In the recent case, Berrisford v Mexfield Housing Cooperative Limited [2011] UKSC 32, a seven judge decision from the Supreme Court relied on 16th century case law and a provision of the Law of Property Act 1925. In the various summations, some interesting contractual scenarios were explored.
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 whereby they took occupation of the premises.
The term as documented in the Agreement was “...from 13 December 1993 and thereafter from month-to-month until determined as provided in this Agreement” and the rent was payable weekly in advance. The rent was subject to annual increases linked to the Retail Price Index plus 2% and at least one month’s notice was to be given to the tenant in writing to trigger uplift in the rent. There were two clauses 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, rent was in arrears and remained so for 21 days; Ms Berrisford failed or neglected to perform or observe any of the terms of the Agreement; Ms Berrisford ceased to be a member of the housing cooperative; or there was a resolution passed under Mexfield’s rules to dissolve the company.
The tenancy had passed without incident until Ms Berrisford was in arrears of rent for a short period of time. The rental payments were made as soon as possible after their due date and 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 reason for following the procedure under the 1977 Act was the fact that Mexfield was a mutual housing cooperative association and Ms Berrisford was a member so the usual statutory protection for tenants did not apply.
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. This approach applied the reasoning in the House of Lords’ decision in Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 to conclude that the Agreement was the type of arrangement that could not give rise to a valid tenancy at law. The judge refused Mexfield’s application.
The Court of Appeal
The case was important from Mexfield’s point of view as there were a number of other agreements in the same standard form. The outcome would determine how they were able to deal with future repossessions of their properties and so the decision was appealed. 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
Counsel for the tenant put forward five points, namely, (i) 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; (ii) such an arrangement cannot constitute a valid tenancy in law (subject to points (iii) and (iv) below); (iii) 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; (iv) 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 (v) 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”, quoting from the case of Say v Smith [1563] Plowd 269, 272 “every contract sufficient to make a lease for years ought to have certainty in three limitations, namely in the commencement of the term, in the continuance of it and in the end of it … and words in a lease, which don’t make this appear, are but babble”. 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 whereby the court confirmed (albeit 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, albeit 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.
Several of the judges both in that House of Lords case and in the present case, expressed dissatisfaction that their reasoning was based on 500 years of judicial acceptance that an agreement with a term of an uncertain duration cannot be a valid tenancy. That said, they took the view that they should not stray from centuries of established law on the matter so as not to affect existing titles to land that relied on the point of law.
The Supreme Court maintained the status quo for Ms Berrisford using the Law of Property Act 1925. 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 were highlighted:
- The ordinary principles of contractual interpretation were correctly employed in construing the meaning of the Agreement. The matter at issue was determined according to the law relating to landlord and tenant principles and how to establish whether the Agreement was a tenancy. If the case had been considered in contract rather than landlord and tenant Law, the question was whether or not there was a binding personal contract between Mexfield and Ms Berrisford. The court was quite clear that had Ms Berriesford not been able to claim a tenancy of the premises, she would have been entitled to enforce contractual rights under the personal contract with Mexfield.
- Certainty as to term is needed at the outset, to create a valid tenancy at law. There is great support for urgent action by Parliament or the Law Commission to reconsider the law relating to this requirement. The judges in this case did not see the Supreme Court as the appropriate forum for the change that is required. Their call upon Parliament or the Law Commission to do so is due to the “certainty requirement” causing practical consequences that are not in harmony with modern contractual arrangements. In addition, Section 149 (6) of the 1925 Act operated for the tenant as an individual but would not have been able to be used in the case of a corporate tenant; the situation of having two standards according to the make-up of the tenant in the modern day, did not sit well with the judges.
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 2007, 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 was at pains 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 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 property. If ownership passes however a tenant cannot enforce exclusive rights against a new owner, unless the tenant has a real or proprietary right, which would require registration in the Land Register.
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 protected or secured 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 business man behind the debt bail-out. The case was in some ways about ascertaining the extent of the commercial options available so far as recovering the properties was concerned. It was noted in the Supreme Court judgment 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, bringing the legislation controlling the position of landlords and tenants of housing cooperatives, bringing security for tenants into the realms of the statutory protection currently available in Scotland.