R J Dunnell Property Investments Ltd v Thorpe

Rent Act 1977 and Housing Act 1980 — Whether letting constituted a protected shorthold tenancy — Complex letting arrangements giving rise to questions — Exercise of ‘just and equitable’ discretion under section 55(2) of the 1980 Act in proceedings for possession under Case 19 in Schedule 15 to the 1977 Act — County court judge’s decision (‘a model of its kind’) in favour of landlords upheld by Court of Appeal The litigation concerned premises consisting of a shop on the ground floor with residential accommodation on the two floors above — The appellant (defendant below) had originally an ordinary protected weekly tenancy of a room on the second floor (at first a back room but later a larger front room) — Subsequently, when two rooms on the first floor became vacant it was agreed that he should be granted ‘a shorthold lease’ of these two rooms, which would be in addition to his existing weekly tenancy of the second-floor room — An agreement on a printed form providing for a protected shorthold tenancy was signed by both parties, the letting being for a term certain of one year and thereafter from month to month — The agreement on the face of it satisfied section 52(1)(a) of the 1980 Act, but not section 52(1)(b) or (c), the conditions for which section 55(2) provided a ‘just and equitable’ dispensation in Case 19 proceedings — Thus, subject to the fundamental issue as to whether there was a separate shorthold tenancy at all, the agreement would attract the mandatory possession ground of Case 19 if the judge exercised his discretion favourably under section 55(2) — To complete this part of the historical account, the appellant took over an extra second-floor room as part of his weekly protected tenancy A few years later, the landlords, relying on Case 19, gave the appellant notice to quit the first-floor rooms — They wished to sell the freehold of the premises to the ground-floor tenants, who ran a clothing shop and who required the first-floor residential accommodation as a condition of the sale — It was accepted that the appellant had a right to continue to occupy the second-floor rooms as a weekly protected tenant — On the appellant’s failure to quit the first-floor rooms the respondent landlords took proceedings for possession — They succeeded before the county court judge and the appellant appealed There were two issues — The first was whether Case 19 applied at all — The second was whether, if so, the judge had correctly exercised his discretion in exercising the dispensing95 power under section 52(5) — The Court of Appeal agreed with the judge’s decision and reasons on both issues — It had been suggested for the appellant that, despite the form of the shorthold tenancy, the true position was that the letting of the first-floor rooms was merely an addition to the letting of the second-floor accommodation — This, it was suggested, was recognised when an extra second-floor room was added to the accommodation — The appellant occupied the rooms on both floors as one dwelling — The judge rejected this interpretation, holding that the separate shorthold agreement was plainly established by evidence and that there had been no intention to consolidate the lettings On the second issue the court also agreed that the judge was justified in exercising his discretion under section 55(2) and making an order for possession under Case 19 — The judge had set out six reasons why he considered it just and equitable — The court rejected criticisms that he had failed to balance the hardship of the parties and failed to give due weight to an honest but careless overcharge of rent by the landlords, of which no real complaint had been made by the appellant — Appeal dismissed The following cases are referred to in this report. Bradshaw v Baldwin-Wiseman (1985) 49 P&CR 382; [1985] 1 EGLR 123; 274 EG 285; 17 HLR 260, CA Hampstead Way Investments Ltd v Lewis-Weare [1985] 1 WLR 164; [1985] 1 All ER 564; [1985] 1 EGLR 120; (1985) 274 EG 281, HL Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER 289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL Wimbush v Cibulia [1949] 2 KB 564; [1949] 2 All ER 432; (1949) 65 TLR 583, CA This was an appeal by the tenant, Nigel Thorpe, against the decision of Judge Quentin Edwards, at Bloomsbury County Court, whereby he made an order for possession of certain rooms occupied by the appellant at 273 Portobello Road, London W11, in favour of the plaintiffs (respondents to this appeal), R J Dunnell Property Investments Ltd. R F Allfrey (instructed by Harter & Loveless) appeared on behalf of the appellant; S E Shay (instructed by Solomon Taylor & Shaw) represented the respondents. Giving judgment, BINGHAM LJ said: This is an appeal against a decision of His Honour Judge Quentin Edwards QC sitting in the Bloomsbury County Court on November 22 1988, when he made an order for possession against the defendant in respect of two rooms on the first floor and a bath and lavatory on the half-landing below the first floor at 273 Portobello Road, London W11. The plaintiffs are a small family company owning three buildings in the Portobello Road, each of them being a shop on the ground floor with accommodation above. The