Leasehold enfranchisement — Landlord and Tenant Act 1987 — Whether valid section 6 notice served — Whether a tenant entitled to withdraw from acquisition process notwithstanding irrevocable agreement with other tenants to proceed
By an agreement
dated January 17 1996 the tenants of a block of flats entered into an agreement
expressed to be irrevocable that, in the event of the landlords serving a
notice under section 5 of the Landlord and Tenant Act 1987, they would accept
the offer; the tenants, who included A, signed a draft notice of acceptance
under section 6. The first respondent landlords gave a notice dated March 15
1996 under section 5 of the Landlord and Tenant Act 1987; they informed the
tenants that they intended to dispose of their interest. The appellant served a
photostat copy of the draft section 6 notice in response, which included the
signature of A. In fact A had withdrawn his authority and support on February 5
1996. In the court below the judge held that A was entitled to withdraw his
support. As there was no longer a qualifying majority of tenants, the tenants
were not entitled to acquire the freehold. The appellant, one of the tenants,
appealed.
Before the appellant served the photostat copy which purported to be a section
6 notice, A had to her knowledge crossed out his signature on the copy in his
possession; he had made known that he did not accept the offer. In the context
of the 1987 Act a tenant cannot by contract deprive himself of his right to
withdraw his acceptance of the landlords’ offer. The appointment by the tenants
of one of their number as agent is not irrevocable in this context.
The following
cases are referred to in this report.
Belvedere
Court Management Ltd v Frogmore Developments Ltd
[1996] 1 All ER 312; [1996] 1 EGLR 59; [1996] 05 EG 131
Mainwaring
v Henry Smith’s Charity Trustees [1996] 2
All ER 220; [1996] 2 EGLR 25; [1996] 29 EG 110
Smart v Sandars (1848) 5CB 895
Southern
Foundries (1926) Ltd v Shirlaw [1940] AC 707
This was an
appeal by Zipporah Mainwaring from a decision of Judge Cowell in West London
County Court whereby he dismissed the application of the appellant and the
second plaintiff, Yeoman’s Row Management Ltd, for an order that the
respondents, Henry Smith’s Charity Trustees, provide and enter into a contract
to sell premises under the Landlord and Tenant Act 1987.
The appellant
appeared in person; Timothy Fancourt (instructed by Denton Hall) represented
the respondents.
Giving
judgment at the invitation of Hirst LJ, Pill
LJ said: This is the second occasion this year when Miss Mainwaring and the
trustees of Henry Smith’s Charity have appeared before this court in a dispute
arising from the sale of a building containing flats and known as 38 to 62
(even numbers) Yeoman’s Row, London SW3 (‘the building’), and the application
of the Landlord and Tenant Act 1987 (‘the Act’). Miss Mainwaring seeks a sale
by the trustees to her and Yeoman’s Row Management Ltd (‘the company’) of the
building under the provisions of sections 6 and 19 of the Act. Miss Mainwaring
is the statutory tenant of a flat in the building.
In the appeal
heard in February 1996, Mainwaring v Henry Smith’s Charity Trustees
[1996] 2 All ER 220*, Sir Thomas Bingham MR, giving the judgment of the court,
stated at p223c:
*Editor’s
note: Also reported at [1996] 2 EGLR 25
The Act
provides that if, in certain closely defined situations, a landlord proposes to
dispose of his interest in premises of a certain kind, the tenants living in
those premises shall have a priority right to acquire that interest on the same
terms as those on which the landlord is willing to dispose of the interest to
another. The long title of the 1987 Act describes it as ‘An Act to confer on
tenants of flats rights with respect to the acquisiton by them of their
landlord’s reversion’…
The court
held, inter alia, and allowing the appeal of Miss Mainwaring, who is the
appellant in the present appeal, that the trustees, when proposing to sell the
building to the trustees of the Wellcome Trust, should have served notice under
section 5 of the Act on the appellant and other qualifying tenants. That
section provides for the service of notices by a landlord who proposes to make
a relevant disposal. A suggestion that she is entitled to relief in this
action, because of the delay caused by the need for her to pursue the earlier
appeal, sensibly has not being pursued by the appellant.
Section 5
notices were served on March 15 1996. On March 25 the appellant served what
purported to be a notice under section 6 of the Act accepting an offer to
purchase the building for a sum of just over £1m, and stating in clause 4 that
she and the company had:
been
nominated for the purposes of Section 6 of the Act as being the only persons to
whom the disposal of your estate or interest in the property may be made during
the relevant period as prescribed by the Act.
