PROPERTY BAR ASSOCIATION
CONFERENCE 2008
WORKSHOP SESSION B
WORKSHOP 3
LEASEHOLD ENFRANCHISEMENT
CURRENT CONTENTIOUS ISSUES
PHILIP RAINEY
1
INTRODUCTION
This set of notes is arranged as a set of numbered issues of current interest *
The workshop will work best as an interactive session and the notes raise as many
questions as they answer.
At 10-15 minutes per issue, time will probably not permit all the topics to be addressed,
so I propose a democratic decision among attendees as to the batting order.
It is possible that between the date of preparation of these notes and the date of the
conference the Lands Tribunal will give its decision in the Nailrile v Cadogan appeals; if
so then it may be profitable to devote some of the workshop time to a consideration of
that decision.
Philip Rainey
31-10-08
* Self-awareness check: “interesting” strictly in the subjective context of enfranchisement
2
LIST OF ISSUES
1.
Lease terms after Howard de Walden Estates v Aggio
2.
Right to acquire leasehold interests in collective enfranchisement
3.
What suffices for personal signature of s.13 and s.42 notices?
4.
Permanent Rights over “common use property”
5.
Redevelopment after Majorstake v Curtis
6.
Competing 1967 Act, 1987 Act and 1993 Act claims
3
ISSUE 1 – LEASE TERMS AFTER AGGIO
Howard de Walden Estates v Aggio [2008] 3 WLR 244
The issue
The issue was as to whether “head-tenants”, or more accurately, tenants holding leases of
whole buildings (or substantial parts of buildings) had rights under Chapter II of the Act
to claim a new lease of any and all flats “in hand” i.e. not sub-let to a qualifying tenant.
The facts
There are three factual situations worth mentioning:
(1) Maurice v Hollow-ware: head lease of a building, comprised 28 flats and common
parts, none sub-let on a long lease. Tenant claimed 28 new leases. Claim succeeded.
This set of facts is the most extreme.
(2) Aggio: head lease of a building, comprised 5 flats and common parts, 3 sub-let on a
long lease, 2 not. Tenant claimed 2 new leases.
(3) 26 Cadogan Square (the appeal heard with Aggio): lease of a building (excluding
small areas of the ground floor and basement), comprised offices on the lower floors and
a maisonette occupying the whole of the 3rd, 4th and 5th floors, together with common
parts and a substantial rear yard used for parking. No part sub-let on a long tenancy.
Tenant claimed 1 new lease of the flat.
The result
In each case, the tenant’s claims succeeded. Aggio approved the decision in Maurice v
Hollow-ware Products [2005] 1 EGLR 71 and (save on the subsidiary issue of deposits)
reversed the decision of the Court of Appeal [2008] Ch 26 in Aggio which had held that a
tenant was only a qualifying tenant if the lease comprised only a flat or flats (including
any appurtenant property).
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In short, in order to be a qualifying tenant, the lessee simply has to establish that:
(1) The lease includes a flat;
(2) The lease is a long lease which includes (all of) the flat.
So it does not matter what else is demised the lease. To take an extreme but factual
example: as we all know, most of Belgravia was let on a 200 year lease by the Trustees of
the Will Trust of the late Second Duke of Westminster to a company, Grosvenor Estate
Belgravia (“GEB”). Although many properties have been enfranchised, many have not.
The effect of Aggio is that GEB is – or will be from time to time – the qualifying tenant
of any flat within the demise of the Belgravia head-lease which falls into possession.
Lease terms in head-lease claims
“Conventional wisdom” was that the head-lessee who sought lease extensions would
obtain a fairly standard tenancy of a flat. The usual modern form of lease demises the
interior to the tenant, with the structure and exterior of the block retained by the landlord.
Repair costs are then met through service charge.
This may be advantageous to the tenant because the landlord is liable for disrepair to
retained parts even without notice: see for example O’Brien v Robinson [1973] AC 912.
The tenant’s service charge liability is these days fairly well protected by the Landlord
and Tenant Act 1985 as amended most recently by CLRA 2002 and prospectively by the
Housing and Regeneration Act 2008. So much so that it may have gone too far: in a
lecture to the Chancery Bar Association, Guy Featherstonehaugh QC listed 5 advantages
of Commonhold, one of which was that commonhold assessments are not subject to the
same controls.
This “conventional wisdom” was one of the planks of the landlords’ argument in Aggio:
that it was wrong to impose on the freeholder such burdens when the deal – as reduced to
writing in the head-lease – was that the head-lessee was responsible for the upkeep of the
building. This point was stark in the 26 Cadogan Square case: as noted earlier, in that
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case the lease did not include a small area of ground floor and basement. The headlessee’s repairing and insurance covenant nevertheless extended to the whole building, so
there was included in the lease a service charge payable by the freeholder to the headlessee in respect of those obligations.
The argument was related to another argument advanced by the landlords: that the
integrity of the covenant structure would be wrecked if the head-lessee was allowed to
obtain a lease extension of flats in hand. (It helps to keep in mind that there is no
surrender and re-grant of the head-lease pursuant to paragraph 10 of Schedule 11 in this
situation – the new lease is held directly of the freeholder and any landlord’s covenants
will fall to be performed by the freeholder).
When this point arose in argument before their Lordships, Lord Hoffmann’s reaction was
“Why would that be so?”
