Landlord and tenant – Leasehold enfranchisement – Section 4(2)(g) of the Landlord and Tenant Act 1987 – Freehold interest in property held on trust for appellant being conveyed to beneficiary and so terminating trust – Respondent company clArtaiming entitlement to transfer of property to it for nil consideration – County Court allowing claim – Appellant appealing – Whether disposal constituting exempt disposal – Appeal allowed
The appellant was the landlord and registered proprietor of a property at 161–171 Hoxton Street and 2 Homefield Street, London, N1 which comprised eight residential flats and three commercial units. The appellant and S Ltd, a company controlled by him, entered into an agreement for the sale of the property. A trust deed provided that S Ltd was to hold the beneficial interest in the property on trust for the appellant. When the tenants of the flats became aware of the transfer, a majority of them formed the respondent company for the purpose of acquiring title to the property pursuant to Part I of the Landlord and Tenant Act 1987. S Ltd subsequently transferred the property to the appellant for no consideration.
The respondent commenced proceedings against the appellant under CPR Pt 8 seeking declarations that the appellant was a purchaser of the property within the meaning of section 11(3) of the 1987 Act by the terms of the second transfer and that, following service of a section 12B notice upon him, the appellant was obliged under the Act to transfer the property to the respondent for nil consideration. The county court allowed that claim.
The appellant appealed contending, among other things, that at the time of the second transfer the property had been held on trust for him so that it constituted an exempt disposal under section 4(2)(g) of the 1987 Act.
Held: The appeal was allowed.
The judge had proceeded on the footing that section 4(2)(g) applied only where the relevant estate or interest was held on trust both before and after the transfer. However, that was not what section 4(2)(g) said. The requirements were that the estate or interest should be held “on trust for any person” when the disposal was made, and that the disposal was made “in connection with the appointment of a new trustee or in connection with the discharge of any trustee”. There was nothing in that language which prevented its application to a situation where the legal estate in property held on trust for a beneficiary was conveyed to the beneficiary, thereby terminating the trust and discharging the trustee. The words “in connection with the discharge of any trustee” were wide enough to cover such a situation, and there was no reason to confine their scope to situations where the trustee of a continuing trust was discharged, whether or not a new trustee was appointed in his place. As a matter of language, therefore, section 4(2)(g) was apt to cover the circumstances of the second transfer in the present case. S Ltd, as trustee, thereby transferred the legal estate in the property to the defendant, who was the sole beneficiary. The trust therefore came to an end, and S Ltd was discharged from its trusteeship because the legal and equitable interests in the property were then reunited in the person of the defendant.
Not only was that the most natural reading of the statutory language, but it was entirely in keeping with the purpose of the 1987 Act. It would be very strange if the transfer of the legal estate in property held on trust to a beneficiary who was absolutely entitled were to trigger a right in the qualifying tenants to acquire the property for nil consideration. If the trust happened to be testamentary, or one arising under the law relating to intestacy, the exclusion in section 4(3)(b) would no doubt apply; but there was no similar exclusion for inter vivos trusts, unless the gap was filled by section 4(2)(g). No sensible legislative purpose would be served by distinguishing in that way between trusts arising on death and lifetime trusts, in situations where a beneficiary was or became absolutely entitled to the trust property and the legal estate was conveyed to him by the trustees.
The appropriate construction of section 4(2)(g) was one which paid due respect to the statutory language, and formed part of a coherent legislative scheme. The construction favoured by the judge did not achieve those objects and would constitute a serious trap for unwary landlords who were called on to transfer trust property to a beneficiary.
The respondent’s claim depended on establishing that the second transfer was a relevant disposal of the property, either alone or as the second stage of a disposal which began with a transfer of the beneficial interest in the property by the trust deed. The first of those possibilities was eliminated by the court’s ruling on the construction of section 4(2)(g). The second was eliminated by the ruling that the trust deed never effected a separate disposal by S Ltd of the beneficial interest in the property. Accordingly, the appellant was not a purchaser of the property from S Ltd within the meaning of the 1987 Act, the purchase notice served upon him was invalid and he was not in breach of his obligations under the 1987 Act.
Stephen Jourdan QC and William Hansen (instructed by Heritage Solicitors, of Birmingham) appeared for the appellant; Lawrence Caun (instructed by Ronald Fletcher Baker LLP) appeared for the respondent.
Eileen O’Grady, barrister
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