England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM COUNTY COURT
HH JUDGE VICTOR HALL
1BM72707

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th May 2013

Lord Justice Patten :

1. This is an appeal by the defendant, Ms Jasmin Ker, against an order of HH Judge Hall dated 15^th May 2012. He ordered Ms Ker to give up possession of a property at 38, St Catherine's Close, Birmingham ("the Property") of which she is the tenant under an assured shorthold tenancy granted by the claimant housing association, Optima Community Association ("Optima"), on 18^th February 2009. The order also includes a judgment for arrears of rent in the sum of £9,046.82 up to 1^st March 2012 and thereafter at a daily rate of £24.96 until possession.
2. Ms Ker now accepts that she cannot afford to live at the Property and does not therefore seek to reverse the order for possession. But neither does she concede the correctness of the order. She challenges the judgment for arrears of rent and the right of Optima to terminate her tenancy in the circumstances I shall come to on the ground that the amount reserved as rent under the terms of her tenancy was, on a proper understanding of the facts, never intended to be treated simply as rent but was to include what amounted to a contribution to a deposit payable on the exercise by her of a corresponding option to acquire the Property under what is described as Optima's FlexiBuy scheme. She contends that Optima's claim to recover possession of the Property and to terminate the option both engaged and infringed her Article 8 and Article 1 Protocol 1 rights and the judge's order was, in the circumstances, disproportionate. She has also counterclaimed for payment of the deposit element in the rent she has paid regardless of whether there should be an order for possession. Although part of her defence also involved reliance on the Unfair Terms in Consumer Contract Regulations 1999, that argument is no longer pursued.
3. It is necessary to begin therefore by describing the contractual arrangements which are said in this case to raise the Convention-based defences I have mentioned and to entitle the defendant to have the judgment for arrears of rent set aside.
4. In about 2005 Optima obtained funding in the form of a social housing grant ("SHG") to construct social housing which included the Property. The grant was for a mixed scheme comprising property for rent and shared ownership property which would be sold for up to 75% of its market value. The level of SHG funding varied between the two types of housing. We are told that the grant for rented accommodation was double that available for shared ownership. The build cost of a shared ownership house in St Catherine's Close was £134,661 of which some £23,239 (about 17%) was grant funded. A similar house for social rent cost £128,752 to build with grant aid of £44,014 (about 34%). It follows that the net cost to Optima of developing the former type of property was considerably greater than in the case of the rented accommodation and remained a drain on their resources for so long as the property remained vacant.
5. As a result of adverse market conditions in 2007/2008, there was a significant reduction in the take-up of shared ownership accommodation which affected this development. In order to mitigate the financial cost to Optima of having developed shared ownership property with a limited grant, it obtained approval from the Homes and Communities Agency to offer some of this accommodation under a scheme which did not necessitate the applicant purchasing the property at the outset. The evidence from Optima was that what became known as the FlexiBuy scheme was intended to target first-time buyers who were not able to provide the deposit necessary to acquire the property immediately under a shared ownership scheme. Instead the applicant would be allowed to rent the property at a market rather than a social rent and would then be able to purchase the property via a shared ownership scheme under which Optima would contribute to the deposit in a sum calculated by reference to the difference between the market rent paid and what would have been the social rent for a comparable property.
6. The FlexiBuy scheme was introduced in July 2008 with advertising in the local press and on the internet and the distribution of leaflets in the area. The advertising material describes FlexiBuy as the "modern, smartest way to buy a home" at a cost of from £500 per month with no deposit required. It stated:

"To make things even easier, you'll get around £2,500 for every year you rent with us to use as your deposit. It's a secure way to save, and gives you the freedom to experience your home before deciding to buy"

7. At the same time Optima's marketing department produced a document headed "Frequently Asked Questions" which contained the following questions and answers:

"What is FlexiBuy?

FlexiBuy is a route to home ownership. With FlexiBuy you can rent a property from us and then choose to buy later under Shared Ownership. We will give you a proportion of your rent back to you to use as a deposit when you choose to buy.

How much of my rent is saved towards my deposit?

We save approximately 40% of your rent to return to you as a deposit.

What if I choose not to buy?

If you choose not to buy then we do have the right to terminate your tenancy agreement and you would lose the deposit we have saved for you."

