Rowe v Truelove

Possession of rent-controlled flat really required by landlord to enable him to sell property and meet his debts–Not ‘reasonably required’ for own occupation–Question of landlord’s prospects and their relevance to his claim This was an appeal by Lewis Denton Rowe and his wife, Barbara Olwen Rowe, from a judgment of Judge McDonnell at West London County Court on June 19 1975 dismissing their claim against the respondent, Herbert Hallworth Truelove, for possession of the second-floor flat at 55 Eaton Place, London SW1. R Fernyhough (instructed by Clintons) appeared for the appellants, and R Pryor (instructed by Macfarlanes) represented the respondent. Counsel for the respondent was not called on by the court. Giving judgment, CAIRNS LJ said: This is an appeal from a judgment of His Honour Judge McDonnell given at the West London County Court on June 19 1975 dismissing a landlord’s claim for possession. The learned judge expressed at the end of his judgment his sympathy for the landlords and his reluctance to dismiss this claim for possession. I share the feelings of the learned judge. If it were possible so to construe the law and to apply the evidence as to say that the judge ought to have been satisfied that the landlords were entitled to possession, I should be very happy.47 But notwithstanding the sustained argument of Mr Fernyhough on behalf of the plaintiffs, I have regretfully come to the conclusion that the judge’s decision must be upheld. The premises of which possession was sought were a second-floor flat at 55 Eaton Place, London SW1. The leasehold of that flat had been purchased in 1970 by a company, Trenbans Investments Ltd, of which the two plaintiffs are the shareholders. The plaintiffs are husband and wife. Whether it was necessary to join the wife as a plaintiff is open to question, and if in the course of this judgment I refer to ‘the plaintiff,’ I mean by that Mr Rowe. The leasehold having been bought by the company, there was a sublease to the plaintiffs for eight years of the second, third and fourth floors of the house. The second floor has been conveniently called ‘the flat,’ the third and fourth floors being referred to as ‘the maisonette,’ and that is the language which I shall use. The flat consists of a sittingroom, bedroom, kitchen and bathroom. The maisonette is much more spacious, having a drawing-room, a dining-room, three bedrooms, a kitchen and two bathrooms. To start with the plaintiffs went to live in the flat while the maisonette was made habitable for them. Then towards the end of 1971 they moved with their two sons into the maisonette, and by a lease of the flat dated October 5 1971 a term of three years from September 29 at a rent of £850 a year was granted to the defendant. He is a Sheffield businessman who, for convenience of his business, wanted to have a pied-a-terre in London and took this flat on lease from the plaintiffs. At that time, in 1971, in Greater London a house or flat was protected under the Rent Act 1965 if the rateable value on March 23 1965 was less than £400. The rateable value of this flat at that date was £472, and therefore the defendant was not at that stage a protected tenant. However, his lease did not expire till September 28 1974. In the meanwhile, the Counter-Inflation Act 1973 had come into force, and by section 14 of that Act the critical rateable value was raised to £1,500. The rateable value of the flats had by then risen to £742, but that being less than £1,500 meant that this had become a protected tenancy. Mr Rowe, the plaintiff, is a man who has unfortunately in recent years got into financial difficulties. He is a director of a company in the Imperial Group at a salary of over £7,000. In the early 1970s he had a mortgage on the maisonette of £11,000. He also borrowed £6,500 from his employers. Early in 1973 he was intending to make a change. He first had the idea of purchasing some land in Portugal and developing it. For that purpose he approached his bank to get a loan, and had the prospect of getting a loan, on the security no doubt of the deeds of the land in Portugal, of £32,000. However, that plan went off, and he entered into negotiation with a firm called London & Midland Industries Ltd with a view to being employed by that company; and it was apparently a condition of his being employed that he should take a substantial block of shares in the company. Accordingly he bought 36,000 shares at a price of 90p to 95p each, which meant that the amount he had to pay for them was about £32,000. He originally borrowed that money from his mother, but then got his advance of £32,000 from the bank, depositing the share certificates as security, and was able to repay his mother. So there he was landed with a debt, in addition to his previous debts, of £32,000 with the bank at a time when the rate of interest on overdrafts was high, and he became saddled with a liability to pay interest on that overdraft in a sum of over £5,000 a year. Then his prospects of a job with London & Midland Industries dissolved. Whether they decided that they did not want him, or he decided that he did not want to go there, does not appear, but he did not go on with that. He stayed with the Imperial Group. He then wanted to sell the shares. The shares dropped in value from a little under £1 each to 19p, and he sold them at that price, which meant that he got only some £6,000 for them. So by the end of 1974 he was in a really desperate position