Tenants serving notice of collective enfranchisement – Defendant landlord failing to serve counternotice upon claimant nominee purchaser – Court ordering acquisition on same terms as those in initial notice – Defendant appealing – Whether discretion upon court to determine terms of acquisition different from those in initial notice – Section 25(1) of Leasehold Reform Housing and Urban Development Act 1993 – Appeal dismissed
The defendant was the freeholder and landlord of a block of flats at 29 Langham Street, London W1. The tenants of the flats sought collective enfranchisement and served a notice pursuant to section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act), naming the claimant (one of the qualifying tenants) as the nominee purchaser. The notice proposed a purchase price of £7,000 and specified a date for service of a counternotice by the defendant.
The defendant failed to serve a counternotice, and, consequently, the claimant applied to the court for an order determining the terms upon which he was to acquire the freehold. Section 25(1) of the Act stated: “Where the initial notice has been given in accordance with section 13 but – (a) the reversioner has failed to give the nominee purchaser a counter- notice… the court may, on the application of the nominee purchaser, make an order determining the terms on which he is to acquire, in accordance with the proposals contained in the initial notice, such interests and rights as are specified in it”. The defendant objected to the making of an order on the ground that the initial notice was not in accordance with section 13.
The court ordered the determination of preliminary issues as to: (i) whether a valid notice had been served; and (ii) if so, whether the defendant’s admitted failure to serve a counternotice prevented it from challenging the terms upon which the claimant was entitled to acquire the interest sought. The issue was whether, on its true construction, section 25(1) conferred a discretion on the court to depart from the terms of the initial section 13 notice. The judge held that it conferred no such discretion.
The defendant appealed, submitting that the judge erred in law in holding that the words “may” and “determining” in section 25(1) did not confer upon the court any discretion to determine terms of acquisition different from those set out in the initial notice. The defendant contended that a general discretion should be imported into the section on the grounds that: (i) the word “may” was usually permissive; and (ii) an absence of discretion could result in irretrievable prejudice or hardship to a freeholder in certain circumstances, such as where the proposed purchase price was unrealistic.
Held: The appeal was dismissed.
It was common ground that the word “may” could grant a power or confer a discretion upon the court and whether it did so was a question of interpretation of the individual statute in each case. The word “may” in section 25(1) was sufficiently explained by the fact that the court was not obliged to make an order in every circumstance, as it first had to be satisfied that the provisions in section 25(3) of the Act had been met. There would be no point in the counternotice procedure, and the provisions related to it, if they could be bypassed by importing a general discretion into section 25(1). Further, there was no guidance in the Act on the exercise of such a discretion. Cadogan v Morris [1999] 1 EGLR 59 provided a safeguard for the freeholder against an unrealistic proposal or price being stated in the initial notice. Those factors pointed to the conclusion that, once the court was satisfied that the provisions in section 25(3) had been met, it was bound to exercise its power to make such an order and had no discretion as to terms.
Anthony Radevsky (instructed by PS Levy & Co) appeared for the claimant; James Thom (instructed by Howard Kennedy) appeared for the defendant.
Sarah Addenbrooke, barrister