8. There is no evidence that Ms Ker was given a copy of this document or that she attached any particular importance to the advertising material I have referred to. The judge found that she never saw the Frequently Asked Questions document although her evidence at trial was that she attended a presentation about FlexiBuy and was handed a leaflet. But on 16^th September 2008 she wrote to Attwood Homes who were presenting the scheme expressing interest in acquiring one of the three-bedroomed properties available. She stated in the letter that she had recently taken up permanent employment with the Royal Bank of Scotland and would provide payslips in due course.
9. On 15^th October 2008 Optima received the defendant's completed application form which disclosed that she had a young daughter (born in 2007) and was currently living with her mother. She gave her income as £14,000 per annum plus regular overtime payments of £300-500 per month. She was also in receipt of benefits amounting to £3,333 per annum.
10. Upon the exercise of the option the defendant would be required to provide the capital cost of her purchase of a share in the property which would almost certainly necessitate her obtaining a mortgage. Optima therefore carried out an assessment of her ability to pay the rent and her living expenses and in due course to secure and service a mortgage. As a result, it asked Ms Ker for further details of her monthly expenditure and for copies of her bank statements and payslips. On 6^th January 2009 a representative of Optima discussed these matters with Ms Ker by telephone and raised various queries about whether she could in fact afford to go ahead. Ms Ker was insistent that she would be able to pay the rent and later the mortgage and that she would be able to obtain a mortgage from RBS. She also anticipated rises in her salary. She was, however, persuaded to limit her expenditure by opting for a two-bedroomed rather than a three-bedroomed house. What, however, she did not disclose was that she intended to make a claim for housing benefit to assist her in meeting the rent.
11. The defendant's application was approved on 12^th January 2009 and she was sent an affordability approval document which set out her monthly net disposable income (in her case £396) based on the financial information she had supplied. This represented the balance of her monthly income after payment of all outgoings, including a monthly rent of £700. Ms Ker then viewed the Property and signed a confirmation of reservation document on 20^th January 2009. This confirmed that the rent for the Property would be £700 per calendar month payable on the first day of each month by direct debit.
12. The contractual documents in this case consist of an assured shorthold tenancy agreement and an option agreement which Ms Ker signed on 18^th February 2009. The tenancy agreement is in standard form and provides for the tenancy to commence on 23^rd February 2009 for an initial term of one week and thereafter weekly until determined. The "Net Rent" is expressed to be £700 per month. The tenancy is granted on Optima's standard terms and conditions which provide for the rent to be paid in arrears each Monday. Condition 3.14 confirms that Optima may apply for a possession order if it first gives to the tenant two months' written notice that possession is required. This corresponds with s.21(4) of the Housing Act 1988 which requires the court to make an order for possession if satisfied that such a notice has been served. The landlord's ability to serve the notice is not conditional on there being arrears of rent or any other breach of the terms of the tenancy.
13. The relevant parts of the option agreement are as follows:

"BACKGROUND

…

2. If the Tenant purchases the Leasehold Interest in accordance with this Option, the Landlord agrees to give an incentive in accordance with the provisions of this Option.

3. At the start of the tenancy agreement the Purchase Price is estimated to be £170,000. For the avoidance of doubt this is just an estimate intending to assist the Tenant in the deposit estimating the ultimate purchase price and is in no way binding on the parties.

…

1. Definitions And Interpretations

…

"Deposit Incentive"

A sum to be paid by the Landlord towards the Purchase Price to be calculated in accordance with paragraph 4.

…

2. Determination of Purchase Price

2.1 At any time after the end of the first 12 months of the tenancy, either the Landlord or the Tenant may apply for determination of the Purchase Price.

2.2 The party requesting the Determination of the Purchase Price shall notify the other party in writing of its application for determination of the Purchase Price.

2.3 The Landlord shall propose a surveyor to determine the current market value of the Leasehold Interest on the open market on the date of receipt of the notice referred to in paragraph 2.2 by the other party. The parties will jointly agree who the surveyor will be. If they cannot agree, either the Landlord or the Tenant may ask the President of the Royal Institution of Chartered Surveyors to appoint a surveyor.

2.4 The determination of the independent surveyor, who must act as an expert and not as an arbitrator, is to be final and binding on the Landlord and the Tenant.

2.5 In relation to the first determination in any 12 month period of the Purchase Price, the fees and expenses of the independent surveyor, including the costs of his appointment, shall be borne by the Landlord. For any further determination(s) in the same 12 month period, the fees and expenses of the independent surveyor, including the costs of his appointment, shall be borne by the Tenant.

3. Exercising the Option

3.1 If the Tenant wishes to purchase the Leasehold Interest, he must give to the Landlord written notice of that wish ("Notice of Exercise of Option").

