UK Housing Alliance (North West) Ltd v Francis
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lady Justice Smith,Master of the Rolls |
| Judgment Date | 24 February 2010 |
| Neutral Citation | [2010] EWCA Civ 117 |
| Docket Number | Case No: B5/2009/1721 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 February 2010 |
[2010] EWCA Civ 117
Mrs Recorder Stocken
Before: The Right Honourable the Master of the Rolls
The Right Honourable Lord Justice Longmore
and
The Right Honourable Lady Justice Smith
Case No: B5/2009/1721
8PB83253
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM GREAT GRIMSBY COUNTY COURT
Mr Neil Wylie (instructed by John Barkers) for the Appellant
Mr John McGhee QC & Mr Simon Read (instructed by LR Solicitors) for the Respondent
Hearing dates: 8 th February 2010
Lord Justice Longmore:
Mr Michael Francis used to own 23 Lavenham Road, Grimsby. On 3 rd October 2007 he sold his house for £125,000 to the claimants whose business it is to buy up residential properties and then lease them back to their former owners. The sale price was payable as to 70% (£87,500) on completion and as to 30% (£37,500) on expiry of 10 years and the giving up of possession by Mr Francis. If Mr Francis terminated his tenancy at any time during the first 6 years, the final part of the purchase price (“the Final Payment”) would not become payable; if he terminated it thereafter he would receive a percentage of the Final Payment on a sliding scale depending on the date of termination. If, however, the claimants terminated the tenancy pursuant to any right to do so under the tenancy agreement, paragraph 4 of the Schedule to the sale contract provided that Mr Francis would cease to have any right to receive the Final Payment.
On the same date of 3 rd October 2007, Mr Francis entered an Assured Shorthold Tenancy Agreement (“the AST”) he being the tenant and the claimants being the landlord. The Landlord's right of termination was contained in clause 5.1 which provided:—
“5.1. Our right of termination
5.1.1 We are entitled to terminate this Tenancy Agreement and obtain a court order to evict you if:
5.1.1.1 any instalment of the rent is not received in full within 14 days of the date when we formally demand it after it has fallen due; or
5.1.1.2 You fail to comply with any of your obligations under this Tenancy Agreement; or
5.1.1.3 You become bankrupt or an interim receiver of your property is appointed; or
5.1.1.4 You (without making arrangements with us or our agent) leave the property vacant or unoccupied for more than 4 weeks
5.1.2 We are also entitled to terminate this Tenancy Agreement in the event that:—
5.1.2.1 You (not being a Joint Tenant under this Tenancy Agreement) die; or
5.1.2.2 You (being the last survivor of two or more Joint Tenants under the Tenancy Agreement) die
in either case whilst this Tenancy Agreement is still continuing by us giving to your successors in title not less than 4 weeks prior notice in writing of our desire to so terminate this Tenancy Agreement such notice to expire no earlier than the expiration of the first 6 months of the Tenancy Period.”
Mr Francis fell behind with the rent and the claimants issued proceedings for possession. It is agreed that rent which is due has not been paid. It does not look as if it will be; there are therefore good reasons why possession should be ordered pursuant to Ground 8 in the second schedule of the Housing Act 1988.
Mr Francis advances 3 reasons, however, for saying that, despite the fact that possession is to be granted, the claimants should nevertheless make the Final Payment. These are
i) that the Final Payment is a “deposit” within the provisions for authorised Tenancy Deposit Schemes set out in Chapter 4 of Part 6 of the Housing Act 2004 (“the 2004 Act”) which are intended to make it easier than before for tenants to recover deposits;
ii) that the provision in para 4 of the Schedule to the sale contract, entitling the claimants to retain the Final Payment in the event of termination of the tenancy agreement by the Landlord pursuant to a right to do so, constitutes a “penalty” or a “forfeiture” and is, therefore, unenforceable;
iii) that the provision is anyway an unfair term and is not binding pursuant to Regulations 4, 5 and 8 of the Unfair Terms in Consumer Contract Regulations 1999 (“the 1999 Regulations”)
Mrs Recorder Stocken decided each of these points against Mr Francis who now appeals to this court.
Deposit within the 2004 Act?