This response was developed in Lord Neuberger in his speech, with which the other
members of the House agreed.
At para.[60], Lord Neuberger pointed out that there are two relevant periods: (1) the
period prior to expiry of the existing head lease and (2) the period thereafter:
-
In respect of period (1) Lord Neuberger held that “at least in the normal case” the
new lease will place no repairing obligation on the freeholder and there will be no
service charge.
-
In respect of period (2) Lord Neuberger said that “presumably” the new lease
would normally provide for the freeholder to repair the structure and exterior with
an appropriate service charge.
-
This two stage approach would “generally be the right course” (para.[62])
Lord Neuberger’s reasoning was partly explained in paras.[61] and [63]. Lord Neuberger
assumed that the new lease would normally be in a modern form which did not include
any of the structure and exterior, which would therefore be retained in the existing head-
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lease (para.[63]).
The head-lessee’s covenant with the freeholder to maintain the
structure would therefore subsist, and so it made no sense if the new lease included a
covenant by the landlord – the freeholder - to maintain that same structure (para.[61]). It
could be circular – head-lessee in the guise of tenant under new lease sues freeholder,
who in turn sues head-lessee.
At para.[62], Lord Neuberger then adverted to the possibility that the freeholder might be
content to agree some different approach, or where “because of special facts” the LVT
considered it appropriate that the new lease contained obligations on the part of the
freeholder.
Lord Neuberger then added (para.[63]) that if the demise of the new flat was not as he
had assumed, and did include the external structure, then the answer would be different
as, he thought, the structure would then be removed from the head-lessee’s existing
obligations to the freeholder. In that case, Lord Neuberger considered that the new lease
“could” impose on the new lessee the structural repairing obligations “until the headlease expires”.
Discussion
There are a number of points which arise from this:
(1) The Lords’ observations may, or may not, be binding precedent. One could have
an interesting debate as to the extent which they are part of the essential
reasoning, the ratio descidendi – but whether or not these observations are ratio it
would be a courageous* LVT which ignored unanimous observations of the
House of Lords. *(in the “Yes Minister” sense)
(2) The judgment is somewhat tentative: note the “at least in the normal case”;
“presumably”; “could”. Only time will tell how successfully LVTs, and the
Lands Tribunal, will grapple with the problems;
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(3) Lord Neuberger did not explain what “special facts” might lead to a conclusion
different to his solution which would “generally be the right course”. The “expert
and adept” LVTs will have to work this out for themselves;
(4) In what circumstances will it be appropriate to demise the external structure with
the new lease? In 26 Cadogan Square itself, this form of lease has been proposed
by the landlord. There is only one flat, which occupies the top 3 floors of the
building, the 5th floor being in the roof.
However, this is apparently not
acceptable to the head-lessee and further litigation through the LVT is in prospect;
(5) This issue is symptomatic of another difficulty which the Lords brushed aside:
exactly how do you define the demise when there is no pre-existing “flat only”
demise? It is true that the same issue may arise in part-acquisition of leaseholds
under section 2 and, as Lord Neuberger noted at para.[46], in respect of leasebacks under Schedule 9, but that does not make the issue any easier to resolve.
(6) The “normal case” new lease will for the period prior to expiry of the head-lease
include no freeholder’s covenants apart, presumably, from a covenant for quiet
enjoyment. Will this be acceptable to mortgage lenders? One would expect not.
(7) The head-lessee will presumably have to grant an express covenant to any
purchaser of the new lease (it cannot be done sooner because a party cannot
covenant with itself: Rye v Rye). Will this be acceptable to mortgage lenders?
Will head-lessees argue at the LVT that it will not be acceptable in an effort to
displace the “normal case”?
(8) Assuming that all covenants can be dovetailed, how marketable will these unusual
leases prove to be? Will conveyancers acting for purchasers advise their clients to
steer clear (or seek a price reduction)?
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Appurtenant Rights
Another point which the Lords had to consider in Aggio was that a head-lease of a
building will not include appurtenant rights for the flats (e.g. rights over common parts),
because those parts are demised within the same lease. Allied to this is a second point: if
the new lease is a new lease of a flat only, it will not include the demised common parts,
so rights will be needed, but the competent landlord cannot grant those rights because of
the subsisting head-lease.
NB: one “solution” which had to be avoided is a grant of appurtenant rights from some
future date. This is likely to be void by reason of s.149(6) of the Law of Property Act
1925.
Lord Neuberger’s short answer was that, as the head-lease will continue to demise all
common parts, the new lease will contain no immediate appurtenant rights (para.[57]).
The new lease will contain rights enforceable once the head-lease has expired. This in
effect means an immediate grant of easements and other rights by the freeholder, but (for
the time being) in reversion to and subject to the head-lease.
To the difficulties in assigning in such a lease, Lord Neuberger suggested practical
solutions at para.[58]: (a) grant of an underlease and (b) express grant of easements and
appurtenant rights by the head-lessee to any third party purchaser of the new lease.
Discussion
Again one may question the marketability and/or mortgageability of this unusual form of
lease.
However, it is not simply a question of how such rights are dealt with in conveyancing
terms. First, how does one identify what the “appurtenant rights” are? For instance, in
26 Cadogan Square, there was a rear area used for parking. Could the claimed new lease
9
include a demise of a space? Or all of the rear area? Or should it include only a right to
park? One car or two?
