Estate at Pevensey Bay, East Sussex, consisting of 84 flats in four separate blocks and 62 garages, also in separate blocks — All flats let on 99-year leases (bar one let for 999 years) with 73 years unexpired and mostly at £15 pa ground rents — Freehold reversion of whole estate sold by public auction for £18,000 — Valid purchase notice served — Definition of ‘premises’ in section 1 — Whether auction price could be redetermined by tribunal — Whether Cousins v Metropolitan Guarantee correctly decided — Terms to be incorporated into contract
provisions found by tribunal ‘extremely difficult to apply to particular
circumstances’ of present case of single development of several separate blocks
of flats with garages and amenity land attached — Tribunal accordingly found it
necessary to determine that Act was intended to apply to such
unnecessarily restrictive definition or wording in section 1’ — Both parties in
favour, however, of dealing with matter as single transaction covering all four
blocks and all garages — After adjournment to consider definition of ‘premises’
in section 1, tribunal determined that Act’s draftsman could not possibly have
intended that a building scheme should be split up in order to comply with
Act’s provisions — It would be wrong to come to conclusion which might
effectively deprive many qualifying tenants of rights which Act was intended to
give them — Section 1(2)(a) should be construed as if it read: ‘[premises]
consist of the whole or part of a building or building scheme’
for nominated person that tribunal had wide powers to determine any question
arising in, or in consequence of a provision in, a purchase notice and that
auction price paid could be redetermined as well as any matters in auction sale
conditions referred to in purchase notice — Suggestion that auction price of
£18,000 was double going rate — Evidence by nominated person’s surveyor that
ground rents were selling at between 6 and 8 YP and that price of £18,000
defied all logic — Suggestion for nominated person that price ‘might even have
been manufactured’ and that ‘something strange has gone on’ very strongly
objected to on behalf of new landlords — Tribunal pointed out that Act makes no
provision for negotiations between new landlord and nominated person as there is
between previous landlord and nominated person — It envisaged that
consideration will remain the same — Important point was that figure of £18,000
was hard fact — That sum, paid as result of an auction, being a recent sale in
open market at arm’s length, had to be accepted as best evidence of value —
Accordingly, tribunal could not depart from figure of £18,000, which finding
was entirely consistent with wording of section 12(1)(b) and decision in
Cousins
notice had incorporated terms of previous transaction under section 12(1)(b)
but indicated that certain provisions needed to be omitted and others modified
— Tribunal decided that approach satisfactory and realistic and entirely
consistent with their powers under section 13 — Binding contract to be drawn up
on lines stated in detail by tribunal, referring to clauses in special
conditions of sale in auction particulars (which are set out in full in
decision) — Agreement on apportionment of rents and maintenance charges and
provision for any arrears must, tribunal decided, be brought into transaction
not only because they were part of original transaction and a provision in each
lease but also because they touched and concerned the land and could not be
separated from freehold reversion — A clause providing for reference to
arbitration, in default of agreement, on amount of such sum to be substituted
for original clause in special conditions
conditions had also included provision that balance of cost (£3,745) of special
(Tufcon) tiles purchased by vendor for future work and not included in
maintenance charge was to be paid by purchasers — Tribunal considered, however,
that landlords had no obligation under leases to purchase materials in advance
of requirements — Provisions an entirely separate transaction not related to
sale of subject estate or interest in freehold reversion — Final determination
that special conditions of sale prevailed over both general conditions and
National Conditions to which all lots in auction were subject
The following cases
are referred to in this report.
Cousins v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 31 EG
56, [1989] 2 EGLR 116, LVT
Wilkins v Horrowitz [1990] 29 EG 57
Claire Studdon
(instructed by Brian Russell & Co, of Eastbourne, and Coles & James, of
Eastbourne) appeared for the applicant, 30 Upperton Gardens Management Ltd, a
company acting as the nominated person, for the Martello Estate, Pevensey Bay,
East Sussex; and Mr K Westwood, solicitor (of Saunders & Co), represented
the respondent landlords, Mr and Mrs L Akano, trading as Darnell Investments
Ltd.
Giving their
decision, THE TRIBUNAL said: This is an application to the leasehold
valuation tribunal (‘the tribunal’) under section 13 of the Landlord and Tenant
Act 1987 (‘the Act’), which gives the tenants of flats rights with regard to
the acquisition by them of their landlords’ reversion in certain circumstances,
and if the landlords dispose of their reversion contrary to the provisions of
the Act, then those tenants known as the qualifying tenants have a right to
compel the sale to them of the reversion by the new landlord. The statutory
provisions are contained in Part I of the Act and the following sections are
particularly relevant to this case: [Here the decision sets out section 1,
subsections (1), (2) and (3).]
‘Qualifying
tenants’ are defined in section 3 and they have to act through the ‘nominated
person’. ‘Relevant disposals’ are defined in section 4(1) [which is set out in
the decision].
