Leasehold enfranchisement — Landlord and Tenant Act 1987 — Collective enfranchisement — Tenants’ right of first refusal on disposal by landlord — Agreement for surrender and regrant of landlord’s own headlease — Whether relevant disposal occurring Whether tenants serving correct notice
The appellant held a headlease of a block of flats for a term of 121 years from 1973. The respondent company had been formed by the tenants of the flats in order to exercise their rights under Part I of the Landlord and Tenant Act 1987. In October 2000, the appellant entered into an agreement with its own landlord, K, in return for a consideration of £125,000, by which it agreed to surrender its headlease and take a new one of the same property minus a boundary strip. The appellant did not serve a section 5 offer notice on the respondent in respect of the tenants’ section 1 right to first refusal on any “relevant disposal” by the landlord.
The tenants later served notice on K, under section 11A of the 1987 Act, seeking particulars of the 2000 disposal. As a result of the information obtained, the respondent served a section 12B purchase notice on K, requiring a disposal to itself of the estate or interest that was the subject matter of the October 2000 disposal on the same terms, including the consideration. Pursuant to section 16, the respondent called upon K to forward the notice to the appellant and stated that it intended to seek an order directing that the lease be transferred to itself. Issues arose as to whether any “relevant disposal” had taken place, the nature of any such disposal and whether the tenants had proceeded correctly.
In the court below, HH Judge Levy QC held that: (i) the 2000 agreement gave rise to a relevant disposal; (ii) it was the agreement itself that amounted to the disposal in question; (iii) a section 12B purchase notice had been appropriate in the circumstances; and (iv) the respondent was entitled to be placed in the same position as that enjoyed by the appellant under the 2000 lease, although it was not entitled to take free of a lease of roof space that the appellant had granted to a telecommunications company in 2004. The appellant appealed.
Held: The appeal was allowed.
(1) The 2000 agreement, which contained an agreement to surrender, was the relevant disposal: see sections 4(1), 4(2)(i), 4(3) and 4A(1) of the 1987 Act. The appellant’s failure to serve a section 5 offer notice in relation to that disposal had triggered the tenants’ right to request information under section 11 and their rights under section 12C, such that the tenants could have served a section 12C notice on K and become entitled to a grant of a lease from K on the same terms as the 1973 lease. However, they had not done so. It was not possible to treat the section 12B notice served by the tenants as a section 12C notice. Section 12B is not intended to apply in cases involving a contract to surrender. (2) The tenants were not entitled to call upon K to forward the notice to the appellant under section 16 or to state that they would seek an order directing the transfer of the 2000 lease to the respondent. Section 16 applies only where a purchaser has itself disposed of the estate or interest that was the subject matter of the original disposal. It could not apply to the 2000 lease because that was not the subject matter of the agreement to surrender. The 1973 lease had been extinguished upon surrender, so that the appellant had received not the same estate or interest that had been surrendered to K, but a different lease on different terms. Accordingly, the court did not have the power to make an order against the appellant requiring it to grant a new lease to the respondent in the same terms as the 1973 lease. (3) The respondent was not entitled to a declaration that it was still in time to serve a section 12C notice on K because no such relief had been sought in the court below and K was not a party. (4) The Act is intended to restrict the right of a landlord to dispose of its interest in the reversion without reference to the wishes of the tenants, leaving them uncertain as to the identity of their landlord. Under the 2000 agreement, the appellant remained the tenants’ landlord both before and after the transaction; it was not disposing of its headlease interest, but merely enlarging it.
The following cases are referred to in this report.
Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858; [1996] 3 WLR 1008; [1996] 1 All ER 312; [1996] 1 EGLR 59; [1996] 05 EG 131, CA
Kay-Green v Twinsectra Ltd [1996] 1 WLR 1587; [1996] 4 All ER 546; [1996] 2 EGLR 43; [1996] 38 EG 136, CA
This was an appeal by the appellant, Campden Hill Developments Ltd, from a decision of HH Judge Levy QC, sitting in Central London County Court, allowing a claim by the respondent, Kensington Heights Commercial Co Ltd under Part 1 of the Landlord and Tenant Act 1987.
