Before : MASTER OF THE ROLLS LADY JUSTICE ARDEN and LORD JUSTICE JACOB Between :

Transcription

1 Neutral Citation Number: [2008] EWCA Civ 624 IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM The Mayor s and City of London County Court HH JUDGE SIMPSON Case No: B2/2007/0584 & 0584(Y) Royal Courts of Justice Strand, London, WC2A 2LL Before : Date: 12/06/2008 MASTER OF THE ROLLS LADY JUSTICE ARDEN and LORD JUSTICE JACOB Between : COLIN HANOMAN - and - MAYOR AND BURGESSES OF THE LONDON BOROUGH OF SOUTHWARK (Transcript of the Handed Down Judgment of WordWave International Limited A Merrill Communications Company 190 Fleet Street, London EC4A 2AG Tel No: , Fax No: Official Shorthand Writers to the Court) Appellant Respondent Mr Dominic Preston (instructed by Messrs Glazer Delmar) for the Appellant Mr Christopher Heather (instructed by LB of Southwark Legal Services Dept.) for the Respondent Hearing dates : May Judgment

2 Lady Justice Arden : Introduction 1. On 27 February 2007, HHJ Simpson, sitting at the Mayor s and City of London County Court, dismissed proceedings brought by the appellant, Mr Hanoman, against the respondent, the London Borough of Southwark ( Southwark ). The claim in the action includes a claim for damages arising out of the exercise by Mr Hanoman of a right to acquire a lease pursuant to the exercise of his right to buy his home under Part V the Housing Act 1985 ( the 1985 Act ). There was a dispute about whether the price fell to be reduced by reference to housing benefit used to pay off the rent in like manner to the reduction he would have received if he had paid rent out of his own monies. The judge ruled against Mr Hanoman on this. Before this court, Southwark for the first time raise a jurisdictional issue: it relies on a decision of this court for the proposition that the county court had no jurisdiction to grant relief in these proceedings once the lease was executed. Mr Hanoman had, however, anticipated this argument and sought to plead a collateral contract between himself and Southwark, which he argues obviates the perceived jurisdictional problem. At the heart of this appeal, therefore, there are important issues about whether the county court had jurisdiction to adjudicate on the dispute after the lease had been executed ( the jurisdiction point ), and about whether certain provisions of Part V, which enable the price payable on exercise of the right to buy to be reduced, if there has been delay by the landlord, by reference to rent paid during the period of delay, apply also to housing benefit paid in that period ( the housing benefit point ). Mr Hanoman also failed to persuade the judge that he had a good claim for breach of a collateral contract, and he seeks to appeal against the judge s conclusions on that. A summary of my conclusions appears at [27] below. 2. It will be necessary to look at some of the provisions of Part V in detail, but I start with an overview. Overview of the relevant statutory provisions regarding the right to buy 3. The right to buy contained in Pt V of the Housing Act 1985 entitles secure tenants to purchase their homes from their local authority landlords at heavily discounted prices. The provisions deal with the acquisition of houses and flats but I limit this overview to flats. If the tenant is living in a flat, he can require the local authority to grant him a long lease of the flat. This is usually for 125 years at a rent not exceeding 10 per annum. Detailed provisions set out in schedule 6 to the 1985 Act govern the terms of the lease. The tenant must have occupied the flat for more than five years (previously this period was three years): s 119. The amount of the discount to which he is entitled is calculated by reference to the length of his period of residence. The right to buy cannot be exercised where, for example, the tenant is obliged to give up possession of the dwelling house in pursuance of an order of the court (s 121). 4. If the tenant wishes to exercise his right to buy, he must give written notice to the landlord (s 122). The landlord usually has four weeks in which to serve a written notice in reply (s 124). That notice must either admit the tenant's right to buy or deny it, stating the reasons why, in the opinion of the landlord, the tenant does not have the right to buy.

