England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
Deputy District Judge Lawrence

		Royal Courts of Justice Strand, London, WC2A 2LL
		21st June 2006

Lord Justice Ward :

The issue

1. On the expiry of an assured shorthold tenancy for a term of one year less a day at a rent of £x per annum payable by equal quarterly payments in advance on the usual quarter days, is the statutory periodic tenancy which arises under section 5 of the Housing Act 1988 (the Act) a periodic tenancy under which the period of the tenancy is yearly or quarterly? That is the question which arises in this appeal. The answer depends on the meaning to be given to section 5(3)(d) of the Act and it is by no means easy.

The facts

2. The appellant, the Church Commissioners, first let Flat 72 Devonport, London W2 to the respondent, Ms Gisela Meya, for a term of two years from 21st April 1995. It was an assured shorthold tenancy as defined by section 20 of the Act. From time to time the letting was renewed by new agreements entered into by the parties, the last of which, dated 25th February 2004, being the agreement with which we are concerned.
3. It is a slightly unusual agreement prepared by Messrs Cluttons, the appellant's agents. For example, some clauses envisage a company as the tenant, which is not appropriate for an assured shorthold tenancy. Further the term is of one year less a day, but a covenant to pay a rent quarterly in advance means that the tenant has to pay an extra day's rent. These anomalies show that not a great deal of concentrated thought was put into the agreement but they are otherwise immaterial to this appeal.
4. The provisions which are material are those defining "the term" which in clause 1.6 of the agreement means "a tenancy from the first day of January 2004 to 30th December 2004", "the rent" which means "a clear yearly rent of £17,680.00 per annum" and the obligation to pay the rent expressed in Part I of the Second Schedule which is expressed to be "to pay the rent to the landlords by equal quarterly payments in advance on the usual quarter days (the first such payment or a proportion to be made on the date of this agreement)".
5. The tenant remained in occupation when this agreement expired on 30th December 2004, this time without a new agreement being entered into. On 2nd March 2005 she was served with a notice requiring possession in standard form given under section 21(4)(a) of the Act that "the landlord requires possession of the property after the thirtieth day of May 2005 or at the end of that period of your tenancy which will end after the expiry of two months from the giving of this notice whichever is the later."
6. On 4th July the landlords issued their claim for possession. It will have been observed that if the landlord had to give a quarter's notice requiring possession, then this notice was good and the landlord would be entitled to claim possession after the June quarter day. The tenant took the point, albeit a little belatedly, that this was an annual tenancy and that the issue of the proceedings was, therefore, premature.
7. On 25th January 2005 the matter came before the Deputy District Judge Lawrence sitting in the Central London County Court. He held:

"If it were left to me to interpret the words of the statute, I would have no doubt that the reference to 'payable' is the crucial word, and that the periodic tenancy is by reference to when the rent was paid, however it was expressed or however it was calculated, that seems to me is what the natural meaning of the words are and I concur with the view expressed by the authors of Woodfall."

Nonetheless he found he could not distinguish this case from a decision of the Court of Appeal in Laine v Cadwallader (2000) 33 H.L.R. 397 and so with evident reluctance he dismissed the claim but gave permission to appeal straight to the Court of Appeal.

The statutory background

8. Section 5 of the Act is directly material. It provides as follows:

"(1) An assured tenancy cannot be brought to an end by the landlord except by obtaining an order of the court in accordance with the following provisions of this Chapter or Chapter II below or, in the case of a fixed term tenancy which contains power for the landlord to determine the tenancy in certain circumstances, by the exercise of that power and, accordingly, the service by the landlord of a notice to quit shall be of no effect in relation to a periodic assured tenancy.

(2) If an assured tenancy which is a fixed term tenancy comes to an end otherwise than by virtue of —

(a) an order of the court, or

(b) a surrender or other action on the part of the tenant,

then, subject to section 7 and Chapter II below, the tenant shall be entitled to remain in possession of the dwelling-house let under that tenancy and, subject to subsection (4) below, his right to possession shall depend upon a periodic tenancy arising by virtue of this section.

