England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBCOF 98/1247/4

COURT OF APPEAL (CIVIL DIVISION )

(Mr. Justice Carnwath )

Royal Courts of Justice

Strand

London WC2

Thursday, 8th October 1998

B e f o r e :

LORD JUSTICE PETER GIBSON

LORD JUSTICE PILL

LORD JUSTICE MUMMERY

- - - - - - - -

THE QUEEN

- v -

THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF TOWER HAMLETS

Ex parte EMILY VON GOETZ

- - - - - - - -

(Computer Aided Transcript of the Stenograph Notes of Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Telephone No: 0171-421 4040

Fax No: 0171-831 8838

Official Shorthand Writers to the Court)

- - - - - - - -

MR. A. UNDERWOOD (instructed by Messrs Russell Power, London, E14) appeared on behalf of the Appellant/Respondent.

MISS T. BLOOM (instructed by Messrs McMillen Hamilton, London, E1) appeared on behalf of the Respondent/Applicant.

- - - - - - - -

J U D G M E N T

( As approved by the Court )

- - - - - - - -

Crown Copyright

LORD JUSTICE MUMMERY: On 11th December 1997 Carnwath J quashed the decision of the London Borough of Tower Hamlets ("the Council") of 24th March 1997, that Miss Emily Von Goetz, ("the applicant"), was not eligible for a grant under Part V111 of the Local Government and Housing Act 1989 ("the 1989 Act").

This appeal, brought with the leave of this court, turns on a short point of construction of section 104(2)(b) of Part V111 of the 1989 Act, which has now been repealed and re-enacted with modifications in the context of the discretionary regime provided for in the Housing Act 1996.

On 5th July 1994 the applicant obtained a 10 year assured shorthold tenancy of a three-storey Victorian house at 24, Shipton Road, Shoreditch, London E.2 ("the property"). The tenancy was granted under an agreement for a term longer than three years. There was no deed executed under seal and so the tenancy could not take effect as a legal estate in the property (section 52(1) and section 54(2) of the Law of Property Act 1925). It is, however, accepted by the Council that the applicant has a specifically enforceable contract for a term of years exceeding three years, and that she has an equitable interest in the property.

In July 1996 the applicant sent to the Council an application for a renovation grant under Part V111 of the 1989 Act. Part V111 governs grants towards the cost of improvements and repairs. The application was rejected on 24th March 1997, as the Council concluded that the applicant did not have "an owner's interest" in the property within the meaning of section 104(2), and that for that reason she was not eligible for the grant applied for.

The decision letter to the applicant contains the following passage:

"Under the terms of the Local Government and Housing Act 1989 grant can only be awarded if a valid interest in the property exists. Your application was as an owner and therefore subject to the conditions in S.104 of Part V111 of the 1989 Act requiring an owners interest to be established without which grant cannot be paid. In this instance, counsel's opinion states that as your lease was not executed under deed this means that you have not established a valid interest in the property and are therefore not in a position to be considered for a grant.

You are of course free to amend your lease to have it executed under deed and re-apply for grant, however your application would need to be considered afresh under the current legislation."

Section 104, which has the side heading "The interest of the applicant in the property", provides as follows. Subsection (1):

"Subject to subsection (4) and 136 below, a local housing authority may not entertain an application for a grant, other than a common parts grant, unless they are satisfied that -

(a) the applicant has, or proposes to acquire, an owner's interest in every parcel of land on which the relevant works are to be carried out."

Subsection (2) contains a definition:

"In this Part 'owner's interest' means an interest which -

(a) is held by the applicant alone or jointly with others and

(b) is either an estate in fee simple absolute in possession or a term of years absolute of which not less than five years remain unexpired at the date of the application."

On those provisions the question for decision is whether the applicant's interest in the property is a "term of years absolute" within the meaning of section 104(2)(b). It is common ground that if it is, not less than five years remained unexpired at the date of the application. Section 104(3) reads:

"Where a local housing authority entertain an owner's application made by a person who proposes to acquire the necessary interest, they shall not approve the application until they are satisfied that he has done so."

To put these provisions in context, we were also referred to other provisions of Part V111, including in particular section 109 and section 122.