Section 6
provides in so far as is relevant:
(1) Where —
(a)
the landlord has, in accordance with the provisions of section 5, served an
offer notice on the qualifying tenants of the constituent flats, and
(b)
within the period specified in that notice under section 5(2)(c), a
notice is served on him by the requisite majority of qualifying tenants of the
constituent flats informing him that the persons by whom it is served accept
the offer contained in his notice,
the landlord
shall not during the relevant period dispose of the protected interest except
to a person or persons nominated for the purposes of this section by the
requisite majority of qualifying tenants of the constituent flats.
(2) In
subsection (1) ‘the relevant period’ means —
(a) in
every case, the period beginning with the date of service of the acceptance
notice and ending with the end of the period specified in the offer notice
under section 5(2)(d), and
(b) if
any person is nominated for the purposes of this section within that period, an
additional period of three months beginning with the end of the period so
specified.
(3) If no
person has been nominated for the purposes of this section during the period so
specified, the landlord may, during the period of 12 months beginning with the
end of that period, dispose of the protected interest to such person as he
thinks fit, but subject to the following restrictions, namely —
(a)
that the consideration required by him for the disposal must not be less than that
specified in the offer notice, and
(b)
that the other terms on which the disposal is made must, so far as relating to
any matters covered by the terms specified in the offer notice, correspond to
those terms …
(5) A person
nominated for the purposes of this section by the requisite majority of
qualifying tenants of the constituent flats may only be replaced by another
person so nominated if he has (for any reason) ceased to be able to act as a
person so nominated.
(6) Where two
or more persons have been so nominated and any of them ceases to act as such a
person without being replaced in accordance with subsection (5), any remaining
person or persons so nominated shall be entitled to continue to act in his or
their capacity as such.
What was
served was a photocopy document containing the signature of five of the eight
tenants of the building, including Mr James Addison. There is no majority of
qualifying tenants for the purpose of section 6 unless he is included.
On April 9
1996 the appellant served on the trustees a notice under section 19 of the Act,
which deals with enforcement of obligations under the Act, requiring them to
provide her with a draft contract for the purchase of the building. Upon their
failure to do so, she issued on June 16 an originating application for an order
that the trustees provide and enter into a contract. The trustees served a
counternotice under section 19, requiring the appellant to serve a notice under
section 9(3) of the Act, and they sought a declaration that the section 5 offer
had not been validly accepted, and in the alternative, an order requiring
service of a section 9(3) notice.
The case came
before Judge Cowell in West London County Court on September 16 1996. Several
issues of fact were determined by the learned judge and are not the subject of
appeal. The judge dismissed Miss Mainwaring’s application and made a
declaration that:
No valid
acceptance of the offer contained in the respondent’s section 5 notice was made
by the requisite majority of qualifying tenants of the constituent flats in the
property by May 15th 1996 or at all, and that accordingly the respondents are
free to proceed with the sale of the property to the Wellcome Trust Limited.
The case, so
far as it is now relevant, turns upon the conduct of the appellant and Addison
and the effect of that conduct in the statutory context.
Section 9 of
the Act bears the side heading ‘Withdrawal of either party from transaction’,
and provides so far as is relevant:
(1) Where —
(a)
section 6(1) applies to a landlord by virtue of any provision of sections 6 to
8, and
(b)
any person has been nominated for the purposes of section 6 by the requisite
majority of qualifying tenants of the constituent flats within the period
specified by the landlord in his offer notice under section 5(2)(d)
(taking into account any postponement of the commencement of that period
effected by any of the preceding provisions of this Part), and
(c)
the nominated person serves a notice on the landlord indicating an intention no
longer to proceed with the acquisition of the protected interest,
the landlord
may, during the period of 12 months beginning with the date of service of the
nominated person’s notice, dispose of the protected interest to such person as
he thinks fit, but subject to the restrictions mentioned in subsection (2).
(2) The
restrictions referred to in subsection (1) are —
(a)
that the consideration required by him for the disposal must not be less than
the amount which has been agreed to by the parties (subject to contract) for
the disposal of the protected interest, and
(b)
that the other terms on which the disposal is made must correspond to those so
agreed to by the parties in relation to the disposal.
(3) If at any
time the nominated person becomes aware that the number of the qualifying
tenants of the constituent flats desiring to proceed with the acquisition of
the protected interest is less than the requisite majority of qualifying
tenants of those flats, he shall forthwith serve on the landlord such a notice
as is mentioned in subsection (1)(c) …
(8) Nothing
in this section applies where a binding contract for the disposal of the
protected interest has been entered into by the landlord and the nominated
person.
The section
also deals with the question of costs following the service of notices.
