Eyre and others v Hall and another

Rent Act 1977 — Bankruptcy Act 1914 — Lease vested in protected joint tenants — Bankruptcy of tenants — Lease vested in trustee in bankruptcy before end of fixed term — Trustee gave notice of disclaimer of lease — Position if disclaimer valid was that tenants lost their rights to protection and to a statutory tenancy on the expiry of the lease — Trustee was entitled to disclaim lease (on giving due notice) without the leave of the court if the property was burdened with onerous covenants — The tenants submitted in an action by the landlords for possession in the county court that the trustee’s disclaimer was invalid on the ground that the property was not so burdened — Judge accepted tenants’ submission and held that the disclaimer notice was null and void — Held on appeal that the judge was in error — The lease in question was a very stringent one with an absolute prohibition on assignment and subletting and a restriction on use to a dwelling-house — It contained full repairing obligations on the tenants and included a covenant to deliver up the premises in good repair and to paint the exterior and interior in the last three months of the term — This was a lease which the trustee in bankruptcy was entitled to disclaim — Contrary to the judge’s ruling, the disclaimer was valid and the tenants had no answer to the landlords’ claim for possession — This was clear from Smalley v Quarrier and earlier cases — Even if the disclaimer had been invalid, however, the tenants would have had no answer to the claim, as in that case the lease would have remained vested in the trustee until it expired by effluxion of time shortly after the date of the notice of disclaimer — Landlords’ appeal allowed — Per Dillon LJ: The appropriate tribunal to give a ruling on the validity of a disclaimer where the question depends on matters of fact is the bankruptcy court. It is unsatisfactory to do so in proceedings to which the trustee is not a party. The following cases are referred to in this report. Jowitt (Earl) v Von Dembinska (1954), unreported, CA Mercer and Moore, Re (1879) 14 ChD 287 Metropolis Estates Co Ltd v Wilde [1940] 2 KB 536 Reeves v Davies [1921] 2 KB 486 Smalley v Quarrier [1975] 1 WLR 938; [1975] 2 All ER 688; (1975) 30 P&CR 419; [1975] EGD 363; 235 EG 211, [1975] 2 EGLR 35, CA This was an appeal by landlords, the trustees of the Eyre Estate in St John’s Wood, London NW8, from a decision of Judge Brooks in the Bloomsbury County Court, in proceedings by the landlords as plaintiffs for possession of a dwelling-house known as 10 St John’s Wood Terrace and 7 Charles Lane, NW8. Judge Brooks decided in favour of the tenants, the present respondents, Anthony George Barton Hall and his wife, Victorine Barton Hall. A E Radevsky (instructed by Lee & Pembertons) appeared on behalf of the appellants; R G Kaye and Miss E J McNeill (instructed by Williams & Rees) represented the respondents. Giving judgment, DILLON LJ said: This is an appeal by the plaintiffs in the action, the trustees of the Eyre Estate in St John’s Wood, against a decision of His Honour Judge Brooks given in the Bloomsbury County Court on November 28 1985. The matter arises in this way. On September 21 1978 the plaintiffs, or their predecessors as trustees, granted to the defendants in the action, who are the respondents in this appeal, Mr and Mrs Barton Hall, a lease of a dwelling-house known as 10 St John’s Wood Terrace and 7 Charles Lane, at St John’s Wood, being part of the Eyre Estate, for a term of seven and a quarter years from June 24 1978 at a rent initially of £2,000 a year and subsequently increased on review, payable by equal quarterly payments in advance on the usual quarter days and subject to the covenants in the lease, to some of which I shall have to refer. On August 6 1984 a receiving order in bankruptcy was made against the defendants. In due course thereafter they were adjudicated bankrupt, and on January 10 1985 Mr Porter, a partner in the firm of Deloitte Haskins & Sells, was appointed their trustee in bankruptcy. It is common ground that on that appointment the unexpired term of the lease vested in the trustee and was thereafter no longer vested in the defendants. It will be appreciated from the dates I have already given that the lease fell to expire at the Michaelmas quarter day in 1985. The rateable value of the premises was within the limits of the Rent Acts, and accordingly if the lease expired while the defendants were the tenants under the lease they would thereafter hold over as statutory tenants. However, on February 7 1985 the trustee gave notice of his intention to disclaim the lease and on August 21 1985 the trustee disclaimed the lease under section 54 of the Bankruptcy Act 1914. That section provides that, where any part of the property of a bankrupt consists of inter alia land of any tenure burdened with onerous covenants, the trustee may, by writing signed by him, disclaim the property. Subsection (3) provides that: A trustee shall not be entitled to disclaim a lease without the leave of the court, except in any cases which may be prescribed by general rules. It is common ground in the present case that under the general rules, rule 278 of the Bankruptcy Rules 1952, the trustee was entitled to disclaim the lease, if