Martin v Medina Housing Association Ltd.

If (a) a secure tenant of a dwelling-house makes a claim to exercise a right to buy it under Part V of the Housing Act 1985;

the landlord then admits the tenant’s right to buy it and notifies to her (or him) the price at which, in its opinion, she is entitled to do so; and

she then notifies the landlord, albeit not in writing, that she does not intend to proceed with the purchase,

The appellant and his parents began to occupy the property in 1969 under a secure tenancy granted by its then owner, Ryde Borough Council, solely to the appellant’s father.

Since then the appellant has occupied the property, together with, until their deaths, his parents.

In 1976 the appellant’s parents became joint tenants of the property.

In 1978 the appellant’s father died.

In April 1989 the appellant’s mother served on Medina Borough Council (which had replaced Ryde Borough Council and to which I will refer as “the local authority”) a written notice pursuant to s. 122 of the Act in which she claimed to exercise the right to buy the property. She exercised the power conferred by s. 123 of the Act to require in the notice that the appellant, who fulfilled the criteria set by the section, should share with her the right to buy; and, by virtue of s. 123(3), the result was that the right to buy thus belonged to her and the appellant jointly and that, for the purpose only of Part V of the Act, entitled “THE RIGHT TO BUY”, they should be treated as joint tenants.

In order to fund their proposed purchase the appellant and his mother intended to exercise their right under s. 132 of the Act, later repealed, to require the local authority to make a mortgage advance to them. In the light of their subsistence on state benefits, they would have been unable to obtain a commercial mortgage; but, by virtue of s. 133 of the Act, later repealed, they would have been entitled to a mortgage advance from the local authority equal to the entire price payable for the property.

In August 1989 the local authority served on the appellant and his mother two written notices. By the first notice, dated 3 August and served pursuant to s. 124 of the Act, it admitted their right to buy the property. By the second notice, dated 29 August and served pursuant to s. 125 of the Act, it stated that, in its opinion, the price at which they were entitled to buy it was £27,000. It contended that its market value in April 1989 was £54,000 and that, by virtue of their occupation of it for 20 years, the appellant and his mother were entitled to buy it at a discount of 50% from market value. It informed them that, if they wished to exercise their right to a mortgage, they should, in accordance with s. 134(2) of the Act, later repealed, claim to exercise it by written notice served within three months. With the second notice the local authority enclosed a suggested draft conveyance.

The appellant and his mother never claimed to exercise their right to a mortgage, whether within three months or otherwise.

In February 1990 Miss Bradley, an officer of the local authority who administered claims to buy its properties under Part V of the Act, circulated an internal memorandum, signed by her, to three other officers of the local authority, in which she said “Kindly note that the tenant of [the property] no longer wishes to proceed with her purchase”. Thereupon one of the recipients of the memorandum wrote to others in the housing department that the claim to buy the property had been “cancelled”.

From February 1990 the appellant’s mother continued to be the tenant of the property; and rent was paid by her or on her behalf.

In July 1990 the local authority transferred its housing stock, including the freehold interest in the property subject to the tenancy, to the respondent.

In March 2001 the appellant’s mother died. So any right to buy pursuant to the notice served in 1989 vested in him alone.

In December 2001 the respondent granted to the appellant an assured shorthold tenancy of the property; but the respondent no longer contends that the grant of this tenancy is relevant to the present issue.

In January 2002 the appellant, by solicitors, indicated to the respondent that he proposed to exercise the right to buy the property for £27,000 pursuant to the notice served in 1989. The respondent thereupon denied that it remained open to him to do so.

In February 2004 the appellant served on the respondent an “initial notice of delay” pursuant to s. 153A(1)(e) of the Act. By his notice he alleged that, by its delay, the respondent was preventing him from exercising his right to buy the property pursuant to the local authority’s notice dated 29 August 1989, i.e. at the price of £27,000 identified therein and on the terms of the draft conveyance enclosed therewith. [It should be noted that the appellant and his mother had in any event not elected in 1989 to challenge the identified price of £27,000 by, for example, requiring the district valuer to determine the value of the property.] By his notice the appellant also made clear that he had no aspiration to acquire the property on “rent to mortgage terms”; and the clear implication of his notice, which had no doubt been expressed on his behalf in the prior correspondence and from which since then he has never resiled, was that he had by then made arrangements to fund the entire purchase without any form of assistance from the respondent. By his notice the appellant therefore sought to maintain that all matters relating to the purchase had, at any rate by then, been settled and that it remained only for the respondent to join with him in concluding it.

