Landlord and tenant – Right to buy – Qualifying tenants – Claimant being nominated by qualifying tenants for purpose of acquiring title to property – Defendant freeholder forming company to purchase property – Claimant seeking order requiring defendant to transfer property pursuant to section 19 of Landlord and Tenant Act 1987 – Whether defendant being obliged to transfer absolute title to property for no consideration – Claim allowed
The defendant bought the freehold of a property at 167-171, Hoxton Street and 2, Homefield Street, London. There were eight residential flats at the property and three commercial units on the ground floor used as shops. The claimant was a company incorporated and formed by the tenants of the majority of the flats, as qualifying tenants, for the purpose of acquiring title to the property pursuant to the provisions of the Landlord and Tenant Act 1987.
The defendant had executed a power of attorney appointing M as an agent in connection with the property. At the defendant’s request, M incorporated a company (SGR), the directors of which were the defendant and M. A trust deed signed by the defendant and M purported to transfer the property to SGR in consideration of £225,000, to be held upon trust for the defendant absolutely, A contract was subsequently entered into for the sale of the property by the defendant to SGR with full title guarantee for a purchase price of £225,000. The defendant lent £225,000 to SGR for that purpose and SGR was registered as proprietor (the first transfer). Neither the defendant nor SGR served notices on the qualifying tenants in accordance with section 5 of the 1987 Act before entering into the contract, executing the trust deed or effecting the transfers.
When the tenants became aware of the first transfer, they served a notice on SGR under section 11A of the 1987 Act requiring details of the transactions. The defendant then caused the property to be re-transferred to him as the legal and beneficial owner (the second transfer). The majority tenants subsequently served notices on the defendant under section 12B of the 1987 Act (requiring him to dispose of the property to the claimant as the person nominated for that purpose) and section 19(2) (requiring him to make good the default).
After the proceedings commenced, the defendant disclosed the trust deed. The claimant, as the person nominated by the majority tenants for the purposes of section 12B, invited the court to exercise its power under section 19(1) to order the defendant to transfer the property to the claimant, on the basis that: (i) the defendant had a duty under section 12B to transfer the property to the claimant for no consideration (alternatively for £225,000); (ii) the defendant was in default in complying with that duty; and (iii) the court should order the defendant to make good that default by ordering the defendant to transfer the property to the claimant for no consideration (alternatively for £225,000).
Held: The claim was allowed.
(1) Before the contract was signed, the defendant had been the absolute owner of the property. As such he had no separate equitable interest in the property. It followed that the contract could not have had the effect that the defendant had retained the beneficial interest in the property. The contract and the first transfer pursuant thereto had the effect of transferring to SGR absolute ownership of the whole of the property, in return for £225,000. However, by the trust deed, SGR had declared a trust of the property which then took effect in favour of the defendant: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 applied.
(2) Section 4(2)(g) of the 1987 Act applied to the transfer of an estate or interest held on trust for any person so that the property transferred had to be held on trust both before and after the transfer. It also applied where the transfer was made in connection with the discharge of a trustee which referred to the situation where a trustee was discharged from a continuing trust pursuant to sections 36 and 39 of the Trustee Act 1925. If section 4(2)(g) had been intended to apply to the transfer of property to the beneficiary of a trust on the termination of a trust, the subsection would have used words which more clearly expressed that intent. Accordingly, the second transfer was a relevant disposal for the purposes of the 1987 Act.
(3) The purchase notice served by the majority tenants had adopted the language of section 12B and made clear to the defendant that they were asserting their rights under that section. The notice fulfilled the purpose of a purchase notice by giving the new landlord adequate notice that the qualifying tenants wished to acquire the freehold upon the terms of the original disposal. Moreover, the purchase notice was not limited to the second transfer. There had been two “original disposals” by SGR to the defendant; ie, the trust deed which transferred the beneficial interest in the property and the second transfer which transferred the legal title to the property. The purchase notice was apt to require the defendant to dispose of the estate or interest in the property that was the subject matter of both original disposals: Denetower Ltd v Toop [1991] 1 EGLR 84, Kay Green v Twinsectra [1996] 2 EGLR 43 and Kensington Heights Commercial Co Ltd v Campden Hill Developments Ltd [2007] 1 EGLR 13 considered.
(4) Although section 12B did not expressly say so, a person who received a valid purchase notice was obliged to dispose of the estate or interest that was the subject matter of the original disposal on the terms on which it was made. There was no reason why the 1987 Act should be interpreted in such a way as to deny the claimant the right to acquire the absolute title to the property on the same terms as the defendnt had acquired, it even if that absolute title had been transferred in two stages, i.e. by the trust deed and then the second transfer. The defendant was obliged by the 1987 Act to transfer absolute title to the property to the claimant: Kay Green v Twinsectra [1996] 2 EGLR 43 applied.
(5) There was no evidence that the defendant had given any consideration for the transfer to him by SGR of the property. The defendant had produced no document by which he released the debt due to him from SGR. In all the circumstances, the court was not satisfied that the defendant had given any consideration for the transfer to him by SGR of the property. Accordingly, the defendant was obliged by the 1987 Act to transfer absolute title to the property to the claimant for no consideration.
Lawrence Caun (instructed by Ronald Fletcher Baker LLP) appeared for the claimant; Brie Stevens-Hoare QC (instructed by Lee Associates Solicitors) appeared for the defendant.
Eileen O’Grady, barrister
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