Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Procedure – Appellant lessees serving claim notices under section 42 of 1993 Act seeking new leases of flats – Claim notices proposing modification to service charge provision in existing leases – Respondent landlords serving counternotice admitting right to acquire new leases but advancing counter-proposal as to service charge provision – Appellants indicating acceptance of counter-proposal – Landlords failing to supply draft lease within 14 days thereafter – Whether appellants thereby entitled to order under section 48(3) for grant of lease in their proposed terms – Whether terms of acquisition still to be agreed so as to preclude such relief – Appeal allowed
The appellants were the long lessees of three flats in a building in London W1 who sought to exercise their right to acquire new leases under Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993. Although there was a headlease of the whole building, the freeholders were the competent landlords for the purposes of the Act. By claim notices served on the freeholders under section 42, the appellants proposed that the new leases should be on similar terms to the old, but with modification to omit a provision under which each lessee was required to contribute, as part of the service charge, a proportion of the headlessee’s rent under the headlease. The appellants took the view that the “rent as service charge” (RASC) provision was inconsistent with the requirement in section 56(1) that any new lease was to be at a peppercorn rent. Neither the headlessee nor the freeholders accepted that contention.
By counternotices given under section 45, the freeholders admitted the lessees’ right to acquire new leases but objected to the appellants’ proposed modification to the RASC provision. They advanced a counter-proposal that “the new lease terms should contain such modifications and amendments as the Landlord is entitled to under and/or as may be necessary to give effect to the requirements of Chapter II of Part I of the Act and without prejudice to the generality of the above such further reasonable modifications to be agreed”.
By a letter of April 2011, the lessees indicated that they accepted all the counter-proposals in the counternotices. They subsequently pressed the freeholders for a draft lease, which, under regulation 7 of the Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations 1993, the landlord was obliged to provide within 14 days of the terms of acquisition being agreed. The draft lease finally supplied by the freeholders in June 2011 included the RASC provision. The lessees returned the draft with that provision deleted. They then applied for orders, under section 48(3) of the Act that they were entitled to new leases on the terms of their original claim notices. The freeholders contended that the applications were premature since agreement had not yet been reached on the terms of acquisition.
The appellants’ applications were dismissed in the county court. The judge found that the parties could not be taken to have agreed all the terms of acquisition because of their underlying subjective disagreement as to the inclusion or exclusion of an RASC provision. He referred the matter to the leasehold valuation tribunal (LVT) to determine the terms of acquisition. The appellants appealed.
Held: The appeal was allowed.
The “terms of acquisition” and the form of the lease to be granted were different concepts. The “terms of acquisition” broadly corresponded to the commercial concept of “heads of terms” and the form of lease was then drafted to give effect to those terms, as either agreed between the parties or determined by the tribunal. What the freeholders were proposing in their counternotice was a 90-year lease, at a peppercorn rent, on the same terms as the existing lease, without the tenants’ proposed deletion from the existing leases of the RASC provision but, if necessary, with such provision in that respect to which they were entitled under, and/or as might be necessary to give effect to the requirements of, Chapter II of Part 1 of the Act, or such reasonable modification as might be agreed. That was a perfectly workable proposal by the freeholders, capable of acceptance by the tenant, and leaving it to the court to determine to what the landlord was entitled, or what the Act required, in respect of the RASC provision. The “sweeper provision” in the last part of the freeholders’ counter-proposal on that matter was no less certain or capable of operation than the common provision in a court’s costs order that costs shall be “assessed, if not agreed”. Accordingly, the counternotices were valid: Burman v Mount Cook Land Ltd [2001] EWCA Civ 1712; [2002] Ch 256; [2001] 1 EGLR 62; [2002] 06 EG 156 applied.
The clear counter-proposal in the counternotices was capable of acceptance in the terms of the lessees’ letter of April 2011. There was no evidential basis for the judge to conclude that the letter did not mean what it said. The lessees’ unqualified acceptance of the counter-proposals could not be read as an acceptance of anything other than the terms of the documents themselves. The acceptance of the counter-proposal meant that there was agreement as to the terms of acquisition, within the meaning of the Act. The only question that might then arise was what the accepted proposals truly meant; if, as had happened, the parties fell out on that issue, that issue could be determined on a section 48 application.
Once the terms of acquisition were agreed, what followed was the procedure for agreeing the form of lease under the regulations. In implementing that procedure, the freeholders had failed to comply with the prescribed time limit for responding to the lessees’ amendments and were therefore deemed to have agreed them, with the necessary consequence that the lessees were entitled to orders under section 48(3). For those purposes, the true meaning and effect of the counter-proposals, and of the lessees’ acceptance of them, did not matter. The freeholders had undeniably failed to meet the time limits set out in the regulations. The court should therefore make an order, under section 48(3) of the Act, for the grant to the tenants of new leases to the tenants, in the terms of the leases prepared by the freeholders’ solicitors, but with the amendments marked by the lessees on the draft they returned to the freeholders.
Phillip Rainey QC (instructed by Child & Child) appeared for the appellants; Kevin Farrelly (instructed by Hunters) appeared for the first to third respondents, the freeholders; Gary Cowen (instructed by Guy Clapham & Co) appeared for the fourth respondent, the headlessee.
Sally Dobson, barrister
