Leasehold Reform Act 1967, section 1(4A) and section 23 — Surrender of existing long lease and grant of new long lease — Attempt to secure lower rateable value in consequence of improvements — Proper construction of section 23(3) of 1967 Act — Distinction between surrender and agreement to surrender — Relief under section 23(3) not available where agreement to surrender consummated by performance — Leaseholder held to have no locus standi to apply for reduction of rateable value in order to qualify for enfranchisement — Appeal from decision of county court judge dismissed
concerned in this case consisted of a house divided into two maisonettes — One
of the maisonettes was occupied by a statutory tenant, the other by the present
appellant — The lease of the whole house was for a term of 99 years from June
24 1891 — It was a house within the meaning of the Leasehold Reform Act 1967 —
The maisonette occupied by the appellant was not a house — In 1976 the
unexpired residue of the lease of the whole house was assigned to the
appellant, subject to the statutory subtenancy — In 1985 the appellant entered
into an agreement with his landlords, the respondent trustees, by which on the
completion date he would surrender to the respondents the existing lease of the
whole house, subject to and with the benefit of the subtenancy, and the
respondents would grant to him a new lease of his maisonette alone — The
consideration for the grant of the new lease (for a term of 60 years) was to be
the surrender of the existing lease plus the payment of a premium
appellant served on the respondents two notices which led to the present
proceedings — One was a notice under the 1967 Act claiming the freehold of both
maisonettes and the other was a notice claiming a reduction in the rateable
value of the premises because of improvements which he had carried out — The
landlords objected and the appellant made an originating application to the
county court under section 20 of the 1967 Act — The county court judge decided
that it was so clear that the appellant did not have the locus standi to
proceed that there was no point in the matter going to trial and he dismissed
the application on the preliminary issue — The appellant appealed
Appeal agreed with the county court judge — The appellant had in effect to
overcome two obstacles — The first was to get the rateable value, as it stood
in 1975 at the date of the agreement to surrender, reduced to the statutory
limit for enfranchisement — The second was to get the surrender set aside under
section 23(3) of the 1967 Act — However, examination of section 23(3) of the
Act showed a fatal objection to the appellant’s scheme — On its proper
construction the relief afforded by section 23(3) applied to an agreement to
surrender, not to a surrender which had been completed and taken effect, to an
executory, not an executed, surrender — In 1985 the surrender took effect as
part of the package which included the grant of a new lease — As the judge had
concluded, there was no point in the application going to trial — Appeal
dismissed
The following
cases are referred to in this report.
Alnatt
London Properties Ltd v Newton [1984] 1 All
ER 423; (1982) 45 P&CR 94; 265 EG 601, [1983] 1 EGLR 1, CA
Hennessy’s
Agreement, Re [1975] Ch 252; [1975] 2 WLR 159;
[1975] 1 All ER 60; (1974) 29 P&CR 135
Joseph v Joseph [1967] Ch 78; [1966] 3 WLR 631; [1966] 3 All ER
486, CA
Westminster
(Duke of) v Oddy (1984) 270 EG 945, [1984] 1
EGLR 83
This was an
appeal by Charles Christopher Woodruff against a decision of Judge Phelan, at
the West London County Court, dismissing on a preliminary issue an originating
application seeking certain declarations in regard to improvements under
section 20 of the Leasehold Reform Act 1967. The premises concerned were 26 and
26A Yeoman’s Row, off Brompton Road in Kensington, London SW3. The respondents
were Jocelyn C Hambro and others, trustees of Henry Smith’s Charity.
Martin
Griffith (instructed by Winckworth & Pemberton) appeared on behalf of the
appellant; Paul Morgan (instructed by Denton Hall Burgin & Warrens)
represented the respondents.
Giving
judgment, DILLON LJ said: This is an appeal by Mr Woodruff against a
decision of Judge Phelan in the West London County Court on July 21 1989
whereby on a preliminary issue he dismissed a certain originating application
which Mr Woodruff had made to that court on the basis that Mr Woodruff had no locus
standi.
