Croydon London Borough Council (Appellant) v Kalonga (Respondent)

In this article Ndivhuwo Daswa discusses the massively impactful case of Croydon London Borough Council V Kalonga.

Background 

This appeal raises an important question of the construction of statutory regime governing secure tenancies. The legal issue in question was whether a landlord can terminate a flexible tenancy agreement prior to the expiry of the fixed term if the tenancy agreement does not expressly provide for re-entry or forfeiture?

This question relates to the circumstances in which a secure tenancy for a fixed term which a secure tenancy for a fixed term which has not yet expired by effluxion of time may be terminated by the landlord.

Proceedings 

The permitted means whereby a service tenancy may be brought to an end by the landlord were originally two in number: first, by obtaining an order for possession on specific grounds. Secondly by obtaining a termination order in lieu of forfeiture, in relation to a fixed term tenancy. In addition to the above mentioned, a third method was added in 2003, namely obtaining a demotion order on the ground of antisocial behavior by the tenant or by someone residing in or visiting the house. The termination order gives rise to a follow-on tenancy, while a demotion order temporarily replaces the secure tenancy with a demoted tenancy which only provides reduced security of tenure. 

The critical question which had to be determined on this appeal is whether the secure tenancy regime in the 1980 and 1985 Acts merely adds statutory security to the contractual and proprietary security already conferred by the tenancy itself, or whether it replaces it, and thereby in some extent reduce or remove that contractual and proprietary security. 

Moreover, this is a second appeal from a decision of the High Court (Tripples J) on preliminary issues. The appellant local housing authority Croydon London Borough Council granted the respondent Ms. Kalonga a “flexible” secure tenancy of 61 the Crescent, Croydon, Surrey for a fixed term of five years from 25 May 2015. The tenancy agreement stated that the landlord “may also take eviction action at any time if one or more of the grounds of possession set out in schedule 2 of these conditions apply”. 

There is also great force in Croydon’s point that, if termination in lieu of forfeiture is the only way (under the 1985 Act) of bringing a fixed-term secure tenancy to an early end, why should a landlord which has reserved in a five-year tenancy a contractual break clause after (say) two years, be prevented from seeking possession at that time underground 10, even against a model tenant who was not vulnerable to forfeiture? Plainly the service of a contractual break notice would not be enough on its own to bring the tenancy to an end, not least because section 86 would not in such a case bring into existence a follow-on secure tenancy.

Needless to say, Ms. Kalonga’s case in the Court of Appeal, which that court accepted, was that it was a necessary part of the statutory scheme for secure tenancies that break clauses (and all other means of early termination apart from forfeiture) were simply rendered ineffective, as a matter of clear language, and in particular because section 86 only provided for a follow-on tenancy in the cases of effluxion of time and termination in lieu of forfeiture. In this court Mr. Bates has advanced the alternative case that “forfeiture” should simply be construed in this context as including all methods of early termination by the landlord.

Ingenious though it is, the court was unable to accept this alternative case. The 1985 Act (and its predecessor) use the phrase “re-entry or forfeiture” in exactly the same way as it is used in section 146 of the LPA, that is as a means of terminating a fixed term early by reason of default by the tenant, so as to attract an entitlement of the tenant to seek relief from forfeiture, as traditionally described in Clays Lane Housing Co-operative Ltd v Patrick (1984) 17 HLR 188. Section 146 of the LPA is all about, and only about, early termination by reason of breach of covenant or condition by the tenant. Thus subsection (1) requires the landlord to give the tenant notice specifying the breach and giving the tenant time to remedy it, while subsection (2) provides a statutory form of the previous equitable jurisdiction to grant relief. Section 82(4) applies section 146 of the LPA to the termination of a secure tenancy by forfeiture. It cannot sensibly be applied to a no default early termination, eg by reason of a break clause. There is no breach that can be remedied, and there is no jurisdiction, either statutory or equitable, to grant relief.

The parties’ submissions therefore leave only two unpalatable alternatives. On Ms Kalonga’s case the landlord cannot terminate a secure tenancy early for the beneficial public purpose of redevelopment even though it has made contractual provision to do so in the tenancy by insisting on a break clause. On Croydon’s case a model tenant who has contracted for a full fixed term with no break clause (subject only to forfeiture) is exposed from the very start of the term to being evicted under-ground 10 to enable the landlord to redevelop. And a tenant whose security of tenure is buttressed by a right to seek relief from forfeiture even if in breach was on Croydon’s case deprived of that right upon the coming into force of the 1980 Act. 

 It however, is no answer to these apparent defects in the parties’ cases to say that those granting and receiving secure tenancies must be taken to accept one or other of these unpalatable consequences because of the existing secure tenancy regime under which their tenancy agreement was negotiated. The 1980 Act applied this new regime to a very large number of pre-existing tenancies, even if few of them remain in place now. Some may have had landlord’s break clauses. Others will have had fixed terms offering years’ worth of security with no provision for early termination other than (usually) forfeiture for breach.

The grounds upon which (where available) the landlord can obtain possession of a dwelling house held under a secure tenancy are all capable, in principle, but to different degrees of severity, of making inroads upon the tenant’s contractual and proprietary rights to security of tenure. Seeking possession under any of the default grounds (1 to 8) deprives the tenant of the right to be given time to remedy the breach, and to seek relief from forfeiture. Seeking possession under any of the non-default grounds before the end of the fixed term will derogate from the tenant’s right to enjoy the fixed term in full unless the landlord has reserved a matching contractual right to obtain early possession in the tenancy agreement. The 1980 and 1985 Acts do not disclose a determination to apply the possession regime to all fixed-term secure tenancies. Those without any provision for early termination are immune from it until the tenancy expires by effluxion of time. 

