Berrisford v Mexfield Housing Co-operative Ltd (Rev 1) [2011] UKSC 32

What happens to a lease for an uncertain term? Or a tenancy that ends on some specified event, whose date is not known and which may or may not happen? Can either the tenant or the landlord rely on the clauses in the tenancy agreement?

The Supreme Court simply and indeed elegantly gives us the answer in this case, the final part of the extraordinary saga of Ms Berrisford and the Mexfield housing Co-op, which saw Mexfield arguing in the Court of Appeal that all of the tenancies it had granted were invalid. (Our reports on the High Court and Court of Appeal).

Mexfield was and is a housing co-op, so could not grant assured or secure tenancies. It was brought into existence as part of a mortgage rescue scheme, buying back properties from mortgagees in trouble and letting the properties back to them. The tenants were all members of Mexfield. There has been some suggestion of dubious motives on the part of Mexfield in pursuing this case, as an individual had purchased all Mexfield’s mortgage debt and was allegedly exercising a degree of control. This was denied by Mexfield, who insisted the ‘committee of management’ were in control, but even if Mexfield were seeking the easy termination of the tenancies, the Supreme Court were clear that nothing unlawful had been done.

Ms Berrisford had fallen briefly into rent arrears, but the notice served was not under the relevant clause of the tenancy agreement (6(a) – see below) but rather a plain notice to quit. Mexfield had argued throughout that it was entitled to terminate Ms Berrisford’s tenancy by service of a bare notice to quit. This may indeed seem like a surprising stance for a housing co-op to take, given that all its tenant members would then face the same risk of notice regardless of fault.

At first instance, Mexfield’s application for summary judgment was rejected. The High Court reluctantly allowed the argument in Mexfield Housing Co-Operative Ltd v Berrisford [2009] EWHC 2392, as did the Court of Appeal in Berrisford v Mexfield Housing Co- Operative Ltd [2010] EWCA Civ 811. The Court of Appeal had held that the tenancy agreement was void for term uncertain and, construing what there actually was from the conduct of the parties, there was a monthly periodic tenancy terminable by notice to quit.

Thus to the Supreme Court, where Mark Wonnacott, instructed by Mary Ward Legal Centre, represented Ms Berrisford. Mexfield were represented by an array of counsel: Jonathan Gaunt QC, Kerry Bretherton and Laura Tweedy, instructed by Rickerbys LLP.

The relevant clauses of the tenancy agreement read as follows:

1. [Mexfield] shall let and [Ms Berrisford] shall take the [premises] from 13 December 1993 and thereafter from month to month until determined as provided in this Agreement.
[ …]
5. This Agreement shall be determinable by [Ms Berrisford] giving [Mexfield] one month’s notice in writing.
6. This Agreement may be brought to an end by [Mexfield] 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 …
b) If [Ms Berrisford] shall at any time fail or neglect to perform or observe any of the [terms of] this Agreement which are to be performed and observed by [her]
c) If [Ms Berrisford] shall cease to be a member of [Mexfield]
d) If a resolution is passed under … [Mexfield’s] Rules regarding a proposal to dissolve [Mexfield]
THEN in each case it shall be lawful for [Mexfield] 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 … .

We’ll end the suspense here. The Supreme Court unanimously found that while the tenancy agreement did constitute an uncertain term, it was rescued by s.149(6) Law of Property Act 1925 which turned it into a lease of 90 years, subject to determination on death of the tenant and clauses 5 and 6 of the agreement. They also found, although obiter, that even if that were not so, Ms Berrisford could rely on the terms of the agreement in contract, if not as a tenancy.

Mr Wonnacott for Ms B’s main argument went as follows:

(i) The Agreement purports to be the grant to Ms Berrisford of a tenancy for a term determinable by her on one month’s notice under clause 5, or by Mexfield through exercising its rights under clause 6, and in no other way;
(ii) Subject to the points in sub-paragraphs (iii) and (iv), such an arrangement cannot constitute a valid tenancy in law;
(iii) Before 1926, the arrangement would have been a term for the life of the tenant, subject to the determination rights under clauses 5 and 6 before her death;
(iv) By virtue of section 149(6) of the Law of Property Act 1925 (“the 1925 Act”), such a term is now a tenancy for 90 years, subject to the landlord’s right to determine on the tenant’s death, and to the rights under clauses 5 and 6;
(v) As Ms Berrisford has not served notice under clause 5, and Mexfield is not relying on clause 6, Mexfield is not entitled to possession, as the 90-year tenancy created by the Agreement still subsists.