financially. He not only could not repay any substantial amount of the overdraft from the bank–he did repay part with the proceeds of the sale of the shares–but his other resources were such that he could not even pay the interest on the overdraft. In those circumstances, Mr Rowe decided that he would have to try to dispose of his interest in the house in Eaton Place. What he wanted to do was to sell the whole of that interest, and obviously he was going to get a much better price if he could get vacant possession of the flat. He would have been willing to sell the flat separately to the defendant if a satisfactory price could be arranged, and there were some negotiations between the plaintiff and the defendant towards that end. Alternatively, the plaintiff could have sold the whole of his interest at a much better price if he could get Mr Truelove, the defendant, out of the property. Letters were written in which the plaintiff intimated that if the defendant did not want to buy the flat, he wished the defendant to leave on the expiration of his lease in September 1974. The defendant then claimed that he was a protected tenant under the Rent Act. The plaintiff disputed that and brought proceedings in the county court for possession on the basis that it was not a statutory tenancy at that stage, the lease having come to an end. However, before the action came on for hearing the plaintiffs amended their particulars of claim to plead that in the alternative, if the defendant was a statutory tenant, the plaintiffs claimed possession under case 8 of schedule 3 to the Rent Act 1968, which provides that when a dwelling-house is reasonably required by the landlord for occupation by, among others, himself, that is a ground upon which possession may be ordered, subject to additional requirements with regard to greater hardship and reasonableness. The hearing of the action occupied three days before the learned county court judge. He reserved his judgment, and he prepared an exceedingly careful reserved judgment on the basis of which he dismissed the plaintiffs’ claim. He held that the defendant was a statutory tenant, and the plaintiffs had not made out their case under case 8 of schedule 3 to the Act. By the notice of appeal the finding that the defendant was a statutory tenant was challenged of the basis that his occupation of the flat was not such as to constitute the flat his residence. The evidence on the matter was, however, clearly such as entitled the learned judge to reach the conclusion that he was occupying the flat as his residence, and very sensibly and realistically Mr Fernyhough, on behalf of the plaintiffs, has not pursued that part of the appeal. He has however contended that, accepting the defendant as being a statutory tenant, the case under case 8 of schedule 3 has been made out and the judge ought to have made an order for possession accordingly. The issues are set out by the learned judge in his judgment at the foot of p 7, where he said: ‘There are therefore four issues for my determination, namely (1) whether the defendant is entitled to a statutory tenancy; (2) whether, if so, the plaintiffs reasonably require the flat for occupation as a residence by themselves; if so, (3) whether greater hardship would be caused by making an order for possession than by refusing it; and (4) whether in all the circumstances of the case it would be reasonable to make an order for possession.’  The judge answered the first question in favour of the defendant, but would have answered the third and fourth questions in favour of the plaintiffs. So it all depended upon whether he was satisfied that the plaintiffs reasonably required the flat for occupation as a residence for themselves. Putting it shortly, the conclusion that the learned judge reached was that they did not reasonably require the flat as a residence for themselves within the meaning of the statute, but that it was required with a view to the sale of the flat along with the maisonette in order to enable the plaintiff to pay off his debts. 48 I think it is convenient to read the passage beginning near the top of p 15 of the judgment of the learned judge, where he deals with the evidence as to the intention of the plaintiff about selling any part of his interest in the premises. The learned judge says: In October 1974 Mr Rowe sent to the defendant an undated letter saying that he had in his possession ‘a signed draft contract for the sale of my third- and fourth-floor maisonette and all that is required is for me to sign it; if, however, I sign the contract I shall need the second-floor flat for myself, as I shall have nowhere else to live, and in those circumstances it will not be available for sale to you.’  On November 12 1974 solicitors in Worcester acting for Mr Rowe wrote to the defendant stating that as he would require the flat ‘for his own family requirements’ they would be obliged to know how soon the defendant would be able to give up possession. On November 25 1974 Mr Rowe wrote to the bank stating that 55 Eaton Place was in the hands of agents to sell at the following prices: ‘3rd/4th-floor maisonette £60,000, 2nd-floor flat £40,000, rear extension £10,000, head lease £5,000, total £115,000.’ Then the judge explains the reference to the rear extension, and continues: The head lease had belonged to Tenbans Investments Ltd, and not to Mr Rowe. Mr Rowe has stated in evidence that the flat was not in fact on the market, and that this letter had been written ‘to paint as favourable a picture as possible.’  