Saxon Weald Homes Ltd v Chadwick [2011] EWCA Civ 1202 (26 October 2011)

Saxon Weald Homes Ltd v Chadwick [2011] EWCA Civ 1202 (26 October 2011)
Continuing his review of current case law Solicitor, Mr Anis Waiz of Mohindra Maini,  notes this case will be of interest to non-lawyers dealing with tenancies and the potential traps for the unwary.
Background Facts
The issue for the Court on the appeal was whether, Mr Chadwick, had an assured shorthold tenancy of property as the landlord claimed or as he alleged an assured tenancy.  There are two different tenancies under the Housing Act 1988.
Here was the key issue of the Court’s power to order possession given the different nature of the two types of tenancies.  The answer to this question depended upon the meaning of a letter sent by the landlord to the tenant in August 2009.
The parties entered in to a written agreement entitled "Probationary Tenancy Agreement." The property was a one bedroom ground floor flat in Horsham, West Sussex. The occupation by the tenant of the property started from 11th August 2008 and was a probationary tenancy. As the Tenancy Agreement put it on the front page. 
It also included a provision that if at the end of 12 months the landlord had not taken steps to terminate the tenancy it would automatically convert into an assured periodic tenancy and would continue each week until it was ended.
Key term
The tenancy was stated to be an assured shorthold tenancy until the provisions set out below had come into effect:
1          This tenancy will become an assured tenancy 12 months after the commencement of this tenancy unless, before that date:-
i) We have begun possession proceedings against you; or
ii) We have served you with a notice requiring possession
Where either i) or ii) apply, the tenancy will continue to be an assured shorthold tenancy until:
a)         The day after any proceedings are determined (if no possession order is             made) or
b)         The tenancy is ended by a Court Order for possession.
iii)         If the tenancy converts to a fully assured tenancy, we will send you a      letter confirming the change in status of your tenancy
It was alleged the tenant did not keep to various terms of the Tenancy. In particular it was alleged he held late night parties involving drinking, shouting and swearing; that he played loud music at unsociable times and would bang on his ceiling when the resident above walked across the floor.  Warning letters were sent, with no result.
The Notice
The Landlord’s solicitors wrote to the tenant on behalf of their client landlord enclosing a notice Requiring Possession and a Notice Seeking Possession.
Two key matters are to be noted:
1          The Notice Requiring Possession appeared to be in accordance with section 21 (4) (a) of the Housing Act 1988. It required possession after 11th October 2009 or not earlier than two months after service of the notice.
The printed Notes to the Notice among other things recorded that where an assured shorthold tenancy has become a periodic tenancy, either contractual or statutory, a court must make an order for possession
2          The Notice Seeking Possession appeared   to be sent in accordance with section 8 of the 1988 Act. It indicated that the landlord intended to seek possession on Grounds 12 and 14 of Schedule 2 to the 1988 Act, relying on the tenant’s alleged behaviour and alleged breaches of the Tenancy Agreement for this purpose. Note these are Discretionary grounds.
The form of that notice made it clear that it was served on the basis that the tenancy was an assured tenancy and that it did not apply if possession was sought on the "shorthold" ground under section 21.
The landlord’s letter
However a further letter was then sent by an Assistant employed by the landlord to the tenant in August 2009   (the Landlord’s letter) on the anniversary of the start of the tenancy. It noted
I am pleased to inform you that following the successful completion of your one year starter tenancy, you are now an assured tenant. As an assured tenant, you now have the following rights…
The issues
1          The tenant claimed the tenancy had ceased to be an assured shorthold tenancy and        had become an assured tenancy.  For the purposes of this appeal the Landlord’s case     depends entirely upon the true interpretation of the Landlord’s letter…
2          Section 19A of the 1988 Act provides

"An assured tenancy which:-
a) is entered into on or after the day on which section 96 of the Housing Act 1996 comes into force (otherwise than pursuant to a contract made before that day), or
b) comes into being by virtue of section 5 above on the coming to an end of an assured tenancy within paragraph (a) above,
is an assured shorthold tenancy unless it falls within any paragraph in Schedule 2A to this Act

3          section 21 provides 

Without prejudice to any right of the landlord under an assured shorthold tenancy to recover possession of the dwelling-house let on the tenancy in accordance with Chapter I above, on or after the coming to an end of an assured shorthold tenancy which was a fixed term tenancy, a court shall make an order for possession of the dwelling-house if it is satisfied– 

