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First National Securities Ltd v Chiltern District Council

Right of pre-emption registrable as an estate contract if taken by a council vendor under power in Housing Act 1957, whatever the position may be in the case of a private sale

This was a
claim by First National Securities Ltd, second mortgagees of 39 Hildreth Road,
Prestwood, Buckinghamshire, for an order vacating a class C (iv) land charge
registered against the property by predecessors of the defendants, the Chiltern
District Council.

Mr P Cowell
(instructed by Davis & Co, of Harrow) appeared for the plaintiffs, and Mr G
Lightman (instructed by Sharpe, Pritchard & Co) represented the defendants.

Giving a
reserved judgment, GOULDING J said that the question for decision concerned a
right of first refusal or pre-emption of a house, 39 Hildreth Road, Prestwood,
Buckinghamshire. The right was given to the defendant local authority by
covenant in a deed of conveyance of the property, and stood registered as an
estate contract under the Land Charges Act 1972, the registration having
originally been made under the Land Charges Act 1925. It was not suggested that
these Acts exhibited any relevant difference.

By a
conveyance dated July 21 1969 Amersham Rural District Council, predecessors of
the defendants, conveyed 39 Hildreth Road to Mr Roy Kingsnorth. Among the covenants
entered into by the purchaser for himself and his successors was paragraph 13
of the fourth schedule, which read:

Not at any
time during a period of five years next following the date of this conveyance
to (i) let the said property at a rent which would be in excess of any rent
charged by the council for houses of the same type belonging to the council on
the Prestwood Estate (ii) enter into any contract of sale in respect of the
said property either operative at the date thereof of any later date at a price
greater than the purchase price paid hereunder by the purchaser plus such
increase for improvements (if any) effected by the purchaser as may be agreed
between the purchaser and the council . . . (iii) convey his interest or any
part of such interest in the said property or any part or parts thereof . . .
without first giving to the council notice in writing of such his desire and in
such event the council shall have the option which shall be exercised by the
council within one calendar month from the date when such notice shall be
received by the council of repurchasing the property at the original purchase
price recited in this conveyance together with such amount as represents the
value of any improvements effected by the purchaser but less such amount as
represents depreciation. . . .

Shortly
afterwards, the council registered the right of pre-emption in paragraph 13 as
a land charge, class C (iv). The purchaser, who had mortgaged the house to the
council, on January 16 1973 executed a second mortgage of the property in
favour of the plaintiffs, First Securities Ltd. Within the five-year period of
the right of pre-emption he wrote a letter dated April 18 1974 to the council,
and the council replied. The letters were not in evidence, but the plaintiffs
conceded for the purposes of the action that by virtue of the exchange of the
letters the council had exercised its right of pre-emption, so that it was to
be assumed that there was a subsisting contract as between Mr Kingsnorth and
the council for sale of the property to the council. The plaintiffs had,
however, gone into possession of the property as mortgagees, and wished to sell
it in the exercise of their power of sale. They claimed to be free to do so on
the basis that their mortgage was prior to the contract of sale between Mr
Kingsnorth and the council. The council said that its own claim had priority,
because the right of pre-emption was acquired and registered before the
mortgage to the plaintiffs, so that the plaintiffs’ loan was made with notice
of the right of pre-emption. Therefore, said the council, the plaintiffs were
in equity bound by the right and by the contract between Mr Kingsnorth and the
council which flowed from it.

