Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Vesting order — Change of circumstances — Agreement as to valuation date and acquisition prices — County court making vesting order — Application under section 24(4)(b) for reassessment of price on ground of change of circumstances — Change in property values over three-year period — Preliminary issue — Whether LVT having jurisdiction to entertain application — Whether LVT having jurisdiction to entertain applications to resolve service charge disputes
In early 2000, the nominee purchaser served initial notices seeking the enfranchisement of a block of flats. An application was later made to the leasehold valuation tribunal (LVT) to determine the terms in dispute. On 16 October 2000, the parties agreed the terms of acquisition, including the prices payable to the freeholders and the intermediate lessee. A copy of that agreement, and other documents, was sent to the LVT. No binding contract was entered into by the parties within the two-month period specified by section 24(6)(a) of the Leasehold Reform, Housing and Urban Development Act 1993; a dispute had arisen over outstanding service charges. The nominee purchaser’s subsequent application for a vesting order was granted by Judge Hallon in Bromley County Court ([2003] 31 EG 69), and, in accordance with her order, the nominee purchaser paid the price into court. Without releasing the transfers, as required by that order, the freeholders and intermediate lessee then applied to the LVT for orders that the price for their respective interests should be reassessed pursuant to section 24(4)(b) of the Act. They argued that “a change of circumstances” had arisen within the meaning of section 24(4)(b)(i) because values had risen since the agreed valuations three years earlier. The LVT considered, as a preliminary issue, whether it had jurisdiction to entertain the applications.
Decision: The LVT did not have jurisdiction. The increased property prices did not constitute a relevant change of circumstances; the agreed valuation date was in 2000, or, if not agreed, would have been in that year. Section 24(4)(b) does not confer on the LVT discretion to disregard the statute’s express provision as to valuation date. Although there were no other applications before the LVT as to service charges or otherwise, it had no jurisdiction to determine the amounts of service charges due under para 3(1)(b) of Schedule 5 because the appropriate sum had been paid into court pursuant to Judge Hallon’s vesting order.
The following cases are referred to in this report.
Cadogan v McGirk [1996] 4 All ER 643; (1996) 73 P&CR 483; [1996] 2 EGLR 75; [1996] 39 EG 175; (1997) 29 HLR 294
Castlegroom v Enoch (No 1) [2003] 2 EGLR 54; [2003] 31 EG 69
Methuen-Campbell v Walters [1979] QB 525; [1979] 2 WLR 113; [1979] 1 All ER 606; (1978) 38 P&CR 693; [1978] 2 EGLR 58; 247 EG 899, CA
This was the hearing of a preliminary issue in applications by the freeholders, Mr Philip Enoch and Mr Byron Thorne, and the intermediate lessee, Plintal SA, under section 24(4)(b) of the Leasehold Reform, Housing and Urban Development Act 1993, in respect of the acquisition of the freehold and headlease by the nominee purchaser, Castlegroom Ltd.
Tom Weekes (instructed by Freemans) appeared for the intermediate lessee; Stan Gallagher (instructed by Thackray Wood, of Beckenham) represented the nominee purchaser. The freeholders did not appear and were not represented.
Giving the decision of the tribunal, Professor JT Farrand QC said:
Background
[1] Following service, some time in the year 2000, of initial notices by qualifying tenants on the freeholders and on the intermediate lessor, and of a counternotice admitting the right to enfranchise, an application was made to a leasehold valuation tribunal to determine any terms of the acquisition remaining in dispute: ie under section 24(1) of the 1993 Act*. However, the parties reached agreement as to all the terms of acquisition by means of a statement of agreed facts, signed by expert valuers on behalf of each of the nominee purchaser, the freeholders and the intermediate lessor, and dated 16 October 2000. This statement included a description of the premises being acquired and an agreed valuation date of 29 September 2000, as well as the conclusion that the prices to be paid to the freeholders and to the intermediate lessor were, respectively, £24,766 and £187,660. Accordingly, the chairman of the tribunal, on 21 November 2000, merely recorded the parties’ agreement, attaching copies of the statement and of agreed forms of Land Registry transfers to the nominee purchaser.
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* Editor’s note: Leasehold Reform, Housing and Urban Development Act 1993
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[2] By way of observation, since the point was not raised, the present tribunal considers that, in the light of the preceding paragraph, there can be no jurisdiction to make any determination under the original application because no relevant matters remain in dispute for determination within section 24(1) of the 1993 Act.