The matters in
issue concern the Leasehold Reform Act 1967 as amended and certain premises
known as 26 and 26A Yeoman’s Row, off Brompton Road in Kensington. The premises
26 and 26A are a house divided into two maisonettes. One of the maisonettes,
26A, is occupied by a statutory tenant, a Mr Montalto; 26 is occupied by Mr
Woodruff.
It is common
ground that the house as a whole, comprising the two maisonettes, is a house
within the meaning of that word in the 1967 Act but that the single maisonette,
no 26 on its own, is not a house.
There was a
lease of the premises, which subsequently became known as 26 and 26A, on March
19 1898 by the then trustees of Henry Smith’s Charity to a Mr William Collbran
for a term of 99 years from June 24 1891. The present trustees of Henry Smith’s
Charity are the present landlords of the premises and the respondents to this
appeal.
On April 27
1976 the unexpired residue of that lease of the whole house was assigned to Mr
Woodruff, subject to the subtenancy of Mr Montalto of no 26A. Mr Woodruff has
been in occupation of no 26 ever since that assignment.
On September
10 1985 Mr Woodruff entered into an agreement with the trustees (the landlords)
that on the completion date he would surrender to the trustees the existing
lease, that is to say the lease of March 19 1898, subject to, and with the
benefit of, the tenancy of no 26A of Mr Montalto and the trustees should grant
and he would accept a new lease of no 26 alone. The consideration for the grant
of the new lease was to be the surrender of the existing lease and the
payment by Mr Woodruff of a premium for the new lease of £200,000. That
agreement was completed on September 24 1985 and the new lease was then granted
to Mr Woodruff. It was granted for a term of 60 years.
There were
various interim matters in that it appears, though these matters are not
directly relevant to the issues we have to decide, that Mr Woodruff, with
leave, carried out various works to no 26 and he also raised various mortgages
on the security of his new lease of no 26. But the next relevant step was that
on November 9 1988 Mr Woodruff served two notices on the trustees. One was a
notice under the 1967 Act of his claim as tenant of 26 and 26A Yeoman’s Row,
not just no 26, to have the freehold of those premises under the Act, and the
other was a notice that he had carried out various improvements to 26 and 26A
Yeoman’s Row and required the landlords to agree to a reduction in the rateable
value of the premises for the purposes of the 1967 Act. The landlords gave
notice objecting and consequently on January 24 1989 Mr Woodruff launched an
originating application in the West London County Court, which is the
application which Judge Phelan dismissed on the preliminary issue. By it he
sought, pursuant to section 20 of the 1967 Act, an order in the following
terms:
1 A Declaration that Schedule 8 to the Housing
Act 1974 applies to the improvements specified in the First Schedule to his
notice in relation to improvements dated November 9 1988.
2 A Declaration that the works specified in the
Notice were involved in those improvements.
3 A Declaration that he or his predecessors as
tenants had made the improvements.
4 A Declaration that he or his predecessors’
contributions amounted to the whole cost of the improvements.
He then set out
as the grounds on which he claimed to be entitled to the order that he wished
to invoke the powers of the county court under section 23(3) of the 1967 Act in
respect of his agreement to surrender the lease of March 19 1898, but before
doing so he had sought a reduction in the rateable value of the premises
pursuant to Schedule 8 to the Housing Act 1974.
It is
convenient therefore to turn to the 1967 Act. Section 1 provides by subsection
(1) that Part I of the Act:
shall have
effect to confer on a tenant of a leasehold house, occupying the house as his
residence, a right to acquire on fair terms the freehold or an extended lease
of the house and premises where —
(a) his tenancy is a long tenancy at a low rent
and
— subject to
certain subsections to which I need not refer —
the rateable
value of the house and premises on the appropriate day is not (or was not) more
than
— a specified
sum which again I need not go into —
and
(b) at the relevant time (that is to say, at the
time when he gives notice in accordance with this Act of his desire to have the
freehold or to have an extended lease, as the case may be) he has been tenant
of the house under a long tenancy at a low rent, and occupying it as his
residence, for the last three years or for periods amounting to three years in
the last ten years . . .