The 1989 Act does not further define the expressions "estate in fee simple absolute in possession" and "term of years absolute" contained in section 104(2)(b). The obvious place to find definitions of those expressions is in the Law of Property Act 1925. A definition of "term of years absolute" is contained in the interpretation section of the 1925 Act. Section 205(1) provides:

"In this Act unless the context otherwise requires, the following expressions have the meanings hereby assigned to them respectively, that is to say

(xxvii): 'Term of years absolute' means a term of years (taking effect either in possession or in reversion whether or not at a rent) with or without impeachment for waste, subject or not to another legal estate, and either certain or liable to determination by notice, re-entry, operation of law, or by a provision for cesser on redemption, or in any other event (other than the dropping of a life, or the determination of a determinable life interest); but does not include any term of years determinable with life or lives or with the cesser of a determinable life interest, nor, if created after the commencement of this Act, a term of years which is not expressed to take effect in possession within twenty-one years after the creation thereof where required by this Act to take effect within that period; and in this definition the expression 'term of years' includes a term for less than a year, or for a year or years and a fraction of a year or from year to year."

That definition does not require that a "term of years absolute" should be a legal estate. As Carnwath J noted, the editorial comments on this provision in Woestenholme & Cherry (13th Edition) state as follows:

"There can be an equitable term of years absolute [and refers to sections 1(4) and section 149(2)]. The words 'subject or not to another legal estate' do not restrict the definition to legal terms but apply when the term is a legal term, subject to a prior legal estate'."

The possibility of an equitable estate in a term of years absolute is contemplated by section 149(2) which deals with the abolition of interesse termini and contains provisions as to reversionary leases and leases for lives. Subsection (2) provides:

"As from the commencement of this Act all terms of years absolute shall, whether the interest is created before or after such commencement, be capable of taking effect at law or in equity, according to the estate interest or powers of the grantor, from the date fixed for commencement of the term, without actual entry."

Finally, I turn to the provisions of section 1 on which the Council has placed particular reliance for the construction of section 104(2)(b). Section 1 of the Law of Property Act provides:

"(1) The only estates in land which are capable of subsisting or of being conveyed or created at law are -

(a) An estate in fee simple absolute in possession;

(b) A term of years absolute."

Subsection (3) provides:

"All other estates, interests, and charges in or over land take effect as equitable interests."

Subsection (2) refers to other interests or charges in or over land which are capable of subsisting or as being conveyed or created at law. Subsection (4) reads:

"The estates, interests, and charges which under this section are authorised to subsist or to be conveyed or created at law are (when subsisting or conveyed or created at law) in this Act referred to as 'legal estates', and have the same incidents as legal estates subsisting at the commencement of this Act; and the owner of a legal estate is referred to as 'an estate owner' and his legal estate is referred to as his estate."

Subsection (8) reads:

"Estates, interests, and charges in or over land which are not legal estates are in this Act referred to as 'equitable interests', and powers which by this Act are to operate in equity only are in this Act referred to as 'equitable powers'."

The judge granted the application for judicial review of the Council's decision on the ground that the Council had misconstrued the provisions of section 104(2)(b). He held that the reference in section 104(2)(b) to a "term of years absolute" was apt to apply to an equitable interest as well as to a legal interest. He added that the purpose of the 1989 Act favoured the construction proposed by the applicant. She had, for all practical purposes, an interest as good as a legal interest and there was no very good reason to exclude her from grant on the ground that her interest was equitable only.

In my judgment, Carnwath J came to the correct conclusion. The Council's primary argument, which he rejected, is that the reference in section 104 to "owner's interest" requires an applicant to have a legal estate in land. It is contended that the word "owner" in section 104, used in conjunction with "estate in fee simple absolute in possession" and "term of years absolute", imports the concept of a legal estate, as those are the only two estates capable since 1925 of existing at law.

Mr. Underwood, on behalf of the Council, emphasised, by reference to the word "owner", that Parliament had in mind a legal estate in a term of years absolute. The word "owner" was most appropriate to a legal estate. He contended that this was consistent with a purposive approach to the construction of the 1989 Act. He submitted that an equitable interest is a "risky" interest, which can be overreached. He added that it was unknown in legislation affecting local authorities to require the local authority to be satisfied on such a matter as whether a person had a legal estate or an equitable interest in property. He described, in particular, the problems that might arise for local authorities where equitable interests were claimed, not under a specifically enforceable agreement, as admitted in this case, but by virtue of matrimonial relations affecting the matrimonial home, or by cohabitation of or contribution to the acquisition of the property.

