Chrisdell Ltd v Johnson and another

Rent Act 1977 — Order for possession — Breach of term of agreement prohibiting assignment, subletting or parting with possession of premises or any part thereof — Whether breach waived by landlords — Issue as to whether landlords had actual knowledge of the breach at the date when they accepted rent — Appeal against decision of assistant recorder granting landlords order for possession — Tenant of maisonette was an American citizen engaged in the film industry whose work necessitated absences from the United Kingdom — In fact he went to the USA in 1977 and had not returned since then — Having been refused consent to assign his tenancy, which was subject to the Rent Act, he made the arrangements which gave rise eventually to the present proceedings — Documents purporting to be an agreement between the tenant and a lady who was engaged as a housekeeper at the premises also recorded the payment by her of £3,000 for unspecified items and an undertaking to pay £35 per month for ‘the use and deterioration of the furniture, fittings, domestic appliances etc’ — (The assistant recorder found in due course that in fact he sublet the premises to the lady in question, who was the second defendant in the action for possession) — The landlords or their agents were suspicious as to the nature of the occupation, thinking that an unlawful assignment might have been made, but, in view of letters received by the agents from the tenant and his solicitors, they decided that they might not be able to disprove in court the story that he had engaged a housekeeper to supervise the maisonette — In fact no proceedings were taken for another eight years, until new landlords looked into the matter and decided that the purported arrangement was a sham — It was now submitted on behalf of the respondent occupier (the second defendant below) that the landlords had, by not taking proceedings after knowledge of the subletting, and by continuing to accept rent, waived the breach — Held, upholding the decision of the assistant recorder, that they had not done so — The failure to take proceedings was because the landlords feared that the tenant’s explanation of the sham might well be accepted by a judge; this could not be regarded as a waiver of their rights — Appeal dismissed The following case is referred to in this report. Oak Property Co Ltd v Chapman [1947] KB 886, CA This was an appeal by Mrs E M Tickner against a decision of Mr Assistant Recorder Cowell, at Wandsworth County Court, granting possession of premises at 6A Galesbury Road, Wandsworth, London SW18, to the owners, Chrisdell Ltd, the present respondents. Philip Walter (instructed by Sampson Parker & Co) appeared on behalf of the appellant; Edward Bailey (instructed by Asher Fishman & Co) represented the respondents. Giving the first judgment at the invitation of Lloyd LJ, GLIDEWELL LJ said: This is an appeal against a decision of Mr Assistant Recorder Cowdell, who gave judgment in Wandsworth County Court on April 11 1986 in favour of the plaintiffs, Chrisdell Ltd, against both defendants, Mr Johnson and Mrs Tickner, for possession of premises at 6A Galesbury Road, Wandsworth. The premises consist of a maisonette, that is to say a two-storey flat, behind and above a shop. They were formerly owned, it seems, by a Miss Runcieman. After her death her executors let the premises on November 1 1974 to the first defendant, Mr Johnson, for three years from August 19 1974. When that term expired he remained as tenant and the executors (who still owned the property) entered into a new agreement for a tenancy with him. That term was for three years from November 28 1977. By clause 5 of that agreement it was provided: ‘The tenant shall not assign or sublet or part with possession of the premises or any part thereof.’ Mr Johnson is an American citizen who, at least at that time, was working in the film industry. It is common ground that his job frequently took him out of the United Kingdom. At some time later in 1977, or perhaps very early in 1978, he went to the United States of America and it seems that he has been there since; at any rate, the evidence is that he has not returned to London. Very shortly after the new agreement of November 1977 was entered into, on December 6 solicitors acting on behalf of Mr Johnson wrote to the landlords’ solicitors saying: Due to immediate business commitments out of this country our client has found it necessary to apply for an assignment of his tenancy. We shall therefore be pleased to hear from you in writing that your client will have no objection to such assignment. Putting it in that way I have rather contracted matters, because the solicitors had first of all written to the agents for the landlords and then they repeated that request to the solicitors for the landlords. Consent to assignment was refused and it was pointed out, though the actual wording of the clause was not spelled out, that there was no right to assign in the tenancy agreement and, indeed, there was express prohibition. I should have said that the assignment proposed