Kahlon v Isherwood

This is an appeal by Mr Andrew Isherwood against an order for possession that was made against him by Mr Recorder Willetts in the Coventry County Court on 15^th November 2010. The order relates to a property at 74 Sunningdale Road, Coventry (“the Property”) which Mr Isherwood has occupied as a tenant since about 1994. The respondent to the appeal, Mrs Jasbir Kaur Kahlon, is the freehold owner of the Property.

Since 2000 there have been three separate sets of proceedings for possession not counting the action in which the order under appeal was made. All three claims have been based on arrears of rent. The first claim was compromised in 2003 on terms that Mr Isherwood and his wife remained in possession. The second action was withdrawn in 2005. The third action was commenced in 2007 alleging arrears of rent and a breach of a covenant to allow access to the Property. Mr Isherwood counterclaimed in those proceedings for damages for breach of the landlord’s repairing covenants.

In May 2008 the parties submitted their dispute to mediation which was successful in that it concluded with an agreement signed by the parties and the mediator on 8^th May which provided for the appellant’s solicitor, Mr Baxendale, to prepare a Tomlin order in the proceedings under which:

“An assured shorthold tenancy agreement for the period of 12 months in the form annex will be completed between parties to the commencement date will be 2^nd June 2008.”

The agreement also provided for the arrears of rent alleged in the action and the benefit of a costs order to be waived by the respondent and for her to arrange for certain specified repairs to the Property to be carried out within four months of the commencement of the assured shorthold tenancy.

The Tomlin order was drawn up and signed by the parties on 16^th May 2008. The schedule was in the following terms:

“The Claimant and the First Defendant have agreed Full and Final Settlement of all matters in dispute between them in the Present Proceedings upon the following terms:

1.

The Claimant and the First Defendant shall execute an Assured Shorthold Tenancy Agreement for the period of 12 months commencing 2^nd June 2008 in the form annexed hereto, to be signed by the parties not later than 2^nd June 2008.

2.

The Rent reserved by the said Assured Shorthold Tenancy Agreement shall be £140 per week subject to the proviso at paragraph 3 below.

3.

All alleged rent arrears in relation to the Premises shall be waived.

4.

It is hereby provided and agreed between the parties that the Claimant will not call for payment of any rental or take any steps or enforcement in relation to any payment or alleged non-payment of rental by the First Defendant in excess of rent paid by the Housing Benefit office.

5.

The parties shall take all reasonable steps to co-operate in regard to the claim by the First Defendant for Housing Benefit.

6.

The Claimant and the First Defendant shall enter into an appropriate Consent Order whereby the First Defendant shall agree to set aside and not enforce the Costs Order amounting to £2,500 in proceeding with No: 5CV03452 in the Coventry County Court.

7.

The Claimant Undertakes to instruct an appropriate Contractor to attend the premises and to rectify items 3, 4, 5, 6, 16, 17, 18, 19 and 20 of the Joint Expert’s Report dated 11^th January 2008 not later than 2^nd October 2008.

8.

The First Defendant agrees to allow reasonable access on reasonable notice to enable the Claimant to discharge her agreement under paragraph 6 above.”

On 21^st May 2008 the parties executed a tenancy agreement headed “Assured Shorthold Tenancy Agreement” under which Mr Isherwood was granted a lease of the Property for a term certain of 12 months from 2^nd June 2008. Clause 2 of the agreement provided that the landlord may terminate the tenancy at any time before the expiry of the term by giving to the tenant not less than two months’ written notice that she requires possession of the Property.

An assured shorthold tenancy gives to the tenant very limited security of tenure. If the fixed term has come to an end and the landlord has served on the tenant not less than two months’ notice in writing stating that he requires possession of the demised premises then the Court must make an order for possession: see Housing Act 1988 (“HA 1988”) s.21(1). The notice may be served either before or on the day on which the tenancy comes to an end: s.21(2).

By contrast, an assured tenancy (as defined in s.1 HA 1988) can only be brought to an end by an order for possession made on one of the grounds set out in s.7 HA 1988. An assured tenancy granted for a fixed term will continue after the expiry of the term as a periodic tenancy subject to the same protection unless it is surrendered: see s.5(2) HA 1988.