He agreed that a board had been displayed at the premises stating that the second-floor flat was for sale, but said that a year ago this had been taken down and replaced by a board stating that the third-and fourth-floor flat alone was for sale. According to his evidence the flat was originally offered for sale, but to quote his own words, it was ‘withdrawn because of today.’ The learned judge interpreted that as meaning ‘because of these proceedings.’  He (Judge McDonnell) then sets out the sundry liabilities of Mr Rowe, and continues in this way: Mr Rowe’s financial position is that he has debts amounting in all to about £47,000 and his only hope of payment is to realise the plaintiffs’ interest in 55 Eaton Place. There was no evidence as to the market value of the maisonette save that Mr Rowe had refused an offer of £45,000 at some time in 1974. The plaintiff’s evidence as to his need to recover possession of the flat run thus: ‘I only have 55 Eaton Place to pay off these loans. I can only pay them off by realising all three floors. The third and fourth floors are on the market. If I am able to sell the third and fourth floors for £45,000 we would have to try to find rented accommodation. If I had the second floor I would live in it. If I could get sufficient from the third and fourth floors to pay my debts I would live in the second floor. Otherwise I would have to sell the second floor as well.’  In cross-examination the plaintiff said that if he obtained an order for possession on the ground the the defendant was not entitled to a statutory tenancy he would sell whatever he could sell most quickly: ‘If someone offered to buy the third and fourth floors I would sell and move to the second floor. If someone offered to buy the second floor I would sell it.’ Mr Fernyhough has read to us some further passages from the evidence of the plaintiff in the context of the two passages that the judge quoted. It does not seem to me that these carry the matter substantially further. On pp 17, 18 and 19 of the judgment there are a number of passages which Mr Fernyhough criticises, and it will be convenient to go through those. The first is a sentence which runs as follows: I hold that to succeed a landlord must establish more than intention to occupy the premises merely temporarily, and must establish not merely that he intends to occupy the premises as a residence, but a reasonable prospect that he will be able and willing to retain the premises as his residence indefinitely.’ As I understand, Mr Fernyhough does not question that it is necessary, in addition to having an intention to occupy as a residence, that there should be a reasonable prospect of so occupying. Mr Fernyhough asked us to interpret the expression ‘reasonably requires’ as connoting an element of need. I do not find it necessary to go into that question. If it does include an element of need, I am quite willing to accept that for some purpose the plaintiffs had a need for the flat; it was not, as it has been put in some of the cases, ‘a mere whim or fancy’ that led them to want possession. What is mainly criticised in this sentence is that the learned judge was saying that the landlord had to be able and willing to retain the premises as his residence indefinitely. I should agree that if the word ‘indefinitely’ is to be construed as meaning that if the landlord had an intention of occupying the premises for a period of, say, 10 years, one could not say that because it was a definite period therefore he had not fulfilled the requirement of case 8. But I do not think the learned judge meant anything of the kind. What he did mean is quite clearly indicated by the following sentence, where he said: In my judgment if all he established is an intention to realise his interest in the premises as soon as he can and to live in the premises temporarily until he is able to do so, he is not entitled to succeed under case 8. That is the test which the learned judge applied in the latter part of his judgment, and it is one which to my mind is a perfectly apt test. The intention of case 8 is to enable a landlord to get possession of a dwelling-house when his purpose in doing so is not with a view to a sale of the house, but is with a view to his living there for some reasonable period, definite or indefinite. The learned judge then went on to say on p 18 of his judgment: Mr Fernyhough presented an attractive argument that Mr Rowe’s answers in the witness box were those of a harassed man, which I entirely accept, and that if the maisonette fetched £45,000 or thereabouts (less the costs of and incidental to the sales) he would be able to pay off sufficient to reduce his total indebtedness to £3,000 or thereabouts, and that this would be a manageable figure. Then a little later we come to another passage which is criticised: The difficulty about this argument is that it depends upon £45,000 or thereabouts being obtained for the maisonette in the very near future. Mr Rowe says that he refused such an offer in 1974 because he then had nowhere else to live. Bearing in mind that his employment requires him to be absent from London for long periods it might well have been prudent for him to have sought cheaper accommodation for himself and his family elsewhere. There was no evidence as to how serious the offer was or whether the offeror was in a position to pay the whole amount in cash. The restrictions