Leasehold Reform Act 1967, section 19 — Retention of management powers by the landlord for the general benefit of the neighbourhood — Application by Eton College in respect of an area on the Chalcot Estate — The necessary certificate having been granted by the Minister of Housing and Local Government in 1970, the present application was made by the plaintiff college to obtain the approval of the High Court to a scheme giving the college the rights and powers mentioned in section 19 of the 1967 Act — The court is required under section 19(3) to have regard primarily to the benefit likely to result from the scheme to the relevant area as a whole and the extent to which it is reasonable to impose, for the benefit of the area, obligations on tenants acquiring their freeholds — Regard may, however, also be had to the past development
affidavit by the bursar of Eton College in support of the application and an
affidavit by one of the defendants, Mr Trackman, a leaseholder and prospective
‘enfranchisee’, voicing a number of criticisms and objections — There were also
letters from other leaseholders, broadly in support of the scheme, and a
further affidavit on behalf of the college taking account of Mr Trackman’s
comments and producing a substantially revised scheme — The matter was then
adjourned into court and came before Harman J, who took note of the guidance given
by Walton J in Re Dulwich College Estate’s in regard to the court’s duty under
section 19 of the 1967 Act
Harman J declared himself satisfied that the scheme was fair and reasonable,
did not impose unreasonable burdens on the future freeholders, and allowed them
proper opportunities for consultation and for influence over the use of their
premises — Subject to small drafting amendments, the scheme was approved
The following case is referred to in this
report.
Dulwich College Estate’s Application, Re [1972] EGD 906; (1972) 231 EG
845
This was an originating summons by which
the Provost of Eton College applied to the High Court under section 19 of the
Leasehold Reform Act 1967 for approval of a scheme allowing the college as
landlord to retain the powers of management provided for by section 19 in
respect of a central area of the college’s Chalcot Estate in Hampstead, London
NW1, covering about 38 acres. The Minister of Housing and Local Government, in
response to an application made in 1968, had granted in 1970 the certificate
required by section 19 as a precondition of the application to the High Court.
The defendants to the application were a Mr Nassar, who did not appear and was
not represented, and Mr Trackman, who appeared in person.
Terence Etherton QC (instructed by
Charles Russell) appeared on behalf of the plaintiff; the defendant appeared in
person.
Giving judgment, HARMAN J said:
This is an application headed ‘In the matter of the Chalcot Estate at
Hampstead’ made by originating summons issued on July 8 1971. That statement in
itself makes the claim somewhat unusual, but in other respects there are truer
oddities. The application is made by the Provost of the College Royal of the
Blessed Mary of Eton, usually called Eton College. The persons now joined under
the inapt modern phraseology as defendants, but in my view in reality as
respondents to an ex parte originating summons joined for the assistance of the
court, are a Mr Anais Nassar [a resident], who has not appeared before me, and
a Mr Ian Trackman [a leaseholder and prospective enfranchisee], who has
appeared before me in person and has sworn substantial affidavit evidence and
put in substantial exhibits.
The matter arises in connection with the
application by Eton College to the Minister of Housing and Local Government, as
he then was — I think there have been a good many transmutations of that office
since the application was made — on January 1 1968, with various supplementary
documents, which resulted on August 27 1970 in the minister’s granting a
certificate in respect of an area on the Chalcot Estate. That area is now
commonly called the central area of the Chalcot Estate.
The certificate was granted pursuant to
section 19(1) of the Leasehold Reform Act 1967, which provides that in the case
of an area the minister may grant a certificate in order to maintain adequate
standards of appearance and amenity and regulate redevelopment in the area if,
in the minister’s opinion, it is likely to be in the general interest that the
landlord should retain powers of management. The minister, plainly in this
case, was satisfied that the central area — which I think Mr Etherton told me
was about 38 acres or something of that order — was an area where, in order to
maintain adequate standards of appearance and amenity, it was in the general
interest for the landlord to retain powers of management.
That all arises in the context of the
Leasehold Reform Act which, as is well known, was said to intend to recognise
the moral principle in connection with leasehold houses that the bricks and
mortar belong to the tenant and the land belongs to the landlord. It was a
novel concept, since bricks and mortar on land have always been held to accrue
to and be part of the land. But that was, apparently, the morality Parliament
was following. The thesis that there was a division of the ownership of the
bricks and mortar from the ownership of the land led to the conclusion that
those ownerships ought to be reunited, but reunited in the ownership of the
tenant, and the tenant was given a right to, as it was called, enfranchise his
house. There were also imposed certain residence requirements which gave the
landlord rights not to have property enfranchised unless the tenant were, as it
might be called, a longstay tenant.