Where such a
disposal has been made without giving the tenants first refusal, then sections
11 to 15 lay down provisions for the enforcement by the tenants of their rights
against the new landlord.
The important
part of section 11 reads: [subsection (1) and subsection (2) down to and
including the words ‘two months’ are here set out.]
The rights of
the qualifying tenants to compel a sale by the new landlord are set out in
section 12 [which is reproduced in full in the decision].
The task and
jurisdiction of a rent assessment panel are set out in section 13(1) and it is
also convenient to set out two further subsections of that section:
[subsections (1) and (2) and subsection (5) down to and including the words
‘leasehold valuation tribunal’ are set out.]
There are
further provisions in the Act for enforcement of rights against subsequent
purchasers and termination of rights against a new landlord or a subsequent
purchaser. Section 17 refers in two places to a binding contract between the
new landlord and the nominated person. Thus, section 17(4) reads:
Where —
(a) any such application as is mentioned in
paragraph (b) of subsection (3) was made within the period of three months
referred to in that subsection, but
(b) a period of two months beginning with the
date of the determination of that application has expired, and
(c) no binding contract has been entered into
between the new landlord and the nominated person, and
(d) no other such application as is mentioned in
subsection (3)(b) is pending,
the new landlord
may serve on the nominated person a notice containing such a statement as is
mentioned in subsection (1)(b).
That
subsection declares that a notice may be served stating that the notices under
sections 11 and 12 are no longer effective.
The facts
These are
taken partly from the documents supplied to the tribunal and partly from the
oral evidence given before the tribunal. The tribunal also conducted an
inspection of the exterior of the premises, the grounds and the interior of at
least two of the flats on the morning prior to the hearing.
Martello
Estate, at Pevensey, totals 84 flats and consists of four separate blocks of
flats and 62 garages, also in separate blocks. Each block has a separate name.
Cadogan Court has 21 flats, Clarence Court 27 flats and Martello Court and
Raglan Court 18 flats each. All the flats are let on 99-year leases except one,
which is let on a 999-year lease. Most of the ground rents are £15 pa but the
999-year leaseholder pays £100 pa. The total ground rents had been stated as
being £1,345 pa. However, Mr Westwood, for the respondent landlords, had
calculated that the total ground rent was £1,365 pa. This is a single
development carried out nearly 30 years ago with generous open spaces and also
parking areas in addition to the garages. The garages are conveniently sited
behind the end blocks and the Martello Tower itself is a central feature
although it does not form part of the scheme.
The freehold
reversion of the whole of the Martello Estate, Pevensey Bay, East Sussex, had been
put up for public auction and purchased at that auction by the respondents, the
completion date taking place on August 16 1989. The auction particulars
contained 12 special conditions referred to in detail later and also some
general conditions which incorporated the National Conditions of Sale (20th ed)
as well. The appropriate notice of sale and request for information, as
required by section 11, were given respectively on August 29 and October 20 and
the information, together with a completion statement, showing what had been
paid by the respondents on completion of their purchase, was supplied to the
nominated person on October 25. Subsequently a purchase notice dated January 18
was served on the respondents in accordance with section 12 and the provisions
of that notice are of particular importance and will be dealt with later. The
matter was referred to the tribunal under section 13 on April 12 1990. The
tribunal was satisfied that these various documents were in order and the
time-limits had been observed.
The hearing
Miss Studdon,
for the plaintiff, outlined the facts, mentioning in addition that, apart from
the 999-year lease, the others all had 73 years to run and also referred to
certain correspondence. She argued forcefully that under section 13 the
tribunal has very wide powers to determine any question arising in a purchase
notice or in consequence of a provision in a purchase notice and that the
purchase price paid by the respondents at the auction can be redetermined as
well as any other matters in the auction sale conditions referred to in the
purchase notice. She then referred particularly to clauses 6, 7, 9(a) and (b)
of the special conditions of sale and so it is necessary to set out all these
special conditions, which are as follows:
1. The Vendor’s Solicitors are Messrs Measures
Franks & Co, 76 Shenley Road, Borehamwood, Hertfordshire WD6 1EH.
Telephone: 01-207 1144, DX 45601 Borehamwood. Reference: RS 4333.
2. The Vendor’s Title to the properties is
registered at H M Land Registry under Title Number SX41588 and Title will be
deduced in accordance with Section 110 of the Land Registration Act 1925.
3. On completion the Vendor will provide one
written Authority to the Purchaser respectively addressed to the Lessees of
each block of flats or garages in the Estate and it will be for the Purchaser
to take sufficient copies of the Rent Authority for its own purposes.
