Landlord and tenant — Landlord and Tenant Act 1987 — Tenant’s right to buy — Whether landlord entitled to adjournment to call evidence of value and change in circumstances affecting consideration paid on purchase of reversion
respondent applicants, Mr and Mrs Crumpton, Miss Mortlock and Miss Coote, are
tenants holding long leases of a large house at 11 Palmeira Avenue, Hove,
Sussex, seeking to exercise their right to buy the freehold of the building
under Part I of the Landlord and Tenant Act 1987 — The freehold reversion in
the property was transferred to Miss Lucia Teverini and later registered on
January 9 1990 — Meanwhile, Miss Teverini had transferred the freehold to the
first respondents, Unifox Properties Ltd, on December 14 1989 for £5,825, and
their title was registered as of March 30 1990 — On July 10 1990 Unifox
contracted to sell the freehold to the appellant second respondents, De Alnie
Property Holdings Ltd, for £58,000, the transfer being made on August 7 and
registered on September 3 1990 — Miss Teverini failed to give prior notice to
the tenants of her disposal under section 5 of the 1987 Act and, in March 1990,
having found out about the disposal, the tenants served a notice under section 11
of the Act requiring details of the transfer to Unifox by Miss Teverini — On
June 20 1990 the tenants served a notice under section 12 of the Act obliging
Unifox to sell its interest to a company nominated by tenants on the same terms
as applied between Miss Teverini and Unifox — Upon learning of the further sale
to De Alnie, the tenants required De Alnie to transfer the freehold to them
relying on section 16 of the Act — The tenants then made an originating
application in Brighton County Court seeking an order for the sale of the
reversion to their nominated company at the consideration of £5,825 paid by
Unifox — At the hearing of the application counsel for the tenants did not rely
on section 16, because it was conceded that at the time the tenants served
their section 12 notice Unifox remained the owner of the property — The judge
accepted the contention on behalf of the tenants that their right against
Unifox was an overriding interest under section 70(1)(ft5g) of the Land
Registration Act 1925
its contention that section 12(6) of the Act applied, and there had been a
change in circumstances which should be reflected in a higher price than the
consideration paid by Unifox, De Alnie relied upon the forfeiture by peaceable
re-entry on January 5 1990 by Unifox of the leases of two flats in the property
— By July 10 1990 Unifox had incurred expenditure of £20,000 on refurbishing
those flats and on July 16 it had granted 20-year leases of those flats at
rents of £1,500 and £1,000 a year respectively — However, the original leases
were the subject of mortgages; on August 2 1990 the mortgagee, the Mortgage
Corporation, issued a writ seeking relief against forfeiture of the same flat —
On May 2 1991 a mortgagee of the second flat, mortgage express, issued a writ
seeking relief form forfeiture — Accordingly, there had been a change of
circumstances because vacant possession had been obtained of the two flats and
a substantial sum had been spent on repairs — The judge refused an application
for an adjournment of the originating application to enable De Alnie to call
valuation evidence and make an order that the tenants were entitled to purchase
the reversion at the consideration paid by Unifox — De Alnie appealed
adjournment and to find that there was no issue of significance affecting the
price for four reasons: (1) Unifox did not have a legal title on January 5 1990
and therefore there was no valid forfeiture by Unifox of the leases on that
date; (2) the mortgagees were likely to obtain relief against forfeiture; (3)
there had not been any great change in circumstances between the situation
before Miss Teverini sold and the situation after the purported forfeiture; and
(4) if the mortgagee’s rights to relief prevail, the money spent on repairs and
refurbishment did nothing to improve the value of the reversion or to increase
the price which was paid for it — Accordingly, there was no substantial or
significant issue as to price which afforded De Alnie the indulgence of
adjournment in order to raise the issue before the judge of before the
leasehold valuation tribunal
No cases are
referred to in this report.
