Leadenhall Residential 2 Ltd v Stirling

After a mandatory possession order has terminated an assured tenancy, the former tenant’s continued exclusive occupation and payment of sums equivalent to rent do not alone create a new tenancy. Payments accepted as mesne profits under the order are inconsistent with occupation under a tenancy.

A new tenancy requires a legally enforceable arrangement granting a new entitlement to exclusive possession. The court must examine the agreement, the parties’ intentions and their conduct. An agreement dealing only with repayment of accrued arrears, coupled with the landlord’s forbearance from enforcing the possession order, may leave the former tenant as a trespasser rather than create a tenancy.

An assured periodic tenant fell into rent arrears. The landlord obtained an outright possession order on a mandatory ground under the Housing Act 1988. The order terminated the tenancy on 19 July 1996 and permitted the landlord to accept monthly mesne profits until possession was given.

Before that date, the landlord accepted the tenant’s proposal to repay the accrued arrears by monthly instalments. The tenant remained in exclusive occupation, while housing benefit continued to provide monthly payments equal to the former rent. The landlord did not enforce the possession order. In March 1998, it increased the monthly payment, thereby creating an admitted new tenancy.

In later possession proceedings, the deputy district judge held that the July 1996 correspondence had not created a new tenancy. A circuit judge dismissed the tenant’s first appeal. The central issue on the second appeal was whether the correspondence and subsequent occupation had created a new assured tenancy immediately after the original tenancy ended.

1. Appeal dismissed unanimously. Lloyd J gave the leading judgment. Latham LJ and Judge LJ agreed that no new tenancy arose between the termination of the assured tenancy in July 1996 and the admitted creation of a tenancy in March 1998.

2. Under Street v Mountford [1985] AC 809, a contractual grant of exclusive possession for a fixed or periodic term in return for payment will ordinarily constitute a tenancy. The parties cannot change the legal nature of such an arrangement merely by calling it a licence. The result may differ where there was no intention to enter legal relations or where occupation is attributable to a distinct legal relationship or exceptional circumstance.

3. Per Lloyd J, the first question was whether the parties intended the July correspondence to alter the legal relations already governed by the possession order. The correspondence addressed only payment of the accrued debt. It neither granted a new right of occupation nor displaced the landlord’s right to enforce the order. The landlord’s forbearance and acceptance of payments therefore did not create a new agreement concerning occupation.

4. Per Judge LJ, mesne profits are damages for unlawful occupation and are not rent. Acceptance, under a court order, of mesne profits equal to the former rent is inconsistent with the existence of a tenancy. Exclusive occupation and such payments did not establish a new tenancy without sufficient evidence of a new legally enforceable arrangement.

5. Burrows v London Borough of Brent [1996] 1 WLR 1448 did not require the opposite conclusion. That decision concerned the Housing Act 1985, under which a licence to occupy received the same statutory protection as a tenancy and the former secure tenancy could be revived under section 85. Neither feature applied to a mandatory possession order under the Housing Act 1988. The critical inquiry nevertheless remained the intention with which the parties acted, assessed from any agreement and their conduct.

6. The parties’ legal position changed only when the landlord demanded and received an increased monthly payment in March 1998. That increase could not be justified by the possession order and admittedly created a new tenancy. The tenant was ordered to give possession, subject to the stated stay, and the appeal was dismissed with costs.

1. Court of Appeal: Dismissed the tenant’s second appeal unanimously and affirmed the possession order.

2. Croydon County Court, circuit judge: His Honour Judge Coningsby QC dismissed the tenant’s first appeal on 26 October 2000 and ordered possession.

3. Croydon County Court, deputy district judge: Deputy District Judge Turner ordered possession on 18 April 2000, holding that the July 1996 dealings had not created a new tenancy.