Lord Neuberger’s lead judgment takes each point in turn. We’ll focus on Lord Neuberger’s judgment as the others, to be honest, are largely commentary on it.

1. Can the landlord determine the tenancy on one month’s notice

Mexfield took a new line of argument in the Supreme Court, not raised below. The tenancy agreement stated that it was a ‘tenancy from month to month’. This was a monthly periodic tenancy. Pretty much by definition, a monthly periodic is determinable by one month’s notice by either party. Thus there was an implied term in the agreement that provided for determination on one month’s notice.

Lord Neuberger was not convinced. A monthly periodic tenancy can indeed by determined on one month’s notice, in the absence of anything to the contrary, but it was also open to the parties to agree a bar for a period on the landlord’s service of notice, or a longer, or shorter, period of notice to that implied. In the present agreement it was clear that the parties intended the agreement should only be determinable under clause 5 or clause 6. The ‘implied right’ of determination on a month’s notice did not fall within the natural meaning of the phrase ‘determined as provided in this agreement’, it would make clause 5 redundant and was not consistent with the words ‘but ONLY’ in clause 6. It also made redundant the right of forfeiture in clause 6. Given the circumstances of entering into the agreement, it seemed unlikely that such a tenuous security was intended.

So, if a monthly tenancy is automatically determinable on one month’s notice, this was not a monthly tenancy.  (This suggestion by Mexfield was not accepted in any event, on which more below). The words ‘from month to month’ could easily be read as indicating that a notice by Ms B under clause 5 or by Mexfield under clause 6, the notice must take effect on the thirteenth of the month.

Whether or not the agreement gave rise to a monthly tenancy, the effect of clauses 1, 5 and 6 was that the tenancy could only be determined by Ms B under 5 or Mexfield under 6 and by no other way, save for a consensual surrender.

2. Is such an arrangement capable of being a tenancy as a matter of law?

Ms B accepted that the arrangement was not capable of being a tenancy.  This was supported by very old authority and the highest of modern authority. It appears to have been established for a very long time that an agreement for an uncertain term cannot be a tenancy in the sense of being a term of years. I cannot resist the temptation to quote a few paragraphs for reasons of pure and unfettered geekiness:

24. […] In Say v Smith (1563) Plowd 269, 272, Anthony Brown J said that “every contract sufficient to make a lease for years ought to have certainty in three limitations, viz in the commencement of the term, in the continuance of it, and in the end of it … and words in a lease, which don’t make this appear, are but babble.”

25. That is consistent with what was stated in Bracton’s De Legibus et Consuetudinibus Angliae, written in the mid-thirteenth century. It is there stated that a grant of land “until you have taken 40 pounds” would be a “free tenement” (which could not be created without certain strict formalities), rather than a term certain (which did not require such formalities), “because it cannot be known how long it may take for so many pounds to be raised from [the] land, because the term is uncertain and undetermined” – Bracton on the Laws and Customs of England (trans Professor E Thorne) (1977), vol 3, p 50 (f176b). This statement was referred to with approval by Sir Edward Coke in Co Litt 42a (1628), and much the same is stated in Brook’s New Cases (1554/5) pl 462. So too in The Bishop of Bath’s Case (1605) 6 Co Rep 34b, 35b, Coke stated that a letting expressed to last until a certain amount of money had been “levied of the issues and profits … is but a lease at will without livery” – i.e. without the formalities required for the establishment of a freehold interest.

26. Much more recently, in Lace v Chantler [1944] KB 368, the Court of Appeal held that a purported letting “for the duration [of the Second World War]” could not take effect as “a good tenancy for the duration of the war” as it was for an uncertain term, and that it was consequently ineffective. This decision was distinguished by a subsequent Court of Appeal in Ashburn Anstalt v Arnold [1989] Ch 1, where it was held that a right to occupy premises until the owner gave one quarter’s notice certifying he needed the premises for redevelopment created a tenancy binding on third parties.

27. Less than 20 years ago, the House of Lords approved and applied Lace [1944] KB 368, and disapproved and overruled Ashburn [1989] Ch 1. In Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386, land was sold in 1930 by the owner, Mr Nathan, to the London County Council, who immediately leased it back to him at a weekly rent until the land “is required by the council for the purposes of the widening of” the road. The House of Lords held that this arrangement was incapable of creating a tenancy, as it was for an uncertain, potentially perpetual, duration. Lord Templeman (with whom the other members of the House of Lords agreed, albeit with reluctance in most cases) said at [1992] 2 AC 386, 394F, that there had been “500 years of judicial acceptance of the requirement that a term must be certain applies to all leases and tenancy agreements”.

