Exclusive possession and property guardians

February 21, 2020

In Camelot Guardian Management Ltd v Khoo ([2018] EWHC 2296) the court had to consider whether an agreement with a ‘property guardian’ created a lease or a licence.

Facts

Westminster City Council (‘the council’) appointed Camelot Guardian Management Ltd (‘CGML’) to provide security services in respect of a temporarily empty office building (‘the property’). This agreement envisaged that CGML would grant licences to suitable guardians and carry out regular inspections of the property until the council wanted it back.

CGML entered into an agreement (‘the agreement’) with Mr Khoo giving him the right to occupy a room in the property.

The agreement had a number of features designed to emphasise that it created a licence and was not a tenancy:

  1.  it was headed ‘licence agreement’;
  2.  it included an ‘important note’ emphasising that Mr Khoo would share the property with others;
  3.  it recorded CGML’s agreement with the council concerning the property;
  4.  Mr Khoo could choose a room but could be required to move to another room by CGML;
  5.  Mr Khoo could change the room he used but had to notify CGML of the change;
  6.  Mr. Khoo could not have visitors stay overnight.

In August 2017 the council gave notice to CGML that it would shortly require the property back. CGML served notice to determine Mr. Khoo’s licence. Mr. Khoo refused to move out and claimed to be an assured shorthold tenant. It was agreed that if Mr Khoo was a tenant then he was an assured shorthold tenant and the claim for possession should be dismissed.

Legal analysis

Butcher J. explained that after  Street v Mountford ([1985] 1 AC 809) the court had to consider whether, properly interpreted, the agreement conferred exclusive possession on the occupier.

Construction of the agreement involves looking at the words used in the light of the relevant background. The court should be astute to detect a sham: it should be alert to the possibility that the words used were a dishonest attempt to mislead as to the true substance of the agreement between the parties. When considering the question of a sham the court was entitled to look at how the parties behaved after the agreement was reached.

Butcher J concluded that Mr Khoo did not have exclusive possession and was not a tenant.

The terms described above all pointed in this direction. CGML’s agreement with the council and its underlying purpose were part of the relevant background ([28] – [29]). The circumstances surrounding the agreement (the language used in the website and the fact that Mr Khoo was shown a particular room) were part of the background but did not detract from the conclusion that this was a licence.

On the idea of a sham, Butcher J. observed that:

it has to be borne in mind that not every departure from the terms of a contract and how it is operated indicates that the relevant agreement was a pretence when entered into. Furthermore, the fact that a contractual right is not exercised does not of itself mean that it ceases to exist. The relevant party may be entitled subsequently to insist on its performance nevertheless’ ([33]).

There was no sham, no ‘element of dishonesty’ here ([34] – [36]).

Michael Lower

 

 

‘Exclusive possession’ and property operated by charities

February 19, 2020

In Watts v Stewart ([2016] EWCA Civ 1247) Ashtead United Charity (‘Ashstead’) owned almshouses. Its governing instrument provided that the persons selected to occupy an almshouse had to be chosen from among ‘poor single women of not less than 50 years of age who are inhabitants of the ancient parish of Ashstead’. Mrs. Watts was given the right to occupy one of the almshouses.

Ashstead’s governing instrument empowered Ashtead to ‘set aside the appointment of any resident who in their opinion –

(a) persistently or without reasonable excuse either disregards the regulations for the residents or disturbs the quiet occupation of the almshouses or otherwise behaves vexatiously or offensively’.

Ashtead’s agreement with Mrs Watts provided that she could be removed for ‘serious misconduct’.

Ashstead sought to evict Mrs Watts because of her admitted misconduct. The English Court of Appeal heard Mrs Watts’ appeal against the order for eviction made at first instance. Sir Terence Etherton MR delivered the Court of Appeal’s judgment.

Exclusive possession

Mrs. Watts argued that she was not a licensee but was at first a tenant at will and, once she began to make rent payments, a periodic tenant. The question was whether she had exclusive possession.