(3) The periodic tenancy referred to in subsection (2) above is one —

(a) taking effect immediately on the coming to an end of the fixed term tenancy;

(b) deemed to have been granted by the person who was the landlord under the fixed term tenancy immediately before it came to an end to the person who was then the tenant under that tenancy;

(c) under which the premises which are let are the same dwelling-house as was let under the fixed term tenancy;

(d) under which the periods of the tenancy are the same as those for which rent was last payable under the fixed term tenancy; and

(e) under which, subject to the following provisions of this Part of this Act, the other terms are the same as those of the fixed term tenancy immediately before it came to an end, except that any term which makes provision for determination by the landlord or the tenant shall not have effect while the tenancy remains an assured tenancy.

…

(7) Any reference in this Part of this Act to a statutory periodic tenancy is a reference to a periodic tenancy arising by virtue of this section."

9. Section 21 of the Act enables a court to order possession of a property let on an assured shorthold tenancy if it is satisfied that a notice requiring possession satisfying the requirements of the section has been served. The relevant provisions of section 21 are:

"(1)  Without prejudice to any right of the landlord under an assured shorthold tenancy to recover possession of the dwelling-house let on the tenancy in accordance with Chapter I above, on or after the coming to an end of an assured shorthold tenancy which was a fixed term tenancy, a court shall make an order for possession of the dwelling-house if it is satisfied —

(a) that the assured shorthold tenancy has come to an end and no further assured tenancy (whether shorthold or not) is for the time being in existence, other than as an assured statutory periodic tenancy (whether statutory or not); and

(b) the landlord or, in the case of joint landlords, at least one of them has given to the tenant not less than two months' notice in writing stating that he requires possession of the dwelling-house.

…

 (4)  Without prejudice to any such right as is referred to in subsection (1) above, a court shall make an order for possession of a dwelling-house let on an assured shorthold tenancy which is a periodic tenancy if the court is satisfied —

(a)  that the landlord or, in the case of joint landlords, at least one of them has given to the tenant a notice in writing stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession of the dwelling-house is required by virtue of this section; and

(b)  that the date specified in the notice under paragraph (a) above is not earlier than the earliest day on which, apart from section 5(1) above, the tenancy could be brought to an end by a notice to quit given by the landlord on the same date as the notice under paragraph (a) above."

Discussion

10. The first question is whether we are bound by Laine v Cadwallader. In that case there was an assured shorthold tenancy in standard form for a term certain of six months and the rent was expressed to be £390 "per calendar month payable every two months in advance". Clause 5 of the tenancy agreement provided that the tenant could bring the agreement to an end by giving "at least one month's written notice". The tenant left, putting the keys through the landlord's letterbox. The landlord claimed first the arrears of rent, secondly the cost of putting right some damage done to the property and thirdly four weeks' rent in lieu of notice, not, it should be noted, a full calendar month's rent. The claim for rent in lieu of notice was dismissed and that was, said Kennedy L.J., "the issue which arises for reconsideration in this appeal". The respondent was not represented at the hearing of that appeal.
11. Kennedy L.J. gave the lead judgment. David Steel J. agreed. There was discussion about how the tenancy could be determined. Because of section 5(3)(e) the term in clause 5 allowing the tenant to bring the agreement to an end by giving a month's notice could not have effect while the agreement remained an assured tenancy. For the tenant to terminate, the length of the notice to quit was to be "equal to at least a period of the tenancy and expiring at the end of the period of the tenancy". That brought section 5(3)(d) into play. Kennedy L.J. said of it:

"The periods of the tenancy are defined by section 5(3)(d) as being those "for which rent was last payable under the fixed term tenancy". Stressing the words "for which", it seems to me that the periods were calendar months because the rent was fixed at £390 per calendar month. The fact that it was payable every two months in advance was only a provision as to time of payment which, for present purposes, is not material."

