Co-ops again …

Often, I will read a judgment with which I disagree; but it is rare that I read one that I think is just plainly wrong.  The judgment of Hildyard J in  Southward Housing Co-Operative Ltd v Walker and Hay [2015] EWHC 1615 (Ch) falls in to the latter category, made all the more odd that it took nearly five months to hand down the decision.  Perhaps, in that period, Hildyard J should have read one of Mark Wonnacott’s rather good, but decidedly specialist, landlord and tenant historical monographs.  It is based on a wrong reading of the Supreme Court judgment in Berrisford v Mexfield Housing Co-Operative Ltd [2011] UKSC 52 (our note here).  And that wrong reading gets Hildyard J in to all sorts of bother.  His judgment on the other bits – in particular section 6 and Article 14, Sch 1 Human Rights Act 1998 – is also almost certainly wrong imho.  But it will take you a long time to read (it’s 45 pages long) before you get that kind of visceral reaction to it.  I gather that there is an appeal in the offing, but I don’t really think that should have been necessary.  It seems to me to be a relatively straightforward case, but there we go.

In short, Southward granted the Defendants a weekly periodic tenancy in April 2011. The tenancy could only be determined in accordance with the service of a notice to quit on limited grounds, such a non-payment of rent.  The Defendants defaulted, Southward served a notice, and the whole thing became a problem at that stage.

Now, my understanding of Berrisford is that the tenancy was clearly void on its face as uncertain in accordance with the standard doctrine; Berrisford adds that, in such cases, prior to 1925, such an agreement would constitute a tenancy for life but that, as a result of section 149(6), Law of Property Act 1925, the tenancy automatically becomes a 90 year term subject to earlier determination on death or in accordance with the contract.  I fully appreciate that this goes against the property lawyers’ grain, which is that (objective) intention rules.  But there we go – that is the “Carrollian” effect of the rule to which both Lord Neuberger and Baroness Hale referred.  Although my students had difficulties with Berrisford, it seems pretty clear to me.

So, Hildyard J begins correctly by saying that this case is analagous to Berrisford; he also says, again correctly, that the tenancy term is uncertain (there is some odd stuff that others better than me will, no doubt, explain about whether the notice affects the claim for possession or the determination of the tenancy: [55]-[63]).  But then he goes off the rails.  He holds that the agreement created a contractual licence.  By what process of legal alchemy does he turn a tenancy, which objectively both parties intended to create, to a licence?

He argues that the result in Berrisford was dependent on the parties’ intentions in that case.  Now, it is true that the UKSC contented themselves by saying that the outcome did appear to be in tune with the parties’ intentions – I’m not so convinced – but the point was that was entirely unnecessary to the judgment.  The tenancy for life analysis, whatever one thinks of it (and it is fair to say that its reception in academic life has been critical), and Section 149(6) operate automatically.  Hildyard J, however, found  a solution, in accordance with the maxim ut res magis valeat quam pereat (better to save a thing than let it perish – a maxim of absolutely no use in this matter because the tenancy is, in law, saved),

… with diffidence and anxiety, I have eventually concluded that there is a solution which does give effect to the intention of the parties. The solution revolves around the difference between, on the one hand, accepting (as plainly one must) that the ‘rule’ can be applied in circumstances where the parties had no inkling or intention that it would, and, on the other hand, accepting that its application is mandatory even where the parties’ intentions were to the contrary and their agreement contains fundamental terms that simply cannot be carried over into a 90 year lease.

The solution was that the contractual licence analysis was open to the court.  There is no reasoning for this abrupt conclusion, other than a desire to avoid the consequences of the automatic operation of the rule and that this appears to be the Scottish solution.  Of course, even prior to Berrisford, such a solution would have been regarded as untenable – Prudential, for example, where the term was void for uncertainty, simply became an annual periodic tenancy (nb the result in Prudential would remain the same today because of its corporate status).

HIldyard J goes on, on the (correct) assumption that he is wrong, to ask how the 90 year agreement could be determined.  The Defendants here had an interesting argument.  They said that, in the absence of a forfeiture clause, the notice provision was inadequate to determine the 90 year agreement.  I am unconvinced by this as a proposition, but Hildyard J found their argument “so unpalatable, and so alien to the parties’ intentions, that some solution must be found” ([111]); and, as if by magic, a solution was found – to treat the notice clause as an innominate process for termination”, a forfeiture clause.  The Defendants then deployed the full range of arguments around the forfeiture of a long lease, , which may follow (from one point of view) from Berrisford, particularly taking in to account sections 76 and 77, Commonhold and Leasehold Reform Act 2002.  Again, although I’m not convinced by this analysis, what is interesting is that the Claimant followed the Defendants and argued it on their turf, so to speak.  Section 76 specifically includes section 149(6) leases as “long leases” but section 77 excludes some leases on certain conditions, which seemed to include the Southward lease.  So, of course, Southward managed alchemically to get round all of that inconvenient law on forfeiture, waiver, and rent claimed etc; and there was no sense that relief from forfeiture should be granted.

