Sadiq v Hussain

A lease granted by a mortgagor in breach of a mortgage covenant against leasing is void unless the mortgagee waives the illegality. Nevertheless, the tenant and sub-tenant are estopped from denying the lease while occupation remains undisturbed.

That estoppel ends when the mortgagee evicts by title paramount. Eviction does not require physical dispossession or proceedings. A clear threat communicated to the person in actual occupation is sufficient, even if the lessee is not separately notified. A later purchaser cannot revive the extinguished lease merely by acquiring the freehold with notice of the occupation. An anti-collusion principle does not impose a special burden of proof and applies only where bad faith or collusion is established.

A mortgagor granted a long lease in breach of a mortgage covenant prohibiting leasing without the mortgagee’s consent. The lease was assigned to the plaintiff, who sublet the premises to the defendant. The mortgagee, unaware of the transactions, notified the occupier that the tenancy rights were not recognised and later sold the freehold to the defendant, who was the sub-tenant.

The Rotherham County Court gave the plaintiff possession on the basis that the underlease had been forfeited and awarded arrears and mesne profits totalling £9,900. The defendant appealed, raising the effect of the mortgagee’s notice, the continuing leasehold estoppel, the sale contract, and the principle in Quennel v Maltby.

1. Appeal allowed. Lord Justice Waite delivered the judgment, with Mr Justice Singer agreeing. The county court order was discharged, monies paid under it were to be restored, and the respondent was ordered to pay the costs of the appeal and the hearing below.
2. Governing principles. The court proceeded on the basis that a lease granted by a mortgagor in breach of a covenant against exercising the statutory power of leasing is void unless the mortgagee waives the illegality, as stated in Dudley & District Benefit Building Society v Emerson [1949] Ch 707 and Parker v Braithwaite [1952] a AER 837. Despite that invalidity, the tenant and sub-tenant are estopped from denying the lease while occupation remains undisturbed, following Rust v Goodale [1957] 1Ch 33.
3. Eviction by title paramount. The mortgagee’s letter was a clear threat to dispute the tenancy rights and recover possession by title paramount. Under Pope v Briggs [1829] 9 B&C 245, eviction for this purpose did not require actual dispossession or proceedings. Notice to the person in actual occupation was sufficient. Once the defendant received the notice, the estoppel between the lessee and sub-tenant collapsed.
4. Effect of the sale. The sale contract’s reference to the defendant’s occupation was no more than a routine disclaimer by the Bank and did not revive the lease or estoppel after eviction. The parties’ subsequent understanding that the occupation was initially rightful was therefore irrelevant.
5. Quennel v Maltby. The equitable principle concerning bad faith or collusion had no application because there was no finding or evidential basis for mala fides or collusion. The case imposed no special onus beyond the ordinary burden of proof, and did not require court proceedings before the defendant could deny the lessor’s title. The appeal was therefore allowed.

1. Court of Appeal (Civil Division). In [1997] EWCA Civ 1003, the court allowed the defendant’s appeal, discharged the county court order, ordered restoration of monies paid, and made costs orders.
2. Rotherham County Court. On 5 December 1995, His Honour Judge Barber gave judgment for the plaintiff for possession, arrears of rent and mesne profits totalling £9,900.