The UK Supreme Court is the final civil court for cases in both Scotland, and England and Wales, and in matters of property law, the judges will find themselves having to consider what are often very different legal principles and regulations, depending on the jurisdiction. However, this knowledge of the law in the other jurisdiction can help to identify flaws in current laws or practice, and, in the recently decided case of Berrisford v Mexfield Housing Cooperative Limited [2011] UKSC 32, as well as relying on 16th century case law and a provision of the Law of Property Act 1925, the Supreme Court highlighted the different common law and legislative provisions under Scots Law, which, had they applied in England and Wales would have made their decision a lot easier.

The background to the case

Mexfield, a fully mutual housing cooperative association, let property to Ms Berrisford. The housing cooperative was set up by a bank as part of a mortgage rescue scheme to purchase mortgaged properties from individual borrowers. Those borrowers then became members of the housing cooperative and entered into an Agreement by which they took occupation of the premises.

There were two clauses in the Agreement dealing with termination provisions:

  • Clause 5 entitled Ms Berrisford to terminate the Agreement on one month’s notice; and
  • Clause 6 permitted Mexfield to terminate the Agreement and exercise its right of re-entry in certain circumstances, namely:
  1. rent was in arrears and remained so for 21 days;
  2. Ms Berrisford failed or neglected to perform or observe any of the terms of the Agreement;
  3. Ms Berrisford ceased to be a member of the housing cooperative; or
  4. there was a resolution passed under Mexfield’s rules to dissolve the company.

Ms Berrisford was in arrears of rent for a short period of time. Mexfield did not serve a notice to quit in terms of clause 6 of the Agreement as it was entitled to. Instead, Mexfield served a notice to quit on the basis that the Agreement was a periodic tenancy, and then raised proceedings in the County Court seeking possession of the property in accordance with the procedures under the Protection from Eviction Act 1977.

The case at first instance

Mexfield argued that the Agreement was a periodic tenancy (either weekly, due to the payment of rent, or a monthly tenancy on the basis of intention of the parties), which entitled the landlord to terminate either on a week’s notice or on a month’s notice. They did however accept that under statute they would be required to give the four weeks’ notice prescribed by the 1977 Act.

The Court of Appeal

The Court of Appeal accepted Mexfield’s argument. However, whereas some of the judges considered they were bound by the authorities to reach such a decision, one of the judges held that Ms Berrisford was entitled to hold Mexfield to the contractually agreed rights of termination set out in clause 6 of the Agreement. A further appeal was raised in the Supreme Court.

Supreme Court decision

Five propositions on behalf of the tenant

The tenant’s arguments consisted of five points:

  1. the Agreement “purports” to be the grant of a tenancy for a term determinable by Ms Berrisford under clause 5, or by Mexfield through exercising its rights under clause 6;
  2. such an arrangement cannot constitute a valid tenancy in law (subject to points (iii) and (iv) below);
  3. prior to 1926 such an arrangement would have been a “term for the life of the tenant” subject to termination under clauses 5 and 6;
  4. under Section 149(6) of the Law of Property Act 1925 a “term for the life of the tenant” is now a tenancy for 90 years (again, subject to termination in terms of clauses 5 and 6); and
  5. notice has not been served under either clause 5 or clause 6, therefore the 90 years tenancy still subsists.

Interpretation

The judges rejected Mexfield’s view that the Agreement continuing “from month-to-month” entitled the landlord to terminate the Agreement on one month’s notice. The judge applied the general approach to interpretation of written contracts, namely, looking at what the parties agreed and the circumstances in which they were agreed. It was relevant to this case that the Agreement was as a result of a mortgage rescue situation. The opinion was that Ms Berrisford’s occupation was not intended to be precarious and terminable on one month’s notice. Bearing this in mind and looking at the actual words of the Agreement, the parties clearly intended that the circumstances for determining the agreement were those set out in clauses 5 and 6.

Historic legal principles

The Court recognised the long established view that an uncertain term rendered an agreement incapable of being a tenancy in the sense of being “a term of years”. This view was accepted in the House of Lords in 1992 in the case of Prudential Assurance Co Limited v London Residuary Body [1992] 2AC386 in which the court confirmed (even though they were not entirely satisfied with the law in this area) that the arrangement for the leaseback of land was incapable of creating a tenancy as it was for an uncertain duration.

