Summary

A set-off of unliquidated damages for a previous lessor's breach of a repairing covenant was available to the lessee against a claim for rent arrears which had been assigned by the previous lessor to the claimant lessor.

Facts

Appeal under CPR 52.14 raising the point of principle as to whether a tenant who was sued by his landlord for arrears of rent could have an equitable set-off for damages for disrepair accruing under the previous landlord. The defendant ('S') was the tenant of a small house in Beckenham for over 40 years under a statutory tenancy. He was reliant on housing benefit for many years to make up his rent payments. In 1995 the local authority served a disrepair notice on the lessor under s.189 Housing Act 1985. From June 1995 to February 1997 the lessor's builders did remedial work on the house causing major disruption and in December 1995 S began to withhold rent. In October 1999 the freehold was purchased by Mr Muscat ('M') by which time 128 weeks' rent was in arrears. S continued to withhold rent and on 6 March 2001 a notice to quit was served on him with possession proceedings following in September 2001. At that time S resumed payment of rent. M was held liable to S in the sum of £2000 for disrepair since he became the lessor in October 1999 and it was held that no right of set-off existed at law or, inferentially, in equity against M in relation to similar breaches of covenant by the previous lessor. As a consequence S remained indebted to M for arrears of over £3000 and an outright possession order was stayed pending appeal. The judge also held that, had a right of equitable set-off existed, he would not have allowed it because of S's delay in asserting it and the availability to him of an action against the previous lessor. The issue at hand was the availability of an equitable set-off. If an equitable set-off was available then it also had to be decided whether the judge's two contingent grounds for delaying it were sustainable. S contended that these grounds were adopted by the judge without notice or argument and so should fall and that in any event, on the facts, neither delay on S's part nor the possibility of his suing the previous lessor directly was a proper ground for refusing an equitable set-off.

Held

(1) This was a case in which the rules of equity must prevail. The view taken by Lightman J in Lotteryking Ltd v AMEC Properties Ltd (1995) 2 EGLR 13 was correct in that a tenant's right to set-off his claim for damages for breach of a provision in a collateral contract which ran with the reversion was exercisable not merely against the person entitled to the reversion at the date of the breach but also against any successor in title. The successor in title acquired the reversion and the benefit of all covenants contained in the lease subject to all equities at the date of his acquisition. (2) If the law was as held by the previous judge, it would be asymmetrical and anomalous and would distinguish on no just basis between the tenant who, faced with breaches of his landlord's repairing covenant, could find the money and obtain the necessary access to do the works and the tenant, who, in the same situation, was forced by lack of means, or want of access to put up with the consequences of repair. (3) Rent today was correctly regarded as consideration not merely for granting possession but for undertaking obligations that went with the reversion. Provided that the nexus between the rent and the breach was appropriately close, what the common law recognised as an abatement of rent where the damage had been quantified in expenditure was treated by equity as the potential subject matter of a set-off where the damage required quantification. (4) S was therefore entitled to set-off against M's claim for unassigned rent arrears due to him for the breach of his repairing obligations because the debt, a chose in action, vested in M as assignee subject to all equities which were available to S against the previous landlord. These included the previous lessor's liability to pay unliquidated damages for disrepair. (5) The claim and counter-claim would be remitted for trial in the county court.

Appeal allowed.