Farrell v Alexander

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE LAWTON,LORD JUSTICE SCARMAN
Judgment Date30 July 1975
Judgment citation (vLex)[1975] EWCA Civ J0730-4
Date30 July 1975
CourtCourt of Appeal (Civil Division)
Between
Colette Denise Gina Farrell and Suzanne Deidre O'farrell
Plaintiffs Appellants
and
Jacinthe Marian Alexander
Defendant Respondent

[1975] EWCA Civ J0730-4

Before

The Master of The Rolls (Lord Denning)

Lord Justice Lawton and

Lord Justice Scarman

In The Supreme Court of Judicature

Court of Appeal

Mr. WALTER BLUM (instructed by Messrs. Hutchings & Plum of Torquay) appeared on behalf of the Appellant Plaintiffs.

Mr. D. M. BARNES (instructed by Messrs. Theodore Goddard & Co.) appeared on behalf of the Respondent Defendants.

THE MASTER OF THE ROLLS
1

1 THE FACTS

2

There is an attractive part of London called Little Venice. It is so called because of Regent's Canal. This case is about a flat there. By a lease dated 4th February 1970, the Church Commissioners let flat, No. 20 F, Randolph Crescent, to a Mrs. Alexander. The term was 7½ years from 29th September 1969. The rent was £650 a year for the first three years and £800 for the next 4½ years. It was a protected tenancy. That is, a contractual tenancy with a regulated rent. The lease contained a provision for the rent to be varied so as to be equal to the registered rent.

3

After being there three years, Mrs. Alexander determined to sell the flat. She put it into the hands of estate agents. They issued particulars in these words:-

"Lease 4½years

Rent £800 per annum

Rates payable: £198.77

Price £4,500 (to include the fitted carpets, curtains and kitchen equipment and certain other items, such as the many spot lights)".

4

That asking price of £4,500 was in reality the price which Mrs. Alexander was demanding for the assignment of the lease. The furniture and fittings, etc. were only worth £l,002. The balance was payable for the assignment of the tenancy. Mrs. Alexander had paid no premium herself for the lease: but here she was, after three years, asking £4,500. She was advised to ask this sum: because the estate agent thought she could get it. Any incoming tenant would be glad to get a protected tenancy: for he or she would get security of tenure after the 41½2 years had expired and would only have to pay the registered rent.

5

Mrs. Farrell was just such an incoming tenant. She lived in Worcestershire and wanted to find a flat for her daughter who had obtained a. post in the Victoria and Albert Museum. Mrs. Farrell offered to pay £4,000 and Mrs. Alexander accepted it. Mrs. Farrell paid a deposit of £400 to the estate agents. The agents wrote to the solicitor for Mrs. Alexander on 25th January 1973: "We write to inform you that our mutual client, Mrs. Alexander, has accepted an offer of £4,000 made subject to contract for the fixtures and fittings, etc., to be included in the sale at the time of the assignment of her leasehold interest in the above property.

6

The proposed assignee is Mrs. C. D. Farrell and her solicitors are Messrs. Braby Waller & Co. We are in possession of 10% deposit".

7

They wrote a similar letter to Mrs. Farrell's solicitors.

8

Those letters show clearly that the estate agents regarded the proposed transaction to be an assignment of the tenancy, together with the furniture and fittings. There is a letter, too, from Mrs. Alexander showing that she also regarded it as an assignment. The estate agents put the furniture and fittings at £4,000, but their real value was only £1,002.

9

If the transaction had been completed in that form, it would clearly have been illegal. It would be prohibited by section 89 of the Rent Act 1968: and Mrs. Farrell could have recovered the excess £2,998 from Mrs. Alexander under section 88.

10

But it was not completed in that form. When the estate agents approached the landlords (the Church Commissioners) for their consent, they suggested that, instead of an assignment, there should be a surrender by the outgoing tenant, Mrs. Alexander, of her lease to the landlords: and then a grant by the landlords of a new lease to the incoming tenant, Mrs. Farrell. This was in accordance with a clausein the lease to Mrs. Alexander which the Church Commissioners often insert in their leases. We considered it in Green v. Church Commissioners (1974) Ch. 463, and expressed some doubt as to its validity.

11

The solicitors for Mrs. Farrell were agreeable for the transaction to go through in this way. So on 6th March 1973, her solicitors wrote to the Church Commissioners, saying:

"…. Although initially it was the intention to assign the existing lease to our client, it is now proposed that Mrs. Alexander's lease be surrendered and a new lease granted".