It is not in
doubt that if the rateable value qualification had been satisfied Mr Woodruff
would have had the right to acquire the freehold or an extended lease if he had
given notice before he entered into the agreement to surrender the existing
lease. The apparent difficulty at that stage was that the rateable value of 26
and 26A as a whole was above the prescribed statutory limit. Subsection (4A) of
section 1 of the 1967 Act, introduced by amendment, provides as follows:
Schedule 8 to
the Housing Act 1974 shall have effect to enable a tenant to have the rateable
value of the house and premises reduced for purposes of this section in
consequence of tenant’s improvements.
Schedule 8 to
the 1974 Act provides by para 1:
(1) Where the tenant, or any previous tenant, had
made or contributed to the cost of an improvement on the premises comprised in
the tenancy and the improvement is one to which this Schedule applies, then, if
the tenant serves on the landlord a notice in the prescribed form requiring him
to agree to a reduction under this Schedule, their rateable value as
ascertained for the purposes of section 1 of the Leasehold Reform Act 1967
shall be reduced by such amount, if any, as may be agreed or determined in
accordance with the following provisions of this Schedule.
(2) This Schedule applies to any improvement made
by the execution of works amounting to structural alteration extension or
addition.
There are then
various supplementary provisions for working out whether the tenant is entitled
to any, and if so what, reductions.
Section 23 of
the 1967 Act provides as follows, so far as material:
(1) Except as provided by this section, any
agreement relating to a tenancy (whether contained in the instrument creating
the tenancy or not and whether made before the creation of the tenancy or not)
shall be void in so far as it purports to exclude or modify any right to
acquire the freehold or an extended lease or right to compensation under this
Part of this Act, or provides for the termination or surrender of the tenancy
in the event of a tenant acquiring or claiming any such right or for the
imposition of any penalty or disability on the tenant in that event.
(2) Subsection (1) above shall not be taken to
preclude a tenant from surrendering his tenancy, and shall not —
(a) invalidate any agreement for a tenant to acquire
an interest superior to his tenancy or an extended lease on terms different
from those provided for by this Part of this Act; or
(b) where a tenant has given notice of his desire
to have the freehold or an extended lease under this Part of this Act, invalidate
any agreement between the landlord and the tenant that that notice shall cease
to be binding or any provision of such an agreement excluding or restricting
for a period not exceeding three years the right to give a further notice of
either kind with respect to the house or any part of it; or
(c) where a tenant’s right to compensation has
accrued, invalidate any agreement as to the amount of the compensation.
(3) Where —
(a) a person, being entitled as tenant of a house
to acquire the freehold or an extended lease under this Part of this Act,
enters into an agreement without the prior approval of the court for the
surrender of his tenancy, or for the acquisition by him of an interest superior
to his tenancy or of any extended lease; or
(b) a tenancy having been extended under this
Part of this Act, the tenant, on the landlord claiming possession for purposes
of redevelopment, enters into an agreement without the prior approval of the
court for the surrender of the tenancy;
then on the
application of the tenant the county court or any court in which proceedings
are brought against him on the agreement may, if in the opinion of the court he
is not adequately recompensed under the agreement for his rights under this
Part of this Act, set aside or vary the agreement and give such other relief as
appears to the court to be just, having regard to the situation and conduct of
the parties.
The person who
can apply for relief under subsection (3) of section 23 is a person being
entitled as tenant of a house to acquire the freehold or an extended lease
under the 1967 Act. That, of course, refers back to the qualifications in
section 1 of the 1967 Act, but Mr Griffith, for Mr Woodruff, submits that that
does not import the condition as to rateable value and in that regard reliance
is placed on certain obiter dicta of Eveleigh LJ in the case of Duke
of Westminster v Oddy (1984) 270 EG 945, [1984] 1 EGLR 83. They are
to the effect that if the conditions which would enable a reduction to be
obtained are there, the tenant can claim the freehold or an extended lease even
though he has not yet established a notional rateable value below the limits.