12. Then, as I follow his reasoning, he pointed to the judge's error saying:

"13. In the present case the judge, having rightly concluded that the landlord could not rely on clause 5 of the tenancy agreement, seems to have overlooked the tenant's obligation to serve notice to quit if he wishes unilaterally to determine a periodic tenancy, an obligation which is not ousted by any statutory provision in the Housing Act 1988. …

15. Of course, a tenant does not have to give notice if his landlord agrees to accept with immediate effect the tenant's offer to surrender his statutory periodic tenancy, and if the tenant delivers back to the landlord the keys of the dwelling house which was the subject matter of the tenancy; that, dependent on the circumstance, may amount to an offer to surrender which the landlord is then free to accept or reject.

16. As to what happened on 10th September, 1998 when the keys were put through Mrs Laine's letter box, the judge said:

"So there was, therefore, a surrender on that day."

17. In terms of everyday speech that observation of the judge is understandable, but legally the dropping-in of the keys cannot have constituted more than an offer to surrender which the landlords were free to accept or reject. It seems clear that there was no express acceptance of the offer so as to terminate the tenancy with immediate effect. The landlords seem to have regarded the dropping-in of the keys as informal notice to quit or an offer to terminate. They seem to have agreed to terminate the tenancy at the end of the minimum period for which a proper notice could have been given (see the contents of the amended particulars of claim). So long as neither they nor the tenant did anything which could be said to have altered the position during the ensuing four weeks and the evidence, so far as it goes, does not suggest that there was any relevant development during that period, I see no reason why the court should not now regard the tenancy as having terminated by agreement when the landlords agreed that it would terminate, namely four weeks after they received the keys. The result is that they are, as claimed, entitled to recover rent for that four-week period which is the issue in this appeal."

13. Since the ratio of the case is that the tenancy terminated by implied agreement four weeks after the keys were returned and so the landlord was entitled to a further four weeks' rent, the observations on section 5(3)(d) were not necessary for the decision and must be treated as obiter. Consequently those observations are not binding on us, although they do, of course, command our respect.

The proper meaning to be given to section 5(3)(d)

14. Our attention was drawn to the common law rules on holding over at the end of a fixed term tenancy. Adler v Blackman [1953] 1 QB 146 is in point. There the terms of the tenancy were to "hold for the term of one year … at the inclusive weekly rent of £3 payable weekly in advance on Monday in each week during the whole of the tenancy". The question was whether a week's notice was adequate to terminate the tenancy after the term expired. The tenant relied on the rebuttable presumption that when there has been a yearly tenancy and the tenant holds on and rent is accepted, it is a yearly tenancy. Somervell L.J. held at p. 150:

"I think that when, as here, a term comes to an end one has, of course, to consider what inferences are properly to be drawn from the payment and acceptance of rent. That is the basis of the presumption. In the cases in the books the rent is expressed to be so much per year and if one takes the extreme case in which the rent being so expressed is to be payable weekly, when the landlord accepts a weekly sum, what he is accepting is an instalment of the agreed figure for a yearly rent. One, therefore, sees from that the force of the line of argument which has led the courts in those cases to presume a tenancy for a further year. But in a case like the present, where rent is expressed to be per week, I think that when the fixed period has come to an end one should not presume anything but a weekly tenancy, namely a tenancy for the period in respect of which the rent is expressed."

Jenkins L.J. said at p. 151:

"With exceptions to which I will later refer, I think all the cases in which an implication of a yearly tenancy taking effect after the termination of a letting for one year, or a term of years, has been held to have been raised had been cases where the original letting, from which the implication was deduced, was a letting for a year or for a term of years at an annual rent, that is to say, a rent expressed as an annual sum, by whatever instalments it may have been made payable."

15. Thus, if the common law were to be applied, the rent is here expressed to be an annual rent though payable by equal quarterly payments and in the result an annual tenancy and not a quarterly tenancy would arise by virtue of holding over.
16. Interesting though the common law position may be, our task is to construe the legislation introduced into a new field of assured tenancies. Whilst for the sake of consistency one might hope that the new statutory regime would be introduced to reflect the common law, there is no presumption in this case that it should do so. The words have to be given their ordinary meaning.
17. Let me set the words out again. They are:

"(3) The periodic tenancy referred to in subsection (2) above is one —

…

(d) under which the periods of the tenancy are the same as those for which rent was last payable under the fixed term tenancy …"

With minimal rewriting that becomes "under which the periods of the tenancy are the same as [the periods] for which rent was last payable under the fixed term tenancy."