In cases where there was an estate where
there were general requirements of amenity, notably in cases where there was
some form of architectural unity — as existed, for example, in some of the
well-known estates in Belgravia and South Kensington where areas have been
developed architecturally in one style — an area can be defined by the minister
in which the interests of amenity can be protected. Here the college was
redeveloping the Chalcot Estate according to an overall plan of architectural
style as to both external appearance and colours and as to heights, patterns
and density of layout. That, plainly, satisfied the minister that there was an
area where the propriety of the certificate followed from the facts.
Once a certificate has been given, the
provisions of section 19(3) come into effect and the High Court is required to
consider whether it shall approve the scheme. In considering that, the court is
to regard primarily the benefit likely to result from the scheme to the area as
a whole. That is a most important provision because it points clearly to the
test requiring an objective consideration of the best interests, as far as can
be ascertained, of the area as a whole, and neither the specific property
interests of the landlord as reversioner nor the specific property interests of
tenants, first as leaseholders and second as potential enfranchisees, should
prevail. No personal qualifications are relevant. The court has to take an
objective view — does this area as a whole benefit from the proposed
scheme? Second, the court may also
regard past development, present character, architectural or historical
considerations and, finally, circumstances generally. Thus, almost anything can
be brought in, but under the secondary rather than the primary limb of
consideration.
Here the originating summons to approve
the scheme has proceeded with great slowness because the estate development has
proceeded very slowly. The originating summons has been adjourned from time to
time, but was eventually restored on one month’s notice of intention to proceed
in the proper way and came back for evidence to be filed. A substantial
affidavit was filed on September 30 1988 by Mr Roderick Watson, the present
bursar of Eton College, who produced large numbers of documents and a draft
scheme which had been available for inspection, as he said, from
a substantial affidavit of his own criticising the scheme produced by Eton and
the evidence which had been sworn.
The evidence in addition to Mr Watson’s
had been that of a Mr Robert Brock, a Fellow of the Royal Institution of
Chartered Surveyors, who gave evidence about the general appearance and nature
of the estate, and Mr Sargeant, a partner in the solicitors formerly acting for
Eton College, who produced various documents and in particular produced a good
many letters which had been received from either tenants on the estate or
persons claiming an interest, such as the chairman of the Chalcot Park’s
Residents’ Association, a Mr Anson, who wrote two or three letters, and a
letter from a firm of solicitors representing various leaseholders and
submitting suggestions for improvement of the proposed scheme. All those in
broad terms said that they generally supported the scheme but wanted various
detailed improvements made to various parts of it.
Mr Trackman, on the other hand, produced
a very substantial affidavit which he swore on June 13 1989. He is a
leaseholder and a prospective enfranchisee in Huson Close, one of what are
referred to as sectors on the estate, which are defined by heavy outlining on
the plan attached to the scheme. Mr Trackman is chairman of the Huson and
Briary Close Residents’ Association and he has asserted to me, and I have
absolutely no reason to doubt, that it is a proper, well-formed and constituted
residents’ association. He expressly made it clear, both in his affidavit and
before me, that he appeared on his own behalf and as an individual leaseholder
directly affected, not in a representative capacity, but drew strength and
support from the fact that he said many of the other residents were also of
views similar to him and he had, therefore, views of his own which represented
in the broader sense, not as a representative, the views of many other
residents.
He particularly laid emphasis on the
desirability of the 38-acre central area being treated in separate parts, as it
were, by sector. The emphasis of his evidence and, indeed, of his address and
his cross-examination of Mr Watson and Mr W D Leefe [ARICS], a surveyor who is
now the specific partner in the college management agents charged with the
management of this estate, was on the differences between the various sectors.
He emphasised himself, in his evidence on paper — and he asked questions in
cross-examination designed to show — that the sectors are physically quite
separate on the ground. One cannot at all easily drive from one to the other.