But Eveleigh LJ was not concerned with a case where there has been a purported
surrender of the relevant lease. Mr Woodruff seeks in effect to overcome two
hurdles. First, to get the rateable value as it prevailed at the time in
September 1975 of the agreement for surrender reduced because of improvements
to within the statutory limit, and then to get the surrender set aside under
section 23(3) of the 1967 Act. Unless he can achieve both of those objectives
he gets nowhere.
Section 23(3)
bears close parallel to section 38 of the Landlord and Tenant Act 1954, which
is in Part II of that Act. That provides:
(1) Any agreement relating to a tenancy to which
this Part of this Act applies (whether contained in the instrument creating the
tenancy or not) shall be void.
— then there
is an exception for applications to the court —
in so far as
it purports to preclude the tenant from making an application or request under
this Part of this Act or provides for the termination or the surrender of the
tenancy in the event of his making such an application or request or for the
imposition of any penalty or disability on the tenant in that event.
That has plain
parallels with the wording in subsection (1) of section 23 of the 1967 Act.
It has been
held under section 38 that an agreement to surrender a lease or tenancy is
caught by section 38: see Joseph v Joseph [1967] Ch 78 and Alnatt
London Properties Ltd v Newton [1984] 1 All ER 423*, both decisions
of this court. But under section 24(2) in Part II of the 1954 Act a tenancy
does not come to an end by an actual surrender.
*Editor’s
note: Also reported at (1982) 265 EG 601, [1983] 1 EGLR 1.
There is a
further parallel in Part I of the Landlord and Tenant Act 1954, which is
concerned with residential property. That provides by section 17:
The
provisions of this Part of this Act shall have effect notwithstanding any
agreement to the contrary: Provided that nothing in this Part of this Act shall
be construed as preventing the surrender of a tenancy.
It was
consequently held that, though an actual surrender was permissible, an
agreement to surrender the tenancy in the future was unenforceable: see Re
Hennessy’s Agreement [1975] Ch 252, a decision of the Vice-Chancellor, Sir
Anthony Plowman.
The wording of
section 23 is, of course, different because there is no counterpart to
subsection (3) in the 1954 Act. The draftsmanship is not perhaps ideal, but it
seems to me clear that what is achieved by section 23 is that certain classes
of agreement — an agreement without the prior approval of the court for the
surrender of the tenancy or for the acquisition by the tenant of an interest
superior to his tenancy, or of any extended lease — are taken out of subsection
(1) and therefore not rendered void (as but for subsections (3) and (2) they
would be) by section 1. Instead they are to be voidable on the tenant’s
application under subsection (3). But subsection (2) of section 23 makes it
plain that subsection (1) is not to be taken as precluding a tenant from
surrendering his tenancy. That is in line with the provisions under the 1954
Act and it seems to me that it necessarily follows that in section 23
Parliament has preserved the same distinction as is to be found in the 1954
Act, as interpreted by the courts, between the actual surrender and the
agreement for surrender. I do not think that subsection (3), where it refers to
‘an agreement . . . for the surrender of his tenancy’ and provides that the
court may on application ‘set aside or vary the agreement and give such other
relief as appears . . . to be just’, is contemplating setting aside or
overriding an executed surrender of the lease or a surrender which has taken
effect by operation of law and is no longer executory. So equally where there
is reference to an agreement for an extended lease or the acquisition of an
interest superior to his tenancy, I do not think the powers under section 23(3)
can be exercisable once the extended lease has been actually granted or the
superior interest has been actually acquired.
Therefore it
must follow that even if the dicta of Eveleigh LJ in Oddy’s case are
correct, an investigation into the improvements and their effect on the
rateable value of the house, of which Mr Woodruff is no longer the tenant in
any shape or form as a whole house, can serve no useful purpose at all.
Consequently there is no point in this application going for trial and I agree
with the judge that it should be dismissed. I would dismiss this appeal.
Agreeing, STOCKER
LJ said: For my part I should be content to rest my conclusion on the
simple proposition that as a matter of construction section 23(3) of the Act is
concerned solely with an agreement to surrender and not with the surrender
itself once it has taken place in accordance with the agreement. The relevant
words in section 23(3) ‘Where . . . a person . . . enters into an agreement . .