3 5. If the right to buy is established, the landlord must serve a second notice on the tenant in accordance with s 125 of the 1985 Act. In this case, the landlord had 12 weeks in which to serve that notice. The tenant must serve a further notice on the landlord within 12 weeks of receiving the landlord's notice. He must state whether he intends to pursue his claim to exercise the right to buy or whether he intends to withdraw it (s 125D). 6. The price payable for the flat is its value less the discount to which the purchaser is entitled (s 126). The value is the price it would realise if sold in the open market calculated in accordance with s 127. The discount allowable to a tenant seeking to exercise the right to buy is dependent on the length of time the tenant has been a public sector tenant (s 129). 7. If the flat is sold within five years after the grant of the lease, the tenant must repay all or part of the premium (s 155). In Mr Hanoman s case the relevant period was three years but this has now been extended to five years. I will call the relevant period the trigger period. The liability to repay is a charge secured on the premises. 8. Once the price is fixed and the terms of the lease are settled, the landlord is under a duty to grant the lease (s 138(1)). If the tenant fails to complete, the landlord can serve a notice on the tenant requiring him to complete within a specified period (s 140). If the tenant fails to respond to this notice, the landlord may serve a second notice. The right to buy will be deemed to be withdrawn if the tenant fails to comply with that notice (s 141). 9. The tenant likewise has power to serve a notice of delay on the landlord. By virtue of s 153A(5), where the landlord has failed to reply to the initial notice in the time allowed, the tenant may serve an operative notice of delay. The effect of this notice is that the landlord must deduct from the purchase price an amount based on the rent paid during the period of the delay (s 153B). In addition, the trigger period is shortened by the period for which such rent was payable. 10. The Leasehold Reform, Housing and Urban Development Act 1993 ( the 1993 Act ) introduced a right to acquire on rent to mortgage terms. This enables a tenant to make an initial payment and to receive an interest-free loan for the remainder of the purchase price. This loan is secured by a mortgage over the premises. The right to acquire on rent or mortgage terms cannot be exercised where the tenant was entitled to housing benefit during the 12 months preceding the claim (s 143A). 11. The county court has jurisdiction to determine any question arising under Part V of the 1985 Act: s 181 of the 1985 Act. Background 12. The details of the early history do not matter. Mr Hanoman had been a secure tenant of Southwark from about July 1977 of a one bedroom flat at 86 Northfield House, Peckham Park Road London, SE18 ( the Property ). At all material times, Mr Hanoman was in receipt of housing benefit and this meant that the rent was in whole or substantial part paid out of housing benefit and not by him personally. Mr Hanoman was notified that he was entitled to the right to buy a lease of his flat, which in due course he decided to exercise. At various points, the London Borough of

4 Greenwich acted as agent for Southwark but in the interests of simplicity I will ignore Greenwich s interventions and state the facts as if Southwark had at all times acted on its own behalf. 13. The premium payable by Mr Hanoman if he wished to exercise his right to take a lease was 17,000. This represented the then market value of the flat of 55,000 less a discount of 38,000. By 2003, the value of the lease had increased to 95,000 and is thought to be worth some 190,000 at the date of this appeal. There is no argument about the size of the discount. 14. Southwark did not initially accept that Mr Hanoman had duly exercised his right to buy and that dispute led to litigation, in which Peter Smith J ([2005] 1 All ER 795) on appeal from the Central London County Court held that his notice was valid and that Southwark was under a duty to deal with the application. 15. Mr Hanoman lodged several notices of delay. He alleged that the premium payable on grant of the lease should be reduced to nil under ss 153A(5) and 153B of the 1985 Act. There was also a dispute about whether the lease would include a shed, but Mr Hanoman no longer pursues that matter. 16. Mr Hanoman wanted to proceed to completion provided that he could reach a satisfactory position with Southwark about taking any dispute to the county court thereafter. On 16 May 2005, he wrote to Southwark as follows: Given that this protracted matter has been on-going for nearly six years, I am understandably eager to bring it to a belated conclusion. With this in mind, this is to formally suggest that I will go ahead with the purchase despite my strong reservations on the Sections 153A/B and 184 [notice] issues. To this end, I will now attempt to negotiate loans to cover the purchase price. However, this is on the premise that I am reserving the right to subsequently apply to a Court for a declaration on the validity and effect of the said notices. If we are in accord, the Solicitor who will act for me on the conveyance is: Ms N. P. Hanoman, 9 Fromondes Rd, Cheam, Surrey, SM3 8QP. 17. On 17 May 2005, Mr Hanoman wrote a reminder. On 17 May 2005, Mr Oliver Cousland on behalf of Southwark simply replied as follows: We look forward to hear further from your nominated solicitor regarding a suitable completion in due course. 18. However, on 20 May Mr Hanoman wrote to Mr Cousland as follows:

5 As agreed with you, I will now go ahead with the conveyance, and deal with the sections 153A&B and 184 issues in the future, as resolving these in Court may take yet another two long years Please inform me by return of post how the figure of a 38,000 discount was come to, given that 70 percent of 55,000 is 38, This letter indicates that Mr Hanoman came to some agreement with Southwark by 20 May 2005 but there is no evidence from either party about this. However, on 24 and 25 May 2005, Mr Hanoman had two telephone conversations of which he prepared attendance notes as follows: 11.23AM on 24/5/05 I phoned, no response to Spoke to Mr Luke Owens (?) as O.C. [Oliver Cousland] not in today. Said no response sent to date but he will chase up O.C. [Oliver Cousland] tomorrow. At 4.31 pm on 25/5/05 spoke to Mr O.C. [Oliver Cousland] he said letter on its way to me and I have read and noted your comments and we are quite happy to proceed on that basis. 20. We do not have that letter but, as Southwark does not challenge the note of the telephone conversation on 25 May 2005, that does not matter. On 25 May 2005, Southwark confirmed at Mr Hanoman s request that the discount of 38,000 was the maximum allowable. On 29 May 2005, Mr Hanoman wrote to Mr Cousland confirming that he had now instructed his solicitor to proceed with the conveyance for the lease. 21. We have not been shown Mr Hanoman s witness statement but his recollection was to the same effect as that of Mr Cousland. In his witness statement filed in these proceedings, Mr Cousland stated: Although I have a faded recollection of this case, my understanding of the agreement was that Mr Hanoman was anxious to complete the long standing matter and wanted to preserve any rights he had to take matters up with Southwark LBC at a later date. It was on this basis that I proceeded to complete the matter on terms offered by Southwark LBC. Upon receipt of the completion funds and other associated documentation I completed the matter and returned the file to Southwark LBC to hold and administer for the purposes of billing service charges and updating their records.