In March 2004 the respondent served on the appellant a counter notice pursuant to s. 153A(3)(b) of the Act, in which it disputed his right to buy the property.

At the time of the hearing before the recorder the market value of the property was £135,000.

The appellant’s principal argument of law before the recorder, and before this court, was, and is, that no effect is given by the Act to any oral withdrawal of a notice which claims to exercise the right to buy. In relation to such a notice of claim s. 122 of the Act provides:

The recorder rejected this argument. He so construed s. 122(3) as not to preclude effective oral withdrawal. In doing so, he followed or purported to follow two recent decisions of High Court judges on appeal from circuit judges in right to buy cases under Part V of the Act, namely the decisions of Peter Smith J. in Hanoman v. Southwark London Borough Council [2005] 1 ALL ER 795 and of Nelson J. in Copping v. Surrey County Council [2005] 34 E.G. 110.

In the Hanoman case the tenant served his notice under s. 122 in November 1999. Without complying with its duty under s. 124 of the Act to admit or deny his right to buy within four weeks of its receipt, the local authority sought, including ultimately by sending a letter which the tenant never received, to resolve its doubts as to whether the claim was being genuinely made by him rather than by an impostor. After two years of inactivity on both sides the tenant, who, as the judge found, at all times wished to proceed with the claim, notified the local authority that he proposed to do so. The local authority’s contention that the tenant had impliedly withdrawn his notice prevailed before a circuit judge but, upon the tenant’s appeal, was rejected by Peter Smith J. The latter held that in law there could be a withdrawal otherwise than in writing but found on the facts that there had been no such withdrawal. He said:

In the Copping case the tenants served their notice under s. 122 in March 1991 and the local authority responded by denying their right to buy. Thereafter nothing happened until June 2001 when the tenants served a second such notice and received the same response. By reference to, and upon the basis of, the second notice the tenants took proceedings in the county court in which their right to buy was upheld. Thereupon they contended that the first notice remained valid and that therefore the price payable by them for the property should be calculated by reference to its value in March 1991. Their contention prevailed before a circuit judge but, upon the local authority’s appeal, was rejected by Nelson J.

In December 2005, i.e. after the recorder’s decision in the present case, this court heard and dismissed the appeal of the tenants in the Copping case against the decision of Nelson J. He had allowed the local authority’s appeal on two points, one narrow and the other broad; and this court held that the narrow point was valid and that there was no need to determine the broad point. The narrow point was that in the first set of proceedings in the county court the tenants had established their right to buy on the basis only of their second notice. The broad point was that, so Nelson J had held, the tenants had abandoned or withdrawn the first notice. He had said:

I am satisfied that this conduct amounts to a clear abandonment of the 1991 claim or alternatively an implied withdrawal of their 1991 notice. I do not consider that on these particular facts it is necessary for the Defendant to prove prejudice as the intention to abandon or withdraw is so clearly evinced. Nevertheless if I am wrong in that conclusion I am equally satisfied that prejudice is clear.”

Part of Mr Garrood’s argument before the recorder was that the Act provides a ready mechanism by which, faced with inactivity on the part of the appellant and his mother, the local authority could even in 1990 have secured the effective withdrawal of their notice. Mr Garrood conceded that in 1990, apart from the time set for any application for a mortgage, there was no time set by the Act for the tenant to respond to the notice under s. 125, such as was later introduced into it as s. 125D; and thus no corresponding facility for the local authority to serve a notice in default of such response and thereby to secure a deemed withdrawal of the notice under s. 122 of the Act, such as was later introduced into it as s. 125E. But, so Mr Garrood pointed out, the local authority even in 1990 had powers under s.s. 140 and 141 of the Act to require the appellant and his mother, by two successive notices, to proceed with the purchase or to suffer a deemed withdrawal of their notice under s. 122 of the Act. Mr Garrood’s argument was that, if the local authority did not avail itself of its powers under s.s. 140 and 141, it had only itself to blame; but the recorder’s decision was that, in the light of its receipt of the oral communication in February 1990, the local authority had no need in law to avail itself of them.

