Bhopal & Anor v Walia

A sham tenancy document creates no contractual rights or obligations different from those actually intended by the parties. A successor in title who takes the benefit of the tenant’s covenants under Law of Property Act 1925, section 141(1), is ordinarily in no better position than the predecessor landlord. A tenant is not estopped from relying on the true oral agreement merely because he signed a document containing a false rent, where the purchaser did not rely on that document or make inquiries about the tenancy before purchase. Possession on rent-arrears grounds must therefore be assessed by reference to the rent lawfully payable under the actual tenancy.

The appellants purchased a dwelling house with vacant possession contracted for, although the respondent remained in occupation. They later brought possession proceedings alleging arrears calculated on a written tenancy agreement stating rent of £450 per month. The county court found that the parties had actually agreed rent of £300 per month and that the written agreement had been created to mislead the vendors’ bank. Nevertheless, relying on observations in Tinsley v Milligan [1994] 1 AC 340, the judge held that the respondent was liable to the purchasers for £450 per month after completion. The appeal concerned the proper effect of the sham document, the purchasers’ position as successors in title, and whether the respondent was estopped from relying on the true agreement.

1. Appeal allowed. The order below was varied. The respondent was ordered to pay three-quarters of the costs in the Court of Appeal and below.
2. The tenancy arose from the oral agreement made when the respondent entered into possession. The agreed rent was £300 per month. The later written agreement was a sham within the meaning described by Lord Justice Diplock in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802D. It was intended to give third parties or the court an appearance of rights and obligations different from those actually intended. It therefore created no obligation to pay £450 and did not vary the existing tenancy.
3. Under Law of Property Act 1925, section 141(1), the purchasers acquired the benefit of the tenant’s covenants. As successors in title, they could be in no better position than the landlords through whom they claimed.
4. The respondent was not estopped from asserting the true rent. The purchasers did not rely on the written agreement when purchasing, did not know its terms, made no inquiry of the respondent, and were not misled by anything he said. The reasoning adopted below from Tinsley v Milligan [1994] 1 AC 340 did not apply to these facts.
5. The county court’s factual finding that there was no agreement requiring the former landlords to pay council tax or rates was not open to challenge. On the basis that the respondent owed rent of £300 per month without set-off or allowance for council tax, there were no arrears.

• Court of Appeal (Civil Division): allowed the appeal from the order of His Honour Judge Hague QC made on 13 August 1998 in the Slough County Court and varied the order.