Leasehold Reform Act 1967–Appeal from Lands Tribunal–Important question of principle affecting many cases–Effect on price payable by tenant for enfranchisement of interposition of a concurrent lease between tenant and freeholder–Device to increase substantially value of freehold–Whether valuation on assumption that concurrent lessee had actually granted a subtenancy to tenant–Concession by tenant’s counsel questioned–Assumption not decided to be correct–Landlords’ concurrent lease device held to be invalid under section 23 as ‘purporting’ to modify statutory right of enfranchisement–Order of Lands Tribunal set aside
This was an
appeal by Mrs Lena Jones, widow, the occupying tenant of a house at 45
Wellesley Crescent, Potters Bar, from a decision of the Lands Tribunal, under
section 21 of the Leasehold Reform Act 1967 (reported at (1976) 240 EG 804,
[1976] 2 EGLR 184) that the price payable by her for the exercise of her right
of enfranchisement under the Act was £4,000 in respect of the freehold and nil
in respect of an intermediate (concurrent) lease.
N T Hague
(instructed by Andrew W Rowntree, of Potters Bar) appeared on behalf of the
appellant (tenant); T M E B Etherton (instructed by Farrer & Co) appeared
for the first respondents, the concurrent lessee (Wrotham Park Settled Estates)
but took no part in the argument except as to costs; E G Nugee (instructed by
Boodle, Hatfield & Co) represented the second respondents, the freeholders
(Wentworth Securities Co Ltd).
Giving the
first judgment at the invitation of Stephenson LJ, ORR LJ said: This is an
appeal by the lessee of a house, 45 Wellesley Crescent, Potters Bar, against a
decision of the Lands Tribunal (V G Wellings) on October 15 1976 whereby it was
determined, on a reference to the tribunal under section 21 of the Leasehold
Reform Act 1967 (which I will call ‘the Act’), that the price payable by the
lessee on the exercise of her rights under the Act to acquire the ownership of
the premises is, in respect of the freehold estate in the premises, £4,000, but
that in respect of a superior lease of the premises, which I shall call ‘the
concurrent lease,’ no sum is payable.
The facts of
the case can be shortly stated. On October 2 1962 a company named Dugdale Hill
Estates Co Ltd leased the premises to the appellant, Mrs Jones, and her husband
who has since died, at a yearly rent of £15 for a term of 87 years from
December 25 1961 (and therefore expiring in December 2048), and by a
leaseholder’s notice under the Act, dated October 5 1973, but not served until
October 8, notice was given in the names of Mr and Mrs Jones to the second
respondents, Wentworth Securities Company Ltd, who had acquired the freehold
title from Dugdale, of their desire to acquire the freehold. It is common
ground that had the matter rested on these facts the sum payable for the
freehold would have been £300, but on October 6 1973, between the date of the
tenant’s notice and the date of its service, the landlords, Wentworth,
interposed between their freehold and the lease to Mr and Mrs Jones the
concurrent lease to which I have earlier referred, being a lease of the
premises to Wrotham Park Estate Co, since renamed Wrotham Park Settled Estates
and the first respondents in this appeal (and whom I shall call ‘Wrotham’), for
a term of 300 years from December 25 1970, subject to and with the benefit of
the lease to Mr and Mrs Jones. We have been told, and it is not in dispute,
that a large number of similar leases were on or about the same date granted by
Wentworth to Wrotham in respect of some 100 other houses in the same locality;
that the tenants were informed of what was being done; and that Wentworth and
Wrotham are connected companies having at least one common director. All these
leases granted to Wrotham a term of 300 years from December 25 1970, subject to
and with the benefit of the pre-existing leases, the rents payable under the
concurrent leases being, by paragraph 1 of the 4th schedule to each lease, a
peppercorn (if demanded) until December 25 2048 (the date of expiry of the
Jones’s and the other original leases), and thereafter, by paragraphs 2 and 3
of the same schedule, rack rents to be determined by an arbitrator for the
periods from December 25 2048 to December 25 2098, and from the latter date
until the end of the term; such rack rents to be based on values at the
commencement of each period. Paragraph 5, which is the crucial provision for
the purpose of the present appeal, and paragraph 6 of the same schedule
provided as follows:
(5) If and so often as a sublease (not being a
tenancy from year to year or any lesser interest) is granted by the Tenant of
the whole of the Premises the annual rent payable hereunder shall for the
period beginning with the commencement of the term granted by the sublease and
ending with the termination thereof (however the same determines and if the
term is extended by virtue of any enactment then ending with the termination of
the term so extended) be (in lieu of the foregoing rents) an amount equal to the
best yearly rent for which the Premises could be let in the open market at the
commencement of such terms with vacant possession free from all incumbrances
(including the existing lease) for a term equal to the term granted by the
sublease such amount to be ascertained (in default of agreement) by arbitration
as aforesaid.
