02/06/2020

Shine on you crazy Dymond*

Croydon London Borough Council v Kalonga (2020) EWHC 1353 (QB)

Flexible tenancies. We always said they were a bad idea.

This was a determination of a possession claim brought by Croydon LBC against Ms Kalonga, who had a five year term flexible tenancy. This was a trial of a preliminary issue, transferred to the High Court, of “the correct manner in which to determine a secure flexible tenancy during the fixed term (including whether, and if so how, any principles relating to forfeiture apply)”. The claim ws brought during the fixed term.

The key issue was that a) Croydon’s possession claim was based on a Notice Seeking Possession relying on Grounds 1 and 2, Schedule 2 Housing Act 1985 (rent arrears and ASB were alleged), and b) the tenancy agreement did not contain a clear forfeiture clause (though Croydon argued that it should be read that it did).

The NSP, in standard form, stated in its notes:

“This notice applies to you if you are a secure tenant under the Housing Act 1985 and if your tenancy is for a fixed term, containing a provision which allows your landlord to bring it to an end before the fixed term expires. This may be because you have got into arrears with your rent or have broken some other condition of the tenancy. This is known as a provision for re-entry or forfeiture. This Act does not remove the need for your landlord to bring an action under such provision, nor does it affect your right to seek relief against re-entry or forfeiture. In other words to ask the Court not to bring the tenancy to an end…”

Corydon’s covering letter to the NSP stated:

“The attached notice is served without prejudice to (the landlord’s) argument that it does not need to terminate your tenancy by exercising a proviso for re-entry or forfeiture. We appreciate that the first bullet point of section 2 suggests otherwise, but (the landlord) is of the opinion that those words in the notice, which was drafted in 1987, are now obsolete in light of the flexible tenancy scheme under the Localism Act 2011 that applies to your tenancy.”

Brave words…

On whether the tenancy agreement contained a forfeiture clause, Croydon relied on the usual kind of clauses about ‘we may seek possession’ and ‘we may end a secure tenancy by service of a notice seeking possession’, while Ms K argued that the agreement had “terms which explain that the landlord may seek possession under the grounds set out in Schedule 2 of the 1985 Act. However, these terms do not give the landlord a right to re-enter the property nor do they amount to a right to forfeit the tenancy agreement.”

The High Court agreed with Ms K

It is “fundamental” that a “forfeiture provision should bring the lease to an end earlier than the “natural” termination date” (Clays Lane Housing Co-operative Ltd v Patrick at 194, per Fox LJ). The “natural” termination date of the tenancy agreement in this case is 24 May 2020. The provisions relied on by the landlord do not meet this fundamental requirement:
a. Page 1 of the landlord’s booklet: This statement informs the tenant that the landlord will take action if she fails to observe the conditions of the tenancy and that could include seeking possession of the property. However, page 1 does not set out that, upon default by the tenant, the landlord can determine the tenancy agreement before the end of the fixed term whether by re-entry or forfeiture (and thereby reduce the length of the five-year fixed term, which the tenant would otherwise enjoy, if there had been no default).
b. Page 4 of the landlord’s booklet: This statement informs the tenant of the basis on which the landlord may take eviction action at any time. It does not contain a right for the landlord, in the event of default of the tenant, to determine the tenancy agreement before the end of the fixed term.
c. Clauses 3 and 10: Likewise the service of a notice seeking possession or the application to the court for a possession order is not the same thing as the exercise by a landlord of its right to determine the tenancy agreement before the end of the fixed term in the event of default by the tenant.
I am therefore satisfied that the terms and conditions in the landlord’s booklet do not contain any right for the landlord to forfeit the tenancy agreement in the event of breach by the tenant.