The same position appears to have been taken with regard to periodic tenancies containing a fetter on the right of either or both parties to serve notice to quit, following Doe d Warner v Browne (1807) 8 East 165. Although in both Breams Property Investment Co Ltd v Stroulger [1948] 2 KB 1, 6 and In re Midland Railway Co’s Agreement, Charles Clay & Sons Ltd v British Railways Board [1971] Ch 725, the Court of Appeal had upheld fetters on the landlord serving notice pending an event of uncertain date, the House of Lords in Prudential had overruled Midland Railway “on the basis that a fetter of uncertain duration on the service of a notice to quit in relation to a periodic tenancy was as objectionable to the concept of a tenancy as was the existence of an uncertain term.”

If this precedent is accepted, then the agreement could not take effect as a tenancy on its terms.

From a passage at para 34 that will have property lawyers quivering in an admixture of fear and excitement, it appears that the Supreme Court was considering overturning the rule on term uncertain on the basis that it had no practical justification, despite its long standing and the principle was not strong enough to be binding. Indeed, the common law accepted perpetually renewable leases as valid, being converted into 2000 year terms by s.145 Law of Property Act 1922.

However, the nuclear option was not taken. The Law of Property Act 1925 appeared to support the position of the earlier case law, stating at 1(1) that only two estates can exist in land, a fee simple or term of years (meaning either term certain or liable to determination by notice or re-entry). This is supported by s.149(6), to which we’ll return below.

The House of Lords had addressed the certainty point only 20 years ago and any changed may upset ‘long established titles’, particularly where the grant was to a company or corporation (not affected by s.149(6)). And in any event, it was not either party’s case that the tenancy agreement was valid according to its terms.

S.149(6) Law of Property Act 1925 effectively turns a tenancy for life into a 90 year term. A tenancy for life before 1926 was for an uncertain term and treated as a form of freehold.

3. Would a tenancy such as Ms B’s have been treated as a tenancy for life before 1926?

There is old authority for the proposition. Again, geekiness compels a quote:

39. […] In Bracton (op cit) vol 3, p 50 (f176b), it will be recalled that the grant of an uncertain term was held to give rise to a “free tenement”, provided that the formalities had been complied with. The nature of this free tenement would appear to be a tenancy for the life of the grantee. That is clear from what was said in Littleton on Tenures (1481/2) vol 2, section 382 namely:
“[I]f an abbot make a lease to a man, to have and to hold to him during the time that he is abbot … the lessee hath an estate for the term of his owne life: but this is on condition … that if the abbot resign, or be deposed, that then it shall be lawful for his successor to enter.”

40. In Co Litt vol 1, p 42a, it is similarly stated that if an estate is granted to a person until, inter alia, she marries, or so long as she pays £40 “or for any like incertaine term”, “the lessee hath in judgment of law an estate for life determinable if [the formalities of creation are satisfied]”. This passage was quoted and applied by North J in In re Carne’s Settled Estates [1899] 1 Ch 324, 329. The same point was made in Sheppard’s Touchstones on Common Assurances, where it is said that “uncertain leases made with … limitations … may be good leases for life determinable on these contingents, albeit they be no good leases for years” – 7th ed (1821), vol 2, p 275.

41. In Doe v Browne 8 East 165, 166-167, Lord Ellenborough CJ and Lawrence J, both of whom rejected the contention that an agreement which was to continue so long as the tenant paid the rent and did not harm the landlord’s business could be a valid term of years, said that it could be “an estate for life”, but that it failed to achieve this status because the necessary formalities had not been complied with. Such formalities have now largely been done away with, and they normally only require a written, signed document. As Lord Dyson’s reference to Joshua Williams’s 1920 textbook shows, the perceived legal position right up to the time of the 1925 property legislation was that terms of uncertain duration were converted into determinable terms for life.

So, if Ms B’s tenancy had been granted before 1926, it would have been treated as a tenancy for life. Mexfield argued that this could only be so if, on a fair reading, it was the intention of the parties, relying on the Court of Appeal decision in Zimbler v Abrahams [1903] 1 KB 577. However, Lord Neuberger holds that if that was what was decided in Zimbler, it was wrong in view of the quote from Littleton given above. Neither party in Zimbler had relied on that argument. In any event a true construction of the present agreement did show the intention that Ms B shoudl enjoy the property for life.

