Landlord and Tenant Act 1987, sections 12 and 13 — Right of first refusal — Reversion assigned by landlord — Failure to comply with statutory duty to offer tenants first refusal — Tenants served purchase notice under section 12 on the new landlords, the present respondents — Questions as to whether tenants were qualifying tenants, what interests tenants were entitled to acquire and as to validity of purchase notice — Appeal by tenants from decision of county court judge allowed — Jurisdiction of rent assessment committees under section 13 discussed
related to a pair of two-storey buildings at 71 Holden Road, London N12, called
Brookdene — The tenants there hold long leases of their flats, eight in all,
and the gardens which go with them, and are granted certain rights of way —
Each lease includes in the demise of the flat the appropriate part of the
external walls of the building — The garages are not included in the demise of
the flats but most tenants hold one of the garages under a separate title — In
November 1988 the original landlord transferred the freehold title to the
reversion to Denetower, the present respondents, without having first complied
with the requirement under section 1 of the 1987 Act of offering the reversion
to the tenants — On discovering the transfer the tenants served a purchase
notice on Denetower under section 12, requiring the disposal to the tenants of
the estate or interest that was the subject-matter of the previous disposal —
Denetower then applied to the county court, seeking declarations that the
tenants were not qualifying tenants, alternatively that the purchase notice was
invalid, and in the further alternative that, if valid, the notice covered only
the buildings — The county court judge held in favour of Denetower that the
tenants were not qualifying tenants but indicated that, if necessary, he would
have decided against Denetower on the other points — The tenants appealed and
Denetower cross-appealed
tenants were ‘qualifying tenants’
contended that the tenants were not qualifying tenants on the ground that they
were disqualified by section 3(2)(a)(ii), which excluded tenants where the
demise included the flat ‘and any common parts of the building’ — As the demise
of each flat included part of the structure or exterior (defined as a common
part in section 60) the tenants were not qualified — The Court of Appeal
rejected this submission, holding that in order to be disqualified the demise
must cover the flat itself with its common parts and, in addition, some other
common parts — Any other construction would produce absurd results
tenants entitled to acquire?
submitted by Denetower that the premises to which the purchase notice applied
consisted of buildings only, ie the physical structures consisting of the two
blocks of flats — Accordingly, there was no power under section 12(3) to give a
purchase notice relating to the gardens or roadway, as they were not part of a
building — The court rejected this submission also — Building in this context
included appurtenances such as gardens and express or prescriptive rights over
roadways and paths — Garages were not appurtenances, being held under a
different title — As regards roadways and paths, however, the Vice-Chancellor
suggested that a rent assessment committee, acting under section 13(1), might
consider that the appropriate provision should be to grant the tenants
perpetual rights rather than a freehold title
purchase notice
rejected a submission that the tenants’ purchase notice was invalid because it
purported to require Denetower to transfer to the tenants everything which
Denetower had acquired from the original landlord — As the tenants were not
entitled to acquire all that land, the notice failed to comply with section
12(3) and was therefore invalid — The answer to this submission was that the
purchase notice did not describe the property by reference to the registered
title and it was expressly made ‘subject only to such modifications as are
necessary or expedient in the circumstances’ — The notice was entirely valid
of court and of rent assessment committee
had been raised as to whether the county court (and therefore the Court of Appeal)
had jurisdiction to determine the points raised by Denetower — The jurisdiction
of a rent assessment committee was set out in section 13(1) of the 1987 Act and
the jurisdiction of the county court was by section 52 to hear and determine
questions arising under Part I of the Act ‘other than questions falling within
the jurisdiction of a rent assessment committee by virtue of section 13(1)’ —
It had been suggested that the validity of the notice was a matter falling
within section 13(1) and therefore not within the jurisdiction of the county
court — This was not correct — The rent assessment committee does not have
jurisdiction to determine the validity of a notice served under
validity or otherwise of the notice served is a matter for the court to decide
— The county court, therefore, had jurisdiction to decide on the validity of
the notice — In order to decide the validity of the notice the court had to
decide, inter alia, what the tenants were entitled to acquire — But, in default
of agreement, it will be for the rent assessment committee to decide on the
details of that issue in the light of the court’s judgment
The following
case is referred to in this report.
