Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Charitable housing trust — Whether flats let on long leases held for charitable purposes — Whether tenants of charitable housing trust entitled to exercise rights of collective enfranchisement
The appellant charitable housing trust was the freeholder of two blocks of flats that were formerly owned by a London borough council. Approximately two-thirds of the flats were held by tenants who had exercised the right to buy and who therefore held long leases. A number of these tenants served notices purporting to initiate the collective enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 1993; the respondent was named as the nominee purchaser. The flats not held under long leases were subject to assured tenancies. The nominee purchaser accepted that the appellant was entitled to a leaseback of those flats. By its counternotices, the appellant asserted that, by virtue of section 5(2)(b) of the 1993 Act, none of the tenants holding long leases were “qualifying tenants” because all their flats formed “part of the housing accommodation provided by [the appellant]”, as a charitable housing trust, “in pursuit of its charitable purposes”. The appellant appealed the county court decision granting the respondent an order that the participating tenants were entitled to seek collective enfranchisement.
Held: The appeal was dismissed. The participating tenants were entitled to seek collective enfranchisement. The natural meaning of section 5(2)(b) is that “the housing accommodation provided by [the charitable trust]” consists of the flats that it lets in pursuit of its charitable purposes. Such flats were those let by a housing trust and those let as social housing. In the case of the two blocks of flats, the flats let under assured tenancies, but not those held under long leases, constituted housing accommodation provided by a housing trust. The fact that the landlord was a charitable housing trust, and that some of the flats were let in pursuit of its charitable objects, did not disqualify the participating tenants.
The following case is referred to in this report.
Cadogan v McGirk; sub nom Viscount Chelsea v McGirk [1996] 4 All ER 643; (1996) 73 P&CR 483; [1996] 2 EGLR 75; [1996] 39 EG 175; (1996) 29 HLR 294, CA
This was an appeal by the appellant, Richmond Housing Partnership Ltd, from a decision of Judge Levy, sitting in Central London County Court, granting relief to the respondent, Brick Farm Management Ltd, on its application for an order under section 22 of the Leasehold Reform, Housing and Urban Development Act 1993.
Andrew Arden QC and Jonathan Manning (instructed by Devonshires) appeared for the appellant; Anthony Radevsky (instructed by Wallace LLP) represented the respondent.
Giving judgment, Stanley Burnton J said:
Introduction
1. This is an appeal by Richmond Housing Partnership Ltd from the order dated 6 January 2005 of Judge Levy, sitting in Central London County Court, in which he made declarations that participating tenants of the flats known as 10-17 and 26-41 Brick Farm Close, Kew Gardens in Richmond, Surrey, were, on the relevant date, entitled to exercise the right to collective enfranchisement conferred by Chapter 1 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). It raises an important issue as to the scope of the exclusion of charitable housing trusts from the collective enfranchisement provisions of the 1993 Act. The same exclusion applies to the individual right to acquire a new lease under the provisions in Chapter 2 of Part 1 of the 1993 Act, and the same issue therefore arises in that context.
2. The appellant contends that the judge erred in holding that the tenants seeking collective enfranchisement were qualifying tenants within the meaning of section 5. It was, and is, common ground that the appellant is their immediate landlord and is a charitable housing trust. It submitted that the judge should have held that each of those tenants was excluded from the right to collective enfranchisement because his or her flat “forms part of the housing accommodation provided by (the Appellant) in the pursuit of its charitable purposes” within the meaning of section 5(2)(b) of the 1993 Act. The respondent, Brick Farm Management Ltd, submitted that the judge correctly decided that the participating tenants’ flats did not form part of the housing accommodation so provided by the appellant.
Facts
3. These proceedings concern two blocks of flats, one of which contains flats 10-17 Brick Farm Close and the other flats 26-41 Brick Farm Close. The freehold of both blocks was formerly owned by Richmond London Borough Council (the council). Many of the tenants exercised the right to buy under the Housing Act 1985 (the 1985 Act), and, in consequence, acquired long leases, for terms of 21 years or more, of their flats.