[3] Notwithstanding the parties’ agreement as to the terms of acquisition, no binding contract had been entered into within the specified two-month period: see section 24(6)(a) of the 1993 Act. It is understood that this was because of a dispute as to the amount of service charges due to the intermediate lessor from individual qualifying tenants, in which the freeholders were not involved. Apparently, another leasehold valuation tribunal had, on 23 August 2001, determined a general dispute as to the overall reasonableness of the service charges under section 19 of the Landlord and Tenant Act 1985, but without resolving individual liability. This dispute was not in front of the present tribunal. However, it should be noted that, until amendments made by the Commonhold and Leasehold Reform Act 2002 are in force, a leasehold valuation tribunal has no jurisdiction under the 1985 Act to determine liability, individual or otherwise, to pay service charges. The relevant amendment (section 155 of the 2002 Act, inserting section 27A into the 1985 Act) will come into force on 30 September 2003, but will not apply to applications made before that date: see para 2(c)(i) of, and para 6 of Schedule 2 to, the Commencement No 2 Order (S1 2003/1986). The tribunal would have jurisdiction to determine liability to pay service charges under the 1993 Act, but only for the purpose of calculating the appropriate sum to be paid into court under a vesting order: see para 3(1)(b) of Schedule 5.
[4] Therefore, the nominee purchaser applied to Bromley County Court on 15 February 2001 for a vesting order under section 24(3) of the 1993 Act. On 29 November 2002, District Judge Wilkinson, accepting the nominee purchaser’s contention, decided that an immediate vesting order could not be made until any amounts due as service charges had been determined by a leasehold valuation tribunal so that they could be paid into court as part of the appropriate sum. On 6 June 2003, Judge Hallon allowed an appeal by the intermediate lessor: Castlegroom Ltd v Enoch (No 1) [2003] 31 EG 69†. Evidently, she was persuaded that a vesting order could be made without the service charges due being determined, and that the appropriate sum paid into court could consist solely of the enfranchisement price. She stated that: “It is clear that only the LVT can determine the amount of [the service charges]”, |page:47| but none the less rejected the nominee purchaser’s submission that “the only way the LVT can do that under the 1993 Act is pursuant to section 24(4)(b)(i) and Schedule 5”. She explained that the submission overlooked the fact that the reference of the service charge dispute had not been made under the 1993 Act, and pronounced that the outstanding dispute as to individual tenants’ liabilities “should be referred back under the original application for further determination”. This would be inconsistent with the note as to jurisdiction under the 1985 Act in the previous paragraph, and, in any event, the relevant jurisdiction of leasehold valuation tribunals under the 1985 Act would not be exclusive. Her honour accepted the submission made for the intermediate lessor that, following the vesting order, it would have a vendor’s lien to ensure payment of the service charges under section 32(2) of the 1993 Act.
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Editor’s note: Also reported at [2003] 2 EGLR 54
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[5] In the result, Judge Hallon’s order, dated 6 June 2003, was, as proposed for the intermediate lessor, that: “The Claimant [ie the nominee purchaser] shall pay the price into court on or before 4 July 2003 whereupon… 1) and 2) transfers etc to be released by freeholders and intermediate lessor] and 3) the Freehold Property and the Leasehold Property shall [v]est in the Claimant.” The order defined the price as:
The sum of £212,426, being the total sum agreed between the parties and approved by the LW on 21 November 2000 for the acquisition of:
(1) the freehold property (£24,766) and
(2) the intermediate leasehold property (£187,660).
In addition, the order made provision for deemed withdrawal of the initial notice on failure to make the payment into court and for the nominee purchaser to pay the intermediate lessor’s costs. The order also included the usual provision: “Either party shall be at liberty to apply for the purposes of giving effect to this order.”
[6] The nominee purchaser’s solicitor duly paid the sum of £212,426 into court on 4 July 2003. However, on 13 June 2003, the intermediate lessor had made a formal application to the tribunal seeking an order that the price for its interest be reassessed pursuant to section 24(4)(b) of the 1993 Act. The freeholders made a virtually identical application on 7 July 2003. Consequently, neither released any transfer of its interest (or other documents of title), as ordered by Judge Hallon. The tribunal was informed that the hearing of an application by the nominee purchaser to Bromley County Court in respect of non-compliance with the order had been adjourned pending the outcome of the present proceedings.