At para.[65] of his speech, Lord Neuberger suggested that it would be necessary to
inquire what rights the occupiers of flats had over the parking area. If they had an
allotted space, then, it was suggested, “…the right to park in that space would no doubt,
at least frequently, be granted with the new lease.”. If the right to park was of the more
general sort – a right to park within a defined car park area if space available, that would
be reflected in the new lease – “…no doubt subject to appropriate limitations and
qualifications as the LVT thought fit…”. Lord Neuberger echoed an observation made by
Millett LJ in Cadogan v McGirk that “Parliament cannot sensibly have intended to
distinguish between a right to make use of a storage or other space and an actual demise
of the space.”
With respect, that citation was taken out of context and does not address the issue: in the
case of a head-lease, the area in question will always be demised. That is the point. We
know the area is demised by the head-lease, the question is whether it should be demised
by the new lease of the individual flat, which in turn depends on whether it is appurtenant
to the flat.
Lord Neuberger’s direction to investigate the “rights” of the occupier has to be viewed in
the context that the “occupier” must by definition have a lease of less than 21 years. It
could be a much less significant interest - possibly he has only an AST, as was the case of
the occupier of the 26 Cadogan Square flat. Is it to be supposed that the head-lessee can,
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by virtue of its choice as to how to frame an AST, pre-determine whether the new
lease(s) of flat(s) include for example parking rights, and if so what form of parking
right? In the case of 26 Cadogan Square, it should be noted that the parking is shared
between the flat and the offices.
To take a more extreme example: suppose a head-lessee with a flat in hand arrogates to
that flat 20 spaces, and includes them all in a short term tenancy. Do those spaces
become appurtenant to that one flat? Surely not. But if not, this suggests that the search
for the “appurtenant rights” which should go with the new lease must extend beyond
simply querying the rights of the occupier from time to time. Perhaps this is what Lord
Neuberger had in mind when he qualified his general propositions as to what was
included with the lease.
Terms of new leases more generally
In Gordon v Church Commissioners (25/5/07, LT, unreported) the LT heard an appeal
concerning the ambit of s.57(6) of the 1993 Act. The LT (HHJ Huskinson) held that
s.57(6) was comparatively narrow in scope and that:
“…there is no power under section 57(6) for a party to require that there is added into
the new lease a new provision which is not to be found in the old lease.” (decision para
[41]).
The LT also held that in any case a lease could only be considered to contain a “defect” if
it could objectively be said to contain a defect viewed from the standpoint of both a
reasonable tenant and a reasonable landlord. The effect of these findings taken together
11
is significantly to cut down the s.57(6) jurisdiction and many LVT decisions to be found
on the LEASE website might be decided the other way if the facts were to arise again.
However, the status of Gordon v Church Commissioners may now be in doubt in the light
of various observations of Lord Neuberger in Aggio:
-
para.[48] (in the context of the changes required to a head-lease to make it
suitable to be a lease of a single flat): “…I do not accept the argument that such
alterations would be outside the normal meaning of “modification”, either
because they would involve additions or because they could be fairly radical.”
-
para.[49]: “Section 57(6) also indicates that the LVT was intended to have
relatively wide powers.”.
-
Section 57 as a whole was described in para.[62] as conferring “a wide
discretion” on the LVT.
Discussion
That first observation would appear to be directly in conflict with the passage from HHJ
Huskinson’s decision in Gordon quote earlier. It may therefore be that the effect of the
Aggio decision is wider than simply in relation to head-lease claims. It may loosen the
strait-jacket imposed by Gordon on the s.57(6) jurisdiction, at least to the extent that
proposed alterations cannot be rejected simply on the basis that they are “too radical” or
involve adding new terms.
In conclusion
Just how serious the difficulties in determining the terms of the “probable” new lease “in
the normal course” will turn out to be remains to be seen. If the difficulties prove to be
serious and widespread, then the observation of Lord Neuberger at para.[58] may be
apposite:
12
“…the slightly cheap point that this would be a problem which the head lessee had
voluntarily brought on himself…”
13
ISSUE 2
RIGHT TO ACQUIRE LEASEHOLD INTERESTS
S.2 of the LRHUDA 1993:2(1) Where the right to collective enfranchisement is exercised in relation to any
premises to which this Chapter applies ("the relevant premises"), then, subject to and in
accordance with this Chapter
(a) there shall be acquired on behalf of the qualifying tenants by whom the right
is exercised every interest to which this paragraph applies by virtue of
subsection(2); and
(b) those tenants shall be entitled to have acquired on their behalf any interest to
which this paragraph applies by virtue of subsection(3)….
