Sale and Rent Back Court Case Wreaks Havoc

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!”

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