St
Thomas’ Hospital (Governors of) v Charing Cross
Railway Co (1861) 1 John & H 400; 30 LJ Ch 395; 25 JP 771; 7 Jur NS
256; 9 WR 411
This was an
appeal by tenants of two blocks of flats at Brookdene, 71 Holden Road, London
N12, from the decision of Judge Goldstone, at Barnet County Court, that they
were not ‘qualifying tenants’ and thus not entitled to serve a purchase notice
under section 12 of the Landlord and Tenant Act 1987 on their new landlords,
Denetower Ltd, in pursuance of their right of first refusal under the Act.
Michael
O’sullivan (instructed by Moerans, of Edgware) appeared on behalf of the
appellant tenants; Simon Brilliant (instructed by Wallace & Partners)
represented the respondents.
Giving
judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: This is an appeal from
a decision of His Honour Judge Goldstone who, on the application of Denetower
Ltd, declared that the appellants, who are tenants of the flats at Brookdene,
71 Holden Road, London N12, are not ‘qualifying tenants’ within the meaning of
section 3 of the Landlord and Tenant Act 1987 (‘the Act’). There is also a
cross-appeal by Denetower, which I will explain hereafter.
The Act was
passed with a view to giving leaseholders of residential flats in a block of
flats improved rights to control the upkeep and maintenance of the block as a
whole. Part I of the Act confers on such tenants a right of first refusal when
the landlord is proposing to dispose of his reversion. If the landlord assigns
the reversion in breach of such right of first refusal, the tenants are given a
right to acquire the reversion from the assignee. This case is concerned with
that latter right, ie the tenants’ right to acquire from an assignee from the
original landlord.
The framework
of Part I of the Act, in outline, is as follows. Under section 1(2), Part I of
the Act is made to apply to premises which ‘consist of’ the whole or part of a
building which contains two or more flats held by ‘qualifying tenants’ and if
more than one-half of the flats in the premises are held by such qualifying
tenants. Under section 1(1) the landlord cannot make ‘a relevant disposal’
without serving on the qualifying tenants an offer notice under section 5,
giving to the qualifying tenants a right of first refusal. Sections 5 to 10
contain elaborate provisions relating to the terms to be contained in the offer
notice by the landlord, the acceptance of such offer or the making of a
counter-offer by the tenants and other matters. If, for some reason, the right
of first refusal is not taken up by the tenants, the landlord is then free for
one year to dispose of the reversion on the same terms and at the same price as
he has offered it to the tenants.
Sections 11 to
17 of the Act (which are the provisions directly in point in this case) deal
with the position where the original landlord has, in breach of his obligations
under section 1, disposed of his reversion to a new landlord. In those
circumstances, section 12(1) provides as follows:
the requisite
majority of qualifying tenants of the constituent flats may, before the end of
the period specified in subsection (2), serve a notice (‘a purchase notice’) on
the new landlord requiring him (except as provided by the following provisions
of this Part) to dispose of the estate or interest that was the subject-matter
of the original disposal, on the terms on which it was made (including those
relating to the consideration payable), to a person or persons nominated for
the purposes of this section by any such majority of qualifying tenants of
those flats.
It will be
observed that, under section 12(1), the tenants’ right is to acquire from the
new landlord the property which was transferred to him by the original
landlord. That transfer from the original landlord to the new landlord may well
have included property in addition to the relevant block of flats. To deal with
that contingency, section 12(3) provides as follows:
a purchase
notice —
(a) shall, where the estate or interest that was
the subject-matter of the original disposal related to any property in addition
to the premises to which this Part applied at the time of the disposal —
(i) require the new landlord to dispose of that
estate or interest only so far as relating to those premises, and
(ii) require him to do so on the terms referred to
in subsection (1) subject to such modifications as are necessary or expedient
in the circumstances;
(b) may, instead of specifying the estate or
interest to be disposed of or any particular terms on which the disposal is to
be made by the new landlord (whether doing so expressly or by reference to the
original disposal), provide for that estate or interest, or (as the case may
be) for any such terms, to be determined by a rent assessment committee in
accordance with section 13.