(6) Provided always that if (whether by virtue of
the provisions of paragraph (5) of this Schedule or otherwise) the yearly rent
which would (apart from this paragraph (6)) be for the time being payable
hereunder shall be more than the yearly rent reserved by any sublease granted
by the Tenant (whether in pursuance of the provisions of the Leasehold Reform
Act 1967 or any attachment or re-enactment thereof or otherwise howsoever) then
the yearly rent payable hereunder under paragraphs (2) and (3) of this Schedule
shall be reduced to a peppercorn during a period (hereafter called ‘a rent free
period’) from the actual termination of the term of such sublease (howsoever
the same shall determine and if the term shall be extended by Statute then from
the termination of the term as so extended) on
earlier sublease (whichever shall be the later date) until the expiration of
the term hereby granted (whichever shall last occur).
Before turning
to the proceedings before the Lands Tribunal it will be convenient to refer to
the relevant provisions of the Leasehold Reform Act 1967. [His Lordship then
summarised or quoted the provisions of sections 1, 8(1), 9(1)(a), 14(1), 15(2),
23(1) and Schedule 1, paragraphs 1, 2(a), 4(1) and (2), 5(1)(2) and (3),
7(1)(a) and 10(1). He also mentioned that it was common ground that Wrotham was
the reversioner for the purposes of Schedule 1 and that Wentworth’s locus
standi was derived from paragraph 5(1) of Schedule 1 and that they had, by
virtue of a notice to that effect, obtained a right to deal directly with the
claimant.]
In consequence
of the leaseholder’s notice, and in default of agreement between the parties,
an application was made to the Lands Tribunal under section 21 of the Act to
determine the price payable for the house and premises, 45 Wellesley Crescent,
under section 9 of the Act, and on the hearing the applicant, Wrotham and Wentworth
were all represented by counsel, but counsel for Wrotham took no part in the
argument. There were before the tribunal alternative agreed valuations, the
first of which, relied on for the applicant, was prepared on the basis that the
valuers were required to take account of the concurrent lease dated October 6
1973 but to ignore paragraph 5 of the 4th Schedule thereto, and on that basis
produced agreed figures of £50 payable to Wentworth in respect of the freehold
estate and £250 payable to Wrotham in respect of the concurrent lease, making a
total of £300, and this basis of valuation the tribunal referred to as
Assumption 1. The other valuation was prepared on the basis, which the tribunal
referred to as Assumption 2, that all the provisions of the concurrent lease,
including paragraph 5 of the 4th Schedule, were to be taken into account, and
produced an agreed figure of £4,000 payable to Wentworth in respect of the
freehold estate but nothing payable to Wrotham in respect of the concurrent
lease.
On behalf of
Wentworth it was argued before the tribunal that the proper assumption to be
applied in the valuation was assumption 2, because (1) section 9(1) of the Act
required the price payable for the freehold to be assessed on the double basis
that the freehold was subject to the 1962 lease and that such lease was to be
extended for 50 years; (2) that for this reason, taken in conjunction with
paragraph 10(1) of the 1st Schedule to the Act, a new lease under section 14
must be deemed to be granted by Wrotham; and (3) that in the circumstances the
deemed new lease under section 14 was a sublease of the whole of the premises
granted by Wrotham within the meaning of paragraph 5 of the 4th Schedule to the
concurrent lease, with the result that, for the purpose of assessing the
compensation payable to Wentworth in respect of the latter’s freehold estate in
the premises the rent must be taken to be the best yearly rent for which the
premises could be let in the open market as defined in that paragraph.
On behalf of
the applicant it was conceded that the concurrent lease was a valid lease and
not a sham and that the submissions made by counsel for Wentworth were correct
subject only to arguments which counsel for the applicants proceeded to
develop, based on section 23(1) of the Act to the effect, first, that paragraph
5 of the 4th Schedule to the concurrent lease was an agreement relating to the
applicant’s tenancy within that subsection and that it purported to modify the
tenant’s right to acquire the freehold by providing for a greatly increased
purchase price compared with the £300 which, but for the execution of the
concurrent lease would have been payable under the Act, and also contravened
the same subsection by providing for the imposition of a penalty or disability
on the tenant in the event of her claiming the right to acquire the freehold.