it was land burdened with onerous covenants, without the leave of the court provided he served such a notice of his intention to disclaim as he did in fact serve. The trustee disclaimed the lease, as I have said, on August 21 1985, and on October 17 1985 the plaintiffs served their particulars of claim in these proceedings, claiming as against the defendants possession of the premises together with damages for trespass, that is to say, mesne profits at the rate of the rent which was payable under the lease after the review. The particulars of claim recited the plaintiffs’ ownership of the property and their entitlement to possession, the terms of the lease, the appointment of the trustee and the notice of disclaimer. When the action came on for hearing before Judge Brooks in the county court the defendants’ counsel challenged the validity of the disclaimer. She submitted that this was not land burdened with onerous covenants, or at least there was no evidence that it was, and therefore the disclaimer was a nullity. The learned judge obviously had great sympathy with the defendants. The evidence of the plaintiffs’ own surveyor was that the defendants had complied with the list of dilapidations which had been attached to the lease and|page:96| which they had to carry out within, I think, six months of the commencement of the term, and that they were considered to be good tenants who had complied with the covenants in the lease, though he had not inspected the property. The first defendant, after saying that he had lived in the house for seven years, said that he had spent £3,500 to £4,000 in carrying out the original dilapidations. The judge yielded to the persuasion of both counsel that he should decide whether the disclaimer was valid or not, and he said that there was no evidence before him to suggest that this property was burdened with onerous covenants. He therefore found that the disclaimer notice was null and void and accordingly dismissed the plaintiffs’ claim for the possession, albeit without costs, as the defendants’ argument was only raised for the first time on the morning of the trial. The plaintiffs now appeal. The provisions of section 54 (that a trustee may disclaim any part of the property of the bankrupt consisting of land of any tenure burdened with onerous covenants or the other matters there mentioned) have been part of bankruptcy law certainly since 1869. There is authority on the general intendment of those provisions in the case of Re Mercer and Moore (1879) 14 Ch D 287. There Sir George Jessel had to consider freehold land subject to a fee farm rent which was burdened with covenants which restricted the user of the land and did not allow trades to be carried on, limited the number of dwelling-houses that could be built, and required certain parts of the land to remain open and unbuilt upon. In considering that this land, subject to these covenants, was plainly onerous, Sir George Jessel took into account that the trustee might well have said: It is not worth the rent and there are all sorts of covenants attached to it, so that if I take it I shall be liable to all sorts of actions for allowing things to be done. I will have nothing to do with it, it is of no value, and I want to get rid of it. He considered also as making the land onerous (and it is an aspect of the same point) that, if the covenants were broken, the trustee could be sued for allowing them to be broken or that actions might lie against him for an injunction. In the present case the lease is very stringent. I pass over the covenant for the payment of the rent, because that was payable in advance and it seems therefore that, by the time of the disclaimer, the rent up to the end of the contractual term had already been paid. The lease was of no value to the trustee because the covenants included an absolute prohibition on the assignment or subletting of the premises or any part thereof. Furthermore, it restricted the use of the property to use as a dwelling-house. It contained full repairing obligations on the defendants and included a covenant to deliver up the premises in good repair at the end of the term, and it also included a covenant in the last three months of the last year of the term to paint the interior and exterior of the premises. It seems to me that that is a lease which is on its face onerous and which the trustee was entitled to disclaim, as he might otherwise have been held liable for breach of the covenants as to repairs and painting. The abnormally brief note of the judge of the evidence, to which I have already referred, cannot of course be read as indicating that all the covenants had been complied with to the extent that the covenant for delivery up in good repair had also been complied with and the covenant for painting in the last three months. Therefore, on the face of it, as it seems to me, without any further evidence, the judge was not entitled to rule that the disclaimer was a nullity. Apart from that, I do not regard it as satisfactory that there should be a ruling on the validity of a disclaimer by a trustee in bankruptcy in proceedings to which the trustee is not a party in circumstances where whether or not there has been a disclaimer is said to depend on matters of fact. There may indeed be cases such as Metropolis