Law of Property Act Case Law -Chatsworth Properties Ltd v Effiom

Court of Appeal, Civil Division 12 November 1970

 

The mortgagors were assignees of a leasehold interest in certain premises which they mortgaged by way of legal charge to the plaintiffs on 23rd May 1967. The charge, which was registered on 30 May, contained a covenant by the mortgagors not to create any lease or tenancy of the premises, and a provision conferring on the plaintiffs the right to possession in the event of the mortgage interest falling into arrear. The mortgagors did in fact default and, in June 1968, the plaintiffs obtained an order for possession of the premises but did not seek to enforce it. In November 1968, the mortgagors let the premises to the defendant as a weekly tenant. On 23 December 1968, the plaintiffs appointed R as receiver under the mortgage and R collected rent from the defendant thereafter. On the same day, the plaintiffs' solicitors wrote to the defendant informing him that the plaintiffs had appointed R as receiver of the rents and profits of the property, and continued: 'Please take notice that henceforth you should not pay any sums to your former landlords [the mortgagors] but to [R]…' The plaintiffs appealed from an order refusing their claim for possession.

Held -

The claim for possession failed; the receipt of rent by a receiver appointed by a mortgagee did not, without more, create a tenancy by estoppel as against the mortgagee, but the plaintiffs had so conducted themselves that they were precluded from denying that they had accepted the defendant as their tenant, for their letter of 23 December 1968 would have been understood by any reasonable man (and was understood by the tenant) to mean that the mortgagors had ceased to be his landlords and that in their place, the plaintiffs accepted him as their tenant with the result that a new tenancy was created.

Appeal -

This was an appeal by the plaintiffs, Chatsworth Properties Ltd, as mortgagees, from an order of his Honour Judge Vick, made at Wandsworth County Court on 20 April 1970, dismissing the plaintiffs claim for possession of the mortgaged property, 37 and 37a Kettering Street, Wandsworth, which was occupied by the defendant B Effiom. The facts are set out in the judgement of Salmon LJ.

JR Reid for the plaintiffs.

RB Mawrey for the defendant.

SALMON LJ -

On 8th June 1901, premises known as 37 and 37a Kettering Street, Wandsworth, were leased to a Mr Coomber for a term of 99 years from 25 March 1901. Much later, this leasehold interest was assigned to a Mr and Mrs Lamptey. On 23 May 1967, Mr and Mrs Lamptey mortgaged that interest, and the legal charge made in favour of the plaintiffs was registered on 30 May 1967. It contained a covenant by Mr and Mrs Lamptey not to create any lease or under-lease or tenancy or otherwise part with possession of the whole or any part of the premises, and a covenant that they would personally occupy the first floor of the premises. The deed also contained the usual provision conferring on the mortgagee the right to possession in the event of the mortgagors falling into arrear in the payment of their mortgage interest.

The mortgagors did default under the mortgage and, on 27 June 1968, the plaintiffs obtained an order in the Chancery Division for possession of the premises in question. They did not, however, seek to enforce that order, Mr and Mrs Lamptey seem to have remained in possession until November 1968, when in breach of their covenant in the mortgage deed, they let the premises to the defendant. He went in as a weekly tenant, and, providing the letting to him was lawful, his was a protected tenancy under the Rent Acts. Incidentally, Mr and Mrs Lamptey appear to have extracted about £158 from the defendant as payment for rent in advance. On 23 December 1968. the plaintiffs appointed a Mr Richardson as receiver under the mortgage to receive the income, rents and profits of the premises. It is quite plain that a receiver under a legal charge is deemed to be the agent of the mortgagor (s109(s) of the Law of Property Act 1925) and a mortgagor is solely responsible for the receivers' acts or defaults, unless the mortgage deed otherwise provides. This mortgage deed did not do so. Mr Richardson after his appointment as receiver continued for a time to collect the rent from the defendant. It is plain that although, as between Mr and Mrs Lamptey and the defendant, Mr and Mrs Lamptey were bound by the terms of the tenancy agreement, the defendant, Mr and Mrs Lamptey were bound by the terms of the tenancy agreement, the defendant could not obtain any right against the plaintiffs under that tenancy agreement for it had been entered into by Mr and Mrs Lamptey in breach of the mortgage deed.