In its
decision the Lands Tribunal observed that there could be no doubt that the
interposing of the concurrent lease between the freehold and the occupying
tenant’s lease was intended as a device to increase the value of the freehold
under section 9 of the Act, and that the question at issue was whether this
device had succeeded. Having said this, and having referred to the concessions
made by counsel for the applicant, the tribunal proceeded to reject his
submissions based on section 23, holding, first, that the reference in that
subsection to ‘any agreement relating to a tenancy’ applies only to an
agreement to which the tenant is a party and could not therefore apply to the
concurrent lease to which the tenant was not a party, and secondly that the
concurrent lease did not purport to modify the tenant’s rights, which remained
intact and unqualified, nor did it provide for the imposition of any penalty or
disability on the tenant in the event of her acquiring or claiming any right
under the Act. Accordingly the tribunal held that assumption 2, whereby regard
was to be had to all the terms of the concurrent lease, including paragraph 5
of the 4th Schedule, was the proper basis of valuation and determined that the
price payable for the freehold estate was £4,000 and that no sum was payable in
respect of the concurrent lease.
Against this
determination the applicant now appeals and (Wrotham not being represented in
this court) we have heard, on behalf of the appellant and of Wentworth,
argument limited to the issues arising in relation to section 23 of the Act. In
the course of the argument, however, questions were put by Goff LJ to counsel
for the appellant as to the concession made by him before the Lands Tribunal
that, for the purpose of assessing the compensation payable to Wentworth, it
was to be assumed that a sublease had actually been granted by Wrotham to the
applicant within the meaning of paragraph 5 of the 4th Schedule to the
concurrent lease; one of the points put being that the apparent intention of
section 9 is to secure to the tenant, when assessing the sum payable by him for
the freehold, the benefit of his right, although not exercised, to have an
extended lease at a ground rent and without paying a premium, and that all that
is required for this purpose is to treat the tenancy as extended without
postulating the grant of any actual subtenancy; and another point being that
the assumption required to be made by section 9(1)(a) of the Act is that the
tenancy ‘was to be extended’ which, as Mr Nugee conceded, appears to recognise
that there was not in fact going to be any new subtenancy. For these reasons Mr
Hague for the appellant was asked whether he wished to reconsider his
concession, but he decided not to do so and in the result we heard no argument
upon it. In these circumstances I express no view on this matter save to say
that it appears to me to be a very arguable one, and I turn to the issues in
relation to section 23, and first to the broad arguments advanced on each side,
which may be summarised as follows. Mr Hague argued that it was the intention
of Parliament that a qualified tenant should have the right given him by the
statute; that the object of what was done by the landlords in the present case
was to defeat that right and that if in any doubt the court should resolve the
matter in favour of the applicant.
Mr Nugee for
the respondents submitted two broad arguments, the first that it is a fallacy
to suppose that there exists, independent of the provisions of the Act, any set
of fair terms on which Parliament intended that the tenant should be entitled
to obtain the freehold; the words ‘on fair terms’ in section 1 being merely an
introductory reference to the terms defined in subsequent sections of the Act,
and it being common ground that the sum produced by those sections in the
circumstances of this case is £4,000. In the second place Mr Nugee relied on
the distinction drawn in decided cases in relation to the Rent Acts between, on
the one hand, attempted exclusion of those Acts, and on the other the parties’
bona fide entering into a situation where those Acts have no application; a
distinction which is clearly stated in
(a) Genuine Transactions. There is
nothing, however, to prevent the parties from so arranging matters that there
is nothing to which the Acts can apply, provided the transaction in question is
a genuine transaction and not a mere sham, such as a tenancy disguised as a
contract for sale; ‘real and lawful intentions cannot be dismissed as shams
merely because they are disliked.’ The
difference is between on the one hand a provision attempting to exclude the
Acts from a transaction to which they apply, and on the other hand entering
into a bona fide transaction to which the Acts have no application.
(b) Evasion and avoidance. ‘There is every
difference between evasion and avoidance.’
‘You do not evade an Act by doing something which is not forbidden by
the Act, but you do evade the Act by doing something which is prohibited under
the guise of doing something else.’
