JUDGMENT:
MR JUSTICE LEWISON:
01 When are terms of acquisition agreed for the purposes of Section 24 Leasehold Reform (Housing and Urban Development) Act 1993? The date of agreement is important because it starts the procedural clock ticking for the making of various applications. The freeholder says that if a term of the agreement is not positively in dispute or if the tenant has no prospect of resisting the freeholder’s proposed term then it is agreed. The nominee purchaser says that in the absence of positive agreement there is no agreement. His Honour Judge Cryan agreed with the nominee purchaser. With the permission of Mr Justice Peter Smith, the freeholder appeals.
02 The facts are all agreed. The leaseholder served an initial notice on 6th March 2006 claiming the right to buy the freehold of
03 On 11th August 2006, the reversioner’s solicitors wrote to the nominee purchaser’s solicitors asking for the transfer to be amended by showing that the sale was to be with limited guarantee and incorporating a declaration that the transfer was executed for the purpose of Chapter 1 Leasehold Reform (Housing and Urban Development) Act 1993. The letter concluded: ‘This limited title guarantee and a declaration are the requirements of the 1993 Act.’ As Mr Swirsky, who appears for the Appellant, agrees, this was an overstatement of the legal position – at least as regards the limited title guarantee.
04 On 1st September 2006 the nominee purchaser’s solicitors sent a revised draft transfer. The judge found that it contained the required statement but still contained a covenant for full title guarantee.
05 On 8th September 2006 the nominee purchaser’s solicitors wrote to the reversioner’s solicitors asking for confirmation that the transfer was approved. Approval was not in fact forthcoming. On 11th September the reversioner’s solicitors said:
‘We have made one amendment to the transfer which is in item 10 to provide for the transfer with limited title guarantee. This is the requirement under the 1993 Act.’
Thus until 11th September the only draft transfer in existence was one which contained the full title guarantee. Little more was heard about the terms of the transfer until the nominee purchaser’s solicitor’s letter of 24th October 2006 in which they said:
‘Further to our telephone conversation we agree that having to exchange contracts is probably not necessary as we have agreed all terms of the acquisition. For the avoidance of doubt, we believe the agreement was made on 11th September in your letter when the last of the terms of the transfer were settled. We note from our telephone conversation that you also agree that all matters between us have been agreed.’
06 On 10th January 2007 the nominee purchaser issued a claim for an order commonly known as a vesting order. If time began to run earlier than 10th September 2006 the claim was out of time. Time begins to run when all the terms of the acquisition are agreed or determined by the Leasehold Valuation Tribunal (‘the LVT’). The reversioner says that the terms were agreed on 10th or 11th August when their solicitors asked for the draft transfer to be amended to include the limited title guarantee. The nominee purchaser says that they were not agreed until 11th September at the earliest when the transfer was in fact finally amended.
07 The basic scheme of Chapter 1 of the 1993 Act is as follows. Part 1 of Chapter 1 gives certain tenants of flats the right to collective enfranchisement as regards the freehold of the premises in which their flats are situated. In addition to the right to acquire the freehold of the flats, qualifying tenants also have the right under the 1993 Act to acquire the freehold of certain appurtenant premises and in some circumstances certain intermediate leasehold interests. Tenants who take advantage of this right to collective enfranchisement act through a nominee purchaser, usually a company created specifically for this purpose. The enfranchisement process is begun by the tenants by the service of an initial notice pursuant to Section 13. The initial notice must be served on behalf of not less than one-half of the qualifying tenants of any premises. These are known as the participating tenants. There is certain information which an initial notice must contain. This includes the proposed price to be paid for the freehold and any other property to be conveyed to the tenants, and details of the rights of the qualifying tenants to seek collective enfranchisement. It does not go into such details as what title guarantee is to be provided.
08 The next substantive step in the procedure is the service by the landlord of a counter notice under Section 21. The counter notice must either admit or dispute the participating tenants’ right to collective enfranchisement; and if the right is admitted must contain details of any counter proposals which the landlord wishes to put forward.
09 The next part of Part 1 deals with various applications that can be made either to the court or to the LVT. The relevant section for the purposes of this case is Section 24. This concerns applications relating to the terms of acquisition and the making of a binding contract. Section 24(1) provides as follows:
‘Where the reversioner in respect of a specified premises has given the nominee purchaser (a) a counter notice under Section 21 complying with a requirement set out in subsection (2)(a) of that Section, or (b) a further counter notice required by or by virtue of Section 22(3) or Section 23(5) or (6) but any of the terms of acquisition remain in dispute at the end of the period of two months beginning with the date on which the counter notice or further counter notice was so given, a Leasehold Valuation Tribunal may on the application of either the nominee purchaser or the reversioner determine the matters in dispute.
