Sale and Rent Back Court Case Wreaks Havoc

Sale and Rent Back Court Case Wreaks Havoc

10:32 AM, 12th August 2017, About 4 years ago 54

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A couple who purchased their neighbour’s house to help him out of financial difficulty have been ordered by a judge to give him a 90 year lease at a fixed rent for the whole term.

David and Sheila Harding, who purchased the property in 2001 from their neighbour Mr Colin Gregory, now want to sell to fund a new life in Spain, but in the hearing were branded by the judge as “foolhardy in the extreme” and refused permission to appeal.

16 years ago Mr Gregory confided in his neighbours and close friends, the Hardings, of his difficulties in paying his mortgage. To assist, the Hardings purchased his property for £143,000 with a ‘Buy to Let’ mortgage, allowing Mr Gregory to stay in his home at an agreed rent of £800pcm.

The property was recently offered back Mr Gregory to purchase for £60,000 less than the now £310,000 value. He was given a year to find the funds, which he was unable to do.

The Hardings eventually found a buyer who agreed to continue renting to Mr Gregory but subject to an increased rent to reflect the current market value, now £1,200 a month. This was refused by Mr Gregory and the case went to Brighton County Court.

Mr Gregory said he sold the house to the Hardings for a reduced price, only because he could rent it for as long as he wanted.

We have not seen the actual tenancy agreement, but there was apparently no mention of the lifetime occupation and fixed rental in the documents.

The decision by the Judge will also adversely affect the value of the security of the mortgage lender, which would now be well within their right to call in their mortgage or even force a sale through LPA receivers for breach of contract resulting from the granting of a 90 year lease. The property  could be valued as little as 20 times rent (£800 x12x20 =£192,000), which is roughly what freehold ground rents trade at. It will be virtually impossible for the Hardings’ to sell the property at the normal market value or to remortgage now.

The case was won by Mr Gregory’s solicitor using two extremely old pieces of law which included:

  • The 1925 Property Act under which he apparently has the right to pay £800 a month for the next 90 years.
  • The 1948 Bannister v Bannister case where a woman was given the right to live rent free for life in a cottage she sold to her brother for under market value.

The Hardings were ordered to pay Mr Gregory’s costs of £11,000 and they can now only sell the property to a buyer prepared to rent to Mr Gregory for 90 years at £800pcm.

Although the Judge refused the right to appeal, Property118 was also refused this by Mr Justice Teare in our case against West Brom. Mark Smith (Barrister-at-Law) made an application to a higher Court for leave to appeal, which was granted and we went on to win our case at the Court of Appeal. There is hope that this case could still be overturned. However, there are set timescales to seek leave to appeal from a higher Court and we do not know when the judgment was handed down. It could be too late!

If there is a process whereby the Harding’s could attempt take this further we hope they do, and we are keen to do all we can to help because this judgement could impact on many more landlords.

Even if an application for appeal can be made within the timescales, the success of it would be highly dependent upon what the tenancy agreement. If it is an AST or an Assured tenancy, and even if the Harding’s hadn’t properly served a section 13 notice to increase rent, they would have had the right to do so. Surely, that alone would be grounds for an application to appeal?

Back in 1948, when the original case Law relied upon in this case was created, AST’s and Assurred Tenancies did not exist. All Tenancies were protected at that time. This might be another angle on which an appeal case could be built on.

If a s13 notice was served correctly then the maths suggest that Mr Gregory would be two months in arrears within 6 months and of the s13 notice expiring as a result of refusing to pay the £400 a month rent increase. On that basis, the Harding’s could have served a section 8 notice to seek possession on the grounds of their back-stabbing former friend being two months in arrears.

If anyone out there knows the Hardings please ask them to contact Property118 so we can investigate if there is the possibility to win a right to appeal. Time is of the essence!

It will also be interesting to ascertain how many Sale and Rent Back (SARB) agreements and mortgages this case could affect.

Mr Harding Ian quotes to have said after the case, “‘We tried to help out, not only as a good neighbour and landlord, but we considered Colin a good friend.

“We own it, we pay the mortgage on it, we bought it, but due to a nearly 100 year old law he gets to live in it on the cheap. We have nowhere to turn to and can’t believe it has turned out like this.

“We went into court told by our solicitors that there would be no problem and walked out with him winning the case and us owing him costs. It’s ludicrous. There is nothing more we can do.

“We want to warn other people who are thinking of entering into any kind of agreement like this. We did everything by the book and look where it ended up.

“Nobody had ever heard of the law the solicitor used but it has cost us dearly. We’re stuffed!”

