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Sahota v Prior [2019] EWHC 1418 (Ch)

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1st May 2020

Summary

The High Court declined to interfere with the Trial Judge’s decision that an owner of a property who had purchased it as part of a sale and rent-back arrangement was estopped from obtaining possession from the tenants, who had been assured by the purchaser’s agent that they could live in the property for the rest of their lives.

Facts

When the Respondents, Mr and Mrs Prior, got into financial difficulty they approached a company, known as Red 2 Black, that advertised itself as offering sale and leaseback arrangements as a debt finance solution. The company’s director gave an assurance to the Priors that they would be able to live in the property for the rest of their lives as long as they paid the rent. The Priors were asked to sign a blank TR1 and a 5-year tenancy agreement. They queried the length of the tenancy agreement, but were assured that it was only to make sure that they paid the rent. The property was then transferred to the Appellant. After the end of the 5-year term, the Appellant’s issued proceedings seeking possession.

First Instance

At first instance, the Judge held that the property had been sold at an undervalue and the Respondent’s had relied on the company’s assurances to their detriment. Crucially, the Judge found that the company was acting as agent for the appellant, and thus the Appellant was estopped, based on the company’s assurances, from seeking possession against the Respondents.

Issues

On appeal, it was argued that the company’s assurances were not binding on the Appellant as she had not been aware of them and, thus, they had not been ratified by her. In particular, the Appellant contended that company actually acted as the Respondent’s agent and therefore could not act as hers. Furthermore, it was argued that the judge had been wrong to find that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 did not prevent estoppel from applying.

Decision on Appeal

The High Court Judge (Falk J) was satisfied that the findings of fact made by the Judge as to whether the Company was acting as the appellant’s agent were open to her on the evidence.  In particular, there was an extended family relationship between the Appellant and the directors of the company, and the company had been remunerated by the Appellant through its receipt of some of the rent from the tenancy agreement. The Appellant’s sister in law, who was effectively in a joint venture with the Appellant for the purchase of the property, had repeated the assurances made by the company to the Respondents.  In any event, the Appellant had relied on the tenancy agreement signed by the company in the possession proceedings and had allowed it to appear that the director of the company had full authority to act on her behalf in the transaction and beyond. Falk J’s conclusion on the agency point was as follows:

“In circumstances where Ms Sahota is specifically relying on the terms of transactions apparently entered into by Red 2 Black on her behalf, without visiting the property, without contacting Mr and Mrs Prior or, it seems, without otherwise making any enquiries herself, it cannot be right, as a matter of equity, that she is entitled to disassociate herself from an assurance made on her behalf of which her joint venturer, at least, must have been aware at the time that the arrangements were entered into. No case was cited to me that requires me to decide otherwise.”

It was also held that s. 2 of the 1989 Act was not relevant, as the tenants were not seeking to enforce a contract for the sale of land or seeking to argue that the assurances made to them were terms of a contract for the sale of land. They were simply arguing that the owner was estopped from seeking possession of the property due to the assurances upon which they were found to have relied. Falk J also took the view that this was a domestic as opposed to a commercial transaction, given the naivety of the Respondents in the circumstances, and thus estoppel was more likely to arise.

Comments

This case provides some useful argument on the factual matters that will be relevant in establishing agency in property disputes, in particular in relation to the complex business structures that are often employed in sale and leaseback arrangements. Above all, whether the company was acting as the Appellant’s agent was a question of fact, and the existence of the familial relationship between the Appellant and the Company and the knowledge of the sister-in-law proved crucial.

This case is also a reminder that estoppel is far from an obsolete concept in transactions for the sale of land following Cobbe v Yeoman’s Row [2008].  In this case, the estoppel was not relied upon to perfect an informal sale of land, but in order to prevent one party taking an unconscionable advantage of one party in the transaction. The Appellant’s reliance on section 2 of the 1989 Act was clearly misplaced and provided no defence to their inequitable conduct.

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