Sri Lanka Law Reports
(19891 2 Sri LR
SUPREME COURTFERNANDO, J.
DHEERARATNE, J. AND RAMANATHAN, J.
S.C. APPEAL No. 65/87
A. No. 16/78(F),
C. MOUNT LAVINIA 302/RE. SEPTEMBER 19, 1989.
Landlord and tenant – Tenant notified of change of ownership and of transferee'selection to recognise him as tenant – Statement under Section 37 of the Rent Act,No. 7 of 1972 – Tenant's express refusal to attorn – Tenant continuing in occupation- Has privity of contract been established between the transferee (appellant) and. tenant (respondent) ?
Seelawathie v. Ediriweera
The tenanted premises were transferred and the tenant apprised of the change ofownership and of the transferee’s option to take possession of the premises, with thetenant in occupation, by letter and by a statement under Section 37 of the Rent ActNo. 7 of 1972 signed by the appellant as landlord. The tenant expressly refused toattorn to the appellant and continued to occupy the premises.
Continuance in occupation by the tenant (with notice of the transferee's electionto recognise the tenant) constitutes an exercise of the tenant's .option toacknowledge the transferee as landlord, establishing privity of contract' betweenthe parties. No other act or conduct is necessary. .
The respondent became the tenant of the appellant, upon the expiration of themonthly tenancy that was in force at the time she received the letter and thestatement under Section 37 signed by the appellant as landlord indicative of herelection to recognise the respondent as tenant, and the appellant was entitled to
– maintain this action against the respondent for rent, damages and ejectment,upon her failure to pay rent.
Distinguished (a) Naidu-V Mudalige (1), where there was a fresh agreementbetween the new owners and the former, tenant, which transformed the characterof the latter’s occupation; there was . no occupation qua tenant and no tenancy,and an action for rent and ejectment could not be maintained; (b) Fernando VWijesekera (18), where the purchaser and the tenant had negotiated a. new
Zackariya V Benedict (7) not followed.
Cases Referred to :
Naidu vs. Mudalige 76 NLR 385
David Silva vs. ■ Madanayake 69 N.L.R 396, 398
Silva vs. Silva 16 N.L.R 315, 316
Perera vs. de Costa 57 N.L.R 293
Morris vs. Mortimer 2 S.C.C. 46
Silva vs. Muniamma 56 N.L.R. 357,
• Zackariya vs. Benedict 53 N.L.R. 311
Perera vs. Padmakanthi 1987 2 Sri L.R.1
Wijesinghe vs. Charles 18 N.L.R. 168, 1.70.
Fernando vs. Appuhamy 23 N.L.R. 476, 477
de Alwis vs. Perera 52 N.L.R. 433, 445
De Silva vs. Abeyaratne 56 N.L.R. 574, 575
Mohomed vs. Singer Sewing Machine Co. 64 N.L-R- 407
Subramanium vs. Pathmanathan  1 Sr|. L.R. 252, 257.
Sabapathipiilai vs. Ramupillai 58 N.L.R. .367
Fernandes vs.. Perera 77 N.L.R. 220
Mensina vs; Joslin 1 Srikantha's L.R. 76
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Fernando vs. Wijesekera 73 N.L.R. 110
AK. Premadasa. P.C. with T.B. Dillimuni for the Plaintiff-Appellant-Appellant.
N.R.M. Daluwatte, P.C., with K. Balapatabendi for the Defendant – Respondent -Respondent.
Cur. adv. vult.
November 3. 1989.
This appeal involves an important question of law, as to thecircumstances in which a tenant who continues in occupation after,receiving notice of the transfer of the rented premises becomes thetenant of the transferee.