4. The appellant was established in 2000. It is a charitable housing trust within the meaning of section 5 of the 1993 Act. In August 2000, it acquired the housing stock of the council, and thereby acquired the freehold of Brick Farm Close, subject to the existing leases and tenancies.
5. Chapter 1 of Part 1 of the 1993 Act confers on certain tenants of flats the right to collective enfranchisement, that is, the right to acquire the freehold of the house or block in which their flats are situated. For present purposes, the key definition in the 1993 Act is that of a “qualifying tenant”. In order to exercise the right of collective enfranchisement, not less than two-thirds of the flats in the building must be let to qualifying tenants, and at least one-half of the qualifying tenants must exercise the right. Those tenants who exercise the right |page:58| must name a nominee purchaser to conduct the proceedings relating to the purchase.
6. When the appellant acquired the freehold to the blocks of flats in question, at least two-thirds of the flats were let in consideration for the payment of a premium on long leases for terms of 125 years. The remainder were and are let under assured tenancies. The respondent accepts that the assured tenancies are accommodation provided by the appellant in the pursuit of its charitable purposes.
7. At least half of the tenants of the blocks of flats with long leases (the participating tenants) wished to exercise the right to collective enfranchisement. By notices dated 19 February 2004, the respondent, as their nominee purchaser, purported to initiate the collective enfranchisement process in relation to flats 10-17 and 26-41 Brick Farm Close. It accepted that, under the provisions of the 1993 Act, it would have to grant a reversionary lease to the appellant in respect of the flats that were the subject of assured tenancies: the assured tenants would therefore continue to be tenants of the appellant. In its counternotice dated 21 April 2004, the appellant did not admit that the participating tenants were entitled to exercise the right to collective enfranchisement. It asserted that, by virtue of section 5(2)(b) of the 1993 Act, none of them was a qualifying tenant within the meaning of the Act because all their flats form “part of the housing accommodation provided by it”, as a charitable housing trust, “in the pursuit of its charitable purposes”.
8. The only issue before the judge was whether section 5(2)(b) applies so as to exclude the participating tenants from the right to collective enfranchisement under Chapter 1 of Part 1 of the 1993 Act. As stated above, he held that it does not.
Legislative provisions
9. So far as is relevant, sections 1, 3, 5, 7 and 13 of the 1993 Act, as amended by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002 (the 2002 Act), are as follows:
The right to collective enfranchisement
1.-(1) This Chapter has effect for the purpose of conferring on qualifying tenants of flats contained in premises to which this Chapter applies on the relevant date the right, exercisable subject to and in accordance with this Chapter, to have the freehold of those premises acquired on their behalf –
(a) by a person or persons appointed by them for the purpose, and
(b) at a price determined in accordance with this Chapter;
and that right is referred to in this Chapter as “the right to collective enfranchisement”.
(2) Where the right to collective enfranchisement is exercised in relation to any such premises (“the relevant premises”) –
(a) the qualifying tenants by whom the right is exercised shall be entitled, subject to and in accordance with this Chapter, to have acquired, in like manner, the freehold of any property which is not comprised in the relevant premises but to which this paragraph applies by virtue of subsection (3); and
(b) section 2 has effect with respect to the acquisition of leasehold interests to which paragraph (a) or (b) of subsection (1) of that section applies.
(3) Subsection (2)(a) applies to any property if at the relevant date either –
(a) it is appurtenant property which is demised by the lease held by a qualifying tenant of a flat contained in the relevant premises; or
(b) it is property which any such tenant is entitled under the terms of the lease of his flat to use in common with the occupiers of other premises (whether those premises are contained in the relevant premises or not).