The sectors may be quite close and one may be able to walk on foot, but one
cannot drive about within the estate. They are separated because of the need to
go out into the public roads which are off the estate or which, in the case of
Adelaide Road, runs through the centre of the estate. The sectors are bounded
physically on the ground by the form of construction, which means that
residents within each sector cannot really see out of it on to any other
sector. All this, said Mr Trackman, meant that in truth the central area was
not one area as a whole to be looked at, but was made up of individual sectors
which had separate and individual requirements. He was critical of the
management in the past by earlier managing agents, and he asserted that,
although a scheme of some sort was desirable, the scheme proposed by Eton was
not a good scheme and he produced a draft alternative scheme.
Eton College went away and considered all
that matter and came back with a long affidavit by Mr Leefe sworn on October 18
1989. He himself is a chartered surveyor and, as I have said, the partner
directly responsible in the managing agent’s firm for the management of the
estate. He produced a lot of comments upon Mr Trackman’s evidence and produced
a substantially revised scheme, taking account to some extent at least of Mr
Trackman’s objections. The matter then was adjourned to court and comes on
before me. I now have to consider the scheme bearing in mind the proposition
laid down by Walton J in Re Dulwich College Estate’s application (1972)
231 EG 845.
His lordship, my late brother Walton,
laid down what he considered was the court’s duty under section 19. He said
that the first thing the court must do was examine whether a suitable scheme
could be framed for the area proposed. Second, he said, if the judge answers
that question ‘no’, but a lesser area would be suitable for a scheme, you might
draw the scheme for the lesser area. If no scheme were possible, then the
court, of course, must dismiss the application as a whole. But if the court’s
opinion was that a suitable scheme could be determined, the court must not
dismiss the application, but must deal with it unless the applicant would not
agree to a suitable scheme. The learned judge went on then to deal with matters
of detail.
Applying those tests to this matter, it
seems to me that having regard to the evidence as a whole, the arguments both
from Mr Trackman and from Mr Etherton and from the material, such as
photographs and plans, which I have seen, it is quite clear to me that a
suitable scheme can properly be framed and that the area defined as the central
area does have a sufficient cohesion and rational definition to make it a
proper area for which a scheme should be prepared and produced. I therefore
have to go on to consider whether the scheme now put up is the right sort of
scheme for the area.
The scheme was criticised by Mr Trackman
upon 10 particular grounds of omission of matters which he said made it neither
practicable nor — more properly, I think — fair to the residents. Mr Trackman’s
desire, above all, was the transfer of the management of the estate, preferably
by sector but I think possibly as a whole if not by sector. He contended that
the management should be transferred from the ground landlords, Eton College,
to the enfranchised freeholders as they managed to enfranchise. He added that
when and if whole sectors were enfranchised, as may happen in the case of Eliot
Square, for example — when there will be no leaseholds but all freeholds upon
it — there should be management of that sector’s communal parts, by way of
maintenance, upkeep and so forth, by its own residents.
Mr Etherton’s answer to that was that
there is no requirement whatever in section 19 for, or indeed contemplation of,
transfer of management powers to enfranchisees. The whole section is drawn upon
a proposition that there will be someone defined in this scheme as a scheme
manager, who will probably be the reversioner, who will have the management of
the overall area. The claim for transfer was linked with Mr Trackman’s second
point that if there was ever a transfer of the communal parts of the central
area to an outsider, someone other than the holder of the reversion to so much
of the estate as remained unenfranchised, that should be capable of triggering
a right of pre-emption to be vested in the enfranchised freeholders allowing
them to purchase the communal parts of the estate which were about to be
transferred.
Both of these proposals, for transfer of
management and for dealing with the communal parts, are criticised by Mr
Etherton as a fetter upon the existing freedom of disposition. It is, of
course, a long-settled proposition of law frequently applied in will
construction cases, but also applied in other sectors of the law, that the
court leans in favour of freedom of disposition. At the moment Eton College is
free to dispose of its properties in any way it thinks right. Mr Etherton
submits that nothing in section 19 suggests that that freedom of disposition
ought to be, or was intended by Parliament to be, cut down. There is no
justification, says Mr Etherton, for imposing fetters upon the existing freedom
of disposition, which would be burdensome to Eton College and wrong in
principle. To my mind, that is a correct answer and I do not regard those
criticisms of Mr Trackman’s as made out.