4. Neither the Vendor nor its Solicitors shall
be obliged to supply copies of any of the documents referred to in either the
Property or the Charges Register of the Vendor’s Title including without
prejudice the generality of the foregoing the Counterpart Leases but one copy
from each block of flats and garages of the Counterpart Leases as the Vendor
has in its possession are available for inspection at the offices of its
Solicitors and have been so available for inspection at those offices prior to
the Auction and the Purchaser shall be deemed to purchase with full knowledge
thereof and of any matter contained or referred to therein and shall not raise
any requisition or objection or enquiry with regard thereto nor after the date
of this contract shall the Purchaser or its Solicitors require to receive
copies of the said documents including in particular without prejudice to the
generality of the foregoing copies of the Counterpart Leases and the documents
supplemental thereto.
5. The properties are all sold subject to and
with the benefit of various Entries in the Property and Charges Registers of
the Vendor’s Title other than Entries relating to mortgages, charges or Notices
which will be redeemed at completion and the Vendor’s Solicitors to the extent
that they are not in a position to hand to the Purchaser’s Solicitors on
completion a form of withdrawal of Notice of Deposit in respect of the
properties sold duly signed will provide their written undertaking to the
Purchaser’s Solicitors that they will send sufficient monies to the Bank
concerned to procure the withdrawal of the Notice of Deposit and will pass the
said withdrawal of Notice of Deposit to the Purchaser’s Solicitors within seven
working days of the Vendor’s Solicitors receiving the same from the Bank and it
is hereby specifically agreed and declared that the fact that neither the
Vendor nor its Solicitors have the withdrawal of the Notice of Deposit in their
possession at the date fixed for completion shall prevent the Vendor from
Serving Notice to Complete upon the Purchaser.
6. The Vendor has not nor does it intend to
serve any Notice on any of its Lessees pursuant to the provisions of the
Landlord and Tenant Act 1987 and the Purchaser shall forthwith after completion
serve Notices on the Lessees pursuant to the provisions of Section 11 of the
1987 Landlord and Tenant Act and shall indemnify the Vendor against any costs,
claims, demands, actions, proceedings or expenses which may arise because of
the Vendor’s failure to service (sic) Notice on the Tenants pursuant to Clause
5 of the Act. If the Purchaser fails to comply with this Condition then the
Vendor shall be entitled to damages from the Purchaser at the rate of £10.00
plus VAT for each letter, telephone call or other communication which the
Vendor or its Solicitors receive in respect of the properties such sum to be
paid on demand and a certificate signed by a Director of the Vendor or a
Partner of the Vendor’s Solicitors shall be conclusive evidence of the number
of letters, telephone calls and communications involved.
7. If at the date of completion any Leasee
(sic) is in arrears with the payment of any rent or other monies reserved by
his or its Lease then the Purchaser shall on completion in addition to the
balance of the purchase money herein pay to the Vendor the amount of such
arrears which will then belong absolutely to the Purchaser and the Vendor shall
not be obliged or required to join in or give its name to any proceedings in
connection with the recovery of such arrears. A certificate signed by a
Director of the Vendor of the amount of the arrears owing in accordance with
this Special Condition shall in the absence of manifest error be conclusive and
binding upon both the Vendor and the Purchaser. If the Purchaser shall require
the Vendor to assign to the Purchaser any arrears of rent or other monies
reserved by the Lessees Lease then the Purchaser shall provide such Deed of
Assignment at its own expense.
8. The Vendor is aware and hereby gives Notice
to the Purchaser that neither the Vendor nor its Solicitors are in possession
of all the Counterpart Leases of the Properties agreed to be sold. Neither the
Vendor nor its Solicitors shall be obliged or required to make any such
declaration as to the circumstances in which the Counterpart Leases have been
lost and the Purchaser is hereby precluded from raising any enquiry,
requisition or objection in connection with any missing Counterpart Lease.
9.a. If at the date of completion the Vendor has
incurred any cost or expense in connection with the provision of any goods or
services or any analogous matter to any of its Lessees then in addition to the
balance of the purchase money and the arrears of rent and other monies referred
to above and notwithstanding the fact that the Vendor may not have demanded
such sums of its Lessees the Purchaser will pay to the Vendor the aggregate
amount of such expenditure as certified by a Director of the Vendor in writing
whose certificate shall in the absence of manifest error be final conclusive
and binding upon both the Vendor and the Purchaser.
b. The Vendor having purchased a quantity of
Tufcon tiles in connection with the refurbishment of the properties and the
Vendor having demanded with the application to the Tenants in the March service
charge demand one half of the cost of the said Tufcon tiles, the Purchasers
shall on completion pay to the Vendor the balance of the cost of the said
Tufcon tiles in the sum of £3,745.00. Furthermore, the Purchasers shall remove
such tiles within ten days of the date of completion from the basement room at
Wilbury Grange, Wilbury Road, Hove, where the same are presently stored. Such
removal being at the cost and expense of the Purchasers, the Purchasers causing
as little damage as possible and the Purchasers shall make good forthwith any
damage so caused by the removal of the Tufcon tiles.