In my judgment, these submissions rest on a misunderstanding of the effect of the provisions in the Law of Property Act, read in relation to section 104(2). The legal position in this case is as follows:

1. The agreement for a lease did not vest a legal estate in the property for a term of years in the applicant. There was no deed as required by the Law of Property Act.

2. It is accepted that the agreement for the grant of term of years to the applicant was specifically enforceable. Under the doctrine of Walsh v Lonsdale (1882) 21 CHD 9, the applicant has an equitable interest in the property for a term of years. She is the equitable owner of the lease. The doctrine of Walsh v Lonsdale , which is based on the equitable maxim that "equity looks on that as done which ought to be done", is that a specifically enforceable lease is as good as a lease. There may be circumstances in which an equitable interest is overreached, but in most cases a person with an equitable lease is in the same position as a person who has had a legal estate vested in him by a deed.

3. Although the Law of Property Act 1925, section 1(1), provides that only the fee simple absolute in possession and the term of years absolute are capable of subsisting as legal estate, there is nothing in the Law of Property Act, in judicial precedent or in legal principle, which precludes equitable interests from subsisting in these estates. On the contrary, the provisions referred to and the doctrine of Walsh v Lonsdale allow for the creation of equitable interests, whether for a fee simple absolute in possession or a term of years. This is supported by passages in the textbooks. In Megarry and Wade on The Law of Real Property (5th Edition) at page 125, after discussion of the reduction by the 1925 legislation of legal estates to the two already mentioned, the authors state this:

"It should first be noted that the section [section 1] does not provide that the estates and interests mentioned in subsections (1) and (2) are necessarily legal, but merely that they alone can be legal. For example, a life interest or an entail cannot be legal estates after 1925, for they are not included in section 1; on the other land, a lease for a term of years is included in section 1 and so may exist either as a legal estate, as it normally does, or as an equitable interest under a trust."

There is a short passage in another well-known textbook by Professor Kevin Gray, Elements of Land Law, 2nd Edition, 1993, page 71. Under the heading "Formal creation of estates", he writes:

"With certain exceptions [they are not material] no conveyance of land is effective to confer a legal estate on the grantee unless the conveyance is made by deed. Failure to use a deed in the grant of a fee simple absolute or a term of years generally results in the creation of only an equitable interest for the grantee."

He explains in footnote 1:

"This demonstrates, incidentally, that it is quite possible to hold an equitable fee simple absolute in possession or an equitable term of years absolute. Section 1(1) of the Law of Property Act 1925 merely provides that it is these estates alone which have even the potentiality of legal existence."

I agree with those opinions. I do not see how section 1(1) reinforces Mr. Underwoods' proposed construction of "owner's interest" in section 104(2)(b).

4. The purposive argument is also unconvincing. Mr. Underwood argued that Parliament intended that the recipient of a renovation grant should have some kind of enduring interest in the property and that an equitable interest is not good against all the world, and may be more difficult to ascertain than a legal interest, so it falls outside the definition of "owner's interest". On the facts of this case, it is accepted that there is a specifically enforceable contract. There would be no defence to a claim by the applicant against the grantors of the tenancy for a decree of specific performance. If she asked the grantors for a deed to perfect the legal title, there is no ground on which that could be refused. So far as the Council is concerned in this case, the applicant's interest in the property is as enduring and ascertained as if there had been a deed vesting the legal estate in her for a term of years. As for the examples put by Mr. Underwood of matrimonial disputes or disputes between co-habitees concerning equitable interest, the answer is in the opening words of section 104, which provides:

"A local housing authority may not entertain an application for a grant other than a common parts grant unless they are satisfied that

(a) the applicant has or proposes to acquire an interest in every parcel of the land on which the relevant works are to be carried out."

If a Council is faced with a dispute between husband and wife or co-habiting people as to whether or not there exists an equitable interest, the Council would normally be entitled to say that it is not satisfied about the existence of an equitable interest unless and until the disputed equitable interest is either resolved by agreement or, failing agreement, by an order of the court. It would not be Wednesbury unreasonable for the local authority to require to be satisfied in that way before making a grant. This, however, is a different case, since it is conceded that the applicant has an equitable interest. Carnwath J was right to hold that, in refusing the application, the Council misconstrued section 104(2)(b). He was right to quash the decision of 24th March 1997. For these reasons, I would dismiss the appeal.