purpose of the company and of its property holdings is to provide funds to support Mrs Louisa Dunnell in her old age. The history of the occupancy of 273 Portobello Road, so far as relevant to this appeal, is as follows. There had throughout been a shop on the ground floor. On November 18 1977 two rooms on the first floor of the house were occupied by a Mrs Pearce and the second-floor front room was occupied by a Mr Wells. The second-floor room at the back of the house was vacant and that was let to the defendant, Mr Thorpe. The situation changed slightly in 1979 to this extent, that Mr Wells moved from the second-floor front room to the second-floor back room and the defendant from the second-floor back room to the second-floor front room. So that, in effect, they swopped rooms, with some adjustment of the rent because the front room was larger and more valuable than the back. There was an immaterial change of occupancy earlier in 1981, but in October 1981 there was an important development which lies at the heart of this appeal. Mrs Pearce, who up to then had occupied the first floor, left, and the defendant asked the plaintiffs if he could occupy the rooms on the first floor which she had previously occupied. The plaintiffs agreed that that should be done. The manner in which it was done and the precise nature of the agreement between the parties was the subject of some dispute in the county court, but the learned judge, having reviewed all the evidence and preferred the evidence given on behalf of the plaintiffs to that of the defendant, in para 8 of his judgment found the following facts: In the summer of 1981 the defendant was the weekly tenant of the front room of the 2nd floor of 273 Portobello Road. He was both living in that room and working from it as a self-employed clothes designer and shirtmaker. He wanted more accommodation. In the late summer Mrs Pearce vacated the 1st floor. The defendant then asked Mr F Dunnell, either directly or through Mrs Louisa Dunnell, to let him the 1st floor rooms for his occupation in addition to the 2nd floor room of which he was then the weekly tenant. Mr F Dunnell told the defendant that the plaintiff company would let the 1st floor rooms to him, unfurnished, separately from the 2nd floor room already let to him and on what he called ‘a shorthold lease’, that the letting was to be at the registered rent and that the reason for this arrangement was that the plaintiff company wanted, if necessary, to be able to regain possession of the 1st floor rooms. The defendant accepted this proposition and the parties agreed that the rent, inclusive of rates, for the 1st floor rooms and bathroom would be at the rate of £20 per week. The learned judge goes on to describe the steps taken to give formal effect to that agreement. I refer to a printed form of agreement for letting an unfurnished dwelling-house on a protected shorthold tenancy under Part II of the Housing Act 1980 which the parties respectively signed and which is dated October 13 1981. The agreement defines the property as ‘1st floor flat, 273 Portobello Road, London W11′ and provides for a letting of that flat for a term certain of one year from October 13 1981 and thereafter from month to month. Provision is made as to the rent and as to payment of the rent and at the bottom of the front page of the form various terms of the tenancy are set out. I refer to the first three: 1  The Landlord lets and the Tenant takes the Property for the Term at the Rent payable as above. 2  This Agreement is intended to create a protected shorthold tenancy as defined in section 52 of the Housing Act 1980. 3  The protected shorthold tenancy created by this Agreement (i)  may be brought to an end (by virtue of section 53 of the Housing Act 1980) before the expiry of the term certain by one/three months’ notice in writing given by the Tenant to the Landlord (ii)  is (by section 54 of the Housing Act 1980) not capable of being assigned except in pursuance of an order under section 24 of the Matrimonial Causes Act 1973. The form continues with a number of other terms. There was one further change in the occupancy of the house. In December 1982 Mr Wells left his room on the second floor and the defendant took it over as part of a letting of the second floor which he already had. In practical terms, therefore, the defendant occupied both rooms on the second floor and both rooms on the first floor and at that stage, according to the learned judge’s findings, he redecorated and re-equipped all four rooms. We have seen some photographs which were before the learned judge and it is plain that from an extremely unattractive appearance the defendant transformed these rooms so as to make them an extremely agreeable and pleasant place in which to live. In 1985 the plaintiffs gave the defendant notice to quit the two rooms on the first floor of the house and also the exclusive use of the bathroom on the half-landing below. The reason for giving the notice, as appears from findings made by the judge to which I shall refer in a moment, was that the plaintiffs wanted to sell the freehold of the house to tenants who ran a clothing shop on the ground floor, but those tenants were willing to buy only if there