Mr Trackman’s next proposition was that
there should be more differential in the charges for management to be levied
under the scheme. At present there was no differential in the scheme between
the service charges which were to be made for different sectors which, he said,
in my view accurately, enjoy different amenities. Mr Etherton’s answer to that
was that Mr Trackman had not fully thought through the terms of the scheme and
that the definition in the scheme of owner’s share, which includes the phrase
‘in the opinion of the surveyor such as is properly attributable to the
enfranchised property’, placed upon the surveyor a duty to take into account
whether the property — a particular enfranchised house — was receiving benefit
from communal areas or not; and that the proper attribution of a proportion of
the total cost would be affected by how much enjoyment the particular property
had. That gave enough proportionality, said Mr Etherton, in my view rightly. Mr
Trackman’s point is not found on that one either.
Mr Trackman observed that there was no
obligation upon the scheme manager to enforce the scheme, and he coupled this
with an attack upon clause 5 of the scheme, which allows the scheme manager to
transfer by deed all or any of the rights and powers of the scheme manager
under the scheme to any local authority or other body having as its main
objective the management of this scheme. He suggested that that was an
undesirable power to have because it could lead to the scheme manager for the
time being — not in any way necessarily Eton College, but some successor, maybe
in 80 years’ time, to it — to transfer the scheme manager’s powers to some £100
offshore company of no substance against whom no effective remedy could be
obtained, who would allow the scheme to fall into desuetude.
There were two answers by Mr Etherton to
that. First, the college as the present freeholder was the promoter of the
scheme. It went to the trouble of getting a certificate from the Minister of
Housing and Local Government. It went to the trouble of initiating this
originating summons and appearing with leading counsel with a substantial body
of advisers and, on that material, plainly the college could be and should be
taken to be committed to the scheme. The remote future is unforeseeable and
ungovernable and the hypothetical risks of the future, said Mr Etherton, should
not influence this scheme at the moment.
As to the obligation to enforce the
scheme, in the revised scheme, Eton College has included in part 3 of the first
schedule under clause 14 of that part, an undertaking that the scheme manager
will use his best endeavours to provide the estate services. That is, of
course, short of a full legal obligation, but, said Mr Etherton, there is no
machinery whatever in the Act to provide a cause of action entitling
enfranchised persons to enforce schemes against anybody. The scheme is not a
contract, so there will be no cause of action in contract. The scheme is not a
statutory scheme imposing a duty, so it would not be a breach of statutory duty
to fail to enforce it. Consequently, there was no cause of action known to law,
and to write an obligation into the scheme would be a mere brutum fulmen
— a thing without substance, a matter of sound and fury signifying nothing.
Consequently, the court should not indulge in such activities. It followed,
said Mr Etherton, that nothing should be written into the scheme beyond the
obligation to use best endeavours, which has been introduced in an endeavour to
give comfort to the residents in the circumstance where, quite certainly, the
promoter of a scheme wants the scheme to work.
Mr Trackman’s points five, six and seven
were that there was no requirement for the approval by freeholders
(enfranchised persons) of managing agents or auditors. Since the fees of those
persons are paid by the freeholders they, he said, obviously ought to have a
right to approve them. There were no proper provisions for consultation about
appointments of agents or auditors and such like matters. And there were no
adequate financial and accountancy controls.
In response to that, Mr Etherton pointed
out that there is now included in the scheme under the second schedule, part 2,
para 10, obligations imported from the Landlord and Tenant Act 1985 and the
Landlord and Tenant Act 1987. Whatever the mysteries of the drafting of some of
those sections, they are plainly intended by Parliament to provide for
consultation, consideration of objections by occupiers, control of expenditures
and making sure that such expenditures are reasonable in amount and purpose,
and control of moneys paid by occupiers to somebody else for such services.
Those provisions were gone through in detail and, to my mind, do provide a very
large measure of consultation, protection and ability to influence the
management of a scheme in the hands of the enfranchise-holders hereafter.
For those reasons, the perfectly fair
requirements of Mr Trackman are, in fact, met in my judgment by this scheme to
an extent that is reasonable. As I observed early in the argument, it is quite
impossible for anybody to devise a perfect scheme. All one can find is an
adequate and reasonable scheme and it seems to me that adequate and reasonable
protection is provided for Mr Trackman’s legitimate points on consultation and
so forth by the provisions incorporated, which are incorporated only as a
result of his criticisms of the earlier scheme, which did not incorporate these
matters. He has, thus, to some very considerable extent, in my judgment,
achieved what he originally set out to get.