(4) The right of acquisition in respect of the freehold of any such property as is mentioned in subsection (3)(b) shall, however, be taken to be satisfied with respect to that property if, on the acquisition of the relevant premises in pursuance of this Chapter, either –
(a) there are granted by the person who owns the freehold of that property –
(i) over that property, or
(ii) over any other property,
such permanent rights as will ensure that thereafter the occupier of the flat referred to in that provision has as nearly as may be the same rights as those enjoyed in relation to that property on the relevant date by the qualifying tenant under the terms of his lease; or
(b) there is acquired from the freeholder the freehold of any other property over which any such permanent rights may be granted.
…
(7) In this section –
“appurtenant property”, in relation to a flat, means any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the flat;
“the relevant premises” means any such premises as are referred to in subsection (2).
(8) In this Chapter “the relevant date”, in relation to any claim to exercise the right to collective enfranchisement, means the date on which notice of the claim is given under section 13.
…
Premises to which this Chapter applies
3.-(1) Subject to section 4, this Chapter applies to any premises if –
(a) they consist of a self-contained building or part of a building;
(b) they contain two or more flats held by qualifying tenants; and
(c) the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises.
…
Qualifying tenants
5.-(1) Subject to the following provisions of this section, a person is a qualifying tenant of a flat for the purposes of this Chapter if he is a tenant of the flat under a long lease.
(2) Subsection (1) does not apply where –
(a) the lease is a business lease; or
(b) the immediate landlord under the lease is a charitable housing trust and the flat forms part of the housing accommodation provided by it in the pursuit of its charitable purposes; or
(c) …;
and in paragraph (b) “charitable housing trust” means a housing trust within the meaning of the Housing Act 1985 which is a charity within the meaning of the Charities Act 1993.
…
Meaning of “long lease”
7.-(1) In this Chapter “long lease” means (subject to the following provisions of this section) –
(a) a lease granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant or by re-entry, forfeiture or otherwise;
(b) a lease for a term fixed by law under a grant with a covenant or obligation for perpetual renewal (other than a lease by sub-demise from one which is not a long lease) or a lease taking effect under section 149(6) of the Law of Property Act 1925(leases terminable after a death or marriage);
(c) a lease granted in pursuance of the right to buy conferred by Part V of the Housing Act 1985 or in pursuance of the right to acquire on rent to mortgage terms conferred by that Part of that Act; or
(d) a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant’s total share is 100 per cent.
…
(7) In this section –
“appurtenant property” has the same meaning as in section 1;
“shared ownership lease” means a lease –
(a) granted on payment of a premium calculated by reference to a percentage of the value of the demised premises or the cost of providing them, or
(b) under which the tenant (or his personal representatives) will or may be entitled to a sum calculated by reference, directly or indirectly, to the value of those premises; and
“total share”, in relation to the interest of a tenant under a shared ownership lease, means his initial share plus any additional share or shares in the demised premises which he has acquired.
…
Notice by qualifying tenants of claim to exercise right
13.-(1) A claim to exercise the right to collective enfranchisement with respect to any premises is made by the giving of notice of the claim under this section.
(2) A notice given under this section (“the initial notice”) –
(a) must
(i) in a case to which section 9(2) applies, be given to the reversioner in respect of those premises; and
(ii) in a case to which section 9(2A) applies, be given to the person specified in the notice as the recipient; and
(b) must be given by a number of qualifying tenants of flats contained in the premises as at the relevant date which
(i) …
(ii) is not less than one-half of the total number of flats so contained;
(2A) In a case to which section 9(2A) applies, the initial notice must specify –
(a) a person who owns the freehold interest in the premises, or |page:59|
(b) if every person falling within paragraph (a) is a person who cannot be found or whose identity cannot be ascertained, a relevant landlord,
as the recipient of the notice.