In relation to
these passages Mr Nugee relied strongly on the admission made by Mr Hague
before the Lands Tribunal that the concurrent lease was not a sham, but I do
not pause upon these passages because it is in my judgment clear that they
cannot assist the respondents’ case if the crucial provisions of the concurrent
lease are rendered void by section 23, nor in my judgment can they assist the
appellant if her case fails under that section.
The first
issue under section 23 is whether the concurrent lease is ‘an agreement
relating to the tenancy.’ It is claimed
by Mr Nugee that it is not, on the ground that the tenant is a necessary party
to such an agreement, and he sought to support this argument by a passage from the
judgment of Diplock LJ (as he then was) in Joseph v Joseph [1967]
Ch 78, a case involving section 38(1) of the Landlord and Tenant Act 1954, much
of the language of which has been adopted in drafting section 23 of the
Leasehold Reform Act 1967, and which reads as follows:
Any agreement
relating to a tenancy to which this Part of this Act applies (whether contained
in the instrument creating the tenancy or not) shall be void in so far as it
purports to preclude the tenant from making an application or request under
this Part of this Act or provides for the termination or the surrender of the
tenancy in the event of his making such an application or request or for the
imposition of any penalty or disability on the tenant in that event.
The Joseph
case is authority for the proposition that in section 38 the words ‘in so far
as it purports’ denote ‘in so far as it has the effect of’ and on that
authority I have no doubt that the same meaning should be given to the same
words in section 23 of the Leasehold Reform Act. In addition, however, Diplock
LJ in his judgment (at p 90) said ‘In my judgment this subsection does render
void any provision of an agreement between landlord and tenant whereby the
tenant undertakes to do in the future any act which will have the effect of
disqualifying him from applying for a new lease under sections 24(1) and
29.’ But the agreement in issue in that
case was between landlords and tenants and it is clear in my judgment that
Diplock LJ, who had posed (on p 89) as the question which he answered in the
passage above quoted ‘Can he (the tenant) . . . agree with the landlord?’ was not, in the passage quoted, putting any
general construction on the words ‘agreement relating to a tenancy.’ For my part I can see no good reason in the
context of section 23 for adopting the narrow construction that the words ‘any
agreement relating to a tenancy,’ which are in my judgment very wide words, are
restricted to agreements between landlord and tenant, and I would find it very
surprising if they did not apply to an agreement between, for example, the
landlord and a relative of the tenant that on the tenant obtaining
enfranchisement the relative would pay to the landlord the amount by which the
enfranchisement price fell short of a specified sum, and I would find it
equally surprising if such an agreement fell outside the section because the
promise was made, not to the landlord, but to a company in which he was
interested. It was not necessary for Mr Nugee in the present case to argue that
the landlord must be a party to ‘an agreement relating to a tenancy’ under
section 23 since the landlord in the present case was a party to the concurrent
lease, and he was content to argue no more than that the landlord was probably
a necessary party, but if the words ‘agreement relating to a tenancy’ involve
that the tenant must, but the landlord need not, be a party I would have
expected the section to say so in terms. For these reasons, with great respect,
I consider that the Lands Tribunal was wrong in the only reason which it gave
for holding that the agreement in question was not ‘an agreement relating to
the tenancy.’ It remains, however, to
consider whether the agreement in question was an agreement ‘relating to’ the
tenancy. In my judgment it was, because paragraph 5 in the 4th Schedule to the concurrent
lease was capable of applying to the statutory right of enfranchisement and was
intended by both parties to do so, and such right, although not a term of the
tenancy, was a right annexed to the tenancy by statute and therefore, in my
judgment, an incident of the tenancy.
The next
question is whether the agreement purports to ‘modify’ any right to acquire the
freehold or an extended lease or right to compensation under Part I of the Act.
The Lands Tribunal held that it does not, on the ground that, while the effect
of paragraph 5 is that the appellant has to pay £4,000 instead of £300 for
enfranchisement, her right to obtain the freehold ‘remains absolute and
unqualified’; in other words, although the value of the right has been
drastically reduced, the right itself has remained unaffected. In my judgment,
however, again with great respect to the Lands Tribunal, this reasoning ignores
the fact that until the act of enfranchisement £300 remained the proper price
for the freehold, calculated in accordance with the Act, and apart from
paragraph 5 of the 4th Schedule the exercise of the right of enfranchisement
could not increase the price, but paragraph 5, coupled with the concession,
makes it do so, and in that respect, in my judgment, modifies the right.
