Property Law – Changing your mind – not a business tenant’s prerogative!

By : Robert Leonard

In Shaw (EAL) Limited v Pennycook [2004] EWCA Civ 100 the Court of Appeal reviewed the capacity of a business tenant to have a change of heart after service of a counternotice. A tenant of business premises, served by the landlord with a notice under s. 25 of the Landlord & Tenant Act 1954 to terminate the tenancy, serves a counternotice under s. 29 (2) indicating that he would give up possession (referred to as a “positive” counternotice) at the end of the tenancy. Can he then change his mind and, still within the two month period allowed for the counternotice, serve a “negative” counternotice stating that he is unwilling to give up possession? If not, is this an infringement of his possessions or right of access to the court within Article 1 or 6 (1) of the Schedule to the Human Rights Act 1998?

The Court of Appeal held that the answer to both questions was negative, that there was binding authority that the tenant had to abide by the positive counternotice and that, although this amounted to a deprivation of the tenants possession within Article 1, it was in the public interest and represented a fair balance between landlords and tenants.

Background

The first, positive, counternotice was given by mistake on the part of the tenant’s solicitors. The error was picked up within the two month window and negative counternotice then served. The tenant made an application for a new tenancy. The landlord successfully applied to strike the application out as an abuse of process, relying on the initial positive counternotice, and so it came on first appeal before Pumfrey J. The judge felt able to distinguish Re 14, Grafton Street [1971] 1 Ch 935, the only authority cited, (in which Brightman J held that a tenant was bound by a positive counternotice) on the grounds that, in that case, the tenant had not served a subsequent negative counternotice. But he also departed from the reasoning – a positive counternotice would not be devoid of function; it would serve as a courtesy to the landlord and in the absence of a change of position by the landlord it ought not to be irrevocable. He held that the court should determine whether in all the circumstances it is wrong for a tenant to substitute a new counternotice but that each case must be decided on its own merits. He did not need to decide the Human Rights points. So the matter came to the Court of Appeal.

The decision of the Court of Appeal

Arden LJ said that the judge was wrong in not following Re 14, the ratio of which had been followed by the Court of Appeal in Bridgers & Hampton Residential v Stanford [1991] 63 P& CR 18. It thus represented authority that bound the judge although unfortunately had not been cited to him. The positive counternotice brought about an irrevocable change in the relationship between the landlord and the tenant, and it was not open to a tenant to serve a second counternotice. The decision had stood for 30 years and should be followed unless the flexible result reached by Pumfrey J was the construction now required by reason of the court’s duty so far as practicable to construe legislation compatibly with the 1998 Act.

Article 1 required 3 questions to be determined in the tenant’s favour if he was to succeed: was the right to a new tenancy a “possession” within the article? If so, was the common law restriction imposed by Re 14 a deprivation, rather than a limitation, of that right? If so, was that restriction in the public interest and a fair balance between the respective interests of landlords and tenants?

Applying Wilson v First County Trust Ltd (No 2) [2003] 3 WLR 568 HL, contractual rights were as much “possessions” as personal rights; and a statutory right such as arose under s 29 (2) was as much a “possession” as a contractual right. The correct analysis of the tenant’s possession was that it was a right to apply to the court if he served requisite notice within 2 months of the landlord’s s. 25 notice. The bar arising from Re 14 was a deprivation rather than a delimitation of a right. However, there was reasonable proportionality between the aim and the means employed. The advantage of the bar was that the landlord on receipt of the positive counternotice could make plans. There were obvious economic benefits to both parties in having certainty at this stage. The fact that in an exceptional case hardship occurs did not undermine that conclusion, and the law could not produce certainty and yet be flexible in this case. So the Re 14 restriction was upheld.

As to article 6 (1), applying Wilson again, the bar was not procedural but on the substantive right to apply for a new tenancy and not within the article; but even if it had applied, a bar that satisfied article 1 would not violate article 6 (1).

Comment

There is little of note in the decision that the judge should have followed Re 14. The lesson, hardly a new one, is that care is needed with such notices. What is of interest is the court’s readiness to introduce detailed consideration of Human Rights arguments into paths already illuminated by decisions over the years. Opportunity for fresh light indeed, and the analysis of the statutory right and the effect of the restriction represented by Re 14 demonstrates again just how widespread are the potential incursions of Human Rights. No doubt this decision can and will be applied both to other aspects of the 1954 Act and in many other areas.