It is also
relevant to refer to section 20(2) of the Act, which provides that:
(a)
any reference to an offer or counter-offer is a reference to an offer or
counter-offer made subject to contract, and
(b)
any reference to the acceptance of an offer or counter-offer is a reference to
its acceptance subject to contract.
The judge
found that on January 17 1996 Addison, as a tenant, made an agreement in
writing with the appellant and the company. It provides in clause 1:
In
consideration of the undertaking contained in clause 2 hereof the Tenants agree
irrevocably that in the event of a Notice being served pursuant to the
provisions of Section 5 of the Act such of the Tenants as is then the
qualifying Tenant will accept the offer contained in such Notice within the
period stipulated in the Act and will nominate the Company and Ms Mainwaring in
accordance with the provisions of Section 6 of the Act.
Clause 2
limited the rent which would be payable in the event of an acquisition by the
appellant or the company.
Addison also
signed in a separate document a section 6 notice prepared by the appellant.
Clause 4 has already been mentioned. Clause 2 states:
A requisite
majority of the qualifying tenants in the Property have decided that they wish
to accept the terms set out in the Offer Notice.
Clause 3:
We are duly
appointed by such majority to notify such acceptances to you and we give notice
under Section 6(1)(b) of the Act that the requisite majority of the qualifying
tenants, whose names and addresses appear in the schedule below and on whose
behalf this notice is served, accept the offer contained in the Offer Notice.
Addison’s name
and signature appear in the schedule.
The judge
found that on February 5 1996 Addison withdrew his ‘authority and support’.
Addison crossed out his signature on the section 6 notice still in his
possession, and stated that he withdrew his agreement to clause 3. He had
signed the draft section 6 notice at a date before the valid section 5 notice
had been served by the landlord. The judge also found that the appellant knew
of this withdrawal of the support and authority, although she believed it to be
ineffective because of the terms of her agreement with Addison. The judge also
found that Addison did not support the appellant at any time after February 5
1996 and did not desire to proceed with the project to acquire the freehold of
the property.
It has to be
said that Addison’s state of mind did vacillate as he spoke to different people
at the relevant times, and he does not appear to have made his position clear
to the trustees’ agents until much later. What the appellant served upon the
trustees was a photostat copy of the section 6 agreement which did not show the
deletion by Addison of his earlier signature. She inserted the date of the
section 5 notice, March 15, in the copy served. The judge found:
I have come
to the conclusion on this point of law that it is contrary to the policy of the
Act to rely upon the agreement of Mr Addison on January 17 or to enforce that
agreement in some way because he has, in my judgment, always been entitled to
decide at every stage under the Act whether he wishes to exercise his rights of
deciding whether or not to proceed.
The judge
stated that, while it was unnecessary to consider further points, he concluded
that Addison was entitled to revoke what in the January 17 agreement had been
described as an irrevocable contract.
The appellant
has appeared in person and has presented her arguments most persuasively. Her
central submission is that Addison could not withdraw his acceptance of the
offer contained in the section 5 notice when he had made an irrevocable
agreement with her not to do so and had signed and had signified his acceptance
of the offer by signing the draft section 6 notice. By signifying his
acceptance and making his nomination Addison had contracted into the Act. It
would be impracticable for tenants to exercise their right to purchase if
individual tenants could ‘jump in and out’, as the appellant put it. The Act
conferred no express right in a tenant to withdraw an acceptance and nomination
once made. Section 6(5) expressly limited the circumstances in which a person
nominated could be replaced, and given the purpose of the Act, it is submitted,
a tenant should not be permitted to withdraw an acceptance or nomination. The
parties are obliged to work towards the performance of their contracts with
other tenants. The appellant relied on no less an authority than Lord Atkin,
who stated in Southern Foundries (1926) Ltd v Shirlaw [1940] AC
707, at p717:
The
arrangement between the parties appears to me to be exactly described by the
words of Cockburn CJ in Stirling v Maitland (1864) 5 B&S 840,
852: ‘If a party enters into an arrangement which can only take effect by the
continuance of an existing state of circumstances’; and in such a state of
things the Lord Chief Justice said: ‘I look on the law to be that … there is an
implied engagement on his part that he shall do nothing of his own motion to
put an end to that state of circumstances, under which alone the arrangement
can be operative.’ That proposition in my opinion is well established law.
Personally I should not so much base the law on an implied term, as on a
positive rule of the law of contract that conduct of either promiser or
promisee which can be said to amount to himself ‘of his own motion’ bringing
about the impossibility of performance is in itself a breach.