Having reached
these conclusions I do not need to decide whether paragraph 5 of the 4th
Schedule ‘provides for . . . the imposition of any penalty or disability’ on
the tenant in the event of her acquiring or claiming any right under Part I of
the Act, but in my judgment this part of section 23 has no application in the
present case since it is prefaced by the words ‘provides for’ and paragraph 5
does not provide for the imposition of any penalty or disability.
For these
reasons I would allow this appeal and in lieu of the Lands Tribunal’s
determination that the price payable for the house and premises is £4,000 would
substitute, subject to any observations that counsel may wish to make, a
determination that the price is £300, being £50 payable to Wentworth and £250
payable to Wrotham.
Agreeing that
the appeal should be allowed, GOFF LJ said: The facts which give rise to the
question we have to determine are fully stated in the judgment of Orr LJ, and I
need not take up time by repeating them.
I desire to
stress, however, that I am not at all satisfied that the assumption which
section 9(1)(a) of the Leasehold Reform Act 1967 requires to be made for the
purpose of ascertaining the price payable for the premises requires the two
elements of the reversion, namely the concurrent lease to Wrotham and the
ultimate estate in fee simple remaining in Wentworth, to be valued on the
hypothesis that Wrotham had actually granted a subtenacy to Mrs Jones. It is
true that where the tenant claims an extended lease, and not the freehold, the
machinery provided by section 14 of the Act is to bind the reversioner to grant
a new lease, and the existing lease is merged or surrendered by operation of
law, but where the freehold is claimed, although the valuation has pursuant to section
9 to be made ‘if the tenancy has not
to be so extended,’ I think that must be construed in the light of the context
and clear intention of the section. That intention was to secure to the tenant,
when assessing the price he has to pay for the freehold, the benefit of his
right, albeit not in fact exercised, to have an extended lease at a ground rent
only and without paying a premium. All that is required for that purpose is to
treat his tenancy as if it were what it would be if it had been extended. It is
not I think necessary to postulate the grant of a new tenancy. The words ‘was
to be’ are in my view significant, because as Mr Nugee conceded they recognise
that there is not going to be any actual new tenancy.
It was common
ground, however, that section 9 upon its true construction does require the
valuation to be made upon the footing that Wrotham are to be deemed to have
granted a subtenancy within the meaning of, and so as to bring into operation
the provisions of, clause 5 of the 4th Schedule to the lease of the October 6
1973, which I will call the concurrent lease, subject only to the effect, if
any, of section 23 of the Act, and Mr Hague, although offered the opportunity
to do so, refused to resile from that position. We must, therefore, decide this
case on that assumption, but without deciding that it is correct, and should
any case be brought upon any of the other leases to which my Lord, Orr LJ, has
referred, the point as to the true effect of section 9 will be open, and as I
think well arguable. Having said this, I now turn to the argument on section 23
subsection (1) on which Mr Hague rested his case.
That
subsection is qualified by opening words ‘except as provided by this section,’
but there is nothing relevant for present purposes in that qualification. The
subsection continues as follows
. . . any
agreement relating to a tenancy (whether contained in the instrument creating
the tenancy or not and whether made before the creation of the tenancy or not)
shall be void in so far as it purports to exclude or modify any right to
acquire the freehold or an extended lease or right to compensation under this
Part of this Act, or provides for the termination or surrender of the tenancy
in the event of a tenant acquiring or claiming any such right or for the
imposition of any penalty or disability on the tenant in that event.
Mr Hague
submits that clause 5 of the 4th Schedule to the concurrent lease is an
agreement relating to Mrs Jones’ tenancy which purports to exclude or modify
her right to acquire the freehold, or provides for the imposition of a penalty
or disability on her in that event. This raises several questions of which the
first is whether the agreement embodied in clause 5 relates to the tenancy, and
in my judgment it does. The Lands Tribunal held that it does not, because in
their view every such agreement must be one to which the tenant is a party. It
is unnecessary to consider the position with regard to the landlord, because,
of course, it was in fact a party to the concurrent lease, but in my judgment
it is not essential that the tenant should be a party. In common with Orr LJ I
cannot doubt that an agreement by a close relative of the tenant, or anyone else
for that matter, that if the tenant should exercise his right to
enfranchisement and if the price payable calculated in accordance with the Acts
should be less than £X he would pay the landlord the difference would be an
agreement relating to the tenancy within the meaning of section 23(1)
notwithstanding that the tenant was not a party to the agreement. So in my
judgment the agreement contained in clause 5 may fall within section 23(1) of
the Act notwithstanding Mrs Jones was not a party, but the question remains
whether it did relate to her tenancy and I agree with my brother that it did.
