Property Update: Court of Appeal rules on Article 8 Defences and Notices Served by LPA Receivers

In a significant judgment, the Court of Appeal has clarified the legal position on two common defences encountered in possession claims, by both private landlords and fixed charge receivers (more commonly referred to as ‘LPA receivers’). The case in question is McDonald v McDonald and another [2014] EWCA Civ 1049.

Miss McDonald (‘the Tenant’) occupied a property under an Assured Shorthold Tenancy agreement (‘AST’) granted to her by her landlords who also happened to be her parents.

During the Tenant’s occupation, the landlords came into difficulty with their mortgage and as a result the lender appointed LPA receivers, a step commonly taken as an alternative to mortgage possession proceedings in situations where tenants reside in the charged property.

The receivers sought possession of the property, and did so by serving a section 21 notice signed personally by the individual receivers. This was done under the powers conferred to them under the mortgage conditions, which will generally go far beyond the fairly limited powers contained within section 109 Law of Property Act 1925.

Possession proceedings resulted in an outright possession order being granted. A possession order granted under section 21 will give an automatic right to possession unless the notice was invalidly served – the court has no jurisdiction to grant a suspended order unlike, for example, a mortgage possession claim based on mortgage arrears (S9(6)(b) Housing Act 1988).

The tenant sought to appeal the order on two grounds which were decided on as follows:

1. That the possession order was a breach of Article 8 of the European Convention on Human Rights

It is not in dispute that a tenant may rely on Article 8 in defending proceedings where the landlord is a public authority. This has been well established through case law (see for example Manchester City Council v Pinnock and Hounslow v Powell [2011] 2 AC 186). The court must determine whether granting a possession order is proportional when weighed against the rights deriving from Article 8.

What has been in dispute is whether the proportionality test applies when proceedings are issued by a private landlord. A slew of cases throughout Europe have not provided certainty and LJ Arden, providing the leading Judgment, analysed these closely.

In summary, the Court of Appeal upheld the possession order and ruled that the Article 8 defence must fail for the following reasons:

(i) There is no consistency in the European courts that the proportionality test applies where there is a private landlord;

(ii) Even if it were to apply in this case, a possession order would not be disproportionate;

(iii) The court is bound by a previous decision (in Poplar Housing and Regeneration Community Association Ltd v Donoghue [2002] QB 48) in holding that section 21 Housing Act is perfect compatible with the convention.

(iv) As a result of the above, the question of interpreting section 21 in respect of proportionality simply does not arise

2. The Receivers did not have the authority to terminate the tenancy

At first instance, the judge looked at the mortgage conditions and noted there was the power ‘to take possession’ of the property – a common power conferred to LPA receivers. There was no specific mention of section 21 notices, but as you cannot have one without the other, the judge ruled that the power to serve notices must be naturally implied into the conditions.

At appeal, the Tenant again argued that the receivers did not have the power to serve a section 21 notice for the following reasons:

(i) The landlord must serve the notice directly. In the alternative, the lender must serve the notice as the only person being capable of being defined as ‘landlord’ under section 45 Housing Act 1988;

(ii) The judge was wrong to imply the power to serve notice into the mortgage conditions which should have been interpreted against the receiver;

(iii) The formalities of serving a section 21 notice should not be overlooked; and

(iv) The agency of the receivers should not extend to the rights of the landlords under the AST.

The Court of Appeal dealt with these points in a much swifter manner, essentially agreeing with the judge at first instance and dismissing the tenant’s appeal. LJ Arden analysed the ‘purpose’ of the mortgage conditions which were clearly to enable the receivers to realise the charged property ‘in an orderly and efficient way’. The conditions therefore had to include implicit powers to do anything incidental to the exercise of their specific powers to both take possession and sell the property.

The points on formality of the notice and the receivers’ agency were given short shrift, with LJ Arden stating ‘the agency of the receivers must encompass the powers to enforce the security which the receivers are empowered to exercise’.

Conclusion

The decision will no doubt be welcomed by landlords and LPA receivers in giving much needed clarification on both points. Claims defended on such grounds are not uncommon and, in the case of Article 8 defences, have increased rapidly over time. Both Claimants and Defendants can now be advised with an element of certainty as to whether such defences are worth pursuing.

It should not be forgotten that there are many other factors to be considered before serving a valid section 21 notice, not least in respect of compliance with the tenancy deposit legislation and unlicensed Houses in Multiple Occupation. Receivers can often face difficulty where the mortgagor landlord fell short of requirements at the outset of the tenancy, and should therefore seek advice in ensuring the initial hurdles have been cleared.

Finally, there is of course the possibility that a higher court may not agree with the Court of Appeal’s analysis.

If you wish to discuss any of the issues arising from this case, or wish to speak to Hamlins about residential LPA receivership services, please contact Paul Sagar on psagar@hamlins.co.uk.