LORD JUSTICE CHADWICK: The appellant, Surrinder Singh Sandhu, and his wife, Sukhvinder Sandhu, are registered at HM Land Registry under Title MX 225765 as proprietors of freehold property at 38 Audley Road, Hendon, London NW4. They purchased that property in 1980. It comprises a semi-detached dwelling house on two floors.

After living there for some years they decided to convert the property into two flats. In about May 1988 - acting through Mr Sandhu, who was at that time a solicitor in practice on his own account under the name Sandhu & Co - they agreed to sell the first floor flat to the respondent, Samina Farooqui, then known by her former married name of Samina Sultan. At about the same time Mr and Mrs Sandhu agreed to sell the ground floor flat to another purchaser on a long lease of 124 years. The agreement with Miss Farooqui, it seems, was that she would take a transfer of the whole property subject to the long lease of the ground floor flat. The price she was to pay was £68,000. Sandhu & Co were to act for her in the purchase.

Miss Farooqui applied for mortgage finance in July 1988. She was told by her mortgage broker - falsely, as it turned out - that she had been offered an advance by the Trustee Savings Bank. On the basis that she would have funds available to complete the purchase - but without contracts having been signed or exchanged - she was allowed into possession of the first floor flat on or about 19 July 1988. On going into possession she paid the sum of £5,000 to Sandhu & Co by way of deposit against the purchase price. That sum had been provided to her by her brother, Ahmed Saleem Farooqui. Shortly thereafter it became clear that mortgage finance would not be forthcoming from TSB; but an alternative source of funds was found. On 19 August 1988 Midland Bank Plc made a mortgage offer of £63,000. Miss Farooqui expected that completion of the transaction would take place at or about the end of that month.

In preparation for completion (as she thought) Mr Sandhu produced a mortgage deed for her signature. Miss Farooqui noticed that the mortgage deed referred to the property to be mortgaged as leasehold property; rather than as the freehold property she had expected to purchase. Mr Sandhu explained that that was the way in which the conveyance of the property was to be effected. There was to be a grant of a long lease of the first floor flat followed by conveyance of the freehold of the whole. There is nothing unusual in a transaction in that form where a house has been converted into flats; and Miss Farooqui was content with that arrangement. There is no reason to doubt that she signed the mortgage deed. That she did so is confirmed by the fact that Sandhu & Co received the mortgage advance from Midland Bank on about 2 September 1988.

Thereafter Miss Farooqui continued to occupy the first floor flat in the belief that the transaction had been completed and that she had become the purchaser. She paid the monthly instalments due under the mortgage.

The sale of the ground floor flat was completed by grant of the long lease in October 1988. The sale of the first floor flat to Miss Farooqui was not completed, as it should have been, at the time of the mortgage advance or at all. Mr Sandhu, through his firm Sandhu & Co, appears to have been implicated in mortgage fraud. Mortgage fraud was, of course, prevalent at the end of 1988 when house prices were rising sharply. Miss Farooqui obtained no title. The Midland Bank obtained no security. Mr Sandhu obtained the purchase money; although what he did with it has not been revealed. By February 1989 his firm was the subject of intervention by the Law Society; and Mr Sandhu had left for an extended visit to the United States of America.

In May 1989 Miss Farooqui, still unaware that no title (leasehold or freehold) to the the first floor flat at 38 Audley Road had been transferred to her, decided to put the flat on the market. As a result she learned from the Harrow District Land Registry, in September 1989, that no application to register title on her behalf had been made by Sandhu & Co. On 14 November 1989 she decided to cease making payments under the mortgage and so informed the Midland Bank. In December 1989 she was reimbursed by the bank in respect of the mortgage instalments which she had made over the past year.

On 29 November 1989 Miss Farooqui and her brother Ahmed made a claim for compensation out of the Solicitors' Compensation Fund. That claim led to the payment to her of £6,080 by way of discretionary grant out of the Fund. The amount paid was equal to the aggregate of the deposit of £5,000 and disbursements of £1,080 which she had paid to Sandhu & Co as her solicitors. It appears that Midland Bank also made a compensation claim which led to repayment, by June 1990, of the mortgage advance out of the Compensation Fund. From that point, therefore, Miss Farooqui had recovered the £5,000 which she had paid as a deposit; the bank had recovered its advance; and Miss Farooqui was free from liability as a borrower under the mortgage.

The property remained registered in the names of Mr Sandhu and his wife, subject to the long lease of the ground floor flat. Miss Farooqui and her brother continued to occupy the first floor flat. Subsequently, they moved to other residential premises and let the flat to tenants from whom they collected rents.

