Leasehold Reform Act 1967 – Acquisition of freehold – Leaseholder adjudged bankrupt – Mortgagee of leaseholder then obtaining possession order and appointing receivers in respect of property – Leaseholder’s trustee in bankruptcy disclaiming lease – Receivers then serving notice of claim in leaseholder’s name to acquire freehold from appellants under 1967 Act – Whether respondent as purchaser from receivers entitled to acquire freehold pursuant to notice – Whether notice validly served by qualifying tenant – Appeal allowed
The appellant charity trustees owned the freehold of a house subject to a 99-year lease. In 2007, the leaseholder executed a charge in favour of a mortgagee, which in turn executed a subcharge to a bank. In 2009, the leaseholder was adjudged bankrupt and a trustee in bankruptcy was appointed. In 2010, the mortgagee obtained a possession order in respect of the property; joint receivers of the property were subsequently appointed on behalf of the bank. In February 2011, the leaseholder’s trustee in bankruptcy served a notice of disclaimer in respect of the lease, pursuant to section 315 of the Insolvency Act 1986. Thereafter, none of the parties applied for a vesting order within the prescribed time.
In December 2011, the receivers served a notice of claim on the appellants in the leaseholder’s name, pursuant to Part 1 of the Leasehold Reform Act 1967, to exercise the right to acquire the freehold of the property. They then sold the lease to the respondent, together with an assignment of the benefit of the claim notice; in due course the respondent was registered as proprietor of the lease.
In April 2011, the appellants served a notice in reply, disputing the respondent’s right to acquire the freehold. The respondent applied for a declaration of his rights in that regard. The appellants submitted that the claim notice served by the receivers was invalid since it had not been given by a qualifying tenant within the meaning of the 1967 Act. They argued that the receivers did not qualify since they had not been tenants of the property throughout the preceding two years, while the leaseholder himself had ceased to be the qualifying tenant in 2010, when his interest in the property vested in the trustee in bankruptcy.
The appellants’ contentions were rejected in the county court and judgment was given in favour of the respondent. The judge held that the property vesting in the trustee in bankruptcy did not include the right, which the receivers otherwise had, to give a notice under the 1967 Act to acquire the freehold and that the trustee was not entitled to disclaim the tenancy to the extent that it affected the giving of such a notice: see [2013] PLSCS 62. The appellants appealed.
Held: The appeal was allowed.
The notice served by the receivers in respect of the enfranchisement claim was a nullity since it had been given on behalf of someone who was neither the tenant nor had been for “the last two years”, with the consequence that the enfranchisement condition prescribed by section 1(1)(b) of the 1967 Act was not satisfied.
Although the scheme of the Land Registration Act 2002 was focused on registration, and the person for the time being named as the registered proprietor of a legal estate in land would ordinarily be its owner, there were exceptional circumstances in which that would not be so. If the registered proprietor became bankrupt, he would, on the appointment of a trustee in bankruptcy, automatically be divested of his legal estate, which would vest in the trustee. The bankrupt might continue to be the registered proprietor of the legal estate, but he would not continue to own it or have any continuing interest in that property since his entire interest would have devolved on his trustee.
Although the registered proprietor was entitled to exercise owner’s powers in relation to a registered estate by making a disposition of such estate (see sections 23 and 24 of the 2002 Act), that did not mean that he was in all circumstances irrefutably also the owner of that estate; it simply meant that his status as a registered proprietor of the estate empowered him to dispose of it elsewhere. A bankrupt might therefore be able to dispose to a purchaser of the estate vested in his trustee, although his capacity to do so would in practice usually be hindered by a restriction entered against his title pursuant to section 86(4) of the 2002 Act.
The respondent’s case was not assisted by section 58(1) of the 2002 Act, setting out the circumstances in which the legal estate in land would be deemed to be vested in the registered proprietor. That section did not say, or mean, that if such proprietor became bankrupt and a trustee in bankruptcy was appointed, the estate would not thereupon devolve onto the trustee.
It made no difference that the wide powers conferred by the lessee on the mortgagee under the charge, and in turn on the receivers appointed under the subcharge, included express powers for the receivers to act as the lessee’s agents in relation to various matters relating to the protection or enforcement of the security, including the power sell the lease and to give a notice in the lessee’s name claiming the freehold. Nothing in such powers could or did enable the receivers to exercise rights in relation to the property that were not available in law to be exercised when they purported to exercise them. The receivers sought to exercise the right of enfranchisement in the lessee’s name and as his agent, but, since the lessee no longer satisfied the two-year temporal condition, he was not a qualifying tenant under the 1967 Act and the receivers could not claim the freehold in his name. The grant of the charge did not give to the receivers an immutable right to enfranchise in the lessee’s name, regardless of whether the conditions for enfranchisement could be satisfied at the time they sought to exercise the right. The lessee and the mortgagee could not, by arrangements made exclusively between them, bind the landlords to suffer the acquisition of their freehold in circumstances other than those prescribed by the 1967 Act.
Anthony Radevsky and Nicola Allsop (instructed by Pemberton Greenish LLP) appeared for the appellants; Katharine Holland QC (instructed by Child & Child) appeared for the respondent.
Sally Dobson, barrister