3.2 The notice may be given within one month of determination of the Purchase Price in accordance with paragraph 2.

3.3 If the Tenant serves a valid Notice of Exercise of Option and all other conditions set out in this Option are fulfilled, the Landlord must sell the Leasehold Interest to the Tenant on payment of the Purchase Price free from encumbrances PROVIDED THAT

3.3.1 No rent or other sums are outstanding under the terms of the tenancy;

3.3.2 No notices to terminate the tenancy have been served;

3.3.3 No proceedings have been issued to terminate the tenancy or to address issues of anti-social behaviour that have arisen under the tenancy and

3.3.4 At the date of serving a valid Notice of Exercise of Option the tenant would qualify to purchase under the relevant zone agent's application process.

4. Deposit Incentive

4. 1 On receipt of the Tenant's Notice of Exercise of Option, the Landlord shall determine the value of the Deposit Incentive as follows:

4.1.1 for each of the first 12 months of the tenancy, the sum of £700 (the monthly Net Rent at the start of the tenancy) less the sum of £384.37 (the monthly social housing rent for an equivalent property) plus

4.1.2 For any and each subsequent period of 12 months, the monthly Net Rent payable for the previous year multiplied by the percentage increase in the United Kingdom Retail Price Index ("RPI") over the period of 12 months to the 30^th September prior to the relevant increase date plus ½ of 1 per cent. (0.5%) less the social housing rent for an equivalent property during that 12 months, and/or (where the tenancy continues for a number of months less than 12 months) such sum as applicable pro rata. If the RPI or the basis on which it is calculated or published is altered to a material extent (as to which the Landlord's decision shall be conclusive), the Landlord may give written notice of its proposal to substitute an alternative published index of general prices or value for money for calculation of the net rent and this Option will be varied in accordance from the date mentioned in the notice.

The Landlord's calculation of the deposit incentive is final and binding on the parties.

4.2 In calculating the value of the deposit incentive, the Landlord shall act reasonably and properly at all times.

4.3 The Landlord agrees that the deposit incentive, which for the purpose of this clause 4.3 will be calculated at the date of completion of the sale of the Leasehold Interest, may be credited against the Purchase Price on completion of the sale of the Leasehold Interest.

5. Completion

5.1 Completion shall take place within 3 months of the Landlord's receipt of the Notice of Exercise of Option.

5.2 On completion the Tenant must pay to the Landlord the Purchase Price (less the Deposit Incentive), plus VAT if applicable at the rate then in force, together with any Rent and other sums due under the tenancy up to the date of completion.

5.3 The Tenant may choose to mortgage the Leasehold Interest for purposes of completing the purchase of the leasehold Interest.

5.4 The initial percentage of the Leasehold Interest to be purchased shall not be less than 25% nor more than 75%.

5.5 The Landlord will remain the registered proprietor of the Leasehold Interest until the purchase of the Leasehold Interest is completed.

5.6 The terms of the sale of the Leasehold Interest are set out in the draft lease annexed. The Gross Rent shall be 2.75% of the market value of the unsold equity as determined by the surveyor in accordance with paragraph 2.

…

5.7.2 on completion of the Option, the tenancy shall merge with the Leasehold Interest and be extinguished.

…

8. Termination of Option

8.1 This Option will terminate on either:

8.1.1 Termination of the tenancy; or

8.1.2 In accordance with clause 8.2; or

8.1.3 In accordance with clause 8.3

8.2 if:

8.2.1 by the Landlord's reasonable estimate, the Deposit Incentive reaches 10% or more of the Landlord's reasonable estimate of the Purchase Price; and

8.2.2 the Landlord notifies the Tenant of this; and

8.2.3 the Purchase Price having been obtained in accordance with paragraph 2 so that the Deposit Incentive is confirmed as 10% or more of the Purchase Price; and

8.2.4 the Tenant failing to serve a valid Notice to Exercise of Option within 1 month of the Purchase Price being determined,

then the Landlord may choose to terminate this Option by notifying the Tenant in writing.

8.3 If the Tenant has served a valid Notice to Exercise of Option but does not complete the purchase of the Leasehold Interest within three months, then:

8.3.1 this Option terminates; and

8.3.2 the Landlord may terminate the tenancy in accordance with the provisions of the tenancy.