Now the mere fact that Mr Richardson continued to collect rent after 23 December 1968, would not, if it stood alone, have the effect of making the defendant the tenant of the plaintiffs. The receipt of rent by a receiver appointed by a mortgagee does not, without more, create a tenancy by estoppel as against the mortgagor: But the receipt of rent by the receiver does not stand alone in this case, as I will presently show.

It is unnecessary to go through the history of all that occurred after 23 December 1968. Eventually, in January 1970, the present proceedings were instituted by the plaintiffs, claiming possession of the premises against the defendant. There was also a disputed money claim which we are not concerned with in this appeal. The judge refused to make an order for possession, holding that the right inference to draw from all the facts was 'that the plaintiff has accepted the defendant as tenant and I must reject the plaintiff's claim for possession'. This was a long and very careful judgement and the judge based his decision on a number of points. In spite of the valiant and very skilful effors made by counsel for the plaintiffs to persuade us to the contrary, I have come to the conclusion that the decision at which the judge arrived was completely right.

I found my judgement on one short point. In my view the plaintiffs so conducted themselves that they are precluded from denying that they accepted the defendant as their tenant. The inference which I draw from the facts is that they did indicate to him that they were accepting him as the tenant, that he so understood what they told him and that any ordinary man would, in all the circumstances, have understood the same thing.

Before I deal with what the plaintiffs' solicitors wrote and did, I must refer to the principle lucidly stated by Cross J in Stroud Building Society v Delamount, he said -

"When a mortgagor has granted a tenancy which is not binding on the mortgagee [which is the present case] the latter can, instead of treating the tenant as a trespasser, consent to treat him as his own tenant or he may act in such a way as precludes him from saying that he has not consented to take him as a tenant. Such an acceptance by the mortgagee of the mortgagor's tenant, whether express or implied, or operating by way of estoppel, must I think, amount to a creation of a new tenancy between the parties. The tenancy between the mortgagor and the tenant is not one which is merely voidable by the mortgagee if he chooses not to accept it, but which he can confirm by waiving his right to avoid it. It is a nullity as against the mortgagee and so, if the mortgagee is to lose his right to treat the mortgagor's tenant as a trespasser, it must be because the tenant has become the mortgagee's tenant under a new tenancy."

Then Cross J said:

"So far as I know there is nothing in point of law to prevent a mortgagee who has appointed a receiver of mortgaged premises from creating, by virtue of his legal estate in the land, the relationship of landlord and tenant between himself and a tenant of the mortgagor without previously terminating the receivership."

The vital letter in this case is a letter of 23 December 1968, written to the defendant by the plaintiffs' solicitors acting on their behalf. The letter is in these terms:

"we act for [the plaintiffs] who have today appointed a receiver of the income, rents and profits of the above property. The Receiver is Mr R C Richardson of Messrs C H & J W Willmott, 65 Goldhawk Road, W12. Please take notice that henceforth you should not pay any sums to your former landlords, Mr and Mrs Lamptey, but to Mr Richardson or to whom he shall direct. Further take notice that no credit will be given for monies paid from now on to Mr and Mrs Lamptey. Yours faithfully."

Then it is signed by the solicitors. Now what does this letter mean? Counsel for the plaintiffs says, quite rightly, that the rest (sometimes described as 'objective') is not, what did the defendant understand by it? But, what would this letter mean to the ordinary reasonable man? Counsel for the plaintiffs says that a receiver appointed under a mortgage deed is the agent of the mortgagor and not of the mortgagee. I entirely agree. He says that the true view of this letter is that it is giving notice to the defendant that the plaintiffs have appointed a receiver under a mortgage into which Mr and Mrs Lamptey had entered, that it gave the defendant notice that Mr Richardson was Mr and Mrs Lamptey's agent to receive and rents, and that in future the rent should be paid to Mr Richardson as agent for Mr and Mr Lamptey and not to them.

I am afraid that, persuasively as counsel for the plaintiffs has put the argument, I am quite unable to accept it. I do not think that the letter means anything of the kind. To begin with, it is to be noticed that it does not say a word about any 'mortgage deed' or 'legal charge'. There is not a spark of evidence that the defendant had any idea that the Lampteys had mortgaged their leasehold interest in the premises. The natural meaning to the ordinary person would be that Mr Richardson was appointed as the agent of the plaintiffs, on behalf of whom the letter was written, to receive the rent due to them in respect of the premises. It is said: well, that cannot be right: surely that fact that the word Receiver is used in the letter - particularly with a large 'R' - ought to put the ordinary man on some sort of enquiry, even if he is not a lawyer.