was to a lady called Mrs Saoud, who appears at that stage in the story but promptly disappears and does not re-emerge. Shortly after the refusal of consent to assignment, on December 19 1977, two documents came into existence which together purport to constitute an agreement between Mr Johnson and the present second defendant Mrs Tickner. The essence of the agreement was that he engaged her as his housekeeper to ensure the security, and supervise the premises at 6A Galesbury Road, London SW18 of which Mr M P Johnson is the legal registered tenant. The documents — which differ slightly in their wording, one being signed by him and one by her — record that Mrs Tickner had paid Mr Johnson the sum of £3,000 for some unspecified items, and by the agreement she further undertook to pay £35 per month for ‘the use and deterioration of the furniture, fittings, domestic appliances etc’. The landlords’ agents, Bell & Co, discovered early in January 1978 that Mrs Tickner was in occupation. Before they did discover that, they had apparently received — because they produced from their file — a letter signed by Mr Johnson dated December 20 1977 which contains the phrase: As I am going away for a while again, please mark correspondence for the attention of Mrs Tickner, as she will be supervising the flat while I’m away and she can arrange for the workmen to come in. ‘Supervising the flat’ might mean that she was going into occupation, it might not. On January 4, Bells wrote two letters to the landlords’ solicitors (who, incidentally, were in South Shields on Tyneside). The first letter was concerned still with the request for an assignment and was recommending refusal of the consent to assignment. That had really already been overtaken by events. But the second letter is vital in this case. It reads as follows: Since typing the first letter we discovered by chance that Mr Johnson has left the flat, but not before taking a premium from a Miss Tickner who is now in occupation it should be Mrs Tickner, I understand and we have already taken the liberty of explaining to her that we shall shortly be commencing action to gain possession of the flat. We trust this to be in order and, if so, will you be acting or shall we instruct the local firm of solicitors who deal with the majority of our county court actions. When we spoke to Miss Tickner she said that it was done so with the knowledge of Mr Johnson’s solicitors. We would also advise whilst writing that the rent is currently being paid by Mr Johnson by way of standing order. That letter coincided with a telephone conversation between a gentleman called Bevan in Bells and Mrs Tickner in which he asked her — having had some cause to understand that this was the case — whether she had paid anything to Mr Johnson and, according to the finding of the learned assistant recorder, she told him she had paid £3,000. He came to the conclusion that that probably suggested an assignment to her and that this was a premium for the assignment. I say that because, of course, up to that stage assignment was the issue that Bells were concerning themselves with and which Mr Johnson had sought consent for. It is quite clear that immediately following the telephone conversation with Mr Bevan Mrs Tickner was much concerned, and not unnaturally concerned, that she should not be evicted from the property in which she had just gone to live. She sent a cable to Mr Johnson in California which resulted in Mr Johnson writing a lengthy and, I think it not improper to say, somewhat vituperative letter to Bells in which he set out in detail what he said the position was. The beginning of it dealt with the earlier part of his occupation as tenant. It said that a Mr Eritreo had been acting, in effect, as housekeeper, but that his plans had changed and he had left the flat. Mr Johnson then referred to the fact that the next-door property had been badly vandalised when it was standing empty a year or so ago, and he went on as follows: I wrote to Mr Bevan and advised him that during my next absences Mrs Tickner would be there to supervise the flat, and to mark any correspondence for her attention so the matters — including the damp — could be dealt with promptly. Mrs Tickner took over where Mr Eritreo left off at the beginning of this month and I had to travel over here to the States where I shall be for some time. So what was there said was that he had now engaged a new person to supervise the flat, namely Mrs Tickner. Then he referred to the telephone conversation between Mr Bevan and Mrs Tickner. He said: Mr Bevan was quite objectionable to her, saying that she had no right to be there, and he was going to evict her if she wasn’t out in 10 days — not only that, but he said that as I spend so much time away I MUST GIVE UP THE FLAT! It was at that point that his language lapsed from that which was strictly necessary in order to deal with the situation. But he made it entirely clear that he was saying that he continued to be the tenant and there was no reason why Mrs Tickner should not continue to act as she was doing and that the harassment