8.4 When this Option terminates, it may not be subsequently enforced or exercised again.

…"

14. Ms Ker told the judge that she read the option agreement before signing it and had understood it. But she also said that it was not until 6^th September 2010 at a meeting at Optima's offices that she realised that she could lose the deposit element. This meeting came about in the following circumstances. After signing the tenancy and the option agreement on 18^th February 2009, Ms Ker moved into the Property with her daughter. For the first 12 months or so of her tenancy she paid the monthly rent of £700 in full but from January 2010 she began to fall into arrears and there were no rental payments at all in June, July and August 2010.
15. Optima's staff attempted to contact the defendant during July and on 15^th July sent her a statement showing the arrears due. Ms Ker then telephoned Optima and on 6^th September 2010 attended a meeting with Optima's director of housing services (Ms Leslie Whitling) accompanied by her mother. By then the arrears stood at £3,134. At the meeting Ms Ker explained that she had been involved in a car accident and was also expecting a second child. This had affected her ability to work. It was at the same meeting that Ms Whitling explained to her that she was expected to purchase a share of the Property by exercising the option as soon as she had accumulated a sufficient deposit for that purpose. They discussed the possibility of converting the tenancy to one at an intermediate rent of £592.77 per month but Ms Ker was told (as confirmed in a subsequent letter from Optima) that this: "would mean your accumulated deposit would be lost and you could no longer proceed to purchase a share of your home".
16. The letter went on to explain to Ms Ker that if she wished to continue as a FlexiBuy tenant she needed to clear the arrears of rent and continue to pay the £700 monthly payments in full. Optima also intended to serve a s.21 notice enabling it to recover possession should Ms Ker be unable to clear her debts.
17. The s.21 notice was served on 10^th September 2010 by which time the arrears of rent amounted to £2,434. On 6^th October Ms Ker (this time accompanied by her father) attended a further meeting with Ms Whitling when it was again explained that the arrears needed to be cleared before the tenancy could be converted to one at an intermediate market rent. Ms Ker said that she would prefer to remain in the FlexiBuy scheme in order to preserve her deposit entitlement and her father agreed to assist in clearing the arrears. He made an immediate payment of £738.50 and agreed to pay a further £1,000 by the end of December.
18. Optima had a further meeting with Ms Ker on 24^th January 2011 when the defendant agreed to clear the arrears on her account by the end of March 2011. But the direct debt for her rental payments was cancelled and the arrears continued to increase. Optima attempted to contact Ms Ker by telephone and eventually on 28^th March she promised to pay the arrears by 11^th April. Payment was not made and on 21^st April a further s.21 notice was served. By then the arrears stood at £2,796.33.
19. The defendant's financial difficulties were caused by a combination of her inability to work as a result of the accident; difficulties in her pregnancy; and the refusal of Birmingham City Council to meet her rental liabilities in full with housing benefit. Some of the problems with the payment of housing benefit were purely administrative and can be ignored. But the City Council were never willing to pay more than a maximum of £405 per month in housing benefit which was therefore insufficient to pay the monthly rent of £700 in full and would not discharge the arrears. This was because the deposit element in the rent was not eligible for housing benefit. At the same time Optima said that it could not afford to convert the Property and other FlexiBuy properties to properties for social rent because it would not receive any additional grant aid from the HCA to compensate it for the lower rent. Optima's waiting list for general needs social housing has been closed since 2005.
20. The claim form was issued on 17^th August 2011 seeking possession of the Property on the basis of the s.21 notice served on 21^st April 2011. On 5^th September 2011 the defendant served a supplementary defence in which she alleged (paragraph 5) that the tenancy agreement was a sham insofar as it provided that the monthly payment of £700 was in respect of rent. The agreement was "for a tenancy at a lower than market monthly rent plus a mandatory monthly contribution towards a deposit called the 'deposit – builder element'".
21. The classic definition of a sham is that given by Diplock LJ in Snook v London and West Riding Investments Limited [1967] 2 QB 786. That is:

"if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create."

