The onus is on the party seeking a transfer under the Landlord and Tenant Act 1987 to bind all interests in the property and a person who had not been a party to previous proceedings may raise the issue of his equitable interest without it being an abuse.
In Donovan v Prescott Place Freeholder Ltd and others [2024] EWCA Civ 298; [2024] PLSCS 64, the appellant successfully appealed the High Court’s finding that it was an abuse for him to raise his alleged beneficial interest in 34-36 Prescott Place, Clapham, SW4 (the property). Further, the High Court had also been wrong to find a section 19 order creates an immediate equitable interest in land and should not have made injunctions preventing the appellant from protecting his equitable leases of flats C and E (the flats) in the property by notices in the register and occupying the flats in the period leading up to the transfer of the freehold.
The 1987 Act gives qualifying tenants a right of first refusal should a freeholder wish to dispose of his reversionary interest. Where a disposal has occurred, the tenants may compel the purchaser to transfer the acquired interest on the same terms as the original disposal. This is done by serving notice under s12B . If this notice is not complied with the tenants’ nominee may serve a 14-day warning notice and then request that the court make an order under s19 that the default be remedied. Section 12B(5) deals with the position where charges and leases have been created after the original transfer. Under that subsection, unless the court orders otherwise charges shall be discharged and where leases have been granted the price payable will be reduced to reflect the encumbrance.
In 2004, the freehold of the property was acquired by the appellant’s brother (SD), who also executed a deed that it was held on trust for the appellant. It was than developed such that there were four residential units on the upper floors which were eventually let under long leases to the second to eighth respondents (the tenants). In 2014-15, the flats were created on the ground floor of the property.
Without notifying the tenants, on 7 May 2014, SD executed a transfer of the freehold to Mr Batin, which had a deemed date of registration at the Land Registry of 29 May 2014. In 2019, the tenants and their nominee brought county court proceedings under s19(1) of the Act to compel Mr Batin to comply with his duty under s12B(2). In a letter written at that time, the appellant’s solicitors asserted that he was the beneficial owner of the property. However, the tenants did not apply to join him in the county court proceedings and when he applied at the hearing to be added (and for the hearing to be adjourned) the judge held that such application was too late.
The county court made a s19 order with the terms of the transfer to be determined by the First-tier Tribunal. The tenants issued FTT proceedings (again without joining the appellant). The appellant then marketed the flats, which prompted the tenants to issue parallel High Court proceedings seeking injunctions against him. The appellant did not apply to join the FTT proceedings but before the High Court maintained that on or around 24 May 2014 he and Mr Batin executed a trust deed declaring that Mr Batin held the property as a bare nominee for the appellant.
The High Court found that this deed was, in fact, executed in 2019 and had been backdated in an attempt to deceive and bolster his position. The appellant also alleged that 999-year leases of the flats were granted by Mr Batin to the appellant in 2014. The High Court found that these were granted at some point after the s19(1) order had been made by the county court. The High Court was extremely unimpressed with the appellant’s conduct and found that it was an abuse for him to attempt to raise his equitable interest before it.
Although the Court of Appeal was also critical of the appellant’s untruths, it was clear that raising his equitable interest was not an abuse. The appellant had not been a party to the county court or FTT proceedings and it was not incumbent on him to join them. The question of his equitable interest was, strictly speaking, irrelevant to the issue of whether an order under s 19 should be made. It was for the tenants to seek to join him if they wished to protect their position and for them to seek s12B(5) directions in relation to any alleged interest. The fact that he sought to raise a primary untruthful argument should not prevent him running a secondary argument on facts found by the judge. Further, as tenants have a statutory right to withdraw from the acquisition before a binding contract is entered into, it cannot be right that an order under s19 creates an immediate equitable interest in property. Indeed, even if that were wrong the facts of this case were such that there could be no immediate equitable interest as on the judge’s findings Mr Batin had no equitable interest in the property to convey.
The High Court should not have granted the injunctions it did as these circumvent the statutory scheme, which is that the tenants take the property subject to such encumbrances as Mr Batin created unless they make an application under s12B and the court orders otherwise. The tenants had not joined the appellant and had made no such application. The purpose of the 1987 Act was not to enable tenants to gain a windfall by enabling them to obtain flats with vacant possession at a discounted price. The appeal was allowed, and the injunctions set aside.
Elizabeth Haggerty is a barrister
