Leases washed away by Cornish shower
Judgment was handed down on 7 October in the case of Charles Terrence Estates Ltd v The Cornwall Council [2011] EWHC 2542 (QB) in which Martin Rodger QC and Joe Ollech represented the Claimant landlord before Mr Justice Cranston.
The proceedings raised some novel issues concerning leases granted to public authorities. In particular it raised the issue of the extent to which a local authority could itself invoke public law flaws in entering a contract when faced with a private law claim by the other party to the contract. In outline the claimant, Charles Terence Estates Ltd (“CTE”), purchased some 30 properties in Penzance and Newquay in 2006 and 2007, which it leased to predecessor councils of the defendant, Cornwall Council, under schemes designed to house vulnerable homeless people. The leases were for terms of 25 years at substantial rents. The councils in turn used the properties to house homeless people to whom they owed a statutory housing duty. As part of the project the councils provided grants and loans of some £1 million to assist CTE in its purchase and preparation of the properties, while CTE funded the remainder of its outlay of more than £8 million by bank borrowing.
Following a reorganisation of local government in Cornwall in 2008 the Council repented of the arrangements and ceased paying rent in July 2010. CTE commenced its proceedings to recover the arrears, which stood at more than £1.1m by the time judgment was given, but was met with the defence that the leases were unlawful and ultra vires for a whole raft of public and private law reasons concerning the ineptitude of the councils’ decision making processes. The Council counterclaimed for restitution of the loans and grants which had been advanced to CTE and for repayment of all of the rents paid in excess of what it regarded as an appropriate open market level. The judgment considers the circumstances in which a local authority may itself impugn its own actions and concludes that in this case the Council was not bound by the leases its predecessors had freely entered into because they had failed to have regard to open market rents in reaching their decision to enter into the leases. The Judge rejected the Council’s restitution claims on the basis of CTE’s change of position and gave judgment in CTE’s favour for rent at the contractually agreed rate. The Judge emphasised that CTE had at all times acted in good faith and had no reason to doubt the decision making procedures behind the scenes at the councils. To reflect the overall balance of success in the litigation the Judge ordered that the Council pay 40% of CTE’s cost
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