22. There is no allegation in the pleadings nor any evidence from Ms Ker of a common intention by her and Optima to deceive any third party about the terms and effect of the tenancy agreement. The judge was therefore correct to reject the claim that the tenancy was a sham. But, in the alternative, Ms Ker relied on a line of authority culminating in the decisions of the House of Lords in Street v Mountford [1985] AC 809 and Antoniades v Villiers [1990] 1 AC 417 where agreements designed to avoid the application of the Rent Acts by purporting to create licences with no right to exclusive possession have been held to create tenancies by reference to the actual arrangements between the parties. I shall come to the detail of these cases shortly but, before I do so, I need to explain how this issue becomes relevant to Ms Ker's defence of the claim on Article 8 and Article 1, Protocol 1 grounds.
23. Since the decision of the Supreme Court in Manchester City Council v Pinnock [2010] UKSC 45; [2011] 2 AC 104 it is established that in proceedings for possession by a public authority the court must consider whether eviction is a proportionate means of achieving a legitimate aim. Optima (for the purpose only of these proceedings) concedes that it is a public authority. Ms Lieven QC (who appears for the first time in this appeal) accepts that even when a tenant's Article 8 convention rights are engaged by proceedings for possession it will ordinarily be proportionate for the public housing authority to seek and for the court to grant possession of the premises. The proportionality of interfering with the tenant's family and property rights requires to be judged in the light of the absence of any right under domestic law for the tenant to retain possession against the landlord and the duty of the public authority to manage the limited resources comprised in its housing stock. Lord Neuberger of Abbotsbury MR in Pinnock said that:

"53. In this connection, it is right to refer to a point raised by the Secretary of State. He submitted that a local authority's aim in wanting possession should be a 'given', which does not have to be explained or justified in court, so that the court will only be concerned with the occupiers' personal circumstances. In our view, there is indeed force in the point, which finds support in Lord Bingham's comment in Kay v Lambeth London BC [2006] 2 AC 465, 491, para 29, that to require the local authority routinely, from the outset, to plead and prove that the possession order sought is justified would, in the overwhelming majority of cases, be burdensome and futile. In other words, the fact that the authority is entitled to possession and should, in the absence of cogent evidence to the contrary, be assumed to be acting in accordance with its duties, will be a strong factor in support of the proportionality of making an order for possession. But, in a particular case, the authority may have what it believes to be particularly strong or unusual reasons for wanting possession—for example, that the property is the only occupied part of a site intended for immediate development for community housing. The authority could rely on that factor, but would have to plead it and adduce evidence to support it.

54. Unencumbered property rights, even where they are enjoyed by a public body such as a local authority, are of real weight when it comes to proportionality. So, too, is the right—indeed the obligation—of a local authority to decide who should occupy its residential property. As Lord Bingham said in Harrow London BC v Qazi [2003] 4 All ER 461 at [25]:

'[T]he administration of public housing under various statutory schemes is entrusted to local housing authorities. It is not for the court to second-guess allocation decisions. The Strasbourg authorities have adopted a very pragmatic and realistic approach to the issue of justification.'

Therefore, in virtually every case where a residential occupier has no contractual or statutory protection, and the local authority is entitled to possession as a matter of domestic law, there will be a very strong case for saying that making an order for possession would be proportionate. However, in some cases there may be factors which would tell the other way."

24. But for the argument about the legal effect of the tenancy arrangements, Ms Ker would, in my judgment, have no answer to the claim for possession on Article 8 or Article 1, Protocol 1 grounds. The Property was not provided to her as social housing but as part of a scheme designed to enable applicants to acquire ownership of the property without having to enter into an immediate purchase with the financial commitment which that would involve. Ms Ker fully understood the nature of the scheme and the commercial realities it involved. Optima did its best to assess her ability to afford the outgoings involved but Ms Ker's assessment of her own financial prospects was over-optimistic and she failed to disclose that she would need and intended to apply for support in the form of housing benefit. The FlexiBuy scheme was not intended for tenants dependent on housing benefit and Ms Ker's application would not have been accepted had she disclosed this fact. Although her car accident (and perhaps her later pregnancy) were unforeseeable, they do not, in my view, outweigh the competing interests of Optima in utilising the Property as part of a shared ownership scheme nor do they justify the de facto conversion of the Property into social housing which it was never intended to be. It would not therefore be disproportionate for Optima to seek or for the Court to grant an order for possession.
25. What is said materially to alter this outcome is that, under the FlexiBuy scheme, Optima was to hold to Ms Ker's credit pending the exercise of the option what has been described as the deposit element of the rent. Under the terms of clause 8.1.1 of the option agreement, the option terminates on the termination of the tenancy and, as a consequence, Ms Ker will lose her accrued rights to have the deposit incentive as it is described applied for her benefit. Ms Lieven submits that none of the case law either before or after Pinnock deals with the issues of proportionality where the consequences of the loss of the tenancy are more than the loss of possession.
26. The defendant accepts that the amount of the deposit was not kept in a separate account or on terms which would give rise to a proprietary claim to the monies under a trust. But the marketing material already referred to is said to be relevant to show that Optima regarded the deposit incentive as a sum set aside for the tenant's benefit and at the time of the trial the amount of the accumulated deposit element was sufficient to cover the social rent element of the arrears.
27. The judge approached the question of whether the reservation of a "rent" of £700 per month under the tenancy agreement in fact represented the true nature of the contractual arrangements between the parties by concentrating on what was known to them at the time when the contract was made. At paragraphs 36 and 37 of his judgment, he said that:

"36. In looking at the factual matrix of this case it is important not to fall into the trap of viewing what happened from an ex-post facto viewpoint but rather seek to consider what the parties were contemplating at the time at which the agreement was being entered into.