[7] It was decided that this preliminary hearing should be held in order to decide whether the tribunal had jurisdiction to consider the applications made by the intermediate lessor and by the freeholders. The latter were not represented at the hearing, their solicitor, Salans, having written explaining that this was in the interests of saving costs and that, in effect, the position of the intermediate lessor and of its clients was “one and the same” so that there appeared “no need to trouble the tribunal with two sets of arguments in support of the same case”.
[8] Technically, the freeholders constitute the reversioners for present purposes, and, since the tribunal was not aware that any notice had been served as required by section 24(7) of the 1993 Act, the intermediate lessor appeared not to be a competent party to the proceedings. This would mean that there was no jurisdiction in any event to consider its application. However, no point was taken as to this at the hearing.
Issues
[9] The provision under which the two applications were made is section 24(4)(b) of the 1993 Act. Section 24(4) is as follows:
(4) The court may under this subsection make an order —
(a) providing for the interests to be acquired by the nominee purchaser to be vested in him on the terms referred to in subsection (3);
(b) providing for those interests to be vested in him on those terms, but subject to such modifications as —
(i) may have been determined by a leasehold valuation tribunal, on the application of either the nominee purchaser or the reversioner, to be required by reason of any change in circumstances since the time when the terms were agreed or determined as mentioned in that subsection, and
(ii) are specified in the order; or
(c) providing for the initial notice to be deemed to have been withdrawn at the end of the appropriate period specified in subsection (6);
and Schedule 5 shall have effect in relation to any such order as is mentioned in paragraph (a) or (b) above.
[10] It was contended in each of the applications that “the change in value of the respective interests of [the intermediate lessor and the freeholders] due to increased property prices as a result of the intervening economic position was a change of circumstances within the meaning of section 24(4)(b)(i) of the Act”. Also, each applicant claimed that “it would be inequitable for valuations which are over 3 years old to remain as the agreed price for its Interest”. Each submitted that the statutory provision cited “provides discretion to the Leasehold Valuation Tribunal to reassess and re-fix the price payable”.
[11] By a response dated 11 August 2003 on behalf of the nominee purchaser, Mr Stan Gallagher made two submissions. The first was that it was too late to vary the purchase price once an immediate vesting order had been made under section 24(4)(a): such an order specified no modifications and was final. The second submission was that there was no relevant change of circumstances: a general rise in property prices would not suffice — “otherwise, a volatile property market would ground rolling applications after purchase prices had been agreed or determined”.
[12] Before the hearing, effectively in response to these submissions, Mr Tom Weekes, for the intermediate lessor, made outline submissions, dated 14 August 2003. As to the first, “too late” submission, he referred to CPR 3.1.7, which provides: “A power of the court under these Rules to make an order includes a power to vary or revoke the order.” In addition, he referred to the “liberty to apply” in Judge Hallon’s order. He explained that the determination of a modified price was sought in order to provide grounds for an application pursuant to the rule or the order to vary the vesting order, or, alternatively, to “bolster an application for permission to appeal (out of time) to the Court of Appeal from HJ Hallon’s refusal to postpone the making of the vesting order until the determination by the LVT of an application to modify the purchase price”.
[13] As to this last point, the tribunal had been aware of a factual dispute between the parties. For the intermediate lessor, it was asserted that the possibility of obtaining an LVT modification of the price had been put during the county court proceedings. For the nominee purchaser, it was asserted that it had been put only after a draft judgment on appeal had been sent to the parties, and that it had been dismissed by Judge Hallon because it had not been raised before District Judge Wilkinson. The tribunal noted that a deferred vesting order, which might have enabled the making of the present applications, was what had been sought and initially obtained by the nominee purchaser, and that the immediate vesting order actually made had been sought by the intermediate lessor and obtained on appeal. However, this factual dispute was plainly not open to resolution by the tribunal.