This was an
appeal against an order of Judge Birks in Brighton County Court that the
respondent applicants were entitled to purchase the freehold reversion to
property at 11 Palmeira Avenue, Hove, Sussex, owned by the appellant second
respondents to the application, De Alnie Property Holdings Ltd.
Michael
Kennedy (instructed by Stilgoes (Kidd Rapinet), of Haslemere) appeared for the
appellant second respondents; James King-Smith (instructed by Henry Cane &
Son, of Brighton) represented the respondent applicants: the first respondents
to the originating application, Unifox Properties Ltd, did not appear and were
not represented.
Giving the
first judgment at the invitation of Lloyd LJ, STAUGHTON LJ said: Mr and
Mrs Crumpton live in the ground-floor flat of a large house at 11 Palmeira
Avenue, Hove, as tenants under a long lease. Miss Coote lives in the
second-floor flat and Miss Mortlock in the flat on the lower-ground floor. They
too have long leases. Those four tenants seek to exercise the right to buy the
freehold of the building under Part I of the Landlord and Tenant Act 1987.
There are, or
rather were, two other flats in the building, comprising the first floor and a
maisonette on the third and fourth floors. The main issue in Brighton County
Court was whether there were in fact six flats in all at the relevant time. If
that had been the case, the applicants in these proceedings could not have
acquired the right to buy, since they would not have formed a majority of the
qualifying tenants, but merely 50%. The applicants won on that point and there
is no appeal against that part of the judge’s decision. But the second
respondents do question the price at which the judge ordered the freehold to be
transferred, to a company which the tenants had formed. The judge’s figure was
£5,825. The second respondents, who are the present owners of the freehold, say
it should be much more than that.
The ownership
of the building seems to have been remarkably volatile between 1988 and 1990.
There were six transfers. On October 7 1988 Swiftbuild Ltd were registered as
owners. They evidently transferred the freehold to Colliseum Developments Ltd,
who were registered on November 25 1988. A transfer to Miss Lucia Teverini was
registered on January 9 1990. She had already conveyed to Unifox Properties Ltd
(the first respondents) on December 14 1989 for £5,825 and their title was
registered as of March 30 1990. Finally, Unifox contracted to sell to De Alnie
Property Holdings Ltd, the second respondents, for £58,000 or thereabouts on
July 10 1990. The transfer was effected on August 7 and registered on September
3 1990. De Alnie remain the freehold owners to this day. Judge Birks in the
county court on June 6 1991 granted an injunction restraining them from
disposing of the freehold to anyone other than the tenants’ company. Miss
Teverini, as I have said, sold to Unifox on December 14 1989, for £5,825. That
is the relevant disposal for the purposes of this case. The tenants (as I shall
call Mr and Mrs Crumpton and their coapplicants) did not know of it at the
time. Miss Teverini should have given them prior notice pursuant to section 5
of the 1987 Act. Unlawfully she had failed to do so. The tenants found out
about the disposal on February 27 1990 when Robert Gates & Co gave notice
of their appointment as managing agents for the new landlords, Unifox. A month later
the tenants served a notice, as they were entitled to do under section 11 of
the Act, requiring details of the
those details.
So much for
section 11. On June 20 1990 the tenants, by their solicitors, served a second
notice on Unifox. This required them to sell their interest in 11 Palmeira
Avenue to the company which the tenants had formed, on the same terms as
applied between Miss Teverini and Unifox. Once the tenants had served that
notice, section 12 obliged Unifox to comply with it. But that was subject to
subsection (6) of section 12 which provides:
Where the
property referred to in subsection (4) has at any time since the original
disposal increased in monetary value owing to any change in circumstances
(other than a change in the value of money), the amount of the consideration
payable to the new landlord for the disposal by him of the property in
pursuance of the purchase notice shall be the amount that might reasonably have
been obtained on a corresponding disposal made on the open market at the time
of the original disposal if the change in circumstances had already taken
place.