Brookdene
consists of a pair of two-storey buildings facing on to Holden Road. Each
building contains two ground-floor and two first-floor flats, making eight in
all. Each ground-floor flat has two gardens, one at the front and one at the back,
contiguous to the flat. Each first-floor flat has a garden which is not
immediately adjacent to the building but situated behind the rear gardens of
the ground-floor flats. A roadway runs between the two blocks leading to eight
garages at the rear of the property. Finally, there is a small piece of land at
the rear which is apparently unused and over which the tenants have no rights
(‘the unused land’).
Each of the
tenants holds a long lease of his or her flat and the garden which goes with
it. Under the leases, each tenant is granted a right of way on foot either over
a pathway leading to his flat and garden or over a narrow strip of the roadway
between the buildings. It is common ground that each lease includes in the
demise of the flat the appropriate part of the external walls of the building.
The garages
are not included in the demise of the flats. Most of the tenants hold a long
lease over one of the garages, but one of the garages is let to a non-tenant
and the freehold of two of the garages has been sold to an outsider.
All the land,
buildings, gardens, garages, roadway and unused land are registered at the Land
Registry in one title described as ‘Brookdene, 71 Holden Road’.
On November 8
1988, the original landlord transferred the freehold title to the reversion to
Denetower Ltd, without first having complied with the requirements of section 1
of the Act by offering the reversion to the tenants. On discovering the
transfer, the tenants, within time, served on Denetower a notice in the
following terms:
S12 LANDLORD
AND TENANT ACT 1987
RIGHT OF
QUALIFYING TENANTS TO COMPEL SALE BY NEW LANDLORD
To: Denetower
Limited . . .
We the
requisite majority of the qualifying TENANTS of the constituent flats situate
at Brookdene 71 Holden Road London N12 7DR HEREBY SERVE you with a NOTICE (‘a
purchase notice’) requiring you to dispose of the estate or interest relating
to the freehold reversion of Brookdene 71 Holden Road aforesaid TO THE
QUALIFYING TENANTS NAMED BELOW ON THE TERMS on which the original disposal to
you was made (including those relating to the consideration payable) SUBJECT
ONLY TO such modifications as are necessary or expedient in the circumstances.
The notice was
dated June 7 1989 and signed by all the tenants of both buildings.
On January 11
1990 Denetower Ltd applied to the Barnet County Court joining all the tenants
as respondents seeking the following declarations:
1 A declaration that none of [the tenants]
is a qualifying tenant of his or her respective flat at Brookdene within the
meaning of section 3 Landlord & Tenant Act 1987 . . .
2 Alternatively, if it be found that any
[tenant] is such a qualifying tenant, a declaration that a purchase notice
served by the [tenants] and dated 7th June 1989 is invalid and of no effect.
3 In the further alternative, if it be found
that the said purchase notice is valid, a declaration that the Applicants are
only required to dispose of the two building(s) containing the [tenants’]
respective flats and not the garages and grounds at Brookdene.
The judge held
in favour of Denetower on the first declaration but indicated that, if it had
been necessary for him to decide the points, he would have decided against
Denetower on the second and third declarations. The tenants appeal against the
judge’s decision: Denetower cross-appeals on the subject of the second and
third declarations.
The questions
which accordingly arise for our decision are as follows:
1 Whether the tenants of Brookdene were
‘qualifying tenants’ of their flats entitled to serve a purchase notice under
section 12(3);
2 If so, whether the tenants are entitled to
purchase only the buildings containing the flats, to the exclusion of, inter
alia, the gardens and garages;
3 Whether the purchase notice dated June 7 1989
complied with the requirements of section 12(3).
