Gray’s Inn Investments Ltd v Jolleys

Landlord and tenant – Leasehold enfranchisement – Costs – Long lessee of flat serving notice to extend lease – Lease transferred to respondent together with assignment of benefit of notice – Respondent applying to determine terms of proposed lease extension – Appellant landlord seeking costs of application – First-tier Tribunal refusing application – Appellant appealing – Whether respondent liable for reasonable costs incurred by appellant under section 60 of Leasehold Reform, Housing and Urban Development Act 1993 – Appeal allowed Under Chapter 2 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993, qualifying tenants holding a long lease of a flat have the right to acquire an extended lease by the lessee serving on the landlord a notice under section 42. A flat at 168 Caldy Road, Handforth, Wilmslow, was subject to a 99-year lease from October 1965. In June 2018, W, as executor of the tenant, gave such a notice to the appellant. The appellant gave a counter-notice disputing the premium payable. In December 2018, W sold the flat to the respondent. On the same date, he assigned to her the benefit of the section 42 notice. The respondent then made an application to the First-tier Tribunal to determine the terms of acquisition of the proposed lease extension to her, and the FTT determined that the premium payable by the respondent was £25,700. However, the new lease was not completed and the application was deemed to have been withdrawn pursuant to section 53 of the 1993 Act. Under section 43 of the 1993 Act, section 42 notices had effect “to the like extent as rights and obligations arising under a contract for lease freely entered into between the landlord and the tenant”. The appellant applied to the FTT for an order that the respondent pay its costs pursuant to section 60 of the 1993 Act. The FTT considered that, as the respondent was not “the tenant by whom [the notice]” was given, she was not liable to the appellant for any costs under section 60. The appellant appealed. Held: The appeal was allowed. (1) A tenant who had served a section 42 notice had to reimburse the landlord for any costs incurred as a result of the notice, but not for any costs incurred in the FTT. Under section 43, where a notice had been given under section 42, the rights and obligations of the landlord and the tenant arising from the notice enured for the benefit of and were enforceable against them, their personal representatives and assigns to the like extent (but no further) as rights and obligations arising under a contract for leasing freely entered into between the landlord and the tenant. The rights and obligations of the tenant were assignable with, but not capable of subsisting apart from, the lease of the entire flat. In the event of any default by the landlord or the tenant in carrying out the obligations arising from the tenant’s notice, the other had the like rights and remedies as in the case of a contract freely entered into. In the present case, the section 42 notice was deemed withdrawn because the respondent did not continue with the procedure. The appellant argued that she had stepped into the shoes of W when the lease was assigned to her, in accordance with section 43, and therefore she took on the liability, under section 60, of the tenant who gave the notice to pay the landlord’s costs up until the date when the notice was deemed withdrawn, excluding costs incurred in the FTT proceedings. Clause 2 of the assignment contained an indemnity from the respondent in favour of W, as seller “… against all… costs… arising out of the giving of the [n]otice”. (2) The FTT had misconstrued section 60 of the 1993 Act. The effect of the section was that the “the tenant by whom the notice is given” was liable for the landlord’s costs. But the effect of section 43(1) was that when the respondent took the benefit of the section 42 notice, she also took on the liabilities that went with it. Therefore, section 43(2) provided that “references… to… the tenant shall, in so far as the context permits, include their assigns”, and that meant that the reference to the tenant in section 60(1) included the tenant’s assignee. The FTT had been led astray by the closing words of section 60(1), which it appeared to have thought meant that the assignee would take on this liability only if there was an express stipulation to that effect in the transfer of the flat to the respondent. That was not what it meant; it was an exception to the provision that preceded it, and its effect was to except certain costs from the tenant’s liability. What those costs were was obscure, but footnote 220 to paragraph 28-32 of Hague on Leasehold Enfranchisement expressed the view (in the context of collective enfranchisement in section 33 of the 1993 Act) that the reference was to certain unusual costs which section 48 of the Law of Property Act 1925 provided that a purchaser could not be required to pay to a vendor. What the closing words clearly did not mean was that the section 60(1) liability arose, for an assignee, only where the transfer of the flat expressly required it. (3) The provision in clause 2 of the deed of assignment that “The buyer covenants with the seller to reimburse to the seller any statutory deposit paid to the landlord and to perform and discharge all of the obligations arising from the notice of claim and to keep the seller fully and effectually indemnified against all actions, proceedings, damages, costs, claims and expenses arising out of the giving of the notice of claim” was not relevant to the issue in the appeal since it created only a liability to W. The respondent’s liability to the appellant was created by the combination of sections 60 and 43. She had chosen not to participate in the appeal; in the FTT she argued that she had not been informed that she would be liable for any costs, but that was not relevant; in any event she had been informed of her liability by the terms of the deed of assignment. Accordingly, the FTT’s decision would be set aside, and the Upper Tribunal would substitute its own decision that the respondent was liable to pay the appellant’s costs under section 60 of the 1993 Act. The matter would be remitted to the FTT for the costs claimed by the appellant to be assessed. The appeal was determined on written representations. Eileen O’Grady, barrister Click here to read a transcript of Gray’s Inn Investments Ltd v Jolleys