Robert Gates
& Co initially indicated that Unifox were prepared to comply with their
obligations. They wrote to the tenants’ solicitors on July 3 1990:
We thank you
for your letter of 20th June.
Our Clients
will be quite prepared to dispose of their interest to the tenants but we are
instructed to refer you to Section 12(6) of the Landlord & Tenant Act 1987.
Before our
Client incurs any conveyancing costs the amount of the consideration needs to
be determined due to the following factors: —
1. The
rewiring, replumbing and complete renovation of the first floor flat.
2. The
rewiring, replumbing and complete renovation of the flat on the third floor.
3. The
similar works partly undertaken in respect of the flat on the fourth floor.
4. The fact
that the leases of the flats on the first and third/fourth floors have been determined
by forfeiture.
We presume
that you would wish to instruct a Chartered Surveyor to act on behalf of your
Clients in respect of agreeing the amount of the consideration and we shall be
pleased to know with whom to deal on this aspect.
We await hearing
from you.
But a week
later Unifox, again unlawfully, sold the freehold to the second respondents, De
Alnie Property Holdings Ltd, for £58,000 or thereabouts. That was not
apparently known immediately to the tenants or their advisers. Their solicitors
wrote to Robert Gates & Co on July 17:
Thank you for
your letter of 3rd July 1990 and we are glad that your clients are prepared to
dispose of their interest to the tenants.
We have
referred to section 12(6) of the Act and we are now instructed that our clients
will take issue with you on the points which you have raised.
It seems to
us that if your client wishes to raise a question on the purchase notice, then
it should make application to the rent assessment committee in the prescribed
form. Please let us know in due course whether it is your client’s intention to
proceed in this way.
However, by
October 16 1990, if not earlier, the tenants’ solicitors had heard of the
further transfer to De Alnie and wrote to the solicitors for De Alnie as
follows:
We understand
that you act for the above-named and that your client has recently purchased
the freehold of the property at 11 Palmeira Avenue, Hove from Unifox Properties
Limited.
We act for 11
Palmeira Avenue (Hove) Limited which is a company incorporated by the lessees
of the basement, ground and second floor flats. A purchase notice was served on
Unifox Properties pursuant to Section 12 Landlord and Tenant Act 1987 and we
propose to issue proceedings shortly under that Act.
By Section 16
of the 1987 Act our clients’ rights may be pursued against your client as if
your client were the transferee under the original disposal from Colliseum
Developments Limited. We require your clients, therefore, to transfer the
freehold interest to our client on the same terms as the purchase by Unifox
Properties Limited from Colliseum Development Limited. We await your
observations.
There was a
slight error there because Unifox had bought from Miss Teverini rather than her
predecessor, Colliseum Developments.
Section 16 is
designed to cover the case of a subsequent transfer from the person called ‘the
new landlord’ to whom the relevant disposal was made (in this case Unifox) to a
subsequent purchaser (De Alnie). It provides as follows:
(1) Where, at the time when a notice is served
under section 11(1) or 12(1) on the new landlord, he no longer holds the estate
or interest that was the subject-matter of the original disposal, then —
(a) in the case of a notice served under section
11(1), the new landlord shall, within the period specified in section 11(3) —
(i) furnish such person as is specified in the
notice with the information that he is required to furnish by virtue of it, and
(ii) serve on that person a notice informing him of
the name and address of the person to whom the new landlord disposed of that
estate or interest (‘the subsequent purchaser’), and
(iii) serve on the subsequent purchaser
a copy of the notice under section 11(1) and of the information furnished by
him under subparagraph (i) above;
(b) in the case of a notice served under section
12(1), the new landlord shall forthwith —
(i) forward the notice to the subsequent
purchaser, and
(ii) serve on the nominated person such a notice as
is mentioned in paragraph (a)(ii) above.
(2) If the new landlord serves a notice in
accordance with subsection (1)(a)(ii) or (b)(ii) above, sections 12 to 14
shall, instead of applying to the new landlord, apply to the subsequent
purchaser as if he were the transferee under the original disposal.
