Determination of ‘estate or interest’ for transfer to tenants of block of flats at Bromley — Original disposal, made without s5 notice to tenants, at price of £42,000 for freehold — After service of purchase notice new landlord granted 125-year lease of roofspace to her husband at a peppercorn rent — Lease included right to convert roofspace into dwelling and to alter or adapt all service media in loft — Whether lease, which was unregistered, constituted an incumbrance within meaning of s12(4)
issue on tribunal’s jurisdiction — Tribunal accepted that, as conceded by both
parties and after consideration of s13, and the limits of its scope, they had
jurisdiction to determine whether freehold to be disposed of to tenants was
subject to lease granted subsequent to original disposal
for tenants that disposal to them should be on same terms in every respect as
original disposal — Once purchase notice served, freeholder had no further
freedom of action in relation to subject premises — To transfer freehold
subject to lease freeholder must establish it to be a ‘charge or other
incumbrance’ under s12(4), but lease not an incumbrance within meaning of
subsection — Landlord’s argument that disposal to tenants be subject to lease
accepted by tribunal, however — Para (a) of s12(4) is concerned with monetary
charges and these are discharged by operation of instrument which effects
transfer of premises to tenants, but para (b) relates to ‘any other
incumbrance’ which is not capable of being paid off and it extends to leases —
Held accordingly that, whatever the position as to registration, the lease
constituted an incumbrance within meaning of s12(4)(b) and that disposal of the
freehold to tenants was subject to such lease
The following
case is referred to in this report.
Cousins v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 32 EG
56, LVT
Timothy Evans
(instructed by Albery & Dodds) appeared for the applicant nominated
persons; Nicholas Caddick (instructed by Baines & Baines) for the
respondent freehold owner Mrs K A Sheels.
Giving an
interim decision, THE TRIBUNAL said: This is an application to the
leasehold valuation tribunal (the tribunal) under section 13 of the Landlord
and Tenant Act 1987 (the Act) to determine the estate or interest and the terms
for the transfer of Englefield Court, Woodlands Road, Bickley in the Borough of
Bromley (the premises), to the applicants from the respondent who is the owner
of the freehold. The applicants, whose names all appear in the purchase notice
as nominated persons, hold tenancies in respect of flats in the premises as
follows:
|
David Fisher |
Flat 1 |
|
Elizabeth Evans |
Flat 2 |
|
Donald O and Audrey M Roberts |
Flat 5 |
|
Anne G Harper |
Flat 6 |
|
Olwen M Owen |
Flat 7 |
|
Vera A M Pearson |
Flat 9 |
|
Norman J and Susanne M Kenuyn |
Flat 11 |
The following facts were agreed. On May 13 1988 Dovecorn Ltd, the
original landlord, disposed of the freehold of the premises to the respondent
at a price of £42,000. On September 16 1988 a purchase notice pursuant to
section 12(3)(b) of the Act was served on the respondent by the
applicants as nominated persons to transfer the freehold in the premises to the
applicants upon such terms as might be determined by the rent assessment
committee pursuant to section 13 of the Act. Mr A A Leach, tenant of flat 12,
was also listed in the purchase notice as a nominated person but has since
withdrawn. On December 16 1988 the respondent granted a lease of the roof space
above the first floor and under the roof of the premises to her husband, Mr A J
Skeels, for a term of 125 years commencing September 29 1988 at a peppercorn
rent. The lease contained the right to convert the roof space into a
residential dwelling and to alter or adapt all service media in the loft.
Counsel on
behalf of the parties also agreed that at the time of the disposal to the
respondent Part I of the Act applied to the premises and that the disposal was
made without notice as required by section
that at the time of the disposal and continuing to the date of the hearing the
applicants constituted the requisite majority of qualifying tenants, being
seven out of the total number of 12 tenants, and that the purchase notice as
served was in accordance with the provisions of section 12 of the Act.
Reference was made to the decision of the London Leasehold Valuation Tribunal
in Cousins v Metropolitan Guarantee Ltd*, concerning 11 Belsize
Court, London NW3, and it was accepted by both parties that, in accordance with
that decision, under the Act valuation de novo of the price to be paid
on the transfer of the interest of the respondent in the premises was not to be
undertaken by the tribunal.
*Editor’s
note: Reported at [1989] 2 EGLR 223.