of her, as he described it, must stop. He said at the end of that letter that he was sending a copy of it to his solicitors in London, and Mrs Tickner said in evidence in the county court that she received a copy too. He must not only have sent a copy of the letter to his solicitors but also have got in touch with them on the telephone, because the very next day, January 10, Mr Johnson’s solicitors wrote to Bells as follows: We understand from our client, who is at present on business in the United States, that you have served Notice to Quit on his Housekeeper. Firstly, any Notice to Quit should be served upon Mr Johnson, and secondly, you have no grounds for serving Notice to Quit as Mr Johnson is still the tenant, and you are well aware that his business trips take him out of the United Kingdom for considerable periods of time, and he is unwilling to leave the flat untenanted. He has done this before and left a friend in possession, and we should be pleased to know upon what grounds you are seeking now to terminate the tenancy. So far as the material before us goes, there was no answer to that letter nor, indeed, to Mr Johnson’s letter of January 9. However, no proceedings were commenced against either Mr Johnson or Mrs Tickner at that stage and, as I shall shortly say, no proceedings were commenced for some eight years thereafter. Before I go on to the further history I must say something about the position under the Rent Acts. As is well known, a contractual tenant of premises that come within the protection of the Rent Acts, provided that he is in occupation of the premises, is entitled when his contractual tenancy comes to an end, whether by effluxion of time or as a result of notice to quit, to continue in occupation as a statutory tenant. Occupation for this purpose, as a result of a long series of decisions of this court, comprehends not merely the physical presence of the tenant but also his occupation by means of some other person or persons coupled with an intention on his part to return. For instance, to take an example which has nothing to do with this case, if a husband is the tenant of premises within the Rent Acts and he goes abroad to work under a contract which keeps him out of the United Kingdom for many months at a time, but his wife remains in the premises, then he will be a statutory tenant because his occupation through his wife will continue. What Mr Johnson was clearly saying, in effect, and his solicitors were saying in the two letters to which I have referred, was that though for the time being he was not physically present in the flat, by leaving his furniture there and by having Mrs Tickner there as his housekeeper he was continuing his occupation. What actually happened thereafter was that Mr Johnson did not come back and the assistant recorder has found that in fact he sublet to Mrs Tickner, so he implies a finding that he never intended to come back. However, it was not an assignment; there is a clear finding of a subletting and there is no cross-appeal against that. So far as the rent is concerned, Mrs Tickner paid what was originally £35 a month, which gradually increased as the rent charged to Mr Johnson by the landlords increased, into a bank account maintained by Mr Johnson in this country. Mr Johnson had a standing order out of which payments were made to the landlords’ agents as the rent. When the second three-year tenancy agreement expired in November 1980 it was not renewed. All parties are agreed that if Mr Johnson was still in occupation, he was entitled to become, and then did become, the statutory tenant of the premises. Thereafter the rent continued to be paid on his behalf in his name in the way I have described and the correspondence bundle includes a series of letters from the landlords’ agents of March 1983, 1984 and 1985 addressed to Mr Johnson advising him that the rates have been increased and referring to the property as ‘the property you occupy’. So on the face of it the landlords’ agents were accepting that Mr Johnson was in occupation of the premises right up to 1985. In that year the present plaintiffs, Chrisdell, purchased the freehold of the premises. The transfer of title was effected on November 18 1985. At about that time Chrisdell came to know of Mrs Tickner’s presence at the premises. Until that time they merely knew that they were buying premises tenanted by a Mr Johnson. The plaintiffs’ managing director went to see Mrs Tickner. He gave evidence in court that she showed him the two documents dated December 19 1977. He concluded, correctly, that those documents were a sham and that she was indeed not the housekeeper but was in occupation of the premises. Thereafter the present plaintiffs did not accept any rent either from her or from Mr Johnson and they started the present proceedings for possession. The plaintiffs’ case in essence is this: Johnson having sought consent to assignment and being refused entered into this sham agreement with Mrs Tickner. He then departed for America and has not been in physical occupation or in notional occupation of the premises