The heavens rejoice – Sale and rent back and proprietary estoppel

Sahota v Prior & Anor (2019) EWHC 1418 (Ch)

Just a short note, but worth it, because every angel in heaven sings when a ‘sale and rent back’ set up comes to grief

Briefly, Mr & Mrs Prior bought their home 35 years ago. At some point, they got into financial difficulties and were facing possible repossession by their lender. After seeing an advert they approached a ‘sale and rent back’ set up called Red 2 Black. (The director of Red 2 Black has subsequently received a heavy fine from the FCA for exactly this kind of transaction, with the FCA finding that there were widespread failings by Mr Chadda, including telling the owners concerned that he would be buying their homes, when, in fact, the purchasers were other people, and falsely claiming that the price paid would be based upon an independent valuation.).

They were visited and executed a TR1 transfer, with the transferee’s name being blank. Unbeknownst to them, the property was transferred to Ms Sahota. On the deal:

The couple were later told that their property had been valued at £90,000, although the transfer document as completed shows a price of £130,000. That is the same figure as the mortgage valuation obtained on behalf of Ms Sahota. In fact, Mr and Mrs Prior effectively only received £52,000, which was the amount of the debts met from the sale, and they never received any balance. They at no stage met Ms Sahota, whom they were led to believe was a director of Red 2 Black.

They also signed a 5 year tenancy agreement.

Ms Sahota bought possession proceedings under s.21 after the end of the 5 year term. At first instance trial, there were a number of factual findings

These included that Mr and Mrs Prior were in difficult circumstances and were naïve The judge found that they were assured that under the sale and rent back arrangement their debts would be paid, they would be permitted to live in the property for the rest of their lives, provided they paid the rent, and that repairs would be undertaken by Red 2 Black. The judge also found that Mr and Mrs Prior never had any meaningful contact with the solicitors apparently engaged on their behalf in the transaction, and that they signed the transfer document in blank. In addition, and importantly, the judge found that they queried why the tenancy document was for only five years, but they were assured that they did not need to worry about that: it was simply to ensure that they paid the rent. Finally, the judge found that, once the fraudulent activities of Mr Chadda came to light, they were contacted by a Ms K Sahota, the claimant’s sister-in-law, who repeated the assurances previously given by Ms Dhillan, namely, that they could remain in the property for the rest of their lives and that repairs would be taken care of. I understand that that contact occurred in 2012.

The first instance Judge found that there was a proprietary estoppel, preventing Ms Sahota from seeking possession (in the absence of any breach of tenancy) for the rest of Mr & Mrs P’s lives.

Ms S appealed.

First, Ms S argued that Red 2 Black were agents for Mr & Mrs P, not for her, and she had no knowledge of the statements made.

This got short shrift.

The facts found by the judge included the following: the existence of an extended family relationship between Ms Sahota and the individuals involved in Red 2 Black; the fact that Ms Dhillan, a director of Red 2 Black, approached Ms Sahota about the possible investment; the fact that the property was put in Ms Sahota’s sole name at Ms Dhillan’s suggestion; the fact that Ms Dhillan made all the arrangements on Ms Sahota’s behalf, including arranging her mortgage funds; and the fact that Mr Chadda, the controller of Red 2 Black, initially received part of the rent.

The documentary evidence, including the tenancy agreement relied upon by Ms S, directly contradicted her position on appeal.Futher Red 2 Black had received part of the rent payments.

On Ms S knowledge of the statements about a lifetime tenancy, she might not have known of the initial statements, but

the assurances were subsequently repeated by Ms K Sahota. This individual was not only the person to whom rent has been paid throughout, but she also helped the claimant, Ms Sahota, fund the deposit and, in addition, had some involvement in arranging the mortgage. The judge recorded that the claimant accepted in evidence that her sister-in-law was, effectively, acting as her agent, managing the transaction for her and that the arrangement could be described as a joint venture between them

And in any event

Ms Sahota allowed or permitted Ms Dhillan, and subsequently Ms K Sahota, to arrange everything on her behalf. She at no stage made contact with the Priors. She relies on a tenancy agreement which explicitly refers to and is signed on behalf of Red 2 Black as her agent. By her conduct, she has allowed it to appear that Red 2 Black, in the form of Ms Dhillan, had full authority to act on her behalf.

Next Ms S argued that s.2 Law of Property (Miscellaneous Provisions) Act 1989 prevented a claim for estoppel because there was an interest in land but not in writing.

This argument also failed.

(Mr & Mrs P) are not trying to enforce a contract for the sale or other disposition of land. They are not seeking to bind Ms Sahota to transfer a property interest to them pursuant to a contract. What they are trying to assert is that Ms Sahota is prevented from recovering possession of their home from them during their lifetime, because of an assurance on which they relied when they transferred the property and subsequently did work on it. The claim that Ms Sahota is not entitled to recover possession also does not involve an assertion that the assurance relied on was part of the term of any other contract, either for a sale to Red 2 Black or the grant of a tenancy to Mr and Mrs Prior. Indeed, in the case of the tenancy, Mr and Mrs Prior were well aware that it was for only a five-year period, but they were told not to worry about that and that they would be able to remain thereafter, provided they continued to pay rent. What Mr and Mrs Prior relied on was an assurance or representation which induced them to sign the TR1 Form pursuant to which the property was transferred, and later induced them to do work on their property.

Besides neither the TR1 nor the tenancy agreement were ‘contracts for sale or disposition of land’, was caught by s.2 LP(MP)A. The TR1 was the transfer, the tenancy agreement was a grant of tenancy.

Appeal dismissed.

Comment

It is hard to find any sympathy whatsoever for Ms S, who apparently received mortgage funds of £130,000, but only paid £52,000 to Mr & Mrs P (subject to whatever she also ended up paying to Red 2 Black), and then sought possession under section 21 after 5 years of their tenancy.

Thankfully the FCA clamped down on these set ups, but there are still chancers out there, and still people living in properties subject to these unbelievably dodgy arrangements.

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 +.
Posted in Assured Shorthold tenancy, Housing law - All, Mortgage possession, Possession, Trusts and Estoppel and tagged .

2 Comments

  1. A question which I’ve not seen discussed on these schemes; with Councils now placing charging orders on homes to recoup care costs how would they see this with regard to deprivation of capital? Remember illness requiring care doesn’t just strike old folks… so a change of ownership…… one person becomes ill soon after or deteriorates after the sale……. goes into care…… Maybe I’m over thinking this?

    • Would depend on whether charges were in contemplation. The FCA has put a stop to most of these setups some years ago, so unlikely to present as an issue.

Leave a Reply (We can't offer advice on individual issues)

This site uses Akismet to reduce spam. Learn how your comment data is processed.