Having regard
to the general scheme of the Acts of 1925 and 1972, the relevant provisions of
which did not appear to be different in meaning, he (his Lordship) thought that
it was only where an obligation was inherently capable of enforcement in
suitable circumstances against the contracting landowner’s successors in title
that it came within the purview of the Act of 1972 at all. Such an obligation
brought into being an equitable interest in land: London & South Western
Railway Co
v Gomm (1881) 20 Ch D 562 at 580, 581. A good example was
an ordinary contract for the sale of land. All lawyers knew that the purchaser
got an equitable interest in the land as soon as the contract was signed. An
option to buy land was a different sort of contract. The landowner was only
bound to sell if and when the grantee of the option called on him to do so.
None the less, the grantee of the option had an interest in the land even
before he exercised his right: Gomm’s case, in the passage already
referred to. A right of pre-emption in the sense of a right of first refusal
was a step further away from an actual sale. The grantee of the right of
pre-emption would only become a purchaser if the landowner wished to sell and
he (the grantee) then chose to buy. The plaintiffs here argued that unlike an
actual purchase or an option to purchase, a mere contractual right of
pre-emption conferred no interest in land. It was never enforceable against a
successor in title of the grantor, even one with notice of the right, but only
personally against the grantor or his personal representatives. Therefore, said
the plaintiffs, it was not an obligation affecting land within the Land Charges
Act, and it ought not to be on the register. The argument was based largely on
the decision of the Court of Appeal in Manchester Ship Canal Co v Manchester
Racecourse Co
[1901] 2 Ch 37 at 50, where in the reserved judgment of the
court it was stated plainly that a right of first refusal did not create an
interest in land in the sense of Gomm’s case, and the contrary view of
Farwell J below was rejected. The council, on the other hand, said that a right
of pre-emption did confer an interest in land, because it belonged to the same
genus as an option to purchase or an actual purchase, though to a different
species of that genus.40 Mr Lightman, taking his stand on certain recent cases in appellate courts, said
that the Court of Appeal’s statement in the Manchester Ship Canal case
ought not now to be regarded as a current statement of the law. Alternatively,
counsel said that the law had been altered by necessary implication from the
terms of the Law of Property Act 1925 and the Land Charges Act 1925, two Acts
of Parliament which came into operation at the same time. It was submitted that
sections in those Acts, and later statements or silences in cases in the House
of Lords and Court of Appeal, were really inexplicable if the law still was
that a right of pre-emption did not confer an interest in land.

He (his
Lordship) thought it very highly probable from the recitals and the operative
terms of the conveyance of July 1969 that such conveyance had been executed by
the Amersham Rural District Council in exercise of the powers conferred by
section 104 of the Housing Act 1957, and that the particular clause he had to
consider in the relevant conveyance was inserted pursuant to section 104. He
had offered Mr Cowell an opportunity to investigate the facts to see whether
there was any other power under which the Amersham council might have sold the
house, and he (counsel) had declined, seeking a decision on the matter as it
stood. That being so, he (Goulding J) proceeded on the footing that the terms
of section 104 were indeed relevant to the case. The important subsection for
present purposes was subsection (3), which allowed a local authority selling a
house to impose conditions:

(a)  limiting the price at which the house may be
sold during any period not exceeding five years from the completion of the
sale;

(b)  limiting the rent at which the house may be
let to the limit imposed by section 20 of the Rent Act 1957 during that period;
and

(c)  precluding the purchaser (including any
successor in title of his and any person deriving title under him or any such
successor) from selling or letting the house during any such period unless he
has notified the authority of the proposed sale or letting and offered to
resell or sell the house to them and the authority have refused the offer or
have failed to accept it within one month after it is made, and prescribing or
providing for the determination of the price to be paid in the event of the acceptance
of such an offer.

Subsection (5)
provided that where any condition such as was mentioned in paragraph (a),
paragraph (b) or paragraph (c) was imposed on sale of a house, it should be
registered in the register of local land charges by the proper officer in such
manner as should be specified by rules. Mr Lightman had continued his argument
by pointing to the express indication in section 104 (3) (c) that the condition
a local authority might impose was to preclude not only the purchaser but ‘any
successor in title of his and any person deriving title under him or any such
successor’ from disposing of the house without giving the local authority first
refusal. This, said counsel, meant that if Mr Cowell was right, and under the
general law a mere contractual right of pre-emption did not give rise to an
interest in land binding successors in title of the grantor, then Parliament
had erected a special class of such agreements. Mr Cowell, on the other hand,
submitted that if Parliament, for its own purposes, authorised the making of
certain agreements, it was not to be inferred that such agreements, when made
on the invitation of Parliament, would have any higher validity than they would
have had under the general law had the authorising Act not been passed.

He (his
Lordship) accepted Mr Lightman’s argument on this point. Whatever might be the
true explanation of the Manchester Ship Canal case, he felt no doubt
that agreements made in pursuance of section 104 of the Act of 1957 were valid
as contemplated by Parliament. It was thus not necessary for him to express any
opinion on the present state of the law relating to mere private contracts of
first refusal. The registration ought to remain, and the motion must be
dismissed. That in fact meant the dismissal of the action, the parties having
agreed to treat the hearing of the motion as the trial of the cause. The
plaintiffs must pay the council’s costs.

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