Jonathan Gaunt QC and Mark Sefton (instructed by Pemberton Greenish) appeared for the appellant; Anthony Radevsky and Zia Bhaloo (instructed by Trowers & Hamlins) represented the respondent.
Giving judgment, Lawrence Collins LJ said:
I Introduction
[1] Kensington Heights, 81-89 (odd) Campden Hill Road, London W8 (the property), consists of 85 flats and five town houses built on top of a car park with 215 spaces. The freehold of the property is held by Kennet Properties Ltd (Kennet), which is a subsidiary of Thames Water.
[2] This is an appeal from an order of HH Judge Levy QC, made in Central London County Court on 20 June 2006, that, pursuant to Part I of the Landlord and Tenant Act 1987 (the 1987 Act), Campden Hill Developments Ltd (Campden) transfer to Kensington Heights Commercial Co Ltd (Kensington) the term granted by a lease of the property dated 27 November 2000. Kensington is the person nominated by the overwhelming majority of the lessees of flats to exercise their rights under the 1987 Act.
[3] The background is, that by a lease dated 21 June 1973 (the 1973 lease), the Metropolitan Water Board (a predecessor of Thames Water) granted to Campden a lease of an area of land adjoining Campden Hill Road and Airlie Gardens for a term of 121 years from 29 September 1972. The 1973 lease replaced an earlier lease between the same parties granting a term of 99 years from 29 September 1968. |page:131|
[4] Campden then developed the site by constructing the building now known as Kensington Heights. Underleases of the flats, houses and garage spaces were then granted by Campden for terms of 121 years, less 10 days, from 29 September 1972.
[5] The landlord of the flat lessees for the purposes of the 1987 Act was Campden. By virtue of the 1987 Act, any proposed disposal of Campden’s interest required the flat lessees to be offered the right of first refusal.
[6] In 2000, Thames Water (the successor to the Metropolitan Water Board) entered into a joint venture with St James Homes Ltd to develop the site of the former reservoir that lay immediately to the west of the property. Thames Water formed Kennet, to which it transferred the freehold reversion upon the 1973 lease.
[7] By an agreement dated 19 October 2000 (the 2000 agreement), Kennet agreed with Campden to take a surrender of the lease of 21 June 1973 and grant a new lease to Campden of the same property (minus a narrow boundary strip adjoining Airlie Gardens) for a term of 125 years from the date of completion (that is, a term 32 years longer than the existing lease). The purchase price payable by Kennet was £125,000. The tenants had no rights over the boundary strip, which was of value to Kennet in relation to the proposed development.
[8] Pursuant to the 2000 agreement, on 27 November 2000, the 1973 lease was surrendered by a deed of surrender, and Kennet granted Campden the new lease (the 2000 lease).
[9] By an agreement dated 7 March 2001, Kennet agreed to sell to St James Homes Ltd a piece of freehold land, including the boundary strip that was, by then, no longer demised to Campden. The purchase price was £125,000 plus a proportion of the sale proceeds of the new development.
[10] On 15 July 2004, Campden granted Vodafone a subunderlease of part of the roof of the property for 10 years from 1 December 2003, at a rent of £22,000 pa, to allow it to erect telecommunications apparatus. No equipment has been erected.
[11] By a claim form issued on 21 October 2005, Kensington sought an order under Part I (Tenant’s Rights of First Refusal) of the 1987 Act that Campden “dispose of the estate or interest that was the subject-matter of the original disposal dated 19th October 2000, on the terms on which it was made, including the consideration” to Kensington; and an order that the disposal be free from the Vodafone subunderlease.