We then get to what Hildyard J describes as the public law issues, which are those deriving their force from the Human Rights Act 1998.  For some time, I along with others better than me have puzzled over the human rights issues deriving from co-operative cases.  There is no security of tenure, as they are excluded from the various security provisions, given the satisfaction of certain criteria.  Instinctively, that seems wrong – the Welsh government have, of course (given that they are light years ahead of the English), corrected the position in the Housing (Wales) Act.  In Southward, the Defendants argued the incompatibility point and Hildyard J magisterially rejected those arguments.  There is an “interesting” discussion of the “other status” element of Article 14, it having been argued that being a tenant of a fully mutual housing co-op is an “other status” as part of a broader discrimination argument.  At [187], Hildyard J said

In my judgment, that which is said in this case to occasion the Defendants’ differential treatment is difficult to describe as a “personal characteristic”. The characteristic is not innate but acquired; it has nothing to do with what the person is, as distinct from what that person has chosen to do; the choice made is most unlikely either to reflect or to have affected the person’s character; and the circumstances of fully mutual housing association tenants differ greatly. In short, any circle is far from the centre.

I imagine that point will be conceded on appeal.  On surer footing, Hildyard J found that any distinctions were justified; in any event, the Defendants had signed up to contractual protections which were the equivalent, if not greater rights.  Here, and in parenthesis, I was struck by the witness statement from the civil servant at the DCLG who argued ([202]) that

The fundamental difference between housing co-operatives and other housing associations is the absence of a landlord and tenant relationship in the case of co-operatives. Other housing associations tend to operate their tenancies according to a strong landlord and tenant relationship, with tenants generally having little direct input into the decisions made in relation to the management of where they live. In contrast, housing co-operatives are locally owned by the members themselves, and decisions are taken locally and exclusively by members/tenants. Those who work and live in the sector would argue that every part of a co-operative’s operations differ substantially from those of other housing associations because in a co-operative the interests of the tenants and landlord are indivisible; they are the same people.

My strong suspicion is that such a position would be entirely alien to the operation of most housing associations and their tenant participation officers as well as their tenants and tenant board members.

In any event, a fully mutual housing co-operative was not a public authority for these purposes.  Here again, I am afraid the analysis (at [223]) is, at best weak.  Hildyard J said that Southward does not rely on public subsidy (although it received capital grant, erm a bit like L&Q); it only has an informal nominations agreement with the local authority as it can refuse a nominee (erm a bit like any other housing association, including L&Q); it does not charge market rents (erm a bit like L&Q’s general needs) but does not provide subsidised housing as it exists for the benefit of its members; although there is public benefit, this is incidental because it exists for the benefit of its members (erm a bit like L&Q); fully mutuals are not subject to statutory regulation in the same way as other housing associations (by which I think he meant the security of tenure regimes, the stuff about which the complaint was made); Southward is regulated by the FCA and HCA as a co-op and, therefore, the regulation is light touch (but there is regulation and its rationale is because they are providing social housing).

Finally, and in any event, there was nothing exceptional anyway (a position from which he probably should have started his analysis).

All I can say is blimey, what a load of old cobblers (meaning no disrespect to cobblers).

Posted in Housing law - All, Leasehold and shared ownership, Licences and occupiers, Possession and tagged , , .

14 Comments

  1. First I must say that I am very grateful to you for raising this case and for taking so much time to tease out the points that allow me to comment.

    I’d like to comment on the differences between the cases and then on your analysis, as some points may be significant.

    The elephant in the room in the Mexfield case was the issue of whether Mexfield was a bona-fide housing co-op, controlled by its members, or a vehicle to allow a management company to service a mortgage recovery scheme. Arguably their rules require no AGM and in any case the quorum was less than for a committee. With a widely spaced membership it is hard to judge how much control there would be. The protections referred to in section 201 of this judgement scarcely apply. It is not surprising that the judges wished to consider the intentions as the alternative might have been to turn a scheme for saving people’s homes into a confidence trick to relieve them of it. I totally concur that there is much to criticise in the Mexfield Judgement though. This judgement appears to be a return to the previous status quo and will be very useful if allowed to stand.
    My question therefore is whether you feel the judgement is wrong because it follows a different reasoning to Mexfield (and has points that are non-sequiturs), because a different procedure to gain possession should have been followed or because possession should not have been granted for non-payment of rent.

