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27/03/2022

Fixed term secure tenancies and forfeiture

Croydon London Borough Council v Kalonga (2022) UKSC 7

In which the Supreme Court considered the position on termination of ‘flexible tenancies’ – fixed term secure tenancies – during the fixed term. We saw the Court of Appeal judgment dismissing Croydon’s appeal of the dismissal of its possession claim. Croydon then appealed to the Supreme Court.

As you may recall, Ms K had a fixed term flexible tenancy. Croydon had sought possession during the fixed term by serving a notice seeking possession on grounds 1 and 2 Schedule 2 Housing Act 1985. In the possession claim, Croydon had served a reply to defence stating that it did not rely upon forfeiture as a ground of possession.

The Court of Appeal had held that “the tenancy agreement lacked a provision for forfeiture, but its main ground for dismissing the appeal was that the only way in which a fixed term tenancy could be brought to an early end under the 1985 Act was by the use of a forfeiture provision to obtain a termination order in lieu of forfeiture, as provided by section 82(3). That required compliance with section 146 of the LPA and the giving of an opportunity to the tenant to obtain relief.”

The Supreme Court was asked to decide:

i) whether the existence of a provision for forfeiture in the tenancy agreement and its exercise by obtaining a termination order in lieu of forfeiture under section 82(3) of the 1985 Act is the only way in which a secure fixed-term tenancy can be brought to an early end, and,
ii) whether Ms Kalonga’s tenancy agreement contained a provision for forfeiture.

On i) in Lord Brigg’s lead (and sole) judgment, there are only two ways in which a fixed term secure tenancy can be ended during the fixed term (neither of which had been utilised by Croydon).

a) A break clause, express in the tenancy agreement, allowing the landlord to serve notice in exercise of the clause. Once this had been done, the fixed term remains, but it has now become “subject to termination by the landlord” for the purposes of section 82(1)(b) Housing Act 1985. At that point, the landlord could pursue possession proceedings for Schedule 2 Housing act 1985 grounds in the usual way. Indeed, for ‘management grounds’ such as Ground 10 (redevelopment), this is the only way in which possession could be sought during the fixed term, as no tenant default. If there is no break clause, this cannot be done.

b) Forfeiture (or rather seeking a termination order in lieu of forfeiture). This requires the presence of a forfeiture clause in the tenancy agreement (on which see below). For tenant default other than rent arrears or bankruptcy, it also requires service of a section 146 notice before proceedings.

As the forfeiture claim only serves to terminate a fixed term, and a periodic secure tenancy arises, it is also necessary to bring a possession claim on the statutory grounds at the same time or concurrently.

On ii) what amounts to a forfeiture clause is a matter of substance, not form:

This is because the classification of a termination clause as a forfeiture attracts what was originally the equitable remedy of relief from forfeiture. In the landlord and tenant context that remedy is now statutory (apart from forfeitures based on non-payment of rent), but its raison d’etre remains the same. The basis on which equity grants relief from the strict enforcement of a forfeiture is that it regards the forfeiture as only a security for the performance of an underlying obligation: see Shiloh Spinners Ltd v Harding (1973) AC 691, 723-724 per Lord Wilberforce, recently affirmed by this court in Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Co Ltd (2019) UKSC 46; (2020) AC 1161, para 17. See also, in the landlord and tenant context, Chandless-Chandless v Nicholson (1942) 2 KB 321, 323 per Lord Greene MR.

A working definition, from Clays Lane Housing Co-operative Ltd v Patrick (1984) 17 HLR 188, is

“We accept, for present purposes, the submission on behalf of the co-operative that a right to determine a lease by a landlord is a right of forfeiture if (a) when exercised, it operates to bring the lease to an end earlier than it would ‘naturally’ terminate; and (b) it is exerciseable in the event of some default by the tenant.”

Croydon’s tenancy agreement (or rather its accompanying booklet), contained the following:

“Reasons for seeking possession (on pp 3-4)

Following the review we will take action to end your tenancy and repossess the property if:

you have not kept to any of the conditions of the tenancy;

We may also take eviction action at any time (my underlining) if one or more of the grounds for possession set out in Schedule 2 of these conditions apply.

Details of various grounds followed.

For Lord Briggs, this was a clear forfeiture clause.

The terms of the tenancy agreement plainly entitle the landlord to go to court to seek possession “at any time” ie before the end of the fixed term if (inter alia) the tenant breached a term of the tenancy agreement. That the landlord could do so at any time is expressly stated in the un-numbered clause on pp 3-4, and it is implicit in clause 10. While it may be said that the “at any time” unnumbered clause is triggered by the statutory grounds for possession, grounds 1 and 2(a) in Schedule 2 reflect express obligations of the tenant, and are triggered by the tenant’s default. They are the only two grounds relied on by Croydon in the present case.
(…)
In my judgment all the repeated provisions in Ms Kalonga’s tenancy agreement by which Croydon could bring her fixed term tenancy to an early end by reason of conduct by her amounting to default are forfeiture provisions. They fall squarely within the forfeiture test in the Clays Lane case as a matter of substance, and she had a right under the general law to seek relief from forfeiture in respect of those defaults, a right of which the secure tenancy regime did not deprive her.

The key elements were the ‘at any time’ phrasing in the various clauses.

However, as Croydon had expressly stated in proceedings that it was not relying on forfeiture, the possession claim was rightly dismissed.

Comment

The ‘break clause’ element of this judgment may need further exploration, not least as Lord Briggs suggests that the inclusion of the non-tenant fault grounds in Croydon’s tenancy document “operate as a rather complicated break clause”.

The forfeiture requirement is pretty much as set out by the Court of Appeal. Croydon’s argument that section 82(1A) Housing Act 1985 presented a list of options, including seeking a possession order without forfeiture per se, was not successful.

The main difference is that Croydon’s tenancy terms were found to incorporate a forfeiture clause. Given that this relies very much on the ‘at any time’ wording of the clauses, it means that any other Council’s flexible tenancy agreements would need careful scrutiny to establish whether there was an operative forfeiture clause.

 

 

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.

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