Landlord and tenant – Collective enfranchisement – Replacement of reversioner – Lessees of flats seeking to acquire claimant’s lease of roof space within block of flats – Claimants applying to be appointed as reversioner of airspace in place of defendant – Whether interests of relevant landlords and other special circumstances requiring lessee to be substituted as reversioner – Application granted
The first claimant sought an order pursuant to paragraph 3 of schedule 1 to the Leasehold Reform Housing and Urban Development Act 1993 appointing the first claimant in the first instance and, in due course, the second claimant when Land Registry documentation had been properly completed, as the reversioner within the meaning of paragraph 3 in place of the present reversioner, which was the defendant.
The lessees of a block of flats at 1-52 Bennett’s Courtyard at Watermill Way in London, SW19 brought a claim for collective enfranchisement under the 1993 Act. The flat lessees had already acquired the freehold of the block by a previous claim under the Act in or about September 2022.
A second claim was made to acquire the claimant’s lease of the roof space within the same property which was not included in the first enfranchisement claim. There was a roof space lease granted on 29 April 2019, for a term of 999 years. In November 2022, planning permission was granted in respect of the roof space to build a further seventeen flats on top of the existing flats. Accordingly, it was considered that the roof space and its lease was potentially of considerable commercial value.
On 22 December 2022, a group of lessees served notice under section 13 of the 1993 Act, claiming the freehold of the roof space at a price of £1,000, only months after the defendant company had acquired it.
A counter notice was required in respect of the section 13 notice on or before 6 March 2023, and the court was asked to resolve the question under paragraph 3, whether there should be a substitution as the claimants’ claimed.
Held: The application was granted.
(1) Under section 13 of the 1993 Act, the notice had to be served on the reversioner, ie, the freeholder of the relevant property. The claimant, as the holder of the roof space lease, in this case was a relevant landlord.
Under the default provisions of the Act, the reversioner was the only party enabled and entitled to serve a counter notice, which had to be served by the date specified in the notice itself under the statutory rules, here by 6 March 2023. It was only under that statutory procedure, after a counter notice had been validly served in accordance with the statutory provisions, that other interested parties could intervene and give notice of their interest in the property rights engaged; and then become separate and independent parties involved in the valuation process within the notice and counter notice procedure.
By paragraph 9 of schedule 1 to the Act, if it appeared to the court on the application of a relevant landlord that their respective interests, the absence or incapacity of the current reversioner or other special circumstances required that some person other should act as the reversioner, the court might appoint in their place such person as it thought fit.
(2) In the context of paragraph 3 of schedule 1, in the present case, the notice had been served by relevant and appropriate parties on the freeholder, ie, the reversioner, as required by section 13.
The application made by the claimants here was an application by a relevant landlord. The difference between the two claimants was only that the first claimant had already assigned the lease of the airspace to the second claimant. However, the Land Registry had not yet completed the registration process for that assignment. Therefore, the first claimant was taking the lead, until such time as the registration process was complete, as the relevant landlord in this case.
On the evidence, the court was satisfied that the conditions in paragraph 3(a) had been made out. There was a significant and material discrepancy between the interests of the claimants, as relevant landlords and the defendant freeholder reversioner; and a material discrepancy in the way in which each had identified their respective potential interests.
(3) The parties were not to be taken to have taken their final and irretrievable position on valuation, but the discrepancy existed between a valuation of something of the order of £1,000 or even £100,000, and the potential for the extensive commercial redevelopment of the property, alleged to be £1.8m. The discrepancy in potential value and the resulting competing interests of the parties was such as to trigger the potential exercise of the court’s discretion in the claimant’s favour, as requested.
Further, there were special circumstances that required the claimants to be substituted as the reversioner. Both parties accepted that this situation was out of the norm. That was sufficient within paragraph 3 to give rise to special circumstances. The order which was sought was the only sensible, efficient and proportionate way forward. It was a mechanism which could be adopted to nobody’s prejudice.
The difference between the parties’ respective interests and the special circumstances, as would often be the case in such statutory schemes, were very closely allied and interlinked. Taken as a whole, paragraph 3(a) was made out.
(4) The court should only consider exercising the substitution discretion that it had under paragraph 3, where there were cogent, strong and good reasons for doing so. It was not an unfettered discretion to be exercised in favour of substitution on mere grounds of convenience, or because one option was slightly more preferable than another. Neither, however, did the word “require”, in this context, demand that the respective interests of the parties, or other special circumstances, had to be so dramatically unusual as to put up a barrier to be surmounted only in the most exceptional circumstances.
The default position was that the current defendant, as freeholder, was the reversioner and one had to pay proper respect to the statutory default position. The requiring of circumstances under paragraph 3(a) was a strong or a high threshold, but it had nonetheless been surmounted in the present case. There was no reason not to exercise the court’s discretion. There could be no other sensible outcome.
Anthony Radevsky (instructed by Wallace LLP) appeared for the claimants; Ben Maltz (instructed by Legal Studio Solicitors) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Airspace Developments Ltd v Bennets Courtyard Freehold Ltd