(a)        that the assured shorthold tenancy has come to an end and no further assured tenancy (whether shorthold or not) is for the time being in existence, other than an assured shorthold periodic tenancy (whether statutory or not); and 

(b)        the landlord or, in the case of joint landlords, at least one of them has given to the tenant not less than two months’ notice in writing stating that he requires possession of the dwelling-house.
The reader is referred to Schedule 2A of the Act (a tenancy is an assured shorthold tenancy unless it falls within any paragraph in Schedule 2A)
The proceedings
The proceedings were on the basis that the Landlord’s letter was sent in ignorance of the solicitors’ letter in August 2009, with enclosed notices.
The matter came before the court which determined that the landlord’s letter had been sent in error. The judge rejected the tenant’s argument that, by reason of the landlord’s letter and section 19A and paragraph 2 of Schedule 2A, the tenancy was no longer an assured shorthold tenancy.
He held the  Notice Requiring Possession, meant the assured shorthold tenancy could not automatically convert to an assured tenancy  The landlord’s letter of 11th August 2009 was , "not a Notice but really a confirmation of an event that was due to take effect on the first anniversary of the Tenancy Agreement"
It was held by the judge the landlord was entitled as of right to an order for possession. In the alternative, the Judge considered the alternative basis of claim, based on the alleged behaviour of the tenant. He concluded that he would have found it reasonable to make an outright possession order.
The tenant’s appeal was allowed. The Judge rejected the landlord’s argument that the Landlord’s letter was of no effect. He found that it was a notice for the purpose of paragraph 2 of schedule 2A to the 1988 Act and that the letter was "quite plain on its face" and there was no room for another construction in the broader context.
Therefore whilst it had not   been the intention of other parts of the landlord’s operation", the assured shorthold tenancy had been converted into an assured tenancy.
The Landlord appealed part of the decision to the Court of Appeal.
The Appeal
For the landlord it was argued the Judge was in error in failing to give any or any sufficient, weight to the context and background in which the Landlord’s letter was sent. The Judge, he said should have asked in accordance with the test propounded in Mannai Investment Co. Limited v. Eagle Star Life Assurance Co. Limited [1999] AC 749 what that letter, set in context, would have conveyed to a reasonable recipient: and had he done so he should have found that the letter was not a notice under the 1988 Act but simply an incorrect acknowledgement of a state of affairs that had never existed. There had never had been successful completion of the probationary one year tenancy.
For the tenant, it was submitted that the Judge was correct. The Landlord’s letter was plain on its face and clearly was a notice falling within the provisions of paragraph 2 of Schedule 2A to the 1988 Act   and therefore not an assured shorthold tenancy.   No proper process of construction, on the principles of Mannai or of Investors Compensation Scheme Limited v West Bromwich Building Society [1998] IWLR 896, could yield a different result.
The Decision
The Court of Appeal held there was no ambiguity to the Landlord’s Letter. It was plainly a notice with the ambit of paragraph 2 of Schedule 2A to the 1988 Act.
Lord Justice Davis noted
1            The Notice Requiring Possession was sent in accordance with the Tenancy Agreement and was, under the Tenancy Agreement, indicating that the assured shorthold tenancy would not automatically (as a matter of contract) convert to an assured tenancy after 12 months from the commencement date
2            However   it did not follow that the Landlord’s Letter did not have the effect, by reason of paragraph 2 of schedule 2A to the 1988 Act of causing the assured shorthold tenancy to become an assured tenancy. The Landlord’s letter, naturally and objectively read, clearly was a notice for such purpose: indeed the setting out of the rights now acquired confirms that.
3            The case of Mannai involved an identifiable internal ambiguity within the notice itself. It is wholly different from the present case, where there is no such ambiguity. The mistake is not in the wording: the mistake is in the fact that the letter was sent at all.  In Mannai, the House of Lords endorsed the objective test for the validity of a notice as that posed by Goulding J in Carradine Properties Limited v. Aslam [1976] WLR 442: "Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?"
At p.779G Lord Hoffmann said this:
"The fact that the words are capable of a literal application is no obstacle to evidence which demonstrates what a reasonable person with knowledge of the background would have understood the parties to mean, even if this compels one to say they used the wrong words."
On first reading this seems an obvious case. However the subtle important points as to which type of tenancy is operative is crucial.  More so when dealing with possession.  Here the landlord internal documentation did not assist. The Landlord’s letter was indeed held to be a notice under the Act and thus an assured tenancy.
The key here is for clients and their advisers to review carefully their strategy and review documentation. The costs consequence should always be borne in mind.
Kind regards 
Today's Conveyancer