The change from an assured tenancy to an assured shorthold tenancy has therefore serious consequences for the tenant and the 1988 Act contains specific provisions designed to ensure that the tenant has been put on notice of what those consequences are. In the case of assured shorthold tenancies granted before 28^th February 1997, s.20 HA 1988 required the landlord to serve on the tenant a notice in prescribed form before the tenancy was entered into stating that the assured tenancy was to be an assured shorthold tenancy. Section 20(3) also prohibited the grant of an assured shorthold tenancy by an existing landlord to an existing tenant where the existing tenancy was an assured tenancy.

But all assured tenancies entered into after 28^th February 1997 are now assured shorthold tenancies unless they fall within certain excluded categories set out in Schedule 2A: see s.19A HA 1988. These include the case where the landlord serves a notice on the proposed tenant stating that the tenancy is not to be an assured shorthold tenancy (paragraph 1) and cases where the new tenancy is to be granted to an existing assured tenant. The previous embargo on granting assured shorthold tenancies to existing assured tenants is removed but for the new tenancy to be an assured shorthold tenancy (as opposed to an assured tenancy) the conditions set out in paragraph 7 of Schedule 2A must be complied with. The tenancy will not therefore qualify as an assured shorthold tenancy if it is:

“7(1) An assured tenancy which—

(a)

is granted to a person (alone or jointly with others) who, immediately before the tenancy was granted, was the tenant (or, in the case of joint tenants, one of the tenants) under an assured tenancy other than a shorthold tenancy (“the old tenancy”),

(b)

is granted (alone or jointly with others) by a person who was at that time the landlord (or one of the joint landlords) under the old tenancy, and

(c)

is not one in respect of which a notice is served as mentioned in sub-paragraph (2) below.

(2)

The notice referred to in sub-paragraph (1)(c) above is one which—

(a)

is in such form as may be prescribed,

(b)

is served before the assured tenancy is entered into,

(c)

is served by the person who is to be the tenant under the assured tenancy on the person who is to be the landlord under that tenancy (or, in the case of joint landlords, on at least one of the persons who are to be joint landlords), and

(d)

states that the assured tenancy to which it relates is to be a shorthold tenancy.”

In relation to some types of notice such as notices of proceedings of possession under s.8 HA 1988, the Court is given power to dispense with the requirements for such a notice if it considers it just and equitable to do so. But Parliament has not included any such power in the case of paragraph 7.

The prescribed form of notice is contained in the Assured Tenancies and Agricultural Occupancies (Forms) Regulations 1997 (1997 No. 194) (“the 1997 Regulations”). Paragraph 2 of the Regulations provides that:

“In these Regulations any reference to a section or Schedule is a reference to a section of, or Schedule to, the Housing Act 1988 and any reference to a numbered form is a reference to the form bearing that number in the Schedule to these Regulations, or to a form substantially to the same effect.”

The relevant form referred to in paragraph 7 of Schedule 2A: HA 1988 is Form 8 which is set out in full in the appendix to this judgment.

The principal difference between paragraph 7 of Schedule 2A and the provisions of s.20 which govern the grant of pre-Housing Act 1996 tenancies is the requirement that the notice should be served by the tenant on the landlord rather than vice versa. As explained earlier, there is nothing comparable to s.19A and paragraph 7 in s.20 because until February 1997 it was not possible to grant an assured shorthold tenancy to an existing assured tenant. But the form prescribed under s.20(2)(a) was contained in the Assured Tenancies and Agricultural Occupancies (Forms) Regulations 1988 (SI 1988 No. 2203) which contained an identical regulation 2 requiring the notice to be in the prescribed form or “a form substantially to the same effect”.

