The Landlord and Tenant Act 1987 gives tenants of flats a right of first refusal if their immediate landlord wants to dispose of its reversion. If the relevant conditions are met, the landlord must first serve formal notice on the tenants offering to sell to them and give the tenants two months in which to accept its offer. If a landlord sells without complying with the legislation, the tenants can require the new landlord to transfer the reversion to them on the same terms.
In Mahmut v Jones [2017] EWCA Civ 2362; [2018] PLSCS 22, the buyers had purchased the freehold of a building from a landlord who notified its tenants of the impending sale, but went ahead with it without allowing two months to expire before doing so. The tenants served a purchase notice, which the buyers ignored. And, because the service of a purchase notice does not of itself create a contract, the tenants had to apply for – and obtained – a court order under section 19 of the 1987 Act requiring the buyers to transfer the freehold to them. The buyers ignored the court order too and, in due course, served a notice under section 17(4) of the 1987 Act seeking to put paid to the tenants’ claim.
Section 17(4) applies where tenants have applied to the court and (a) a period of two months beginning with a date of the determination of that application has expired and (b) no “binding contract” has been entered into between the buyer and the nominated person (ie the entity nominated by the tenants to acquire the freehold). In such circumstances, the buyer can serve a notice on the nominated person, whereupon anything done in pursuance of the tenant’s purchase notice “is to be treated as not having been served or done”.
Was the buyers’ notice effective to discharge them from any obligation to comply with the court order and relieve them from any further obligation to transfer the freehold to the tenants? The Court of Appeal has ruled that the buyers were not entitled to serve a termination notice under section 17(4).
Lord Justice Lewison remarked that to hold otherwise would mean that a recalcitrant landlord who refuses to enter into a contract with tenants would be in a better position than a compliant one. The 1987 Act enables tenants’ rights to be vindicated in two different ways: either by the parties voluntarily entering into a contract for the sale to the tenants, or by court order. And the court order that the tenants had obtained, requiring the buyers to comply with the legislation, was the equivalent of a contract voluntarily made for the purposes of section 17(4). Furthermore, as a general rule, it would be unacceptable on policy grounds if a person could enforce a right by deliberately doing something necessary to enforce it if such behaviour is wrongful as between him and the person against whom he seeks to enforce the right.
So the section 17(4) notice was not effective to relieve the buyers of their obligations to the tenants. But, if there were to be any culpable delay on the part of the tenants in complying with the court order in their favour, it would then be open to the buyers to apply to the court to have the order discharged.
Allyson Colby is a property law consultant