The effect of
that, if the condition in subsection (1) were fulfilled, is that De Alnie would
be obliged under section 12 to transfer the freehold to the tenants, although I
would have thought that De Alnie would have been able to rely on subsection (6)
of section 12 just as Unifox might have done. But the condition was not
fulfilled. Unifox were still owners of the property at the time when the
notices were served under sections 11 and 12 by the tenants and did not sell
their interest to De Alnie until a few weeks later.
It is now
conceded that section 16 does not apply in this case. If that concession was
rightly made, and I do not seek to cast any doubt upon it, it may be that there
is an omission in the Act.
I should also
mention two other provisions. Section 13(1) provides:
A rent
assessment committee shall have jurisdiction to hear and determine —
(a) any question arising in relation to any
matters specified in a purchase notice (whether relating to the nature of the
estate or interest, or the identity of the property, to be disposed of or
relating to any other terms on which the disposal by the new landlord is to be
made); and
(b) any question arising for determination in
consequence of a provision in a purchase notice such as is mentioned in section
12(3)(b).
That is supplemented
by section 52:
(1) A county court shall have jurisdiction to
hear and determine any question arising under any provision to which this
section applies (other than a question falling within the jurisdiction of a
rent assessment committee by virtue of section 13(1) or 31(1)).
Then it is
said that the section applies, among other things, to any provision of Part I
of the Act.
So the rent
assessment committee, also called for this purpose the leasehold valuation
tribunal, has exclusive jurisdiction to decide any issue as to the price at
which the transfer must be made under Part I of the Act.
Those in broad
outline were the facts upon which the tenants asserted their right to buy. In a
notice which preceded their application to the county court they relied,
wrongly as was later conceded, on section 16 in order to pursue their claim
against De Alnie. Unifox apparently took no notice of the proceedings in the
county court, but De Alnie served an answer in these terms:
1. It is
admitted that the second named respondents are the freeholders of the premises
known as 11 Palmeira Avenue Hove East Sussex.
2. It is
denied that the applicants form the requisite majority of qualifying tenants of
the premises for the purposes of section 12 of the Landlord and Tenant Act
1987.
3. It is
denied that the applicants are entitled to the Order sought against the second
named respondents in their summons and accordingly the second named respondents
oppose the application.
There is
nothing at all there about a dispute as to price or a reference to the
leasehold valuation tribunal.
On the day
when the hearing was to commence in the county court, an affidavit was sworn on
behalf of the tenants by Mr Crumpton. It refers to the interest of the tenants
being an overriding interest by reason of section 70(1)(g) of the Land
Registration Act 1925, so that De Alnie’s purchase of the freehold is subject
to the rights of the tenants under their section 12 notice. So there, instead
of section 16 of the 1987 Act giving tenants a right against De Alnie, it is
said that their right against Unifox was an overriding interest and therefore
became enforceable against De Alnie.
In opening the
case for the tenants in the county court counsel did not rely on section 16.
Instead she argued that their right against Unifox was an overriding interest.
Section 70(1)(g) of the Land Registration Act 1925 does provide, among
many other things, that the following may be an overriding interest:
. . . the
rights of every person in actual occupation of land or in receipt of the rents
and profits thereof, save where enquiry is made of such person and the rights
are not disclosed.
This argument
was apparently accepted by the judge, although he did not say so in express
terms. At one time it was challenged in a notice of appeal by De Alnie; but
that paragraph of the notice of appeal has since been abandoned. So the
tenants’ right to buy from De Alnie is no longer disputed. The only issue is
price. However Mr King-Smith, who now appears for the tenants, argues that he is
in a better position in relying on an overriding interest against De Alnie than
he would or might have been under section 16. He submits that section 12(6),
which allows the price to be reconsidered upon a change of circumstances, only
applies in favour of ‘the new landlord’. In the terminology of the Act, it is
plain that Unifox were the new landlord and not De Alnie. They were ‘a
subsequent purchaser’.
