Update on the Mexfield issue

The latest in a line of cases causing problems for fully mutual housing associations and cooperatives. Emma Ridge gives guidance on the issue.

Introduction

The High Court had reason to look again at the decision in Berrisford v Mexfield Housing Co-operative (2011) in a recent decision.  Southward Housing Co-operative v Walker (2015) involved another challenge by tenants of fully mutual housing association against their landlord's decision to serve a notice to quit.

In the recent Southward case, the tenants raised the Mexfield argument that they had a 90 year lease that could not be terminated.  They also raised Human Rights arguments.

Both arguments were dismissed by the High Court and the Southward's notices to quit were held to be valid.

General background to Mexfield

• The Mexfield issue is only likely to affect fully mutual housing associations, i.e. the type of housing co-operative where all members are tenants or prospective tenants and all tenants are members.
• The Housing Act 1988 prevents fully mutual housing associations in England (including co-operatives) from granting assured tenancies - tenancies which provide tenants with some degree of confidence that their tenancy cannot be terminated for no reason and on short notice.  To counteract this inability to grant assured tenancies, fully mutual housing associations have, on occasion, used forms of tenancies which restrict the basis on which those tenancies can be terminated. 
• What happened in Mexfield was that the housing association restricted the basis for termination too severely and this led to the radical decision by the court that the tenant had a 90 year lease.
• Other types of housing associations tend to make use of their ability to grant assured tenancies and so are less likely to be affected by Mexfield but it is not impossible that it could affect them.
• If tenancies contain provisions permitting a fully mutual housing association to serve a notice to quit on the tenant simply by giving a certain amount of notice, then there are no issues.  Such tenancies are known as periodic tenancies and should be perfectly valid on their own terms.  There will be no "statutory conversion" to a 90 year term as there was in Mexfield.
• If tenancies granted for a fixed term (it could by any length - 3 months or less; 50 years or more; anywhere in between) which expire at the end of that fixed term, then they should also be valid. 
• Such tenancies are known as fixed term tenancies and may well contain provisions allowing the housing association to serve notice to quit in restricted circumstances e.g. continued nuisance, failure to pay rent, failure to comply with any co-operative's rules.  Even if the notice to quit provisions are restricted, there will be no "statutory conversion" for fixed term tenancies.

The special circumstances of Mexfield

• The Mexfield issue arises because Ms Berrisford's tenancy was neither a fixed term nor a periodic tenancy.
• There were no provisions permitting the housing association to serve notice to quit on a certain amount of notice.  The housing association could serve notice in other circumstances (e.g. failure to pay rent) but generally such provisions are ineffective provided any arrears are paid and so were not considered by the court.
• The Mexfield tenancy was not considered to be a periodic tenancy or a fixed term tenancy, and it was considered to be a tenancy for life.  Tenancies for life were abolished some decades ago and so this led to the Mexfield tenancy being statutorily converted into a fixed term of 90 years.

Southward - update

This 2015 case did not change the Mexfield decision.  What it did was distinguish it.  It found that the housing association's right to serve a notice to quit was fettered and so like Mexfield was neither a periodic tenancy nor a fixed term and so could theoretically be a tenancy for life and hence convert to a 90 year term.

However, the court then looked behind the tenancy to the parties' intentions and held that as there was no intention to create a tenancy for life, it could not be one.  As a result, the court held that the tenancy was, in fact, a contractual licence and could be terminated by the housing association.

This is a brave decision and one feels that perhaps the judge was seeking justice rather than blindly following precedent.  The leading case on when something is a tenancy and when it is a licence is Street v Mountford (1985) and this decision does not fit well with that. 

The judge tried to anticipate an appeal which indicates that he may have felt that this was a step too far; but in the meantime, housing associations who find a Mexfield argument raised by a tenant should gather as much evidence of the parties' intentions as they can.

When is Mexfield a concern?

Mexfield can be a problem for housing associations/co-operatives if they need to either:

• seek funding as such tenancies will adversely affect any security that can be offered to the lender; or
• obtain possession of a member's accommodation for any reason.

A suggested solution for new tenancies

• All tenancies offered to members of the housing association need to be either fixed term tenancies or, as is more usual, periodic tenancies including notice to quit on a certain amount of notice with no restrictions - one month's written notice is common practice although there is no reason it should not be longer.  Indeed, there might be very good reasons to make it substantially longer to ensure the smooth running of any housing association/co-operative.
• As an additional measure, a housing co-operative's rules should also ensure that they do not fetter the co-operative in serving notice to quit.  For instance, the rules might prohibit the co-operative from expelling a member for various ethical or humanitarian reasons (e.g. if the member is suffering from depression or being subject to domestic abuse) but such a fetter could mean the co-operative could never be sure of when or if they could terminate the tenancy.  This could mean the co-operative falls foul of Mexfield.
• It would be worth considering if all provisions relating to serving notice dealing with termination of the tenancy and termination of membership were kept within the tenancy.  In other words, when a person ceases to be a tenant, they would automatically cease to be a member. 

Care would need to be taken that the provisions in the rules and the tenancy agreement were not circular and specialist advice should be sought if you have Mexfield  concerns.  For instance, when co-operatives have prospective members who are waiting to be tenants, their membership cannot be terminated by a tenancy agreement so the rules would need to cater for such a situation.

• To sum up:

o neither the tenancy agreement nor any rules should fetter a housing association's ability to serve notice to quit in a periodic tenancy

o care should be taken that the rules and tenancy agreement do not conflict in relation to service of notice to quit and that it is clear how the two interact.

Existing tenancies

• Existing housing associations may not be so concerned about the issue unless they are likely to need funding from a lender or they can see circumstances where they need to obtain vacant possession of a property.
• If a housing association/co-operative does need to borrow/obtain vacant possession and finds it has the same problem as Mexfield then it will need the co-operation of its members to rectify it, either by:

o amending any rules in accordance with its procedures if the rules are where the fetter on serving notice to quit is found

o surrendering and re-granting a new tenancy with appropriate notice provisions and without the Mexfield flaw.

• If neither of these solutions is possible, they need to show as much evidence as possible that neither they nor the tenant intended that a tenancy for life should be granted.

August 2015