was residential accommodation on the first floor. The plaintiffs accept that the defendant has a protected tenancy of the two second-floor rooms. It follows, therefore, that he is not liable to be evicted from those rooms and it is accepted that there can be no vacant possession of those rooms on the sale of the freehold. The defendant did not, however, vacate the first-floor rooms in response to the notice to quit and, as a result, proceedings for possession were initiated in December 1985. There was a long and unexplained delay before the matter came before the learned judge. It is convenient, I think, at this point to refer to the statutory provisions which are directly or indirectly in issue in this appeal. I begin by mentioning Schedule 15 to the Rent Act 1977. That schedule is divided into two parts. Part I is concerned with cases in which the court may order possession and Part II with cases in which the court must order possession. Section 51 of the Housing Act 1980 provides: Sections 53 to 55 below modify the operation of the 1977 Act in relation to protected shorthold tenancies as defined in section 52 below. Section 52 provides: (1)  A protected shorthold tenancy is a protected tenancy granted after the96 commencement of this section which is granted for a term certain of not less than one year nor more than five years and satisfies the following conditions, that is to say, — (a)   it cannot be brought to an end by the landlord before the expiry of the term, except in pursuance of a provision for re-entry or forfeiture for non-payment of rent or breach of any other obligation of the tenancy; and (b)   before the grant the landlord has given the tenant a valid notice stating that the tenancy is to be a protected shorthold tenancy; and (c)    either a rent for the dwelling-house is registered at the time the tenancy is granted or — (i)  . . . and (ii) . . . There are further subsections of that section to which I think it unnecessary to refer. I pause at this point to observe that, although in respect of the letting of the first floor, if it is to be regarded as a separate letting, para (a) of section 52(1) was satisfied, it is accepted that paras (b) and (c) were not. I go forward to section 55, which provides: (1)  The following Case shall be added to the Cases in Part II of Schedule 15 to the 1977 Act (mandatory orders for possession): and then there is set out in the subsection a detailed provision governing a new Case 19. Subsection (2) of section 55 provides: If, in proceedings for possession under Case 19 set out above, the court is of opinion that, notwithstanding that the condition of paragraph (b) or (c) of section 52(1) above is not satisfied, it is just and equitable to make an order for possession, it may treat the tenancy under which the dwelling-house was let as a protected shorthold tenancy. The situation, therefore, under the Act is this. If the letting complies with section 52(1) and falls within Case 19, the court must make an order for possession. If the letting complies with section 52(1)(a) but not 52(1)(b) or (c) and otherwise falls within Case 19, the court may make an order for possession if of opinion that it is just and equitable to do so. The first of those situations admittedly does not apply here, because it is accepted that there was no compliance with section 52(1)(b) and (c); but the question arises whether the second situation applies or whether the letting of the first floor is to be treated as part of a single letting with the room, or later rooms, on the second floor and subject to the same protected tenancy to which the second-floor premises are admittedly subject. That was the first issue in the case before the learned judge and is essentially the first issue arising on this appeal. The learned judge in his judgment said: In the light of my above findings the first issue I have to determine is whether this is within Case 19 at all. Mr Allfrey contended that this letting was not, in truth, ever a protected shorthold tenancy. He said that the true position was that the parties agreed in 1981 that the defendant should have more accommodation in the house and that the letting of the first-floor rooms was additional to the existing letting. The intention of both parties, he said, was that the lettings of the first and second floor should be consolidated and that the third transaction, the letting of the second-floor back room, recognised the substance and reality of the whole continuing transaction. Mr Allfrey cited the well-known case of Wimbush v Cibulia [1949] 2 All ER 432. I consider that the dicta of Jenkins LJ in that case are of some help here. At p 435A he said . . . ‘Although the additional letting was in form a separate transaction, the true intention of the parties may well have been that the two tenancies should be treated as one ‘letting’ or at all events should be interdependent, so that the later in date was supplementary to the earlier and the one could not be determined without the other.’  