The rented premises were gifted to the Appellant oy her sister and.brother-in-law, the original owners, on 18.5.74. By letter dated
the brother-in-law informed the tenant, the Respondent, ofthe transfer, and forwarded a statement in terms of section 37 of theRent Act, which described the Appellant as the landlord, and whichwas signned by her as landlord. In the column headed “name andaddress of the person to whom the r6nt is payable”, the name andaddress of the brother-in-law was set out: but, as the Court of Appealheld, this did not have the effect of designating the brother-in-law asthe landlord. There was no reply -to that letter, and the Respondentcontinued in occupation of the premises. By letter dated 30.12.74, the'Appellant's Attorney-at-law informed the Respondent that she had. become the owner of the premises by virtue of the aforesaid gift, andcalled upon the Respondent to attorn, and to pay the rent, to her.That letter also stated that “this state of affairs, I understand, hadbeen intimated to you by the previous owner…. by registered post onor about 9th [November] 1974”, an obvious reference to the letterand statement of particulars sent on 9.11.74. There is an apparentinconsistency, in that the former required the rent to be paid to thebrother-in-law whereas the latter required payment to the Appellant,but this was in no way the cause of the Respondent’s failure to payrent. A payment to the brother-in-law would have been a validdischarge of the obligation to pay the Appellant; and a simple inquirywould have settled any real doubt on that score. To this theRespondent’s reply was “without prejudice to my rights under theprovisions of the Rent Act No 7 of 1972 and the Ceiling on Housing
Seelawathie v. Ediriweera (Fernando, J.)
Law, I acknowledge the receipt of your letter.”
It became clear in the course of the trial (and the Court of Appealso held) that the premises were not vested under the Ceiling ohHousing Property Law; the owners were thus free to sell or otherwisealienate the premises. An application by the Respondent for thepurchase of the premises under that Law was pending, but it was notcontended , before us that those proceedings in any way restricted theright of the owners to alienate the premises.
The Appellant’s Attorney-at-law, by letter dated 29.3.v75, gavenotice to quit on the ground of arrears of rent (for a period in excessof three months), requiring the Respondent to. deliver vacantpossession on 15.7.75. The Respondent’s reply was, firstly, that “the
housewas vested with the Commissioner of Housing, and
therefore I have no dealings with your client”, and secondly, that “asthe previous owners had charged excess rent”, I am not obliged topay rent till that sum is covered in full”. There was no unequivocalrefusal to have dealings with the Appellant, or to recognise her aslandlord; such refusal was based on the premise, that theCommissioner had become the owner. Further, the refusal to payrent (presumably, to the new owner) was for the reason that excessrent had been charged, thereby implying that rent would have beenpaid had no excess rent been charged, or after such excess hadbeen set off in full.
The issue which arises for decision in this appeal was framed thusat,the trial –
“Did the [Respondent] become a tenant of the [Appellant] aspleaded in para C of column 1 of the plaint ?”
In paragraph C it was averred that the Respondent was given duenotice of the transfer and therefore by operation of law theRespondent became the tenant of the Appellant qn the terms,of amonthly rental. The learned trial Judge answered this issue in thenegative, and held also that the original'landlord had not lawfullyterminated the tenancy, and that the Appellant had not succeeded tothe rights and obligations of the original landlord. The reasons givenby him were not considered to be acceptable by the Court of Appeal:
that the statement under section 37 of the Rent Act referred tothe brother-in-law as the person entitled to receive rent: as the Court
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of Appeal observes, this “does not make [him] the landlord . . . onlythe agent of the landlord to collect the rents due to the landlord";
that there were discrepancies in regard to the quantum of rentclaimed by the Appellant: the Court of Appeal points out that theRespondent could have discharged her obligation by paying theauthorised rent;
that there were discrepancies in regard to the commencement ofthe tenancy, and the date from which the Respondent was in arrears:the original tenancy commenced on 15.3.64, and the Court of Appealwas of the view that the new tenancy, if any, commenced on 15.6.74(upon the expiry of the monthly tenancy which was in operation whenthe transfer took place on 18.5.74). However, I incline to the view thata new tenancy could have commenced only on 15.11.74, after thetenant had notice of the transfer, and as at 15.3.75 rent had not beenpaid for four months;
that- the Respondent had not been duly informed of. the changeof ownership with relevant particulars, and that the transfer to theAppellant amounted to “an eye-wash": the Court of Appeal held thata donee from the landlord is in the same position as a transferee,arid, that the Rspondent had adequate notice of the transfer.