(2) Paragraph(a) of subsection(1) above applies to the interest of the tenant under
any lease which is superior to the lease held by a qualifying tenant of a flat
contained in the relevant premises [i.e. intermediate leasehold interests]
(3) Paragraph(b) of subsection(1) above applies to the interest of the tenant under
any lease(not falling within subsection(2) above) under which the demised
premises consist of or include)
(a) any common parts of the relevant premises, or
(b) any property falling within section 1(2)(a) which is to be acquired by
virtue of that provision, [freeholds outside the relevant premises]
where the acquisition of that interest is reasonably necessary for the proper
management or maintenance of those common parts, or(as the case may be) that
property, on behalf of the tenants by whom the right to collective enfranchisement
is exercised
(4) Where the demised premises under any lease falling within subsection(2)
or(3) include any premises other than(a) a flat contained in the relevant premises which is held by a qualifying
tenant,
(b) any common parts of those premises, or
(c) any such property as is mentioned in subsection(3)(b), [freeholds
outside the relevant premises]
the obligation or(as the case may be) right under subsection(1) above to acquire
the interest of the tenant under the lease shall not extend to his interest under the
lease in any such other premises
Common parts:
14
s.101(1) (which is the same as s.60(1) of the LLTA 1987 for what that is worth)
“ “common parts”, in relation to any building or part of a building, includes the
structure and exterior of that building or part and any common facilities within it”
Discussion Point 1: the obligation to acquire intermediate leases
s.2(2) obliges the tenants to acquire intermediate leases. S.2(3) by contrast permits, but
does not require, acquisition.
Can the parties contract out of s.2(2)? Bear in mind that the elimination of intermediate
leasehold interests was a deliberate part of the scheme of the Act.
What is the position if the s.13 notice does not claim a s.2(2) lease – or claims only part
of a s.2(2) lease? Can the LVT direct acquisition of an interest greater than specified in
the claim? Or does the county court have to give permission to amend the s.13 notice to
include the leasehold which was omitted?
Does it make any difference if the s.2(2) lease is held by a landlord who was not
otherwise served with, or served with a copy of, the s.13 notice?
Discussion Point 2: The ability to acquire common parts leases is enhanced if the
lease is also intermediate
S.2(2) applies to any lease which includes a flat held by a qualifying tenant – it applies to
the entire lease. S.2(4) makes this clear.
But s.2(2) is not attended by the controlling words which appear at the end of s.2(3). It
appears therefore that there is an absolute right to acquire common parts if they are let
under a lease which is caught by s.2(2).
It goes further – logically, it is an obligation to acquire those parts.
Discussion Point 3:severance
15
s.2(4) plainly may require severance of the leasehold interest to be acquired.
How is the severance to be determined ? Specifically, how are the boundaries to be
drawn between the part of the lease to be acquired and the part to be retained?
Discussion Point 4: severance revisited
Where it is s.2(3) which applies, can tenants elect to seek to acquire something less than
the full extent of a leasehold interest to which s.2(3) applies; for example some common
parts but not others which have development value for which the tenants do not wish to
pay?
Discussion point 5: caretaker’s flats
In McGuckian’s appeal, 29 Eaton Place (3/1/08 unreported) the Lands Tribunal decided
that where a caretaker’s flat is held in right of a head-lease, the participating tenants have
no right to acquire it. This is because s.2(4)(a) of the 1993 Act excludes the right to
acquire a flat not held by a qualifying tenant. Contrary to what is sometimes said, this
result does not depend on the Aggio decision in the Court of Appeal and is not reversed
by the Lords’ decision: as explained in Hague 2nd supplement at 20-08, s.2(4)(a) is the
mirror of s.2(2) and so there is no “qualifying tenant” in context where the head-lessee is
the qualifying tenant (that was also the finding of the LVT, decided prior to the Court of
Appeal decision in Aggio). The LVT got round this by holding that a caretaker’s flat was
nevertheless a “common part”, but the LT disagreed, principally because for s.4 purposes,
an area of a building cannot be both “residential” and “a common part”.
Is McGuckian’s appeal right in law (it was unopposed on appeal)? If not why not?
If it is right in law, is amendment of the Act required?
16
If so, does the amendment need to be wider than the intermediate lease situation – if there
is no head-lease in a block, and a caretaker’s flat is simply retained in the freehold, is the
freeholder not by right entitled to a lease-back under Schedule 9?
Discussion Point 6: what is a “common part”?
Marine Court (St Leonards on Sea) Freeholders Ltd v Rother District Investments Ltd
[2008] 02 EG 148:
-
commercial common parts, over which residents had no rights, were nonetheless
“common parts” for the purposes of s.4
-
caretaker’s rest room, paint shop and workshop = common parts
-
basement plant, equipment and service rooms = common parts
-
electricity sub-station – not a common part, rather a non-residential use by the
electricity company
Sussex Gardens Freehold Company Ltd v The Van Hor Property Investment Company
Limited (LVT, 12/12/05, unreported):
-
semi-derelict basement areas, including a boarded up former caretaker’s flat, were
not common parts.
McGuckian:
-
a caretaker’s flat is not a common part.
-
No residential area can be a “common part”.
What about roof voids / flat roofs?
-
Yes, these are common parts according to the LVT in Meadowside Freehold v
Shellpoint Trustees (LVT 20/5/2005 unreported) and the deputy adjudicator in
Kintyre v Romeomarch [2006] 1 EGLR 67.
-
But not common parts according to the more recent LVT decision in Forman v
Timro Investments (LVT 25/1/08 unreported). Meadowside and Kintyre are not
mentioned in the decision.
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Discussion point 7: What is a “common facility”?
Not an expression explored in the case law to date. Presumably it is meant as an
extension of “common parts”, but extension to what?
Discussion Point 8: what is meant by reasonably necessary for the proper
management or maintenance of those common parts?
What is the significance (if any) of the formulation “those common parts”?