II Part I of the 1987 Act
[12] Part I of the 1987 Act (as amended by, in particular, the Housing Act 1996) is designed to give the tenants of flats a right of first refusal if their immediate landlord wishes to dispose of its interest in the premises.
[13] In the 1980s, there was increasing concern in relation to the management of, and service charges imposed on, blocks of flats. In 1985, the Report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats (the Nugee Report) was published. The Nugee Report discussed, among other concerns, the problems caused by the unrestricted right of the landlord, under the general law, to dispose of its interest in the reversion without reference to the wishes of the tenants. This had led, in some cases, to the freehold passing through several hands in quick succession, leaving the tenants uncertain as to who their landlord was and therefore unable to take any effective action.
[14] Although the majority of the Nugee committee did not feel that tenants should be given a right to buy where the landlord wished to continue to own and manage the block, it recommended that tenants should have a right of first refusal where the landlord wished to dispose of its interest. This recommendation was implemented by Part I of the 1987 Act. In Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858*, at p876, Sir Thomas Bingham MR said that “the committee intended occupying tenants to have a right to acquire the reversion to their leases when their landlord proposed to part with it, and that the ultimate objective was to give the tenants in a block where the majority wanted it a power to manage the block themselves and so to have a greater say in their own affairs”.
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* Editor’s note: Also reported at [1996] 1 EGLR 59; [1996] 05 EG 131
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[15] I shall set out the crucial provisions verbatim later in this judgment and, in this section, I shall summarise the principal provisions that are relevant.
[16] Section 1 prohibits a “landlord” from making “a relevant disposal” affecting premises to which the 1987 Act applies unless it first serves the tenants with a notice offering them the chance to buy the interest that is being sold on the same terms as the landlord is intending to sell it. “The landlord” is “the immediate landlord of the qualifying tenants”: see section 2(1).
[17] The rights of first refusal granted by the 1987 Act therefore apply only to disposals by the tenants’ immediate landlord; they do not apply to disposals of interests held by superior landlords. So if, for example, there is a headlease of a building, the headlessee is restricted from disposing of the headlease, but the freeholder is not restricted from disposing of the freehold.
[18] “A relevant disposal” is “the disposal by the landlord of any estate or interest” in the relevant premises: see section 4(1). The definition expressly includes the surrender of a tenancy: see section 4(3).
[19] The rights of first refusal apply to contracts to create or transfer an estate or interest in the premises as well as applying to completed transactions: see section 4A(1). Where a transfer is made pursuant to a contract, the contract is the relevant disposal and the transfer made pursuant to the contract is excluded from being a relevant disposal: see section 4(2)(i).
[20] Where the landlord proposes to make a relevant disposal, it is required to serve an offer notice on the qualifying tenants: see section 5(1). The exact contents of the notice depend upon the species of disposal: in particular, there are prescribed requirements for different offer notices in the case of contracts to be completed by a conveyance: see section 5A. There are additional requirements where part of the proposed consideration is non-monetary: see section 5E. The tenants in that instance can elect to pay, instead of the non-monetary consideration, an amount in money equivalent to its value in the hands of the landlord: see section 8C(4).
[21] In a case where no offer notices are served, the qualifying tenants are given rights against the purchaser and against any subsequent purchaser: see sections 11 to 16. Section 11A provides for notice to be served to obtain details of the disposal. Section 12A-C provides three methods of acquiring the interest that was disposed of in breach of the 1987 Act.
[22] If the landlord proceeds with a disposal that is in breach of the offer requirements, the qualifying tenants are given certain rights against “the purchaser” (see section 11), namely “the transferee under the original disposal (or, in the case of the surrender of a tenancy, the superior landlord)”: see section 11(3).
[23] The qualifying tenants have the right to obtain information about a disposal by serving a notice on the purchaser: see section 11A.
[24] Sections 12A, 12B and 12C give the qualifying tenants rights to acquire interests in three different situations: see section 12A (Right of qualifying tenants to take benefit of contract); section 12B (Right of qualifying tenants to compel sale, &c by purchaser); section 12C (Right of qualifying tenants to compel grant of new tenancy by superior landlord).