4. Is the agreement converted into a 90-year term by section 149(6)?

Section 149(6) provides:

“Any lease . . . at a rent . . . for life . . . or any contract therefor, made before or after the commencement of this Act, . . . shall take effect as a lease . . . or contract therefor, for a term of 90 years determinable after the death . . . of the original lessee . . . by at least one month’s notice in writing given to determine the same on one of the quarter days applicable to the tenancy…”

The section expressly provides for life leases entered into after the Act.

Mexfield argued that s.149(6) did not apply to a contract that was not expressly a lease for life, merely one that would have been treated as such under case law. This was rejected as it could not have been the legislature’s intention to simply terminate an agreements which before 1926 existed as valid determinable life estates.

Mexfield then argued that s.149(6) dealt with tenancies that automatically terminated on the death of the tenant. In the present agreement, 6(c) provided that the agreement may determine on death of the tenant, not that it did do so. This was rejected as the agreement would be treated as a tenancy for life not because of the specifics of clause 6(c) but by common law rule. The determination on death was by common law, not the agreement clause.

Lastly Mexfield argued that s.149(6) did not apply to tenancies determinable in circumstances other than death, e.g. on the grounds set out in clause 6. This was rejected. There was no reason in principle to accept it and impossible to see why the rule:

should be limited to cases where an event automatically determines the term, as opposed to cases where an event entitles the landlord to serve notice to determine the term. In each case, the term is uncertain. At least one of the reasons the common law treated uncertain terms as tenancies for lives was, as I see it, to save arrangements which would otherwise be invalidated for technical reasons, and I find it hard to accept that the modern law requires the court to adopt a less benevolent approach to saving contractual arrangements.

As for any inconsistency with Lace or Prudential, in neither case was the common law life tenancy argued. It would probably have harmed the Respondent’s case in Prudential to do so. As a result, some of the statements in Prudential might be ‘extravagantly wide’.

5. Is Ms Berrisford accordingly entitled to retain possession?

Ms B’s argument was accepted in full. The tenancy agreement could only be determined by clauses 5 and 6. It was therefore of uncertain time and could not take effect. By common law and s.149(6), it could take effect as a life tenancy, converted to a tenancy of 90 years by s.149(6), “determinable on the tenant’s death by one month’s notice from the landlord, and determinable in accordance with its terms, i.e. pursuant to clauses 5 and 6.”

A periodic tenancy with an invalid fetter on the landlord’s right to determine should be treated the same way as a tenancy for a fixed if indeterminate term. So even if Ms B’s agreement did create a monthly tenancy, it was of a kind that would be treated as a life tenancy under common law.

The Notice to Quit served by Mexfield was ineffective.

Ms Berrisford is still alive, and it is common ground that she has not served notice under clause 5 and that Mexfield is not relying on clause 6. In those circumstances, it follows that Ms Berrisford retains her tenancy of the premises and that Mexfield is not entitled to possession.

The alternative case in contract

While it was not necessary to find on these. Lord Neuberger went on to consider Ms B’s two alternative arguments, that i) if there as no effective tenancy she could still enforce the terms of the agreement as a contract, and ii) if there were a monthly periodic with an impermissible fetter on determination by the landlord, she was still entitled to enforce that fetter against Mexfield, if not any successor in title.

On the contract, Mexfield relied on Lace and Prudential. In both cases the alternative of contract had been raised and rejected on the basis that the intention of the agreement was to create a tenancy and nothing else. The treat the agreement as a contract would be to treat it as something other than the parties had intended.

Lord Neuberger finds that this argument can’t withstand principled analysis. If the agreement were frustrated from being a tenancy by an old and technical rule, this was no reason to say it could not take effect as contract.

The fact that the parties may have thought they were creating a tenancy is no reason for not holding that they have agreed a contractual licence any more than in Street v Mountford [1985] AC 809, the fact that the parties clearly intended to create a licence precluded the court from holding that they had, as a matter of law, created a tenancy.

Mexfield relied on Street to argue that as the agreement gave exclusive occupation, it was a tenancy, not a contractual licence, but the definition of a tenancy in Street also included a fixed or periodic term, wich would be lacking here.

If there were no tenancy under the terms of the agreement and no contractual licence, Ms B would have a periodic tenancy. This had been Mexfield’s argument in the Court of Appeal, that if the agreement failed to create a tenancy, then a tenancy should be inferred from the actions of the parties. Mexfield argued that have rise to a bare periodic tenancy, terminable by Notice to Quit.

Lord Neubeger considers that “Given that no question of statutory protection could arise, it seems to me far less likely that the parties would have intended a weekly tenancy determinable at any time on one month’s notice than a licence which could only be determined pursuant to clauses 5 and 6”.

On the basis that he had already found for Ms B on two grounds, he declined to consider the third point, which was MS B’s argument that she could rely on the agreement as a contract even if the result was a periodic tenancy inferred from conduct, without the fetter on determination by the landlord. This was the ground on which Mexfield had been successful in the Court of Appeal and also the point of Lord Wilson’s dissent in that Court. But it was not necessary to deal with this issue given the earlier findings.

Appeal allowed.

Of the other Judgments, Lord Hope suggests that it is time to remove the legislation preventing Fully Mutual Associations from granting protected or statutory tenancies, given that the presumed ‘happy state’ of the indivisibility of interest of landlord and tenant used to refuse any such amendment was clearly no longer the case.

Lord Walker notes the case of Bass Holdings Ltd v Lewis [1986] 2 EGLR 40, a reported decision on s.149(6) in which ‘determinable on death’ had been held to mean automatically, rather than by one month’s notice. He also notes the only other reported case on s.149(6), Skipton Building Society v Clayton (1993) 66 P & CR 223, which had very different facts, but did not clash with Lord Neuberger’s view of its meaning.

Lady Hale takes the view that it is indeed time for the rle against uncertainty of period to be done away with, while agreeing with Lord Neuberger on this case. “It seems to me obvious that the consequence of our having reached the conclusions which we have on the first issue is to make the reconsideration of the decision in Prudential, whether by this Court or by Parliament, a matter of some urgency.”

Lord Mance elaborates on the basis for rejecting Mexfield’s contention that, in the absence of an effective agreement, a periodic tenancy terminable on a month’s notice must be inferred. The certainty of term was lacking, such that there were not the requirements for a tenancy set out inf Street, so:

The basis for asserting that there was a contractual tenancy therefore falls away. But the contract was valid as such. There is no reason not to give it effect according to its terms. As a matter of legal categorisation, because it was not a tenancy, it can only involve a licence. Its terms precluded the giving by Mexfield of notice to terminate, except in circumstances falling within clause 6 of the Agreement.

To substitute a wholly different tenancy could hardly be to follow the intention of the parties.

Lord Clarke notes that Mexfield had abandoned its concession below that under the terms of the agreement it could not serve notice to quit other than as provided for in clause 6. But he wholly agrees with Lord Neuberger on what a reasonable person would consider the contract to have meant. He concurs on the s.149(6) point and is happy to do so as any other conclusion would be contrary to the agreement freely entered by the parties.

Lord Dyson also adds that it is unsatisfactory to have to adopt this chain of reasoning to achieve the just result. The radical solution of doing away with the uncertainty rule is attractive, not least as s.149(6) only applies to individual tenants not corporate entities.

Comment

First it has to be said that Mark Wonnacott, instructed by the Mary Ward Legal Centre, clearly played an absolute blinder in the Supreme Court, presenting a clean, clear and elegant solution.

But it is a result with consequences, not only for Ms B’s tenancy and the other Mexfield tenants, but for any Fully Mutual or Co-Op where the tenancy agreement is in similar terms, which I suspect would be quite a lot of them.

As a lease with a 90 term, it must be registered on the title with the Land Registry.

Being a 90 year lease, the section 11 Landlord and Tenant Act 1985 implied repairing obligations do not apply. The only repairing obligations on the landlord will be those specified in the ‘tenancy’ agreement.

And then there is the matter of termination of the tenancy. As a long lease, termination must be by forfeiture. Mexfield’s tenancy agreement had a forfeiture clause. It would be interesting if others didn’t.

Unless forfeiture was for rent arrears, a Section 146 notice would have to be served, specifying the breach of lease conditions relied upon before forfeiture proceedings could be issued. And of course, the provisions on relief from forfeiture would also apply.

The upshot would seem to be that any Co-Op whose tenancy agreement that fell under s.149(6) in the same way as Mexfield’s, has just lost the right to summary possession.

Intriguingly, this very issue appears to have been raised back in April 2011 in the case of White v Quadrant Brownswood, another Co-Op possession case. See the comments to the post here. My guess would be that someone had come across, or heard about Mr Wonnacott’s arguments to be made in the Supreme Court, although that wasn’t heard till October.  Alternatively, there was a similar spark of inspiration in both cases. Without seeing the tenancy agreement in White, it is difficult to be certain, but I’d suspect that the Supreme Court has just given a large headache to Quadrant Brownswood.

The final question is how long the rule on uncertainty of term has to stand. Although the SC had an alternative solution in this case, it is clear that a large proportion of the panel were quite ready to scrap it should the need arise in another case.