[14] At the hearing, Mr Weekes elaborated his submissions. First, as to the “too late” issue, he stated that he was not suggesting that the tribunal could vary the vesting order, but that the CPR would enable the county court to vary the vesting order even though it was not just a procedural order but one of substance. Second, as to “change of circumstances”, he stated two allegedly applicable principles of statutory interpretation. One was that it was the policy of the relevant legislation to ensure that reversioners received fair and full compensation for enfranchisement. He had no authority in support. The other principle was that any ambiguities should be resolved in favour of reversioners: the legislation was disproprietory and should be construed strictly. He cited in support Methuen-Campbell v Walters [1979] QB 525*, which concerned the Leasehold Reform Act 1967. Accordingly, he contended that the word “may” in section 24(4)(b)(i) should be taken to confer a discretion on the tribunal to apply the statutory provisions as to valuation flexibly so as to avoid injustice. |page:48|
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Editor’s note: Also reported at [1978] 2 EGLR 58
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[15] Mr Gallagher reiterated, rather than elaborated, his written submissions. However, he also responded to Mr Weekes’ points. First, as to the “too late” issue, he urged that the tribunal should look at the situation as it was and not on a contingency basis: presently, there was a final vesting order, with stated prices and no provision for modification, which effectively deprived the tribunal of jurisdiction in the matter. Second, as to “change of circumstances”, he drew attention to dicta in Cadogan v McGirk [1996] 4 All ER 643*, at pp647-648, concerning the 1993 Act, which minimised the disproprietory effect. He also submitted that, grammatically, the word “may” did not confer any discretion, but related to what might have been determined. He added that the complete phrase, “required by reason of any change in circumstances,” indicated a mandatory element: any modification would have to be requisite in order to comply with statutory requirements. Further, he asserted that, so far as any relevant legislative policy could be discerned, it was to have the enfranchised property valued at the earliest date in the enfranchisement procedure: he referred to amendments made as to the valuation date by the Commonhold and Leasehold Reform Act 2002. Finally, he said that he was unaware of any similar application for revaluation having been made on the basis of passage of time, even after the time taken for appeals to be decided by the Lands Tribunal.
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Editor’s note: Also reported at [1996] 2 EGLR 75
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Decision
[16] Generally, the tribunal preferred the submissions made by Mr Gallagher to those made by Mr Weekes. As to the first, “too late”, issue, the tribunal was not persuaded that CPR 3.1.7 would enable the county court to vary its vesting order. The rules are to do with case management, and the particular rule relied upon refers to orders “under these Rules”, whereas the vesting order in issue is one of substance made under statutory provisions that do not mention variation. Similarly, it was thought that the order’s “liberty to apply” provision related only to aspects of implementation and not to variations of substance. However, it is not for the tribunal to decide what the county court may do. Instead, the tribunal considers that it can properly accept the situation only as it stands, which is that Judge Hallon’s final vesting order has been made, rendering otiose any reconsideration by the tribunal of the determined enfranchisement prices.
17] Additionally and alternatively, the tribunal does not consider that the increased property prices relied upon constitute a relevant change of circumstances. The valuation date has been agreed by the parties as being 29 September 2000, and, if not so agreed, would necessarily have been a date in 2000 — either that of the counternotice or that of a tribunal determination — as prescribed by para 1(1) of Schedule 6 to the 1993 Act, as amended. Subsequent price increases cannot affect a valuation as at that earlier date. The tribunal does not accept that section 24(4)(b)(i) confers upon it a discretion to disregard the statute’s express provision as to the valuation date. If there were such a discretion, it could not logically be restricted to disregarding the valuation date, but would allow reconsideration, in the perceived interests of justice, of every other aspect of valuation (eg disregarding marriage value or the value of tenant’s improvements), irrespective of the precise provisions of section 32 and Schedule 6 of the Act. It should be appreciated that section 24(4)(b) refers to the terms of acquisition generally (as defined in section 24(8)), which include the price but otherwise are more susceptible to sensible modification because of change of circumstances.
[18] In the light of the above, the tribunal has decided that there is no jurisdiction to consider the applications made by the intermediate lessor and by the freeholders for revaluation of the enfranchisement prices payable.
19] No other applications, as to service charges or otherwise, were in front of the tribunal. However, it appeared to the tribunal that, by parity of reasoning, there would be no jurisdiction to determine any amounts of service charges due under para 3(1)(b) of Schedule 5 because the appropriate sum has already been paid into court in pursuance of Judge Hallon’s vesting order.