(2) Any application under subsection (1) must be made not later than the end of the period of six months beginning with the date on which the counter notice or further counter notice was given to the nominee purchaser.
(3) Where (a) the reversioner has given the nominee purchaser such a counter notice or further counter notice as is mentioned in subsection (1)(a) or (b), and (b) all of the terms of acquisition have been either agreed between the parties or determined by a Leasehold Valuation Tribunal under subsection (1) but a binding contract incorporating those terms has not been entered into by the end of the appropriate period specified in subsection (6) the court may on the application of either the nominee purchaser or the reversioner make such order under subsection (4) as it thinks fit.’
10 Section 24(4) sets out the orders that the court may make and these include what is commonly known as a vesting order. Section 24 continues:
‘(5) An application for an order under subsection (4) must be made not later than the end of the period of two months beginning immediately after the end of the appropriate period specified in subsection (6).
(6) For the purposes of this Section, the appropriate period is (a) where all the terms of acquisition have been agreed between the parties the period of two months beginning with the date when those terms were finally so agreed, (b) where all or any of those terms have been determined by a Leasehold Valuation Tribunal under subsection (1) (i) the period of two months beginning with the date when the decision of the Tribunal under that subsection becomes final or (ii) such other period as may have been fixed by the Tribunal when making its determination.’
11 I omit subsection (7). Section 24 continues:
‘(8) In this Chapter the terms of acquisition in relation to a claim made under this Chapter means the terms of the proposed acquisition by the nominee purchaser whether relating to (a) the interests to be acquired, (b) the extent of the property to which those interests relate or the rights to be granted over any property, (c) the amounts payable as the purchase price for such interests, (d) the apportionment of conditions or other matters in connection with the severance of any reversionary interest, or (e) the provisions to be contained in any conveyance or otherwise and includes any such terms in respect of any interests to be acquired in pursuance of Section 1(4) or (21)(4).’
12 Section 38(4) of the Act says that:
‘Any reference in this Chapter to agreement in relation to all or any of the terms of acquisition is a reference to agreement subject to contract.’
13 Under Section 28 the participating tenants may withdraw from the transaction at any time before a binding contract is entered into. They can withdraw even if the landlord makes an application to the court under Section 24(3). This is done by withdrawing the initial notice. Inevitably there are costs consequences of such a withdrawal. In addition, once an initial notice has been withdrawn there is a moratorium before the tenants can serve another. This may have the effect of increasing the price that they would have to pay on any subsequent exercise of the right to collective enfranchisement either because the market has risen or because the unexpired terms of their leases are shorter, or both.
14 As well as an actual withdrawal of an initial notice, the Act prescribes circumstances in which an initial notice is deemed to be withdrawn. Thus if the terms of acquisition have been agreed and no binding contract entered into, but no application is made to the court for a vesting order within the period of two months after the end of the appropriate period, then there is a deemed withdrawal of the initial notice under Section 20(2). There is also a deemed withdrawal under Section 24(2) and Section 29(2) if terms of acquisition remain in dispute and no application is made to the LVT within six months of the date of the counter notice. There are other circumstances as well but the details of these do not matter.
15 The contents of the conveyance are dealt with by Section 34. The parts of that Section relevant to this appeal are as follows:
‘(9) Except to the extent that any departure is agreed to by the nominee purchaser and person whose interest is to be conveyed, any conveyance executed for the purposes of this Chapter shall (a) as respects the conveyance of any freehold interest conform with the provisions of Schedule 7, and (b) as respects the conveyance of any leasehold interest conform with the provisions of para. 2 of that Schedule …
(10) Any such conveyance shall in addition contain a statement that it is a conveyance executed for the purposes of this Chapter and any such statement shall comply with such requirements as may be prescribed by land registration rules under the Land Registration Act 2002.’
16 Schedule 7 contains the following. In para. 2.2:
‘The freeholder shall not be bound (a) to convey to the nominee purchaser any better title than that which he has or could be required to be vested in him or (b) to enter into any covenant for title beyond those implied under Part 1 Law of Property (Miscellaneous Provisions) Act 1994 in a case where a disposition is expressed to be made with title guarantee, and in the absence of agreement to the contrary the freeholder shall be entitled to be indemnified by the nominee purchaser in respect of any costs incurred by him in complying with a covenant implied by virtue of Section 2(1)(b) of that Act (covenant for further assurance).’