Estates Co Ltd v Wilde [1940] 2 KB 536 where it was obvious that a purported disclaimer by a trustee was a nullity as in the circumstances the leave of the court was indisputably required and had never been obtained. If, however, it is a question of saying whether covenants in a lease burdening land were in truth onerous on the facts of the particular case, then the appropriate tribunal to decide that is the bankruptcy court in proceedings by way of appeal by the bankrupt, who is wanting to set up that there has been no disclaimer, under section 80 of the 1914 Act against the trustee’s decision to disclaim. If that be right, that the disclaimer was valid, then it clearly follows from the decision of this court in Smalley v Quarrier [1975] 1 WLR 938 that the defendants had no right to remain in the property and no answer to the plaintiffs’ claim for possession. The case of Smalley v Quarrier was concerned with the effect of an admittedly valid disclaimer of the lease of a flat. The contractual tenant of the flat had been adjudicated bankrupt. He had remained in occupation of the flat, although the tenancy was vested in the trustee in bankruptcy. In remaining in occupation he was merely the licensee of the trustee. Then the trustee disclaimed and the landlord thereafter began proceedings for possession. The bankrupt tenant claimed that the tenancy under which the flat had been let was a protected tenancy within the Rent Act and that he was a statutory tenant and entitled to possession notwithstanding the bankruptcy. This court held, however, affirming the county court judge, that the protection under the Rent Acts applied only if the tenant satisfied the statutory conditions for the creation of a statutory tenancy; that, since the protected tenancy had vested in the trustee in bankruptcy on the tenant’s bankruptcy and remained vested in him until disclaimed, the tenant was not the person who, immediately before the termination of the tenancy was the protected tenant, and therefore, since he was not a statutory tenant and had no interest in the property, the landlord was entitled to possession. This court followed an earlier decision of the Court of Appeal in Reeves v Davies [1921] 2 KB 486, where Lord Sterndale MR had said at p490: I base my judgment simply upon this, that where by statute the interest of the tenant of a house has been entirely divested or taken away from him and vested in his trustee by operation of law, the tenant has no more interest in the property than any passer-by in the street, and has no right to intervene. The fact that the trustee disclaims the lease in my opinion makes no difference. Stephenson LJ also referred at [1975] 1 WLR 938, 944, to an unreported decision in Earl Jowitt v Von Dembinska, decided on June 18 1954, where it was held by this court that a bankrupt contractual tenant of the trustees of the Honourable Society of the Middle Temple was not, before or after disclaimer of the tenancy, a statutory tenant. It must therefore follow (and this is conceded by counsel for the defendants in this court) that, if the disclaimer was valid, the defendants are not entitled to the protection of the Rent Acts and have no answer to the plaintiffs’ claim for possession. It seems to me that it must equally follow, on the reasoning in Smalley v Quarrier, that, even if the disclaimer was invalid, the defendants are not entitled to the protection of the Rent Acts and have no answer to the plaintiffs’ claim for possession. The position if the disclaimer was invalid is that the term of the lease remained vested in the trustee until that term expired by effluxion of time at the Michaelmas quarter day of 1985. Immediately before that date the protected tenant was the trustee and not the defendants. Consequently the defendants have, as Lord Sterndale MR put it, no more interest in the property than any passer-by in the street and are not entitled to the protection of the Rent Acts. In my judgment, therefore, this appeal should be allowed and an order for possession should be made. Agreeing, BOOTH J said: I, too, would allow this appeal on the short point of the definition of ‘onerous covenants’ within the meaning of section 54 (1) of the Bankruptcy Act 1914. In my judgment, the covenants contained in the lease between the plaintiffs and the defendants in this case could well be described as onerous, taking as the material date August 21 1985, the date when the trustee in bankruptcy disclaimed that lease. Under its terms there still remained outstanding a covenant requiring performance by the tenants of the painting of the interior and exterior of the premises, and, as my lord has said, a covenant to deliver up those premises in good state of repair. Going no further than the terms of the lease, it seems to me that those covenants alone satisfy the description of being onerous covenants within the meaning of the section and that therefore the disclaimer was a valid one. The consequences which attend upon whether or not the disclaimer was valid are as my lord has said, and for the reasons that he has stated I, too, would allow this appeal. The appeal was allowed, with costs of the appeal and costs below on Scale 2. Possession was ordered in six weeks, with mesne profits from expiry of term until delivery up of possession.