Before the recorder one of the alternative arguments of Mr Burns, on behalf of the respondent, was that the appellant’s action, brought in 2004, was time-barred because his cause of action, if any, had accrued in 1989 or 1990. The recorder rejected this argument: he decided that if, contrary to his conclusion, there had been no valid withdrawal in 1990 of the notice of claim, the appellant’s cause of action had accrued not in 1989 or 1990 but only upon the respondent’s refusal in March 2004 to accede to the demand to proceed made in his “initial notice of delay” served in February 2004. Although the argument is not resurrected by a respondent’s notice, it is relevant to the despatch of the appellant’s secondary argument to this court, which I will explain in [19] below, to understand why the recorder so decided. His decision was based on the words of s. 138(1) of the Act, which imposes the duty to convey the freehold which the appellant has been seeking to enforce pursuant to s. 138(3). By Schedule 22 to the Leasehold Reform, Household and Urban Development Act 1993, certain words in s. 138(1) were repealed but not for the purpose of any notice served by a tenant under s. 122 of the Act prior to 11 October 1993. So in the present case those words remain operative. In setting out s. 138(1) I will italicise them partly in order to illumine the ambit of the repeal and partly because they happen to be important:

In this court Mr Garrood casts his primary argument around s. 122(3) of the Act, set out in [5] above. He stresses the words “in writing”; Mr Burns, by contrast, stresses the word “may”. Does the permissive verb qualify only the word “withdrawn”, with the result that, although the tenant has the option whether to withdraw, any withdrawal has to be by notice in writing? Or does it so stretch as also to qualify the words “in writing”, with the result that the tenant has not only the option whether to withdraw but also, if he decides to do so, the option whether to do so by notice in writing or otherwise? I prefer the former construction. I consider that, other than of course where withdrawal of the notice is deemed pursuant, for example, to s. 125E(4) and s. 141(4), a “withdrawal” within the meaning of the Act has to be by notice in writing. Parliament, so I infer, favoured the clarity attendant upon a notice in writing.

What, however, Parliament did not seek to do was to exclude from the armoury of the court when invited to enforce a right to buy under Part V of the Act elementary principles of common law and equity relating to those who assert rights which they have abandoned or waived or are estopped from asserting or which, in the light of their words or silences, actions or inactions, it would be inequitable for them to assert. It follows that I cannot subscribe to Mr Garrood’s argument that Part V is so comprehensive a code that there is no room for the application of such elementary principles.

In this regard the present case becomes, unfortunately for Mr Garrood, a simple one. For at the centre of the case there is not just lengthy inactivity; there is an express representation to the local authority that the appellant and his mother did not intend to proceed with the purchase. Prima facie there was thus an express abandonment on their part of the right generated by the notice served under s. 122 of the Act.

At this hearing there has been discussion as to whether, as Nelson J. considered in the Copping case, the law recognises a tenant’s unilateral abandonment of rights under Part V and, if not, what the concept of abandonment requires the landlord to have done in response. There is no doubt that, in the case of an ordinary contract, its abandonment is effected by the entry of the parties, expressly or by necessary inference from conduct, into a fresh contract for mutual release from their obligations thereunder: see the decision of the House of Lords in Paal Wilson & Co v. Partenreederei Hannah Blumenthal [1983] AC 854 per Lord Brandon at 914 A – B and Lord Diplock at 915 B – D. Does this principle, however, apply to a case in which one party is enabled by statute to require the other to sell property to him on terms to be identified by principles set out therein and in which the ambit of the other’s role is little more than reactively to ensure that the sale duly proceeds on the terms thus identified?