(3) The initial notice must –
(a) specify and be accompanied by a plan showing –
(i) the premises of which the freehold is proposed to be acquired by virtue of section 1(1),
(ii) any property of which the freehold is proposed to be acquired by virtue of section 1(2)(a), and
(iii) any property over which it is proposed that rights (specified in the notice) should be granted in connection with the acquisition of the freehold of the specified premises or of any such property so far as falling within section 1(3)(a);
(b) contain a statement of the grounds on which it is claimed that the specified premises are, on the relevant date, premises to which this Chapter applies;
(c) specify –
(i) any leasehold interest proposed to be acquired under or by virtue of section 2(1)(a) or (b), and
(ii) any flats or other units contained in the specified premises in relation to which it is considered that any of the requirements in Part II of Schedule 9 to this Act are applicable;
(d) specify the proposed purchase price for each of the following, namely –
(i) the freehold interest in the specified premises…,
(ii) the freehold interest in any property specified under paragraph (a)(ii), and
(iii) any leasehold interest specified under paragraph (c)(i);
(e) state the full names of all the qualifying tenants of flats contained in the specified premises and the addresses of their flats, and contain the following particulars in relation to each of those tenants –
(i) such particulars of his lease as are sufficient to identify it, including the date on which the lease was entered into, the term for which it was granted and the date of the commencement of the term,
(f) state the full name or names of the person or persons appointed as the nominee purchaser for the purposes of section 15, and an address in England and Wales at which notices may be given to that person or those persons under this Chapter; and
(g) specify the date by which the reversioner must respond to the notice by giving a counter-notice under section 21.
…
(12) In this Chapter “the specified premises”, in relation to a claim made under this Chapter, means –
(a) the premises specified in the initial notice under subsection (3)(a)(i), or
(b) if it is subsequently agreed or determined under this Chapter that any less extensive premises should be acquired in pursuance of the notice in satisfaction of the claim, those premises;
and similarly references to any property or interest specified in the initial notice under subsection (3)(a)(ii) or (c)(i) shall, if it is subsequently agreed or determined under this Chapter that any less extensive property or interest should be acquired in pursuance of the notice, be read as references to that property or interest.
(13) Schedule 3 to this Act (which contains restrictions on participating in the exercise of the right to collective enfranchisement, and makes further provision in connection with the giving of notices under this section) shall have effect.
10. Section 6 of the 1985 Act defines “housing trust” as follows:
In this Act “Housing trust” means a corporation or body of persons which –
(a) is required by the terms of its constituent instrument to use the whole of its funds, including any surplus which may arise from its operations, for the purpose of providing housing accommodation, or
(b) is required by the terms of its constituent instrument to devote the whole, or substantially the whole, of its funds for charitable purposes and in fact uses the whole, or substantially the whole, of its funds for the purpose of providing housing accommodation.
Discussion
11. Mr Andrew Arden QC, on behalf of the appellant, submitted that, prior to interpreting the relevant provisions of the 1993 Act as it has been amended, it was necessary to consider the Act in its unamended form. As enacted, section 5(1) included a requirement that the long lease of a qualifying tenant should be at a low rent. However, I do not think that, in the present case, I am assisted by seeking to construe the unamended 1993 Act, assuming that it is legitimate to do so.
12. Mr Arden pointed out that, in practice, charitable housing trusts do not grant long leases (that is, leases for terms exceeding 21 years) in pursuance of their charitable function. Their charitable function is normally to provide accommodation to persons in need or who cannot afford to purchase their homes on the open market. The effect of granting a long lease is to remove a flat from the stock of accommodation that the trust can provide as social housing. Parliament must be taken to have been aware that charitable housing trusts do not grant long leases. It follows that it could not have intended section 5(2)(b) to exclude from enfranchisement only long leases of flats provided by charitable housing trusts in the pursuit of their charitable purposes: that interpretation would deprive the provision of any practical effect. Its scope would be negligible.
13. He also pointed out that there is no similar exemption in the right to manage provisions in Part 2 of the 2002 Act, which otherwise has similar provisions defining a long lease to which it applies. It follows, he submitted, that a difference must have been intended, that is, that tenants such as the participating tenants in the present case have a right to manage under the 2002 Act but not be entitled to collective enfranchisement under the 1993 Act.
