Cadogan Estates Ltd v McMahon

For the purposes of Case 1 of Part I of Schedule 15 to the Rent Act 1977, a proviso for re-entry on the tenant’s bankruptcy creates an obligation owed by the tenant. That obligation continues into the statutory tenancy under section 3(1), provided it is consistent with the Act. The contractual remedy of re-entry and the continuing obligation are distinct. Accordingly, the tenant’s bankruptcy may constitute a breach supporting an order for possession where the statutory requirements are satisfied.

The landlord obtained an order for possession of a dwelling-house let under a statutory tenancy arising under the Rent Act 1977. The original lease contained a proviso for re-entry if the tenant became bankrupt. The tenant was adjudicated bankrupt, and the county court held that this amounted to breach of an obligation within Case 1 of Part I of Schedule 15.

The tenant appealed, arguing that the proviso created no obligation and, alternatively, that any such obligation was inconsistent with the concept of a statutory tenancy and therefore did not continue after the contractual tenancy ended.

1. Appeal dismissed. The Court of Appeal unanimously upheld the possession order, with costs. Permission to appeal to the House of Lords was refused.
2. Lord Justice Laws held that a proviso for re-entry on bankruptcy creates an obligation upon the tenant for the purposes of Case 1 of Part I of Schedule 15 to the Rent Act 1977. The court applied the reasoning in Paterson v Aggio and considered that an anomalous distinction should not arise between identical provisions in different statutory tenancy contexts.
3. The decision in Halliard Property Co. Ltd v Jack Segal Ltd provided further support. If bankruptcy is a breach of condition, it is also, in ordinary language and common sense, a breach of obligation. Section 3(1) and Case 1 of Schedule 15 must be read together; the Act does not require a distinction between condition and obligation that would defeat the landlord’s argument.
4. The obligation survives into the statutory tenancy because it is consistent with the Rent Acts. The right of re-entry, which concerns termination of the former contractual tenancy, is distinct from the obligation not to become bankrupt. The fact that contractual termination questions have no direct operation once the statutory tenancy exists does not prevent the obligation itself from continuing.
5. The observation in Re Drew, that bankruptcy could breach a tenancy condition, was treated as obiter but as supporting the conclusion. The court did not consider it necessary to examine Brewer v Jacobs at length.

• Court of Appeal: dismissed the tenant’s appeal from the possession order made on 18 February 1999 by His Honour Judge Cotran at the West London County Court.