[25] Section 12A applies “where the original disposal consisted of entering into a contract”: see section 12A(1). If the tenants serve a notice on the landlord under section 12A, “the contract shall have effect as if entered into not with the purchaser but with a person or persons nominated for the purposes of this section by the requisite majority of qualifying tenants”: see ibid. Consequently, in those circumstances, the tenants may serve a notice on the landlord, that is, their original landlord, whereby the contract is then treated as having been made with their nominated purchaser instead.
[26] Section 12B applies where “the original disposal consisted of entering into a contract and no notice has been served under section 12A… or the original disposal did not consist of entering |page:132| into a contract”. In this situation, the tenants can serve a notice on the purchaser “requiring him to dispose of the estate or interest that was the subject-matter of the original disposal, on the terms on which it was made (including those relating to the consideration payable), to a person or persons nominated for the purposes of this section”: see section 12B(2).
[27] Section 12C applies “where the original disposal consisted of the surrender by the landlord of a tenancy held by him”: see section 12C(1). Section 12C(2) provides that the purchaser is obliged to “grant [to the nominated person] a new tenancy of the premises which were subject to the relevant tenancy, on the same terms as those of the relevant tenancy”.
[28] Section 16 of the 1987 Act applies where, inter alia, a section 12B notice is served on the purchaser, but it no longer holds the estate or interest that was the subject matter of the original disposal. Section 16 applies where the purchaser has disposed of “the estate or interest that was the subject matter of the original disposal”: see section 16(1). The purchaser is obliged to forward any notice served by the tenants under section 12B to the subsequent purchaser, whereupon it is provided that sections 12A-14 are to apply to the subsequent purchaser instead of applying to the purchaser as though the subsequent purchaser were the transferee under the original disposal.
III Notices
[29] The tenants of the flats are “qualifying tenants” within the meaning of the 1987 Act and the property comprises premises to which Part I of the 1987 Act applies: see sections 1(2) and 3.
[30] By virtue of the 1987 Act, any proposed disposal of Campden’s interest in the property required the flat lessees to be offered the right of first refusal.
[31] No offer notices under section 5 of the 1987 Act were served on the qualifying tenants prior to the 2000 agreement under which Campden agreed to surrender the 1973 lease.
[32] On 22 December 2004, the requisite majority of qualifying tenants served notice on Campden’s solicitor, Pemberton Greenish, under section 11A of the 1987 Act. The notice was addressed to Campden and sought particulars of the relevant disposal involving the grant of the new lease. It seems that a draft notice in identical terms but addressed to Kennet was prepared but not sent and that the judge was wrongly informed that the notice was sent to Kennet and not to Campden.
[33] By notice giving particulars of a disposal dated 7 February 2005, Campden’s solicitor (on behalf of Campden) stated that the 2000 lease had been entered into pursuant to the 2000 agreement, and attached an incomplete copy of the 2000 agreement.
[34] On 28 July 2005, the tenants served a section 12B purchase notice on Kennet, copied to Campden’s solicitor. The notice stated that the tenants had reason to believe that: (a) Kennet had acquired an interest in the property from Campden under the 2000 agreement; (b) Part I of the 1987 Act applied to the property at the time of that disposal to Kennet; and (c) the disposal to Kennet was a relevant disposal and had been made without Campden having served notice under section 5 of the 1987 Act. The notice then required Kennet to dispose of the interest that was the subject matter of the disposal to Kennet on the terms on which it was made, including the consideration, to Kensington. The notice proposed that if the property had become subject to any encumbrance other than a charge, the property should be disposed of subject to the encumbrance.
[35] In a covering letter, the tenants’ solicitor called upon Kennet to forward the section 12B notice to Campden under section 16 of the 1987 Act, and stated that it would be seeking an order from the court, under section 12B(5), directing that “the lease” be transferred to Kensington “free from any lease entered into subsequent to October 19, 2000”.