The Court of Appeal held that the existence of privity of contractbetween the Appellant and the Respondent is a pre-requisite to theAppellant’s cause of action; that the Respondent, though sheremained in occupation of the premises with adequate notice of thetransfer, cannot be presumed or regarded as having attorned to theAppellant, since she refused to attorn; that in Naidu v Mudalige (1)the (former) Cpurt of Appeal held that “mere continuing of occupationon the part of a tenant after notice of transfer by his landlord withoutmore does not suffice to constitute an attornment”; that no privity ofcontract has been established between the Appellant and theRespondent, and accordingly the Appellant’s- action wasmisconceived.
Learned President's Counsel appearing for the Respondentcontended that the Respondent had expressly refused to accept theAppellant as the landlord, and had not agreed to'pay .rent to her; thatprivity of contract had not been established between the parties; andaccordingly, there being no relationship of landlord and tenantbetweeri them, the Appellant was not entitled to maintain an actionfor rent and ejectment, although. possibly – but this he did not
Seelawathie v. Ediriweera (Fernando,' J.)
concede — the Appellant''may have been entitled to maintain anaction based on title.
We were not referred to any provision of the Rent Act which dealtwith the rights inter se of a tenant vis-a-vis a transferee from thelandlord, and the arguments proceeded on the basis of the commonlaw principles.
Different aspects of the question of law that arises here have beendiscussed in numerous decisions of this Court, and apart from threedecisions which are referred to later in this judgment, these decisionsappear to be self-consistent and consistent in principle, and establishthe following principles.
Under the Roman Law, the sale of the leased premises by thelandlord terminated the lease (unless it had been stipulated in thecontract of sale that the lease should remain in force); the purchasercould eject the tenant, whose only remedy was an action on thecontract against his landlord. The Roman-Dutch law adopted adifferent principle, that “hire goes before sale”: David Silva vMadanayake (2) and Silva v Silva (3). A passage from Wille,Landlord and Tenant in South Africa, has been cited in the latter case
“A purchaser from the landlord of the property leased steps intothe shoes of. the landlord, and receives all his rights andbecomes subject to all his obligations, so that he is bound to thetenant, and the tenant is bound to him, in the relation of landlordand tenant.” y
However, this is not an automatic consequence of the transfer. Boththe transferee and the tenant have options: whether to permit therelationship of landlord and tenant to exist between them.
The same principles apply, whether it is a sale or a sale inexecution: Perera v de Costa (4) and Morris v Mortimer (5), or, as inthis case, a donation: Silva v Muniamma (6), Zackariya v Benedict(7) and Perera v Padmakanthi (8).
Thus the purchaser has the option, as against his vendor, to insiston vacant possession (or in the alternative to claim rescission of thesale) or to take possession, with the tenant in occupation – subject tothe tenant’s option. Where the purchaser opts for the former course,the occasion for the exercise of the tenant’s option does not arise:the relationship of landlord and tenant as between vendor and tenant
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continues, and the vendor alone can take steps to terminate thetenancy and eject the tenant in terms of the contract: Wijesinghe vCharles (9); Fernando v Appuhamy (10); de Alwis v Perera (11); deSilva v Abeyaratne (12); Mohamed v Singer Sewing Machine Co(13). Where the purchaser opts to take possession with the tenant inoccupation, then –
“The lessee had the option of cancelling and surrendering thelease and pursuing his remedy upon his contract against hislandlord, or of retaining occupation of the property in terms ofhis lease against the purchaser. But in the event of his pursuingthe latter course, he was under an obligation to pay rent to the
purchaser and also to perform all the other obligations due
by him as a tenant to his landlord. The option [or] privilege thatthe tenant had to decide whether he would become a tenant ofthe purchaser consisted in this, that it was open to him to cancelor surrender the lease if he did not desire to become a tenant ofthe purchaser. Where he chose to continue in possession astenant of the premises, it does not appear to me that he hadany right to refuse to pay rent or to fulfil the other obligations ofa tenant to the purchaser." (David Silva v Madanayake,(2)) perSamerawickrame, J. at 399.”