10. The Vendor has not inspected any of the
properties agreed to be sold and given no representation or warranty as to
their state or condition nor does it give any representation or warranty that
the Lease is subject to and within the benefit of which the properties are sold
visit upon the Tenants all responsibilities for compliance with any Act of
Parliament or delegated legislation thereunder or for repair of any buildings
standing upon any of the properties agreed to be sold or any outbuilding used
in connection therewith or any boundary wall, fence, hedge or gate or other
means of access to such properties whether the same is adopted as a public
highway or not.
11. If the Purchaser does not complete on the
Contractual Completion Date then the Purchaser will forthwith become liable to
pay to the Vendor on demand the costs incurred by the Vendor and its Solicitors
in connection with the preparation and service of the Notice to Complete and
the cost of recalculating the completion figures on as many occasions as may be
appropriate together with all attendant disbursements and VAT thereon such
costs not being less than £70.00.
12. In the Transfer to the Purchaser the
Purchaser will covenant to indemnify the Vendor against any future breach or
non-observance of any of the Landlord’s covenants contained or referred to in
the Leases subject to and with the benefit of which the properties are sold.
She emphasised
that the estate to be transferred was the freehold estate and ancillary matters
should not be included in that transaction. Clause 6 was no longer relevant and
clauses 7 and 9 referred to ancillary matters. The respondents could pursue
their rights to collect anything they had paid for quite separately against the
tenants, and the nominated person should not pay for these rights, particularly
as there was considerable dispute as to the amount which was involved. She also
emphasised that the Tufcon tiles, which were separately stored, had nothing to
do with the transaction and are quite outside the subject-matter of the sale
and the respondents would not suffer if these tiles were not purchased by the
nominated person.
She suggested
a revised clause if the tribunal felt it was essential for provision for the
arrears of the service charges and ground rents to be dealt with in the
transaction between the nominated person and the
correspondence which was before the tribunal, but it would take a very long
hearing to determine those disputes, which could only satisfactorily be dealt
with by a single arbitrator. She said that these provisions were an attempt to
bypass the requirements of the Landlord and Tenant Act 1987. She then referred
to the purchase notice and the completion statement which read:
To Leonard
Akano and Laura Akano trading as Darnel Investments 28 Cosedge Crescent Croydon
Surrey CRO 4DN
and to their
Solicitors Messrs Saunders & Co 413-419 Harrow Road
London W9 3QJ
Re: Cadogan
Court, Clarence Court, Martello Court and Raglan Court, Martello Estate,
Pevensey Bay, East Sussex
Pursuant to Section
12 Landlord and Tenant Act 1987 (‘the Act’) we on behalf of a requisite
majority of the qualifying tenants (within the meaning of the Act) of Cadogan
Court, Clarence Court, Martello Court and Raglan Court, Martello Estate,
Pevensey Bay, East Sussex (‘the Premises’) require you to dispose of the
freehold interest of the Premises to No. 30 Upperton Gardens Management Limited
being the person nominated by the requisite majority of the qualifying tenants
aforesaid for the purpose of Section 12 of the Act on the terms of the original
disposal (within the meaning of the Act) to you save that all the terms
relating to (a) the recovery of rent or other monies reserved by the Lease of
any Lessee from the Purchaser (b) the payment by the Purchaser of any cost or
expense in connection with the provision of any goods or services or any
analogous matter to any Lessees (c) the payment by the Purchaser of the cost of
a quantity of Tufcon tiles in the sum of £3,745 (d) the inspection and supply
of documents including the delivery of Counterpart Leases on completion (e) the
indemnity in respect of the Vendor’s failure to comply with the provisions of
Section 5 of the Act (f) the indemnity to be given to the Vendor in respect of
breaches or non observance of any of the Landlord’s covenants contained or
referred to in the Leases subject to and with the benefit of which the
properties are sold and (g) the fixing of a completion date shall be determined
by a rent assessment committee in accordance with Section 13 of the Act. The
names of the qualifying tenants (within the meaning of the Act) and their flats
are set out on the four lists annexed.