Mr Sandhu returned to the United Kingdom in 1995. But he appears to have taken no steps to assert ownership in relation to the first floor flat at 38 Audley Road until, by a letter dated 9 June 2000 - the terms of which are astonishing in the circumstances - solicitors instructed by Mr Sandhu gave Miss Farooqui notice to quit. The letter is astonishing because it asks on behalf of Mr Sandhu (i) for the name of the solicitors who had acted for Miss Farooqui in her proposed purchase and (ii) to whom the deposit and completion monies were paid by Miss Farooqui. Those are questions to which Mr Sandhu well knew the answers. It was his firm that had acted for Miss Farooqui in the proposed purchase; and it was to his firm (and for his benefit) that the purchase monies had been paid. The letter concludes:

It may have been that letter which prompted Miss Farooqui to make application to the Land Registry for registration with possessory title in respect of the freehold of 38 Audley Road. That application was supported by a statutory declaration which she made on 17 November 2000. At paragraph 12 of her statutory declaration she said this:

These proceedings were commenced by the issue of a claim form on 31 January 2001. The claimants are Mr and Mrs Sandhu. Miss Farooqui is named as the sole defendant. The claim is for possession of the first floor flat at 38 Audley Road. The basis of the claim is stated succinctly in paragraphs 2, 3 and 4 of the particulars of claim dated 13 June 2001:

A defence was served on behalf of Miss Farooqui on or about 10 July 2001 and she joined with her brother Ahmed in making a Part 20 claim by way of counterclaim. That pleading was amended in August 2002. In response to paragraph 4 of the particulars of claim - which contains the assertion that Miss Farooqui's licence to occupy was determined by notice dated 9 June 2000 - the amended defence pleads as follows:

The counterclaim seeks specific performance of the contract to grant a lease and, in the alternative, a declaration that Miss Farooqui has acquired title by adverse possession. The claim to title is made in paragraph 13 of the counterclaim.

The proceedings were heard by His Honour Judge Cooke in the Central London County Court in October 2002. In his judgment - of which we have a written note signed by the judge but no formal transcript - the judge rejected the Farooquis' claim to specific performance of an agreement to grant a lease of the first floor flat. He held, in effect, that because no agreement had been reached as to the commencement date for the 99-year term (which had been agreed) the agreement was incapable of being enforced. I should, perhaps, add that - if there had been a concluded agreement - it would not have been within the provisions of Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, as the judge recognised. Specific performance could have been granted on the basis of the part performance of the contract. But there is no appeal against the judge's finding that specific performance was not available in this case.

The judge went on to hold that the claim to title by adverse possession should succeed. He made the following findings of fact relevant to that claim. First, he held that in the summer of 1988 Miss Farooqui had entered into possession of the flat, with the consent of the claimants, on the footing that she had agreed to purchase and in advance of completion of the intended purchase. He held, also, that by the end of 1988 there was no prospect whatever that Mr or Mrs Sandhu would ever grant the lease for which Mr Sandhu had received both deposit and completion monies. The judge then examined the terms of the permission under which Miss Farooqui had been allowed into possession in July 1988. He said this:

The judge went on to say that it was plain to him that, by the end of 1988 (at the latest), the transaction was never going to proceed. On that basis he held that, from the end of 1988 - despite what her solicitors believed when subsequently instructed in 2000, and she, herself, believed at the time - Miss~Farooqui occupied without permission. That led him to consider the question whether, as a person in occupation without the owners' permission from the end of 1988, her possession had been of such quality as to amount to adverse possession within the meaning of the Limitation Act. He reminded himself of the guidance given by the House of Lords in J A Pye (Oxford) Ltd v Graham [2002] 3 WLR 221. He was satisfied that Miss Farooqui's possession had that necessary quality; and, accordingly, he held that the claim to adverse possession had been established.

It is from that order that Mr Sandhu - but not, it seems, Mrs Sandhu - appeals to this court. The first question for this court is whether the licence under which Miss Farooqui was allowed into possession in July 1988 had come to an end before 30 January 1989; for, if it had not come to an end, then on 30 January 1989 Miss Farooqui and her brother were in possession with permission as licensees and so were not in a position to assert an adverse title claim. To answer that question requires an analysis of the terms to be implied into the licence under which Miss Farooqui was allowed into possession, as an intending purchaser, in June 1988

I would accept, as the judge held, that it must be taken to be a term of the permission granted in July 1988 that the licence would not continue beyond completion. But, if completion had taken place, the point would have not have arisen. The question is as to the position under the licence if completion does not take place.

