The Court of Appeal has held a fixed term flexible tenancy cannot be terminated unless the agreement contains a forfeiture clause

January 29, 2021

Ryan Anderson considers the Court of Appeal judgment in Croydon London Borough Council v Chipo Kalonga [2021] EWCA Civ 77 which was handed down on 27 January 2021. The issue for the court was whether a landlord can terminate a flexible tenancy agreement for a fixed term of five years prior to the expiry of the fixed term if no express provision is made in the tenancy agreement for re-entry or forfeiture.

The Court of Appeal held a landlord could not so terminate.

The decision is significant for local authority landlords; there are tens of thousands of flexible tenancies in England and most may not have forfeiture clauses.

 The facts

The tenant occupied a property pursuant to a flexible tenancy for a fixed term of five years granted by the local authority landlord. Midway through the fixed term, the landlord served notice seeking termination of the tenancy agreement and possession.

The notice relied upon grounds 1 and 2 of Schedule 2 of the Housing Act 1985 and was in the standard form prescribed. A cover letter from the landlord informed the tenant that the notice was served without prejudice to the landlord’s argument that it did not need to terminate the tenancy by exercising a proviso for re-entry or forfeiture, because (in the landlord’s view) those words within the standard form notice were made obsolete by the flexible tenancy scheme under the Localism Act 2011.

The landlord issued possession proceedings on the grounds of rent arrears and anti-social behaviour (but no claim on the ground of forfeiture). The matter was transferred to the High Court for trial of a preliminary issue: “the correct manner in which to determine a secure flexible tenancy during the fixed term (including whether, and if so how, any principles relating to forfeiture apply)”.

Tipples J held that the tenancy agreement did not contain a forfeiture clause and that, in the absence of such a clause, the landlord did not have any right to determine the tenancy prior to expiry of the fixed term.

The landlord appealed on two grounds:

  • That the words “subject to termination by the landlord” in section 82(1)(b) of the Housing Act 1985 mean termination by any lawful means available to a landlord as a matter of contract, and in particular by the four main mechanisms: a forfeiture clause; forfeiture following breach of a condition in the tenancy agreement, even in the absence of an express forfeiture clause; via a break clause; or, in some circumstances, the landlord rescinding the agreement.
  • That the tenancy agreement contained a forfeiture clause.

The tenant filed a respondent’s notice asserting that in addition to the requirement for a forfeiture clause, the landlord must bring proceedings for an order terminating the tenancy under section 82(3) of the 1985 Act, having first served a notice under section 146 of the Law of Property Act 1925.

The Court of Appeal dismissed both grounds of appeal and agreed with the proposition in the respondent’s notice.

“Subject to termination by the landlord”

In relation to the first ground, the Court of Appeal reached its decision on a different basis to Tipple J.

The court noted that the purpose of section 82 is to protect tenants by providing them with security of tenure, and thus it should be interpreted accordingly. It held that “subject to termination by the landlord” in section 82(1) must mean termination by any lawful means available to the landlord as a matter of contract.

The court considered the key question to be the availability of an order for possession under section 82(1A)(a). The court relied upon the legislative intention behind section 32 of the Housing Act 1980 – the precursor to section 82 of the 1985 Act – that a fixed term tenancy could only be brought to an end by obtaining an order for termination pursuant to a forfeiture clause, whereupon a periodic tenancy would come into effect [54-55].

The landlord’s interpretation of section 82 would instead mean that landlords of fixed term tenancies terminable by the landlord would simply apply for and obtain orders for possession under section 82(1A), relying upon one of the grounds in Schedule 2. Therefore, they would avoid tenants invoking failure to serve a valid section 146 Law of Property Act 1925 notice as a defence or seeking equitable relief from forfeiture. Such an interpretation would also mean section 86 (periodic tenancy arising on termination of fixed term) only applied to a small number of fixed term tenancies.

In such circumstances:

“The only way in which the landlord [can bring a fixed term tenancy to an end], which is only available if the tenancy agreement contains a forfeiture clause, is to obtain a termination order under section 82(3)”: [60].

Further, agreeing with the contention in the respondent’s notice, where section 82(4) of the Housing Act 1985 was applicable, a notice under section 146 of the Law of Property Act 1925 also had to be served.

However, the court did state the ability to demote a fixed term tenancy was not affected [59].

Forfeiture clause?

In finding that the tenancy agreement did not contain a forfeiture clause, the court dismissed the landlord’s argument that certain clauses of the tenancy agreement amounted to forfeiture clauses. The said clauses:

(a) allowed the landlord to end a secure tenancy by service a notice seeking possession and applying for a possession order; and

(b) set out the grounds upon which possession could be sought.

 

Ryan Anderson is a pupil barrister and is currently completing his non-practising period of pupillage.