Redstone Mortgages Plc v Welch & Jackson (2009)
This was a mortgagee's claim for possession against its borrower, Ms Welch, of a property at 23 Ferndale Road, Shrewsbury. The claim against Ms Welch was not defended. The real substance of the action was the mortgagee's claim for possession against the occupiers, Mr and Mrs Jackson.
Mr Jackson had owned the property for over 20 years until October 2005. During 2005 he was in arrears under his mortgages. He saw an advertisement in a local newspaper for "Repossessions Stopped", who offered to buy properties from owners in arrears, pay off the mortgages, and grant tenancies back to the former owners so as to enable them to stay in their homes.
The Jacksons answered the advert, and they subsequently agreed to sell their home under this 'sale and leaseback' scheme. They alleged that they were induced to do so by misrepresentations about the nature of the transaction made by a Mr Dewsbery, Ms Welch's partner, and that the transaction was an unconscionable bargain. They also argued that, if the transaction were not set aside, then they were assured tenants and entitled to various rights by way of estoppel.
The mortgagees defended the claim, arguing that the transaction could not be set aside; that it could not be set aside against them anyway; that they were not bound by any of the Jacksons' rights; and that they were merely assured shorthold tenants of the property. During the trial, they conceded the right to set aside the transaction against Ms Welch on the grounds of misrepresentation.
This is an important decision regarding sale and leaseback transactions. Such schemes will be regulated by the FSA as from 1 July 2009, but that will not apply retrospectively.
The Jacksons were successful, and the claim against them was dismissed. The court held:
- On its true construction, the tenancy which had been granted to the Jacksons was an assured tenancy, not an assured shorthold (Andrews v Cunningham  EWCA Civ 762 considered).
- The Jacksons were entitled to the rights that they claimed by way of proprietary estoppel (Jennings v Rice  EWCA Civ 159 applied).
- The tenancy, the estoppels, and the right to set aside were all binding on the mortgagee because of the substance of the transaction. Applying Abbey National plc v Cann  1 AC 56 and Whale v Viasystems Technograph Ltd  EWCA Civ 480, the court had to look at the substance of the transaction, and not at its form. The agreement to grant a lease back to the Jacksons was an indissoluble part of the sale and purchase agreement, so Ms Welch never had more than a title to the property subject to the Jacksons' equitable rights. As a result, the tenancy, estoppels, and right to set aside, all took effect before the mortgage. The estoppels and right to set aside were relevant interests under the Land Registration Act 2002 ("LRA 2002") s.116, and the Jacksons were in actual occupation of the property. As a result, all of their rights were overriding interests which took priority over the mortgage under the priority provisions in LRA 2002.
- If that was wrong, then despite the prohibition in the mortgage on granting anything other than assured shorthold tenancies, the tenancy was in any event binding on the mortgagee by reason of the 'registration gap' (LRA 2002 ss.23(1)(a), 24(b), 27(2)(b)(i) and 29 applied).
- The Jacksons had the right to choose whether or not to set the transaction aside. If they chose to do so, then that had to be on terms as to restitution, but applying Halpern v Halpern (No.2)  EWCA Civ 291, the court could look to do what was practically just. Given that Mr Jackson was no longer able to finance a repayment of the full amount that he owed in October 2005, the transfer should be set aside on terms that the Claimant be entitled to charges and loans reflecting those that were repaid in October 2005, and that Mr Jackson make loan repayments at the level that he would have been paying had the transaction never taken place. Mr Jackson would also be required to pay an amount equivalent to the rent under the tenancy for the period from when the Jacksons stopped paying rent to the date when the transaction was set aside.
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23 Jun 2009
His Honour Judge Worster
LTL 29/6/2009 (AC0121365 ) :  3 EGLR 71
Andrew Walker QC