    Secondly, I thought some comments on your very interesting article might be of interest. Comparing L&Q and Southward as different beasts and deciding that Southward is not a public body is useful for the co-op movement. As I recall, the size of L&Q was also a consideration in the Weaver case as it then had 40,000 properties. If it now has 70,000, that is clearly enough to affect policy decisions. The judgement says that a group of 36 is hardly the same, which seems reasonable. As to public subsidy, putting aside the question of whether grant is repayable on disposal after 16 years, he ruled that it was in fact a loan, which was made many years before. L&Q have surely received the transfer of tens of thousands of properties and continue to receive both grants and land at preferential rates. The housing service is provided at commercial rates by paid staff and rents are expected to be affordable because of the terms on which the proerty was transferred. Southward exists in the private market, but can offer affordable rents because it seeks to make no profit and because some work is carried out by volunteers (though they engage CDS for some services) which reduces costs. The costs of this case must have seriously damaged their reserves.
    Decisions are therefore made by a small group of people whose interests are bound up together. Each tenant is a member. I’m taking a while to get to the point that tenant participation officers and tenant panels that feed back comments and opinions are a very different level of involvement to members directly making decisions (albeit through an elected committee). The L&Q website does not say how tenants or others can become members and that is the key historical difference between the housing association movement and the housing co-operative one. HAs are the great and the good providing for those who need it, while HCs provide for themselves. Experience has shown that its is tenant management is that is ‘entirely alien’ to most housing association staff with a few honourable exceptions.

    I think you argued that membership of a housing co-op should effectively be a protected characteristic under article 14 – or at least that it would be ruled so on appeal. While this would be very interesting – a new defence where a council wishes to close a TMO for example – I couldn’t see your reasoning and would love to hear more.

    Concluding – the judgement is definitely a parson’s egg and it will be interesting to see if it stands, if anyone has funds to appeal or if it will trigger sensible review. I just wish I could follow the reasoning to explain how Mexfield is different, without looking to the elephant – the ‘intention’ to create security of tenure being clear, but not entirely helpful.

    • Greg, I think you are missing the point a bit. The key finding in Mexfield is that a (residential) tenancy of term uncertain automatically becomes a 90 year lease. So the finding in this case that intention of the parties makes a difference is just wrong. The issue of how nice or not Mexfield were, or how nice or not Southward were makes no difference. Mexfield is not based on intentions.

      There are certainly arguments either way over co-ops as public bodies, but I think Dave’s point is that the basis for the decision in this case was not based on particularly good points.

  2. Who would I be to say that Mr Justice Hildyard is wrong…. He found a reason to separate the two cases and the reasoning of the final Mexfield judgement seemed to follow the lines of “It must have been some sort of tenancy, so what could it be.” – Though maybe I was relying on Mr Wonnacott’s analysis at para 44 rather than the decision text:
    ” Thirdly, even if an agreement which creates an uncertain term could only have resulted in a tenancy for the life of the tenant if that was the intention of the parties, I consider that, on a true construction of the Agreement, it was intended that Ms Berrisford enjoy the premises for life – subject, of course, to determination pursuant to clauses 5 and 6. I have in mind in particular clause 6(c), which will apply on Ms Berrisford’s death, the fact that her interest is unassignable, and the fact that it was intended to ensure that she could stay in her home. ”

    What I queried though, was whether when it was stated that the decision was wrong Dave thought it was (a) muddled and confused, (b) had followed the wrong procedure to seek possession or (c) that the non-payment of rent should not have led to claim for possession.

    The issue for the landlord at the moment is to establish the most appropriate method to seek possession when rent arrears are the issue as in some cases actions appear to be failing against a Mexfield defence, though the details don’t seem well reported.

    This case, while welcome in parts, has hardly clarified the situation.

    • Dave – I fully understand that (a) you have (perfectly reasonably) with the thinking behind the judgement. Surely it does not automatically follow, however, that the decision decision to award possession is wrong. If the fundamental starting point is that Mexfield applies and that there was a non-transferrable 90 year lease, then are you saying that (b) the wrong procedure was followed and a NTQ (expressly required under the tenancy) should not have been served (or another notice should have been served) or (c) that the judge had no power to determine a tenancy (a form of contract) on the grounds of rent arrears ?

      This was the information I looked for in your report, but could not find.

    • Greg – why would that information be in the report? What you are asking is ‘if this was a Mexfield 90 year lease, could possession proceedings for rent arrears still be brought’. But that is not the basis of this judgment. Dave (and I) have explained why the basis of this judgment – a contractual licence – is wrong. It therefore follows that the decision to grant possession on the basis of a contractual licence is wrong. Why would the report then go on to consider a hypothetical?

