Want to do a favour for a friend or relative? Want to buy their property as an investment and help them out of financial difficulties? Beware how you conduct negotiations, make sure your agreements are recorded in writing and that you obtain expert legal advice. Otherwise you may find that your ability to recover the property at a time that suits you, could be restricted severely.
In a recent case, reported in the national press, a married couple had bought their next-door neighbour’s house and then allowed him to live there under a tenancy agreement for £800 per month. Years later, the couple wished to sell the house but their neighbour claimed he had sold to them for a reduced price, on the understanding that he could rent it for as long as he wanted. That agreement was not recorded in the tenancy agreement and the couple denied it. Whilst we cannot know all the details from the reports in the press, the neighbour was successful based, it is thought, on two legal authorities.
The first was a case called Bannister-v-Bannister decided by the Court of Appeal in 1948.
Mrs Bannister owned two neighbouring cottages in Essex. She entered into an oral agreement with her brother-in-law to sell the two cottages to him at a reduced rate if he would let her stay in the one in which she was living at the time. The sale was completed with no written reference to the stipulation that she was to be allowed to stay in the cottage as long as she liked rent free. The price of £250 paid was at least £150 below the value of the cottages.
Whilst various changes happened over the years, including her brother in law and wife moving in and Mrs Bannister reducing her living space, she remained in occupation paying no rent until her brother in law tried to claim possession on the footing that she had been occupying it as a tenant at will at no rent and that her tenancy at will had been determined by notice to quit. She counterclaimed for a declaration that he held the cottage in trust for her for life.
A county court judge accepted her evidence about the terms of the original agreement and that she would not have sold the cottages to him if he had not agreed to let her stay in the cottage as long as she liked, rent free. He held that on well-known equitable principles there was an implied or inferential trust, or, in other words, a constructive trust, of the cottage under which Mr. Bannister held that property in trust for Mrs. Bannister for life.
Mr. Bannister sought to appeal the judgement on a number of grounds. The Court of Appeal found that the interest promised to Mrs. Bannister was a life interest determinable on her ceasing to occupy the cottage. She was therefore permitted to occupy the cottage for so long as she desired to do so.
The second legal authority referred to in the recently reported case was the Law of Property Act 1925. The tenant and neighbour in that case paid rent and was granted a 90 years’ lease by the court. It is assumed that this was as a result of Section 149(6) of that Act which applies to leases “at a rent”. This section was not referred to in the Bannister case, perhaps because no rent was paid in that case. To bring certainty to a tenancy for life, Section 149(6) says it can only last for 90 years and, once, for example, the tenant dies it can be terminated by notice.
The lessons to be learned from the above cases are to make sure that
- any negotiations concerning the sale of property and the grant to the seller, (or anyone else), of a tenancy are conducted in writing;
- that the emails or letters through which the negotiations are conducted are headed “SUBJECT TO CONTRACT”;
- any agreements are reached “in principle” only and subject to the parties taking independent legal advice; and
- having reached agreement subject to contract, in principle and subject to legal advice, such advice is obtained and acted upon.
For more information about property litigation at Sherrards contact the author Paul Werth on email email@example.com and about property generally contact Terry Fendt on firstname.lastname@example.org.