6 22. On 13 June 2005, Southwark granted Mr Hanoman a lease ( the lease ) of the Property for 125 years at a premium of 17,000. This contains a term entitling Southwark to claim repayment in whole or part of the discount if there is a disposal of the Property within three years. The judgment of HHJ Simpson 23. In essence, and so far as material, the judge rejected Mr Hanoman s claim for three reasons. Firstly, the collateral contract which he alleged arose out of the correspondence, which I have set out above, went no further than to elicit Southwark s agreement to his initiating proceedings in the county court and Southwark had not prevented him from doing that. (Mr Hanoman obtained permission to reframe his pleading in terms that would obviate this particular objection). Secondly, the collateral contract was rendered unenforceable because it would contradict the provision in the lease for the payment of the premium. Thirdly, a reduction in the premium could in any event not be obtained where the rent was paid by way of housing benefit. The purpose of ss 153A(5) and 153B was to prevent a tenant being prejudiced by the payment of rent because of the local authority s delay, and that prejudice could not apply where the rent had been paid by housing benefit. The issues on this appeal 24. The judge gave permission to appeal on the housing benefit point only. We heard Mr Hanoman s application for permission to appeal on other issues with his appeal on the housing benefit point. We also heard the jurisdiction issue raised by Southwark as if permission for it had been sought and granted, and an appropriate respondent s notice issued. Mr Hanoman needs to succeed on both the housing benefit point and the jurisdiction point to gain any benefit from this appeal. Normally an issue as to jurisdiction would be taken early on but in this instance, because it was raised late and Mr Hanoman s response to it is based on the collateral contract, I will take the jurisdiction issue after the issues relating to the collateral contract. 25. In all, there are five issues: (1) Does the payment of housing benefit count as the payment of rent by the tenant for the purposes of s 153A(5) of the 1985 Act? This is the housing benefit point referred to in [1] above. (2) Was there a collateral contract between the parties in the terms pleaded? ( the collateral contract point ) In considering this issue, I leave out of account the questions raised by issues (3) and (4) below. (3) Was the collateral contract unenforceable by reason of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ( the 1989 Act )? (4) If the collateral contract was not rendered unenforceable by s 2 of the 1989 Act, did Mr Hanoman give consideration for any promise on the part of Southwark? I will call this the consideration point. It has been referred to in argument as the reliance point but in the context of a collateral contract it is a question of consideration rather than reliance though the factual basis may be similar.

7 (5) Was the dispute between Mr Hanoman and Southwark within the jurisdiction of the county court under s 181 of the 1985 Act once the lease had been executed? This is the jurisdiction point referred to in [1] above. 26. Mr Hanoman also sought permission to appeal on the grounds of convention estoppel, but it became clear that if the collateral contract point did not succeed convention estoppel would likewise fail. That meant that his application to appeal against the judge s holding on this did not arise. When the appellant s notice was lodged there was an issue as to a payment of 580, but this issue has now been resolved by agreement. It is common ground that if Mr Hanoman succeeds on the points set out above, there would have been no premium paid by him on grant of the lease. Discussion and conclusions 27. For the reasons given below, in my judgment: Issue (1) (the housing benefit point): on the true interpretation of the 1985 Act, s 153A(5), s 153B and s 155(3A) of the 1985 Act apply to rent paid by way of housing benefit on behalf of a tenant in the same way as they apply to rent actually paid by him. Issue (2) (the collateral contract point): subject to issues (3) and (4), there was a contract between Mr Hanoman and Southwark, collateral to the execution of the lease, that, notwithstanding completion, Mr Hanoman would be able to enforce any rights he might have to have any outstanding dispute about the exercise of his right to buy determined by the county court. Issue (3) (the s 2 point): on its true interpretation, the collateral contract does not come within s 2 of the 1989 Act. Issue (4) (the consideration point): Mr Hanoman provided consideration for the collateral contract by agreeing to proceed to completion without first making an application to the county court for the determination of the outstanding disputes between him and Southwark arising out of his exercise of the right to buy. Issue (5) (the jurisdiction point): having regard to the terms of the collateral contract, the county court has jurisdiction to hear the outstanding dispute between the parties as to the size of the premium payable by Mr Hanoman in accordance with the 1985 Act, which was outstanding at the date of completion, notwithstanding that completion of the lease has now taken place. (1) The housing benefit point 28. If a tenant, who has exercised his right to buy, serves a notice under s 153A(5) (set out below), he is entitled (by virtue of ss 153B and 155(3A) to a reduction in the premium he is liable to pay at completion and in addition the trigger period is reduced. In each case there is a relationship between the reduction and the rent paid in the period of the delay. The question is whether payments of housing benefit fall to be taken into account for this purpose, and this question principally turns on two provisions of the 1985 Act and on provisions of the social security legislation.