The crucial matter for decision in this appeal is whether a tenantwho remains in occupation of the rented premises, after receivingnotice of the transfer and of the purchaser’s election, has therebyexercised the option to become the tenant of the purchaser; orwhether a tenant is entitled, while continuing to remain in occupation,to refuse to accept the purchaser as his landlord. Gratiaen, J., in deAlwis v Perera (11), Sansoni, J., (as he then was) in Silva vMuniamma (6), and de Silva v Abeyaratne (12), K.D. de Silva, J., inPerera v de Costa (4), and Samerawickrame, J., in David Silva vMadanayake (2) all appear to be of the view that “a tenant whoremains in occupation with notice of the purchaser’s election torecognise him as a tenant" may legitimately be regarded as havingexercised his option to acknowledge the purchaser as his landlord,and thus to establish privity of contract between them. (Thesedecisions have been cited with approval, more recently, in Perera vPadmakanthi (8), and Subramaniam v Pathmanathan (14). If thetenant does not wish to acknowledge the purchaser as his landlord,he must give up the. tenancy and quit the premises, for –
“If he refuses to continue as tenant, his first duty is to quit the
Seelawathie v. Ediriwaera (Fernando, J.)
premises. If he chooses to stay in occupation he remains thereas tenant ((12) at 575).
In Sabapathipillai v Ramupillai (15), Weerasooriya, J., held that atenant who received notice of the purchaser’s election to recognisehim as tenant cannot be heard to say that he did not attorn to thepurchaser if he continued to be in occupation without informing thepurchaser that he did not elect to attorn to him. However, he did notdiscuss the case of a tenant who, without remaining silent, expresslyrefuses to recognise the purchaser – which was the position in DavidSilva v Madanayake (2). There the tenant' had claimed that hiscompany, and not he, was the tenant; it was held that an action onthe tenancy, for the ejectment of the tenant, was maintainable. InFernandes v Perera (16), the purchaser called upon the tenant toattorn and pay rent to him: the tenant, claiming that he had been thetenant of another person for many years, refused to attorn unless thepurchaser obtained that person’s consent to the payment of rent tothe purchaser. Following David Silva v Madanayake (2) it was heldthat, despite this refusal to pay rent to the purchaser, the tenant hadbecome the tenant of the purchaser by operation of faw. Mensina vJoslin (17) is similar.
There is thus a long and authoritative series of decisions to theeffect that continuance in occupation by the tenant (with notice of thetransferee’s election to recognise the tenant) constitutes an exerciseof the tenant’s option to acknowledge the purchaser as landlord,establishing privity of contract between the parties. No other act orconduct is necessary. I hold that the Respondent became the tenantof the Appellant on 15.11.74, upon the expiration of the monthlytenancy that was in force at the time she received a letter dated
and the statement under section 37 signed by the Appellantas landlord, indicative of her election to recognise the Respondent astenant; and the Appellant was entitled to maintain this action againstthe Respondent, for rent, damages and ejectment, upon her failure topay rent.
It is necessary to refer to-three decisions, which are to some extentinconsistent with the decisions referred to above. In Zackariya vBenedict (7) the tenant refused to pay rent to the transferee, andeven questioned the validity of the transfer; an action for rent andejectment was held not to be maintainable. This decision was notfollowed in Perera v de Costa (4) and was doubted in Silva v
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Muniamma (6); Fernandes v Perera (16) is totally inconsistent with it.