Objection eight by Mr Trackman was that
if the enfranchised freeholders of an area wanted an additional service not
provided by the landlords, they should be able to require that it be provided
in the course of the common services. As Mr Etherton observed, that is not in
itself an unreasonable request. But, he added, on an estate of this sort, where
there are many leaseholds, and the probability is that some considerable number
of them will continue as leaseholds for a considerable time so that the
relationships between the freeholder as reversioner and the occupier as
leaseholder will be governed exclusively by the contractual obligations of the
lease — binding by privity of the estate — but there are also likely to be
enfranchised freeholds which will be governed by the scheme made under the
statute, it is very important that the services provided should be as much the
same as possible throughout the estate. Difficulties of adjustment of costs
would otherwise be appalling. The court, said Mr Etherton, should allow the
scheme manager reasonable discretion as to the management of the scheme in the
future. It has been shown, for example, in Eliot Square, where additional
services were provided at the express request of the residents of that square
for their benefit and at their expense, that Eton College will meet reasonable
requirements. Mr Etherton submitted that it could not be right to force this
requirement, which itself would require careful and difficult drafting and
definition, upon a scheme manager. In my view, that is a proper and reasonable
attitude and, what is more, is a practicable attitude which I think it right to
allow to prevail.
Objection nine was that Parliament may in
the future add to the landlord and tenant rights exemplified in the 1985 Act
and the 1987 Act further rights of similar natures and it would be fair and
proper that similar additional rights should be added to the rights of freeholders
if and when Parliament passes some future enactment. Mr Etherton’s answer to
that was that practicability had a limit. It was not practicable to define what
future legislation should be incorporated and what should not. It was not fair
to impose burdens which were quite incapable of consideration because they were
quite unknown at present, and in the circumstances future legislation should be
left out. In my view, that is right.
Finally, Mr Trackman observed that there
were no provisions for different alterations of the scheme to affect different
sectors. The requirements for alterations of the scheme are that a majority of
all the relevant houses within the scheme should be in favour. In my view, the
answer that it was not practicable or sensible to attempt to define future
variations was correct.
Mr Trackman also considered that one or
two of the provisions of the scheme were unfairly burdensome. In particular,
the insurance covenant was attacked by him. That seems to me to be a matter
where I completely agree with the observations of Walton J, who observed that
it was one of the most natural of obligations to require reinstatement of
property which had been damaged by fire where one was considering what, by
definition, was an area when there was a unity of architectural expression, and
a requirement for that to be maintained. It seems to me that an insurance
obligation is one which is by no means an unreasonable or unfair or unduly
burdensome imposition upon freeholders, even after they are independent
freeholders and might claim a right to leave their properties uninsured. Where
there is a consideration of an overall scheme affecting freeholds, it is not
unreasonable to require that the freeholder’s freedom to leave his premises
uninsured should be fettered by requiring insurance, so long as that insurance
can be found by him with some insurer of his choice. There is here no
interference whatever with the freedom of the freeholder.
There was also a criticism of a right to
enter, which was reserved to scheme managers by the scheme, on the ground that
what mattered was the construction and appearance of the external parts of the
property. There was no need, said Mr Trackman, to come in to somebody else’s
property, even upon reasonable notice and within the daytime only, which is the
requirement provided. The answer to that was that one of the matters which is
of great importance here is the control of user of the premises and if rooms
might be being used for business purposes it might be very difficult to determine
that from outside, but quite easy by going round inside and seeing if
particular machinery or other things had been installed, desks laid out, and so
on, which would indicate a business user as opposed to the residential user
which Mr Trackman entirely supported was a proper purpose of the scheme to
ensure.
The further observation made by Mr
Etherton was that structure included internal structural parts of the premises,
that if they were falling into disrepair they might lead, for example, to a collapse
of a roof. Thus it was right to give power to inspect so as to ensure that the
repair of a house did not get so bad that the whole place collapsed, requiring
complete rebuilding, when earlier inspection could reveal a defect which could
be remedied at much less disruption and smaller cost. I find that consideration
less persuasive than the user point, but both introduce relevant points which a
reasonable scheme manager controlling an estate as a whole, even of freeholds,
could reasonably require and I do not, therefore, consider that objection made
out.
There were various small drafting
amendments which arose in the course of consideration of this scheme. Those
will have to be incorporated in a revised scheme, but in general and in summary
I will say that I am satisfied that this scheme is fair and practicable, does
not impose an unreasonable burden upon any freeholder in the future, allows
proper consultation and influence to freeholders over the future use of their
premises, and is one which I would approve, subject only to the drafting
details, which have been discussed, being written out in a clear form. I shall,
therefore, make an order in those terms.
