Cornwall Clots The Landlord's Cream

In a case handled by Charles Russell LLP, in which we acted for Charles Terence Estates Limited ("CTE"), Cornwall Council has walked away from 30 leases pleading its own ineptitude and incompetence as its main defence. Its landlord, CTE has been left seeking relief in the Court of Appeal in a case which, in the words of Mr Justice Cranston

"raises some novel issues concerning contracts with governmental and public authorities".

In outline, in 2005 CTE was approached by two district councils in Cornwall (Penwith and Restormel) and was asked to purchase houses which the councils could use to house vulnerable homeless people. As a consequence, CTE purchased some 30 houses between 2005 and 2008 and let them to the councils. CTE also entered into substantial financial commitments to provide the scheme. Cranston J has now rated that the leases are void. A harsh decision (even in the Judge's eyes) Cranston J said

"In my view CTE has at all times acted in good faith. It was in no way negligent or foolish in the way it changed its position. It was invited by Penwith and Restormel to assist them address their pressing responsibilities to house homeless and vulnerable people to meet central government targets. CTE had no reason to doubt the decision making procedures behind the scenes at both councils".

There has been a trend towards allowing a governmental authority (whether local or central) to plead its own lack of capacity as a defence to a contract. Invariably, the cases have involved contracts that have worked out to be unprofitable for the government authority, and this latest case is no exception.

The local authorities entered into agreements with CTE, whereby CTE would lease properties at fixed rents. The councils then sublet or licensed the accommodation to vulnerable people in housing need to whom statutory housing duties were owed. The councils provided initial funding in the form of grants to assist in the purchase of the accommodation. The rent agreed was calculated at a standard rate of £120 per person per week (or on a similar basis). The agreed rents represented a substantial saving for the councils on the sums they had been paying for other private sector accommodation.

After the two local authorities were unified under Cornwall Council, the contracts were subsequently reviewed, and with pending government cuts Cornwall reviewed its leases and financial exposure. Under the new regime, Cornwall Council subsequently decided that these...