On the issue of termination of the tenancy, key was section 82 Housing Act 1985, which provides

“Security of tenure.
(1) A secure tenancy which is either—
(a) a weekly or other periodic tenancy, or
(b) a tenancy for a term certain but subject to termination by the landlord,
cannot be brought to an end by the landlord except as mentioned in subsection (1A).
(1A) The tenancy may be brought to an end by the landlord–
(a) obtaining–
(i) an order of the court for the possession of the dwelling-house, and
(ii) the execution of the order,
(b) obtaining an order under subsection (3), or
(c) obtaining a demotion order under section 82A.
(2) In the case mentioned in subsection (1A)(a), the tenancy ends when the order is executed.
(3) Where a secure tenancy is a tenancy for a term certain but with a provision for re-entry or forfeiture, the court shall not order possession of the dwelling-house in pursuance of that provision, but in a case where the court would have made such an order it shall instead make an order terminating the tenancy on a date specified in the order and section 86 (periodic tenancy arising on termination of fixed term) shall apply.
(4) Section 146 of the Law of Property Act 1925 (restriction on and relief against forfeiture), except subsection (4) (vesting in under-lessee), and any other enactment or rule of law relating to forfeiture, shall apply in relation to proceedings for an order under subsection (3) of this section as if they were proceedings to enforce a right of re-entry or forfeiture.”

Croydon argued:

that the tenancy agreement fell within section 82(1)(b). Termination is not defined in the 1985 Act. There are numerous methods by which a tenancy may come to an end (see Woodfall: Landlord & Tenant at para 17.001). Had it been Parliament’s intention to limit section 82(1)(b) to termination by forfeiture alone the draftsman would have said so, as he did in section 82(3). Indeed, by making a clear distinction between a tenancy being “subject to termination” in section 82(1)(b) and having “a provision for re-entry or forfeiture” in section 82(3), Parliament can only be understood to have meant the two concepts to be distinct.

And then that section 82(1A) presented three alternative options for a landlord to terminate a tenancy, and the landlord could elect which one it chose:

a. First, by obtaining and executing a possession order (sections 82(1)(b), and 82(1A)(a)), usually having served a notice of seeking possession. The mere making of the possession order does not end the tenancy; it does not end until the order is executed (section 82(2)).
b. Second, by determining the fixed term and replacing it with a periodic tenancy (sections 82(1)(b), 82(1A)(b), 82(3)-(4), 86(1)(b)). This option is only available in the case of a fixed-term secure tenancy “with a provision for re-entry or forfeiture” (section 82(3)) and still requires an order of the court.
c. Third, by obtaining a demotion order (sections 82(1)(b), 82(1A)(c), 82A), which is irrelevant in the present context.

Ms K argued:

that a possession claim in respect of a flexible tenancy requires that the fixed term be terminated by way of forfeiture proceedings. This is because a flexible tenancy is a fixed term tenancy which falls within sections 82(3) and (4). There needs to be a forfeiture clause in the tenancy agreement, the landlord needs to serve a valid section 146 notice (save in cases of rent arrears) and the law of relief from forfeiture applies. Then, if the court makes an order terminating the fixed term, a statutory periodic tenancy immediately arises (sections 82(3) and 86(1)(b)) but which can then be terminated. This is because the court can terminate the fixed term tenancy and then make a possession order in respect of the periodic tenancy at the same hearing (section 83(6)).

Mr Bates (for Ms K) further submitted that, as there is no provision for re-entry or forfeiture in the tenancy agreement, it does not fall within section 82(3) and a section 146 notice has not been served. Indeed, the notice that was served is expressly intended not to be a notice in respect of forfeiture (see paragraphs 2 and 3 above). Therefore, as the tenancy agreement has not been forfeited, the claim must be dismissed.

The High Court held:

1. A flexible tenancy is fixed term tenancy
2. If there is no break clause or forfeiture clause, then the tenancy is not ‘subject to termination’ by the landlord for the purposes of s.82(1)(b).
3. “If the landlord does not have any right to determine the fixed term at any earlier date, then the fixed term tenancy does not fall within the ambit of section 82(1)(b), and the tenancy cannot be brought to an end under section 82(1A).”