On the
construction of section 9 on which this case proceeds one of the events on
which the operation of clause 5 is made to depend is an assumed grant of a
subtenancy by virtue of that section, and that is not even a casual or
fortuitous result. It was intended that it should be so, and the respondents’
whole case is that it is. Therefore, as it seems to me, the agreement in clause
5 clearly relates to the statutory right of enfranchisement. Now that right,
although not a term of the tenancy, is an incident of it and so the agreement
in clause 5 relates also to the tenancy itself. It is true that clause 5 would
also have come into operation if Mrs Jones or her successors in title had
forfeited her tenancy or allowed it to expire, and Wrotham, thus being entitled
to grant a subtenancy, had actually done so, or if indeed she or they had in
fact taken a sublease from Wrotham, but that seems to me to be an irrelevant
consideration.
It was argued
that the concurrent lease including, of course, clause 5 of the 4th Schedule is
a fair bargain between Wrotham and Wentworth and that if that clause were
invalidated by section 23 of the Act it would become unfair, but in my judgment
that is not so, because section 23 subsection (1), if it applies, invalidates
clause 5 only in so far as it purports to exclude or modify the statutory
right, and therefore, in any event leaves its operation untouched in the
supposed case of an actual, as distinct from an assumed, subtenancy.
But then does
clause 5 purport to exclude or modify the right of enfranchisement? Again in my view it does. In this context, of
course, ‘purport to’ cannot bear the meaning it often has, which may very well
be its primary meaning, that is to say ‘is expressed to but not
effectively.’ It means ‘has the effect
of’–see per Lord Denning MR in Joseph v Joseph [1967] Ch 78 at p
87, and per Diplock LJ at p 90. I ask myself, therefore, ‘does it have that
effect?’ And it seems to me that there
can be only one answer ‘Yes, it does.’
Immediately before the concurrent lease the price for the freehold
calculated in accordance with the Act was £300. Immediately after the execution
of that lease right down at least until Mrs Jones had actually exercised the
right of enfranchisement that was still the proper price, because the
freeholder Wentworth could not get more than a nominal rent from any concurrent
lessee during the subsistence of the tenancy. Apart from clause 5 the exercise
of the right of enfranchisement obviously could not increase that price.
However, on the construction of clause 9 adopted in this case that exercise
does have that result, and it does so solely because of the impact of clause 5.
Therefore, that clause does ‘purport to’ that is ‘has the effect of’ modifying
the statutory right.
In my judgment
the respondents’ argument to the contrary on the ground that the increase in
price is simply the result of making the valuation on the statutory hypothesis
is unsound, since it assumes that clause 5 of the 4th Schedule to the
concurrent lease stands unaffected by section 23 of the Act, and, therefore,
begs the question. The alternative way in which this argument was presented,
namely that the valuation pursuant to and as directed by the Act is £4,000, and
there is nothing on which section 23 can bite, is in my judgment equally
untenable for the same reason.
For these
reasons I would allow this appeal and it is unnecessary to consider Mr Hague’s
further argument that clause 5 is invalidated in its application to the right
of enfranchisement as being an agreement which
. . .
provides for the termination or surrender of the tenancy in the event of a
tenant acquiring or claiming any such right or for the imposition of any penalty
or disability on the tenant in that event.
but were it
necessary to decide this I would, I think, reject the submission both because
the verb governing this part of the section is ‘provides for’ and not ‘purports
to’ and because it does not seem to me that clause 5, or the effect of its
coming into operation, can properly be described as a penalty or disability.
Also agreeing,
STEPHENSON LJ said: The question referred to the Lands Tribunal was
the prices
payable on the acquisition of the intermediate leasehold and the freehold of
the property described above under section 9 of the Act, . . .
‘There can be
no doubt,’ said the member giving the decision of the tribunal,
that the
purpose of the interposition between the freehold and the occupying tenant’s lease
in each case was intended as a device to increase the value of the freehold
under section 9 of the Act of 1967. The question in the present case is whether
it has succeeded.
