Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Lease of building — Lessee giving notice to freeholder to acquire new lease of one flat in building under section 42 of 1993 Act — Contractual term of lease expiring — Subsequent claim to acquire freehold of entire building under section 8 of Leasehold Reform Act 1967 — Whether lessee tenant of entire property so as to qualify under 1967 Act — Whether para 5(1) of 1993 Act continuing lease of entire building or only of flat to which section 42 claim relating
The appellants held a lease of a building in west London for a term of 50 years expiring in September 2001. The respondents owned the freehold. In addition to a flat in which the appellants lived, the building also contained further flats, consulting rooms and storage. Between 2000 and 2002, the appellants made various leasehold enfranchisement claims, including a claim to acquire a new lease of their flat. Notice of that claim, under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993, was served on the respondents in September 2001, a few days prior to the expiry of the existing lease. In April 2002, while that claim remained outstanding, the appellants gave notice of a further claim to acquire the freehold of the entire building under section 8 of the Leasehold Reform Act 1967.
The respondents contended that the appellants did not qualify for enfranchisement under the 1967 Act because they were not tenants of the entire property at the time of making their claim, their lease having expired by effluxion of time. The appellants contended that the lease continued by virtue of their claim under section 42 of the 1967 Act and the provision in para 5(1) of Schedule 12 to that Act that “the lease of the flat shall not terminate” during the currency of that claim. In the county court, HH Judge Cowell rejected the appellants’ submission and dismissed the 1967 Act claim.
On appeal, the appellants submitted that para 5(1) did not provide for the continuation of part only of a lease, such that the lease of the entire building had continued upon the service of the section 42 notice. The respondents contended that the lease continued only in respect of the flat sought to be enfranchised by the section 42 notice.
Held: The appeal was dismissed. Paragraph 5(1) of the 1967 Act continues the lease only of the flat in respect of which the section 42 claim is made. Where the existing lease also includes other flats or parts of the building, the lease continues only so far as it relates to the flat in question, and not in respect of those other flats or parts. The purpose is to preserve the position pending the determination of the claim. Where a new lease of only one flat is sought, it is unnecessary, pending the determination of that claim, to continue the lease in so far as it demises other flats. Moreover, to do so would give rise to inequity. Should the claim be effective, the landlord might be kept out of possession of the other flats for several years, which would be contrary to Article 1 of the First Protocol of the European Convention on Human Rights. On the other hand, were the claim to be ineffective, the appellants would have to pay compensation, under section 61A of the 1967 Act, calculated by reference to the market rent of the entire building. The appellants’ notice related to one flat and claimed a new lease of that flat only. Accordingly, its lease was continued only in respect of that flat. Any alleged difficulties with easements and the like did not justify the court in resisting a proper construction requiring severance of the lease.
The following cases are referred to in this report.
Howard de Walden Estates Ltd v Aggio; Earl Cadogan v 26 Cadogan Square Ltd; sub nom Earl Cadogan v 26 Cadogan Square Ltd [2008] UKHL 44; [2008] 3 WLR 244; [2008] 4 All ER 382; [2008] 2 P&CR 19; [2008] 2 EGLR 57; [2008] 34 EG 94; [2008] RVR 236
Malekshad v Howard de Walden Estates Ltd (No 2) [2003] EWHC 3106 (Ch); [2004] 1 WLR 862; [2004] 4 All ER 162
This was an appeal by the appellants, Mark Ackerman and Barry Ackerman, from a decision of HH Judge Cowell, sitting in Central London County Court, dismissing a claim against the respondents, Richard Lay and Henry Thurstan Holland-Hibbert and Philip Emmet, for leasehold enfranchisement under the Leasehold Reform Act 1967.
Anthony Radevsky (instructed by Wallace & Partners) appeared for the appellants; Jonathan Gaunt QC and Edward Cole (instructed by Farrer & Co LLP) represented the respondents.
Giving judgment, Sir William Aldous said:
[1] The appellants contend that they are entitled to acquire the freehold of 59 Great Cumberland Place, London W1, by enfranchisement under the Leasehold Reform Act 1967 (the 1967 Act). The respondents dispute that contention on two grounds. Only the first is relevant, namely that on the date upon which the claim was made the appellants were no longer tenants of the whole of no 59 under a tenancy to which the 1967 Act applied. That depends upon whether the termination of the lease was prevented by the service of a section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act).
[2] The respondents are the freehold owners of no 59. It was let for a term of 50 years expiring on 29 September 2001 at a ground rent of £225 pa. That term was assigned to the appellants on 28 May 1998.
[3] Number 59 comprises five flats, situated in the basement, first, second, third and fourth floors with consulting rooms on the ground floor and storage in the basement. The appellants reside in flat 3.
