Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Claim to acquire freehold of building on behalf of leaseholders of flats – Existing leases conferring revocable licence to use garden – Appellant freeholder proposing to retain freehold of garden – Nature of rights in lieu to be granted over garden under section 1(4)(a) – Whether section 1(4)(a) requiring grant of irrevocable right – Application to determine disputed terms of acquisition determined in favour of respondent nominee purchaser – Whether tribunal properly construing section 1(4)(a) – Appeal dismissed
The respondent company was the nominee purchaser for the purposes of a claim by the long leaseholders of flats in three adjoining town houses in Southwark, London SE1, to acquire the freehold of the building from the appellant freeholder by collective enfranchisement under Chapter I of Part I of the Leasehold Reform, Housing and Urban Development Act 1993.
To the rear of the town houses was a garden which the leaseholders had the right to use pursuant to a licence set out in their leases. The licence was expressed to be revocable by the lessor by giving notice in writing at any time. The appellant proposed to retain the freehold of the garden but offer rights over it in lieu of its acquisition by the respondent. An issue arose as to what rights over the garden the respondent should acquire, pursuant to section 1(4)(a) of the 1993 Act, as permanent rights similar to those enjoyed in relation to the flats when the process of acquisition commenced. The respondent contended that it was entitled to an irrevocable right to use the garden. The appellant argued that, since the right conferred by the existing leases was revocable, the right to be acquired under section 1(4)(a) should similarly be of a revocable nature.
The respondent applied to the tribunal for a determination of that issue as a disputed term of acquisition. The appeal was determined in favour of the respondent: [2016] UKUT 484 (LC); [2016] PLSCS 317. The appellant appealed.
Held: The appeal was dismissed.
(1) (1) Section 1(4)(a) had to be construed in the light of Chapter 1 of the Act and section 1 as a whole. The Chapter was headed “Collective Enfranchisement in Case of Tenants of Flats” and was concerned with the enfranchisement process which involved the conveyance of the freehold of the main premises to the nominee purchaser on behalf of the participating qualifying tenants. As a result of sections 1(2)(a) and (3)(b), the primary position in relation to any additional land over which the qualifying tenants exercised rights in common with others, was that the participating tenants were entitled to have the freehold of that land acquired for them. That entitlement was only satisfied if one of the other alternatives in section 1(4) was provided by the landlord/freeholder. It was important to construe the alternatives set out in section 1(4)(a)(i), (a)(ii) and (b) as just that. They were alternatives to the “right of acquisition” which would otherwise apply and were to be interpreted against the backdrop of the right to collective enfranchisement in relation to the main premises. It was also important to interpret each of the alternatives in section 1(4)(a) and (b) in the light of the others. The alternative set out in section 1(4)(b), itself involved the acquisition by the nominee of a freehold of other property over which such permanent rights might be granted. In the light of that statutory context it would not be surprising if the purpose and proper construction of section 1(4)(a) of the Act were that revocable rights should be converted into irrevocable ones.
(2) The words “such permanent rights”, read with “thereafter” and “ensure” in section 1(4)(a), were indicative of a continuing, or perpetual state of affairs and the creation of rights which were irrevocable. They required more than the continuation of the same revocable rights for a period co-terminus with any new long lease which might be granted. When interpreted in context, there was nothing to suggest that “such permanent rights” meant less than it naturally suggested. If the appellant’s construction were correct, the outcome in this case under section 1(4)(a) would be entirely different from the primary position under section 1(2) which it was intended to be taken to satisfy. It would also be different from the alternative to it contained in section 1(4)(b). The original freeholder would be in no different position in relation to the garden than it had been before the enfranchisement process commenced, save that on the face of it, the licence would continue for a period which would be longer than the terms of the original leases. However, the freeholder would be able to revoke the licence to use the garden granted in the transfer of the freehold in relation to the building immediately after the transfer had taken place. That was in stark contrast to the right to have the freehold in the garden acquired under section 1(2). Such an interpretation gave no real meaning to either “permanent” or “permanent rights” at all.
(3) The requirement of permanence required the revocable right to use the garden to be converted into an irrevocable right on the completion of the transfer of the freehold of the building. Section 1(4)(a) contemplated that the rights to be enjoyed might not be identical to those under the leases but had to be “as nearly as may be the same”. The Upper Tribunal was right to note that the possibility that the rights would not be identical arose not only from the fact that the rights might be granted over different property altogether, under section 1(4)(a)(ii) and therefore, might need modification, but also because of the requirement that the rights be “permanent” which might be inconsistent with the original formulation. There was nothing to suggest that the phrase “as nearly as may be the same” had to be restricted in order to prevent the conversion of a revocable right into an irrevocable one or was not capable of such an interpretation. On the contrary, read in context, it was necessary that it should be interpreted in order to enable such a modification to be made.
Anthony Radevsky (instructed by Forsters LLP) appeared for the appellant; Piers Harrison (instructed by Ashley Wilson Solicitors LLP) appeared for the respondent.
Eileen O’Grady, barrister
