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This appeal (from the Court of Appeal [2010] EWCA Civ 811; [2010] Ch. 244; [2010] HLR 44) concerns whether, where a clause of an agreement for a monthly periodic tenancy (or purported tenancy) purports to preclude the landlord from bringing the tenancy to an end unless the tenant falls into arrears of rent or commits another breach of the agreement, the landlord can nonetheless ignore the preclusive clause and bring the tenancy to an end, irrespective of any arrears or other breach on the part of the tenant, by service of a month’s notice to quit.

Facts

The respondent housing cooperative was a fully mutual housing association (ie its rules restricted membership to persons who were tenants or prospective tenants of the association, and precluded the granting or assignment of tenancies to persons other than members: Housing Associations Act 1985, s 1(2)).  A tenancy granted by a fully mutual housing association no longer attracts security of tenure under either the Housing Act 1985 or the Housing Act 1988 and, thus, is now ordinarily terminable by notice to quit.

On December 13, 1993, the appellant and respondent entered into an occupancy agreement which provided that “[t]he Association shall let and the Member shall take the [property] from the 13th day of December 1993 and thereafter from month to month until determined as provided in this Agreement.” The agreement conferred exclusive possession on the appellant at a rent of £89 per week.

Clause 6 of the agreement provided for determination of the tenancy and read as follows:

“6. This Agreement may be brought to an end by the Association by the exercise of the right of re-entry specified in this Clause but ONLY in the following circumstances:-

a) If the rent reserved hereby or any part thereof shall at any time be in arrear and unpaid for 21 days after the same shall have become due . . .

b) If the member shall at any time fail or neglect to perform or observe any of the stipulations conditions or provisions contained in this Agreement which are to be performed and observed by the Member

c) If the Member shall cease to be a member of the Association

d) If a resolution is passed under . . . the Association’s Rules regarding a proposal to dissolve the Association

THEN in each case it shall be lawful for the Association to re-enter upon the premises and peaceably to hold and enjoy the premises thenceforth and so that the rights to occupy the premises shall absolutely end and determine as if this Agreement had not been made (but without prejudice to any right of action or remedy of the Association).”

On February 11, 2008, the respondent served a notice to quit on the appellant owing to alleged rent arrears and, upon its expiry, commenced possession proceedings.  The appellant defended the proceedings, arguing that she did not have any rent arrears. The respondent applied to strike out the defence. It argued that, regardless of whether there were any such arrears, the tenancy was of uncertain duration as a result of the operation of cl.6 (i.e. because the conditions for determination of the lease in cl.6 may never occur, and the lease was expressed to be for a duration ending only on the occurrence of one of those conditions, the term was uncertain).  It was argued that, nevertheless, an implied monthly periodic tenancy arose, terminable by notice to quit.  The application to strike out the defence was dismissed.

The respondent appealed to the High Court which allowed the appeal and made a possession order against the appellant: [2009] EWHC 2392 (Ch). At this point, the respondent agreed to enter into a fresh occupancy agreement with the appellant thereby rendering any appeal academic between the parties.  However, as the respondent had a large number of properties occupied pursuant to such agreements (as had other associations), the Court of Appeal entertained the appeal as a test case: [4].

The arguments on appeal

The Claimant argued that Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 was clear authority for the proposition that a term of uncertain duration cannot create a lease and that consequently, the entire occupancy agreement was void (including cl.6).  In the absence of the agreement, the appellant enjoyed exclusive occupation of the property from month to month.  By implication, this amounted to a monthly periodic tenancy in accordance with the decision in Street v Mountford [1985] AC 809.  Such a tenancy was terminable by notice to quit.

The Defendant argued that:

a)      although at law the occupancy agreement was incapable of creating a tenancy, in equity the defendant was entitled to rely on the terms of the agreement against the association. Accordingly, the defendant could seek to enforce cl.6 by way of specific performance or an injunction; or

b)      alternatively, the occupancy agreement granted the defendant a licence to occupy the flat, which licence could only be terminated in accordance with cl.6.

The Defendant sought to distinguish the decision in Prudential on the basis that the parties to that case were successors to the agreement and could only rely on their property rights, as such, equity could not assist them.  In this case, both parties were the original parties to the occupancy agreement.

Judgment

Contractual licence

The Court of Appeal roundly rejected the assertion that the occupancy agreement created a licence, relying on the decision in Lace v Chantler [1944] KB 368, CA: [72].  The parties intended to create a tenancy which as a matter of law they failed to do but, “[t]he court is not then justified in treating the contract as something different from what the parties intended and regarding it merely as a contract for the granting of a licence. That would be setting up a new bargain which neither of the parties ever intended to enter into. The relationship between the parties must be ascertained on the footing that the tenant was in occupation and was paying a weekly rent. Accordingly, it must be the relationship of weekly tenant and landlord and nothing else: Lace (above) per Lord Greene MR at pgs.371-372.”

Equity

There was disagreement between the Court on the question whether the terms of the agreement survived independently of the void lease and were enforceable in equity as between the parties. After reviewing the leading authorities, Lord Justice Aikens (with whom Mummery LJ agreed) held that equity does not permit a purported tenant to enforce the terms of a contract by way of specific performance or an injunction in circumstances where the terms upon which the purported tenant relies are wholly inconsistent with the grant of a lease: [70], [81].  This conclusion was reached reluctantly and with calls for Parliament to intervene to address the requirement (embodied in s.1(1), Law of Property Act 1925) that a lease be of certain duration: [74], [79].

Lord Justice Wilson gave the dissenting judgment.  He held that, whilst at law the agreement did not create a tenancy, it remained a valid contract, the terms of which were enforceable in equity.  Clause 6 prevented the association from terminating the agreement save in specified circumstances which were not fulfilled (on any summary assessment) in this case: [31].

Supreme Court

On 8 November 2010, the Supreme Court gave the appellant leave to appeal. That appeal will be heard on 5 October 2011.

The question for the Supreme Court is in two parts, namely:

(1) Is a purported lease that seeks to grant a tenancy for an uncertain term void?
(2) If such a purported lease is void at common law, can its terms nevertheless be enforced in equity?

The issues raised by this appeal potentially have ramifications well beyond the scope of accommodation purportedly let by fully mutual housing cooperatives.  It will be problematic for their Lordships to come to a decision in favour of the appellant on the first question which does not offend against the Law of Property Act 1925, s 1(1). As for the second question, there is plainly scope for the decision in Prudential to be distinguished from this case (for the reasons referred to above) which leaves open the application and scope of equitable relief in this case.  It is somewhat unfortunate that the Supreme Court will not consider whether (in accordance with the observations of the majority in the Court of Appeal) an estoppel exists which would operate so as to prevent the appellant from being evicted other than on the terms of cl.6 of the agreement: [70].  Furthermore, it strikes the author that the Supreme Court may be interested in the concept of the occupancy agreement taking effect as the grant of a lease for a term of years determinable with a life: per Mummery LJ at [84].