On 31^st March 2009 Mrs Kahlon served on Mr Isherwood a notice under s.21 HA 1988 stating that she required possession of the Property on 2^nd June 2009. When Mr Isherwood failed to vacate, Mrs Kahlon issued proceedings against him for possession on 12^th June 2009. These were dealt with under the Accelerated Procedure for Assured Shorthold Tenancy possession proceedings adopted in the County Court because in most such cases the tenant will have no answer to the claim. But in this case Mr Isherwood took the point that no notice in the prescribed form had been served by him prior to the execution of the tenancy agreement on 21^st May 2008 with the consequence that he was an assured rather than an assured shorthold tenant. Mrs Kahlon could not therefore obtain an order for possession without making out one of the statutory grounds specified in s.7 HA 1988.

The Recorder rejected this defence and made an order for possession. He held that the schedule to the Tomlin order, although not identical in form to Form 8 in the 1997 Regulations, was in a form substantially to the same effect. He observed that Mr Isherwood had the services of a solicitor (Mr Baxendale) throughout the relevant proceedings and the subsequent mediation and must, in the absence of evidence to the contrary, be assumed to have been advised and to have known about the effect of the agreed change from an assured to an assured shorthold tenancy. This knowledge, coupled with the parties’ signature to the Tomlin schedule, was sufficient to comply with the notice formalities required as a pre-requisite to the grant of an assured shorthold tenancy. The tenancy agreement therefore took effect according to its terms and Mr Isherwood had no defence to the action.

The defence raised by the appellant was entirely technical in nature and stands or falls with our view as to whether the Tomlin schedule complies with paragraph 7(2) of Schedule 2A. The point is in many ways deeply unattractive given that it was Mr Baxendale who was to draft the Tomlin schedule in accordance with the mediation agreement and Mr Isherwood’s undoubted agreement at the time to accept an assured shorthold tenancy in place of his existing assured tenancy as part of the settlement. Mrs Kahlon has agreed to waive significant sums in respect of rent and costs as part of a bargain on which Mr Isherwood is now seeking to renege. If he is right in his argument about the lack of a compliant notice then Mrs Kahlon will doubtless wish, if she is able, to revisit the enforceability of the remaining terms of the agreement.

But confining myself as I must to the issue under appeal, I am in no doubt that the Recorder was wrong to reject Mr Isherwood’s defence on the grounds which he did. The question whether a notice is in a form substantially to the same effect as the prescribed form under the relevant regulations has been considered by this Court on a number of previous occasions in relation to s.20 HA 1988. This is, however, the first time when it has been considered in the context of s.19A and paragraph 7 of Schedule 2A.

In Manel v Memon [2000] 2 EGLR 40 the s.20 notice omitted the four bullet points on the prescribed form including one which advised the tenant to go to a solicitor or the Citizens’ Advice Bureau before signing the tenancy agreement if he did not understand anything. The bullet point was very similar to the one contained in Form 8. This Court held that the bullet points were part of the substance of the notice so that their omission was fatal to its validity. At p. 42D Nourse LJ said that:

“… in 1988 an assured shorthold tenancy was both novel in concept and notably less advantageous to tenants than the tenancy protected by the Rent Acts which had for many years been the means of tenure by which residential properties of low rateable value were generally held. Moreover, the persons who were likely to be offered tenancies of such properties were also likely to be unable to assess for themselves the full legal and practical consequences of taking them. In the circumstances, the three bullet points on whose omission Mr Buttimore primarily relies, in particular, I would say, the exhortation to get prior legal advice from a solicitor or a Citizens' Advice Bureau and the statement that the giving of the notice by the landlord does not commit the tenant to take the tenancy, can only be treated as part of the substance of the notice. They do not fall into the same category as the notes which were omitted from the section 25 notice in Tegerdine v Brooks. Without them, a section 20 notice is not in substance to the same effect as a notice in Form 7.”

Tegerdine v Brooks (1977) 36 P&CR 261 was a decision under Part II of the Landlord and Tenant Act 1954 about the validity of a s.24 notice served by the landlord. In the notice terminating the tenancy the landlord stated that he would not oppose the grant of a new tenancy. The tenant failed to serve a counter-notice but then contended that the s.24 notice was invalid because it omitted some of the notes on the prescribed form. The relevant regulations permitted that notice to be as prescribed or “substantially to the same effect” and the Court of Appeal held that the omissions were immaterial because the notes in question were made irrelevant by the landlord’s stated willingness to accept the grant of a new tenancy.