Mr Timothy
Evans, counsel on behalf of the applicants, presented his case under three
heads. He first submitted that the tribunal had jurisdiction under section
13(1)(b) to determine any question arising for determination in
consequence of a provision in a purchase notice pursuant to section 12(3)(b)
and that pursuant to the applicants’ purchase notice the tribunal should order
the respondent to make a transfer of the freehold estate on the same terms as
those on which it was made to the respondent in the original disposal. Second,
he submitted that if the respondent asserted that such transfer should be
subject to the lease dated December 16 1988 to Mr A J Skeels the respondent
must establish that such lease constituted an ‘incumbrance’ within the meaning
of subsection (4) of section 12. Third, if the respondent succeeded on this
second point, which the applicants contested, it would be necessary for the
tribunal to make a valuation under section 12(4)(b) of the reduction in
the consideration corresponding to the amount by which the existence of the
incumbrance reduced the value of the premises. He stated that in the event of
the tribunal’s deciding to make such a valuation he and counsel for the
respondent would wish to call expert witnesses to give evidence.
In support of
his case, Mr Evans outlined the framework of the Act; he noted that section 16
provided a procedure where a new landlord such as the respondent sold on but
that it applied only to interests acquired by successors in title before the
service of the purchase notice. There was no express provision to cover an
interest in the premises, such as the lease granted to Mr Skeels, which was
granted by the new landlord after the date of the purchase notice. He submitted
that under section 12 of the Act the tenants had the right to the freehold in
the premises on the same terms as it was conveyed to the respondent on the May
13 1988 disposal: that freehold was subject to the leases of the 12 tenants but
not to any lease relating to the roof space. Once the purchase notice was
served, he submitted, the respondent freeholder had no further freedom of
action in relation to the premises; if she wished to transfer to the applicants
the freehold subject to the Skeels lease she must establish it to be a ‘charge or
other incumbrance’ under section 12(4). That subsection applied where the
property which the new landlord was required by the Act to transfer to the
tenants had ‘at any time since the original disposal become subject to any
charge or other incumbrance’. Where the charge could not be paid off at the
time of the transfer under para (a), para (b) provided that the
property should be disposed of subject to the incumbrance but with a reduction
in the consideration. He submitted that the Skeels lease was not an
‘incumbrance’ within the meaning of the subsection; leases generally were not
included in the term ‘incumbrances’. The term ‘incumbrance’ was to be construed
ejusdem generis with charge and restricted to an obligation for payment
of money. Alternatively, if leases were included, the term applied to
registered leases, the Skeels lease was an unregistered lease which did not
pass the legal estate and it was not an equitable estate capable of specific
performance.
Mr Evans said
that in September 1988 the applicants had lodged a caution at the Land Registry
in respect of the premises, the respondent had lodged the lease with the
Registry for the purpose of registration, but at the present time the lease had
not been registered as an interest on the title. In support of his contention
that an unregistered lease did not create a legal estate, Mr Evans relied on
section 19 of the Land Registration Act 1925 and the notes thereto.
Mr N Caddick,
counsel on behalf of the respondent, accepted that section 12(1) applied to the
simple case where the tenants were able to step into the shoes of the landlord.
He submitted, however, that subsection (4) of section 12 dealt with the
exceptional case, as had arisen here by the grant of the Skeels lease where,
since the transfer, the landlord had created a charge or other incumbrance over
the premises. In such a situation it was impossible for the tenants to step
into the shoes of the landlord unless the tribunal determined that the Skeels
lease was not an incumbrance. In his submission, apart from the statute, the
term ‘incumbrances’ was generally used to include leases (Megarry and Wade,
Law of Real Property, 4th ed p 583). On a statutory construction of the
term ‘incumbrance’ in subsection (4), that general meaning was to be adopted.
If a narrower definition were to apply, one would have expected the statute
expressly so to provide and the Act contained no definition of the term.
The ejusdem
generis rule advanced by Mr Evans had no application as there was no list
of items. The purpose of the section required ‘incumbrance’ to have a different
meaning from ‘charge’. Para (a) related to charges concerning money sums
or performance bonds and provided that they should be discharged on transfer of
the premises to the tenants, when the sums due under the charge or other
obligation were paid off. Para (b) related to ‘any other incumbrance’
which was not capable of being paid off; the Skeels lease was such an
incumbrance. In para (b) cases, it was provided that the disposal by the
new landlord to the tenants should be made subject to the incumbrance but a
reduction in the consideration paid was to be made.