1 Are the tenants ‘qualifying tenants’?
Under section
12(1), a purchase notice can be served only by the requisite majority of
qualifying tenants. Denetower contends that the tenants are not ‘qualifying
tenants’ within the definition in the Act.
The term
‘qualifying tenants’ is defined by section 3 of the Act for the purposes of
Part I of the Act. It is common ground that the tenants are qualifying tenants
unless they are excluded by the provisions of section 3(2)(a), which reads as
follows:
(2) A person is not to be regarded as being a
qualifying tenant of any flat contained in any particular premises consisting
of the whole or part of a building if —
(a) he is the tenant of any such flat solely by
reason of a tenancy under which the demised premises consist of or include —
(i) the flat and one or more other flats, or
(ii) the flat and any common parts of the
building; or . . .
Section 3(2)
has been amended by the Housing Act 1988. Such amendment was not retrospective
so as to apply to this case. Section 60 of the Act provides that ”common
parts’, in relation to any building or part of a building, includes the
structure and exterior of that building or part and any common facilities
within it’.
Denetower
contends (and the judge held) that, since the lease of each flat included in
the demise part of the exterior of the building, the demised premises include
not only the flat but also ‘common parts of the building’ within the definition
in section 60. Therefore, it is said, the tenants fall within section
3(2)(a)(ii) in that the demised premises include both the flat and common parts
of the building. Accordingly, it is said, none of the tenants is a ‘qualifying
tenant’ capable of serving a notice under section 12(1).
I do not
accept these submissions. No one has been able to suggest what was the
parliamentary intention lying behind the exclusion contained in section 3(2).
If Denetower’s submission is right, section 3(2) will have effectively
emasculated the Act as originally enacted. The overwhelming majority of flat
leases must include in the demise some part of the ‘structure’ of the building
in the form of load-bearing walls, whether internal or external. Moreover, in
Part III of the Act (which provides for compulsory acquisition of the
reversion), section 26 contains a similar definition of ‘qualifying tenants’.
Therefore, if the contention is correct, the protection of Parts I and III of
the Act would be applicable only to the miniscule number of cases where a block
of flats is let on terms which exclude structural walls, floors and ceilings
from the demise. If Parliament has so clearly legislated, so be it. But in the
absence of clear words I am very reluctant to reach such a conclusion.
In my
judgment, the words of section 3(2)(a) are quite capable of bearing the meaning
that, in order for the tenant to be excluded, there have to be two elements in
the demise: first ‘the flat’ and then, in addition, certain common parts. The
words are ‘the flat and any common parts’. The mere fact that ‘the flat’
itself contains common parts is not enough: there has to be some element in
addition to the flat which is part of the common parts.
It is, I
accept, possible to construe the phrase in isolation as referring simply to the
case where the demise contains two characteristics (as opposed to elements), viz
the demise includes a flat and includes common parts, whether or not the latter
form part of the flat. But, at best, this raises an ambiguity in the section
which makes it legitimate to have regard to later legislation to explain that
ambiguity. Para 2(1) of Schedule 13 to the Housing Act 1988 (which amends
section 3(2) of the 1987 Act) describes section 3(2) as enacted as being a
provision ‘which excludes persons having interests going beyond a particular
flat’. In my judgment, those words clearly show that in order to be excluded
the tenant has to be entitled to something which is ‘beyond’ the flat, ie not
included in the flat.
2 What are the tenants entitled to acquire?
The basic
right, conferred by section 12(1), is for the tenants to acquire the whole of
the property transferred to Denetower, ie all the land comprised in the
registered title. However, Denetower contends that section 12(3) applies, since
‘the estate or interest that was the subject-matter’ of the disposal to
Denetower related to property ‘in addition to the premises to which this Part
applied at the time of the disposal’. This requires one to identify the
premises to which Part I of the Act applied. These are defined by section 1(2)
which, so far as relevant, reads as follows:
This Part
applies to premises if —
(a) they consist of the whole or part of a
building; and
(b) they contain two or more flats held by
qualifying tenants; and
(c) the number of flats held by such tenants
exceed 50 per cent of the total number of flats contained in the premises.