Addison had created
a state of affairs, it is submitted, which was irreversible and he is obliged
to proceed. As to section 9(3), it is submitted that Addison has contracted
himself out of the right to withdraw and not to proceed. Any right to withdraw
which that subsection contemplates is qualified by arrangements such as the
present and made between tenants.
Adopting the
approach to the Act suggested by Hobhouse LJ in Belvedere Court Management
Ltd v Frogmore Developments Ltd [1996] 1 All ER 312*, at p335, the
appellant submits that section 9(3) is a secondary and not a substantive
provision and should not be construed so as to defeat the purpose of the Act,
which is the conferring upon tenants of the opportunity to purchase their
landlords’ interest.
*Editor’s
note: Also reported at [1996] 1 EGLR 59
I am unable to
accept that there was a valid section 6 notice. I would have regarded the
document served as a valid notice had it been what it purported to be. The
document purported to establish that by their signatures the majority of five
qualifying tenants accepted the landlords’ offer of March 15 1996. However,
before the appellant served the photostat copy which purported to establish that
acceptance, Addison had, to her knowledge, crossed out the signature on the
copy of the document in his possession and endorsed it ‘withdraw agreement to
clause 3’. He had thereby made it known that he did not accept the offer. I do
not doubt that one qualifying tenant can serve an acceptance on behalf of
others who signify their acceptance, but when to the knowledge of the person
effecting service Addison had indicated that he did not want to accept, there
is no service for the purposes of section 6.
I would say in
mitigation of the appellant’s conduct that she believed that Addison could not
in law withdraw his consent. He had vacillated, and it appears that even in
subsequent discussion with the trustees’ agent, who understandably made
inquiries, he did not make clear until much later that his acceptance had been
withdrawn. However, a photostat signature cannot in these circumstances signify
acceptance when the signature on the original document had previously been
crossed out. Further, I do not accept that in the context of this Act a tenant
can by contract deprive himself of his right to withdraw his acceptance of the
landlord’s offer. Until there is a binding contract for the purchase of the
premises, the offers and acceptances mentioned in the Act are subject to
contract: section 20(2). Time-limits are imposed in the statute at each stage
of the procedure. Until there is a binding contract, a nominated person is
under the duty set out in section 9(3). For the duty to inform the landlord to
arise, the nominated person need only be aware that the number of tenants
‘desiring to proceed’ is less than the requisite majority. A desire not to
proceed need not be expressed in any formal way. The duty in section 9(3) has
meaning only if a tenant has a freedom not to desire to proceed, which must
necessarily be read into the statutory framework. It is conferred by statute,
and cannot be surrendered by contract. The section 9(3) duty can be enforced by
an application under section 19. Section 6(5), by limiting the circumstances in
which the nominated person can be replaced, does limit the freedom of tenants
in the acquisition to that extent, but it does not, in my judgment, bear upon
the freedom to withdraw the ‘desire to proceed’ with the acquisition.
I would dismiss
the appeal on those grounds, and the case does not, in my view, turn upon the
question of agency upon which both parties addressed us. I would only say that
I cannot accept the submission that the appointment by tenants of one of their
number as agent is irrevocable in this context. It is not one of those
situations in which the authority is conferred as protecting or securing the
agent’s interest: see Smart v Sandars (1848) 5CB 895. Each of the
parties is acting in his own interests, although the benefits sought to be
obtained may vary. While the agent may be vulnerable to changes of mind, the
appointment did not confer a property or security interest on him.
Neither can I
accept the submission that arrangements made by parties seeking to utilise the
provisions of the Act are necessarily void. Initiating a section 6 procedure
may well have serious financial implication for the person doing so. Almost
anyone embarking upon a procedure to acquire tenancies to which the Act applies
will need to make some arrangements with other interested parties in an attempt
to protect his position along the way. It is not necessary in the present case
to consider what agreements or categories of agreement may be void or the
effect of breaches of agreement. For present purposes it need only be said that
the appellant’s agreement with Addison did not have the effect of defeating his
freedom to express a desire no longer to proceed with the acquisition.
The
difficulties of a tenant who seeks to mobilise fellow tenants to exercise their
rights under the Act are obvious, and there will inevitably be pitfalls along
the path to success. The appellant made considerable efforts to achieve a
purchase and feels let down by the change of mind of a fellow tenant who had
made a contract with her. However, as Sir Thomas Bingham stated in Mainwaring
v Henry Smith’s Charity Trustees at p235:
… the choice
between the competing contentions … must be governed by the proper construction
of the 1987 Act, and not by consideration of how the proper construction may in
practice affect either one party or the other.
I would
dismiss this appeal.
Peter Gibson and Hirst LJJ
agreed and did not add anything.
Appeal
dismissed.
