Key points
■ Tenants of flats enjoy the right of first refusal in the event of a sale of the freehold
■ In enforcement proceedings relating to that right, a landlord was held in contempt of court for ignoring an earlier ruling
Tenants of flats (that is leaseholders and certain other types of tenants, such as protected tenants) have the right of first refusal if the landlord decides to sell the building. It is a creature of statute – Part I of the Landlord and Tenant Act 1987.
The drafting of those provisions has been much criticised. They were effectively rewritten following large-scale amendments made by the Housing Act 1996 (which extended disposals to contracts and also made failure to comply an offence).
Even so, the workings of Part I of the 1987 Act are not always easy to apply. This is a pity since the statutory changes embody a simple principle: a landlord should not be able sell the freehold of a block of flats without first offering to sell it to any qualifying tenants. If a landlord fails to comply, not only is a summary offence committed, but there are options through which the tenants can enforce their rights. For example, they can require the new landlord to transfer the property to them or their nominee for the price it paid for it.
Part I of the Act sets out various procedural steps which must be followed and how the landlord’s obligations may be enforced.
A new decision
This, and other features of the right of first refusal, were the subject of the decision of the Court of Appeal in Mahmut and another v Jones and others [2017] EWCA Civ 2362; [2018] PLSCS 22. Here, the landlord (Guarantee Property Ltd) gave notice that the freehold was to be sold. The tenants were given the required period of not less than two months to accept
the offer.
But before this period expired, the landlord sold it to Messrs Mahmut (one of whom was the tenant of a commercial unit on the ground floor of the building containing the flats).
The tenants (Jones and the others) gave a “purchase notice” under section 12B of the Act requiring the new landlords (that is, the Mahmuts) to sell the freehold to them. Having received no response, application was made to the court under section 19 of the Act, for an order requiring the landlord to comply.
A district judge ordered the transfer of the freehold on the same terms as it was purchased (which included a sale price of £505,000) directing that, in the event of default by the landlords, the court would sign the transfer once the price (less the claimant leaseholder’s costs) had been paid into court. The Mahmuts did not comply by the date given. Later they stated through their solicitors that the transfer had been executed, but had not been served.
Then the case took an odd turn. Section 17 of the Act applies where the claimant leaseholders have failed to pursue the claim expeditiously. Once three months have elapsed after the section 12B notice, and either no contract has been entered into or no other application is pending, the landlord can give a notice (under section 17(4)) that the leaseholder’s claim should be treated as not having been made.
With the Mahmuts themselves in default, this was a bold step to take. In essence they were arguing that by giving a section 17(4) notice they are relieved from any obligation to comply with the court order, or any further obligation to transfer the freehold to the leaseholders. However, the district judge dismissed the landlord’s objection made under section 17(4). (In addition, the transfer of the freehold was executed in favour of the leaseholders, who have since been registered as the owners – I am grateful to Anthony Radevsky, counsel for the claimant tenants, for this information.)
The appeal
The Court of Appeal unanimously dismissed the new landlord’s appeal. Section 17 contemplates that further application in cases involving “recalcitrant landlords” may be necessary. The terms of the transfer is one such example, where clarification from the court or the tribunal may be needed. More generally, the 1987 Act contemplates that leaseholders’ rights can be vindicated either by an agreement with the landlord or by a court order (which is the equivalent of an agreement). In the case of an agreement, specific performance can be sought against a defaulting party and it is the terms of such an order that dictate how the contract is to be carried out. Under the terms of this particular court order, though, there was nothing more for the claimant leaseholders to do.
Moreover, the new landlords were, by ignoring the order, “in contempt of court” (paragraph 21). In Henley v Cohen [2013] EWCA 480; [2013] PLSCS 91, a claimant was held not to be entitled to enfranchise under the Leasehold Reform Act 1967 as he had unlawfully converted part of the premises into residential accommodation in breach of covenant.
This was an application of a matter of “public policy” (paragraph 25). Applying that principle here, the new landlords, having ignored the order, were not entitled to seek to defeat the claim.
More generally, if there was, however, any culpable delay on the part of the claimants in complying with the court order in their favour, it would then be open to the new landlords to apply to the court to have the original order discharged. But that was not the case here.
The new landlord’s appeal against the order was dismissed, leaving the claimant tenants as the registered owners of the freehold.
James Driscoll is a solicitor and a writer