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ISSUE 3
PERMANENT RIGHTS OVER “COMMON USE” PROPERTY
1. -(1) This Chapter has effect for the purpose of conferring on qualifying tenants of flats
contained in premises to which this Chapter applies on the relevant date the right, …, to
have the freehold of those premises acquired on their behalf….(2) Where the right to collective enfranchisement is exercised in relation to any such
premises ("the relevant premises")(a) the qualifying tenants by whom the right is exercised shall be entitled… to
have acquired, in like manner, the freehold of any property which is not
comprised in the relevant premises but to which this paragraph applies by virtue
of subsection(3); ….
(3) Subsection(2)(a) applies to any property if [ ] at the relevant date either(a) it is appurtenant property which is demised by the lease held by a qualifying
tenant of a flat contained in the relevant premises; or
(b) it is property which any such tenant is entitled under the terms of the lease of
his flat to use in common with the occupiers of other premises(whether those
premises are contained in the relevant premises or not).
(4) The right of acquisition in respect of the freehold of any such property as is
mentioned in subsection (3)(b) shall, however, be taken to be satisfied with respect to that
property if, on the acquisition of the relevant premises in pursuance of this Chapter,
either(a) there are granted by the [person who owns the freehold of that property](i) over that property, or
(ii) over any other property,
such permanent rights as will ensure that thereafter the occupier of the flat referred to
in that provision has as nearly as may be the same rights as those enjoyed in relation to
that property on the relevant date by the qualifying tenant under the terms of his lease; or
(b) there is acquired from the freeholder the freehold of any other property over
which any such permanent rights may be granted.
….
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(7) In this section"appurtenant property", in relation to a flat, means any garage, outhouse,
garden, yard or appurtenances belonging to, or usually enjoyed with, the flat;
"the relevant premises" means any such premises as are referred to in
subsection(2).
Section 21(3)(b) requires that the counter-notice specify such rights to be granted and
s.21(3)(d) requires specification of any rights to be reserved.
In Ulterra v Glenbarr RTE Co Ltd [2008] 04 EG 174, the LT (HHJ Reid QC) followed
its earlier decision in Shortdean Place v Lynari [2003] 3 EGLR 147 and decided that the
LVT has a discretion whether or not to order the transfer the freehold of the appurtenant
property in circumstances where the landlord offers permanent rights under s.1(4) of the
Act which are unsatisfactory. The LT emphasised that the extent of any reservations in
favour of the landlord are relevant to the issue as to whether the proposed rights are
satisfactory.
Shortdean at [63] cited in Ulterra at [8]
"In my judgment, if the permanent rights offered satisfy the test under section
1(4)(a)(i), the LVT had no power to determine that the freehold of the common use
property should be transferred to the nominee purchaser. Section 1(4) is in mandatory
terms: the right of acquisition of the freehold "shall, however, be taken to be satisfied"
if permanent rights to satisfy the subsection are granted by the freeholder. An LVT is
not bound to accept the proposals in a landlord's counternotice with regard to property
used in common. If the permanent rights offered do not satisfy the test in section l
(4)(a)(i), the tribunal has a discretion. If, however, the rights offered do satisfy the
test, section 1(4) requires that the right of acquisition of the freehold shall be satisfied
by the grant of the permanent rights and the LVT has no power or discretion to order the
transfer of the freehold of the land. It has determined the matters in dispute, and the
right of acquisition must be taken to be satisfied in accordance with section 1(4) of
the 1993 Act."
Does section 1(4) actually confer a discretion?
With all due respect to the Lands Tribunal, s.1(4) is drafted in terms which are
mandatory. It uses the word “shall”.
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Should there be a discretion?
It is strongly arguable that s.1(4) is in its present form, inadequate. No doubt it was
aimed at situations where, for example, several blocks may share communal grounds. If
the first block was entitled to acquire the freehold of the grounds as of right, the other
blocks would not be able to acquire any rights at all as the Act originally stood, because
the s.1(3) right used to be limited to freeholds in common ownership with the specified
premises.
However, this is no longer the case. Moreover, we have all seen cases where bad
landlords seek to retain useless areas of ground simply to make life difficult for the
tenants.
There is a good argument that there should be a flexible reasonableness test in section
1(4).
Is the LT’s workaround satisfactory?
The trouble with the LT’s approach is that it focuses on the proposals in the counternotice. It might be suggested that the law is reduced to a game – is the counter-notice
drafting good enough to invoke the mandatory terms of s.1(4), or not?
Is it not also odd that it would appear that the landlord can change his position, and offer
better rights if the tenant / LVT is dissatisfied (the parties are not constrained by their
notices if a matter is not agreed) but the LVT still apparently retains a discretion.
How is the discretion to be exercised?
If – as is likely – a landlord addresses any perceived deficiency in the rights offered by
offering further rights to remedy the deficiency, on what basis is the LVT to exercise its
discretion?
“Taking the notice in the round”
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It is perhaps harder to disagree with the LT’s view whether the s.1(4) rights are
satisfactory is question which needs to be addressed in the round, and specifically taking
into account such reservations as the landlord requires.
“Omnibus clauses”
One response to the Shortdean / Ulterra case law has been a growth in counter-notices
which include an “omnibus clause”; along the lines of :
“…the grant of [purportedly suitable rights] together with any such further rights as will
ensure that the occupiers of flats within the specified premises have permanent rights
which are as nearly as may be the same rights as those enjoyed by the qualifying
tenants…”.