The judgment 

The court answered the question posed by the first issue as follows: 

1. The 1980 and 1985 Acts do not detract from the security of tenure enjoyed by a secure tenant under the terms of a fixed-term tenancy agreement. 
2. Nonetheless the obtaining of a termination order in lieu of forfeiture is not the only way in which a landlord can bring about the termination of a fixed term secure tenancy. If a means of early termination other than forfeiture has become available to the landlord under the tenancy agreement, so that the tenancy has become “subject to termination” within the meaning of section 82(1)(b) of the 1985 Act, then the landlord may obtain possession on the statutory grounds. An unexpired fixed term is not subject to termination by the landlord under section 82(1)(b) unless the landlord has an existing right to terminate early under the terms of the tenancy, such as a break clause, which has become exercisable and (if exercise requires procedural steps to be taken, such as a period of notice or needs to be exercised within a specified period) any requisite steps have been taken. 
3. But if the only terms of the tenancy agreement which would, on the relevant facts, enable the landlord to obtain early termination are forfeiture provisions, then the landlord will need to seek an order for termination in lieu of forfeiture under section 82(3) before, or at the same time as, seeking possession on the statutory grounds. 

The second issue: Does Ms. Kalonga’s tenancy agreement contain a forfeiture clause? 

Ms. Kalonga originally raised this issue as part of her case that only by forfeiture could a fixed-term secure tenancy be terminated early. On the analysis of both the judge and the Court of Appeal the absence of a forfeiture clause would be fatal to Croydon’s case, although for different reasons. Furthermore, both courts agreed that the tenancy agreement did not contain a forfeiture clause. In this court Ms. Kalonga has maintained that position, although Mr. Bates’ alternative case that every kind of provision for the early termination of a fixed term secure tenancy should be treated as a forfeiture clause sits uncomfortably, to say the least, with that primary case. 

Commentary 

It is not open to the drafter to avoid the consequences of a provision being in substance a forfeiture (and thereby attracting the jurisdiction to grant relief) by dressing it up as something else in form. In Richard Clarke & Co Ltd v Widnall [1976] 1 WLR 845 a tenancy terminable on 12 months’ notice could be terminated by the landlord on three months’ notice if the tenant committed a breach of covenant. It was held to be a forfeiture. 

The landlord submitted that the clause was an ordinary contractual right to terminate on the expiry of a contractually provided period of notice. After noting that a condition of re-entry for breach of covenant is regarded as a security for the performance of the covenants Megaw LJ said, at pp 850-851:

 “If the landlords were right, it would mean that both (in a case such as the present) the long-established doctrine of equity as to relief against forfeiture and also (in cases falling within section 146 of the Law of Property Act 1925) the statutory requirement as to relief from forfeiture, could be evaded by the mere insertion in the tenancy agreement of a provision for short notice – perhaps one day’s notice – in the event of a breach of covenant. That cannot be right.” 

Megaw LJ referred to the equitable rather than statutory jurisdiction to grant relief because that was a case of non-payment of rent, to which section 146 does not apply.

Megaw LJ’s dictum in Clarke v Widnall was applied (although with a different outcome on the facts) in the Clays Lane case (supra). At p 193 Fox LJ said: Page 22

 “We accept, for present purposes, the submission on behalf of the co-operative that a right to determine a lease by a landlord is a right of forfeiture if (a) when exercised, it operates to bring the lease to an end earlier than it would ‘naturally’ terminate; and (b) it is exerciseable in the event of some default by the tenant.”

That is in the court’s view a good working definition of what, in substance, constitutes a provision for forfeiture in a tenancy agreement, both under the general law and under sections 82 and 86 of the 1985 Act, and the equivalent provisions of the 1980 Act.

The judge summarised the relevant terms of Ms. Kalonga’s tenancy agreement, reminded herself of the dictum of Fox LJ in the Clays Lane case (quoted above) but concluded that none of those terms provided for the tenancy to be brought to an end before the end of the fixed term. She noted in particular that the provision on p 4 (quoted above) provided for the landlord to be able to take eviction action at any time, but said that it did not contain a right for the landlord, in the event of default by the tenant, to determine the tenancy agreement before the end of the fixed term. In relation to clauses 3 and 10 she said that: 

“the service of a notice seeking possession or the application to the court for a possession order is not the same thing as the exercise by a landlord of its right to determine the tenancy agreement before the end of the fixed term in the event of default by the tenant”

The Court of Appeal agreed with the judge but provided no additional reasons of its own for doing so.

The terms of the tenancy agreement plainly entitle the landlord to go to court to seek possession “at any time” ie before the end of the fixed term if (inter alia) the tenant breached a term of the tenancy agreement. That the landlord could do so at any time is expressly stated in the un-numbered clause, and it is implicit in clause 10 While it may be said that the “at any time” unnumbered clause is triggered by the statutory grounds for possession, grounds 1 and 2(a) in Schedule 2 reflect express obligations of the tenant, and are triggered by the tenant’s default. They are the only two grounds relied on by Croydon in the present case.