Unitary defends £200k rent claim saying deal agreed by ex-district council had "improper purpose"

A unitary authority is defending a £200,000-plus claim for rent arrears in the High Court on the basis that the scheme was for an improper purpose and the former district council which entered the leases did so without authority, it has emerged.

In the latest stage of the case, Charles Terence Estates v The Cornwall Council [2011] EWHC 1683, Mr Justice Coulson refused Cornwall Council permission to rely on a 190-page expert valuation report as evidence. The trial on liability is due to start on 11 July 2011.

The local authority is defending a claim by Charles Terence Estates (CTE) over rent arrears the claimant says are payable under agreements it entered into with Penwith District Council and Restormel Borough Council. The two councils were absorbed by Cornwall when it became a unitary authority.

The claimant’s case is that the council could not find any private landlord to provide accommodation for homeless persons it was obliged to house. The local authority therefore sought out CTE and agreed a scheme whereby the council charged each of the tenants £175 a week for a bedroom in accommodation provided by the claimant. Of that amount, the authority paid £120 to the claimant for each bedroom provided.

CTE said it had bought and adapted houses for this purpose. However, the council had not paid the rent as agreed, and in some cases had not paid any rent at all. The council’s tenants remain in occupation of the properties, the claimant said.

Cornwall is defending these claims, arguing that the agreements entered into were not enforceable. This is on three grounds:

• The agreements entered into were for an improper purpose, namely “in order to implement a proposal made by [the claimant] which was contrived to take advantage of the housing benefit scheme”
• Penwith District Council had no authority to enter into the leases
• There were mistakes, one in fact and one in law.

CTE has denied all three grounds. The company has repeatedly argued that the negotiations for the agreements took place against the background that the claimant was the only organisation prepared to negotiate with the council about providing accommodation for the tenants in question.

The landlord has also argued that there was no open market; indeed there was no market at all beyond that which they were themselves prepared to negotiate and agree.

At a hearing earlier this week (28 June), Cornwall sought permission to rely on an expert report prepared by King Sturge relating to the open market rent. As part of its allegations of an improper purpose, the council argued that there had been no bona fide attempt to negotiate a commercial rent for the properties.

“Rather the rent was calculated by multiplying the weekly sum of £120 by the number of proposed occupants, which rent greatly exceeded the true rental value of the properties,” Cornwall said as part of its defence.

But Mr Justice Coulson refused to grant the authority permission to use the King Sturge report. The judge concluded that:

• Open market rent was wholly irrelevant to two of the three ways the council had put its case as to the non-enforceability of the agreements. Although it was raised, “albeit only faintly”, in relation to the improper purpose allegation, the judge said it was not a critical component of the defendant’s defence on liability. The relevance of the figures identified by the King Sturge report was unclear.
• He accepted the broad thrust of the submissions of CTE’s counsel, which were that what was crucial were the matters of fact rasied by the improper purpose defence: how the council found the claimant; whether there were attempts to negotiate; the difficult position the council found itself in at the relevant time; the absence (on the claimant’s case) of any semblance of an open market, and so on. However, the judge said whether or not these submissions prove right would be a matter for the trial on liability.
• There was, and could be, no justifiable reason for the failure to comply with an order made by Master Leslie on 2 February 2011 or the delay in making the application. Master Leslie’s order required any party wanting to adduce expert evidence to make an application by 29 April and, if that application was contested, then a hearing would take place on 6 May. Neither party had triggered those directions. Cornwall did not apply to the court for permission to rely on the King Sturge report until 13 June.
• If the application was allowed, there was no way that CTE could instruct an expert to meet the points raised in the King Sturge report in the time available. If it were allowed, the claimant would have either had to fight the trial at a disadvantage, having no evidence to counter that in the report, or would be obliged to seek an adjournment. “The innocent party would have been ‘mucked about’ solely by reason of the default of the other side, but would be left with the disadvantageous consequences," the judge said.
• Any prejudice to the council in not allowing the application would have come about solely as a result of its failure to comply with Master Leslie’s order.

Mr Justice Coulson said all the necessary factors in the balancing exercise pointed in favour of refusing the application.