Relevance or materiality has to be assessed by reference to the purpose of the notice. But where the provision in the prescribed form is clearly part of the substance of the notice as found in Manel v Memon it is no answer to its omission to say that the information it conveys was well known to the tenant at the relevant time. This was the basis upon which the Recorder in this case justified any significant discrepancies between Form 8 and the Tomlin schedule. But that approach is impermissible. Precisely the same argument was deployed and rejected in Manel v Memon. At p. 42 Nourse LJ said that:

“In dealing with this point, Judge Sich said:

“It is suggested that if she had seen that warning (about seeking independent advice) she would have heeded it and would have declined to sign the document until she had been to see the Citizens' Advice Bureau. I have already made the point that those two documents in conjunction, the Tenancy Agreement and the Section 20 Notice, when taken together, were clearly inconsistent with what she understood the Agreement to be. If she was prepared to sign that I cannot really accept that the inclusion of that note would have made any difference. It is clearly an important and formal legal document and I do not think that it can, or the suggestion that that would or might have made any difference is really no more than speculative.”

It thus appears that the judge dealt with the point as if it was one of prejudice. However, as Mr Brett accepts, that is not the correct approach. If a notice is not in a form substantially to the same effect as the prescribed form, it is defective irrespective of whether the defect has caused the tenant prejudice or not.”

A comparison between Form 8 and the Tomlin schedule discloses, I think, a number of material omissions. The bullet points are missing and there is nothing in the schedule which corresponds to paragraph 4 of Form 8 setting out the tenant’s understanding and acceptance of the consequences in terms of security of tenure of a change from an assured to an assured shorthold tenancy. These are clearly matters of substance. I am inclined to think that the contents of paragraph 2 of Form 8 can be inferred from the reference in the Tomlin schedule to the present proceedings which, on examination, were clearly concerned with the termination of an assured tenancy. But paragraph 4 is an essential part of the notice and there is nothing in the Tomlin schedule which even remotely corresponds to it. The obvious purpose of the notice is to give to the tenant (even though it is he who prepares and serves the notice) the information which paragraph 4 contains and to provide the landlord with an acknowledgement of that. The schedule is not therefore a form substantially to the same effect as Form 8.

Mr Maguire ultimately, I think, accepted that he could not support the Recorder’s reasoning if the authorities I have referred to apply in this case. In his skeleton argument he made reference to the well-known decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 which set out the new approach to the construction of a notice exercising a break clause in a lease which specified the wrong date of termination. In York v Casey [1998] 31 HLR 209 this Court accepted that the same approach to construction was relevant to a s.20 notice which contained inaccurate particulars of the commencement date of the proposed tenancy and the identity of the landlords. But while that approach may operate to correct obvious factual mistakes in the notice, it cannot, in my view, operate to fill gaps in the form of notice of the kind we are concerned with on this appeal. Either the notice contains all the necessary matters of substance or it does not.

Mr Maguire’s final submission was that the s.20 decisions have no application to a case governed by s.19A. He pointed to the fact that the notice is served by the tenant and that the landlord has no need for much of the information which the prescribed form of notice contains including the contents of paragraph 4. But the requirement that the tenant should serve the notice is not determinative, in my view, of its purpose and this argument fails to recognise the intention behind the changes introduced by s.19A and Schedule 2A. It is clear from the structure of Form 8 that the primary purpose of the notice remains that of informing the tenant in the document which he has to serve of the consequences of what he is proposing. The requirement that the tenant should prepare and serve the notice was obviously intended to guarantee that he is fully aware of the effect of his intended change of status and can be seen as the quid pro quo for removing the earlier bar on the grant of a shorthold tenancy to an existing assured tenant. Therefore although it is in form a notice to the landlord, it retains a dual purpose of warning the tenant of the legal consequences of the grant to him of an assured shorthold tenancy. If anything the need to ensure that the tenant is fully informed about these matters is far greater in a case under paragraph 7 than it is in a case under s.20 where he is not exchanging his existing security of tenure for a lesser form of protection. Consistently with this, the reasoning in cases such as Manel v Memon must apply with equal force to a case under s.19A. The notice remains the means of providing a clear record that the tenant has been appraised of his rights and the loss of security which the new arrangements will entail.