The question he remitted to the county court judge to answer was (p 435C) . . . ‘Whether the additional letting was truly separate and distinct from the original letting or the real agreement to be imputed to the parties (conformably with the actual facts as to user) involved such a consolidation of or interdependence between the two lettings as to make them in effect equivalent to a single-tenancy agreement extending to the whole of the premises?’ I am quite satisfied that it was not the intention of Mr F Dunnell, who for the purposes of this action is and has been the mind of the plaintiff company, that the letting of the room on the second floor and letting of the rooms on the first floor should be one letting. On the contrary he intended that they should be separate lettings. He knew, before he proffered the agreement of October 13 1981, what a protected shorthold tenancy was and that was what he intended that the plaintiff company should grant. He knew that the defendant was a protected tenant of the room he occupied on the second floor and he did not intend to grant the defendant a tenancy, with the same protection, of the first floor. He told the defendant, as I have found, that he wanted, if necessary, to regain possession of the first floor at some future time after the grant of the tenancy of October 13 1981 to him. It is true that Mr F Dunnell knew that the defendant would probably occupy the three rooms — one on the second floor and two on the first floor — together. Nevertheless, to adapt the words of Jenkins LJ, it was never his intention that the second tenancy could not be determined without the determination of the first. His intention was the precise opposite. Helpful though the citation of Wimbush v Cibulia and the case of Hampstead Way Investments v Lewis-Weare [1985] 1 WLR 164 were, I cannot, in my judgment, allow the dicta in those cases to compel me to a finding that the agreement of October 13 1981 was not what it was, as I hold, intended by both parties to be, viz a letting of that special statutory variety called a shorthold protected tenancy and that as such it was to be distinguished from the existing letting, protected by the Rent Act 1977, of the second-floor room to the defendant. Accordingly, in my judgment, this is a case to which Case 19 applies. Mr Allfrey attacks the learned judge’s reasoning and conclusion in these paragraphs. He ultimately accepted that the intention of the parties was relevant but contended that the learned judge was wrong to treat the intention of the parties as determinative. He pointed out that, in fact, as the learned judge acknowledged in the course of the passage I have read, the defendant occupied the first-floor and second-floor premises as one dwelling, and he contended that insufficient weight was given to that factor. The agreement of the parties could not, he submitted, alter the legal reality and, in support of that proposition, he cited a passage from the speech of Lord Templeman in Street v Mountford [1985] AC 809 at p 819E, where Lord Templeman said: But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. For my part, I accept without hesitation that parties cannot turn a tenancy into a licence by calling it a licence. It is necessary for the court to have regard to the true effect of the agreement. So the question here is whether the effect of the agreement made on October 13 1981 was to create one consolidated letting or to create separate and distinct lettings for separate and distinct premises, albeit they were to be used in common so long as both agreements endured. I have no doubt whatever but that the learned judge was right to reach the conclusions which he did on the facts which he found. It is the case that the sum payable for the first floor by way of rent was always treated as a separate sum from the rent for the second-floor premises even though the sums were naturally paid together. There was never one overall rent for the first-and second-floor premises. But, more importantly, it would, in my judgment, be quite wrong to impute to the parties an agreement that the two lettings should, in effect, be equivalent to a single tenancy extending to the first and second floors when the parties’ actual agreement was plainly and incontrovertibly to the contrary effect. The agreement contended for by the plaintiffs is not one prohibited by statute. It is not suggested that it is in any way a sham or colourable device and it is an agreement which, as the judge held and I agree, was plainly established by the evidence. I find no fault at all in the reasoning of the learned judge and would dismiss the appeal against that part of his judgment. The second issue which arose for his decision was whether, if the case did fall within section 55(2), the court was of opinion that it was just and equitable to make an order for possession. The learned judge, in the course of his findings, considered in some detail the rent payable for the first-floor premises and, at the end of a series of calculations which are the subject of no criticism, concluded that the rent which was charged was in excess by nearly £200 per year of the sum which the plaintiffs could legitimately charge. He also found in the course of his judgment that the plaintiff wanted possession of the rooms in order to sell the freehold of the whole building to the tenants of the clothing shop on the ground floor. They, he found, were willing to buy only if