Effective? If not why not? Is the LT in any position to rule such a clause to be
ineffective when the notion of a discretion which arises only if the counter-notice is not
considered satisfactory is itself a construct of case law?
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ISSUE 4
WHAT SUFFICES FOR PERSONAL SIGNATURE OF S.13 AND S.42 NOTICES?
s.99(5) of the 1993 Act:
“Any notice which is given under Chapter I or II by any tenants or tenant must -(a) if it is a notice given under section 13 or 42, be signed by each of the tenants, or (as
the case may be) by the tenant, by whom it is given and
(b) in any other case, be signed by or on behalf of each of the tenants, or (as the case may
be) by or on behalf of the tenant, by whom it is given.”
It appears to be settled law that in respect of a s.13 or s.42 notice signature by an agent of
the tenant does not suffice:
“The presence in paragraph (b) of the words “or on behalf of” signifying that an agent
may sign on behalf of the tenant is in marked contrast to the absence of those words in
paragraph (a). It accordingly follows that a notice under section 13 must be signed by the
tenant himself and cannot be signed by an agent; and there are two decisions, one in the
County Court (Viscount Chelsea v Hirshorn [1998] 2 EGLR 90), and one in the High
Court: (St Ermins Property Company v Tingay [2002] 3 EGLR 53) to that effect.”
(Cascades para.[7])
In Cascades and Quayside Ltd v Cascades Freehold Ltd [2007] EWCA Civ 1555
(Dyson and Jacob LJJ, Sir Peter Gibson) there were 174 flats. It emerged that those
acting for the lessees had circulated blank signature pages to each of the tenants, at a time
when the body of the s.13 notice had not been prepared. It was found that “Far less than
50 per cent of the tenants ever saw the initial notice, which was not in existence when the
vast majority signed the forms; nor did they know the purchase price proposed for either
the specified premises or the appurtenant premises, nor the deadline for the respondent
to serve a counter-notice”. The notice was stitched together subsequently. The CA
described this as “clumsy” and held the notice not validly signed, on the grounds that it
was in effect put together by an agent.
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Exactly what is permissible was unfortunately left undecided, so similar appeals appear
inevitable:
[19] “We were invited by counsel for the respondent to offer guidance for the benefit of
those who are faced with a similar situation of many participating tenants having to sign
the initial notice. For my part, I think it would be inadvisable for us to be proffering
general advice in this area. Each case must turn on its own facts. It is sufficient to say
that in this particular case it is quite clear that what was done was simply not adequate,
the initial notice not being in existence when most of the signature forms were signed,
and most of the participating tenants not having seen the initial notice nor a draft of it,
nor having been informed of the contents of it, so that those participating tenants were to
that extent left in the dark”.
Discussion
Let’s go where Sir Peter Gibson was loathe to tread.
acceptable?
What is, and is not,
What does each tenant in a collective claim need to see?
What changes can be made after the tenant has signed? (What if some tenants do not sign
up?)
What if a tenant who has signed up dies before the notice is served (I have had this
one…)?
Is it OK to for each tenant to sign a copy of the notice, to avoid circulating a single
original?
Surely the notice when signed by the tenants does not have to include the counter-notice
response date?
This debate may well involve consideration of what is a “signature” by an artificial
person such as a company. In City & Country Properties Ltd v Plowden Investments Ltd
[2007] L&TR 15 HHJ Reid QC held that what was required was execution in compliance
with section 36A of the Companies Act 1985 i.e. by seal, or by 2 directors/a director and
secretary.
Hague 2nd supplement describes that decision as “debatable”.
What about the position of persons who lack capacity? (raised, but not answered, in
Tingay)
24
ISSUE 5
REDEVELOPMENT AFTER MAJORSTAKE V CURTIS
Majorstake v Curtis [2008] 1 AC 787
The facts
The case concerned Boydell Court, split into two blocks A and B. Block A contained 60
flats on 11 floors. Block B contained 50 flats on 9 floors together with a caretaker’s flat,
storage and other communal facilities. The 8 upper floors each comprised 6 flats and
common parts.
Mr Curtis was the long lessee of a flat (flat 77) in block B and he served a s.42 notice. At
the date of the s.42 notice, his lease had less than 5 years unexpired. Majorstake gave a
counter-notice which relied on s.47(1), stating that it intended to redevelop by combining
Mr Curtis’s flat with the flat (flat 79) next door (i.e. on the same floor). By the date of
trial, this intention had altered and the ground for resisting the claim was based on an
intention to combine Mr Curtis’s flat with the flat (flat 74) below his (i.e. on the floor
below) to create a duplex apartment.
Lord Scott’s speech explains (at para.[11]) that as part of the work, there would be a
complete re-wiring, the installation of an internal staircase, and a number of new internal
walls. Both existing flat entrances would however be retained, the upper one being a fire
exit. Baroness Hale’s speech provides further details at para.[29]: explaining that the
work would involve reducing both flats back to a shell, cutting through a floor to create
an opening for a new staircase between them, installing the new staircase, replacing the
windows in both flats, constructing new internal walls, rewiring, laying new flooring,
installing four new bathrooms, a new kitchen, a new heating system and new false
ceilings and doors.