And so

Determination of a flexible tenancy before the end of the fixed term

Therefore, if a landlord wants to be able to determine a flexible tenancy before the end of the fixed term in the event of breach by the tenant, he must ensure that he has the right to forfeit the flexible tenancy in such circumstances. This term should be set out as an express term of the flexible tenancy in the written notice served on the tenant under section 107A(5). The inclusion of a forfeiture clause in the flexible tenancy will mean that, in the event of default by the tenant, the landlord may seek to bring the flexible tenancy to an end before the expiry of the fixed term by any of the ways identified under section 82(1A). His right to do so is preserved by section 107D(10).

In this case, if the tenancy agreement had included a forfeiture clause, it would have been within section 82(1)(b) and the landlord would have been entitled to bring it to an end by obtaining an order of the court for possession of the property and execution of the order under section 82(1A)(a).

I do not agree with Mr Bates that, even if a flexible tenancy contains a forfeiture clause, the only way a landlord can bring it to an end before the expiry of the fixed term is (i) the service of a notice under section 146 of the Law of Property Act 1925 in respect of breaches by the tenant (other than non-payment of rent), and (ii) proceedings for an order under section 82(3), to which the law of forfeiture will apply. This is because, if a flexible tenancy contains a forfeiture clause, the landlord can bring the flexible tenancy to an end if the tenant is in breach by any of the routes identified in section 82(1A), depending on which route is most appropriate in any particular case.

Possession claim dismissed, tenant’s counterclaim remitted to the County Court

Comment

Well, Croydon can’t say they weren’t warned. Andrew Dymond (now of 4-5 Grays Inn Square) wrote an article on this very issue in 2014 in the Journal of Housing Law. We did two posts, one in 2014 and one in 2015, based on Andrew’s article. (*Hence the title). The basic thrust of all of these was that a tenancy agreement for a flexible – fixed term – secure tenancy required a forfeiture clause.

I’m not entirely sure about the High Court’s obiter views on service of a s.146 notice (aside from for rent arrears), partly as that doesn’t seem to get to grips with s.82(3) and particularly s.82(4), and partly because being able to bring a possession claim under s.82(1A) doesn’t rule out service of a s.146 notice as a precursor to a claim, but this might be an argument for another occasion.

The central point though, is that any flexible tenancy agreement without a forfeiture clause cannot be ended before the end of the fixed term. (It might be possible if there was a landlord’s break clause, but I’m not sure that a landlord’s break clause is possible in a fixed term flexible tenancy, at within the first two years, if at all).

It may well be that the few other local authorities that adopted flexible tenancies (I’m looking at you, Barnet and Wandsworth, for example), also manage to omit a forfeiture clause from their tenancy agreements. If that is the case, I’m afraid but not entirely sorry to say, there is no getting possession during the fixed term.

(As noted in the judgment, the Housing and Planning Act 2016 contained provisions that would have circumvented this, to wit:

section 119 and Schedule 7 (paragraphs 2 to 17) of the Housing and Planning Act 2016. The proposed amendments include:
a. a new section 82(A1) which will allow a landlord to bring a flexible tenancy to an end by “(a) obtaining – (i) an order of the court for the possession of the dwelling house, and (ii) the execution of the order”; and
b. a new section 82(A2) providing that “A secure tenancy can be brought to an end by the landlord as mentioned in subsection (A1)(a) whether or not the tenancy contains terms for it to be brought to an end”.

But those parts of the Housing and Planing Act 2016 were never brought into force (indeed, this must be one of the largest ‘not in force’ Acts ever). And it is unlikely that they will be.

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.

9 Comments

  1. Jamestown

    Maybe not as “flexible” as the landlord would’ve liked :)

    Reply
    • Sam

      It will be interesting to see if this is the last word on this. I don’t think it is as clear cut as this. While this puts me at odds with a number of barristers and solicitors I respect and admire greatly, on this I can;t help but disagree.