|
Dated 18 January 1990 |
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|
Messrs Brian Russell & |
Messrs Coles and James |
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|
11 Bolton Road |
Claremont Chambers |
||||||
|
Eastbourne |
1 Trinity Trees |
||||||
|
East Sussex |
Eastbourne |
||||||
|
BN21 3JU |
East Sussex |
||||||
|
Reference: 5/KS/SCOTCHER |
BN21 3LB |
||||||
|
Reference: PGB/EC/C/C1 |
|||||||
|
Statement of moneys paid on completion August 16 1989 |
|||||||
|
|
£ |
|
£ |
||||
|
(1) Purchase price |
|
|
18,000.00 |
|
|
||
|
Less 10% paid to Barnard Marcus |
|
|
(1,800.00) |
|
|
||
|
|
|
|
|
16,200.00 |
|||
|
(2) Apportioned ground rents due |
|
|
|
|
|
||
|
16 August – 28 September |
|
|
|
|
|
||
|
43 days @ £1,345 pa |
|
|
(158.45) |
|
|
||
|
Less arrears |
|
|
|
|
|
||
|
15 Clarence Court |
£7.50 |
|
|
|
|
||
|
1 Cadogan Court |
15.00 |
|
|
|
|
||
|
4 Cadogan Court |
7.50 |
|
|
|
|
||
|
|
|
30.00 |
|
|
|||
|
|
|
|
|
(128.45) |
|||
|
(3) Tufcon tiles |
|
|
|
|
3,745.00 |
||
|
(4) Maintenance accounts |
|
|
|
|
|
||
|
(a) Cadogan Court |
|
|
8,70 |
|
|
||
|
(b) Clarence Court |
|
|
2,210 |
|
|
||
|
(c) Martello Court |
|
|
210 |
|
|
||
|
(d) Raglan Court |
|
|
(320) |
|
|
||
|
(e) Garages 1-19 |
|
|
700 |
|
|
||
|
(f) Garages 42-84 |
|
|
1,192 |
|
|
||
|
|
|
|
|
12,699.00 |
|||
|
Total |
|
|
|
£32,515.55 |
|||
and argued that neither the £3,745 nor the £12,699 should be brought
into the transaction by the auction sale special conditions.
Miss Studdon
then referred to the documents to be produced during the sale, saying that the
nominated person had not seen the title and would wish to have copies of all
relevant documents before entering into a binding contract. She then speculated
on how the respondents had been persuaded to pay £18,000 for the freehold
reversion which she said was double the going rate and there was nothing in the
Act to compel the nominated person to pay the same amount. She even suggested
that the price might have been manufactured, but that, in any event, it should
have been a mere calculation of so many years’ purchase of the total amount of
the ground rents.
The tribunal
then asked Miss Studdon and Mr Westwood to consider the definition of the
‘premises’ contained in section 1(2) and, particularly, whether each of the
four buildings should be dealt with separately under (a), which says that ‘they
consist of the whole or part of a building’. Miss Studdon said that the
nominated person would not wish to deal with each block separately and she
submitted that the parties could give the tribunal jurisdiction to deal with
the whole estate as one and not deal with it as four separate units.
Mr Westwood
produced some copy entries which indicated that some 20 garages had separate
titles and neither he nor the respondents know if all those 20 titles tied up
with particular flats. It was thought, however, that about four garages were
owned by outside persons who did not also own a flat and, in any event, garages
were not allocated in blocks; most of the garages were situated behind Clarence
Court and the remainder behind Cadogan Court and the position now was that the
ownership of the garages was entirely haphazard geographically as compared with
the ownership of flats. Mr Westwood strongly supported the submission that
there should be only one transaction and one transfer, in favour of the
nominated person, covering all four blocks and all the garages.
The tribunal
then adjourned to consider the definition in section 1 of the Act. It was quite
clear that the Act was intended to cover the type of disposal which had taken
place, namely that the qualifying tenants should have a right to acquire the
freehold or leasehold reversion when a reversioner wished to sell and clearly
the tribunal ought to have jurisdiction to deal with this particular matter.
The draftsman of section 1 had not thought of an estate such as the Martello
Estate, which is quite common, because often several separated blocks of flats
are built as a single development with garages and amenity land attached which
are common to all the flat owners in the various blocks and they are often
numbered straight through without each block having a separate name. In theory
it would have been possible to satisfy the definition by a separate transfer of
each of the four blocks to the nominated person, so that each transfer
consisted of premises which could be described as ‘the whole . . . of a
building’. Then, if each building was separated, it might be argued that the
four blocks of garages (the fourth of which contained only two garages) also
had to be dealt with separately. Those four blocks in no way coincided with the
blocks of flats and so each of the 62 individual garages would have to be
allocated to one of the blocks of flats and even then there might be some four
garages left over. It would then be necessary to split up the amenity land
between the four blocks. This might not be impossible, but the roadways,
turning areas, and the roads giving access to the garages with their turning
areas could never be satisfactorily divided between the four blocks of flats.
Even if those problems had been resolved, even worse problems would remain to
be resolved in connection with the easements, because rights of way and cross
rights of way, drainage and other easements would need to be spelt out in
detail. First of all, these problems would have to be solved by the parties in
so far as they could and then the whole problem would be passed to the Land
Registry to incorporate in their system of registered titles, which might
create even greater problems for them.