What was not in dispute
It was not disputed that:
25
(a) the landlord had the necessary intention;
(b) the proposed work could not be carried out without obtaining possession; and that
(c) the proposed works constituted “substantial works of construction”
That last concession may not me made in every case. Section 47 is plainly modelled on
section 30(1)(f) of the Landlord and Tenant Act 1954 and there is a significant amount of
case law as to precisely what is and is not “construction” and whether it is “substantial”.
Woodfall at para.22.112 has this to say: “The installation of wooden partitions and the
installation of wiring, plumbing, boilers or toilets are unlikely to be work of construction
at all” The cases of Barth v Pritchard [1990] 1 EGLR 109 and Marazzi v Globalgrange
[2003] 2 EGLR 42 are cited in support of this proposition. The works proposed in
Majorstake went rather further – the new staircase was plainly a structural alteration as
the floor would have to be cut – but the point is well illustrated nonetheless.
However, see Lord Scott’s speech at para.[18], discussed below.
The issues which were in dispute
The argument turned on the meaning of “the whole or a substantial part of any premises
in which the tenant’s flat is contained”
“Any premises in which the tenant’s flat is contained”
Lord Hope
[4] “the extent of the intended development is not determinative of the extent of “any
premises in which the flat is contained". The context indicates that the extent of those
premises does not depend on the intention of the landlord. On the contrary, it is
something to be determined objectively by examining the existing state of the building
within which the tenant’s flat is situated
[5] “Unless there is some other obvious subdivision within Boydell Court, the premises in
which the flat is situated would seem to me to mean the entire structure of Block B. But
each case must, inevitably, depend on its own facts.”
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Lord Scott
“I do not accept that it could possibly have been the Parliamentary intention that the
“premises in which [Flat 77] is contained” could consist of Flat 77 and a contiguous
flat, whether contiguous vertically or horizontally… a floor of Block B could not, in my
opinion, be described, for sections 45 or 47 purposes, as the “premises” in which each
flat on the floor was contained.” Para.[16]
“…“premises” refers, in my opinion, to a self-contained unit of which the subject flat
forms part. Thus adjoining houses in a row of terraced houses could be described as
“premises” in which each house was contained. And a house in which one or more flats
was contained could be described as the “premises” in which each flat was contained.”
Para.[16]… In my opinion… the “premises” in which, for sections 45 or 47 purposes,
Flat 77 is contained is Block B (para.[18])
Baroness Hale with whom Lord Walker agreed:“…it seems to me clear that “any premises in which the flat is contained” must be an
objectively recognisable physical space, something which the landlord, the tenant, the
visitor, the prospective purchaser would recognise as “premises". In common with Lord
Scott, I have little doubt that, if one asked a visitor, “in which premises is flat 77, Boydell
Court, contained?", the visitor would say “Block B". The visitor would not further subdivide the space. In a row of terraced houses, or in a pair of semi-detached houses, the
visitor would regard each house as the “premises". In a single block of flats with several
entrances leading to separate staircases, the visitor might also say “Block B” rather than
the whole building. Much would depend upon the physical facts on the ground….”
Para.[39]
Lord Carswell
“…I do not find it necessary to express a concluded opinion on the point, but I incline to
the view that a portion of a building may be intended, in order to give effect to the word
“any". One can envisage a situation where a landlord wishes to obtain possession of a
27
ground floor flat in order to carry out a scheme turning the whole of the ground floor,
hitherto let in flats, into a shopping development. I doubt if such a scheme could be ruled
out as being outwith section 47. It may also be necessary at some time to consider a
proposal to redevelop a vertical portion of a building divided like an Oxford or
Cambridge college into separate staircases. I do wish therefore to reserve my opinion for
further argument on the extent of the portion of a building which might be said to
qualify.” Para.[46]
Lord Carswell’s speech does not clearly identify what “any premises” was on the facts of
Majorstake. He appears to have been content simply to reject the landlord’s contention
that it was the two flats.
Discussion
The Law Lords (including on this point Lord Carswell) were all of the view:
(1) that “any premises” must be objectively ascertainable;
(2) that artificially defined “premises” do not meet the test;
(3) that in a block of flats, flats above and below each other could not be “any
premises”
Lord Carswell stopped short of expressing a concluded view, but the other Lords were all
agreed that on the facts “any premises” had to mean Block B at Boydell Court.
Where things become less clear is whether – on different facts – some lesser portion of a
building may suffice:
One floor of a building?
-
No, said Lord Scott
-
Probably yes, said Lord Carswell
-
View from the floor is…?
A vertical division within a building?
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- probably yes thought Baroness Hale and Lords Walker and Carswell
- perhaps, per Lord Hope
- probably not according to Lord Scott – unless the “division” is in substance a separate
building in ordinary parlance
-
View from the floor is…?
It should be appreciated that there is an interplay between defining “any premises” and
defining whether intended works are to a “substantial part” of those premises.