      First, the point about the need for paralell forfeiture proceedings involves reading words into s.82(1),(1A) and (3) that just aren’t there. It also inolves reading s.82(1)(b) in a way that is contrary to its meaning. Section 82(1)(b) makes clear that a fixed-term tenancy can be ended by the execution of a possession order in exactly the same way as a periodic tenancy. There is nothing within sections 83 or 84 which requires that the fixed-term tenancy has been ended by forfeiture first. Nor does it say that the fixed-term must be ended first. If it did, then surely s.82(1A)(1) could only apply to a periodic tenancy. This reinforced by s.82(3). As i read it, s.82(3) is merely prohibiting a landlord from termiating the tenancy and recovering possession by forfeiture alone. A landlord remains free to exercise their right to forfeit the lease, and thereby ending the term, but the result of doing so is that a periodic tenancy arises which must itself then be determined.

      Secondly, given that it is possible to terminate a fixed-term by obtaining and executing a possession order, it must also follow that a fixed-term tenancy is subject to termination if it makes provision for it to be ended by the landlord obtaining a possession order under s.84. It is entirely artificial – and more importantly not what s.82(1)(b) says – for the termination to be by way of a commobn law method as opposed to as under the Act.

      Finally, although not necessariyl determinative, this also accords with how the HA 1988 works. Under s.7(6) there is no reqirement that a fixed-term assured tenancy should have a forfeiture clause. It must simply make provision for it to be brought to an end on the ground in question, which can be by way of a right of re-entry or otherwise.

      Reply
      • Giles Peaker

        I don’t think the ‘parallel’ forfeiture claim issue was addressed in the judgment, as it did not have to be. The point was, quite simply, that absent a forfeiture clause or break clause, the fixed term did not fall under s.82(1)(b).

        The parallel with HA 1988 doesn’t really work as HA 1988 expressly excludes forefeiture.

        Reply
        • Sam

          Re the parallel forfeiture point, she did decide it (at the end) I raise it because I know Andrew was of of the view that the fixed-term had to be determined under subection 3 before a possession order could be made and it appears from the judgment appears to be how the point was argued by Justin (but he will no doubt correct me!) Indeed, as I understand it, that was almost certainly the law before s.82 was amended (and hence why the prescribed nosp says what it says). My view has always been that after the amendment in 2004, it didn’t seem to reflect what the section said.

          I can see the force in the point she actually decided, but (as I said above) it is artificial. The section doesn’t say that and while that is presumably what was intended to have been meant in 1985, once the methods of terminating a fixed-term were extended in 2004 (to include a possession order) it is hard to see why “subject to determination” cannot include by a possession order. It is why the “parallel forfeiture” point is, I think, so important to the decision.

        • Giles Peaker

          At 61. ? Obiter, I think. Didn’t need to be decided, in view of the finding on the effect of there being no forfeiture or break clause.

          I don’t think the s.81(1)(b) point is artificial. Your version becomes circular, doesn’t it? ‘I can use 81(1)(b) to end the tenancy, because the tenancy can be determined during the fixed term, because I can use 81(1)(b).’

        • J

          Yes, I adopted the Dymond line in full. After all, he is a god-like genuis.

  2. Sam

    It is definitely circular. But I don’t see that is a problem given that the Act permits determination of the tenancy in that way. It is slightly odd if the Act says you can determine a fixed-term in this way (i.e. possession order) but if you say so in the tenancy that doesn;t equate to it being subject to determination? ,

    I also don’t see how it sits with this conclusion she made at [50]

    “For my part, I do not find this a surprising conclusion [i.e. the need for a forfeiture clause]. This is because it is simply a reflection of the terms agreed between the parties in their fixed term tenancy agreement. They have agreed a tenancy for a fixed term without any provision for it to be determined before the end of the fixed term”

    That isn’t what they agreed at all. They agreed it could be ended by a possession order.

    Will have to see if appealed (will probably depend on how many of these tenancies are left for Croydon to care about). But if it is appealed, I don’t think this is the last word.

    Reply
  3. Giles Peaker

    Council now granted permission to appeal to Court of Appeal.

    Reply
    • J

      Hearing late December 2020

      Reply

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