Time limits in enfranchisement claims are notoriously strict and, should a party miss a limit, the consequences can be serious
Key points |
? Once terms are agreed, a contract can be entered into ? Otherwise, a court application is required ? The key issue is when did the parties reach agreement? |
Not least of the difficulties with flat enfranchisement claims are the time limits for the exchange of notices and those that apply to applications to the court or the leasehold valuation tribunal.
For example, if the leaseholder and the landlord have exchanged notices and counternotices, an application must be made to the tribunal if the parties cannot agree the price or the terms of the acquisition. If such an application is not made within the times specified under Part I of the Leasehold Reform, Housing and Urban Development Act 1993, the leaseholders’ notice is deemed to have been withdrawn. Similarly, if the parties agree the terms but do not enter into a contract, an application must be made to the court. Again, if such an application is not made in time, the leaseholders’ notice is treated as having been withdrawn.
Such deemed withdrawals mean that the leaseholders are not entitled to serve a new notice for a year and they must pay the landlord’s costs up to the date of the deemed withdrawal. Should a landlord miss the timetable, the leaseholders will be able to seek a court vesting order. If the landlord fails to give an effective or no counternotice in time, the leaseholders can obtain a vesting order on the terms proposed in their initial notice.
Straightforward question
When are the terms of the acquisition agreed? To put it another way, what amounts to an agreement in this situation? This issue has been the subject of litigation in several cases and the latest is Pledream Properties Ltd v 5 Felix Avenue
This concerned a collective enfranchisement claim where the parties had, following the initial notice and counternotice, agreed that the claim was valid and subsequently agreed the price to be paid for the freehold. However, a disagreement arose over technical issues relating to the draft transfer of the freehold from the landlord to the nominee purchaser appointed by the participating leaseholders.
On 9 August 2006, the nominee purchaser’s solicitor sent the landlord’s solicitor a draft transfer. The solicitors could not agree on whether the transfer should include a term with full or limited title guarantee. On 11 September 2006, the landlord’s solicitor wrote, insisting that only limited title guarantee could be agreed. In a letter dated 24 October, the nominee purchaser’s solicitor suggested that since the terms had been agreed on 11 September, a contract was unnecessary. On 10 January 2007, court proceedings were started, seeking a vesting order. Were the proceedings started in time? The county court held that they had been and the landlord appealed.
Under section 24 of the Act, if the parties agree terms but do not enter into a contract within two months, either party can apply to the county court for a vesting order. This application must be made with two months from the date of the agreement. In other words, if the parties reach agreement, but no contract is entered into within two months of the date of that agreement, there is a further period of two months in which either party may apply to the court.
Failing such an application, the enfranchisement claim is treated as having been withdrawn, no further application can be made for 12 months and the nominee purchaser is responsible for the landlord’s legal and valuation costs. This may affect the price to be paid because the market may rise, the unexpired term of the leases will be shorter or the leases may by then have less than 80 years unexpired, in which case a marriage value will also be payable.
In Pledream, the landlord had taken two objections to the draft transfer, namely that: (i) the transfer did not state that it was made in accordance with the 1993 Act; and (ii) title would be transferred with full title guarantee. The first issue could not be disputed and there was therefore nothing for the tribunal to determine. Similarly, since the landlord can be required, under Schedule 7 to the Act, to transfer only with limited title, there was no dispute for the tribunal to determine (it could not force the landlord to give a full title guarantee without its agreement). In other words, since there was no dispute for the tribunal to determine, the time limits ran from the date of the agreement, which was the earlier date.
The court rejected these submissions for four reasons. First, whether a term has been agreed is a matter of fact and the Act does not deem a term to have been agreed if it has not been agreed. Second, a dispute may have arisen even though the result of an application to the tribunal or the court is a foregone conclusion. (It would be a misuse of language to say that there was no dispute merely because the outcome was inevitable.) Third, parties can agree to depart from the terms implied by Schedule 7. Fourth, case law indicates that there should be evidence of a positive agreement rather than silence. This included a decision of the Upper Tribunal, Westminster City Council v CH2006 Ltd [2009] UKUT 174 (LC); [2010] PLSCS 13, in which it was said that so long as the terms of the acquisition are not agreed, those terms remain in dispute.
Applying this reasoning to Pledream, the court held that the terms had been agreed when the nominee purchaser’s solicitor wrote to the landlord’s solicitor in the letter dated 24 October 2006. In other words, agreement was reached no earlier than 11 September 2006. The application by the nominee purchaser to the court for a vesting order had therefore been made in time (by one day, it appears) and the landlord’s appeal was dismissed.
Mere silence is insufficient
Time limits in 1993 Act claims are notoriously strict and the consequences should one party miss a limit are usually serious. This case is a useful illustration and the decision embodies what many will consider to be a sensible and practical approach. Mere silence is not sufficient to indicate agreement. Landlords and leaseholders may remain in dispute even though, should an application be made, the outcome of the disagreement is inevitable.
James Driscoll