[36] On 28 September 2005, Kensington served a default notice on Campden, under section 19(2) of the 1987 Act, stating that Campden was in default of an obligation:
to dispose of the estate or interest that was the subject matter of the disposal to Kennet Properties Limited in accordance with the purchase notice dated July 29, 2005
and requiring Campden to make good the default by disposing of that interest to Kensington in accordance with the purchase notice.
[37] On 21 October 2005, Kensington issued proceedings under CPR 8, seeking an order that Campden dispose of the estate or interest that was the subject matter of the original disposal dated 19 October 2000 on the terms on which it had been made, including the consideration, to Kensington.
[38] In response to the suggestion that Kensington had not clearly identified what estate or interest Campden was being asked to dispose of to Kensington, Kensington then made it clear that it was seeking the transfer to it from Campden of the term created by the 2000 lease, rather than a regrant by Kennet of the 1973 lease that had been surrendered, and, to achieve this, was relying upon section 16 of the 1987 Act.
IV Judgment appealed from and the arguments on the appeal
[39] The judge’s decision was that the 2000 agreement was a relevant disposal within section 4, and was not excluded by section 4(2)(i). The exclusion was directed to a contract prior to the “disposal” by the landlord. The judge said that he had been shown no “contract… binding on the landlord” prior to the time the 2000 agreement had been made.
[40] In the light of the failure of Campden, in 2000, to provide information, Campden was in breach of its obligations contained in Part 1 with regard to the 2000 agreement and a notice could properly be served, under section 11A, seeking information.
[41] In the light of what was known to those who served it at the time, it was served and, having regard to sections 11A, 16(1), (2), and (5), it was appropriate for Kennet to be identified as the purchaser and for Kennet’s attention to be drawn to the provisions of section 16.
[42] In view of the fact that the 2000 agreement was the original disposal from which all else followed, the use of a section 12C notice would not have been justified. The notice made it clear that Kensington wished to be in the position that it would have been in had notice of the 2000 agreement been duly served as required under the relevant provisions of Part 1. A section 12B purchase notice was the appropriate notice to be served before Kensington could seek relief arising from Campden’s failure to serve an appropriate notice when the 2000 agreement was made: see Kay-Green v Twinsectra Ltd [1996] 1 WLR 1587*.
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* Editor’s note: Also reported at: [1996] 2 EGLR 43; [1996] 38 EG 136
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[43] The consequence was that Kensington was entitled to relief and should be put in the position that Campden had been in under the 2000 lease. It would be unjust to consider the surrender in isolation from the 2000 lease, although the judge accepted that there were difficulties in reviving a lease that had been surrendered. However, because of the failure to mention clearly in the purchase notice the relief that it sought, Kensington was not entitled to the relief sought in para 2 of the claim, namely that the disposal be free from the Vodafone lease.
[44] The order made was that Campden should, after the consideration was determined by the leasehold valuation tribunal (LVT) (in default of agreement), transfer to Kensington the 2000 lease, subject to the Vodafone lease.
[45] Campden was given permission to appeal by the judge. Kensington cross-appeals on the judge’s decision on the Vodafone lease and also seeks alternative relief if Campden’s grounds of appeal are made out, namely: (a) a grant of a new lease on the same terms as the 1973 lease; (b) a declaration that the time for service of a section 12C notice has not arrived; and (c) a declaration that the notice served is to be treated as a section 12C notice.
A Campden’s argument
[46] First, the judge was wrong to hold that the 2000 agreement, in which Kennet agreed to grant the 2000 lease, was a relevant disposal under the 1987 Act, apparently because it was a contract to create an estate or interest in land and because there had been no previous contract binding on the landlord. |page:133|
[47] In so holding, the judge misunderstood the argument being put forward for Campden. He appeared to have thought that it was being argued that the 2000 agreement did not amount to a relevant disposal because of the exclusion in section 4(2)(i).