18. So the question is what were the periods for which rent was last payable under the fixed term tenancy. For the Deputy District Judge the word "payable" was of greatest significance. Giving force to the argument, Mr Evans who appears for the tenant, points to the different emphasis in Adler v Blackman where the distinction is drawn between what the rent is expressed to be and how and by what instalments it is to be payable, suggesting the use of the word "payable" in the statute shifts the focus to what the payment obligation was. In my judgment this argument does not assist in a case like ours to determine what it is that is payable and accordingly what the period is. That is because it can as equally be said that it is the annual rent of £17680 that is payable as that it is the quarterly rent of £4420 that is payable. An annual rent is payable but it is payable by quarterly instalments. One cannot tell which from which because both sums can be equally said to be payable. The language is therefore ambiguous.
19. I turn to consider Kennedy L.J.'s approach. Perhaps he stressed the words "for which" in order to concentrate on the period for which the rent was payable rather than to concentrate on any calculation of what rent was to be paid or the time when that rent was payable. That leads to the conclusion in our case that the period for which rent was payable was year by year because the rent was expressed in the agreement to be "a clear yearly rent of £17,680 per annum". If the tenant was to have handed in the keys of her flat in the first month after signing this agreement, she would still have been liable for a full year's rent, not just a quarter's rent. On this view there is symmetry between the statutory provision and the common law rule. That is a powerful argument in favour of this construction and on first impression I confess I found it to be attractive.
20. On reflection I think, however, that one may be in danger of slipping into error in asking what was the period for which rent was payable under the fixed term tenancy instead of accurately asking what was the period for which it was last payable. Meaning has to be given to the word "last". There would be a different answer when the question is posed excluding the word "last" and when including it. To the question what was the period for which rent was payable under the fixed term tenancy, the answer is at least uncertain because of the ambiguity in what is meant by "payable" but if a choice has to be made between rent payable annually and rent payable quarterly, then applying the Laine v Cadwallader approach, the answer is an annual period. It seems to me, however, that the answer to the question, "what was the period for which rent was last payable under the fixed term tenancy", is susceptible of more certainty. That question does compel one to ascertain what amount of rent was actually last payable under the terms of the tenancy and the answer is that because the agreement provided for the rent to be paid by instalments, the last instalment became payable in September. Asking then for what period that last payment was payable provides the answer that it was for a quarterly period.
21. I am driven to conclude that the latter answer is the right one. What persuades me is not just the use of the phrase "last payable" but also the way the draftsman has chosen to introduce the words "last" to qualify "payable" in section 5(3)(d) in contra-distinction to his use in paragraphs (a), (b) and (e) of the phrases "on the coming to an end of the fixed term tenancy" or "immediately before it came to an end". If one introduces a similar formula into (d), it would read "for which rent was payable under the fixed term tenancy immediately before it came to an end". Framed in that way the period is clearly an annual period because this was a tenancy "at a clear yearly rent". When, however, the description of the period is one for which rent was last payable under the fixed term tenancy then "last" must be given some meaning. It qualifies "payable" by expressing a relation of time or manner or nature to what is payable. If the focus is on time, manner or nature of what is payable, then one has to ascertain first what payment of rent last fell due, in other words, what was the last payment of rent the respondent was obliged to make, and then secondly of course, ascertain the period covered by that last payment.
22. Here the rent was an annual rent but it was expressly payable quarterly in advance. The last payment was £4420 and it was payable in advance for the September quarter. So the period is a quarterly period.

Conclusion

23. In my judgment the deputy district judge's instincts were correct. I would allow the appeal and order the respondent to give up possession of the premises in 28 days.

Lady Justice Smith:

24. I agree.

Mr Justice Cresswell:

25. I also agree.