It is not
essential to my decision, but I doubt whether that argument can be correct. The
right of the tenants against Unifox was subject to section 12(6) and might be
considerably impaired by that subsection. I do not see how as an overriding
interest which also affects De Alnie it can be enlarged into a right which is
unaffected by subsection (6). So I must turn to the facts which are said to
constitute a change of circumstances and to give grounds for an increase in the
price paid to Miss Teverini. These were in outline as follows.
On September
23 1988 Swiftbuild Ltd, who were then the landlords, had granted a 99-year
lease of the first-floor flat to Mr Collis. He had obtained a mortgage from the
Mortgage Corporation for £90,000. On November 11 1988 Swiftbuild Ltd granted a
99-year lease of the maisonette on the third and fourth floors to Mr Collis.
Again there was a mortgage, this time from a company called Mortgage Express,
for £101,250. In the following year, 1989, during the course of the summer Mr
Collis became insolvent and bankrupt. He subsequently stripped and abandoned
both the first-floor flat and the maisonette on the third and fourth floors. In
August 1989 Mortgage Corporation obtained an order for possession of the
first-floor flat. That was executed on December 14 1989. However, on January 5
1990 Unifox peaceably forfeited the leases of the first-floor flat and the
maisonette of Mr Collis, so it is said. On May 1 1990 Mortgage Express obtained
an order for possession of the maisonette. By July 10 1990 Unifox had spent a
total of £20,000 on refurbishments of the first-floor flat and the maisonette,
which had comprised the third and fourth floors. On July 16 1990 they granted a
20-year lease of the first-floor flat to Basecourt Ltd. The initial rent was
£1,500 pa. On the following day, July 17, they granted a 20-year lease of the
third-floor flat to Basecourt Ltd at an initial rent of £1,000 a year. On
August 2 1990 Mortgage Corporation issued a writ against Unifox, seeking relief
against forfeiture in respect of the first-floor flat. On April 23 1991
Mortgage Corporation issued a writ against De Alnie, seeking relief against
forfeiture in respect of the first-floor flat. On April 26 1991 De Alnie
granted a nine-year lease of the fourth-floor flat to a Mr Javed. Finally, on
May 2 1991 a writ was issued by Mortgage Express against De Alnie, seeking relief
from forfeiture in respect of the maisonette comprising the third and
fourth-floor flats.
There are two
main grounds for alleging a change of circumstances. First, instead of the
first-floor flat and the third and fourth-floor maisonette being occupied by Mr
Colis on a long lease at a low rent, vacant possession had been obtained. Those
parts of the premises could then be relet at a premium or for a substantial
rent or both. In fact they were. That might increase the value of the freehold
substantially. Second, £20,000 had been spent on much needed repairs to the
first-floor flat and the maisonette. Those facts were in evidence before the
judge. It may well be that they were relevant to some extent to the issue as to
whether there were five or six flats in the building. The evidence was in part
given by representatives of the mortgagees, who collaborated with the tenants.
When the
evidence was concluded, Mr Kennedy, who appeared for De Alnie, applied for an
adjournment. He sought either a reference to the leasehold valuation tribunal
or, if the judge himself was to determine the price, an opportunity to call
valuation evidence. No issue as to price had been raised in the answer,
although Robert Gates & Co raised it earlier. Mr Kennedy frankly told us
that, while the tenants were relying on section 16 instead of an overriding
interest, and as there was also an issue as to whether they were qualifying
tenants, he did not think that any other defence was needed.
