Collateral contracts - Consideration - Delay - Housing benefit - Leaseholds - Tenant’s sanction

Julie Case (instructed by Frank Howard) for the appellant; DA Bartlett, ­­R Jones (instructed by the in-house ­solicitor) for the respondent.

Colin Hanoman v Mayor & Burgesses of Southwark London Borough Council: CA (Civ Div) (Sir Anthony Clarke, Master of the Rolls, Lady Justice Arden, Lord Justice Jacob): 12 June 2008

The appellant (H) appealed against a decision dismissing his claim against the respondent local authority for damages arising out of the exercise by H of his right to acquire a lease of his home under part V of the Housing Act 1985.

H had been a secure tenant of a one-bedroom flat from the local authority. H was in receipt of housing benefit and the rent was in whole or substantial part paid out of housing benefit and not by him personally. H exercised his right to buy a lease of his flat. The local authority initially ­disputed his right to buy.

H lodged several notices of delay and alleged that, as a result of the delay, the ­premium payable on grant of the lease should be reduced to nil under ­sections 153A(5) and 153B of the 1985 act. After discussions with the local authority, he completed the ­transaction and paid the premium, while reserving the right to take any dispute to the county court thereafter.

The judge dismissed county court proceedings brought by H, holding that a reduction in the premium could not be obtained where the rent was paid by way of housing benefit, since the purpose of sections 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.

S submitted that the county court had no jurisdiction to grant the relief sought by H once the lease had been executed, and that H had received housing benefit by way of a reduction in the amount of his liability for rent, so that that amount had never been paid as rent.

H submitted that his correspondence with the local authority had given rise to a collateral agreement that any ­dispute would be settled in the county court, and that the purpose of the ­relevant provisions was to give the ­tenant as well as the landlord a means of compelling the performance of the right-to-buy obligations and a tenant in receipt of housing benefit would be left outside the provisions if housing benefit did not count as rent.

Held: (1) On the true interpretation of the 1985 act, sections 153A(5), 153B and 155(3A) of the 1985 act applied to rent paid by way of housing benefit on behalf of a tenant in the same way as they applied to rent actually paid by him. The wording of section 153A(5) did not exclude the payment of rent by third parties on behalf of the tenant, and there was 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.

Moreover, the express exclusions in section 153B(2) did not include rent paid by means of housing benefit. Section 134(2)(b) of the The Social Security Administration Act 1992 did not convert a payment that was ­otherwise rent for the purpose of the 1985 act into some other form of payment. The purpose of the 1985 act provisions was to deter delay.

A tenant might suffer loss through delayed ­completion whether his rent was paid by housing benefit or not. There was nothing to suggest that the purpose of the relevant sections could only be sensibly achieved by restricting the payment of rent to the payment of rent by a tenant otherwise than with housing benefit.

(2) There was a contract between H and the local authority, collateral to the execution of the lease, that, notwithstanding completion, H 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.

(3) On its true interpretation, the collateral contract did not come within section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. It created a false antithesis to say that, because H’s case was that the ­premium should have been nil and that would amount to a substantial change to the position between the parties, the collateral contract contradicted the terms of the lease. The contract should so far as possible be ­interpreted so as to avoid ­unenforceability under section 2. The collateral contract was not an ­agreement as to the terms on which the lease would be granted. It ­operated in parallel with the lease.

(4) H provided consideration for the collateral contract by agreeing to ­proceed to completion without first making an application to the county court.

(5) The court was not prevented by authority from holding that the instant dispute fell within section 181 of the 1985 act which conferred ­jurisdiction on the county court, Sheffield City Council v Jackson [1998] 1 WLR 1591 CA (Civ Div) distinguished.

The ratio of the Sheffield case was that a party could not ask the county court to determine after completion a question on which the parties had ­previously come to a binding ­agreement, but in the present case the parties had not agreed the answer to the housing benefit point, but only that H should be free to have it determined by the court even after completion.

Appeal allowed.