Aneesh Ltd v Hinchliffe and others

Landlord and tenant – Leasehold enfranchisement – Development potential – Appellant landlord appealing against decision of First-tier Tribunal on price payable for collective enfranchisement of leasehold property – Whether appellant having “any interest in other property” under paragraph 5 of schedule 3 to Leasehold Reform, Housing and Urban Development Act 1993 – Whether appropriate to pierce corporate veil to treat companies as single economic entity – Appeal dismissed The appellant was the freeholder of 3-6 Odessa Court, London E7, a purpose-built two-storey block of six flats with a flat roof. It comprised two self-contained sections; the freehold of flats 1-2 was owned by H Ltd. The shares in the appellant and H were owned, legally and beneficially, by A and his wife. The leaseholders of flats 3-6 served a notice under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993, exercising their right collectively to acquire the freehold of 3-6 and proposed a premium. The appellant served a counter-notice admitting the validity of the claim and counter-proposed a premium. The respondents applied to the First-tier Tribunal (FTT) to determine the premium. The only issue was how much they would have to pay for the development value, arising from the potential to build on the flat roof, that the appellant lost because of the enfranchisement. The appellant argued that if it sold the freehold of 3-6 on the open market, H would sell the freehold of 1-2 as well, or grant an airspace lease, so that the whole roof could be developed; the value of 1–2 was diminished by the enfranchisement because the two companies would be deprived of the opportunity to carry out a joint development of the roof above the whole building. The appellant sought compensation for that loss of value under paragraph 5(2)(a) of schedule 6 to the 1993 Act. Relying on the Court of Appeal’s decision in DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 2 EGLR 7, the appellant argued that the FTT should pierce the corporate veil to treat the companies as a single economic entity. The FTT rejected that argument and the appellant appealed. Held: The appeal was dismissed. (1) The appellant argued that the wording of the statute, “of any interest of the freeholder in other property” was so broad that the appellant should be regarded as having an interest in 1–2 by the fact that the two companies were owned and controlled by the same individuals. However, the wording was not broad, it was what one would expect to protect a freeholder from diminution in value of property that it owned or in which it had a proprietary interest, whether legal or equitable, such as an easement. It could not be stretched to include something that was not a proprietary interest. On the plain words of the statute the appellant could not succeed. (2) The appellant’s only hope of success rested on the argument that the corporate veil should be pierced as it was in DHN so that 1–2 was regarded as the appellant’s property. DHN had not been overruled and it remained binding upon the tribunal for what it decided: Bishopsgate Parking Ltd (No 2) v Welsh Ministers [2012] UKUT 22 (LC); [2012] RVR 237 considered. However, it was clear from the judgments in DHN that the conclusion of the court in that respect was founded on the key facts that DHN was in lawful occupation of the land acquired and carried on there the trading business of the company. Those facts constituted part of the ratio. DHN thus constituted authority that, where one company in a group owned the land acquired and another company was in lawful occupation of the land for the purposes of the business of the group, the corporate veil might be pierced to give the second company an entitlement to compensation for disturbance. There was nothing in that decision that would suggest that a group company that was not in occupation of the land might be entitled to compensation. It was important that the parent company was in occupation of the land of its subsidiary. (3) It was not necessary in the present case to say anything general about the circumstances in which the corporate veil could be pierced. DHN was to be distinguished on its facts because the parent company, DHN itself, had an irrevocable licence to occupy the land of its subsidiary. The appellant did not have any such right in relation to 1-2. The appellant and H co-operated in matters such as the maintenance of the building by employing the same management company, but there was no question of either occupying the other’s property, let alone having an irrevocable licence such as was seen in DHN. Although the companies in the present appeal were closely linked, they were not as closely linked as were DHN itself and its subsidiaries. The land on which DHN ran its business was owned by its wholly-owned subsidiary, B Ltd, which was created in order to own the land. It did nothing else, and it owned the land for the parent company’s benefit. Its purchase of the land was funded by the parent company and the parent and subsidiaries operated as a firm. (4) In this case, the appellant and H could not be described in those terms. The appellant did not fund the purchase of H’s land, and H did not own the land for the benefit of the appellant. Their property and operations had been deliberately separated by their shareholders. The two companies had different directors. Both companies were part of a family portfolio but they were not simply two halves of one business; they were important and distinct cogs in a much larger machine. Whether or not it would be possible to pierce the corporate veil if those differences were not present was not relevant in this case. If those differences were not present then other considerations would have to be looked into, such as the language of the rest of the Act (in particular the provisions of section 5(6)), the cautious approach expressed in Prest v Petrodel [2013] 2 AC 415 and the argument that Mr and Mrs A could not have their cake and eat it by separating the companies for their own purposes but regarding them as one to maximise compensation at the leaseholders’ expense. But it was not possible to regard the case as so similar to DHN that the case for piercing the corporate veil had to be further examined. Christopher Pask (instructed by Aneesh Ltd) appeared for the appellant; Stan Gallagher (instructed by Anthony Gold Solicitors) appeared for the respondents. Eileen O’Grady, barrister Click here to read a transcript of Aneesh Ltd v Hinchliffe and others