8 Southwark accepts that, if Mr Hanoman wins on this issue, the premium ought to have been nil. 29. The relevant provisions of the 1985 Act are ss 153A, 153B and 155, which, as in force at the material time, provided as follows: 153A Tenant's notices of delay (1) Where a secure tenant has claimed to exercise the right to buy, he may serve on his landlord a notice (in this section referred to as an initial notice of delay ) in any of the following cases, namely, (a) where the landlord has failed to serve a notice under section 124 within the period appropriate under subsection (2) of that section; (b) where the tenant's right to buy has been established and the landlord has failed to serve a notice under section 125 within the period appropriate under subsection (1) of that section; (c), (d)... or (e) where the tenant considers that delays on the part of the landlord are preventing him from exercising expeditiously his right to buy or his right to acquire on rent to mortgage terms; and where an initial notice of delay specifies either of the cases in paragraphs (a) and (b), any reference in this section or section 153B to the default date is a reference to the end of the period referred to in the paragraph in question or, if it is later, the day appointed for the coming into force of section 124 of the Housing Act (2) An initial notice of delay (a) shall specify the most recent action of which the tenant is aware which has been taken by the landlord pursuant to this Part of this Act; and (b) shall specify a period (in this section referred to as the response period ), not being less than one month, beginning on the date of service of the notice, within which the service by the landlord of a counter notice under subsection (3) will have the effect of cancelling the initial notice of delay. (3) Within the response period specified in an initial notice of delay or at any time thereafter, the landlord may serve on the tenant a counter notice in either of the following circumstances (a) if the initial notice specifies either of the cases in paragraphs (a) and (b) of subsection (1) and the landlord has served, or is serving together with the counter notice, the required notice under section 124, or section 125, as the case may be; or

9 (b) if the initial notice specifies the case in subsection (1)(e) and there is no action under this Part which, at the beginning of the response period, it was for the landlord to take in order to allow the tenant expeditiously to exercise his right to buy or his right to acquire on rent to mortgage terms and which remains to be taken at the time of service of the counter notice. (4) A counter notice under subsection (3) shall specify the circumstances by virtue of which it is served. (5) At any time when (a) the response period specified in an initial notice of delay has expired, and (b) the landlord has not served a counter notice under subsection (3), the tenant may serve on the landlord a notice (in this section and section 153B referred to as an operative notice of delay ) which shall state that section 153B will apply to payments of rent made by the tenant on or after the default date or, if the initial notice of delay specified the case in subsection (1)(e), the date of the service of the notice. (6) If, after a tenant has served an initial notice of delay, a counter notice has been served under subsection (3), then, whether or not the tenant has also served an operative notice of delay, if any of the cases in subsection (1) again arises, the tenant may serve a further initial notice of delay and the provisions of this section shall apply again accordingly. 153B Payments of rent attributable to purchase price etc (1) Where a secure tenant has served on his landlord an operative notice of delay, this section applies to any payment of rent which is made on or after the default date or, as the case may be, the date of the service of the notice and before the occurrence of any of the following events (and, if more than one event occurs, before the earliest to occur) (a) the service by the landlord of a counter notice under section 153A(3); (b) the date on which the landlord makes to the tenant the grant required by section 138 or, as the case may be, section 150; (c)... (d) the date on which the tenant withdraws or is deemed to have withdrawn the notice claiming to exercise the right to buy or, as the case may be, the

10 notice claiming to exercise the [right to acquire on rent to mortgage terms ; and (e) the date on which the tenant ceases to be entitled to exercise the right to buy. (2) Except where this section ceases to apply on a date determined under paragraph (d) or (e)] of subsection (1), so much of any payment of rent to which this section applies as does not consist of (a) (b) a sum due on account of rates or council tax, or a service charge (as defined in section 621A), shall be treated not only as a payment of rent but also as a payment on account by the tenant which is to be taken into account in accordance with subsection (3). (3) In a case where subsection (2) applies, the amount which, apart from this section, would be the purchase price or, as the case may be, the tenant's initial payment shall be reduced by an amount equal to the aggregate of (a) the total of any payments on account treated as having been paid by the tenant by virtue of subsection (2); and (b) if those payments on account are derived from payments of rent referable to a period of more than twelve months, a sum equal to the appropriate percentage of the total referred to in paragraph (a). (4) In subsection (3)(b) the appropriate percentage means 50 per cent or such other percentage as may be prescribed. 155 Repayment of discount on early disposal (1) A conveyance of the freehold or grant of a lease if pursuance of this Part shall contain (unless, in the case of a conveyance or grant in pursuance of the right to buy, there is no discount) a covenant binding on the secure tenant and his successors in title to the following effect. (2) In the case of a conveyance or grant in pursuance of the right to buy, the covenant shall be to pay to the landlord on demand, if, within a period of five years there is a relevant disposal which is not an exempted disposal (but if there is more than one disposal, then only on the first of them), the discount to which the secure tenant was entitled, reduced by 20 per cent for each completed year