The judge
refused the application for an adjournment. On the subject of price he said:
Then Unifox
purported to forfeit those two leases. They did not do much, but let them on
shorthold tenancies. The only relevance I can see is that when the freehold was
sold to De Alnie it was at a price that would appear to represent selling with
vacant possession of the third and fourth floors. Against that, one must bear
in mind that proceedings had been commenced seeking a declaration that they had
no right to forfeit and if not then there would be entitlement to relief from
forfeiture. All that De Alnie acquired was a freehold with a couple of law
suits to go with it.
In a later
passage:
The tenants
say they should pay at the same price as Unifox purchased. Bearing in mind that
the likelihood of any enhanced value is very remote and inflation must not be
taken into account, I cannot see why they should pay more. Mr Kennedy put
forcibly that De Alnie were entitled to additional compensation. While there is
no evidence of any collusion between De Alnie and Unifox, De Alnie must have
become aware of the tenants’ rights. There are questions set out in the normal
preliminary inquiries. Agents were acting for both and a month before they said
they could sell to the tenants. I will, therefore, make the order as asked . .
.
In my judgment
the judge was entitled to refuse an adjournment and to find that there was no
issue of significance as to price, for four reasons. First, it is argued by Mr
King-Smith that Unifox had no right to forfeit on the date when they did as
they did not yet have a legal title to the freehold. We know that the
forfeiture was said to have taken place on January 5 1990 and that the title of
Unifox is only said to have been registered on March 30 1990. Mr Kennedy says
that their registered title dates back to the date when the application for
registration was delivered to the Land Registry. However, he has to concede
that, on the evidence we have, probably March 30 was the date on which the
application was delivered to the registry. Even if that be not right, it seems
very probable indeed that the application for registration by Unifox was not
delivered to the registry on or before January 5 1990. Not even Miss Teverini’s
title was then registered. Unifox had only contracted to buy a few days
previously on December 14. Seeing that the date we have for registration is
March 30, it seems almost certain that Unifox did not have the legal title on
January 5. If that be the case, then, as appears from Barnsley’s
Conveyancing Law and Practice, 3rd ed, p 422:
The absence
of any legal estate until registration precludes the exercise of any right
dependent upon the existence of a legal title for its validity. Thus he [the as
yet unregistered owner] cannot serve a valid notice to quit.
That would
seem to show that there was no valid forfeiture by Unifox. Second, the judge
held that the mortgagees were likely to obtain relief against forfeiture. For
some reason their proceedings seeking relief have still not reached a hearing.
But seeing that between them they had invested nearly £200,000 in the property,
it does seem as though the judge was very likely right on that point.
Third, even if
De Alnie had an arguable point about forfeiture, there was not in my opinion
any great change of circumstances between the situation before Miss Teverini
sold and the situation after the purported forfeiture. Before Miss Teverini
sold Mr Collis had become bankrupt, had stripped the flats and had abandoned
them. It could only be a matter of time before either the mortgagees sought
possession — indeed, in one case they already had — or the landlord forfeited
the leases.
If, contrary
to the view which the judge took and which appears to me to be right, the
landlords were the ones who were going to succeed and benefit from the flats
having vacant possession, there was no substantial change in the situation
before Miss Teverini sold and at a later date. Miss Teverini had merely failed
to anticipate the profit that could be made and had sold at an undervalue. If,
on the other hand, the mortgagees succeed, there was again no substantial
change in circumstances between the situation before Miss Teverini sold and
subsequently.
Fourth, if the
mortgagees’ rights prevail, as I hold that they are very likely to, the money
spent on refurbishing the first floor and the maisonette did nothing to improve
the value of the reversion to the freeholder or to increase the price which was
paid for it.
I consider
that the judge was fully entitled to take the course that he did. It seemed to
him that there was no substantial or significant issue as to price: and that in
those circumstances De Alnie should not be afforded the indulgence of an
adjournment in order to raise that issue either before the judge, as they
suggested they might do, or before the leasehold valuation tribunal.
I would
dismiss this appeal.
LLOYD LJ agreed and did not add anything.
Appeal
dismissed with costs; application for leave to appeal to the House of Lords
refused.