[4] By an initial notice dated 11 May 2000, served under section 13 of the 1993 Act, the appellants sought collective enfranchisement of no 59. A counternotice was served and proceedings were started. On 18 January 2002, the appellants’ claim for collective enfranchisement was dismissed on the ground that no 59 did not consist of a single flat but of five flats and that the appellants were not qualifying tenants. An application for permission to appeal was refused by the Court of Appeal on 19 March 2002.
[5] By notice dated 24 September 2001, served under section 42 of the 1993 Act, the appellants claimed to exercise the right to acquire a new lease of flat 3. In proceedings arising from service of that notice, the respondents objected to the claim for a new lease on the ground that they wanted to redevelop the house. That issue has been stayed pending determination of this claim.
[6] There followed the claim for freehold enfranchisement. By a notice dated 18 April 2002, the appellants gave notice to acquire the |page:51| freehold under section 8 of the 1967 Act. The respondents objected to enfranchisement of the freehold on three grounds:
(1) there was no longer a tenancy of the whole of no 59 to which the 1967 Act applied;
(2) number 59 was excluded from the definition of a “house” by section 2(2)of the 1967 Act; and
(3) on the date of the April 2002 notice, the residence test under the 1967 Act was not satisfied.
[7] Since service of the notice, the respondents have accepted that the residence test was satisfied. Thus, the only grounds of objection were the first two set out above.
[8] By a second notice dated 30 October 2002, the appellants gave notice claiming to acquire the freehold of no 59 under section 8 of the 1967 Act. The respondents disputed that claim, relying upon grounds (1) and (2) set out above.
[9] In summary, the respondents’ case that succeeded before the judge was that when the appellants served their notice under section 42 they were no longer tenants of the whole of the property because the lease had expired by effluxion of time on 28 September 2001. To arrive at that conclusion, the judge rejected the submission of the appellants that the lease had been extended by service of the section 42 notice on 24 September 2001 and the provisions of para 5(1) of Schedule 12 to the 1993 Act.
Statutory framework
[10] Chapter 2 of the 1993 Act deals with the right of a tenant of a flat to acquire a new lease. Section 39 provides:
39(1) This Chapter has effect for the purpose of conferring on a tenant of a flat, in the circumstances mentioned in subsection (2), the right, exercisable subject to and in accordance with this Chapter, to acquire a new lease of the flat on the payment of a premium determined in accordance with this Chapter. …
…
(4) For the purpose of this Chapter a person can be (or be among those constituting) the qualifying tenant of each of two or more flats at the same time, whether he is tenant of those flats under one lease or under two or more separate leases.
[11] Section 42 provides the mechanism for the tenant to exercise its claim:
42(1) A claim by a qualifying tenant of a flat to exercise the right to acquire a new lease of the flat is made by giving notice of the claim under this section.
(2) A notice given by a tenant under this section (“the tenant’s notice”) must be given
(a) to the landlord, and
(b) to any third party to the tenants lease.
(3) The tenants notice must
(a) state the full name of the tenant and the address of the flat in respect of which he claims a new lease under this Chapter;
(b) contain the following particulars, namely
(i) sufficient particulars of that flat to identify the property to which the claim extends,…
…
(c) specify the premium which the tenant proposes to pay in respect of the grant of a new lease under this Chapter and, where any other amount will be payable by him in accordance with any provision of Schedule 13, the amount which he proposes to pay in accordance with that provision;…
…
(9) Schedule 12 (which contains restrictions on terminating a tenant’s lease where he has given a notice under this section and makes other provision in connection with the giving of notices under this section) shall have effect.
[12] Section 56, of which the relevant parts are in these terms, contains the landlord’s obligation to grant a new lease:
56(1) Where a qualifying tenant of a flat has under this Chapter a right to acquire a new lease of the flat and gives notice of his claim in accordance with section 42, then except as provided for under this Chapter the landlord shall be bound to grant to the tenant, and the tenant shall be bound to accept
(a) in substitution for the existing lease, and
(b) on payment of the premium payable under Schedule 13 in respect of the grant,
a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease.
[13] Section 57 is concerned with the terms of the new lease. It provides as far as relevant:
57(1) Subject to the provisions of this Chapter (and in particular to the provisions as to rent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date, but with such modifications as may be required or appropriate to take account
(a) of the omission from the new lease of property included in the existing lease but not comprised in the flat;
(b) of alterations made to the property demised since the grant of the existing lease; or
(c) in a case where the existing lease derives (in accordance with section 7(6) as it applies in accordance with section 39(3)) from more than one separate leases, of their combined effect and of the differences (if any) in their terms.
[14] Section 61A was added by amendment in 1996. It provides for compensation for postponement of termination for ineffective claims. So far as relevant, it is in these terms:
61A(1) This section applies where, on or after 15 January 1999
(a) a tenant of a flat makes a claim to acquire a new lease of the flat, and
(b) the claim is not made at least two years before the term date of the lease in respect of which the claim is made (“the existing lease.”)