11 (3) which has elapsed after the conveyance or grant and before the disposal. (3A) Where a secure tenant has served on his landlord an operative notice of delay, as defined in section 153A, (a) the three years referred to in subsection (2) shall begin from a date which precedes the date of the conveyance of the freehold or grant of the lease by a period equal to the time (or, if there is more than one such notice, the aggregate of the times) during which, by virtue of section 153B, any payment of rent falls to be taken into account in accordance with subsection (3) of that section; and 30. Section 134 of the Social Security Administration Act 1992 ( the 1992 Act ), as in force at the material time, provided as follows: 134 Arrangements for housing benefit (1) Housing benefit provided by virtue of a scheme under section 123 of the Social Security Contributions and Benefits Act 1992 (in this Part referred to as the housing benefit scheme ) shall be funded and administered by the appropriate housing authority or local authority. (1A) Housing benefit in respect of payments which the occupier of a dwelling is liable to make to a housing authority shall take the form of a rent rebate or, in prescribed cases, a rent allowance funded and administered by that authority. The cases that may be so prescribed do not include any where the payment is in respect of property within the authority's Housing Revenue Account. (1B) In any other case housing benefit shall take the form of a rent allowance funded and administered by the local authority for the area in which the dwelling is situated or by such other local authority as is specified by an order made by the Secretary of State. (2) The rebates and allowances referred to in subsections (1A) and (1B) above may take any of the following forms, that is to say

12 (a) a payment or payments by the authority to the person entitled to the benefit; (b) a reduction in the amount of any payments which that person is liable to make to the authority by way of rent...; or (c) such a payment or payments and such a reduction; and in any enactment or instrument (whenever passed or made) pay, in relation to housing benefit, includes discharge in any of those forms. 31. Subs (2) has since been replaced with two new subsections by the Welfare Reform Act 2007 but neither counsel referred to the amended provisions, which are the same with the exception of the expansion of the option in s 134(2)(a) to make express provision for payments to another person on the claimant s behalf or in respect of a liability of his. 32. Taking first the 1992 Act, Mr Dominic Preston, for Mr Hanoman, submits that housing benefit is a rent rebate for the purpose of the 1992 Act. The tenant s obligation to pay rent is simply discharged by the credit of housing benefit to his rent account. (S 191 of the 1992 Act rather unhelpfully states that rent rebate is to be interpreted in accordance with s 134, which of course does not contain any definition of that term). Further the relevant provisions do not state that the payment is not to be treated as a payment of rent, in contrast to s.153b(2), where some payments are expressly excluded. Mr Preston was minded to submit that the concluding words at the end of ss (2) assisted him, but they apply only to a payment of housing benefit and not therefore to a payment of rent, which is the expression in question here. Mr Preston points out that there is no definition of rent, and under the general law there is no requirement for rent to be paid by a tenant. It can be paid by some third person on his behalf. He goes on to submit that the purpose of the provisions set out above is to give the tenant as well as the landlord a means of compelling the performance of the obligations required to be performed to give effect to the right to buy. A tenant in receipt of housing benefit would be left outside these provisions if housing benefit does not count. On a purposive interpretation the regime in s.153a and 153B is punitive in nature and not compensatory. The financial penalty on the local authority is increased by 50% if the delay exceeds a year: subs (3) and (4) of s 153B. The judge s approach does not satisfactorily protect the tenant. 33. Mr Christopher Heather, for Southwark, focuses on the precise words of s 134. Southwark chose to pay housing benefit in the manner provided for in s 134(2) (b). He submits that that makes it clear that the payment of housing benefit reduces the tenant s liability: he is not paying rent to the extent of housing benefit because that amount is never rent. 34. Mr Heather relies on the literal wording of s 153A. He submits that s 153A(5), where the words payments of rent by the tenant are to be found, makes it a requirement