As regards Mr
Evans’ ‘distinction’ based on an unregistered lease, Mr Caddick referred to the
notes to section 19 of the Land Registration Act 1925 which made it plain that
an equitable estate was created by an unregistered lease. Specific performance
was not required as a lease under seal had been created which would bind the
applicants. The outcome of the notices to the Land Registry would be that the
freehold transferred to the applicants would be registered subject to the
incumbrance of the Skeels lease.
In conclusion,
Mr Evans on behalf of the applicants requested the tribunal to make an order
that the respondent make a disposal to the Tenants Association Co upon the same
terms in every respect as the original disposal of May 13 1988 to the
respondent. Mr Caddick on behalf of the respondent requested an order that the
respondent Mrs Skeels dispose of the freehold property known as Englefield
Court to the Tenants Association Co and that such disposal be subject to the
lease dated December 16 1988.
Decision and
reasons
In the present
case the parties agreed that the Landlord and Tenant Act 1987 applied to the
premises and to the disposal made to the respondent on May 13 1988. They agreed
that the applicants represented, as nominated persons, the requisite majority
of the qualifying tenants and that the purchase notice dated September 16 1988
served by the applicants was in conformity with the provisions of the Act. In
their submissions the only issues for the tribunal were whether the Skeels
lease of December 16 1988 constituted an ‘incumbrance’ within the meaning of
section 12(4) and, if so, the determination of the reduction, if any, in the
amount of the consideration, namely £42,000 for the freehold, to be made for
the existence of such incumbrance.
In our view,
there is a preliminary issue of jurisdiction first to be addressed. We have to
be satisfied that the jurisdiction which the Act gives our tribunal under
section 13 includes the power to determine the nature of the estate or interest
to be disposed of to the tenants by the original landlord; and in particular
that it allows us to determine that the freehold to be disposed of shall differ
from the freehold in the original disposal by being made subject to a lease in
respect of a part of the premises granted subsequent to that original disposal.
(To avoid repetition for purposes of the present decision, we shall hereafter
use the term ‘estate’ to include ‘interest’.)
At first sight
the determination of whether the freehold is subject to a lease appears to be a
question of law more appropriately to be determined by the county court than
one of valuation to be determined by our tribunal. However, counsel on behalf
of both parties agreed that we had jurisdiction as a leasehold valuation
tribunal under section 13. Section 52(1) and (2)(a) of the Act confers a
general jurisdiction on the county court to determine any question arising
under a provision in Part I but restricts it to matters ‘other than a question
falling within the jurisdiction of a rent assessment committee by virtue of
sections 13(1)’ (or, which is not relevant to the present case, under section
31(1) in respect of an acquisition order). It therefore seems necessary for us
to construe sections 12 and 13 of the Act to ascertain whether they confer
jurisdiction on our tribunal to order that the freehold, the subject-matter of
the original
original disposal.
Section 13(1),
which gives the tribunal jurisdiction, has two parts to cover the different
types of purchase notice which the qualifying tenants are empowered to serve
under section 12. They may serve a purchase notice under section 12(1)
requiring the new landlord to dispose of the estate on the same terms as the
original disposal; in this event, the tribunal, under section 13(1)(a),
has jurisdiction to determine any question relating to ‘matters specified’ in
that purchase notice. Alternatively, as in the present case, the qualifying
tenants may serve a purchase notice under section 12(3)(b), which
provides for the estate and terms to be determined by our tribunal: in this
event the tribunal has jurisdiction under section 13(1)(b) to determine
‘any question arising for determination in consequence of a provision in a
purchase notice such as is mentioned in section 12(3)(b)’. The
alternative procedure is appropriate where the tenants are ignorant of the details
of the original disposal and Mr Evans told us it was employed in the present
case because the applicants had no knowledge of the exact sum paid as
consideration.
Both paras (a)
and (b) conferring jurisdiction restrict it to matters specified in, or
to be determined in, consequence of a provision in the purchase notice and
include the nature of the estate or interest, the identity of the property and
the particular terms of the disposal within the matters for determination.
A question
whether a freehold is subject to a lease may be described both as a question
involving the nature of the estate, ie whether the freehold enjoys a right of
immediate possession, and also as a term of the disposal, ie whether the
freehold is subject to the grant of a lease.
It seems to
us, in relation to a purchase notice which has requested our determination of
such matters, that these provisions of the Act empower us to consider either or
both of these matters. This construction is borne out by subsections (3)(a),
(4), (5) and (6) of section 12, section 15 and section 16(3)(b), which
all envisage some modification by the tribunal of the estate or interest or
terms relating to the property in the original disposal. Subsection (4) of
section 12, it is true, contains a proviso ‘unless the court . . . directs
otherwise’, but this appears exceptional and not to prevent the tribunal from
determining a reduction in the price to be paid in accordance with para (b)
of that subsection.