37. I set out above the use to which the term "rent" had been put in dealings between the parties and it was always put upon the basis of the higher figure £700. When the question of intermediate market rent came to be considered in September 2009 it was at a lower level without the benefit of the option. Further, it is clear from the option documents included in the bundle and referred to above that the option could only be exercised upon the occurrence of certain contingencies. At that time the landlord would calculate a deposit incentive based upon payment of rent made, which would have the effect of reducing the actual rent paid over the period between the commencement of the tenancy and that point to one equating to a social rent rather than the full market rent that had been charged. I find it very difficult to construe the defendant's understanding of what was being undertaken was the creation of a savings fund or similar." (sic)

28. Ms Lieven submits that the direction in paragraph 36 amounts to an error of law because the task of the court is to look at all the facts objectively at the date of the trial. Notwithstanding the terms of the tenancy agreement, the rent in excess of the social rent was not intended to be treated by Optima as rent but rather as a contribution by Ms Ker to the eventual deposit payable on the purchase. Although the entire £700 per month is contractually due, the court, when considering whether to order possession, should take into account the fact that only part of that sum was payable as rent in a true sense. It would not be proportionate to order possession where, as in this case, the arrears in arithmetical terms were represented by the deposit rather than the rental element of the £700.
29. As an example of the need for the court to take an objective ex post facto approach to the situation, Ms Lieven puts forward a possible case in which the whole of the £700 per month had been paid but Optima nonetheless exercised its power to serve a s.21 notice thereby determining the tenancy and, as a consequence, the option. It would be no answer to a defence based on proportionality for Optima simply to rely on its contractual rights. The court would look at the realities of the position at the date of trial in order to determine whether it was proportionate to make the order for possession sought. As part of that exercise, it would undoubtedly take into account the fact that the tenant had accrued rights in respect of the deposit which would be extinguished by the order which the claimant was seeking. Another example might be a case where the tenant had paid the rent in full but was unable to get a mortgage to enable the purchase to go ahead. Again, it is said that it would not be proportionate for Optima to rely on its contractual rights under clause 8.3 of the option agreement and then seek to terminate the tenancy.
30. My difficulty with these various examples is that they each represent a very different factual situation in which the competing rights and interests of the parties are not the same. A decision by Optima to terminate the tenancy of a tenant who was, so to speak, fully paid up simply in order to avoid the tenant's contractual ability to exercise the option would amount to an act of bad faith and an attempt to frustrate the shared ownership scheme which both parties had entered into. As a public authority, Optima's decision to terminate the tenancy could, I think, be challenged on conventional Wednesbury grounds quite apart from any question of Article 8.
31. But the exercise by Optima of its contractual right under clause 8.3 of the option agreement in the event that the tenant is unable to afford to proceed is a very different situation. Although the tenant stands to lose the benefit of the deposit incentive, he does so because of his own inability to abide by the terms of the contract he has made. It is difficult to see without more why Optima should be precluded from terminating the option agreement and the tenancy when the alternative is to allow the tenant to become a long-term tenant which is what neither party ever contemplated. Whether proportionality could dictate some intermediate course would be highly fact dependent and is not something which I need to discuss further in the context of this appeal.
32. The key to the court's intervention in the present case is the contention that the £700 per month payable by Ms Ker was not just rent but also included the deposit element. It was also argued that the judge was wrong not to give greater weight to the fact that the arrears stemmed from circumstances beyond Ms Ker's control and were at least at the trial properly to be regarded as a temporary difficulty. This second line of argument is no longer sustainable in the light of Ms Ker's acceptance that she cannot now afford to live at the Property.
33. It is said that at the time of the trial things were different. I disagree. The evidence was that Ms Ker's ability to meet the £700 per month rent was always marginal and depended on social payments which in the end she did not receive. At the time of the trial the arrears were in the region of £9,000 and were steadily increasing. There was no evidence before the judge to suggest that Ms Ker had the financial ability to meet the £700 in full or to pay off the arrears. The subsequent history merely confirms what was evident at the time.
34. Ms Lieven made it clear that she was not submitting that her client should be entitled to become a long-term social tenant at a social rent. I turn therefore to the principal argument which is that the £700, although reserved as rent, was in fact intended to be a composite payment with a substantial deposit element.