The decision of this court in Collin v. Duke of Westminster [1985] 1 QB 581 strongly suggests an affirmative answer. It concerned a leaseholder’s right to acquire the freehold under the Leasehold Reform Act 1967; but there are obvious parallels with a secure tenant’s right to buy under the Act of 1985. The leaseholder in that case notified the landlord in 1975 of a claim to exercise his purported entitlement to acquire the freehold. In response the landlord contended that the amount of rent payable by him precluded any such entitlement. Under the law as then understood, the landlord’s contention was probably correct. For six years the leaseholder proceeded no further. In 1980, however, the law was clarified in such a way as to indicate that he was so entitled; so in 1981 he sought to proceed with his claim. The landlord’s contention that he had abandoned it failed both in the court below and, on more limited grounds, in this court.

In giving the only substantive judgment in the Collin case Oliver L.J. said at 595 C – H:

In this regard the present case is in my view materially different from the Collin case. On the part of the appellant and his mother there was, in effect, an express release. And on the part of the local authority there was, so I hold, an implied release. For it noted the express release communicated on behalf of the appellant and his mother; it recorded that their claim to buy had been cancelled; it took no further action in respect of the claim; in particular it served no notice under s. 140 of the Act requiring them to proceed with the purchase; and it continued to accept rent from the appellant’s mother on the basis that the tenancy remained on foot.

Mr Garrood presents to us a secondary argument which he presented to the recorder but which in judgment the latter did not expressly address. It is to the effect that by February 1990 the appellant and his mother had acquired an equitable interest in the property, which, by virtue of s. 53(1)(c) of the Law of Property Act 1925, they could not dispose of otherwise than in writing signed by them or on their behalf.

In this regard the first question therefore is whether by February 1990 the appellant and his mother had acquired an equitable interest in the property. In Dance v. Welwyn Hatfield D.C. [1990] 1 WLR 1097 secure tenants had claimed to exercise their right to buy; the local authority had admitted their right to do so and had proposed a price which they had accepted; and it had offered them a partial mortgage which they had accepted and by reference to which they had exercised their statutory right to elect deferred completion. Thereupon the local authority notified them of its intention to demolish the property and contended that, because prior to their exercise of the right to buy it would be entitled to an order for possession on that basis, it was no longer obliged to complete the sale. In this court its contention was unsuccessful. In giving the leading judgment my Lord, Lord Justice Nourse, as he then was, held:

at 1103B that, in the (unamended) words of s. 138(1) of the Act, the right to buy had been established and all matters relating to the grant and to the amount to be left outstanding or advanced on the security of the property had been agreed;

at 1104H and 1105B that, once such a right had been established and all such matters had been agreed, the tenants had become entitled under s. 138(3) to enforce completion of the sale and had thus acquired an equitable interest in the property; and

at 1105C that therefore on any view the tenants had already exercised their right to buy and so the local authority would not remain entitled to an order for possession.

In this regard the present case is in my view materially different from the Dance case. The recorder was correct to hold that, although the right to buy had been established, the stage had not been reached in February 1990 at which all matters relating to the grant and to the amount to be left outstanding or advanced on the security of the property had been agreed or determined. In particular there had been no agreement or determination in respect of the mortgage without which the appellant and his mother would have been unable to pay the purchase price. I therefore conclude that in February 1990 they had no equitable interest in the property. Had my conclusion been otherwise, I would have proceeded to consider whether the interest arose under a constructive trust to which, by reason of s. 53(2) of the Act of 1925, the requirements of s. 53(1)(c) do not apply.

Accordingly I would dismiss the appeal.

I agree.

I would dismiss this appeal for the simple reason that the appellant wholly failed to cross the jurisdictional threshold set by s. 138 of the Housing Act 1985 and his claim for “an order pursuant to s. 138 … compelling the defendant to transfer to the claimant the legal title to 8 Wellington Road on standard terms” was rightly dismissed.

S. 138 provided for “completion of purchase in pursuance of right to buy” in these terms:

if the dwelling-house is a house and the landlord owns the freehold, a grant of the dwelling-house for an estate in fee simple absolute …