Please SHARE this article to warn others.


by James Fraser

15:27 PM, 14th August 2017, About 4 years ago

Reply to the comment left by brian gibson at 14/08/2017 - 12:45Hi Brian and all,

I actually like the idea of keeping people in their homes and want to do it. But don't bother asking the FCA anything - they don't know themselves. I spent several weeks a year or so back trying to research with them exactly what was required to get a licence to enact this, but got passed from department to department with people endlessly answering questions I hadn't asked, bluntly telling me they didn't know, or - in most cases - guessing. When I pinned them down that guesses werent good enough, I needed chapter and verse and the right application channels, people generally gave up. After three weeks, I managed to get one person - ONE - who said 'if you pay cash and offer a 5yr tenancy you'll probably be OK'.

Seriously! That was the BEST help I got!!!!

by sam

21:01 PM, 14th August 2017, About 4 years ago

It is all very well getting a judgment but hows the Hardings going to issue a 90 year lease without the ok from the lenders ? Can anybody see the lenders agreeing to this ? The lenders are presumably not party to the case, can the judge make a legally binding order on a 3rd party not involved in the case ? If not, then repossession is just about the only route to go and when that happens everybody, including Mr Gregory, loses out. If the judge hadnt thought of that then presumably he would not have ordered a share of the proceed be given to Mr Gregory and the Hardings can walk off with whatever is left after the lenders are paid off and Mr Gregory be out on the street.
If the original agreement was for Mr Gregory to live there for as long as he wants, I wonder whether the judge, by ordering a 90 year lease, thinks Mr Gregory is going to live another 90 years.
Wont it have been better all round for the Hardings to sell the property for £310k and give Mr Gregory £60k ?
Cant blame Mr Gregory for digging his heels in to protect the roof over his head though. So I guess 'beware of friends in need'.
We dont know all the facts but I recall somebody once said 'the law is an ass'. Wonder what be appropriate to say of the judge in this case.
If ever somebody takes on the challenge to appeal, I have a couple of quid I would gladly throw into the hat.

by Dylan Morris

21:10 PM, 14th August 2017, About 4 years ago

Reply to the comment left by sam at 14/08/2017 - 21:01We need all the facts here. Such as was an AST put in place when the property was purchased ? Let's just assume it was and for say 12 months, with no mention in it, or anywhere else, that the tenant could stay for life. Basically a typical sale and rent back transaction with an AST which complies with the lender's mortgage offer conditions. Or is there more to this story ?

by sam

21:58 PM, 14th August 2017, About 4 years ago

Reply to the comment left by Dylan Morris at 14/08/2017 - 21:10I agree we probably dont have all the facts. But whatever they may be, the Hardings and Mr Gregory are now forced into a deathly embrace from which there is unlikely to emerge a winner.
I recall reading something about judges and wisdoms and common sense a little over 60 years ago . I must be mistaken.

by Romain Garcin

22:03 PM, 14th August 2017, About 4 years ago

I don't think this case (which, indeed, does not create a precedent) is that significant because it seems that it boils down to having agreed to let the property to the ex-owner for "as long as he wanted".

The court seemed to have only held the landlord to that.

by sam

22:32 PM, 14th August 2017, About 4 years ago

We have a neighbour where we used to live, an elderly couple in their late 70s, living on state pensions in a council house. They had been there years. A big chunk of their money goes on rent. We could see they were obviously struggling a bit and used to send them the occasional cakes and little luxuries and take them out for a Sunday lunch once in a long while (still do). Their 4 children dont seem to be well off enough to do much for them. I was just talking with my wife last week about helping them buy their council house and give them a 30 year lease for peppercorn, or similar just so they can have their rent money to live on a bit better, with the proviso that the house reverts to us when both of them have passed on. It would be an easy win-win. Not saying that it would have come to anything anyway, but this Harding/Gregory case has put me off. What a world.

by sam

22:33 PM, 14th August 2017, About 4 years ago

Reply to the comment left by Romain Garcin at 14/08/2017 - 22:03Wonder how old would Mr Gregory be in 90 years time.

by Romain Garcin

22:40 PM, 14th August 2017, About 4 years ago

Reply to the comment left by sam at 14/08/2017 - 22:33The law provides that the landlord may seek possession when the tenant dies.

by land law

22:49 PM, 14th August 2017, About 4 years ago

The problem in this case is that the new owners did not set a period for the lease. Had they done so, this would all have been avoided. They could have set any period they had wanted. They just did'nt. So, there was no AST or any other fixed term lease.
They promised a lease for as long as needed - interpreted to be a lease for life (Bannister v Bannister)
Which defaults to a 90 year lease (or ends on death if earlier) under the Law of Property Act 1925 (the "92 year old law")
The case is not a precedent, but it is built on a Supreme Court case (Berresford v Mexfield) which is a precedent.
As others have said, it could have all been avoided by doing it properly. It's not the end of the world; its not the end of civilisation.
Its two people being held to the bargain they offered when they bought the house cheaply.

by land law

23:02 PM, 14th August 2017, About 4 years ago

Reply to the comment left by sam at 14/08/2017 - 22:32You can still do this. Just fix the lease properly and you have nothing to worry about

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