at any time since the end of 1977. He had a three-year tenancy agreement and that agreement ran its course because he continued to pay the rent. He was, however, in breach of the clause prohibiting subletting, but the landlords did not take proceedings based upon that breach because of the explanation he had given to them which — and there is no clear evidence about this, but it must be inferred — they decided that they might not be able to disprove what he said. Accordingly, the landlords say, it was not until the present plaintiffs became owners of the property and gained the knowledge from the interview with Mrs Tickner to which I have referred in November 1985 that the plaintiffs were in a position to take proceedings for possession. The case for Mrs Tickner is, on the contrary, that the landlords’ agents, Bell & Co, in December 1977 and January 1978 were in full possession of all the facts necessary to enable them to infer that there had indeed been a subletting to Mrs Tickner. That subletting was a breach of the tenancy agreement. By taking no proceedings once they knew those facts and by continuing to accept rent thereafter, the landlords at that time waived the breach. Thus Mrs Tickner became a lawful, not an unlawful, subtenant. As such, when the contractual tenancy of Mr Johnson came to an end in November 1980 she became entitled to the benefit of section 137(2) of the Rent Act 1977, which provides: Where a statutorily protected tenancy of a dwelling-house is determined, either as a result of an order for possession or for any other reason, any subtenant to whom the dwelling-house or any part of it has been lawfully sublet shall, subject to this Act, be deemed to become the tenant of the landlord on the same terms as if the tenant’s statutorily protected tenancy has continued. Mr Johnson has taken no part in these proceedings. The case for the second defendant, Mrs Tickner, is thus that since November 1980 she has been the statutory tenant of these premises and since no ground is alleged for dispossessing her and no breach is alleged against her, a possession order cannot properly be made against her. That was the case argued before the assistant recorder and it is the case argued before us. What it turns on is whether or not the landlords back in January 1978 waived the breach of the tenancy agreement by Mr Johnson. I break off to say that there has been some discussion before us as124 to how far Mrs Tickner was a party to the sham agreement. The learned assistant recorder concluded that having had a copy of Mr Johnson’s letter of January 9 1978 she, by her silence, concurred in it and did not disabuse the landlords of the impression that letter gave them. But for my part I do not think that matters. What matters in my mind is whether the landlords waived the breach by Johnson at that time. He was their tenant. That there was a breach the assistant recorder has found, as I have already said. So the question comes down to a narrower compass and it is the question to which the learned assistant recorder properly directed his mind: did the landlords know the facts which established that Johnson was in breach? We were referred to only two authorities which were of any assistance, though there are none which are upon the facts close to those of the present case. The only one to which I think it necessary to refer is the decision of this court in Oak Property Co Ltd v Chapman [1947] KB 886. At p 898 Evershed LJ, giving the judgment of the court although it was read by Somervell LJ, said this: By the common law, which tended to construe forfeiture provisions as effective to render leases voidable and not void, a landlord was bound as soon as he was fully aware of a non-continuing breach of covenant by the tenant entitling the landlord to avoid the lease, to elect at once for or against avoidance, and to notify the tenant if he made the former election. On this principle acceptance of any rent accrued due after the landlord’s knowledge of the tenant’s breach was regarded necessarily as inconsistent with an election to avoid the lease and consistent only with its affirmance. The acceptance of the rent being, in the circumstances, an unequivocal act, waiver of the breach followed. I need read no more. So the issue is, on the words of that quotation: were the landlords fully aware of the breach of covenant by Johnson?  The evidence is, as I have said, that Mr Bevan of Bells on behalf of the landlords knew on January 4 that Mrs Tickner had paid a sum of money which he suspected (accurately) was a premium to Mr Johnson. He had ascertained, and the judge found that he knew, that she had paid £3,000. He had advised her to try to get the money back from Johnson. On the other hand, she was content that the explanation which Johnson gave should be that which the landlords should accept and, according to the assistant recorder, ‘she always told them that she was looking after the property’. The learned assistant recorder answered the question about knowledge in this sense — and I am going to alter one date in what I read, because it is agreed that he inadvertently gave a date slightly wrong: Did the landlord have knowledge?  