The tribunal
accordingly determined that the draftsman of the Act could not possibly have
intended that a building scheme should be split up in order to comply with the
provisions of the Act, and it would be wrong for the tribunal to come to a
conclusion which might effectively deprive many qualifying tenants of the
rights which the Act was intended to give them and so section 1(2)(a) of the
Act should be construed as if it read ‘they consist of the whole or part of a
building or building scheme’.
The tribunal
then considered the cases of Cousins v Metropolitan Guarantee Ltd
[1989] 2 EGLR 223; [1989] 31 EG 56, [1989] 2 EGLR 116, heard by the Rent
Assessment Panel on May 25 1989, and Wilkins v Horrowitz [1990]
29 EG 57, heard by the Yorkshire Rent Assessment Panel on November 28 1989. In
the latter case, the parties had agreed to follow the former case and Miss
Studdon argued very forcefully that the former case of Cousins had been
wrongly decided. She referred to the form of application which had been
prepared under the regulations and said that this required the nominated person
to state figures and in particular to say what the nominated person considered
is the price to be paid under section 12 and the amount being asked by the
landlord under that section. This indicated that the tribunal had power to
reconsider the price and the Secretary of State for the Environment in
preparing the regulations in the form of application had established this
possibility, which was consistent with the wide powers given to the tribunal in
sections 12 and 13, particularly section 13, of the Act. It was put to Miss
Studdon that the purchase notice had not specifically referred to the figure of
£18,000 or that this figure should be reduced. She said that the whole tenor of
the notice brings these matters into the jurisdiction of the tribunal and it
must consider the whole consideration, including the £18,000 figure, because it
has to consider any question arising under section 13(1)(b). A price has to be
determined where there is doubt and in this case it bears investigation as
something strange has gone on. This is not a normal case and the price should
be only a matter of calculation.
Mr David Green
FRICS gave evidence that he had been involved from time to time with the
Martello Estate for some 30 years and, in his opinion, both in 1989 and at the
present time, the indications are that prospective purchasers of ground rents
are paying between six and eight years’ purchase, that is to say, six or eight
times the net annual income. He had never come across a case of anyone paying
more than 10 years’ purchase, so that a price of £18,000 defied all logic.
He said that
he had looked at the flats again that morning and the outside condition was
poor and the common parts and exterior would put off prospective purchasers of
flats because even a layman would see the low standard of pointing and
decorations. The position is very favourable, being adjacent to the beach, the
first and second floors having sea views. The sizes of the flats are internally
desirable. However, all these matters would probably affect a freeholder only
marginally and he might not even inspect prior to purchase because he would be
purchasing ground rents and his calculations would be based upon the amount of
income, current interest rates and a suitable multiplier. He might also be put
off the investment if he knew of the history of bad maintenance and management.
He would not
be unduly influenced by the 73 years’ unexpired term. About 50 years unexpired
would be the critical point and, in the meantime, the ground rent is a fixed
income with a reducing return due to inflation, although a safe investment. He
could offer no explanation for the £18,000. He admitted that his experience was
limited to a sale of about seven or eight ground rents in 10 years and he had
no experience of actually selling them in an auction room. He had not attended
this particular auction in 1989 but accepted that surprises did take place at
auction and a purchaser might have to bid against a high reserve above the
accepted value or there may have been an underbidder in the auction room. He
accepted that properties were worth what a purchaser would pay and that it was
a genuine bid so far as he knew. He did not think any further development was
possible on the estate in this sensitive area adjoining the beach. Mr Green
also produced some photographs to illustrate the points in his evidence.
Mr Westwood
objected very strongly to the suggestion that something strange had gone on at
the auction and, without any evidence to support it, to even fraud being hinted
at. He pointed out that the purchase notice required the new landlord to
dispose of his estate or interest on terms on which he had acquired it
including that relating to the consideration and so the £18,000 could not be
questioned. He also said that it was not possible to construe a statute by
reference to the regulations and, even more particularly, by a form approved under
the regulations. He also mentioned that the application could be brought before
the tribunal by someone who is not acting on behalf of the qualifying tenants.
The whole
problem circulated round the auction sale conditions and that the previous
landlord wished to sell and dispose of all his interests. He could produce
evidence of the arrears of rent and show that some tenants had not paid for two
years and some were up to date. It will be necessary to deal with the facts as
they are today and not as they were last August. He believed that there had
been no deed of assignment of any rights to the respondents.
Mr Westwood
emphasised that the estate and interests sold were worth whatever was paid in a
public auction and due weight should be given to what Mr Green had said about
this. He had been asked to advise only in June. He said that the transfer must
deal also with the rent and maintenance charge because these items were
claimable under the lease and are part of the interest the tribunal must look
at.
So far as the
tiles were concerned, he said that some of these had been charged out in the
maintenance charge but those not charged out had been secured for future work
for the reasons given in the correspondence and they should be included in the
balance payable. He said that the tiles were available for inspection and had
been wisely secured because the manufacturer was going out of business and
these tiles would be needed for future work to the flats.