Observations in Naidu v Mudalige (1) that “mere continuing ofoccupation …. without more” does not constitute anacknowledgement of the transferee as landlord, cannot be regardedas part of the ratio of that case. The landlord had informally agreedto sell the rented premises to the tenant, who then paid an advance;some months later, a firm of proctors wrote to the tenant that thedeed of transfer in his favour could be executed, and requestedpayment of the balance purchase price. The same day, the premiseswere sold to the plaintiffs. The aforesaid firm was purporting to lookafter the interests of both the landlord and the plaintiffs, but made nomention of any sale or proposed sale. Six months later, the firminformed the tenant of the transfer, and that the new owners hadconsented to an extension of time for the payment of the balancepurchase price; the tenant paid within the stipulated time. In thesecircumstances, no question of attornment arose: the tenant'soccupation of the premises, after notice of the transfer, was not astenant under the new owners, but as a prospective purchaser. Therewas a fresh agreement between the new owners and the formertenant, which transformed the character of the latter’s occupation;and the latter duly complied with the stipulated condition as to thepayment of the balance purchase price. There was thus nooccupation qua tenant, and no tenancy, and an action for rent andejectment could not be maintained.
Weeramantry, J., in Fernando v Wijesekera (18) defined theprecise meaning of “attornment” and went on to consider whetherthe continued existence of the original contract of tenancy is anecessary consequence of attornment (at page 115); however, herefrained from deciding any question as to the manner in which thetenant’s option is to be exercised, or the creation of. privity ofcontract, and rested his decision on the finding that the purchaserand the tenant had negotiated a new agreement.
In Fernandes v Perera (16) and in Mensina v Joslin (17), it washeld that in these circumstances the transferee is not entitled to bringa vindicatory action or an action for declaration of title, although inthe latter case the tenant had disputed the transferee’s title; however,it is not necessary for me to express any opinion on the questionwhether the transferee is entitled, either in addition or alternatively, toclaim relief based on title.
Seelawathie v. Ediriweera (Fernando, J.)
I allow the appeal, and set aside the judgments and decrees ofboth Courts below, with costs throughout.
The learned District Judge, having held that the Respondent didnot become a tenant of the Appellant, considered it unnecessary toanswer other issues which related to the period in respect of whichthe Respondent had failed to pay rent, and the amount payable asrent. Since all the relevant evidence was available, findings of factshould have been reached on these issues, obviating the peed for afresh trial if an Appellate Court came to a different conclusion on thelegal issues. In the circumstances of this case, I do not propose toremit this case to the District Court for the determination of thoseissues, as it is quite clear that the Respondent did not pay rent, eitherto the Appellant or her predecessors in title, after 9.11.74. Althoughthere was some dispute as to the quantum of the rent, according tothe plaint the authorised rent was Rs 96/58 per mensem (in 1974),and Rs 100/27 per mensem (in 1975), and the Court of Appeal hasheld that the authorised rent was Rs.96/58 according to the extractsfrom the Assessment Register. The Respondent did not contend fora lower figure, and it was not contended before us that theRespondent had the right to claim a set-off of the amount, if any,which she had overpaid to the Appellant’s predecessors in title: TheCourt of Appeal also held that the original tenancy commenced onthe 15th of the month, and that the new tenancy, had there beenone, would have run from the 15th of each month. On that basis, theAppellant will be entitled to a decree for –
ejectment of the Respondent as prayed for in her amendedplaint;
a sum of Rs 1,296/13, on account, of arrears of rent from
and damages upto date of plaint (15.12.75), and damagesat the rate of Rs 100/27 per mensem thereafter until vacantpossession of the premises is delivered to her; and
DHEERARATNE, J. – I agree.
RAMANATHAN, J. – I agree.