14. Fortified by these considerations, Mr Arden submitted that the block of flats, some of the tenants of which would otherwise be qualifying tenants, is “the housing accommodation provided by (the charitable housing trust)” within the meaning of para (b) of section 5(2) of the 1993 Act. Since, in this case, the blocks include other flats let by the trust on assured tenancies pursuant to its charitable purposes, the tenants under long leases are not qualifying tenants. This interpretation of the section gives practical effect to the exclusion in that paragraph.
15. Mr Arden drew to my attention another curious feature of the 1993 Act. Shared ownership leases, as defined in section 7, are always, or virtually always, for a term of years exceeding 21 years. Such leases have, or are expected to have, a capital value: they have either been granted on payment of a premium or confer on the tenant a right to a proportion of the value of the premises; they must therefore be for a term having a realisable value, and that means a term of 60 or 99 years or more. It follows that, in practice, all shared ownership leases are long leases within the meaning of section 7(1)(a). On the face of it, therefore, para (d) of section 7(1) is otiose. Indeed, the restriction of the paragraph to a shared ownership lease where the tenant’s share is 100% suggests that a tenant under such a lease with a share of 90% of the value of the premises is not a qualifying tenant. It was for this reason that Mr Arden submitted that para (a) has to be read as referring to leases other than shared-ownership leases. Despite the curious result that para (d) appears to have no practical effect, I cannot accept this submission, which does violence to the words of section 7. Parliament cannot be taken to have intended to restrict the unqualified ambit of para (a) of section 7(1) by adding a paragraph purporting to widen rather than to narrow the definition of “long lease”.
16. The same observation may be made in relation to para (c) of section 7(1). A lease of a flat acquired under the right to buy provisions of the 1985 Act will always be for a minimum term of 50 years, since if the landlord’s term was less than this the right to buy provisions are excluded by para 4(b) of Schedule 5 to that Act. Thus, it appears that para (c), too, is otiose.
17. Mr Anthony Radevsky referred me to the approach to the construction of the 1993 Act adopted by the Court of Appeal in Cadogan v McGirk [1996] 4 All ER 643*. Millett LJ, in a judgment with which the other members of the court agreed, said:
Principles of construction
There was some discussion before us of the proper approach which should be adopted to the construction of the 1993 Act. Two particular questions were canvassed. The first was whether the Act, being expropriatory in nature, must be strictly construed. A man, it was said, is not to have his property compulsorily |page:60| acquired except by plain language. Support for this proposition may be found in the judgments of all three members of this court in Methuen-Campbell v Walters [1979] 1 All ER 606, [1979] QB 525, which was a decision on the 1967 Act. This is not, however, the approach which has been adopted since. In Jones v Wrotham Park Settled Estates [1979] 1 All ER 286 at 295, [1980] AC 74 at 113, Lord Russell said of this point: “I attribute minimal if any force to this point, and regard only the statutory provisions.” Similarly, in Manson v Duke of Westminster [1981] 2 All ER 40 at 48, [1981] QB 323 at 332, Stephenson LJ said: “I would… regard the expropriatory nature of the 1967 Act as of little weight in construing its provisions…” I respectfully agree. It would, in my opinion, be wrong to disregard the fact that, while the 1993 Act may to some extent be regarded as expropriatory of the landlord’s interest, nevertheless it was passed for the benefit of tenants. It is the duty of the court to construe the 1993 Act fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy.
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* Editor’s note: Also reported at [1996] 2 EGLR 75
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18. Mr Radevsky submitted that “the housing accommodation provided by (the charitable housing trust)” within the meaning of section 5(2)(b) are the flats that it lets in pursuit of its charitable purposes. He did not, however, suggest that the requirement that the housing accommodation be provided by a charitable housing trust restricts section 5(2)(b) to leases that it has granted, and accepted that it applies to leases of flats let as social housing of which it is the immediate landlord. He accepted that this interpretation deprives that paragraph of virtually all, if not all, practical effect, but submitted that this was the clear meaning and purpose of that provision.