That is sufficient to dispose of the appeal. But I should mention out of completeness a further point raised by Miss Winston in argument about the adequacy of the Tomlin schedule as a paragraph 7 notice. She submitted that although there was no reason in principle why a schedule to an order could not constitute a notice in a prescribed form as required under paragraph 7(2)(a) of Schedule 2A, it could only satisfy that description if it was recognisable as a notice. This submission is based on a passage in the judgment of Arden LJ in B. Osborn & Co Ltd v Dior [2003] EWCA Civ 281 (another case about a s.20 notice) where she says:

“39.

Parliament clearly attributed importance to the formality of a section 20 notice. The primary legislation requires that the notice must be in a particular form, which we now know as Form 7. The regulations permit that form to be substantially to the same effect, but the notice must still be in a form which is Form 7 or recognisable as such. This requirement therefore goes to the form of the notice. The notice cannot be given orally or informally in a letter. It must be in the prescribed form or a form substantially to that effect. Those latter words permit some formal defects, but the essence of the form must remain.

In practice the requirement that the notice should be in a form substantially to the same effect as the prescribed form is likely to ensure that a notice contained in the schedule to an order is recognised as such. In the present case, the point therefore adds very little in terms of whether the condition in regulation 2 of the 1997 regulations is satisfied. But it has led us to focus on a slightly different but related question which is whether the Tomlin schedule which forms a contract between the parties for the grant of an assured shorthold tenancy can also fulfil the role of a paragraph 7 notice which needs to be served before the assured tenancy is entered into.

It is, I think, important to note that paragraph 7(2)(b) refers in terms to an assured tenancy and not to an assured shorthold tenancy. This is because the assured tenancy which the parties are proposing to enter into will only be a shorthold tenancy if all of the paragraph 7 conditions are complied with. If the form of the notice is defective then an assured rather than an assured shorthold tenancy will have been entered into. But the terms of paragraph 7(2)(b) mean that if the document under which the parties contract to enter into the assured tenancy is also to constitute the notice then that condition is not satisfied. The assumption behind the requirement for a gap in time between the service of the notice and the entering into the tenancy agreement must be that the tenant should be given an opportunity to consider fully the consequences of what is proposed in the notice and to be able to resile if he has a change of mind. That is not possible if his execution of the Tomlin schedule binds him to take a new tenancy.

It is said that no such danger can exist because the lack of a gap between the service of the notice and the contract for a new lease will (for the reasons just given) always prevent the new tenancy from being an assured shorthold. But that is only because paragraph 7(2)(b) requires the service of the notice and the grant of the assured tenancy to be separated in point of time in every case. It seems to be common ground that paragraph 1 of the Tomlin schedule did create a specifically enforceable contract for the grant of a new tenancy in the form of the tenancy agreement annexed to the schedule and this contract was subsequently completed by the execution of the agreement. In these circumstances, the condition set out in paragraph 7(2)(b) is not, in my view, satisfied in the present case.

The same argument could, I think, be deployed in relation to clause 1 of the mediation agreement which undoubtedly preceded the giving of any notice but it would, I think, be most unfortunate if one of the consequences of this appeal was to discourage the use of mediation to resolve disputes about assured tenancies. The object of any mediation must be to reach a concluded and binding agreement which effectively compromises the issues between the parties. The requirement for the service of a paragraph 7 notice prior to the entry into an assured tenancy could and should have been catered for in this case by the tenant preparing and serving a notice in the prescribed form on the landlord immediately prior to the execution of the mediation agreement. It would then have been open to the parties to enter into the mediation agreement without any risk that the creation of an assured shorthold tenancy might be jeopardised by the coming into effect of an equitable lease.

I would therefore allow the appeal and set aside the order for possession. The case will have to be remitted to the County Court for the judge to re-consider the claim for possession on the basis that the agreement executed on 21^st May 2008 created an assured rather than an assured shorthold tenancy. Any argument as to whether all of the terms of the mediated compromise remains effective may also have to be addressed.

I agree.

I also agree.