The Court of Appeal distinguished between the ‘legal exclusive possession’ of the tenant and the ‘personal right of exclusive occupation’ of licensees such as lodgers ([31]).

The court pointed to a number of provisions in Ashtead’s governing instrument which pointed away from an intention to grant legal exclusive possession. This provided that residents would not be tenants, could be required to leave, could only have visitors stay with them with Ashstead’s consent, could not leave the almshouse empty for more than 28 days in any year without consent and could be required to leave on the grounds of serious misconduct ([39]).

There was no hint that these terms could be regarded as ‘sham’ ([40]). Rather:

‘the Trustees could only properly discharge the trusts of the Charity, which limited its objects to those in need, hardship or distress, if a personal revocable licence was granted (which could be revoked if, for example, the occupier no longer became qualified under the Scheme because they became wealthy). ([40]).

A little later the court said:

‘The status of a beneficiary occupying trust property will depend upon the terms and conditions on which the occupation was permitted.’ ([45])

The terms of the governing instrument are an important part of the context for the purposes of the interpretation of the agreement.

Mrs. Watts had a personal licence to occupy the property. She did not have ‘legal exclusive possession’ and was not a tenant ([46]).

Michael Lower

 

 

Tenant holding over and negotiating new lease: when is there a periodic tenancy?

February 8, 2020

In Erimus Housing Ltd v Barclays Wealth Trustees (Jersey) Ltd ([2014] EWCA Civ 303) Erimus Housing occupied office premises under a five year lease. When the lease came to an end, they continued paying rent. The parties engaged in negotiations for the grant of a new lease but without any great sense of urgency. Eventually, after two years, the terms of a new lease were agreed. Then the tenants changed their mind and gave notice that they intended to vacate the property.

The landlords argued that by holding over and paying rent the tenants had entered into an implied yearly tenancy and had to give six months’ notice to quit expiring at the end of a complete year of the tenancy. The tenants argued that their possession was on the basis of a tenancy at will.

Patten LJ referred to the judgment of Nicholls LJ  Javad v Aqil:

‘Of course, when one party permits another to enter or remain upon his land on payment of a sum of money, and that other has no statutory entitlement to be there, almost inevitably there will be some consensual relationship between them. It may be no more than a licence determinable at any time or a tenancy at will. But when and so long as such parties are in the throes of negotiating larger terms, caution must be exercised before inferring or imputing to the parties an intention to give to the occupant more than a very limited interest, be it licence or tenancy. Otherwise the court would be in danger of inferring or imputing from conduct, such as payment of rent and the carrying out of repairs, whose explanation lies in the parties’ expectation that they will be able to reach agreement on the larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties never had in contemplation at all. ‘ (Javid v Aqil [18])

It is all a question of what the parties could reasonably be taken to have intended.

Thus:

‘The payment of rent gives rise to no presumption of a periodic tenancy. Rather, the parties’ contractual intentions fall to be determined by looking objectively at all
relevant circumstances’ (Erimus Housing at [23] per Patten LJ).

In  Erimus Housing, it was unlikely that the parties intended to create a periodic tenancy:

The most obvious and most significant circumstance in the present case, as in Javad v Aqil, was the fact that the parties were in negotiation for the grant of a new formal lease. In these circumstances, as in any other subject to contract negotiations, the obvious and almost overwhelming inference will be that the parties did not intend to enter into any intermediate contractual arrangement inconsistent with remaining parties to ongoing negotiations. In the landlord and tenant context that will in most cases lead to the conclusion that the occupier remained a tenant at will pending the execution of the new lease.’ (Erimus Housing at [23]).

There was no implied periodic tenancy.

Michael Lower

Partition where squatter acquires title to part of land of paper owner

January 17, 2020

In Fan Kiu v Li Kwai Wan ([2020] HKCFI 130) F acquired title by adverse possession to land. The land in question was part of the land covered by three separate formal titles. F sought partition of the land in respect of which she had defeated the rights of the formal owners and a declaration that she was the sole owner of the relevant parts. She wanted to be registered as the sole owner of the land to which she had acquired title.