. for the surrender of his tenancy’ are plain and unambiguous. They relate to
an agreement, not to a surrender which takes place thereafter in accordance
with that agreement. If the draftsman of the Act had intended the subsection to
apply to an actual surrender of the tenancy, in addition to an agreement to do
so, it would have been a very simple matter to have included the surrender as
well as the agreement for it in the wording of the subsection. The consequences
of an actual surrender may well be irreversible, or virtually so, particularly,
as in this case, if it is followed by the grant of a new lease. I cannot accept
that the draftsman can have overlooked such potential consequences and would
have expressly included actual surrender as well as an agreement to surrender
if he intended the subsection to have that effect. I find it impossible to
construe the subsection so as to extend the meaning of the words ‘agreement to
surrender’ to include the subsequent surrender itself. Accordingly, the
appellant is not entitled to rely upon the provisions of section 23(3), with
the consequence that the judge correctly held that he had no locus standi
to apply for a variation of the rateable value of the house reduced in
accordance with the provisions of section 1(4A). In the light of this
conclusion, I do not find it necessary to consider other issues and arguments
which have been raised on this appeal. I agree, therefore, that this appeal
should be dismissed.
Also agreeing,
BINGHAM LJ said: The 1967 Act intends to confer on tenants rights
against their landlords which they did not enjoy at common law. It follows that
the Act necessarily encroached on the common law rights of landlords. In
deciding in any doubtful case how extensive are the tenant’s rights and the
encroachment on the rights of the landlord, the task of the court is to put a
fair construction on the Act, bearing in mind that Parliament intended the Act
to work to the advantage of tenants. In so far as there is a lacuna or
ambiguity in the Act, it is proper to bear the purpose of the Act in mind in
endeavouring fairly to reflect the intentions of Parliament.
I am
persuaded, contrary to my first impression, that section 23(1), if it stood
alone, would embrace an agreement for the surrender of a lease. So much seems
to follow by analogy from Joseph v Joseph [1967] Ch 78. It
therefore follows, as a matter of construction and logical necessity, that
subsection (2) of section 23 must apply to an agreement to surrender.
The crux of
this appeal turns on the proper construction of section 23(3), the terms of
which Dillon LJ has cited. Mr Griffith, for Mr Woodruff, submits that the court
enjoys the discretionary power conferred by that subsection if a tenant
qualified to acquire the freehold enters into an agreement without the prior
approval of the court for the surrender of his tenancy, notwithstanding that
the agreement has been performed and the surrender made, and notwithstanding
that, as has happened here, a premium of £200,000 has been paid and a new lease
granted. All these matters, subsequent to the agreement, are, Mr Griffith
submits, relevant to the exercise of the court’s discretion and not to the
existence of its jurisdiction.
This
submission involves the conclusion that in subsection (3)(a) the draftsman
intended ‘agreement . . . for the surrender’ to include a surrender. The
submission also involves the conclusion that when the draftsman used the words
‘set aside or vary the agreement and give such other relief as appears to the
court to be just’, he intended to give power to set aside a surrender as well
as an agreement to surrender. I find it inconceivable that any Parliamentary
draftsman who sat down to draft subsection (3) would not have made reference to
surrenders as well as agreements to surrender if he had intended the subsection
to have that extended effect. As it stands, the meaning of the subsection is,
in my view, clear and, even construing the subsection bearing in mind the Act’s
benevolent intentions towards tenants, I cannot attribute to it the meaning
contended for. This clear impression is reinforced when one notes that this
extraordinary statutory jurisdiction is conferred not only on the county court
but also on any court in which proceedings are brought against the tenant ‘on
the agreement’. That in itself is a clear indication, in my opinion, that the
agreement has not been consummated by performance. In agreement with the
learned county court judge and Dillon and Stocker LJJ, I conclude that the
appellant is unhorsed at this first formidable obstacle and I prefer to express
no opinion on other obstacles further down the course.
The appeal
was dismissed with costs.