He decided
that it had succeeded on the grounds that section 23 of the Act had no
application. The question upon which our decision is desired is stated in the
case to be
whether the
tribunal was correct in holding that section 23 of the Leasehold Reform Act
1967 had no application.
The notice of
appeal asks us to set aside or vary that decision on the ground that the
tribunal misdirected itself in holding that on its true construction section 23
had no application and did not render paragraph 5 of the 4th Schedule to the
intermediate or concurrent lease void. Mr Hague for the appellant conceded
that, for the purpose of the assumption in section 9(1)(a) that the appellant’s
tenancy was to be extended under Part I of the Act, it was a sublease granted
by the (intermediate) tenant within the paragraph. That led Goff LJ to question
whether the concession was rightly made.
If the
appellant had given notice of her claim to acquire an extended lease, not of
her claim to acquire the freehold, the concurrent tenancy and paragraph 5 would
be relevant in deciding the terms of the new tenancy under section 15. But I
cannot see why in making an assumption required by section 9 to be made to
determine the amount of the purchase price of the freehold the tenancy should
be treated as notionally extended in the actual circumstances of a concurrent tenancy.
I would not feel compelled without further argument to make the further
assumption that the notional new tenancy is a sublease granted by the
intermediate tenant. I share the doubts expressed by Goff LJ upon the question
whether this concession was rightly made, but I must accept it as right when I
consider the question whether section 23 applies to invalidate the concurrent
lease or paragraph 5 of the 4th Schedule to it.
The purpose of
section 23 appears from its terms to be the preservation of the statutory
rights to acquire the freehold or an extended lease and to compensation for
being taken away, or restricted, or made more difficult for the tenant to
acquire or claim, by agreement. If a tenant qualifies under section 1 of the
Act by the rent and the term of his tenancy, by the rateable value of the
leasehold house and premises and by his occupation of the house as his
residence, he is not to contract or be contracted out of the right to
enfranchisement or extension conferred on him by that section, either
completely or partly, or out of the right to compensation conferred on him by
section 17(2) and section 18(4). He is not to be deterred from acquiring or
claiming any of those rights by being required to terminate or surrender the
tenancy, or by being penalised or disqualified, in the event of his acquiring
or claiming the right.
The obvious
method of contracting him out of that right or deterring him from acquiring or claiming
it is by agreement between him and his landlord from whom he must acquire and
claim the right to enfranchisement or extension, or by whom he must be paid
compensation. So there can be little doubt that it is to agreements between
landlord and tenant that section 23 is primarily addressed. The agreements
excepted from subsection (1) by subsections (2) and (3) appear to be agreements
between landlord and tenant. An agreement which ‘provides for the termination
or surrender of the tenancy’ within subsection (1) would seem also to be such
an agreement. So it is not to be wondered at that Mr Hague in his book on Leasehold
Enfranchisement (1967) p 199 considers subsection (1) as a subsection
‘which prevents the parties to a lease contracting out of Part I of the Act’
and that Diplock LJ considered the identical terms of section 38(1) of the
Landlord and Tenant Act 1954 as concerned with agreements between landlord and
tenant: Joseph v Joseph 1967 Ch 78 at p 90. But in neither Act
does the subsection say ‘any agreement between landlord and tenant’; nor does
it say ‘any agreement’ or ‘any agreement whatsoever.’ It says ‘Any agreement relating to the
tenancy.’ Those are wide words, and the
succeeding parenthesis indicates that they are wide and does not necessarily
limit them to ‘any agreement between landlord and tenant,’ because, as was
pointed out in argument, a guarantee by a third party might be ‘contained in
the instrument creating the tenancy.’ I
see no reason to exclude from the subsection an agreement made between one
party to the lease and a third party if it relates to the tenancy and either
purports to exclude or modify the statutory rights or provides for any of the
matters specified in the subsection. I do not regard Mr Hague the advocate as hoist
with the petard of Mr Hague the textbook writer. As the tenancy with which the
whole Act, including this section, is concerned is a long tenancy at a low rent
from which a tenant with the other qualifications required by section 1 derives
the rights conferred on him by the Act, any agreement which affects or bears
upon any of those statutory rights of a tenant does in my judgment relate to
his tenancy.