19. The judge held that Mr Radevsky’s interpretation of section 5(2)(b) is in accordance with its natural meaning. I agree. The meaning of section 5(2)(b) becomes clear when one takes account of the wording of section 6 of the 1985 Act, which is expressly referred to in section 5(2). It is clear that in that provision “the housing accommodation” provided by a housing trust is the social housing it provides. In 10-17 and 26-41 Brick Farm Close, that accommodation is the flats let on assured tenancies. The flats let on long leases are not accommodation provided by the appellant, and certainly not accommodation provided by it in the pursuit of its charitable objects.
20. The judge was greatly influenced by the practical consequences of the appellant’s case. It would mean that when a charitable housing trust acquires the freehold of a block of flats the majority of which are let on long leases, with a minority let on assured tenancies, the tenants with long leases lose both their right to collective enfranchisement and their individual right to acquire a new lease under Part 1 of the Act. Indeed, on the appellant’s case, that happened in the present case. Until August 2000, the blocks of flats were owned by a local authority, and flats let by local authorities are not excluded from the scope of those rights. If Mr Arden’s submission is correct, if one flat out of 99 in a block of flats is social housing and the remainder is let on long leases, if the landlord is a charitable housing trust the tenants of the 99 lose, or do not have, any right to collective enfranchisement. On the expiry of their long leases, the tenants would have no capital asset, and would become assured tenants. I agree that these are consequences of the appellant’s case that parliament is unlikely to have intended.
21. Other wording of the 1993 Act also points against Mr Arden’s submission. The Act uses the expressions “the relevant premises”, defined in section 1, and “the specified premises”, defined in section 13(12), to refer to the block or building in which flats are contained. Had parliament intended to exclude a case such as the present from the right to collective enfranchisement, section 5(2)(b) would have excluded “relevant premises that include accommodation provided by a charitable housing trust in the pursuit of its charitable purposes”. The exclusions from the right to collective enfranchisement and the individual right to acquire a new lease under the 1993 Act are narrow: see sections 94 to 96. Had parliament intended an exclusion of the width contended for by Mr Arden, one would have seen provisions relating to charitable housing trusts such as those in those sections.
22. This consequence means that the fact that the tenants under long leases in the blocks of flats in question in this appeal are entitled to exercise the right to manage under Part 2 of the 2002 Act is not anomalous.
23. It is less surprising that section 5(2)(b) should have little, if any, practical effect when one sees that other provisions of this part of the Act have no or little effect. Paragraph (c) of section 7(1), as has been seen, adds nothing to para (a). Paragraph (d) is probably a left-over from the unamended Act, which, as originally enacted, excluded long leases let otherwise than at a low rent. Shared ownership leases are seldom at a low rent, since a rent must be paid in respect of the landlord’s retained share. Paragraph (d) made the tenant a qualifying tenant once he had bought out his landlord’s share. It became otiose when the exclusion of long leases let otherwise than at a low rent was removed by the 2002 Act, but parliament omitted to delete it from the remaining provisions of the 1993 Act.
24. The judge’s construction of the 1993 Act accords with the summary of its effect in Hill and Redman’s Law of Landlord and Tenant, at E438, which assumes that para (b) of section 5(2) applies only when the tenant’s long lease was granted by a charitable housing trust in pursuance of its charitable purposes. Hague on Leasehold Enfranchisement (4th ed) is to the same effect, although since Mr Radevsky is one of its authors this merely demonstrates consistency on his part, and I do not regard it as authority.
25. Finally, like the judge, I was invited to refer to part of the debate that preceded the passing of the Act in Hansard. I do not consider that the wording of section 5 is ambiguous so as to justify my doing so.
Conclusion
26. For the reasons set out above, in my judgment, the judge reached the correct conclusion. The fact that the freehold owner of the blocks of flats in question is a charitable housing trust, and that some flats in the blocks are let by it in the pursuit of its charitable objects, does not disqualify the participating tenants from the right to collective enfranchisement. The appeal will be dismissed.
Appeal dismissed.