35. Although Ms Lieven disavowed any suggestion that the deposit incentive was to be treated as a fund belonging beneficially to Ms Ker, I find it difficult to see how it can affect the proportionality review unless it amounts to one of her possessions within the scope of Article 1, Protocol 1. Her counterclaim is also clearly dependent on that. If it does then her loss of that right and with it the loss of her home may also give rise to an issue under Article 8 unless perhaps Optima is willing to pay her the accrued deposit element, in which case Ms Lieven was minded to accept that an order for possession would be Article 8 compliant. But anything short of it being her possession amounts to no more than a complaint that Ms Ker should not be evicted simply because she has failed to pay what is due under the contract. If that is her case then it is largely indistinguishable from that of the social tenant who does not pay his rent and Article 8, even if engaged, provides no defence.
36. Before coming to the application of Article 1 Protocol 1, it is necessary to carry out an analysis of the contractual arrangements between the parties in order to determine precisely what legal rights Ms Ker had to the deposit element of the rent which she paid. Although Article 1 Protocol 1 protects both existing possessions and claims which may give the person in question a legitimate expectation of obtaining effective enjoyment of a property right (see JA Pye (Oxford) Ltd v UK (2008) 46 EHRR 45 at [61]), there is nothing in the Strasbourg jurisprudence cited to us which suggests that the determination of what constitutes property is anything but a matter of domestic law. It is also well established that Article 1 of Protocol 1 does not guarantee the right to acquire property and that an interference with property rights is not in all circumstances to be treated as an expropriation: see Blecic v Croatia (2005) 41 EHRR 13.
37. The tenancy agreement and the option agreement have to be viewed together. Looked at simply in terms of the construction of these agreements, Ms Ker's case is hopeless. The tenancy agreement is an ordinary form of assured shorthold tenancy. It reserves the entire £700 as rent and is granted on Optima's standard terms and conditions. It contains no reference to part of the rent being appropriated towards a future deposit under a shared ownership purchase. In fact it makes no reference to the option agreement at all.
38. It is the option agreement which sets out the conditions upon which the tenant will be entitled to acquire an interest in the Property which contains the deposit incentive provisions. As set out in paragraph 13 above, it provides in clause 4 for the landlord to determine the value of the deposit incentive by reference to the mathematical formula specified. This calculation is a multiple of the amount of rent paid over "the monthly social housing rent for an equivalent property". The calculation is to be made at the date of completion of the sale and the amount so calculated will then be credited against the purchase price.
39. There is nothing in the option agreement which gives the tenant a proprietary claim to the deposit incentive so calculated and Ms Lieven accepts this. Even if a mere contractual right to some future property may in certain circumstances amount to a possession under Article 1 of Protocol 1, Ms Ker still faces the difficulty that her entitlement to the credit depends upon her being able to exercise her rights under the option agreement which she now accepts she cannot do. What instead she is seeking is the return of the deposit incentive to her without being required to exercise the option. Since it is common ground that she has no proprietary claim to the monies, she can only succeed in this argument by persuading the court that the actual agreement which she made was radically different from the terms of the document which she in fact signed. For this purpose, she relies on what Lord Templeman said in Antoniades v Villiers.
40. That was one of a number cases in which landlords of residential properties sought to evade the consequences of creating a Rent Act protected tenancy by entering into what were on their face licence agreements which were said not to confer a right to exclusive possession on the "licensee" both because they so provided and also because in one case separate such licences had been granted on different dates but with overlapping terms to a number of different people in respect of the same property which would necessarily involve a sharing of the accommodation. In the second case the landlord granted separate licences of a flat to a couple reserving a right to permit other licensees in the future to occupy the same space. In fact no such other licences were ever granted.
41. The House of Lords held that in the first case the separate agreements (which were independent of each other) could not amount to more than licences but held in the second case that the two licence agreements were interdependent and had to be read together as a single agreement. The reservation of the right to add future licensees was dismissed as a pretence designed to avoid the effect of the Rent Acts. The reality of the arrangement was that exclusive possession was granted.
42. Lord Templeman at pages 462G-463D said this:

"In Street v Mountford [1985] AC 809, 825, I said that:

"Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts."