“a substantial part of [the premises]
As Lord Scott makes clear in his speech at para.[18], this issue was not addressed in the
county court or in the Court of Appeal. Lord Scott suggested that
In the expression “substantial works” the adjective “substantial” denotes, in my opinion,
works that are not trivial or, as one might say, insubstantial. There is no other yardstick
than impression. The issue is one of fact and degree. The same approach should, in my
opinion, be taken to the question whether Flats 74 and 77 constitute a “substantial” part
of Block B. They are two of the fifty flats in the Block. In percentage terms two out of fifty,
four per cent, does not sound substantial. I doubt, however, whether that is the right
approach. Each flat is a substantial item of property, an item of considerable value. Each
flat, as part of the Block, could not, in my opinion, be regarded as a trivial or
insignificant part. If this point had been the subject of proper examination and argument
I would have taken a great deal of persuading that the proposed works of construction on
Flats 74 and 77 were not works on a “substantial part” of Block B for the purposes of
section 47(2)(b)…
Baroness Hale, with whom Lord Walker agreed, took the opposite view at para.[40] of
her speech:
“It has hitherto been taken for granted that, if the premises are Block B, then two flats
out of the fifty do not constitute “a substantial part of” the premises… The respondent
has not hitherto sought to argue otherwise. In my view, it was right not to do so.
“Substantial” is a word which has a wide range of meanings. Sometimes it can mean
29
“not little". Sometimes it can mean “almost complete", as in “in substantial agreement".
Often it means “big” or “solid", as in a “substantial house". Sometimes it means
“weighty” or “serious", as in a “substantial reason". It will take its meaning from its
context. But in an expression such as a “substantial part” there is clearly an element of
comparison with the whole: it is something other than a small or insignificant or
insubstantial part. There may be both a qualitative element of size, weight or importance
in its own right; and a quantitative element, of size, weight or importance in relation to
the whole. The works intended by this landlord are substantial in relation to each of the
flats involved, but those flats do not in my view constitute a substantial part of the whole
premises.
Lord Carswell
“I …do not consider it profitable to speculate on the question whether the work on flats
77 and 74 would qualify if the whole of Block B were to be regarded as the relevant
premises.” Para.[48]
Lord Hope did not address the point at all.
Discussion
So in summary:
- 2 Law Lords were of the opinion that work to two flats would not meet the test;
- 1 Law Lord was of the opinion that such work would meet the test;
- 2 Law Lords expressed no view.
- View from the floor is…?
Those views were of course expressed in the context of their Lordships’ view as what
“any premises” were on the facts of Majorstake. If, in a different case, “any premises”
were found to be a former house converted into 3 flats; then the same work to combine 2
flats into one larger maisonette which was proposed in Majorstake might more readily be
considered to meet the “substantial part” test.
30
Is there a discretion?
At para.[14] of his speech, Lord Scott suggested that there is a discretion because section
47 uses the word “may”, which, Lord Scott thought, need not mean “must” in the context
of s.47. He suggested that the court had a discretion if a strict application of the statutory
test produced an absurd result.
None of the other Law Lords adverted to this point.
31
ISSUE 6
COMPETING 1967 ACT, 1987 ACT AND 1993 ACT CLAIMS
The Scenario
The basic factual scenario is that there is a property which falls within the definition of a
“house” for the purposes of the LRA 1967, which contains at least 3 flats let on
qualifying tenancies. The house itself is subject to a head-lease, and there is a flat “in
hand” in which the head-lessee resides and so satisfies the residence test in s.1(1ZB) of
the LRA 1967.
The head-lessee claims the house and premises pursuant to the LRA 1967.
This is “the conundrum” which appeared in Chapter I of Hague 3rd ed. but which was
omitted from the 4th ed. Since the 2002 Act amendments, it is actually more likely to
arise in practice, as the s.1(1ZB) residence test is rather easier to meet than the old 1967
Act test: (one year less residence, the residence does not have to be “in right of tenancy”
and the residence requirement does not need to be satisfied at the date the notice is
given).
The issues
Problem 1
There is no disregard of the long sub-lessees’ rights under the 1993 Act. Logically the
existence of these rights will depress the freehold value will they not?
Problem 2
What happens if one of the qualifying sub-lessees gives a s.42 notice after the head-lessee
has given his desire notice? The 1967 Act makes no reference to the 1993 Act, and vice
versa.
32
And of course the giving of the s.42 notice is a post valuation date event as far as the
1967 Act claim is concerned.
Is there a “race” to complete? If so, who are the runners? (The freeholder will probably
receive more from the actual completion of a s.42 claim than he will receive in “hope
value”).
Indeed, can there be such “hope value” ?
Can the s.42 claim be completed between the sub-lessee and the freeholder so as to bind
the head-lessee who has given a prior desire notice under the LRA 1967? Both have
statutory rights. The 1967 Act notice takes effect as a statutory contract and is protected
by registration. On one view, the head-lessee is entitled to take the freehold free of any
encumbrances created after his notice is given.
Problem 3
There is no exemption in the LLTA 1987 for 1967 Act disposals. This will not be a
problem in respect of the freehold transfer, as the freeholder will not be “the landlord” for
the purposes of s.2 of the 1987 Act.
But does the 1987 Act catch a merger of the head-lease?
Problem 4
What if there are lessees who have been granted overriding leases by way of voluntary
“lease extension” outside of the 1993 Act?
For the purposes of the LLTA 1987, the qualifying tenant is the tenant who holds the
qualifying lease highest up a chain of leases, and the head-lessee will be disqualified
because he holds 3 or more flats. So the qualifying tenant in respect of any such flat will
be the holder of the overriding lease, which means that a disposal of the freehold is a
disposal of “the landlord’s interest” under those leases.
33
How does the 1987 Act work if the qualifying leases are at different strata in a layered
title ?
34