[48] That was never Campden’s case. Campden had always accepted that the agreement to surrender was a relevant disposal, but argued that the agreement by Kennet (which was not “the landlord” as defined in the 1987 Act) to grant a new lease was not. The judge did not address or determine that question. Nor did he address or determine the submission that section 16 did not apply because the 2000 lease was not “the estate or interest that was the subject matter” of the agreement to surrender.
[49] Second, the judge was wrong to hold that a section 12C notice was not required as a precondition of the relief sought.
[50] The section 12B notice was served by Kensington on Kennet and required the transfer of the “subject matter of the disposal to you.” The subject matter of the disposal to Kennet was the 1973 lease. The nature of that disposal was an agreement to surrender. In those circumstances, the notice that Kensington was entitled to serve on Kennet was a section 12C notice.
[51] Section 12B would make no sense where a surrender is concerned. The “purchaser” (that is, the superior landlord to whom the lease has been surrendered: see section 11(3)) could not be required to “dispose of the estate or interest that was the subject-matter of the original disposal” to the qualifying tenants because the subject matter is the lease and, following the surrender, the lease no longer exists.
[52] Section 12C applies to contracts to surrender as well as actual surrenders by reason of section 4A(1), and provides for a different remedy: the purchaser is obliged to “grant [to the nominated person] a new tenancy of the premises that were subject to the relevant tenancy, on the same terms as those of the relevant tenancy” (that is, the tenancy that has been surrendered): see section 12C(2).
[53] Kensington had served no section 12C notice. All it had served was a notice under section 12B. Because section 12B did not apply to a contract for a disposal of this nature, the precondition for obtaining relief had not been satisfied.
[54] Third, the judge was wrong to hold that the justice of the situation required an order for the transfer of the 2000 lease.
[55] The judge did not determine whether the relevant disposal was the surrender of the 1973 lease or the grant of the 2000 lease. Nevertheless, when he considered what was the appropriate relief, he held: “[Kensington] should be put in the position that Campden now has under the 2000 Lease. In my view it would be unjust to consider the surrender in isolation from the 2000 lease… .”
[56] This was the wrong conclusion. The judge did not consider the consequences of his order or whether it accorded with the aims and objects of the 1987 Act.
[57] What Part I of the 1987 Act aims to do is to give the qualifying tenants a right of first refusal where their immediate landlord wishes to sell its interest in the building. Here, Campden was not trying to sell its interest. Rather, it wanted to buy a longer term. The effect of the judge’s order is to give the qualifying tenants not what Campden was giving up (the 1973 lease) but what it was buying, at a price represented by the value of the interest that Campden was giving up. The order gets the interest that was the subject matter of the disposal and the interest that was the consideration for the disposal the wrong way round. The order does not give effect to the purpose of the 1987 Act, and gives the tenants an interest that they were not intended to have.
[58] The tenants were not without a remedy in the situation that had arisen. They could have served a section 12C notice on Kennet and become entitled to a grant by Kennet of a lease on the same terms and for the same term as that of the 1973 lease. Instead, they are seeking to deprive Campden of an interest of which Campden never disposed.
[59] With regard to the cross-appeal, Campden says that if it is ordered to grant Kensington a new lease on the same terms as the surrendered 1973 lease, this will necessarily be a grant made out of the 2000 lease. There would be no other way for Campden to comply with the order.
[60] However, it is not possible, under the provisions of the 1987 Act, for an order to be made for Campden to grant to Kensington a new lease that is the same as the 1973 lease that was surrendered. The 1973 lease was extinguished by a surrender to Kennet. Kensington could have asked for an order against Kennet (under a section 12C notice) that Kennet regrant it, but it has not gone down that route. Kennet is not a party to these proceedings.
