Cadogan Estates Limited v. McMahon

The House of Lords considered whether the bankruptcy of a tenant amounted to the breaking of an "obligation of the previous protected tenancy" within Case 1 of Schedule 15 to the Rent Act 1977, thereby permitting an order for possession under section 98(1) of the Rent Act 1977. The majority held that a proviso for re-entry on the tenant's bankruptcy should be treated, for the purposes of the Rent Acts, as an obligation or term of the original tenancy which is applicable to the statutory tenancy under section 3(1) of the Rent Act 1977.

The court applied a purposive, practical construction of the Rent Acts informed by their legislative history (notably the 1920 Act) and earlier authorities (including In re Drew and Paterson v Aggio). It concluded that bankruptcy, though not an "obligation" in a strict technical sense, has been treated in the Rent Acts as equivalent to breach of an obligation or condition and therefore falls within Case 1, subject to the statutory safeguard that the court must consider it reasonable to make an order for possession under section 98(1).

There was a notable dissent (Lord Millett) which accepted a literal distinction between conditions/provisos for re-entry and obligations, concluding that a re-entry proviso does not import an obligation not to go bankrupt and does not apply to a statutory tenancy.

Background and parties: The appellant Mr McMahon had been assignee of a short residential lease which became a statutory tenancy under the Rent Act 1977 when the contractual term expired. The landlords (Cadogan Estates Limited) sought possession solely on the ground that Mr McMahon had been made bankrupt. The county court judge (His Honour Judge Cotran) granted possession and the Court of Appeal dismissed the tenant's appeal. Mr McMahon appealed to the House of Lords.

Nature of the claim / relief sought: The landlords sought an order for possession under Case 1 of Schedule 15 to the Rent Act 1977 on the ground that an "obligation of the previous protected tenancy" had been broken (the tenant's bankruptcy), and that therefore s.98(1) permitted an order, subject to reasonableness.

Issues for decision:

• Whether a proviso for re-entry on the tenant's bankruptcy in the original lease constitutes an "obligation of the previous protected tenancy" within Case 1 of Schedule 15 to the Rent Act 1977;
• If so, whether that obligation is "applicable to the statutory tenancy" under section 3(1) of the Rent Act 1977, or whether the landlord's re-entry right is inconsistent with the statutory tenancy and thus cannot form an applicable obligation;
• Whether, given the statutory requirement in section 98(1) that the court consider it reasonable to make an order, recognising bankruptcy as such a ground would produce unjust or undesirable consequences.

Reasoning and decision: The majority analysed the Rent Acts purposively and referred to the sequence of wartime and post-war enactments (1919, 1920), early authorities (including In re Drew), and judicial commentary indicating that the Rent Acts were to be construed broadly to effect parliamentary intention. The majority rejected a strictly literal distinction between a re-entry proviso and an "obligation" for the purposes of the Rent Acts. They held that bankruptcy, though not an "obligation" in technical conveyancing terms, has historically been treated as equivalent to breach of a term or condition and therefore falls within Case 1; the obligation (or term) is carried over to the statutory tenancy under s.3(1) provided it is not inconsistent with the Act. The majority accepted that the landlord's power of re-entry as such is inconsistent with the statutory tenancy, but that does not prevent the obligation (that bankruptcy will permit re-entry) from being an applicable ground for an order under Case 1, subject to the court's reasonableness assessment under s.98(1). The House therefore dismissed the tenant's appeal. Lord Millett dissented, preferring a literal construction that a re-entry proviso does not impose an obligation not to go bankrupt and does not survive into the statutory tenancy.

Procedural posture: Appeal from the Court of Appeal (which had dismissed the appellant's challenge to the county court decision). The Court of Appeal decision is reported at [1999] 1 WLR 1689 and was affirmed by the House of Lords.

Appeal dismissed. The majority held that the bankruptcy of the tenant amounted to the breaking of an "obligation of the previous protected tenancy" within Case 1 of Schedule 15 to the Rent Act 1977, so that the landlord could seek possession subject to the requirement in section 98(1) that the court consider it reasonable to make an order. Lord Millett dissented, holding that a re-entry proviso does not create an obligation not to become bankrupt and does not apply to a statutory tenancy.

First instance: His Honour Judge Cotran (possession order granted). Court of Appeal (Stuart-Smith and Laws L.JJ. and Jonathan Parker J.) dismissed the tenant's appeal (reported [1999] 1 WLR 1689). Appeal to the House of Lords dismissed ([2000] UKHL 52).