13 that the rent is actually paid by the tenant. On this submission, however, he is compelled to accept that if the housing benefit was paid directly to the tenant in cash under s 134(2)(a) of the 1992 Act, and the tenant paid the cash into his rent account with the local authority, that would count as rent actually paid by the tenant for the purpose of s 153A(5). 35. On the question of the purpose of s 153A(5) and s 153B, Mr Heather submits that the object is solely to protect the tenant from the loss of monies thrown down the drain, that is, the payment of rent when it could have been a reduction in a mortgage debt if the transaction had been completed within the statutory timetable. He points out that there may be delay because local authorities are overburdened with applications under the right to buy scheme, not because they are unwilling to implement the statutory scheme. He submits that the purpose of s.153b is not punitive but compensatory. He prays in aid statements made by the Earl of Caithness on the second reading of the bill that became the Housing Act 1985 when he introduced amendments to add to the bill the provisions which are now sections 153A and 153B of the 1985 Act: The amendments are, however, not brought forward in any spirit of retribution; they are designed to offer landlords practical help as well as to give tenants fair compensation for the delays they suffer I hope that Members will agree that the amendment is fair. If a tenant has been waiting for, say, six months for the landlord to deal with the purchase -- and I am sorry to say that there are been plenty of tenants in that position-this means that he or she has been paying rent for six months instead of getting on with paying off a mortgage. It also means that the tenant has spent an unnecessary six months being dependent on the council, and not free to get on with improvements to the home. It seems right that the tenant should receive modest compensation by having the rent paid set against the price of the property. In particularly bad cases where the delay adds up to more than a year, the amendment provides for the deduction from the price to be 1 1/2 times the rent received. we believe that we have struck a fair balance in allowing the landlord one month to refute the allegations of the tenant, but we also think it fair that where the landlord cannot refute the allegations of the tenant the rent should be deducted from the purchase price for the period in question from the date that the first notice was served. (Hansard, 11 October 1988, pages 767 to 769) 36. If the provisions are compensatory, Mr Heather submits that only a tenant who bears the rent himself needs to be compensated. Mr Heather further submits that Mr Preston s interpretation would create injustice to landlords, potentially by the tenant receiving a discount under s.153b where housing benefit is mistakenly overpaid.

14 There would not be an injustice to tenants as the obligation of the local authority to grant the lease is enforceable by injunction by virtue of s 138(3) of the 1985 Act. He points out that the regulations made under the 1992 Act reinforce the choice of s 134(2)(b) as a mechanism for the payment of housing benefit, and demonstrate that there will be circumstances in which the obligation to pay rent is not in fact discharged because the housing benefit can be clawed back. Thus reg 95(1) and (2) of the Housing Benefit Regulations 2006 (SI No 213), which is so far as material in the same terms as its predecessor, reg 93(1) and (2) of the Housing Benefit (General) Regulations 1987, provides: 95 Circumstances in which payment is to be made to the landlord (1) Subject to paragraph (2) and paragraph 8(4) of Schedule A1 (treatment of claims for housing benefit by refugees), a payment of rent allowance shall be made to a landlord (and in this regulation the landlord includes a person to whom rent is payable by the person entitled to that allowance) (a) where under Regulations made under the Administration Act an amount of income support or a jobseeker's allowance payable to the claimant or his partner is being paid direct to the landlord; or (b) where sub-paragraph (a) does not apply and the person is in arrears of an amount equivalent to 8 weeks or more of the amount he is liable to pay his landlord as rent, except where it is in the overriding interest of the claimant not to make direct payments to the landlord. (2) Any payment of rent allowance made to a landlord pursuant to this regulation or to regulation 96 (circumstances in which payment may be made to a landlord) shall be to discharge, in whole or in part, the liability of the claimant to pay rent to that landlord in respect of the dwelling concerned, except in so far as (3). (a) the claimant had no entitlement to the whole or part of that rent allowance so paid to his landlord; and (b) the overpayment of rent allowance resulting was recovered in whole or in part from that landlord. 37. In my judgment, the first question is whether the wording of s 153A(5) excludes the payment of rent by third parties on behalf of the tenant. In my judgment it does not. Where an enactment refers to a person, it is to be taken to include a reference to that person s agent, unless that principle is excluded (Bennion, Statutory Interpretation, 4th ed, page 984). There is no express exclusion of that principle in s 153A or s 153B. Nor is the principle excluded by implication. Although s 153A(5) qualifies the words payment of rent by the further words by the tenant, the equivalent words in s