[61] However, if the premise of this alternative submission from Kensington is that the subject matter of the original disposal was the 1973 lease, it can have an order against Campden only if section 16 applies. Section 16 applies only if the “estate or interest” that was the subject matter of the original disposal (the 1973 lease) was also the subject matter of a later disposal by Kennet to Campden. However, Campden does not have the same estate or interest that was surrendered to Kennet; it has a different lease on different terms from the 1973 lease.
[62] The solution that Kensington appears to propose to this is to say that the phrase “estate or interest” in section 16 should be read in some broad or purposive fashion: Campden had the “the immediate reversion to the tenants’ leases”, it is said; it disposed of that reversion to Kennet by surrendering the 1973 lease, and then it got the reversion back again by taking the new 2000 lease.
[63] However, the phrase “estate or interest” is one with an understood meaning in the law of property that is not the same as “the immediate reversion to the tenants’ leases”. If all that the phrase “estate or interest” meant was “the immediate reversion to the tenants’ leases”, a freeholder that had taken a surrender of the residue of an intermediate lease might be required to sell the nominated purchaser its entire freehold.
B Kensington’s arguments
[64] Section 12B applies where the original disposal consisted of entering into a contract and no section 12A notice has been served or where the original disposal did not consist of entering into a contract. In those circumstances, the tenants may serve notice on the purchaser requiring it to dispose of the subject matter of the original disposal on the same terms to the nominated purchaser. That is evidently the more appropriate procedure where the contract has been completed, which is what occurred in this case.
[65] Section 12C applies where the “original disposal” consisted of the surrender by the landlord of a tenancy held by it. The original disposal did not consist of a surrender. It consisted of entering into a contract for a surrender and grant of a new lease, and so a section 12B notice was appropriate.
[66] The relevant disposal was the entry into the 2000 agreement. Pursuant to the 2000 agreement, the 1973 lease was surrendered and the 2000 lease was granted to Campden. Kennet did not hold the surrendered 1973 lease, nor did it hold the unencumbered freehold of the property.
[67] It was correct, therefore, for Kensington to request Kennet to forward the section 12B notice on to Campden and to serve a section 16 notice, and the section 12B procedure thereafter applied to Campden as subsequent purchaser: see section 16(4).
[68] The interest held by Campden has, since 27 November 2000, been the new 2000 lease. It is that lease that ought, under the 1987 Act, to be transferred to Kensington for the same consideration as that provided by Campden. Since the consideration was not a monetary sum, it is for the LVT to determine the consideration payable under section 13 of the 1987 Act. Had Campden complied with its obligations under the 1987 Act, it would have served an offer notice under section 5E on the qualifying tenants, and the LVT could have determined the equivalent monetary consideration: see section 8C(4).
[69] The surrender of the 1973 lease does not put an end to the qualifying tenants’ rights under the 1987 Act. The purchaser (Kennet) accepted a surrender of the 1973 lease and thereupon granted the 2000 lease to Campden. It is that lease that is claimed by Kensington.
[70] Kennet obtained the immediate reversion to the tenants’ leases — a freehold interest unencumbered by the headlease. Kennet no |page:134| longer holds that interest (that is, an unencumbered freehold interest), having granted a new lease to Campden. Accordingly, section 16 of the 1987 Act applies. It is now by virtue of that 2000 lease that Campden is the landlord of the flat lessees, and it was granted as part of the transaction effected by the 2000 agreement. Campden holds the reversion to the qualifying tenants’ leases. The judge was correct to give effect to the qualifying tenants’ rights by requiring the transfer of that lease to them for the same consideration as that provided by Campden. The qualifying tenants should not have their statutory rights removed by reason of the complexity of the arrangement entered into by their landlord: see Belvedere Court, at pp882 and 886.
[71] If (contrary to its primary submission) it was the 1973 lease that was the subject matter of the 2000 agreement, in the alternative Kensington seeks the grant of a new lease to it on the same terms as the 1973 lease, which would be carved out of the 2000 lease. The consideration would be the same, namely £125,000 plus the value of the 2000 lease (subject to adjustment for the fact that the additional piece of land is not being acquired).
