Leasehold Reform Act 1967, section 3 — Definition of ‘long tenancy’ — Question of construction — Whether an underlease otherwise qualifying for enfranchisement had been granted ‘in pursuance of a contract entered into before’ April 8 1980 within the meaning of proviso (a) to section 3(1) of the 1967 Act as amended — The underlease which was the subject of the present question would not qualify as a long tenancy if it were granted so as to become terminable by notice after a death or marriage and was granted before April 18 1980 or in pursuance of a contract entered into before that date — The underlease was certainly granted after that date and the only question was whether it failed to qualify under the prior contract limb of the proviso
plaintiffs in the present summons held the freehold and leasehold reversions —
The defendants were the underlessees, who had served a notice under the 1967
Act claiming their rights to acquire the freehold of their house — The
underlease now held by the defendants had been granted in accordance with
powers in a superior lease which had a term of 121 years from December 5 1972 —
This lease contained a power for the underlessee to give notice terminating his
tenancy after the death of the last survivor of the issue of King George V —
The provision was clearly framed so as to bring it within the proviso to
section 3 of the 1967 Act as originally enacted (before the Housing Act 1980
introduced the reference to April 18 1980)
considered a number of cases in which the scope of the words ‘in pursuance of’
had been discussed, but none of these were particularly helpful — It was
submitted on behalf of the plaintiffs that the disqualification in proviso (a)
applied if the grant of an underlease terminable by notice after a death was
contemplated by the parties to a lease as the only way in which the lessee
would in practice be able to make any commercial use of the benefit of his
interests under the lease — However, the judge held that in the context of the
present case the words ‘or in pursuance of a contract entered into before that
date’ were intended to ensure that a lessor or underlessor would not be
prejudiced by the accidental circumstance that a contract for a lease had not
actually been completed before April 18 1980 — As the judge pointed out,
parties to a contract for the grant of a lease were frequently content to rely
on the contract without proceeding to, and incurring the expense of, the
execution and stamping of a lease — In the result the obstacle to qualification
in proviso (a) had no application in the circumstances of the present case —
The defendants were entitled to acquire the freehold in accordance with the
1967 Act
The following
cases are referred to in this report.
Bradford
Corporation v Myers [1916] AC 242
Gartside v Inland Revenue Commissioners [1968] AC 553; [1968] 2 WLR
277; [1968] 1 All ER 121, HL
Hampson v Department of Education [1988] ICR 279
Inland
Revenue Commissioners v Mobil North Sea Ltd
[1987] 1 WLR 1065, HL
In this
originating summons the plaintiffs, Proma Ltd and Wrotham Park Settled Estates,
sought a determination of the true construction of proviso (a) to
section 3(1) of the Leasehold Reform Act 1967 in relation to the circumstances
of an underlease held by the defendants, Peter James Curtis and Ann Curtis.
David
Neuberger QC and Miss Sonia Proudman (instructed by Farrer & Co) appeared
on behalf of the plaintiffs; W R Stewart-Smith (instructed by Male &
Wagland, of Potters Bar) represented the defendants.
Giving
judgment, VINELOTT J said: This originating summons raises a short question as
to the construction and application of the proviso to the definition of ‘a long
tenancy’ in section 3 of the Leasehold Reform Act 1967 as amended by the
Housing Act 1980. The purpose of Part I of the 1967 Act is expressed (in
section 1) to be ‘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 where certain other conditions as to
the rateable value of the house and its occupation by the tenant as his
residence are satisfied. The phrase ‘long tenancy’ is defined in section 3(1)
as meaning in broad terms a tenancy for a term of years certain exceeding 21
years, whether or not terminable by notice or by re-entry. That definition is
followed by a proviso which, under the 1967 Act, reads as follows:
Provided that
a tenancy granted so as to become terminable by notice after a death or
marriage is not to be treated as a long tenancy.
In 1980 the
proviso was amended by the addition of the words:
if either — (a)
it was granted before April 18 1980 or in pursuance of a contract entered into
before that date; or (b) the notice is capable of being given at any
time after the death or marriage of the tenant, the length of the notice is not
more than three months and the terms of the tenancy preclude both its
assignment and the subletting of the whole of the premises comprised in it.
Under the
Housing (Consequential Provisions) Act 1985, subpara (b) of the proviso
was further amended by the addition of the words ‘otherwise than by virtue of
section 92 of the Housing Act 1985 (assignments by way of exchange)’ before the
words ‘and the subletting of the whole of the premises comprised in it’.
In this case
nothing turns on para (b) of the proviso. It is common ground that an
underlease, the benefit of which is now vested in the defendants, cannot be
brought within it. The only question is whether the underlease, which was
granted after April 18 1980, was granted ‘in pursuance of a contract entered
into before that date’.