15 153B(1) are simply any payment of rent. This is an indication in itself that the identity of the maker of the rent payment is not significant. The adjustment of the trigger period provided for by s 155(3A) (see [29] above) is based on the period during which rent is paid for the purpose of s 153B(3). Rent is treated as paid on account under s 153B but it does not contain any stipulation as to the person by whom the rent should be paid in that period. The cross-reference to s 153B is merely to provide a method of fixing the new start date for the trigger period. There is nothing therefore to limit s 155(3A) to those who pay rent other than by housing benefit. If this is the correct interpretation of s 155(3A), it would raise the question, to which there is, so far as I can see, no answer, why a tenant whose rent has been paid with housing benefit should benefit under s 155(3A) but not under ss 153A and 153B. It would, moreover, be illogical if (as Mr Heather very fairly accepted) a tenant who is paid housing benefit in cash and pays that cash to his landlord as rent thereby obtains the benefit of s 153A(5), but a tenant, who is paid by the more secure route of a credit made direct to his rent account, does not. 38. There is, as I see it, no material difference in legal terms between the payment of rent by a third party and the credit by the housing authority of rent from its housing benefit account to the tenant s rent account. The effect so far as the tenant is concerned is the same. By contrast with ss 153A(5) and 153B, s 143A specifically provides that a right to acquire on rent to mortgage terms does not apply if a tenant is entitled to housing benefit. Moreover, the express exclusions in s 153B (2) do not include rent paid by means of housing benefit. Parliament thus specifically considered the matters that ought to be excluded and did not specifically mention rent paid by housing benefit. Accordingly the natural meaning of ss 153A and 153B is that rent paid encompasses all rent duly paid, whatever the source of payment. S 134(2)(b) cannot convert a payment that is otherwise rent for the purpose of the 1985 Act into some other form of payment. The tenant s liability under his tenancy agreement is not changed because he becomes entitled to housing benefit. He remains liable for the full amount of the reserved rent. 39. It is now necessary to ask whether this interpretation conflicts with the purpose of these provisions. It is said that the sole purpose of s 153A(5) and 153B is to compensate a tenant who has paid rent, and so a tenant whose rent is paid by housing benefit is excluded. The provisions may have been inspired by a desire to compensate tenants who had had to go on paying rent out of their own resources when they could have been paying mortgage interest but the court must take the wording as enacted and find its meaning. As Vinelott J said in Movitex v Bullfield [1988] BCLC 104,118, a patch may be intentionally larger than the visible hole to which it is applied. The debate in argument as to whether the provisions are punitive in spirit (per Mr Preston) or compensatory (per Mr Heather) assumes that Parliament made a simple choice between those purposes. The provisions of ss 153A and 153B are undoubtedly stringent. They follow a cross-heading which reads Tenant s sanction for landlord s delay. In practice, they may well have the effect of not simply compensating the tenant but providing him with a windfall at the expense of the local authority. But it does not follow that object of the provisions is to punish as Mr Preston submits. Undoubtedly tenants may suffer loss of many different kinds in this situation, some or all of which would have been irrecoverable on ordinary common law principles. The provisions may have been drafted so as to give them compensation at a flat rate simply to avoid the expense of investigating the loss in each individual case. The

16 cross-heading to these provisions indicates that the purpose was to create a deterrent against delay. The giving of a right to compensation and the creation of a deterrent are not mutually exclusive; the giving of a right to compensation can act as a deterrent, particularly where as here the compensation may cover heads of loss which would not have been recoverable at common law. What matters for the purposes of the present question is that a tenant may suffer loss through delayed completion whether his rent is paid by housing benefit or not: he may be delayed in making improvements to the property or raising a loan on it which he can use for other purposes. 40. The passages from Hansard set out above were relied on by both counsel. In my judgment, they do not provide a clear answer to the question whether the provisions are compensatory or not. Accordingly those passages are not in my judgment admissible on the housing benefit point (c.f. R v Environment Secretary, ex parte Spath Holme Ltd [2001] 2 AC 349, 391). 41. Given the conclusion on meaning to which I have already come, ss 153A and 153B could only be limited to cases where rent had not been paid by housing benefit if the purpose of those sections could only be achieved by that interpretation. In my judgment, there is nothing to suggest that the purpose of those sections can only be sensibly achieved by restricting the payment of rent to the payment of rent by tenant otherwise than with housing benefit. 42. Mr Heather relies on the fact that in certain circumstances housing benefit can be clawed back: see reg 95, set out above. But in many cases housing benefit will never be liable to be clawed back and so there is no material difference between housing benefit that is duly paid and rent paid by the tenant himself. The local authority may also have remedies under the general law against a tenant who has been able to obtain a reduction in the premium as a result of the receipt of overpaid housing benefit. As a general matter, it is to be noted that reg 95(2) proceeds on the basis that housing benefit will in general operate to discharge the tenant s obligation to pay. This point is not an aid to the interpretation of the 1985 Act, but confirms the manner in which housing benefit is in general considered to operate, consistently with the conclusion to which I have come. (2) The collateral contract point 43. The history of this issue is important. Mr Hanoman s position in the court below was that the effect of this court s decision in Sheffield CC v Jackson [1998] 1 WLR 1591, in the context of what covenants ought to have been included in the conveyance pursuant to s139(1) and schedule 6, para. 5 of the 1985 Act, was that the refusal on the part of the local authority landlord to include a covenant could be challenged before the county court only before the execution of the conveyance. For that reason, Mr Hanoman relied upon a collateral contract, alternatively convention estoppel, in order, as he saw it, to found jurisdiction. When he began proceedings he also claimed that the trigger period should be shortened pursuant to s 155(3A). That is also no longer in issue because the three-year period in the lease expires on 12 June The only remaining claim is in respect of the allegedly overpaid premium. At this stage I am not considering what is necessary to establish jurisdiction but only whether a collateral contract is established in law and in fact, disregarding at this stage s 2 of