It would have been more accurate and less liable to give rise to misunderstandings if I had substituted the word "pretence" for the references to "sham devices" and "artificial transactions". Street v Mountford was not a case which involved a pretence concerning exclusive possession. The agreement did not mention exclusive possession and the owner conceded that the occupier enjoyed exclusive possession. In Somma v Hazelhurst [1978] 1 WLR 1014 and other cases considered in Street v Mountford, the owner wished to let residential accommodation but to avoid the Rent Acts. The occupiers wished to take a letting of residential accommodation. The owner stipulated for the execution of agreements which pretended that exclusive possession was not to be enjoyed by the occupiers. The occupiers were obliged to acquiesce with this pretence in order to obtain the accommodation. In my opinion the occupiers either did not understand the language of the agreements or assumed, justifiably, that in practice the owner would not violate their privacy. The owner's real intention was to rely on the language of the agreement to escape the Rent Acts. The owner allowed the occupiers to enjoy jointly exclusive occupation and accepted rent. A tenancy was created. Street v Mountford reasserted three principles. First, parties to an agreement cannot contract out of the Rent Acts. Second, in the absence of special circumstances, not here relevant, the enjoyment of exclusive occupation for a term in consideration of periodic payments creates a tenancy. Third, where the language of licence contradicts the reality of lease, the facts must prevail. The facts must prevail over the language in order that the parties may not contract out of the Rent Acts. In the present case clause 16 was a pretence."

43. These principles were applied in Bankway Properties Ltd v Pensfold-Dunsford [2001] EWCA Civ 528 to a case where an assured tenancy was granted at an initial rent of £4,680 p.a. but contained a rent review clause under which the rent increased to £25,000 p.a. from the last review date. The increase in rent took the tenancy out of the statutory protection given to assured tenancies under the Housing Act 1988. The tenants failed to read the lease properly and did not notice the rent review clause. They argued, and the Court of Appeal held, that the landlords never expected to receive a rent of £25,000 and that the rent review clause was only intended to provide a means of recovering possession. Since it was inconsistent with the statutory purpose of the letting, it fell to be ignored. In reaching this conclusion, Arden LJ (at [44]) said that:

"44.     For this purpose, the court can look at all the relevant circumstances, including the subsequent conduct of the parties (see per Lord Jauncey in Antoniades v Villiers at p 475). There does not have to be a common intention to enter into other obligations or to deceive a third party: in Antoniades v Villiers, for instance, the "licensees" acknowledged in writing that their agreements with the landlord did not have the protection of the Rent Acts (see pp 457-458)."

44. In the present case there has been no attempt to evade the provisions of any statutory regime but Ms Ker's case is that the judge should have considered all the circumstances (including the subsequent consequences of the agreements) in determining what rights they conferred on her. Her case in a nutshell is that the advertising material I have referred to spoke of allowing a tenant to save under the scheme for a deposit but the combination of the tenancy agreement and the option agreement, if literally construed, will result in the events which have happened in her losing the deposit she has saved for if possession is ordered.
45. In my view this is a completely different type of case from ones such as Antoniades v Villiers and the principle applied in those cases does not assist Ms Ker. Even putting aside the fact that she never saw the advertising material, it is impossible to deduce from the terms in which the scheme was promoted any intention on the part of Optima or Ms Ker to contract other than on the terms of the agreements which they entered into.
46. Ms Ker does not suggest that in her pre-contract meetings with Optima when her suitability as a tenant under the scheme was being assessed it was ever suggested to her that the real terms of the agreement were other than as recorded in the documents she was to sign. Moreover, had she read the Frequently Asked Questions document she would have seen that she would lose the deposit if she was unable to buy. She also told the judge that she had read and understood the option agreement before signing it. Even if one makes the assessment by looking at subsequent events, there is nothing to show that the contractual conditions were other than as recorded in the two contracts. Ms Ker never became entitled to exercise the option and, absent a purchase, Optima has no obligation to credit her with the deposit incentive. Nowhere in the parties' dealings was it ever agreed that she should be repaid the deposit element if she could not proceed. In these circumstances, the arguments based on the Housing Benefit Regulations add nothing. The calculation of the social rent element for housing benefit purposes is irrelevant to what was agreed between the parties.
47. Ms Ker has therefore failed, in my judgment, to establish that she has been deprived of any possession under Article 1 of Protocol 1 and, as a consequence, she has no defence to the claim for possession or any cause of action for the payment of the deposit incentive.
48. I would therefore dismiss the appeal.

Lady Justice Black :

49. I agree.

Lord Justice Lloyd :

50. I also agree.