      To the extent that it is raised in the case, Dave considers it. This paragraph:

      HIldyard J goes on, on the (correct) assumption that he is wrong, to ask how the 90 year agreement could be determined. The Defendants here had an interesting argument. They said that, in the absence of a forfeiture clause, the notice provision was inadequate to determine the 90 year agreement. I am unconvinced by this as a proposition, but Hildyard J found their argument “so unpalatable, and so alien to the parties’ intentions, that some solution must be found” ([111]); and, as if by magic, a solution was found – to treat the notice clause as an innominate process for termination”, a forfeiture clause. The Defendants then deployed the full range of arguments around the forfeiture of a long lease, , which may follow (from one point of view) from Berrisford, particularly taking in to account sections 76 and 77, Commonhold and Leasehold Reform Act 2002. Again, although I’m not convinced by this analysis, what is interesting is that the Claimant followed the Defendants and argued it on their turf, so to speak. Section 76 specifically includes section 149(6) leases as “long leases” but section 77 excludes some leases on certain conditions, which seemed to include the Southward lease. So, of course, Southward managed alchemically to get round all of that inconvenient law on forfeiture, waiver, and rent claimed etc; and there was no sense that relief from forfeiture should be granted.

      So there you are.

      In any event, it strikes me that what you are really asking for is legal advice on whether and how a Mexfield lease can be ended for rent arrears. That is the kind of thing we get paid for, and it is a little cheeky to complain that a case report doesn’t include exactly the kind of information you want as an extended hypothetical exercise.

    • Sorry – I’m not asking for free advice as my own co-op has secure tenancies. I also don’t give legal advice, so my interest is academic (in the sense of personal education). I am, however, somewhat bemused by the situation and trying to make sense, like many others, of the situation. Concluding that a High Court judge is simply wrong still surely presents difficulties and adds uncertainty (if you’ll excuse the pun).
      In a number of your other excellent posts (and elsewhere) how a 90 year tenancy can be ended has been discussed. I think I now understand that the answer from this case is “If you want to know how to deal with a co-op/Mexfield 90 year lease, don’t look here, because this case presumes a contractual/periodic tenancy which you don’t have or you wouldn’t be asking.”
      Apart from decisions as an aside about being a public body and section 14 / special treatment it seems that the case has not provided value for money for those who paid. Once again, thank you for your time in providing such thought provoking articles and for taking the time to respond.

    • Greg,

      That is right on this case – though there is a discussion of ending a 90 year lease, as the paragraph quoted makes clear.

      Agreed this case does not contribute to clarity in general, but we understand an appeal is under way, which may (ever hopeful) shed more light.

      A key issue is whether a specific forfeiture clause is required (there was one in Mexfield), or whether a clause permitting notice to quit is enough, and if so, how that might satisfy the common law and statutory requirements on forfeiture. A lot of that is going to depend on the precise wording of the Agreement – see 119 to 148 of the judgment.

  3. Dave seems to have a political point but no legal analysis. The judgment is highlighting the difference between intention (not required) and contrary intention (preventive). Having found no tenancy that leaves the requirements of a contract nonetheless satisfied. No alchemy required.

    • Janet, I’m afraid you have it the wrong way round. Dave’s analysis is a legal one. The Supreme Court in Mexfield found it was not an issue of intention, contrary or otherwise (and I can’t see any distinction in law between ‘intention’ and ‘contrary intention’). To find otherwise is, broadly, political, not legal.

      Para 117 of Mexfield:

      Mr Gaunt’s principal submission was that, before the enactment of the 1925 Act, the question whether a periodic tenancy determinable on an uncertain event was a defeasible tenancy for life was one of construction of the particular agreement. But, as Lord Neuberger explains, it is clear from the authorities that this is incorrect. It was a rule of the common law that such a tenancy was automatically treated as a tenancy for life. It had nothing to do with the intention of the parties.

  4. It is the distinction between not intending a particular result, and intending that there should NOT be a particular result that is relevant. That is where contrary intention is distinguishable.

    • Janet – “automatically”, “nothing to do with the intention of the parties”.

      And I’m still failing to see any distinction. It is all intention.

  5. Janet, leaving aside the interesting, conceptual law/politics question, what NL says is spot on. If the intention of the parties is irrelevant, then the expression of contrary intention similarly is irrelevant. That is the perhaps unfortunate consequence of the Berrisford rule of law. Now, if you are asking whether Berrisford was rightly decided or whether the UKSC was beguiled into its decision by a statement of the classical legal position, which in and of itself has both unfortunate consequences and conceptual problems, then I am sort of in the latter camp. Be that as it may, though, it will now probably take Parliament to deal with the issue.

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