Hardy & Ors v Fowle & Anor

A lease is surrendered by operation of law only where the tenant’s conduct unequivocally indicates that the tenancy has ended and the landlord unequivocally accepts that position. Moving out, followed by works to prepare property for sale, may remain equivocal.

A solicitor instructed by a bank to take security and protect its interests ordinarily has no authority to agree a substantive encumbrance, such as a long lease taking priority over the bank’s charge. Knowledge acquired before the solicitor was instructed for the bank is not imputed under section 199 of the Law of Property Act 1925.

A clear written promise that occupiers will vacate if security is enforced may found an estoppel where the lender relies on it by continuing to provide facilities.

The Bank held a legal charge over Trelan securing the indebtedness of Bramridge Developments Ltd. The defendants occupied the property and relied on a 30-year lease granted by Bramridge to the second defendant’s grandparents on the same day as the conveyance and charge.

The defendants contended that the lease had passed to the second defendant, ranked ahead of the Bank’s charge, and entitled them to remain in possession. The Bank argued that the lease had been surrendered or determined, that it had never taken priority over the charge, and that the defendants were estopped from relying on it.

The court considered whether the lease subsisted, in whom it was vested, its priority, and the effect of the defendants’ later written acknowledgment.

1. Lease and surrender. The lease was not surrendered by operation of law when the surviving tenant moved to alternative accommodation. Applying the test in Zionmor v Islington LBC (1997) 30 HLR 822 CA, the relevant conduct had to be unequivocally inconsistent with continuation of the tenancy and unequivocally accepted by the landlord. The tenant’s move and the subsequent works to Trelan were equivocal, particularly because the move had plausible personal and practical explanations.
2. Determination. The Bank was entitled to determine the lease under its express clause 3. As unpaid legal chargees, it was entitled to the reversion immediately expectant on determination. Notices served on the personal representatives of the deceased tenant were valid and determined the lease on 29 September 2006.
3. Vesting. The second defendant acquired no legal interest in the lease merely because it fell into residue under her grandmother’s will. Without appropriation or assent by the personal representatives, she had only a right to due administration of the estate. The alleged oral gift was also rejected on the facts.
4. Priority. The Bank’s advance and charge were indissolubly connected with the acquisition of the legal estate, consistently with Abbey National Building Society v Cann [1991] 1 AC 56. The lease was a separate disposition and could not obtain priority merely from the parties’ subjective intentions. The Bank neither knew nor agreed to a 30-year lease with priority over its security.
5. Mr O’Connor was a private solicitor instructed to take the mortgage and protect the Bank’s interests. He had neither actual nor ostensible authority to agree to the lease or its priority. Section 199 of the Law of Property Act 1925 did not impute his knowledge because he learned of the proposal before being instructed for the Bank, applying Halifax Mortgage Services v Stepsky [1996] Ch 207.
6. Estoppel and relief. The defendants’ signed acknowledgment that they would vacate if the Bank enforced its security was admissible and unambiguous. The Bank relied on it by continuing substantial lending, and it was unconscionable for the defendants to resile from it. Declarations were made that the lease was determined and that the claimants were entitled to possession. The counterclaim was dismissed and the proceedings were transferred back to the Penzance County Court for an order for possession.

First-instance decision. The proceedings had been commenced in the Penzance County Court and transferred to the High Court, Chancery Division. They were ordered to be transferred back to the Penzance County Court for the possession order.