The judgement in that case also commented on the position for periodic tenancies. An agreement which gives rise to a periodic arrangement can give rise to a valid tenancy on the basis that there is a maximum duration, notwithstanding that it is one that continues and repeats itself. If, however, there is a fetter on the right to serve a notice to quit, either because no one or only one party had such a right, the arrangement could not be regarded as a valid tenancy.

Another reason for the Supreme Court maintaining the status quo for Ms Berrisford, was the use of the Law of Property Act 1925 which resolved whether there was a valid tenancy at law. The 1925 Act recognised that prior to its enactment the common law converted a lease for an uncertain duration to a life tenancy for an individual and Section 149(6) of that Act transforms a life tenancy into one for a period of 90 years. The common law operated in this way to protect arrangements that may otherwise have been invalidated for technical reasons alone. The Agreement with Ms Berrisford was converted and the Act then transformed that Agreement into one for a term of 90 years. The only methods of terminating the 90 years term are the provisions of clauses 5 and 6. Since neither have been triggered, Ms Berrisford was entitled to retain possession of the property for the balance of the 90 years subject to clauses 5 or 6.

Opinions of the other judges

The six other judges in the case agreed with Lord Neuberger’s decision. Two particular matters that were highlighted were:

  • The ordinary principles of contractual interpretation were correctly employed in construing the meaning of the Agreement.
  • There is great support for urgent action by Parliament or the Law Commission to reconsider the law relating to the requirement of certainty.

Geographical differences

Lord Hope also took the opportunity to express the legal position if the case had arisen in Scotland. His first observation was there was a different status for mutual housing associations in Scotland. In England, due to its creation under the Housing Associations Act 1985 and the Housing Act 1985 and the effect of the registration under the Industrial and Provident Societies 1965, it is not possible for a housing cooperative to create assured tenancies or secure tenancies. Sections 58 and 59 of the Housing (Scotland) Act 2001, however, mean that fully mutual housing cooperative associations are eligible for registration as social landlords and, a consequence of registration is creation of a secured tenancy when the tenant is member of housing cooperative.

Lord Hope struggled to understand why, under English Law, it is not easier for the judges to conclude that if the Agreement is not a tenancy for technical reasons, it is in any event a binding contract. The judges had an issue with the fact that the parties had intended to create a tenancy and if on the evidence they had not done so, would it be the court’s place to imply a contractual licence? The judges did conclude that the Agreement constituted a binding personal contract between the parties, but it was not an easy conclusion to reach based on earlier authorities. Such a stance enabled Ms Berrisford to enforce her rights to rely on the contractual terms as being the only method for the Agreement to be brought to an end.

Under the common law in Scotland, a lease is a contract which immediately gives the tenant personal rights to the subjects. Lord Hope also referred to case law in Scotland which shows that as between original parties, it is possible to grant leases for indefinite periods of time. If the agreement does not provide for the term, and this is required to resolve an issue between the original parties, a term will be implied by law. Lord Hope made the point that the Scottish Courts would not imply any duration in the present case because the contract was quite clear that there were circumstances which could bring the contract to an end.

Notwithstanding his comparison to the legal position in Scotland, Lord Hope expressed the opinion that it is for Parliament to decide how to resolve the question for the future. He also concluded that English housing cooperatives should be empowered similarly to those in Scotland, whereby registration could entitle them to grant secure, protected tenancies.

Conclusion

Mexfield appears to have had its own financial troubles according to some of the evidence in the case. As a result of this, much of the decision making was said to have been at the instigation of the businessman behind the debt bail-out. The case was in some ways about ascertaining the extent of the commercial options available so far as recovering its other properties. It was noted in the Supreme Court judgement that Mexfield was prepared to grant a fresh lease to Ms Berrisford if her appeal failed. It is unlikely however that Mexfield imagined the outcome would be Ms Berrisford’s entitlement to a tenancy for a term of 90 years!

It will be interesting if the call for Parliament and the Law Commission to reconsider the role of certainty as to term and the outcome of the House of Lords decision in Prudential materialises in action. The matter of the common law rule converting such leases to life tenancies and then in turn to tenancies for a term of 90 years duration may also be impacted by any reform in this area.

In addition, it may well be that Lord Hope’s insight into the law in relation to housing cooperatives in Scotland leads to a review of the law in England in this area. The legislation controlling the position of landlords and tenants of housing cooperatives may change to introduce security for tenants similar to the statutory protection currently available for such tenants in Scotland.

To read the decision in Berrisford v Mexfield Housing Cooperative Limited click here.

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