Denetower
contends that the word ‘consist’ in its normal meaning means ‘comprise’ or
‘consist only of’. It therefore contends that the only ‘premises to which this
Part applied’ and to which the section 12 notice could relate were the physical
structures consisting of the two blocks of flats as being the only ‘buildings’
in which the flats were contained. Accordingly, it is said, under section 12(3)
there was no power to give a purchase notice relating to the gardens, garages,
roadway or the unused land, since they were not part of the building of which
the relevant premises consisted.
To this the
tenants have two answers. First, they submit that the requirement in section
1(2) that the premises must ‘consist of’ a building does not mean that the
premises must consist only of the building: the word ‘consist’ can be
used as meaning ‘include’. I have some doubt whether this argument is correct,
since the draftsman has shown in section 3(2)(a) that where he means to say
‘consist of or include’ he does so in express terms.
However, it is
unnecessary to decide this point, since I accept the tenants’ second argument. They
submit that the word ‘building’ is not necessarily confined to the bricks and
mortar of which the building is constructed. In Governors of St Thomas’
Hospital v Charing Cross Railway Co (1861) 1 John & H 400 it was
held that section 92 of the Lands Clauses Consolidation Act 1845 (which
provided that the owner of land being compulsorily acquired could not be
required to convey ‘a part only of any house, or other building or
manufactory’) required the purchase not only of the whole house but also of the
gardens and appurtenances of the house.
In the present
case, it would be to attribute to Parliament an entirely capricious intention
if we were to hold that the tenants’ right to purchase did not extend to the
gardens and other appurtenances of the flats which are expressly or impliedly
included in the demises of the flats to the tenants. In my judgment, we are not
forced to adopt such an unreasonable construction, since it is a perfectly
legitimate meaning of the word ‘building’ that it includes the appurtenances of
the building.
Denetower
submits that there are other provisions in the Act which indicate that in this
Act the word ‘building’ does not include the appurtenances of such building.
Under Part III of the Act, tenants can compulsorily acquire the reversion in
certain circumstances. Under section 29(1) the court can make an order
affecting ‘premises to which this Part applies’. The premises to which Part III
apply are defined by section 25(2) so far as relevant in the same way as
section 1(2), ie as premises ‘consisting of’ a building. Yet, section 29(4)(a)
provides expressly as follows:
An acquisition
order may, if the court thinks fit —
(a) include any yard, garden, outhouse or
appurtenance belonging to, or usually enjoyed with, the premises specified in
the application on which the order is made;
Denetower
submits that section 29(4) shows that, apart from its provisions, yards,
gardens, outhouses and appurtenances would not be included in the word
‘premises’. While admitting the force of this point, in my judgment it is not
decisive in construing such an ill-drafted, complicated and confused Act as
this. In my judgment, section 29(4) was inserted in Part III out of an
abundance of caution. Certainly there is no logical reason why the tenant who
acquires under section 12 of the Act should not be entitled to acquire exactly
the same property as could be acquired under Part III: yet there is nothing
corresponding to section 29(4) in Part I of the Act.
I therefore
reach the conclusion that the purchase notice under section 12 could have
required Denetower to transfer not only the two buildings but also any
appurtenances of that building.
What, then,
are the appurtenances of the buildings?
There can be no doubt that the gardens are included: they are expressly
included in the leases of the flats which are part of the buildings. In my
judgment, the garages are not appurtenances. The tenants enjoy no rights over
the garages under or by virtue of their leases of the flats. The garages are
held under quite separate leases; not every flatholder has a garage; the
freehold of all the garages is not vested in Denetower. In those circumstances
it is impossible to hold that the garages are
rights over the unused land, nor is such land used in conjunction with the
flats: therefore it is not an appurtenance of the building. As to the roadways
and paths over which the tenants have either express or prescriptive rights of
way, in my judgment they are appurtenances of the building. However, it may
well be that a rent assessment committee acting under section 13(1) may reach
the conclusion that the appropriate provision should be that the tenants should
not acquire the freehold in the land of the roadway and paths but be granted
perpetual rights of way over them.