He accepted
that clause 6 of the special conditions of sale was past history, but not
clauses 7 and 9. He agreed that the respondents would produce all relevant
documents. The only way to resolve the problem of the amount of the rents and
maintenance charge due would be some form of arbitration and accepted Miss
Studdon’s suggestion in this connection and that part of clause 10 was very
obscure.
It was
accepted by both parties that only the first line and a half of clause 10 of
the special conditions of sale could be operative and if there were any
conflict between them and the general conditions, the special conditions would
prevail and also that completion should be within four weeks.
Miss Studdon
then referred to her proposed arbitration clause, saying that it should read
‘within 21 days of the date of the contract’ rather than the date of the
hearing. She then referred to section 17(4) of the Act, saying that it was
necessary to have a binding contract, because if none was entered into between
the parties then the nominated person would have to apply again to the tribunal
within the period of two months to keep his rights from being terminated. Mr
Westwood did not accept that particular argument but agreed that because of
section 40 of the Law of Property Act 1925 there should be a written contract
signed by or on behalf of both parties, so that it was mutually enforceable and
in the meanwhile the purchase notice signed on behalf of only one party was
unsatisfactory.
The decision
The tribunal
found the provisions of the Act extremely difficult to apply to the particular
circumstances of this case. As already indicated, the tribunal felt it
necessary to determine that the Act was intended to apply to a scheme of
development of flats all intended to be under one management and which could
not conveniently be dealt with otherwise. This was in spite of the very
unsatisfactory and unnecessarily restrictive definition or wording in section 1
of the Act.
Clearly, the
purpose of the Act was to give tenants the right of first refusal when a
landlord wishes to dispose of his reversionary interest and, if he fails to
offer the tenants first refusal, the landlord incurs no penalty and the tenants
have their redress by serving a purchase notice on the new landlord to dispose
of the estate or interest that was the subject-matter of the original disposal
on the terms on which it was made (including those relating to the
consideration payable). This is the effect of section 12(1) and there is no
provision in that part of the Act (relating to the new landlord) providing for
negotiations between the new landlord and the nominated person, as there is
between the previous landlord and the nominated person (see particularly
sections 6, 7 and 8). Accordingly, the Act envisages that the consideration
will remain the same (in this case an amount of £18,000) and the purchase
notice will require the new landlord to dispose of his estate or interest on
the terms of the original disposition including that consideration.
This is the
view supported by the case of Cousins and accepted without argument in
the case of Horrowitz. In a sense it was a ‘take it or leave it’ bargain
because the qualifying tenants had to accept the figure previously agreed or
not serve a purchase notice.
However, the
important point, in the tribunal’s view, was that the figure of £18,000 was a
hard fact and, although there was very strong evidence to the contrary,
whatever the valuers might say or argue, they could only express an opinion as
to what they believe to be the true value at the present time of the freehold
reversion. Whatever might be said, the best evidence of the value of anything
is what it will fetch in the open market. In this case the exact property, the
subject of the purchase notice, has been sold by auction in August 1989 and so
that being a recent sale in the open market, at arm’s length, £18,000 paid as a
result of that auction sale has to be accepted as the best evidence of that
property’s value. Accordingly, the tribunal determined that it could not depart
from the figure of £18,000, which finding was entirely consistent with the
wording of section 12(1)(b) and of the decision in Cousins; it
also represented the best evidence of its value. The wording of section 12, and
more particularly section 17, envisages a contract between the parties being
signed as the result of the section 12 notice.
The tribunal
then considered what other terms needed to be incorporated into the contract
between the parties. Section 12
incorporate the terms of the previous transaction or, alternatively, under
12(3)(b) the terms to be determined by the rent assessment committee. In
this particular case, the purchase notice had brought in the provisions of the
previous transaction but indicated that certain provisions needed to be omitted
and others modified. The tribunal decided that this was a satisfactory and
realistic approach and entirely consistent with its powers under section 13.
Accordingly, it was determined that the binding contract should be drawn up on
the following lines, referring to the numbered clauses of the special
conditions of sale in the auction particulars:
3. Eight notices in all would appear to be
adequate, namely four for each block of flats and four for each block of
garages.
4. The respondents should supply details of
their title in accordance with section 110 of the Land Registration Act 1925
and a copy of any documents referred to therein which they possessed and on
completion should hand over all counterpart leases which they possessed and any
other relevant documents but need not supply the copies of leases or answer any
requisitions thereon.
5. This was not referred to at the hearing or
in the correspondence but would appear to be reasonable.
6. This is no longer applicable.
7. Although section 12(1) refers to ‘a
relevant disposal affecting any premises’ and also the ‘estate or interest that
was the subject-matter of the original disposal’, it is difficult to apply the
word ‘premises’ and the phrase ‘estate or interest’ to goods or services.
