Cadogan Estates Ltd v McMahon

For the purposes of Case 1 of Schedule 15 to the Rent Act 1977, a lease condition permitting re-entry upon the tenant’s bankruptcy constitutes an obligation of the previous protected tenancy. That obligation can continue under the statutory tenancy even though the associated contractual power of re-entry cannot.

Bankruptcy therefore satisfies the statutory threshold for possession. The court must still determine under section 98(1) whether making a possession order is reasonable. The Rent Acts should be construed broadly and practically, in the light of their legislative purpose and their historically imprecise language.

The tenant occupied a flat under a protected tenancy. When the contractual term expired, he became a statutory tenant under the Rent Act 1977. The original lease permitted the landlord to re-enter if the tenant became bankrupt.

After the tenant’s bankruptcy, the landlord commenced possession proceedings even though his daughter continued paying the rent and no arrears remained. Judge Cotran held that bankruptcy broke an obligation of the previous protected tenancy within Case 1 of Schedule 15. He also considered possession reasonable. The Court of Appeal dismissed the tenant’s appeal in [1999] 1 WLR 1689.

The issue before the House was whether a bankruptcy condition in a proviso for re-entry amounted to an obligation applicable to the statutory tenancy, thereby giving the court jurisdiction to order possession.

1. Appeal dismissed by a majority. Lord Hoffmann delivered the principal speech supporting dismissal. Lord Bingham and Lord Hutton reached the same conclusion. Lord Steyn agreed to the proposed order despite preferring Lord Millett’s analysis. Lord Millett dissented in substance.

2. Per Lord Hoffmann, the language of the Rent Acts could not be approached with the precision appropriate to an ordinary conveyancing statute. Their provisions should be construed broadly, practically and in accordance with legislative policy. The statutory scheme protected tenants after contractual expiry but did not originally intend to remove grounds upon which a landlord could previously obtain possession by forfeiture.

3. Per Lord Hoffmann and Lord Hutton, bankruptcy under the relevant re-entry clause was a condition of the tenancy and constituted an “obligation of the previous protected tenancy” for Case 1 of Schedule 15 to the Rent Act 1977. The terminology of conditions and obligations in the successive Rent Acts had been used substantially interchangeably. Earlier authority and contemporary understanding supported that construction.

4. Per Lord Hutton, the condition against bankruptcy could be separated from the contractual power of re-entry. The latter was inconsistent with the statutory tenancy because possession was controlled by section 98(1). The underlying obligation nevertheless remained applicable under section 3(1). Its breach brought the case within Case 1, subject to the statutory safeguard that possession must be reasonable.

5. Lord Millett considered that a proviso for re-entry conferred a conditional right upon the landlord but imposed no obligation upon the tenant not to become bankrupt. In his view, the proviso expired with the contractual term and could not be divided into a continuing obligation and an inapplicable remedy. He regarded the natural statutory language and the protective policy of the Rent Acts as favouring the tenant.

6. Lord Steyn agreed with Lord Millett’s construction but reluctantly assented to dismissal. The existing, unchallenged finding that possession was reasonable therefore stood, and the appeal was dismissed.

1. House of Lords: The tenant’s appeal was dismissed by a majority. The Court of Appeal’s decision was left undisturbed.
2. Court of Appeal: Stuart-Smith and Laws LJJ and Jonathan Parker J dismissed the tenant’s appeal: [1999] 1 WLR 1689.
3. County Court: Judge Cotran held that bankruptcy fell within Case 1 of Schedule 15 to the Rent Act 1977 and that making a possession order was reasonable.