(2) The tenant shall be liable to pay compensation if the claim is not effective and
…
(c) the existing lease is continued under paragraph 5(1) of Schedule 12 by virtue of the claim.
(3) Compensation under subsection (2) shall become payable at the end of the appropriate period and be the right of the person who is the tenant’s immediate landlord at that time.
(4) The amount which the tenant is liable to pay under subsection (2) shall be equal to the difference between
(a) the rent for the appropriate period under the existing lease, and
(b) the rent which might reasonably be expected to be payable for that period were the property to which the existing lease relates let for a term equivalent to that period on the open market by a willing landlord on the following assumptions
(i) that no premium is payable in connection with the letting,
(ii) that the letting confers no security of tenure, and
(iii) that, except as otherwise provided by this paragraph, the letting is on the same terms as the existing lease.
[15] Paragraph 5(1) of Schedule 12 is as follows:
5(1) Where by a notice under section 42 a tenant makes a claim to acquire a new lease of a flat, then during the currency of the claim and for three months thereafter the lease of the flat shall not terminate
(a) by effluxion of time, or
(b) in pursuance of a notice to quit given by the immediate landlord of the tenant, or
(c) by the termination of a superior lease;
but if the claim is not effective, and but for this sub-paragraph the lease would have so terminated before the end of those three months, the lease shall so terminate at the end of those three months.
Appeal
[16] The notice served by the appellants under section 42 named the flat in respect of which a new lease was claimed as flat 3 and the particulars given, as required by section 42, related only to that flat.
[17] Mr Anthony Radevsky, for the appellants, submitted that para 5 of Schedule 12 did not provide for continuation of only a part of a lease. It was the whole lease that continued upon the service of the section 42 notice. For that reason, the lease of no 59 had not terminated. He went on to support that submission by reference to other sections of the 1993 Act that, he submitted, were consistent and only consistent with that construction. He also referred us to the reasoning in the judgment of Neuberger J in Malekshad v Howard de Walden Estates Ltd (No 2) [2003] EWHC 3106; [2004] 1 WLR 862. Although that case was concerned with a differently worded paragraph in another Act, there |page:52| was, he submitted, no reason to suppose that the position was different under the similarly worded provisions of the 1993 Act.
[18] Mr Jonathan Gaunt QC, who appeared with Mr Edward Cole for the respondents, submitted that the wording of para 5 of Schedule 12 to the 1993 Act was clear. The claim under Chapter 2 of the Act was for a new lease of flat 3 and all that continued was the lease of that flat. There was, he submitted, no reason why the lease of the flat, in so far as it demised the flat, should not be severed. All that para 5 was doing was to preserve the position pending determination of the claim. That being so, he submitted, the only construction that provided a sensible and commercial result and that was consistent with the Act as a whole limited the continuation to the lease in so far as it demised flat 3. Mr Gaunt did not accept that Malekshad was rightly decided, but submitted that, in any case, it was not an authority that threw light upon the construction of para 5 of Schedule 12 to the 1993 Act. He referred us to the recent House of Lords decision of Howard de Walden Estates Ltd v Aggio [2008] UKHL 44; [2008] 3 WLR 244* as support for his construction of para 5 of Schedule 12 and to cast doubt on the correctness of the decision in Malekshad.
—————————————————————————
* Editor’s note: Also reported at [2008] 2 EGLR 57
—————————————————————————
[19] The first stage to a decision on construction must be a consideration of the statutory language. Thereafter, it is appropriate to look at the other provisions of the Act and practical results to see whether they require a different conclusion.
[20] I, like the judge, believe that para 5 of the Schedule 12 to the 1993 Act is clear. The lease that is continued is the lease of the flat the subject of the claim and only that lease.
[21] Section 39 confers on a tenant of a flat the right to acquire a new lease of the flat. The section 42 notice, which makes the claim, has to give particulars of the flat in respect of which the new lease is claimed. In this case, it was flat 3. The new lease is, as section 56 states, in substitution for the existing lease, which could be a headlease. It could, as was made clear in Aggio, have adjusted terms. Paragraph 5 of Schedule 12 refers to a notice under section 42. In this case, that was a notice that related solely to flat 3 and claimed a new lease of flat 3. That being so, “then during the currency of the claim and for three months thereafter the lease of the flat should not terminate”. The paragraph is confined to the lease in so far as it relates to the flat in question and does not apply to other flats or parts of the building that may be comprised in the lease.
