Quennell v Maltby

A mortgagee’s rights and powers are vested for the protection and enforcement of the security. The court will not order possession where a mortgage transferee invokes those rights, not bona fide for mortgagee purposes, but as the mortgagor’s agent to defeat a statutory tenancy binding on the mortgagor.

The court must examine the substance of the transaction. Where the action is brought for the mortgagor’s benefit and to obtain vacant possession which the mortgagor could not obtain personally, it must be treated as the mortgagor’s action. The transferee can then occupy no better position than the mortgagor.

The landlord granted a student tenancy after mortgaging the property to a bank under a charge prohibiting lettings without the bank’s written consent. The tenancy was binding on the landlord but not on the bank. Following its expiry, the occupants became statutory tenants against the landlord.

After the bank declined to seek possession, the landlord’s wife paid the mortgage debt and took a transfer of the charge. She then sought possession so that the landlord could sell with vacant possession. The judge below granted possession on the basis that the unauthorised tenancy did not bind her as transferee.

The tenants appealed. The central issue was whether a mortgage transferee could enforce the legal right to possession when acting for the mortgagor to defeat statutory protection which bound him.

1. Appeal allowed unanimously; the possession action was dismissed. The court was bound to examine the substance of the arrangement. Although the proceedings were formally brought by the transferee of the mortgage, their purpose was to obtain for the landlord the vacant possession which he could not obtain against his statutory tenants.
2. Lord Denning MR held that equity could restrain a mortgagee or transferee from using the legal right to possession for an ulterior purpose. Possession may properly be sought bona fide and reasonably to enforce the security, subject to conditions imposed by the court. Here, the proceedings were unrelated to recovery of principal or interest. They were designed to overcome the tenants’ statutory protection and enable a profitable sale.
3. Bridge LJ held that the wife was, in substance, suing as her husband’s agent. She sought possession for his benefit rather than to protect or enforce the transferred security. She could therefore occupy no better position than he would have occupied. Had he sued personally, the tenants would have had a complete defence under the Rent Acts.
4. Templeman LJ accepted that a lease granted after the mortgage in breach of a prohibition on letting was binding on the landlord but void against the bank. He assumed that it was also void against a transferee unless adopted. However, a mortgagee’s estate, rights and powers exist to protect the mortgagee’s position and enable repayment. The wife was not exercising those powers bona fide for mortgagee purposes. The court therefore had to treat her action as one brought for and on behalf of the mortgagor, against whom the statutory tenancy remained binding.
5. The tenants received their costs in the Court of Appeal and below. Legal aid taxation was ordered.

1. Court of Appeal: Unanimously allowed the tenants’ appeal, dismissed the possession action and awarded the tenants their costs in this court and below.
2. Court below: The judge held that the mortgage transferee was entitled to possession because the tenancy had been granted without the mortgagee bank’s consent and did not bind the transferee.