LORD JUSTICE PILL: I agree. Mr. Underwood relies upon the difficulties which will face local housing authorities if his submission that equitable interests are ineligible under section 104 of the Local Government and Housing Act 1989 is rejected. They may have difficulties in deciding whether they are "satisfied" for the purposes of that section. The difficulties are such, Mr. Underwood submits, that Parliament cannot have intended to have created them, and Parliament intended section 104(2) to apply only to legal interests. Further, he submits that an equitable owner's interests may be defeated by a third party and Parliament cannot have intended public money to be put at risk by permitting grants where the interest is only equitable.

I agree that there may be cases, though this is not one of them, where a decision under section 104 is a difficult decision. I cannot, however, agree that those considerations are decisive upon the point of construction which arises in this case. I agree with Mummery L.J., for the reasons he gives, that an owner's interest in section 104(2) is not confined to a legal interest. Upon that construction no difficulty arises in the present case for the reasons given by Mummery LJ. Where the position is more complicated, the applicant must of course be given a reasonable opportunity to satisfy the local housing authority that he has an owner's interest as that term is defined. It is then for the local authority to make a judgment upon the evidence before it as to whether it is "satisfied" for the purposes of section 104.

LORD JUSTICE PETER GIBSON: This appeal has been argued by Mr. Underwood for the appellant Council with sensible economy. The short point raised by the appeal is whether the respondent has an owner's interest as defined in section 104(2) of the Local Government Housing Act 1989 ("the 1989 Act"), so as to qualify her for a housing grant, by virtue of the fact that her interest as tenant of a 10-year assured shorthold tenancy was equitable rather than legal. More specifically, the point turns on whether the words of paragraph (b) of that subsection, "an estate fee simple absolute in possession or a term of years absolute", are to be construed as referring only to a legal interest so as to leave an equitable interest outside the ambit of those words.

Mr. Underwood takes three points on the statutory language. The first is that Parliament has chosen to use the word "owner" in the definition of "owner's interest". This, coupled with the reference to an "estate in fee simple absolute in possession or a term of years absolute", suggests, he submits, (and this is his second point) that the owner in the 1989 Act has the same meaning as "estate owner" in the Law of Property Act 1925 ("the 1925 Act"), which refers to the estate in fee simple absolute in possession and a term of years absolute as being the only estates capable of subsisting or being conveyed or created at law.

I am not able to accept his submissions on these points. The definition of "estate owner" to be found in section 1(4) of the 1925 Act makes it clear that it refers only to the owner of a legal estate. That definition is not imported into the 1989 Act. Further, section 1(1) of the 1925 Act is only referring to estates capable of existing at law. It does not exclude the existence of equitable estates corresponding to those legal estates. Any of the estates and interests which can exist at law may exist in equity, for example, when the due formalities have not been complied with. Mr. Underwood accepted that that was so. His first two points, therefore, are far from conclusive in his favour. Indeed, the absence of anything specifically limiting the language of the 1989 Act to legal estates and to the owner of a legal estate is, to my mind, significant.

The third point which Mr. Underwood takes on the language is based on section 104(3) of the 1989 Act. He submits that thereby Parliament made provision for applicants who had agreements to acquire estates. This suggests, he says, that it discriminated between leases in law and agreements for leases. To the extent that Mr. Underwood is there equating the word "proposes to acquire" with "agrees to acquire", I am not able to accept his submission. To my mind, it is plain that "proposes" differs from and is a much looser term than "agrees". The person who agrees to acquire an interest in land attains an equitable interest in land at that point. Section 104(3) does not assist to determine whether that interest is an owner's interest. It seems to me that the language used to define "owner's interest" is capable of applying to an equitable interest. I cannot see that Parliament has indicated otherwise.

The more general proposition which Mr. Underwood advanced related to what, he said, Parliament must have intended. He suggested difficulties in the way of local councils having to cope with claimants claiming that they had equitable interests. For the reasons given by Mummery L.J. I am satisfied that that point is not a good point. To an equity lawyer, it appears surprising that Parliament would have wanted in this context to distinguish between, for example, a legal lease and an equitable lease. I cannot accept that Parliament, by using the words which it did, intended to discriminate between the owner of an equitable estate and the owner of a legal estate for the purposes of a grant.

For these, as well as the reasons given by my Lords, I, too, would dismiss this appeal.

Order: Appeal dismissed with costs; legal aid taxation.