The material
factors can be shortly stated. On August 30 1973 the second plaintiff (then the
Wrotham Park Estate Co (‘the estate company’)) granted a lease for a term of
121 years from December 5 1972 to Lowndes Securities Ltd. The lease was granted
at a premium of £63,375 and contained a covenant by the lessee to erect three
detached dwelling-houses on three building sites marked out on a plan which by
an oversight was not annexed to the lease but was annexed to a deed of
variation made on November 28 1974. The covenants on the part of the lessee
included a covenant:
(a) not to assign underlet or part with the
possession or occupation of part only of the premises except in accordance with
para (b) of this sub-clause; (b) the tenant may underlet each of the building
sites upon receipt of the completion certificate in respect of the
dwelling-house and garage erected thereon, such underletting to be by means of
an underlease in the form of the draft underlease set out in the sixth schedule
hereto and not otherwise
and a covenant
not to assign, underlet or part with the possession of the whole of the
premises without the previous consent in writing of the lessor, such consent
not to be unreasonably withheld. The annexed form of underlease contained a
grant of an underlease to the underlessee for a term expressed to be ‘from the
(blank) day of (blank) 1970 (blank) for the term of 120 years’ (clearly what
was intended was from the date of the underlease for the remainder of the term
of 120 years measured from the commencement of the term granted by the lease)
subject to a proviso that:
the tenant
may at any time after the death of the relevant person give not less than six
months previous written notice to the lessor to terminate this lease on one of
the usual quarter days and the term hereby granted shall cease on the date from
which such notice of termination has been given and every covenant and
condition herein contained shall become void but without prejudice to any
claims by the lessor against the tenants in respect of any antecedent breach by
the tenant of any covenants or conditions on the part of the tenants herein
contained.
The expression
‘the relevant person’ was defined in a separate definition clause as:
the last
survivor of the issue whether children or more remote actually born before the
date of this lease of His Late Majesty King George V.
This provision
was clearly intended to bring the underlease within the proviso to section 3 of
the 1967 Act as originally framed.
The building
work did not go ahead as speedily as expected. Lowndes charged the lease to a
mortgagee, who in 1979 exercised a power of sale and assigned the lease to a
company called Originola Properties Ltd, which completed the development. On
February 4 1982 Originola Properties Ltd granted an underlease to the
defendants’ immediate predecessor in title. The freehold reversion to the lease
is now vested in the first plaintiff, Proma Ltd, which is said to have granted
a ‘concurrent lease’ to the estate company. Nothing turns on the precise
position of Proma Ltd and the estate company. The defendants took their
assignment of the underlease on January 12 1984 and on July 1 1987 served
notice on the estate company claiming to exercise their rights under the 1967
Act to acquire the freehold of their house. It is common ground that their
notice is valid unless it can be said that the underlease was executed in pursuance
of a contract entered into before April 18 1980.
I have been
referred to a number of cases in which the courts have had to consider the
scope of the words ‘in pursuance of’ in other statutory contexts. In Bradford
Corporation v Myers [1916] AC 242, the corporation had power under a
private Act to acquire a gas-producing company and under the Act they had power
to dispose of the coke which was a by-product of the gas production. Under the
Gasworks Clauses Act 1871 the corporation as undertaker of a gas undertaking
was under a duty to supply gas to persons living in a defined district. It
contracted to sell coke to the plaintiff, Myers, and their servant negligently
delivered the coke through his front window instead of into the cellar. The
question was whether the corporation could rely on the Public Authorities
Protection Act 1893, which imposed a strict limitation period in the case of an
action in respect of an act done ‘in pursuance or execution or intended
execution of any Act of Parliament or of any public duty or authority’. The
Court of Appeal and the House of Lords were unanimous in holding that the act
complained of was done not in pursuance or in execution of any duty or
authority but in execution of a contract which the corporation had power to
enter into but which the corporation need not have entered into in order to
carry out its only statutory duty, which was to supply gas. In Hampson v
Department of Education [1988] ICR 279 the question was whether section
41(1) of the Race Relations Act 1976, which excepted ‘any act of discrimination
done (a) in pursuance of any enactment or Order in Council; or (b)
in pursuance of any instrument made under any enactment by a Minister of the
Crown’, applied to a decision by the Secretary of State for Education and
Science that in effect the applicant had not met conditions as to
qualifications of employment as a teacher set out in regulations made under
powers conferred by the Education Act 1980. It was held by the Employment
Appeals Tribunal that the decision of the Secretary of State was made ‘in
pursuance of’ an enactment in that the regulations were part of a scheme for
regulating the admission of teachers and that the act complained of was done by
or under that statutory authority.