Deputy Judge William Wong SC held that she and the formal owners were co-owners for the purposes of the Partition Ordinance. A squatter of part of the land covered by a paper title could be seen as a co-owner with the formal owner who retained ownership of the rest of the land covered by the paper title. This was so even in respect of those parts of her land where the formal owner was a tso ([47]).

Partition would be beneficial to the development of the land. It would help F to get the consents she needed to demolish her existing dilapidated house on the land and build a new house. This was consistent with one of the purposes that the law of adverse possession is designed to achieve (encouraging the development and improvement of land) ([65]). The formal owners could not be contacted despite extensive efforts to do so.

Even without partition, F was entitled to a declaration to the effect that she was the sole owner of the land covered by her successful adverse possession claim ([59]).

F was granted the orders for partition and the declarations that she sought.

Michael Lower

Purchaser pays owner who enters into a second contract to sell to a third party

December 14, 2019

Introduction

In Mui So Bing v Wan Chi Sing ([2019] HKCA 1341) D1 and D2 orally agreed to sell property to P. The parties later entered into signed written agreements; these were not registered at the Land Registry.

P paid the entire purchase price in stages to D1 and D2. D1 and D2 then entered into signed written agreements to sell the same property to D3 and D4. D3 and D4 registered their agreements at the Land Registry.

At first instance, P’s claim to be entitled to the property as against D3 and D4 based on a presumed resulting trust failed. The facts did not bring the case within any category of resulting trust. There was no voluntary transfer by P nor did P provide any part of the purchase price at the time of D1 and D2’s acquisition.

P’s claim against D1 and D2 in unjust enrichment succeeded.

P appealed against the first instance decision seeking to rely instead on the common intention constructive trust or the vendor and purchaser constructive trust.

The common intention constructive trust

While a common intention constructive trust can arise in the commercial context, there was no such trust here. There was no basis for finding that D1 and D2 had agreed to hold the property on trust for P. They had agreed to sell the property to P ([25] Yuen JA).

Vendor and purchaser trust

The vendor and purchaser resulting trust only arises if specific performance is available ([27.3]). Since P had not argued for the existence of such a trust at trial, a number of facts relevant to whether specific performance would be awarded were not explored ([27.4]). It was too late for P to raise this argument on appeal.

Priority

In any event, the contract with D3 and D4 had priority over the contract with P. P had not registered and so D3 and D4 could rely on section 3(2) of the Land Registration Ordinance. Notice was irrelevant because D3 1nd D4 had duly registered ([28.4]).

Any unwritten equity that P may have had (though the Court of Appeal was clearly sceptical as to whether there was any) was subsumed by the written agreement between P and D1 / D2 ([28.3])

Importance of pleading the relevant legal consequence

The Court of Appeal was severely critical of P’s attempt to plead legal consequences (common intention constructive trust and vendor and purchaser constructive trust) for the first time on appeal:

 ‘As the court’s primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties, and to further these objectives by actively managing cases 35 , it seems to me to be high time that consideration should be given to requiring legal representatives to plead not only material facts, but also all the legal consequences to which those facts validly lead 36 , with the effect that the parties would be barred from contending different legal consequences on appeal.’ ([23.3] per Yuen JA).

Michael Lower

Equitable subrogation: Filby v Mortgage Express (No 2)

November 21, 2019

Introduction

In Filby v Mortgage Express (No 2) Ltd ([2004] EWCA Civ 759) the English Court of Appeal (May LJ giving the judgment) explained the circumstances in which a lender who supplies funds to pay off earlier loans made by another creditor is subrogated to the rights of that creditor. It also decided that subrogation can apply to unsecured rights of the creditor whose loan has been repaid.

Facts

H and W were joint owners of a house. They granted a charge to Halifax BS and had an unsecured loan from the Midland Bank. H borrowed money from Mortgage Express. He purported to grant a charge over the property to Mortgage Express but forged his wife’s signature on the charge. It was not therefore binding on her.

