the lease. But (a) that isn’t what Sch. 11 says and (b) how does this square with the earlier decision of Re Hampstead Garden Suburbs, under the similarly worded provisions about Estate Charges, which seemed to say that the merest mention in the lease meant that it was “specified” in the lease? Now, it could well be that Re Hampstead is wrong, but as it wasn’t even cited to the President, how can we know?

To put it bluntly, I’m more confused than an English batsman facing a Pakistani spin bowler. Like the English middle-order, any help would be gratefully received!

[note for law students: this is a really important case on land registration in which the principles in Abbey National BS v Cann are considered and applied.  Please note that we do not write essays for you or respond to queries which assist you in writing your essays - we get quite snippy about such enquiries so beware.  As an academic and property law teacher myself, I get quite irate with those enquiries.  However, if you want to engage with us and our writing, we would be really happy and will respond in kind.]

Every generation seems to have its great property law case – think about Nat Prov v Ainsworth, Williams & Glyns v Boland, City of London v Flegg, Abbey National v Cann, and the machinations of the litigation which led to RBS v Etridge.  This litigation, which was formerly known as In re North East Property Buyers Litigation, is shaping up to be the case of this generation. We noted the judgment of HHJ Behrens in these matters  and were very grateful for a transcript of the judgment (as we are for a transcript of this one, although it now appears on baili as well).  The Court of Appeal gave its judgment on 24.01.2012, dismissing the appeal from HHJ Behrens’ straight-bat judgment. I assume that Jonathan Small, James Stark and Daniel Robinson (counsel for the sellers) are sharpening their keyboards for the SC application – the report I’ve seen doesn’t say whether the CA gave permission to appeal, but I’d assume that it should follow given the importance of the matter both in law and quantitatively (given that FSA regulation of this area was a latecomer).

In essence, the underlying question is whether the House of Lords was correct in Abbey National BS v Cann [1991] 1 AC 56 to hold that there was no moment in time (or scintilla temporis) between the transfer of an estate to a buyer and the simultaneous grant of a mortgage by that buyer to a lender.  The transfer and mortgage are, of course, separate documents and, strictly factually, there is such a moment in time between their execution.  However, in Cann, the House of Lords drew attention to the “reality” of the transactions, that they were indissolubly bound together.  As Lord Oliver put it, “The acquisition of the legal estate is entirely dependent upon the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them”.  The scintilla temporis was, therefore, “no more than a legal artifice”.  It may be something of a heresy to say this, but I have always found Lord Oliver’s judgments (in the HL) turgid beyond belief; whether or not you agree with that comment, it is undeniable that both Flegg and Cann are viewed as being lender-friendly (although lenders would say that those cases make lending both possible and cheaper, thus being borrower-friendly as well).

My own view is that Cann was also flawed and the arguments against it are canvassed in these cases.  The facts of these cases for present purposes, because they are largely assumed, are that a number of owner-occupiers entered into an agreement with the North East Property Buyers Ltd (NEPB).  The terms of the agreement were that the company would buy the property and, on sale, would then rent the property back to the sellers.  NEPB’s agents were not particularly well-versed in either property or landlord and tenant law (that seems to be one constant fact in most of the equity release cases).  They promised different terms to each of the buyers and different rent levels, but many were told they could stay in the property for as long as they liked provided they kept to the terms of the tenancy.  NEPB financed each transaction with a buy-to-let mortgage.  Crucially (as we will see), they did not disclose to the lender that the seller/s would remain in the property or the terms of the tenancy agreement.  Exchange of contracts and completion, including the execution of the charge, took place on the same day.  NEPB became insolvent and vanished.  The lenders want possession.

The overarching question is whether the representations and agreements made between NEPB and the sellers created rights which bound the lenders.  This raises full frontal the question whether Cann is distinguishable on the facts.  It is not about actual occupation (yet, at least), as the sellers were clearly in actual occupation at the date of the sale.