17 the 1989 Act and the need for consideration. Those matters are considered separately below. 44. According to Mr Hanoman s re-amended particulars of claim, there was a collateral contract evidenced in writing and negotiated between 16 May and 25 May 2005 : (1) by which the claimant agreed not to pursue his claim for the benefit of sections 153B and 184(2) until after the conveyance of the lease of the Property; and (2) in consideration for which the defendant agreed that the claimant was entitled to refer those matters to the County Court after and notwithstanding any conveyance of the Property or alternatively agreed that the claimant was entitled to enforce any rights he had prior to the conveyance as if the conveyance had not taken place. 45. Mr Preston submits that there was a collateral contract in the terms pleaded. It was clear that there was a request for a promise and Mr Cousland eventually gave the promise requested on 20 May 2005 in the course of a telephone conversation with Mr Hanoman. The judge was wrong to say that the agreement was only one by Southwark not to object to the making of an application. Mr Hanoman made it clear that he wished to preserve any rights that he might have under the right to buy legislation. Thus his letter of 16 May 2005 was headed "without prejudice". The body of the letter made it plain that completion should not prejudice existing rights. It was plain that he had in mind the enforcement of his rights: see his letter of 20 May It did not require an agreement between the parties for Mr Hanoman to be able to apply to the court. That was not the issue. Alternatively an agreement was made on the telephone on 25 May Mr Heather submits that there was merely a reservation of rights which did not involve any offer capable of acceptance by Southwark, and the case originally pleaded was that the contract had been made before 20 May Moreover, the collateral contract did not meet the objective test for formation included as proposition (2) in the requirements for the formation of collateral contracts set out by Lightman J in Inntrepreneur Pub Company Limited v East Crown Ltd [2000] 2 LI.L.R 611, 615 and applied by this court in Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] LT & R 389. Those requirements can be found in the next paragraph of this judgment. 47. In my judgment it is clear that the parties reached a consensus on one matter, namely (and here I use the words which Mr Cousland uses in his witness statement) that Mr Hanoman should be able to preserve any rights which he had to take the matters up with Southwark after completion. Mr Cousland clearly did not regard this as an emply form of words; nor did Mr Hanoman. Thus, the parties consensus in my judgment meets the tests set out by Lightman J. Those tests were (1) a pre-contractual statement will only be treated as having contractual effect if the evidence shows that parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence;

18 (2) the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances; (3) in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have a contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them; (4) a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal; (5) a representation of fact is much more likely intended to have contractual effect than a statement of future fact or future forecast. 48. These tests concern the question of intention to create legal relations, clearly an important issue in the context of a collateral contract because there may need to be an explanation why the parties made a separate collateral contract at the time they were making another contract. In this case, one can infer that there would have been some further negotiations on the terms of the lease after 29 May 2005, but no one suggests that anything happened in the course of those discussions that specifically touched on the question of preserving any rights to apply to the county court under s 181. Neither side sought to reflect the collateral agreement in the terms of the lease. Completion occurred relatively shortly after the parties reached their accord. The fifth requirement does not apply here because no misrepresentation is alleged. In the circumstances, I do not consider that there can be any real doubt but that on the facts of this case that the parties intended to create legal relations when they made the collateral contract. 49. There remains the question of what the collateral contract meant. The proper inference in my judgment is that each party intended there to be an effective reservation of rights, that is, one which would enable Mr Hanoman to see any dispute referred to the court through to its conclusion without objection from Southwark. I do not therefore consider it to be the true construction of the parties agreement that all that Southwark agreed to was to permit Mr Hanoman to issue proceedings. That would be a singularly useless protection. I appreciate that in many instances a party to negotiations will seek to gain an advantage by reserving rights, but here it is plain that Southwark accepted Mr Hanoman s proposal. It could have refused to do so. 50. Finally it does not matter whether or not an agreement was reached on or prior to 20 May That did not prevent the parties coming to a later agreement. It is clear that an agreement was made thereafter and, if the earlier agreement was made in

19 terms inconsistent with the further agreement, the latter would take effect, so far as necessary, as a variation of the earlier agreement. 51. In summary, therefore, subject to issues (3) and (4) below, there was in fact and in law a collateral contract that Mr Hanoman would proceed to completion on the basis that he would be able to enforce any rights that he might have to have any dispute about the exercise of his right to buy determined by the county court after completion. (3) The s 2 point 52. S 2 of the 1989 Act provides (so far as material): 2(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document. (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. (4) Where a contract for the sale or other disposition of an interest in land satisfies the conditions of this section by reason only of the rectification of one or more documents in pursuance of an order of a court, the contract shall come into being, or be deemed to have come into being, at such time as may be specified in the order. 53. The requirements of s 2 are unusually strict. One of the effects of s 2 is that, where parties agree on terms for the grant of a lease, all the terms for the lease must be in one document, or in a document referred to in it. In the present case, the terms of the collateral contract were neither included in the lease nor referred to in it. The lease provided for the payment of a premium of 17,000 with no provision for diminution or variation. 54. Mr Heather submits that the judge was correct in holding that, if the collateral contract contradicted any of the terms of the lease, it would be invalidated by s.2 of the 1989 Act. He submits that, in connection with sales and leases of land, the law relating to collateral contract is to be applied with caution, if not suspicion. He relies on the following passage from the judgment of the Chancellor in Business Environment, with which May LJ agreed: