Graves v Graves & Ors

Before invoking common mistake or frustration, a court must construe the parties’ agreement and identify any express or implied allocation of the relevant risk. Where the agreed arrangement necessarily depends on a stated source of funding, and its failure makes the arrangement different in kind from that contemplated, a strictly necessary implied condition may determine the agreement.

Permissive occupation after a tenancy ends does not invariably create an implied promise to pay reasonable rent. The surrounding arrangements and the landlord’s conduct may negative that implication. Once permission is withdrawn, however, the occupier is liable for mesne profits assessed by market rental value.

The appellant landlord granted his former wife an assured shorthold tenancy of a house. Both parties believed that housing benefit would pay 90% of the rent. The local authority’s advice was wrong and benefit was unavailable.

The Deputy District Judge held the tenancy void for common mistake, alternatively frustrated. He ordered possession, repayment of part of the deposit, and varied an earlier child-maintenance order. The landlord appealed on the status of the tenancy, the amount payable for occupation, and the maintenance variation.

The central issues were whether the agreement ended when housing benefit was refused, whether occupation payments were due, and whether the maintenance issue could fairly have been determined at the possession trial.

1. Appeal allowed. The tenancy ended when the council stated in March 2005 that housing benefit would not be paid. The court reached that result by construing the parties’ actual agreement, rather than by deciding whether it was void for common mistake or frustrated.

2. Thomas LJ held that the first task was to identify the agreement and its allocation of risk. The parties had agreed that accommodation would be provided through a shorthold tenancy on the basis that the local authority would pay 90% of the rent. Housing benefit was not merely Mrs Graves’s source of finance. It protected Mr Graves from the risk that her continued occupation would operate as indirect maintenance.

3. Neither party assumed the risk that benefit would be unavailable, and Mrs Graves’s report of the council’s advice was not a collateral warranty. Applying the strict approach to implied terms, the court implied a condition that the tenancy would end if housing benefit was unavailable. Although impecuniosity alone does not make contractual performance impossible, the loss of this essential funding basis made the agreement different in kind from that contemplated. The tenancy therefore determined in March 2005.

4. Mrs Graves remained with Mr Graves’s permission until notice was served. In the unusual circumstances, there was no implied promise to pay reasonable rent and no other restitutionary basis for payment before permission ended. From 1 February 2006 she was liable for mesne profits until she left on 15 February 2007. Market rent was £1,045 per month. After crediting the balance of the deposit, judgment was entered for Mr Graves for £6,388.50.

5. The maintenance variation was procedurally unfair. The possession trial had not been prepared or directed as a maintenance hearing, and adequate evidence was unavailable. The variation of the 1998 order and the order for monthly maintenance were set aside. Any maintenance issue was to be determined in the proceedings subsequently issued by Mrs Graves.

• Court of Appeal (Civil Division): Allowed the landlord’s appeal, set aside the Deputy District Judge’s orders, entered judgment for the landlord for £6,388.50, and set aside the maintenance variation: [2007] EWCA Civ 660.
• Aldershot and Farnham County Court: Deputy District Judge Haig-Haddow held the tenancy void for mistake, alternatively frustrated; made possession and payment orders; and varied the 1998 maintenance order.