Receivers could serve Section 21 notice to end Assured Shorthold Tenancy

Section 21(4) of the Housing Act 1988 (“HA 1988”), imposes a duty on the court to make a possession order of a dwelling held under an Assured Shorthold Tenancy (“AST”) if it is satisfied that any previous fixed term AST no longer exists and the landlord or, at least one of them, has given to the tenant not less than two months’ notice in writing that he requires possession of the dwelling-house.

In McDonald v McDonald & Anor [2014] the landlords were the tenant’s parents. The parents had borrowed off Capital Homes Ltd (“CHL”), to buy the property and the loan was secured by a mortgage over the property. The tenant paid the rent with housing benefit and her parents used that money to pay the sums payable to CHL.

The mortgage conditions forbade any tenancy to a tenant assisted by social security. Other tenancies had to be ASTs previously approved by CHL. The parents failed to apply for approval. A further condition said the parents must advise CHL if they proposed to let to a family member. They did not do this either. They later fell into arrears and CHL appointed receivers of the property, (“the receivers”).

Under the mortgage conditions, they had the same powers as CHL, and they were the agents of the borrowers.

When the receivers were appointed, the tenant was in possession under the terms of an AST expiring on 14 July 2009. She kept possession after then under a statutory periodic tenancy which was subject to the landlord’s power to terminate and get a possession order under section 21(4) of the HA 1988.

The receivers claimed to use their powers under the mortgage to serve a notice (“section 21 notice”) in their own names on the tenant under section 21(4)(b) of the HA 1988 and to commence possession proceedings in the name of the landlords.

The section 21 notice was given by the receivers and not the landlords. Had they power to do this?

If the receivers had power to give the section 21 notice, they could do so in their own names because under section 45 of the HA 1988 the word “landlord” includes any person deriving title from the original landlord, and that would include CHL. Also, under the mortgage conditions the receivers could exercise all the powers that CHL were able to exercise.

On the other hand if they did not have power to give the section 21 notice, then their section 21 notice would be of no effect and the tenant’s statutory periodic tenancy would have continued as before.

The Court of Appeal said that the mortgage conditions had to be interpreted purposively. Their purpose was to enable the receivers to realise the mortgaged property in an orderly and efficient way.

The powers specified in clause 9.2.1 of the mortgage conditions included the power to sell the property and to take possession of it.

The powers conferred on the receivers must include power to do anything which is necessarily incidental to the exercise of the powers specified in the mortgage.

Here, service of the section 21 notice was an act which the receivers had to do to get vacant possession and thereby to sell the property at the best price.

The fact that:

– the mortgage conditions might have been drafted more widely so as to confer an express power on the mortgagee to give a section 21 notice; or

– that the mortgagee might have been able to serve the notice by virtue of being within the definition of “landlord”

did not mean that the receivers could not do so where they had that power under the mortgage conditions.

So the receivers had been entitled to serve the section 21 notice on the tenant and the tenant lost the appeal.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.