The loan from Mortgage Express was partly used to pay off the Halifax loan and it was accepted that Mortgage Express was subrogated to the Halifax’s secured rights. The rest of the loan was used to reduce the couple’s unsecured loan indebtedness to the Midland Bank.

The question was whether Mortgage Express could be subrogated to Midland Bank’s unsecured rights against H and W.

The law

May LJ explained that A’s right to equitable subrogation arises:

  1.  to reverse what would otherwise be an unjust enrichment of B at A’s expense;
  2.  B is enriched if her financial position is materially improved (usually where, as here, B is relieved of a financial burden);
  3.  the enrichment is at A’s expense if A’s money has been used to relieve B of the financial burden;
  4. the enrichment is unjust if A does not get the security that they had bargained for;
  5.  B’s financial improvement is properly seen as a windfall;
  6.  it is enough that A’s money is in fact used to bring about the improvement (the intention of A or B or both as to how the money would be used is irrelevant). ([62])

Equitable subrogation does not give A more than they bargained for.

‘The essence of the remedy is that the court declares the claimant to have a right having characteristics and content identical to that enjoyed, in this instance, by Midland Bank (see Birks, at page 95), subject to any modification (for example as to rates of interest) necessary to ensure that the claimant does not get more than he bargained for. ‘ ([63])

The decision

Mortgage Express was entitled to be subrogated to the unsecured rights of the Midland Bank arising under the joint loan account ([64]).

Michael Lower

 

Developer retains exclusive right to use the external walls. Are they common parts?

November 14, 2019

Introduction

In Kong Wai Hsien v Tai Wai Glamour Garden (IO) ([2019] HKCA 1229) the Court of Appeal had to consider whether the external walls of a building were common parts even though the DMC reserved to the developer the exclusive right to use them.

Individual owners claimed that they were not liable to contribute to the cost (of over HK$5 million) of carrying out maintenance works on the external walls and other common parts.

The individual owners argued that these walls were not common parts since the DMC granted the developer exclusive rights over them.

Were the external walls ‘common parts’ in the sense that they were not part of the estate the exclusive use of which had been allocated to an owner? This was a question of contractual interpretation of the DMC.

Relevant DMC provisions

The DMC for the building allocated 20 shares to the common parts, expressly defined to include the external walls. The developer retained the ownership of these 20 shares and the associated rights over the common parts.

The rights given to the owner of the common parts by the DMC included the exclusive rights to use the external walls: (a) by placing pipes, wires, machinery etc on them; and (b) the exclusive right to use, or allow others to use, the external walls for advertising purposes,

The owners argued that the rights granted to the Developer over the external walls were so extensive that there was no use left for other owners.

The decision

The Court of Appeal decided that the walls were common parts despite the DMC’s grant of the exclusive right to make certain types of use of them.

All of the owners derived benefit from the external walls despite the rights granted to the Developer: ‘ the External Walls by providing the external framework to the Building also serve to hold and support the Building and prevent damage to its interior. All the co-owners or occupiers of the Building have the right to enjoy such use’ ([40] Au JA).

The Developer did not have exclusive right to use the external walls. They were common parts and all owners could be made to contribute to the maintenance costs through the management charge.

Michael Lower

 

When does the proprietary estoppel right arise?

November 11, 2019

In Walden v Atkins ([2013] EWHC 1387) the court held that a proprietary estoppel claim arises when there is promise, reliance and detriment and not when the maker of the representation goes back on it.

C sold property to DW and MW at a substantial discount to market value. He did so in reliance on DW and MW’s promise that they would ensure that the ownership of the property would revert to him on the death of the survivor of DW and MW.

DW died first and then MW died. MW left the property to E. C brought a claim in proprietary estoppel.

E argued that C had no standing to bring the claim. C had gone into bankruptcy and the effect was to vest C’s property in the trustee in bankruptcy. Did C have a proprietary right at that time?

C argued that the equity did not arise until MW died without giving effect to his promise and this was long after C’s bankruptcy.

