An application under the Landlord and Tenant Act 1987 requiring the transfer of an interest acquired without the necessary right of first refusal, requires the judge to conduct more than a high-level analysis of what would be fair; it requires an analysis of whether purchasers should be relieved from a duty that parliament imposed on them.
Part I of the Landlord and Tenant Act 1987 sets out the right of first refusal held by qualifying tenants in a building. Where these exist (and a landlord makes a relevant disposal without giving qualifying tenants the right of first refusal) section 12B provides that the requisite majority of qualifying tenants may compel the purchaser to transfer the interest acquired to a required nominee by serving a purchase notice. In S Franses Ltd and another v Block 6 Ashley Gardens Roof Gardens Ltd and others [2023] EWHC 2880; [2023] PLSCS 191. Mr Justice Richards considered an appeal of the decision of HHJ Dight CBE in which he exercised his discretion under section 19 and ordered the transfer to the nominee purchaser of the qualifying tenants of an interest which had been conveyed without the right of first refusal provisions being satisfied.
Block 6 Ashley Gardens Ltd was a tenant-owned company. It was the freeholder of a block of 19 flats all held under long leases by its lessee shareholders who were all qualifying tenants. In 2011, there was concern about the state of the block’s roof. The appellants and another leaseholder were lessees of the flats at the top of the block and hoped that if they acquired rights to the roof space, they would be able to turn part of it into gardens to enhance the enjoyment of their flats. There was correspondence and discussions and the matter was raised at the freeholder’s AGM. At this AGM the right of first refusal was not considered but a resolution was passed which gave authority to the directors to negotiate leases. Without the notice required by the 1987 Act, the leases of the roof were granted at a stated premium of £1 plus an agreement that the lessees concerned would fund works to be carried out to the roof and also works needed to the common parts costing about £100,000. These works were (eventually) carried out. However, by about 2015 shareholders of the freehold had become increasingly discontent, had come to realise that the leases had been granted without any notice under the Act having been served and sought to require the appellants to transfer the interest they acquired. Purchase notices were served and in July 2020 the documents said to constitute the default notice were served. Such a default notice is a necessary precursor to an application under section 19 and the default notice relied on by the qualifying tenants was a solicitor’s letter enclosing a TR1. It was sufficient. A default notice does not have to be in any particular form; it simply has to do what section 19(2) of the Act requires, namely require the defaulting party to remedy the default.
Whether to make an order under s19 is discretionary and a high degree of deference should be shown to such a discretionary decision. When considering whether it was “inequitable” to give effect to rights under the Act, Judge Dight was considering whether it was “unfair or unjust” rather than indicating a reference to any specific principle of equity. The Human Rights Act was relevant as a guide to the exercise of the section 19 discretion, balancing the purchasers’ rights to peaceful enjoyment of their possession with the nominee purchaser’s legitimate interest in enforcing a duty parliament had enacted to pursue a legitimate aim. The judge had correctly exercised his discretion under section 19. Although it could be that the freeholder might benefit from a transfer to the nominee purchaser, the nominee purchaser could not be said to be seeking to enforce an illegal agreement such that it should not be permitted.
The respondents argued that the amount payable for the transfer should not have included the monies expended on the works (as this part of the agreement for the leases was unenforceable by reason of the Law Reform (Miscellaneous Provisions) Act 1989). However, section 12B refers to the transfer as being “on the terms on which it was made (including those relating to the consideration payable)”, there is no need to impose a narrower construction. Judge Dight’s decision to order transfer with consideration to include money expended on the works was upheld.
Elizabeth Haggerty is a barrister