they could have some residential accommodation above the shop. In approaching the argument on the exercise of his discretion under subsection 55(2), the learned judge said: Mr Allfrey contended that, in the light of Bradshaw v Baldwin-Wiseman [1985] 1 EGLR 123, I should construe that subsection as meaning that I should only make an order for possession if I considered that it was just and equitable to do so having regard to all the circumstances; the circumstances affecting the landlord, the circumstances of the tenant and the circumstances in which the failure to give the notice, or, at least, a valid notice, and the over charge I have mentioned, arise. I consider that in that contention he is right. Mr Allfrey then went on to say that it could not be just and equitable to dispense with the requirements in question where the landlord had actually made a profit, and not a negligible profit, by failing to observe them. He said that the two floors had become the defendant’s home and that it would be harsh to deprive him of the better part of it. Mr Shay, on the other hand, contended that the parties had made a clear and fairly understood bargain and that it would not be equitable to saddle the plaintiff with a statutory tenant of the first floor for the sake of a technicality. No counterclaim for rent overpaid had, he pointed out, ever been made. He also drew my attention to the Protected Shorthold Tenancies (Rent Registration) Order 1987 (SI no 265) which, in the exercise of powers under section 52(4) of the Act of 1980, repealed, as from May 4 1987, subpara (c) of section 52(1) viz the provisions relating to rent registration in connection with shorthold tenancies. The learned judge referred to the difficulty of exercising a discretion such as this and then continued: However as I am empowered to exercise a discretion and called on by the plaintiff to do so, I have come to the conclusion, having weighed the arguments on both sides, that it is just and equitable to make an order for possession in this case. The reasons which have led me to this conclusion are: — First — unlike many other cases involving the letting of ordinary residential accommodation the two parties appear to me to have been on an equal footing. In 1981 the defendant was a 30-year-old self-employed proprietor of a small business — he had the room he had agreed to take in 1977 and he wanted the first-floor rooms in addition on terms to be negotiated. I find no evidence that the plaintiff company overreached or took any advantage of the defendant; on the contrary both parties, it seems to me, acted fairly and openly. Second — the inclusive rent of £20 was a genuinely agreed figure. £20 a week was suggested by the Dunnells, mother and son, in answer to the defendant’s proposition that he was interested in taking over the first floor. It is more than was then legally recoverable and Mr Dunnell knew what the registered rent was. Nevertheless I believe that it was a figure honestly, albeit not very carefully, arrived at. Mr Dunnell overlooked the difference between the registered furnished and unfurnished rent, partly no doubt, because he thought the furniture worthless and the defendant did not want it, and made only a rough and ready estimate of the burden of rates. The defendant accepted the suggested figure without demur although, having regard to his existing tenancy in the house and his acquaintance with Mrs Louisa Dunnell, he was in a position where he could have tried to negotiate the rent downwards — or, at any rate, asked for the precise figures on which the total figure of £20 was based. Third — the defendant was given the proposed tenancy agreement when he visited Mrs Dunnell’s flat. He took it away and had time to read it and reflect upon it and, if he wished, to take advice upon it. He kept it overnight and signed it in his own time and his signature was witnessed by a friend of his. Fourth — the undoubted overcharge was not large and no real complaint of it has been made by the defendant himself, although Mr Allfrey certainly took the point on his behalf. Nevertheless the defendant gave no evidence of financial embarrassment in 1981 or 1982; indeed in 1982 his business prospered and he rented a shop across the road from no 273 Portobello Road from the plaintiff company. No counterclaim has been made in respect of the overpayments. The actual amount of the overpayment has throughout this case been, it seems, of such small account to the parties that neither has actually worked it out and even my figures mentioned above are an estimate. Fifth — the Protected Shorthold Tenancies (Rent Registration) Order 1987 has been approved by Parliament. If experience has shown, to Parliament’s satisfaction, that the new system of shorthold tenancies may work fairly without the control provided by para (c) of section 52(1) of the Housing Act 1980 (which the order repeals) then that suggests that the control was never of significant importance in the new legal framework. Sixth — it was at all times made clear to the defendant that the letting of the first floor to him was not on the same terms as the letting of the room on the second floor and that he might be required, at some time after the expiry of the term