3 Was the section 12 notice valid?
Denetower
submits that the notice served on June 7 1989 required Denetower to dispose of
the whole of the land comprised in the title registered at the Land Registry,
ie buildings, gardens, garages, roadway and unused land. Since, as I have held,
the tenants were not entitled to acquire all that land, it is submitted that
the notice failed to comply with section 12(3) and was therefore invalid. If
this argument is right, since the time for serving a section 12 notice has now
expired, the tenants will have lost their rights completely.
The basis of
this argument is that the notice, on its true construction, purports to require
Denetower to transfer to the tenants everything which Denetower acquired from
the original landlord, ie that the notice was a notice under section 12(1) not
under section 12(3). I do not so construe it. First, the property is not
described by reference to the registered title. The tenants are described as
‘the qualifying tenants of the constituent flats situate at Brookdene, 71
Holden Road . . .’. This indicates that the notice, in referring to Brookdene,
is referring to the buildings in which the flats are situate and not to the
land comprised in the registered title. Next, the notice does not require (as
would a notice under section 12(1)) the transfer to be made simply on the same
terms as the original disposal: the terms are to be ‘subject only to such
modifications as are necessary or expedient in the circumstances’. Those latter
words are a direct quotation from section 12(3)(a)(ii) and are appropriate only
to a notice under section 12(3).
In my
judgment, therefore, on its true construction the notice required the transfer
of Brookdene (meaning the blocks of flats) plus their appurtenances on the same
terms as the whole property was transferred to Denetower, but subject to the
necessary modification to take account of the fact that the notice did not
require the transfer of the whole property. As such, the notice was entirely
valid. Given the complexity of the Act, a draftsman of a notice would be
presented with an impossible task in seeking to specify in detail the exact
property to be acquired. A notice in terms such as those contained in the
present notice gives to the new landlord adequate notice of the claim. The
details of the property to be acquired and the terms of the acquisition can in
default of agreement be sorted out by the rent assessment committee on an
application under section 13(1).
Jurisdiction
In the course
of argument, the question was raised whether the county court (and therefore
this court) had jurisdiction to determine the points raised by Denetower. Under
section 13(1) a rent assessment committee is given 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).
Under section
52 of the Act, the county court is given jurisdiction to hear and determine any
questions arising under Part I of the Act ‘other than a question falling within
the jurisdiction of a rent assessment committee by virtue of section 13(1) . .
.’. It was suggested that the validity of the notice was a matter falling
within section 13(1) and therefore not within the jurisdiction of the county
court.
In my
judgment, the rent assessment committee does not have jurisdiction to determine
the validity of a notice served under section 12, but only to determine
questions arising under such a notice. The validity or otherwise of the notice
served is a matter for the court to decide. Therefore the county court had
jurisdiction to decide the validity of the notice. In order to decide on the
validity of the notice, we have had to decide question 2 (above), viz
what were the tenants entitled to acquire?
But, in default of agreement, it will be for the rent assessment
committee to decide on the details of that issue in the light of this judgment.
I would
therefore allow the appeal and declare that the tenants have at all material
times been ‘qualifying tenants’ within the meaning of Part I of the Act and
that the notice dated June 7 1989 was a valid notice under section 12(3) of the
Act.
STOCKER and BELDAM LJJ agreed and did not add anything of their own.
The appeal
was allowed; declarations granted that the defendants have at all times been
qualifying tenants within the meaning of Part I of the Landlord and Tenant Act
1987 and that the notice dated June 7 1989 was a valid notice under section
12(3) of the Act; plaintiff company to pay the defendants’ costs here and
below; application for leave to appeal to the House of Lords refused.