Nevertheless, the subject-matter of the sale is that of a reversion behind a
large number of similarly drawn leases, all of which reserve similar rents and
maintenance charges. Accordingly agreement on the apportionment of these
payments, and provision for any arrears, must be brought into the transaction
between the parties not only because they are part of the original transaction
and a provision in each lease, but also because they touch and concern the land
and cannot be separated from the freehold reversion. The clause suggested by
Miss Studdon, as slightly amended, appeared reasonable and should be
substituted for clause 7 as follows:
The Applicant shall pay to the
Respondents in respect of arrears of service charges and ground rent due up to
the date of completion of the sale such sums, if any, as the parties may agree
within 21 days of the date of the exchange of binding contracts or in default
of such agreement, such sums, if any, as shall be determined by arbitration
upon reference of the matter by either party to such chartered surveyor as the
parties may agree within 28 days of that date or in default of such agreement,
as may be nominated at the request of either party by the President for the
time being of the Royal Institution of Chartered Surveyors, the costs of such
arbitration to be in the discretion of the arbitrator, and any such reference
to arbitration to be in accordance with the Arbitration Acts 1950 and 1979;
8. The respondents through their solicitor had
agreed to hand over all relevant documents
9(a).There
was no evidence before the tribunal that there were any other costs or expenses
that the respondents wished to claim other than the rent and maintenance
charges. Nevertheless the tribunal determined that if there were any other such
costs or expenses outside the provisions of the leases, then the respondents
could not claim those costs and expenses for goods or services in addition to
any moneys awarded under the arbitration provisions substituted for clause 7,
because they would not touch and concern the land.
(b). The tribunal then gave very careful
consideration to the question of the Tufcon tiles. The reason for their
purchase was clear, and it could be argued that that was a wise decision. On
the other hand, a contrary view had been expressed in correspondence and it
could not be argued that the landlords had any obligation under the leases to
purchase materials in advance of requirements. The tiles had never been stored
anywhere near the Martello Estate and could not in any event be said to touch
and concern the land until actually incorporated in any of the buildings. Also,
one of the letters in the correspondence, dated July 14 1989, confirms that the
tiles have nothing to do with the property. Accordingly the provisions in the
auction particulars for the sale and purchase of these tiles must be considered
to be an entirely separate transaction, not related to the sale of this estate
or interest in the freehold reversion, and this is confirmed by the definition
of relevant disposition contained in section 4(1) of the Act. Although the Act
encouraged the incorporation of all the provisions of the original transaction
in a subsequent purchase by the nominated person, nevertheless there must be
some line drawn between those provisions that were clearly relevant and those
that were not. Also, even now, a separate transaction could be entered into
between the parties concerning these tiles.
10. It was accepted that the respondent would
give no representation or warranty as to the state or condition of the
properties being sold but the rest of that clause had to be deleted as it was
too obscure. Clearly there had been some mistake in the printed document and
the tribunal could not determine how it was intended to read.
11. This provision had not been considered at the
hearing and in view of the revision of clause 7, the tribunal determined it was
no longer appropriate, but the sale and purchase shall be completed on the date
which shall be four weeks from the date of exchange of contracts or seven days
from such an agreement or determination as is mentioned in the revised clause 7
above, whichever shall be the later.
12. All rights of the respondents to recover any
arrears of rent or maintenance charge or any other moneys payable under the
leases shall, on completion, pass to the nominated person and, if it shall
require the respondents to do so, the respondents will assign to the nominated
person any arrears of rent or other moneys reserved by the leases by written
deed of assignment to be prepared at the expense of the nominated person and
approved at the expense of the respondents and, if the respondents so wish, the
transfer shall incorporate the indemnity specified in clause 12 of the special
conditions of sale.
Finally,
although neither party commented on the general conditions of sale, it should
be mentioned that when the auction sale was held in July 1989, all the lots
were subject to the National Conditions of Sale (20th ed) (‘National
Conditions’) and also further general conditions (‘general conditions’) set out
in the particulars as being applicable to all the lots and those special
conditions applicable to each individual lot. The tribunal having considered
the special conditions then considered the two sets of general conditions
because it was thought that some comment on these would be expected.
It was
determined that the special conditions should prevail over both the general
conditions and the National Conditions and recommended that, as the transaction
would be by way of private treaty, very few of the general conditions were
applicable and so they should not apply. This was made a recommendation because
after the production of a copy of the auction particulars to this tribunal, the
general conditions had not been referred to at all. On the other hand the
National Conditions should apply as applicable to a sale by private treaty.
The members of
the tribunal wish to express their thanks to Miss Studdon and Mr Westwood for
their very considerable assistance in this difficult matter and also to Mr
Green for the evidence which he had given.