I do not think
that these decisions afford any guide to the scope of the words ‘in pursuance
of a contract’ in section 3(1) of the 1967 Act as amended. In both those cases
the scope of the words ‘in pursuance of’ was clear from the context. In the Bradford
Corporation case the 1893 Act clearly contemplated an act done directly in
pursuance or execution of an Act of Parliament or of a public duty or
authority; in Hampson, section 41(1) of the 1976 Act equally clearly
extended to acts done under or in implementation of an authority conferred by
statute or by an order or instrument. At first sight, the provisions of the
Finance Act 1981 considered in Inland Revenue Commissioners v Mobil
North Sea Ltd [1987] 1 WLR 1065 seem nearer to the language of the proviso
to section 3(1). Section 111(7) of the Finance Act 1981 preserved the benefit
of the supplement to expenditure allowable under the Oil Taxation Act 1975 in a
case where expenditure after April 1 1981 was incurred ‘in pursuance of a
contract entered into before January 1 1981’. What happened, shortly stated,
was that Mobil in 1979 commissioned from Bechtel Ltd a production platform and
agreed to reimburse Bechtel Ltd for all costs incurred in the performance of
the work. Bechtel Ltd then, after 1981, entered into contracts as agent for
Mobil for the construction of parts of the platform and in due course was
reimbursed by Mobil. It was held by the House of Lords that the expenditure
reimbursed by Mobil was entitled to a supplement. But on analysis the case does
not give any guidance as to the scope of the words ‘in pursuance of a contract’
in other contexts. It is quite plain that the expenditure could fairly be
described as ‘incurred in pursuance of’ the 1979 contract as well as in
pursuance of the subsequent agency contract in that Bechtel entered into the
latter contract in the course of and for the purpose of meeting its contractual
obligations to Mobil under the 1979 contract. The question was whether the
relevant contract was the contract to which Mobil was a party and under which
Mobil undertook to indemnify Bechtel or the contract under which the relevant
work was done and under which the company which did that work was entitled to
be paid.
The question
in the present case is a different one; it is whether under the proviso to
section 3(1) a tenancy granted after April 18 1980 must be one granted in
pursuance of an obligation imposed by a contract entered into before that date.
I do not myself feel the least hesitation in answering this question in the
affirmative. The words
words of indefinite and varying scope and the intended ambit must be discovered
from the context and the purpose to be inferred from it. Lord Wilberforce in Gartside
v Inland Revenue Commissioners [1968] AC 553 at p 617 said of the word
‘interest’:
It can be
accepted that ‘interest’ is capable of a very wide and general meaning. But the
wide spectrum that it covers makes it all the more necessary, if precise
conclusions are to be founded upon its use, to place it in a setting: Viscount
Radcliffe, delivering the Board’s judgment in Commissioner of Stamp Duties
(Queensland) v Livingston [1965] AC 694 shows how this word has to
do duty in several quite different legal contexts to express rights of very
different characters and that to transfer a meaning from one context to another
may breed confusion.
That
observation I think is equally applicable to the phrase ‘in pursuance of’. The
words ‘in pursuance of a contract’ are no doubt capable of being given a very
wide and indefinite scope in some contexts as extending, for instance, to acts
done to enable a contracting party to discharge his obligations under a
contract. However, in the context of the proviso to section 3(1) the intention
could only have been to extend proviso (a) to cover leases granted in
pursuance of an obligation in a contract entered into before April 18 1980. The
words would otherwise be too vague and indefinite. Mr Neuberger submitted that
the proviso is satisfied if the grant of an underlease terminable by notice
after a death was contemplated by the parties to a lease as the only way in
which the lessee would in practice be able to make any commercial use of the
benefit of his interests under the lease. In the present case, of course, the
lessee paid a considerable premium for the lease and undertook to build three
houses on it and was unable, save with the lessor’s consent, to dispose of the
lease by assignment or underletting except on the terms of the draft underlease
scheduled to the lease. I think the answer to that submission is that it cannot
have been contemplated that the application of the proviso should depend on an
inquiry into whether a lessor or underlessee entering into a lease or contract
in these terms, while not legally bound, would as a practical matter be
commercially bound to do so.
It seems to me
that the plain purpose of adding the words ‘or in pursuance of a contract
entered into before that date’ was to ensure that a lessor or underlessor would
not be prejudiced by the accidental circumstance that a contract for a lease
had not actually been completed before April 18 1980. In practice, of course,
parties to a contract for the grant of a lease are frequently content to rely
on the contract without proceeding to and incurring the expense of execution
and stamping of a lease.
Mr
Stewart-Smith submitted that the defendants’ underlease falls outside the
proviso on another ground, that under the proviso the relevant contract must be
one under which the landlord is bound to grant and a tenant to take a lease
containing the relevant provision for termination. I feel myself some doubt
whether that submission is well founded. Prima facie if a lessor granted
a lease and the lessee undertook to grant an underlease in the appropriate form
to a third party the underlease would be one granted ‘in pursuance of’ a
contractual obligation contained in the lease albeit that it might not be one
enforceable by the stranger. However, on the view I take on the main question
this question does not arise and I express no concluded opinion on it.
In my
judgment, therefore, the defendants are entitled to acquire the freehold in
accordance with the Act, proviso (a) having no application, and I will
make a declaration in the appropriate terms.
Is there any
dispute about costs? Then I will order
the plaintiff to pay the defendants’ costs.