A licence to occupy premises may be granted for a term certain - so that it comes to an end on a fixed date limited by the term - or it may be granted until some event happens - in which case it comes to an end when the event occurs - or it may be granted until it is determined on notice - in which case it will be necessary to ask whether the occasion for giving notice has arisen and, if so, what period of notice (if any) is required.

In this case the licence clearly does not fall into the first of those categories. There was no term specified. Indeed there were no express terms at all. There was nothing in writing. That distinguishes this case from the more usual case where an intending purchaser is allowed into possession on signing and exchanging contracts. In such a case the terms of the licence are to be found in the standard conditions of the contract.

In this case the terms of the licence have to be implied. What terms should the court imply? In particular, should the court, as Mr Atkins contends on behalf of Miss Farooqui, imply a term that the licence will determine automatically as soon as there is no real prospect of the transaction proceeding to completion, whether or not both parties appreciate that. Or is it necessary to imply a term that the licence continue, unless and until one party does something to communicate to the other that the transaction is no longer to proceed to completion?

I accept that the term to be implied is that the licence will determine when it is no longer required; that is to say, when the parties are no longer proceeding towards completion of the transaction in relation to which the licence to occupy has been given. But such a term will be unworkable in practice unless - and so must itself require that - the intention not to proceed is communicated.

I would not hold that the intention not to proceed needs to be communicated in express terms - although that will be the usual case. In the usual case either the proposed vendor or the proposed purchaser (or their respective agents) will write to the other in terms which make it clear that the party is no longer proceeding towards an exchange of contracts, or towards completion of the transaction without an exchange of contracts. But there may be sufficient indication from what one is doing, to the knowledge of the other, that a court will hold that a reasonable person, with that knowledge, would appreciate that the transaction is not going to proceed.

What is essential, in my view, is that there should be some mutual communication from which the objective observer could deduce that each would appreciate that the transaction is no longer proceeding. That element is missing in this case. There is nothing which occurred before 30 January 1989 that could be interpreted as a communication by Mr Sandhu that he and his wife were not proposing to complete the transaction; in respect of which they had already been paid in full and in circumstances in which Miss Farooqui and her brother were already in possession. Certainly, there was nothing from Miss Farooqui or her brother which suggested that they were not proceeding to completion.

For those reasons I am satisfied that the judge was wrong to hold that the licence granted in July 1988 had come to an end before 30 January 1989. If he were wrong in that finding then it is, I think, beyond dispute that he was wrong to hold that the claim to title by adverse possession could succeed in this case. That disposes of the Part 20 claim. It also disposes, necessarily, of the application for permission to appeal in 2003/0337 against the judge's subsequent order declaring what easements were implicit in the acquisition of the adverse title. That point does not arise. The application for permission to appeal from that order should be refused.

That leaves, however, the primary claim in these proceedings; that is to say, the claim by Mr and Mrs Sandhu to possession of the property of which they are the registered proprietors. As pleaded, that claim relies on the assertion that the licence granted in July 1988 was determined by the letter of 9 June 2000. That proposition has not been tested in argument, either in this court or below. It has not been tested because Miss Farooqui's stance below was that the licence had determined long before the year 2000. It seems to me that that proposition should be tested. That requires a determination as to the terms upon which a licence of this nature - granted in circumstances in which the grantee has entered into possession, paid a deposit and incurred liabilities under the mortgage - can be revoked unilaterally by the grantor. It will be a matter for consideration, hereafter, whether the letter of June 2000 did determine the licence; or whether something more than that letter was required. That is not a question now before this court.

I would allow this appeal, set aside the declaration as to title and remit that further question to the county court.

LORD JUSTICE MUMMERY: I agree with my Lord's judgment.

LORD JUSTICE AULD: I also agree. The court therefore allows the appellant's appeal against that part of the judge's order dismissing his claim for possession on the ground that the respondent had acquired title thereto by way of adverse possession as raised in the respondent's Part 20 claim.

My Lord, Lord Justice Chadwick, has said that it leaves unresolved the question of the appellant's entitlement to possession by virtue of determination of the licence granted to the respondent, a matter put in issue by the respondent on the pleadings below but only considered by the judge contingently and without the benefit of fully particularised pleadings or argument on the issue. We therefore propose to remit that issue to the county court for further and direct consideration, and with the benefit, if counsel so advises, of amended pleadings and further argument. As my Lord has also indicated, it follows from our allowance of the appellant's appeal on the issue of adverse possession, that there is now no basis for his recently lodged application for permission to appeal in respect of his concern for protection of certain rights of easement over the property as against the respondent.