Accordingly we
accept, as conceded by both parties, that we have jurisdiction to determine
whether the freehold now to be disposed of is subject to the subsequent lease
granted to Mr Skeels.
In exercising
this jurisdiction, we are mindful that the Act limits its exercise to the scope
of the purchase notice. Section 12(1) entitles the qualifying tenants to
require the new landlord to convey to them the same estate as he acquired in
the original disposal. It is the nature of that estate which we have to
determine and it is not open to us under the Act to determine at large the
appropriate or fair estate which the new landlord should be required to
transfer. Just as the previous leasehold valuation tribunal held that it had no
power to reassess the original sale figure (Cousins v Metropolitan
Guarantee Ltd (supra), concerning 11 Belsize Court) so we accept that we
have no power to redetermine the original estate or its value by reference to
events prior to or at the time of the original disposal. But the question which
we have to decide differs from that in 11 Belsize Court in that we are asked to
disregard dealings in relation to the property by the new landlord made subsequent
to the service of the purchase notice. Mr Evans’ first submission to us invited
us to hold that the Act gives a right to the qualifying tenants, once the
purchase notice is served, to acquire the property free of any subsequent
dealings in respect of it by the new landlord. In effect, the purchase notice
would freeze the nature of the estate until its disposal to the qualifying
tenants or the withdrawal of the notice. We find no express words in the
statute in favour of such a broad submission but conclude that it is not
necessary for present purposes to determine the general issue, as in our view
the provisions in section 12(4)(b) apply to the present case.
Before
examining that section we note that certain other provisions in the Act take
into account events subsequent to the purchase notice and empower the tribunal
to modify, in some limited respect, the estate or terms as transferred in the
original disposal. Thus, in the case of a disposal including property not
covered by the Act, section 12(3)(a) expressly empowers the limitation
of the estate granted to that in respect of property to which the Act applies;
section 12(6) allows a reassessment of the consideration payable by reference
to open market values where the property has since the original disposal
increased in value owing to a change of circumstances; section 15 applies these
powers mutatis mutandis to the situation where the original disposal
constituted a surrender of a tenancy by the old landlord and consequently the
new landlord is required to grant a new tenancy. Further, section 16(2) and
(3)(b) empower the tribunal to determine the estate or terms on which
successors in title to the new landlord are required to transfer to the
qualifying tenants, where the whole or part of the property has been sold on by
the new landlord prior to the service of the purchase notice.
The provision
which determines the effect of transactions made after the purchase notice is
to be found in section 12(4), which applies ‘where the property which the new
landlord is required to dispose of in pursuance of the purchase notice has at
any time since the original disposal become subject to any charge or other
incumbrance’.
As to the
construction and application of this subsection, we broadly accepted the
submissions made by Mr Caddick on behalf of the respondent. As stated earlier,
we do not consider the application of this subsection to be a matter solely
within the county court’s jurisdiction. It would seem that para (a) is
concerned with monetary charges and that by reason of the new landlord’s
ability to pay these off out of the price which he receives, they are
discharged by operation of the instrument which effects the transfer of the
estate from the new landlord to the qualifying tenants. Para (b) deals
with ‘any other incumbrance’. It provides:
(b) in the case of any other incumbrance, the
property shall be so disposed of subject to the incumbrance but with a
reduction in the consideration payable to the new landlord corresponding to the
amount by which the existence of the incumbrance reduces the value of the
property.
We found Mr
Caddick’s arguments persuasive and we accept his reasoning that para (b)
is not confined to monetary charges but extends to leases. The Skeels lease was
executed under seal by the respondent as the new landlord who was the
freeholder at the time and, in our view, whatever the position as to
registration, this transaction constituted an ‘incumbrance’ within the meaning
of subsection (4)(b) of section 12. Accordingly, we determine that the
respondent dispose to the Englefield Residents’ Association Ltd of the freehold
in the premises subject to the lease to Mr A J Skeels dated December 16 1988.
Consequently, it becomes necessary to hear argument and evidence from the
parties on the question whether any reduction in the consideration payable to
the new landlord is required under section 12(4)(b) by reason of the
disposal subject to the Skeels lease.
[The
outstanding matter referred to in the final sentence was settled without
further reference to the tribunal — Ed.]
