Sale and Rent Back Court Case Wreaks Havoc

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A couple who purchased their neighbour’s house to help him out of financial difficulty 20 years ago have been ordered by a judge to give him a 90 year lease at a fixed rent of only £800 for the whole term.

David and Sheila Harding who purchased the property from their neighbour Colin Gregory now want to sell to fund a new life in Spain, but in the possession hearing were branded by the judge as “foolhardy in the extreme” and refused permission to appeal.

Mr Gregory told his neighbours, the Hardings, of his difficulties in paying his mortgage. To assist the Hardings purchased his property for £143,000 in 2001 with a “Buy to Rent” mortgage allowing Mr Gregory to stay in his home at an agreed rent of £800pcm.

The property was recently offered back Mr Gregory to purchase for £60,000 less than the now £310,000 value and he was given a year to find the funds, which he was unable to do.

The Hardings eventually found a buyer that agreed to continue renting to Mr Gregory at an increased rate of £1,200. This was refused by Mr Gregory and the case went to Brighton County Court in March 2016 where Mr Gregory said he sold the house to the Hardings for a reduced price, only because he could rent it for as long as he wanted.

We have not seen the actual tenancy agreement, but there was apparently no mention of the life time occupation and fixed rental in the documents.

The decision by the Judge will also adversely affect the security of the lender, who could well force a sale through LPA receivers for breach of contract with a 90 year lease. The property  could be valued as little as 20 times rent (£800 x12x20 =£192,000), which is roughly what freehold ground rents trade at

The case was won by Mr Gregory’s solicitor using two extremely old pieces of law which included:

• The 1925 Property Act under which he apparently has the right to pay £800 for the next 90 years.
• The 1948 Bannister v Bannister case where a woman was given the right to live rent free for life in a cottage she sold to her brother for under market value.

The Hardings were ordered to pay Mr Gregory’s costs of £11,000 and they can now only sell the property to a buyer prepared to rent to Mr Gregory for 90 years at £800 pcm.

Although the Judge refused the right to appeal Property118 was also refused this by Mr Justice Teare in our case against West Brom. Mark Smith (Barrister-at-Law) then won the right and Mr Justice Teare was proved wrong by our later win in the Court of Appeal.

There is a process to take this further, but it depends on what the tenancy agreement says and if it is an AST or an Assured tenancy. Even if the landlord hadn’t properly served s13 he had the right to do so. Surely, that alone would be grounds for an application to appeal?

If anyone out there knows the Hardings please get them to contact Property118 so we can investigate if there is the possibility to win a right to appeal. Time is of the essence!

We also need to ascertain how many Sale and Rent Back (SARB) agreements and mortgages this case could affect in the future as a precedent.

Mr Harding said after the case, “‘We tried to help out, not only as a good neighbour and landlord, but we considered Colin a good friend.

“We own it, we pay the mortgage on it, we bought it but due to a nearly 100 year old law he gets to live in it on the cheap. We have nowhere to turn to and can’t believe it has turned out like this.

“We went into court told by our solicitors that there would be no problem and walked out with him winning the case and us owing him costs. It’s ludicrous. There is nothing more we can do.

“We want to warn other people who are thinking of entering into any kind of agreement like this. We did everything by the book and look where it ended up.

“Nobody had ever heard of the law the solicitor used but it has cost us dearly. We’re stuffed!”

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