If the Final Payment was a deposit within the 2004 Act it is agreed that it was not dealt with by the landlord in accordance with any scheme authorised by the Act. The consequences would be not merely that the Final Payment would not be retainable by the landlord but also that a sum equal to three times the amount of that payment would be payable by the landlord to the tenant within 14 days.
Chapter 4 of Part 6 of the 2004 Act was intended to deal (inter alia) with the notorious abuse of landlords requiring deposits from prospective tenants but not keeping the sums paid in any separate account or refusing to repay such sums at the end of the tenancy. On the face of it, the Act is not perhaps likely to cover arrangements such as the one with which this court is dealing, namely sales by an owner with a lease back to him whereby he becomes a tenant instead of the freehold owner.
The Act applies to tenancy deposits which are defined in the following way:—
“…“tenancy deposit”, in relation to an assured shorthold tenancy, means any money intended to be held (by the landlord or otherwise) as security for –
the performance of any obligations of the tenant, or
the discharge of any liability of his,
arising under or in connection with the tenancy.”
This definition with its use of the phrase “money intended to be held” might, at first blush, be enough to cover the Final Payment in the present case. But it is necessary to read the Act as a whole and, when one does so, one sees a pervading reference to money “paid” by the tenant to the landlord, “received” by the landlord and “repayable” by the landlord to the tenant. Thus section 213(1) refers to a “tenancy deposit paid to a person”. Section 213(3) refers to a landlord who “receives a tenancy deposit”. Section 213(5) requires that information about the relevant authorised scheme should be given to a landlord “who has received such a tenancy deposit”. Section 213(6) says that the information is to be given within 14 days beginning with the date “on which the deposit is received by the landlord”. Section 214(1) entitles the tenant to make an application to the county court “where a tenancy deposit has been paid”. If the landlord is in default of his obligations under any authorised scheme or otherwise, section 214(3) requires the court to order the person holding the deposit “to repay it to the applicant” or to order him “to pay the deposit” into a designated account. Section 215(1) prohibits the service of a section 21 notice, if “a tenancy deposit has been paid”. “Deposit” is defined in sections 213(8) and 215(4) as a “transfer of property”. All these references to “paid”, “received”, “repay” and “transfer of property” are simply inapt, in my judgment, to describe a situation in which a tenant pays nothing but is the person to whom money is paid, albeit that he is not to be paid some part of the money representing the purchase price of what was his property until some date in the future.
Penalty/Forfeiture?
Mr Wylie for the appellant accepted that the Final Payment could not strictly be called a penalty because it was not a sum payable on breach but rather a sum payable on the exercise by the landlord of its right to terminate the tenancy agreement and obtain a court order for possession, see MacGregor on Damages (18 th ed) para 13–009. But he submitted that the principles applicable to irrecoverability of penalties were equally applicable to cases of relief against forfeiture. If, for example, a sum payable for breach of contract was not a genuine pre-estimate of loss, it would not be recoverable as being a penalty; likewise if money or other property was forfeited in circumstances where the amount so forfeited was similarly not a genuine pre-estimate of loss, relief should be granted.
The difficulty with this argument is that there is a long line of authority to the effect that a claimant can only get relief if the defendant has purportedly forfeited property which the claimant owns or to which he has a right of possession. If all that happens is that the claimant is to forego a right to make a contractual claim or is prevented from using property to which he had a mere contractual right, there is no claim to relief against forfeiture since the forfeitor is merely claiming or re-claiming his own property. So, while a tenant may be able to obtain relief against the forfeiture of his leasehold interest in property, a time charterer cannot obtain relief where a shipowner withdraws his ship from service under the charterparty because a time charterer has no property or possessory interest in the ship, see Scandinavian Trading Tanker Co A.B. v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 A.C. 694, Shiloh Spinners Ltd v Harding [1973] A.C. 691 and BICC Plc v Burndy Corporation [1985] Ch. 233.
Mr Wylie relied on Workers Trust Bank Ltd v Dojap Ltd [1993] A.C. 573 and Transag Haulage Ltd v Leyland DAF [1994] 2 BCLC 88 as exceptions to this principle of law because they applied to forfeiture of sums paid to or retained by the “innocent” party to the contract. But the first case related to a deposit paid by...
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