Leasehold enfranchisement – Lease extension – Chapter II of Part I of Leasehold Reform, Housing and Urban Development Act 1993 – Second respondent claiming lease extension – First respondent freeholder agreeing terms with second respondent and granting new lease – Whether agreement binding appellant as intermediate landlord notwithstanding service of notice seeking separate representation under para 7(1) of Schedule 11 to 193 Act – Appeal dismissed
The second respondent was the long leaseholder of a flat and garage in London W1. The first respondent owned the freehold of the property while the appellant held a long lease of the immediate reversion. The second respondent’s predecessor in title had served a notice under section 42 of the Leasehold Reform Housing and Urban Development Act 1993, seeking to acquire new extended leases of the flat and garage under Chapter II of Part I of that Act. The first respondent, as the “competent landlord” for the purposes of the Act, served a counternotice admitting the right to new leases but disputing the proposed terms of acquisition. The appellant, as an “other landlord”, served notice of her intention to be separately represented in any legal proceedings pursuant to para 7(1) of Schedule 11.
The first respondent applied to the first-tier tribunal (FTT), under section 48(1) of the Act, to determine the premium to be paid for the new leases. It subsequently accepted the second respondent’s offer of £269,000, which it apportioned as to £265,600 for itself and £3,400 for the appellant. By that stage, all the other terms of the new leases had been agreed. The respondents therefore wrote to the FTT to request that the hearing date be vacated, and the first respondent granted the new leases on the agreed terms.
Meanwhile, the appellant had also written to the FTT, informing it that she did not agree with the apportionment or consent to the vacation of the hearing. The FTT decided that the agreement between the respondents did not bind the appellant; it held that the value of her intermediate interest remained in issue and that it had jurisdiction to determine the issue of apportionment.
That decision was reversed by the Upper Tribunal, which held that section 40(2) conferred authority on the first respondent to agree the terms of the new leases so as to bind the “other landlord” notwithstanding that the latter had served notice of intention to be separately represented: see [2014] UKUT 486 (LC); [2014] PLSCS 318. The appellant appealed.
Held: The appeal was dismissed.
(1) Section 40(2) of the 1993 Act granted to the competent landlord a general and unqualified authority to conduct all proceedings arising out of the notice on behalf of all other landlords, including the conduct of any application to the FTT under section 48, and the negotiation of terms in relation to the new lease and the Schedule 13 compensation, whether before or after the commencement of legal proceedings.
(2) Although section 40(2) had effect subject to the provisions of Schedule 11, para 6 of that schedule confirmed, rather than qualified, the scope of the competent landlord’s authority by specifically providing that the counternotice, any agreement between the competent landlord and the tenant, and any determination in the FTT proceedings, would bind all other landlords. Intermediate landlords who were concerned about the actions of the competent landlord could either apply to the county court for directions about how the competent landlord should act or, if the act complained of had already taken place, they might have a cause of action against the competent landlord for the loss caused by its negligence or lack of good faith: see para 6(4) of Schedule 11. The potential liability of the competent landlord to the intermediate landlords was likely, in practice, to encourage openness about the progress of the proceedings and act as a deterrent against the competent landlord furthering its own interests at the expense of the interests of the other landlords. However, neither of the remedies available to the intermediate landlords were consistent with a limitation in the power of the competent landlord under section 40(2) to bind other landlords by its actions.
(3) In the absence of a direction from the court, the competent landlord retained full authority under the 1993 Act to negotiate or litigate about the terms of the new lease, subject to the duty to duty to act in good faith and exercise due skill and care. The competent landlord did not lose that authority where the other landlord had served a notice exercising the right to be separately represented in the legal proceedings. While para 7 qualified the competent landlord’s authority under section 40(2), the derogation was limited to separate representation and the right to receive directly the Schedule 13 compensation. The operation of para 7 was confined to legal proceedings, rather than proceedings more generally arising out of the service of the section 42 notice. It was not intended to free other landlords from the agency of the competent landlord and it did not affect the ability of the competent landlord to reach enforceable agreements with the tenant that were binding on all other landlords.
(4) That interpretation of para 7 did not involve any breach of the appellant’s right to a fair hearing under Article 6 of the European Convention on Human Rights. It could not be said to violate the appellant’s right of access to the courts by depriving her of the opportunity to have her compensation determined by an independent and impartial tribunal. The statute that granted the right of compensation to the intermediate landlord did not include a direct right of access to the court, beyond the right to be separately represented in any proceedings in the FTT that the tenant or the competent landlord chose to initiate. Otherwise, the intermediate landlord had to accept the result of the negotiations between the tenant and the competent landlord subject to the protection provided by para 6(4). The statutory scheme struck a reasonable balance between protecting the interests of intermediate landlords and facilitating the grant of the extended lease, which was proportionate having regard to the purpose of the legislation and the rights of the affected parties: Philis v Greece (1991) 13 EHRR 741 distinguished.
(5) Nor was there any breach of the appellant’s right to respect for her possessions under Article 1 of the First Protocol (A1P1) to the Convention. While the exercise of the tenant’s right to obtain an extended lease had the effect of depriving intermediate landlords of the ground rents, and that was a possession for the purposes of A1P1, in return the other landlords received the compensation payable under Schedule 13. A challenge to the amount of compensation payable under Schedule 13 as a violation of A1P1 would have no prospect of success. A1P1 did not guarantee a right to full compensation and the margin of appreciation afforded to a state in devising the statutory scheme would ordinarily render it immune to attack on A1P1 grounds, unless it was apparent that the legislation had attached insufficient importance to the Convention right: Wilson v First County Trust Limited (No 2) [2004] 1 AC 816 applied. The procedural model that parliament had adopted for determining the Schedule 13 liabilities of the tenant was not disproportionate and had not been formulated without regard to the protection of the relevant Convention rights. On the contrary, it represented a considered attempt to balance out the respective interests of the parties while ensuring that the purpose of the legislation was achieved.
James Fieldsend (instructed by Wallace LLP) appeared for the appellant; Anthony Radevsky (instructed by Charles Russel Speechlys LLP) appeared for the first respondent; the second respondent did not appear and was not represented.
Sally Dobson, barrister
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