I am therefore
of the opinion, respectfully dissenting from the decision of the Lands Tribunal
and concurring with my brethren on this point, that an agreement between the
landlord and a third party which grants that party a lease of the leasehold
house of which the qualified tenant has the necessary long tenancy at a low
rent from the landlord, and indeed turns that tenant into a subtenant of the
third party and his lease into a sublease, is an agreement relating to the
tenancy. Is it also an agreement which purports to do or provides for the
things which section 23(1) declares void?
I agree with
the Lands Tribunal, for the reasons given by my brethren, that the concurrent
lease does not provide for the imposition of any penalty or disability on the
tenant in the event of his acquiring or claiming his right to acquire the
freehold. It would be straining the language of the subsection to hold that
paragraph 5 provides for a penalty of £3,700. But I am of the opinion, reached
with some hesitation after the excellent arguments addressed to us by both
counsel, but supported by both the judgments which have been delivered, that
the concurrent lease by paragraph 5 of the 4th Schedule ‘purports to modify’
the tenant’s right to acquire the freehold. It is, of course, true that section
1 confers on a qualified tenant a right to acquire on fair terms the freehold
or an extended lease of the house and premises and that those terms include the
purchase price payable for the freehold of the house and premises on the
statutory assumptions, including the assumption under section 9(1)(b) that the
tenancy was to be extended under Part 1 of the Act, and the terms of the
extended tenancy set out in section 15. There is therefore some force in Mr
Nugee’s argument for the landlord that the tenant’s right to acquire the
freehold is a right to acquire it for the purchase price payable under section
9, and that right is not modified by the interposition of the concurrent
lease and the consequent purchase price of £4,000 because £4,000 is the
purchase price payable by the tenant for the freehold at the time when he gives
the landlord notice.
The opening
words of sections 8(1) and 14(1), ‘Where a tenant of the house has under
this Part of this Act a right . . . and gives to the landlord
written notice of his desire,’ may suggest that the right accrues before
notice is given. The reference in section 5(1) to ‘the rights and obligations
of
contrary. But Mr Nugee’s argument appears to me to be met by the point which
has been so clearly stated in both judgments just delivered that
notwithstanding the execution of the concurrent lease the price payable in
accordance with section 9 was £300 at least until the tenant exercised her
right of enfranchisement.
We are bound
by the decision of this court in Joseph v Joseph to construe
‘purports to exclude or modify’ as ‘has the effect of excluding or
modifying.’ There can be no doubt that
paragraph 5 has the effect of increasing the price payable for the freehold by
the tenant from £300 to £4,000. Mr Nugee indeed concedes that that is the
purpose of the clause. When I suggested to him that it was a barefaced attempt
to increase the price, he admitted the attempt but objected to the epithet. The
attempt can only succeed if the terms on which the freehold is acquired are not
modified by increasing the purchase price from £300 to £4,000 because those
terms and the amount payable as the purchase price are to be considered at or
after the time when the right to acquire is exercised, and if the actual
exercise of the right has the effect of introducing the price payable in
accordance with the Act without regard to the price payable, or likely to be
payable, until that time.
I cannot
believe that the legislature intended to allow a landlord–I must not say an
unscrupulous landlord, because he may be a trustee acting in the best interests
of widowed or orphaned beneficiaries in need of every penny he can get for
them–to reduce the apparent value of the tenant’s right by ingenious devices of
this kind. It was to defeat such devices or bargains that Parliament enacted
section 23 in language wide enough to hit them. The landlords’ device does, in
my opinion, purport to modify the right to acquire the freehold conferred on
the tenant by section 1 by having the effect of increasing the purchase price.
I agree,
therefore, that we should allow the appeal, set aside the order of the Lands
Tribunal and declare that section 23 of the Leasehold Reform Act 1967 does
apply to paragraph 5 of the 4th Schedule to the concurrent lease and that the
prices payable under section 9 of the Act are £50 and £250. That is subject to
what counsel may have to say on the form of our order.
Appeal
allowed. In lieu of Lands Tribunal’s determination that the price payable for
the house and premises was £4,000, determination substituted that the price was
£300, being £50 payable to Wentworth and £250 payable to Wrotham. The
respondents ordered jointly to pay the appellant the costs of the appeal to the
Court of Appeal. The respondents also jointly to pay the appellant half the costs
of the proceedings before the Lands Tribunal. Leave to appeal to House of Lords
given conditionally on terms that the order for costs in Court of Appeal and
Lands Tribunal should not be disturbed and that appellants to House of Lords
should not ask for costs in the House.