imposed by the Finance Act 1974, section 19, schedule 1, part II, on relief from income tax in respect of loans exceeding £25,000 for the purchase or improvement of land must considerably affect the market value of properties for which sums substantially in excess of that figure are sought. One of the grounds of appeal in the notice of appeal was that the learned judge was not entitled to found upon that view of the effect of the Finance Act. That contention has not been developed today, and for my part I think that the learned judge, first of all, is bound to take into account the provisions of any Act of Parliament which he regards as being relevant, and secondly, is entitled as a matter of general knowledge to know what the effect of such an Act is, or is likely to be, upon prices. But what has been criticised is that the learned judge did not treat the offer of £45,000 as being any real guide to the price that the plaintiff could have obtained for the maisonette in 1975. It is said that the offer that was referred to by the plaintiff in a letter was one as to which there was no suggestion that it was not a serious offer, and that the plaintiff was not cross-examined to indicate that it was not. But the evidence as to this offer was meagre in the extreme. It was merely that the plaintiff said that he had had the offer. No evidence was put before the court in49 the shape of a draft contract. (I should have said that the plaintiff said there had been a draft contract), and certainly no evidence was put before the court that the person who made the offer was in a position to pay the whole amount in cash. As to that the learned judge goes on at the foot of p 18: There was no evidence whatever before me as to the sort of price which might be expected to be realised on a quick sale of the maisonette in 1975. That, indeed, was so: there was no evidence as to the price that would be raised at that time, and in the only way which would be useful to the plaintiff, for a quick sale. Then the judge says: Unless there is a real prospect of selling the maisonette for more than £35,000 the argument breaks down. I am not satisfied that there is a real prospect. I think probably that £35,000 is a slip or an error in transcription, and it ought to be £45,000. But whichever it may be, the judge, I think, on the evidence before him, was entitled to make the findings which he did in his next sentence: ‘I am not satisfied that there is a real prospect.’  Then he continued: Furthermore, I am of the opinion that a man in the financial circumstances of Mr Rowe cannot really afford to live in the flat. What I think Mr Fernyhough is justified in saying about that sentence is this: that if indeed the sale of the maisonette for something in the neighbourhood of £45,000 had been possible, then it could not be said that it was established that Mr Rowe could not reasonably afford to live in the flat. That may be so. But I do not regard this sentence about his not being able to afford to live in the flat as being really the basis of the final decision of the learned judge. That basis has already been provided in the previous sentence when he found that there was not a real prospect of making a sale: and indeed, Mr Fernyhough does reasonably concede that unless we are in his favour in regard to the finding that there was not a real prospect of selling at that price, then he cannot succeed on the basis of this sentence dealing with the ability to live in the flat. Then the learned judge said: I have therefore come to the conclusion that although the plaintiffs reasonably and indeed desperately require the flat, they require it to relieve the serious financial difficulties of Mr Rowe, and I cannot find that it is reasonably required by them for occupation as a residence for themselves. That is a finding of fact which, to my mind, it is quite impossible for this court to say that the learned judge was not entitled to arrive at. It is said by Mr Fernyhough that the judge wrongly took into account the element of time in relation to the residence in the flat. That, I think, in the circumstances of this case, was an element which it was proper to take into account. If the learned judge was right in saying that the aim was to get possession of the flat with a view to residing there only up to the time when a sale of it could be brought about, then I do not think that that amounts to requiring the flat for residence within the meaning of the case in the schedule. I think it right to read the next passage in the learned judge’s judgment. He says: I have reached this conclusion with great reluctance, since the result of this case must be that the defendant, who can well afford to find suitable alternative accommodation and pay for it from his own free resources, is enabled to retain possession of a flat let to him on a tenancy which was unprotected at its inception, and that the plaintiffs, who let that flat on an unprotected tenancy, are deprived of the opportunity of relieving their desperate financial need by the intervention of Parliament during the currency of the lease. However, on the evidence before me no other conclusion is possible, and therefore this action must fail. As I have already indicated, with equal feelings of reluctance I have reached the conclusion that this appeal must fail. SCARMAN LJ: I agree with the judgment of my Lord and do not wish to add anything. SIR GORDON WILLMER: I also agree. The appeal was dismissed with costs.