12

In the result, the solicitors, instead of preparing an assignment, prepared a memorandum of agreement in these words:

"1. Subject as hereinafter mentioned, the present lessor shall, immediately prior to completion of the new lease hereinafter mentioned, surrender to the landlords with vacant possession, All that her estate and interest in the premises known as Flat F., 20 Randolph Crescent…. being a lease for 71½2 years from 29th September 1969".

2. The completion of the said surrender shall be subject to acceptance of the same by the landlords, and to the simultaneous grant by the landlords to the new lessee, of a new lease with vacant possession for the term of nine years from 25th December, 1972, at £850 per annum exclusive.

3. Upon completion, the new lessee shall pay to the present lessee the sum of £4,000 for the carpets, curtains, chattels, fixtures and fittings in the said premises in accordance with the inventory agreed between the parties, and 10% of the said sum of £4,000 shall be paid to the agents as stakeholders".

13

That memorandum was signed on 30th March 1973, and on the same dayMrs. Farrell paid the balance of the £4,000. Mrs. Alexander gave this receipt:

14

"…. I hereby acknowledge to have received the sum of £4,000 from Mrs. Farrell and Miss Farrell, being the consideration for the purchase of the fixtures, fittings, chattells and other equipment in and about the above property as at the 30th March 1973". It is plain, therefore, that to outward appearances nothing was paid for the new tenancy: but £4,000 was paid for the furniture and fittings. Seeing that they were only worth £1,002, the balance of £2,998 must have been paid for the grant of the new tenancy. But it was not paid to the landlords, the Church Commissioners. If it had been paid to them, it would have been plainly illegal, being prohibited by section 85 of the 1968 Act, and the excess sum of £2,998 could have been recovered under section 88. But £2,998 was not paid to the landlords. It was paid to the outgoing tenant, Mrs. Alexander.

15

It is said that, because the £2,998 was not paid to the landlords, but to the outgoing tenant, the transaction was perfectly lawful. This would be a most remarkable result. If it is correct, it opens up a great gap in the Rent Acts. It means that sitting tenants can exploit the housing shortage - to their own great advantage - but the landlords cannot. Nor can statutory tenants. But contractual tenants can do so, provided they get the co-operation of the landlords. And who can say what the tenants will pay to the landlords - "under the counter" - for this co-operation? The Church Commissioners are willing to co-operate without being paid. But other landlords might want a shire in the money, so long as nobody knew about it.

16

I turn, therefore, to the Statutes to see if they permit this great gap to be driven through them.

17

THE STATUTES

18

In times of housing shortage, Parliament has had to step in to help those in need. It has passed legislation so as to prevent landlords from evicting tenants and to restrain landlords from increasing rents. At the same time it has sought to stop people from exploiting the shortage. It has enacted provisions which make these acts unlawful:

(1) If a landlord, on granting a new tenancy, requires or receives any sum from the tenant in addition to the rent, he is guilty of an offence and is liable to repay the amount. This was done by section 1(2) of the Act of 1915, section 8(1) of the Act of 1920 and section 85(1) of the Act of 1968.

(2) If a contractual tenant, on assigning his tenancy to an incoming tenant, requires or receives any sum from the incoming tenant as the price of the assignment, he is guilty of an offence and liable to repay the amount. Likewise, if on assigning his tenancy, he sells the furniture and fittings to the incoming tenant and requires an excessive price for them which is more than their real value - he is guilty of an offence and liable to repay the excess. These provisions were first introduced in sections 2 and 3 of the Act of 1949, and appear now in sections 86, 88 and 89 of the Act of 1968.

(3) If a statutory tenant (who could not, of course, assign his tenancy) takes any money from an incoming tenant as the price of giving up possession to him, he is guilty of an offence and liable to repay the amount. This was introduced in section 15(2) of the 1920 Act and appears in section 13 of the 1968 Act. And, if a statutory tenant makes an arrangement with his landlord by which a new tenant is allowed into the house, the statutory tenant cannotrequire or receive any sum from the incoming tenant as the price of letting him in. This provision was introduced by section 17(4) of the Act of 1957, and is now in section 14 of the 1968 Act.

19

You might think that those provisions would be effective to prevent people exploiting the housing shortage for their own advantage. But the lawyers have devised a scheme by which, it is said, a contractual tenant can exploit the shortage to his own advantage. It is this: Instead of assigning his tenancy to an incoming tenant, he can make an arrangement with the landlord by which the outgoing tenant surrender: his existing tenancy to the landlord, and the landlord at...

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