In summary, the Court of Appeal (Etherton LJ giving the judgment, with the MR and Rix LJ agreeing) held that Cann was not distinguishable and, indeed, its policy driver was just as relevant to these cases.  There was a secondary argument about the effect of priority searches, which (rightly) was decided in favour of the lenders.  If you’ll forgive me, I will let you read that part of the judgment ([57]-[64]) for yourself if you’re interested.  It seemed to me to be axiomatic.  As a result of those findings of law, possession was ordered as there were no other issues left to be decided.

The argument on which the barristers sharply divided was whether, after exchange of contracts and before completion, there was sufficient equity in NEPB to grant the sort of estoppel/constructive trust/rectification type of interest which the sellers claimed.  HHJ Behrens had held that the sellers’ rights at that stage were purely personal.  Detailed arguments were provided to the CA on these points, but, although attracted by the lenders’ arguments,  Etherton LJ sidestepped them by saying they were too technical (although he was attracted by the lenders’ submissions on the point).  As he put it, the question was whether the commercial and legal nature of the transaction was that there was a sale subject to a reservation or two separate transactions (a sale of the freehold and a separate leaseback on completion).  And “the way the documentation was prepared points firmly in favour of the latter” ([34]).  None of the sale contracts referred to the leaseback arrangement – indeed, they were all sold with vacant possession:

The clear impression created by the contracts, therefore, was that the vendors would be selling without reserving any beneficial interests or other rights in the property. That was how any third party, including mortgagees lending money to fund the purchase, would be entitled to view the matter: comp. Abigail v Lapin [1934] AC 491. The contracts disclosed no basis for a qualified report on title to the respondent lenders by their solicitors which would have alerted the respondent lenders to the possibility that the appellant vendors expected to remain in possession after completion or that the purchasers would obtain anything less than the entire legal and beneficial interest in the properties. ([35])

He went on to say, though, that, even if an equity had arisen in favour of the sellers at that point, the Cann principle applied so that the lenders’ interest.  [I'm not entirely sure I agree with that approach because of the pure priority principle, first in time prevails,but it's neither here nor there at the moment].  The question put to the CA was whether the policy underlying Cann was still relevant and relevant to these particular transactions.  In a nutshell, the sellers argued that “… unlike Cann, where the ‘driver’ of the transaction was to find a new home, the driver in the present cases, without which they could not and would not have proceeded, was the leaseback to the vendor” ([50]), that these cases involved different social and economic factors in which the need/desire of people (of modest means, advancing age as well as limited legal knowledge and experience) to stay in their homes was the uppermost consideration ([51]).  Further, and this is clearly crucial, the lender is in a better position to take the risk of fraud and carelessness in such schemes and should make appropriate enquiries.

Etherton LJ disagreed.  Daisy Cann was in no less an unfortunate position to the sellers here ([55]); in substance and reality, the driver for the sale was the sellers’ need/desire to sell their properties to discharge their mortgage and get some cash, and there was no reason for them to suppose that NEPB would not obtain a mortgage (this seems to me to be an advance on the Henning principle); and finally it was not for the lenders to make direct enquiry of the sellers, which may be inappropriate, but to ensure that the contract of sale contained all the details of the transaction ([54]-[56]).

My suspicion is that the sellers were obviously constrained by precedent but ultimately want to argue (rightly) that Cann was wrongly decided.  The stage is now set for that argument, assuming PTA is granted.

Finally, Etherton LJ concluded with sharp words on the conveyancing practices highlighted in these cases, and there is a clear suggestion that the proper course of action for the sellers is to pursue their conveyancers for not including the terms of the agreement in the contract of sale itself:

I do not know why details of those contractual arrangements were not contained in the contracts for sale, but, if the arrangements were intended to be binding on any third party as well as the purchaser – a matter the appellant vendors’ solicitors would have been bound to investigate and advise upon – their omission seems on the face of it plainly inconsistent with proper conveyancing practice. ([67])

Conveyancing solicitors beware!