26th Mar 2013
The appellants (K) appealed against a decision that the respondent management company (C) was not estopped from seeking to recover ground rent from them.
K held the leasehold interest in a flat within a residential development. Under the lease, they covenanted to pay an annual ground rent of £100 and a service charge. The leaseholder subsequently indicated its intention to dispose of the reversion. In August 2006, the residents' association wrote to the tenants asking them to indicate whether they would like to participate in the acquisition of what was described, inaccurately, as the "freehold". The letter referred to the "benefits of owning the freehold" as including "no ground rent to pay". K indicated that they would like to participate. The residents' association set up C to acquire the reversion and act as managing agent. C acquired the reversion and informed the tenants that it had decided to continue to charge the £100 ground rent in order to build up a fund to cover accountancy and legal fees and other eventualities. K refused to pay the ground rent due. C issued proceedings to recover arrears of rent and service charges. K contended that they had a defence of promissory estoppel based on the representations in the letter of August 2006. The judge found that K had fundamentally misunderstood the effect on the existing lease of the acquisition of what was described as the freehold, and interpreted the letter as a statement of the effect of purchasing the reversion rather than as a statement of what C itself intended to do in respect of tenants' liabilities under the existing lease. He concluded that, because of their misunderstanding, K had not materially relied upon the representation in an unequivocal way so as to establish a promissory estoppel binding on C. It fell to be determined whether the August 2006 letter had made an unequivocal promise to abolish the ground rent or was simply a list of the potential benefits which would come from a purchase of the reversion.
C contended that the contents of the August 2006 letter had to be read in the context of being sent by the residents' association in an attempt to gauge the level of support amongst tenants for a possible acquisition of the freehold (as it was described), where there was no certainty of any such bid succeeding or any certainty as to whether the acquisition would be affordable. C argued that the financial constraints it would face once it became the landlord were unpredictable, so that the letter had to be read as no more than a summary of the potential benefits which could flow from owning the reversion rather than an unqualified promise of what it would do if successful in the purchase, and that any reasonable reader of the letter would have regarded them as, at most, stated aims rather than promised outcomes. K submitted that the letter contained the clear inference that tenants who participated in the purchase would not continue to pay ground rent, and that the letter had been sent for the purpose of inducing tenants to support the purchase.
In order to found a promissory estoppel the representation or promise had to be clear and unambiguous, Low v Bouverie  3 Ch. 82 and Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd  A.C. 741 followed. The August 2006 letter did not promise anything. Even putting aside its obvious conditionality on the successful completion of the purchase, the fact that it was written well in advance of any possible acquisition and without the benefit of detailed knowledge of the financial position that would obtain once a purchase had taken place pointed to it being little more than a list of possible potential benefits rather than a guarantee or promise of what would be done. The real purpose of acquiring the reversion was to enable the leases of the participating tenants to be replaced by new leases for significantly longer terms, which was something of real value to all the tenants. The residents' association was not promising that a participating tenant would have his existing ground rent waived; it was referring to what could be the terms of the new lease, which would have to be considered by C and the residents' association once they were in charge of the estate. It would not have been reasonable for K to have relied on the contents of the letter as promising them a new lease with no ground rent. The contents of the letter were incapable of forming a safe foundation for any kind of estoppel (see paras 23-26, 31-34 of judgment).
The reference to "no ground rent to pay" in a letter from a residents' association to tenants concerning the possibility of acquiring the reversion of a residential development concerned only a potential benefit which might come from a purchase of the reversion and was not a clear representation for the purpose of inducing tenants to support the purchase. Tenants were therefore unable to rely on the letter as estopping the management company from subsequently seeking to recover ground rent from them.