[22] The purpose of para 5 is to preserve the position pending the determination of the claim. The construction that I have arrived at is consistent with just that. After the service of a section 42 notice relating to a single flat, there is no need to continue the lease in so far as it demises other flats pending the determination of one claim for a new lease. In fact to do so could give rise to inequity. Were the claim to be effective, the landlord would be kept out of possession of the other flats for perhaps a number of years. That would appear to be contrary to Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms. Were the claim to be ineffective, section 61A would require the applicant to pay compensation calculated by using the market rent of the entire building, not the lease that was sought to be extended. That would seem odd having regard to the claim only to extend the lease in respect of a particular flat.
[23] Mr Radevsky supported his submission that the words “lease of the flat” in para 5 of Schedule 12 meant the lease as a whole by the absence of any provision in that paragraph for severance from the lease. He submitted that when severance was contemplated, the Act made specific provision: for example sections 2 and 61A, and also in sections of the Landlord and Tenant Act 1954 (the 1954 Act).
[24] I do not find the 1954 Act helpful in construing para 5 of Schedule 12. It contains a different regime, giving landlords rights not contained in Chapter 2 of the 1993 Act.
[25] Section 61A was added by amendment to the 1993 Act and it is therefore difficult to construe the words of Schedule 12 by its terms. In any case, I do not understand its provisions to be inconsistent with the meaning of para 5 of Schedule 12 when read as I believe that it should be.
[26] Section 2 of the 1993 Act deals with intermediate leases. Such a provision is necessary, but it does not indicate that severance was not contemplated in para 5 of Schedule 12.
[27] As I said, Mr Radevsky relied upon Malekshad. In that case, Neuberger J had to construe para 3(1) of Schedule 3 to the 1967 Act. So far as relevant it is in these terms:
Where a tenant makes a claim to acquire the freehold… of any property, then during the currency of the claim and for three months thereafter the tenancy in that property shall not terminate… but if the claim is not effective, and but for this sub-paragraph the tenancy would have so terminated before the end of those three months, the tenancy shall so terminate at the end of the three months.
[28] In that case, the judge held that the tenant’s notice continued the lease of all the property demised in the lease, including parts that were not referred to in the notice.
[29] The landlord, whose claims failed, had submitted that the reference to “any property” in the paragraph referred only to the property that had been sought to enfranchise. The judge concluded, in [72], that there were “powerful reasons” for concluding that the paragraph had the meaning for which the landlords contended. He went on, in [72], to say that there were “strong arguments the other way”. He weighed up the arguments and concluded, in [87], that they were “finely balanced”.
[30] Mr Gaunt came prepared to submit that Malekshad had been wrongly decided. He did not amplify his reasons for that submission perhaps because of the attitude of the court. Even without his help, it is clear that the decision was finely balanced and would be fit for consideration, in an appropriate case, by this court.
[31] Malekshad is not an authority that supports the submissions of the appellants. First, the paragraph construed in that case is materially different to para 5 of Schedule 12 to the 1993 Act. In particular, it relates to the construction of the word “property” rather than the lease of a flat. Second, two of the four submissions, namely the third and fourth, that swayed the judge to find in favour of the tenant’s argument are specific to that case and do not apply to the present case. Third, the reasoning of the House of Lords in Aggio indicates that severance can be dealt with in an appropriate way. For example, [76] in Malekshad refers to difficulties in respect of easements. In Aggio, similar submissions were deployed. However, Lord Neuberger, in [57] and following paragraphs, did not envisage that such difficulties would be insurmountable upon the grant of a new lease. If so, it would seem odd that they would indicate that severance should be seen as an obstacle to the construction of para 5 of Schedule 12, as proposed by the appellants.
[32] Finally, I turn to the submissions concerning Aggio. In that case, the claimants in the first case before the House were the freeholders that had granted long leases to the defendant in respect of premises consisting of a single building with five residential flats. Two of those flats were let as assured shorthold tenancies. The head lessees served notices under Chapter 2 of the 1993 Act, claiming long leases of two of the five flats. The landlords served a counternotice, alleging that the head lessees were not qualifying tenants of a flat within the meaning of section 39 of the 1993 Act and were therefore entitled to a new lease. The House of Lords held that section 39, properly construed, used the term “a tenant of a flat” as including a lessee whose lease included a flat, irrespective of whether there were other flats or any other property included in the demise. That construction was, they held, consistent with the policy of the Act to remedy the problems caused by a lease becoming a wasting asset.
[33] Mr Radevsky was right that the speeches in Aggio did not consider the issue raised in the present appeal and, in particular, did not construe para 5 of Schedule 12 to the 1993 Act. Further, much of the reasoning could not apply. However, it would appear from |page:53| the speech of Lord Neuberger that the court should not resist a proper construction requiring severance because of alleged difficulties with easements and the like.
[34] Mr Gaunt referred us to the respondents’ notice. Having regard to the conclusion that I have reached, there is no need for me to deal with it and I decline to do so.
[35] I conclude that the judge was right and I would dismiss the appeal.
Jacob LJ said: I agree.
Tuckey LJ said: I also agree.
Appeal dismissed.