certain, to give up possession of the first-floor rooms. I do not believe the defendant was, in 1981, under any illusion as to this; I am satisfied that he was aware that there might well come a day when he would be asked to give up the first-floor rooms. Seventh — the plaintiff company is not seeking to dispossess the defendant altogether. Even if an order for possession of the first floor is made he will still have a statutory tenancy of two rooms on the second floor at a registered rent, with exclusive use of a water closet and shower bath on the common stairway. This accommodation will be less pleasant, although cheaper, than his present accommodation but it must be remembered that the defendant went into the house on the footing that he would have one room only on the second floor without any expectation of other accommodation. In the light of those considerations the learned judge held that it was just and equitable that an order for possession should be made. Two points are made on behalf of the tenant in criticism of the learned judge’s exercise of discretion. It is, first, urged that he wrongly failed to balance the hardship to the landlords against the hardship to the tenant, and it is said that he failed to address his mind adequately or at all to that aspect. It is to be observed that in this section, unlike some other familiar sections, there is no statutory reference to greater hardship. The language used is ‘just and equitable’ and I have no doubt that the learned judge was right to give the words a wide meaning and view the question of discretion on the widest possible basis. I do not, however, think it is fair to conclude that he did not have in mind the relevant hardship to the two parties. He drew attention specifically to the landlords’ desire to sell and to the detriment to them if they were saddled with a statutory tenant of the first floor. On the other hand, he specifically drew attention to the work done by the tenant to improve the standard of the accommodation on both the first and second floors and had, of course, in mind that it would be detrimental to the tenant to deprive him of half of what he then occupied. The learned judge, none the less, concluded that in all the circumstances it was fair that the plaintiffs’ desire to sell outweighed the defendant’s desire to stay where he was, perhaps the most important consideration being that the letting of the first floor had always been on a temporary basis and on the understanding that the landlords might require possession of that floor separately. For my part, I am unable to uphold the criticisms which have been made of the learned judge’s exercise of discretion in that respect. The second criticism made is that the learned judge wrongly weighed the effect of the overcharge of rent by the landlords. It is common ground that for a period of some years the plaintiffs charged £200 or so a year more than they should have done and that that is a sum which has not been repaid. It is submitted for the tenant that that fact should of itself debar the plaintiffs from the exercise of the learned judge’s discretion in their favour under section 55(2) unless they can demonstrate some very considerable hardship to themselves if the discretion is not exercised. In considering this submission, one must bear in mind the findings that the learned judge made that this was a mistake that was honestly made although as a result of a lack of care, that the rent which was agreed was one which was fully acceptable to both and that the overpayment was a matter of no real concern to the defendant and had never been the subject of a counterclaim. In my judgment, the learned judge was fully entitled to treat this matter as he did. It would be quite wrong if the exercise of discretion conferred by sections such as 55(2) were to be constrained by inflexible and mechanical rules. One can well imagine different cases in which an avaricious landlord has overcharged a tenant and made an extortionate bargain, and in those circumstances the exaction of an excessive rent might be likely to weigh very heavily, perhaps even conclusively, against the landlord. But that is, on the learned judge’s unchallenged findings, not this case and I find it impossible to criticise the manner in which he approached the matter. On this ground also, therefore, I would dismiss the appeal. I would add simply this: in my view, the judgment which the learned judge gave is a model of its kind, being both very clear in its statement of the facts, comprehensive in its review of the issues and very succinct. I hope that I shall not be thought patronising in any way if I end by paying tribute to the learned judge for the most helpful judgment which he delivered. Agreeing, MANN LJ said: I would also pay tribute to the judgment of the learned judge. It is lucid, simple and most helpful. For my part, I cannot begin to see how the agreement at October 13 1981 could give rise in effect to a single tenancy agreement extending to the whole of the premises. It seems to me that that was the very thing that the parties went out of their way to avoid. The appeal was dismissed with costs against the legal aid fund. Legal aid taxation of appellant’s costs ordered.