But even if one were to accede to that argument, and I am afraid I do not, the rest of the letter seems to me to make it abundantly plain that the one thing that would not be communicated to the mind of the ordinary man by this letter is that the plaintiffs had appointed Mr Richardson a receiver to collect rents on behalf of Mr and Mrs Lamptey as landlords. The passage to which I draw particular attention is the passage in which the letter says "henceforth you should not pay any sums to your former landlord, Mr and Mrs Lamptey". I think that that can only mean, to the ordinary person, that Mr and Mrs Lamptey were no longer his landlords: the rent must be paid to Mr Richardson, presumably as agents for the landlord. If any reasonable man received a letter such as that written on behalf of the plaintiffs, I think that he would come to the conclusion, a very sensible conclusion, that the letter was telling him not only that Mr and Mrs Lamptey had ceased to be his landlords but that the plaintiffs, on behalf of whom the letter was written, were his landlords and that they appointed Mr Richardson to collect the rents from him on their behalf. Thereafter, without more ado, Mr Richardson collected the rent from the defendant in accordance with the terms of that letter. A new rent book was issued to the defendant describing the landlord as 'R C Richardson Receiver'. This in the circumstances would convey to the defendant only that Mr Richardson was the landlord's agent.

In my view a fresh tenancy had indeed been created between the plaintiffs and the defendant; at any rate the plaintiffs are precluded from denying that they did become the defendant's landlords.

On that short ground alone, without going into the other points canvassed by the judge (I am not by any means disagreeing with them),. I am satisfied that his judgement is clearly right. It may be unfortunate from the point of view of the plaintiffs that the crucial letter was perhaps written without very much consideration. The position would have been very different if the letter had stated that the plaintiffs were the mortgagees and that Mr Richardson had been appointed receiver under the legal charge created by the mortgagors, and particularly if it had not referred to Mr and Mrs Lamptey as the former landlords. Whether it would have made any difference to the defendant, who I do not suppose was particularly familiar with the extreme technicality of the position which arises under S109(s) of the Law of Property Act 1925. I rather doubt. But that does not matter. As counsel for the plaintiffs rightly says, the test is not what the defendant thought about the letter, but what would this letter convey to the ordinary reasonable man. In my judgment it clearly meant what I have already indicated; and I am also sure that that is how it was understood by the defendant. The plaintiffs solicitors having written that letter and the rent having thereafter been collected by Mr Richardson, this claim for possession was hopeless, I would accordingly dismiss the appeal.

FENTON ATKINSON LJ - I agree. Applying the language of Cross J In Stroud Building Society v Delamount, to which Salmon LJ has already referred, I have to say whether, looking at the facts as a whole and putting myself in the position of a juryman, the plaintiffs had consented to accept the defendant as tenant, notwithstanding the receivership, or whether they had not. I have no doubt whatever in my own mind that the county court judge gave the right answer to that question, and like Salmon LJ I cannot see that nay other answer to the question was possible in face of the letter of 23 December 1968. Counsel for the plaintiffs has done a gallant best to escape from the difficulties created by that letter but I think that he has quite failed to do so, and I agree that this appeal must fail.

KARMINSKI LJ - I also agree. Applying the test formulated by Cross J in Stroud Building Society v Delamont, I have endeavoured, as did the judge below, to try and get a picture as a whole of the relevant facts in this case. I agree with what has been said about the vital letter of 23 December 1968. Nothing was said in the subsequent letters, so far as I have been able to discover, to vary the inference which must of necessity be drawn, applying the objective test, by anybody who read that letter.

After that letter was written there was a good deal of discussion between the receiver and the defendant about the amount of the rent and the rates. I have no doubt that Mr Richardson, when he talked about discussions, referred to discussions between himself and the plaintiffs. Further, Mr Richardson as receiver collected the rent as it became due from the defendant. I have come to the conclusion, in spite of the interesting and constructive argument of counsel for the plaintiffs, that the county court judge was clearly right and that this appeal must be dismissed.

Appeal dismissed.

Solicitors:

W R Bennett, Emanuel & Co (for the plaintiffs);

Swepstone, Walsh & Son (for the defendant).