I find that the landlord did not have knowledge because of the contents of the letter of January 9 1978. There is a heavy burden on a defendant if he alleges knowledge if he represents the contrary to be the case. Mrs Tickner was content to go along with the representation. The phrase ‘there is a heavy burden on a defendant if he alleges knowledge if he represents the contrary to be the case’ is a reference to Mr Johnson’s letter in which he sought to persuade the landlords, through their agents, that indeed he was not in breach, that he continued in occupation and that Mrs Tickner was merely his housekeeper. That is a clear finding by the assistant recorder that though the landlords undoubtedly had material which caused them to suspect that there had been a breach — they were really thinking of a breach by assignment; for this purpose it does not, perhaps, matter whether it was assignment or subletting — nevertheless, when they got the letter from Johnson, and I would add when they got the second letter from his solicitors, they must have been in a state of mind where they concluded that they could not prove a breach. I put it in that way because they had been threatening to take proceedings for possession up until January 4 1978. To my mind the only explanation for their failure to take those proceedings is that they took the view that in those proceedings they might well fail because Johnson’s explanation might well be accepted by a judge. If that is correct, I do not myself see how it can be said that the landlords had waived the right they had. If a landlord receives a representation from his tenant which, if true, means that there has been no breach and if the landlord, not being sufficiently confident of the untruth of what the tenant says, decides not to take proceedings but proceeds on the basis that what the tenant says is true, then, in my judgment, it cannot later be said that he knew all the necessary facts to establish a breach. Mr Walter, who has argued the case for his client with clarity and skill, submits, as indeed he was bound to submit, that the material before the landlords’ agents (an experienced firm of agents) was such that they really could only have come to the conclusion that what Johnson said was not true. What he is saying is they must have concluded that the letter of January 9 was a lie. The assertion about Mrs Tickner being a housekeeper the assistant recorder has found was a lie. Having concluded that it was a lie, they waived the breach by not taking action. Where I do not accept Mr Walter’s argument is that I do not conclude that Bells must have concluded that Johnson was lying. I am supported in that, as I say, by the letter from the solicitors. When they received not merely a letter from Johnson himself but a letter from the solicitors setting out the same story it would, in my view, have been bold action on their part then to have said ‘We don’t believe a word of what you say, we propose to seek possession from your client for breach of the term of the lease’. In my judgment, the learned assistant recorder asked himself the right question. There was evidence upon which he could come to the conclusion to which he did come, and in my view it was a correct conclusion. The evidence does not establish that back in 1978 the landlords did have knowledge which justified them in saying that Johnson was lying and thus they did not waive the breach by him. Accordingly, and for those reasons, I would dismiss this appeal. Agreeing, LLOYD LJ said: I would only draw attention to the fact that the manuscript letter of December 20 1977 was written by Mr Johnson on the day after he entered into the sham agreement with Mrs Tickner. It is clear to my mind that it was all part and parcel of Mr Johnson’s plan to deceive the landlords. Mr Walter, on behalf of Mrs Tickner, submitted that Mrs Tickner was not a party to the deception. He accepts that she received a copy of Mr Johnson’s letter of January 9 1978, but he says that it is not surprising that she did not attempt to contradict the impression created by that letter because, says Mr Walter, Mrs Tickner was altogether out of her depth. But the outcome of this case — and it is important that Mrs Tickner should appreciate this — does not depend on whether she was a party to the deception. It depends simply on whether the landlords had actual knowledge of the breach by Mr Johnson of clause 5 of the tenancy agreement when the landlords accepted rent. It is true that they knew of the payment of £3,000 by Mrs Tickner to Mr Johnson. But in the light of Mr Johnson’s letter of January 9 1978, and more particularly in the light of Mr Johnson’s solicitors’ letter of January 10 1978, I am quite unwilling to draw the inference that the landlords knew of the breach or knew of the facts which constituted the breach when they accepted the rent. For those reasons, like Glidewell LJ, I would dismiss the appeal. The appeal was dismissed and possession ordered within four weeks of date of judgment.