17 Mr Swirsky says that the Act makes a binary distinction; either terms are agreed or they are in dispute. There is no halfway house. The mechanism for resolving disputes about the terms of a conveyance is to go to the LVT. If there is nothing for the LVT to decide there cannot by definition be a dispute. If there is no dispute then by default the terms must be agreed. In the present case, the first objection taken to the form of the draft transfer was that it did not contain the statement required by Section 34(10). This is a mandatory requirement. There was quite simply nothing to argue about and therefore there was no dispute about that. So far as the second objection was concerned, the Act says that unless a departure from Schedule 7 is agreed, the terms set out in Schedule 7 must be included in the conveyance. Those terms include the limited title guarantee. Once the reversioner had said that it was not prepared to give a full title guarantee, that was the end of that. The LVT could not have compelled the reversioner to agree to depart from the default terms of Schedule 7; the reversioner was in an impregnable position. So once again there was nothing to argue about. Since there was nothing to argue about, there was no dispute. Once again, if there was no dispute then the terms must have been agreed. Mr Swirsky recognises that the nominee purchaser may be unhappy that the reversioner refuses to give a full title guarantee but his remedy in that case is to withdraw from the transaction, as the Act entitles him to do.
18 The judge did not accept this argument and nor do I. First, whether a term has been agreed is, in my judgment, a question of fact. The Act does not deem a term to have been agreed when in fact it has not. Second, a dispute may arise in fact even if the outcome of a dispute is a foregone conclusion. We all have experience of litigants advancing hopeless cases with no prospects of success. It would be a misuse of language to say that there was no dispute simply because the outcome was inevitable. This is consistent with the view of the ordinary meaning of the word ‘dispute’ addressed by Mr Justice Savile in Hayter v Nelson [1990] 2 Ll.Rep 265 and confirmed by the Court of Appeal in Halkin Shipping Corporation v Soapex Oils Ltd [1998] 2 All.E.R 23.
19 Third, in a case such as the present, where it was open to the parties to agree a departure from the default provisions of Schedule 7, I see no reason why the proponent of a change must take an initial refusal at face value and cannot make another attempt to secure agreement. It is plain on the facts of this case that the nominee purchaser’s solicitors persisted in their attempt to secure a full title guarantee by submitting a second version of the transfer containing that covenant on 1st September and moreover asking for it to be approved on 8th September. To put it at its lowest, they had not then given up hope of securing the reversioner’s agreement to the full title guarantee. In addition, until 11th September the only draft transfer actually in existence was that which contained the full title guarantee.
20 Fourth, such indications as there are in case law suggest that what one is looking for is positive agreement rather than silence. In Gold Eagle Properties Ltd v Thornbury Court Ltd [2008] 3 EGLR 69 Judge Collins held that there was no agreement on the terms of a transfer until there had been an express indication that the terms of a transfer had been agreed. His decision was upheld by the Court of Appeal. They rejected an argument that agreement on terms was implicit in the fixing of a price for the freehold. The lesson that Lord Justice Jacob drew from the case was, as he put it in para. 28:
‘When a party makes a reference it should ensure that all points that are not agreed are put before the LVT for determination at the outset which would say what it was, but even seemingly minor matters, for example, the terms of the transfer in a case where these are likely to be routine have not been positively agreed, the LVT should be asked to determine them.’
21 Thus it is clear in my judgment that the Court of Appeal took the view that positive agreement rather than implicit agreement was that which was necessary. This, as I see it, is the opposite approach to that which Mr Swirsky advocates. Assuming therefore that there is a stark dichotomy between terms that are agreed and terms that are in dispute, Lord Justice Jacob held in effect that terms which are not positively agreed are deemed to be in dispute or, to use the language of Section 24(1), ‘remain in dispute.’ Likewise in City of
‘It must be clear that negotiations have been completed and final agreement has been reached either orally or in writing on a specific term or terms that is not in any way contingent on agreement or determination of some other term or terms.’
22 In the present case, there was an express acknowledgement by the nominee purchaser that the terms had been agreed but that acknowledgement did not take place until the letter of 24th October 2006. For these reasons I consider the judge was right to hold that the terms of the acquisition had not been agreed earlier than 11th September 2006 with the consequence, as I understand it, that the application for a vesting order was made in time. Consequently, I dismiss the appeal.