The argument failed:

‘On the assumed facts, what happened was that by the sale of 37 Archery to DW and MW in January 1976 at a discount greater than 50% on the then market value, C acted to his detriment in reliance on the promise the subject of the 1975 Agreement. The promise thereby became irrevocable and the estoppel arose’ (at [35] per HHJ Simon Barker QC).

A little later:

‘The equity comes into existence, if at all, as the result of a promise being made to and relied upon by and a detriment being suffered by a promisee. It is at that point that the promise becomes irrevocable, the equity is recognised, and it is this equity to which the definition of property at s.436 IA 1986 is to be applied.’ [(48)]

This is so even though the question of unconscionability, and what may be necessary to undo it, is not considered until the later time when the promise falls to be performed ([45]).

Michael Lower

 

Occupation rent: joint tenant’s trustee in bankruptcy

October 12, 2019

What principles govern an application for occupation rent by a joint tenant’s trustee in bankruptcy?

The facts

In Davis v Jackson ([2017] EWHC 698 (Ch)) Mr and Mrs Jackson were legal and equitable joint tenants of their family home. The couple were estranged when the property was acquired and it was never envisaged that Mr Jackson would live in it. Mrs Jackson made all the mortgage payments.

Mr Jackson was made bankrupt and the trustee in bankruptcy obtained an order for the sale of the property and an equal division of the proceeds of sale between him and Mrs Jackson.

The court ordered that there should be equitable accounting and that Mrs Jackson should be entitled to a contribution from the trustee of one half of the mortgage payments made by her up to the time of the sale of the property.

The trustee in bankruptcy contended that it should be entitled to charge Mrs Jackson an occupation rent in respect of her occupation during the period after the bankruptcy.

The relevant law

The default position is that an occupation rent is not payable; there must be some conduct or feature of the case that would justify equity in requiring the occupier to pay rent ([61]).

When deciding on whether such circumstances exist, ‘the court can have regard to the circumstances in existence before the tenant in common seeking payment of an occupation rent acquired his interest’ ([67] per Snowden J).

The court ‘has a broad equitable jurisdiction to do justice between co-owners on the facts of each case’ ([71]).

It was never envisaged that Mr Jackson would occupy the property:

‘That being so, for my part I simply cannot see how it could be in accordance with equity or justice for the Trustee, who has simply had Mr. Jackson’s interest in the Property vested in him, automatically to become entitled to claim an occupation rent from Mrs. Jackson. The Trustee has in no sense been excluded from the Property; and it is not merely that it is unreasonable for the Trustee to start occupying the Property with Mrs. Jackson and her children; the true position is that Mr. Jackson never had such a right at all. I therefore do not see how the Trustee can in effect claim to stand in a better position and charge Mrs. Jackson rent in place of seeking to occupy the property’ (75]).

Mrs Jackson could not be charged an occupation rent.

Michael Lower

Equitable accounting: is an ouster necessary before an occupation rent becomes payable?

October 9, 2019

In Murphy v Gooch ([2007] EWCA Civ 603), a co-habiting couple bought a 25% stake in a shared ownership property. The relationship between the couple broke down and Ms Murphy left the property. Ms Murphy applied for a declaration that they were tenants in common in equal shares, an order for sale and for an account to be taken as part of which Mr Gooch should be ordered to pay an occupation rent in respect of the period in which he was in sole occupation.

The English Court of Appeal (Lightman J giving the judgment) held that Mr Gooch could be ordered to pay an occupation rent if this was just and equitable even if there was no ouster ([18]).

Lightman J was prepared to hold, in any event, that there was a ‘constructive ouster’ since Ms Murphy left the property on the breakdown of the relationship ([18]).

Ms Murphy was entitled to set this occupation rent off against the sums paid by Mr Gooch in respect of mortgage interest and the rent payable in respect of the 75% share of the property still owned by the Housing Association from which the couple bought their share ([21]).

This decision was reached under the terms of the Trusts of Land and Appointment of Trustees Act 1996. Lightman J states, however, that the same decision would have been reached through an application of equitable accounting principles.

Michael Lower