Leasehold enfranchisement – 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 defendants under 1967 Act – Whether claimant as purchaser from receivers entitled to acquire freehold pursuant to notice – Whether notice validly served by qualifying tenant – Claim allowed
The defendant 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 defendants in the leaseholder’s name, pursuant to Part 1 of the Leasehold Reform Act 1967, by which they sought to exercise the right to acquire the freehold of the property. They then sold the lease to the claimant, together with an assignment of the benefit of the notice of claim; in due course the claimant was registered as proprietor of the lease.
In April 2011, the defendants served a notice in reply by which they disputed the claimant’s right to acquire the freehold. The claimant applied for a declaration of his rights in that regard. Opposing the claim, the defendants contended that the claimant could not acquire the freehold in circumstances where the property had vested in the trustee in bankruptcy in early 2010, the trustee had disclaimed the lease and no vesting order had been made in favour of any party. They submitted that the notice of claim served by the receivers was invalid since it had not been given by a qualifying tenant within the meaning of the 1967 Act. Their case was 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.
Held: The claim was allowed.
Leaving aside the bankruptcy and the notice of disclaimer, in principle the receivers had the right to sell the lease and to give notice under the 1967 Act. The rights granted to the receiver by the charge, including the right to sell and, incidental to that, to give notices relevant to the property and to the advantage of the mortgagee, were part of the bundle of rights that enhanced the security provided by the charge. The leaseholder’s bankruptcy had not affected those rights. The receivers’ rights dated from the charge granted in 2007 and therefore pre-dated the bankruptcy. Although a bankrupt’s estate vested in his trustee in bankruptcy immediately on the appointment of the trustee, the property comprised in the estate was expressly subject to the rights of persons other than the bankrupt in relation to that property: see section 283(5) of the 1986 Act. The vesting of the property in the trustee was therefore subject to the pre-existing contractual rights of the receiver.
The disclaimer by the trustee in bankruptcy did not affect the right to serve a notice of claim under the 1967 Act. By section 315(3) of the 1986 Act, a notice of disclaimer did not affect the rights or liabilities of any other person, except so far as was necessary for the purpose of releasing the bankrupt, his estate and his trustee from liability. The law would assume a continuing lease in order to give effect to a bundle of rights of the mortgagee, the bank and the receivers. The receivers’ rights to sell the assumed lease and to give notice under the 1967 Act therefore survived the disclaimer. So far as the 1967 Act required a two-year period of continuous tenancy before service of the notice of claim, the proper analysis was that the leaseholder had remained the registered proprietor of the lease throughout that period despite the insolvency and, having regard to the existence and terms of the charge and subcharge, the purpose of the security and the rights that had accrued to the mortgagee and the bank, the property that had vested in the trustee in bankruptcy did not include the leaseholder’s right to give notice on his own behalf or to disclaim the tenancy so far as it affected the giving of notice to acquire the freehold. The assumed lease therefore maintained the tenancy period required to give notice under the 1967 Act. The receivers’ right to serve a notice in the leaseholder’s name, along with their power of sale, was unaffected by the bankruptcy or the disclaimer since, pursuant to section 283(5) and/or 315(3) of the 1986 Act, the trustee could not disclaim the tenancy in such a manner as to affect the existing rights of the third parties: Gough’s Garages Ltd v Pugsley [1930] 1 KB 615, Sowman v David Samuel Trust Ltd [1978] 1 WLR 22 and Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70; [1996] 1 EGLR 94; [1996] 15 EG 103 applied. It followed that the claimant was entitled to acquire the freehold of the property pursuant to the notice of claim given by the leaseholder, acting through the receivers.
Christopher Heather (instructed by Child & Child) appeared for the claimant; Nicola Allsop (instructed by Pemberton Greenish LLP) appeared for the defendants.
Sally Dobson, barrister