[72] If Kensington is wrong in its submission that it was not the surrender but the 2000 agreement that constituted the relevant disposal, and a section 12B notice was therefore appropriate, the time for serving a section 12C notice has not yet arrived because the purchaser has not served notice on the qualifying tenants stating that that disposal (that is, a surrender) has taken place: see section 12C(3). The notice giving particulars of the disposal dated 7 February 2005 did not assert that the surrender of the 1973 lease was the disposal. It is, therefore, not open to Campden (or Kennet) now to assert that the time limit for serving a section 12C notice has passed.
[73] Alternatively, if, which Kensington denies, a section 12C notice ought to have been served, rather than a section 12B notice (as asserted by Campden), the notice that was served should be treated as a section 12C notice. The notice made it clear that the qualifying tenants wished to exercise their purchase notice rights under the 1987 Act, and followed Campden’s response to the section 11A notice. Kennet no longer holds the interest that was the subject matter of the original disposal (the immediate reversion to the flat leases), having disposed of it to the appellant by granting Campden the 2000 lease. Consequently, under section 16, it is for Campden to grant Kensington a new lease equivalent to the 1973 lease. The consideration (based upon the value of the 2000 lease) would be for the LVT to determine under section 12C(6).
[74] If, contrary to Kensington’s primary submission, Campden is to grant Kensington a new lease on the same terms as the 1973 lease, it should be free from the 2000 lease, otherwise the tenants would not be in the same position as Campden. Alternatively, the new lease granted to Kensington should be granted out of the 2000 lease, such that Kensington has possession of the property for the duration of the new lease granted to it. If Campden were left with a concurrent lease, the tenants would have no effective remedy, notwithstanding that Campden was in breach of the 1987 Act in not giving notice.
V Conclusions
[75] This appeal raises the question of how the 1987 Act operates in the case of an agreement to surrender a headlease in return for the grant of a longer term.
[76] In the light of the fuller argument on this difficult legislation, of which this court has had the benefit, I have come to the conclusion that Campden is right and that the appeal should be allowed.
[77] The crucial facts are the following:
(i) Until 2000, Campden held under the 1973 lease from Thames Water.
(ii) In 2000, the freehold reversion was transferred to Kennet.
(iii) By the 2000 agreement, Kennet agreed with Campden to take a surrender of the 1973 lease and grant a new lease to Campden of the same property minus the boundary strip for a term of 125 years from the date of completion.
(iv) On 27 November 2000, the 1973 lease was surrendered by a deed of surrender and Kennet granted Campden the new lease.
(v) The tenants of the flats are “qualifying tenants” within the meaning of the 1987 Act and the property comprises premises to which Part I of the 1987 Act applies: see sections 1(2) and 3 of the 1987 Act.
(vi) By virtue of the 1987 Act, any proposed disposal of Campden’s interest in the property required the flat lessees to be offered the right of first refusal.
(vii) No offer notices under section 5 of the 1987 Act were served on the qualifying tenants prior to Campden’s agreement in 2000 to surrender the 1973 lease.
(viii) On 22 December 2004, the requisite majority of qualifying tenants served notice on Campden’s solicitor, Pemberton Greenish, under section 11A of the 1987 Act, addressed to Campden, seeking particulars of the relevant disposal involving the grant of the new lease.
(ix) By notice giving particulars of a disposal dated 7 February 2005, Campden’s solicitor stated that the new lease had been entered into pursuant to the 2000 agreement, and attached an incomplete copy of the agreement.
(x) On 28 July 2005, the tenants served a section 12B purchase notice on Kennet, stating that Kennet had acquired an interest in the property from Campden under the 2000 agreement, that the disposal to Kennet was a relevant disposal and had been made without Campden having served notice under section 5 of the 1987 Act and requiring Kennet to dispose of the interest that was the subject matter of the disposal to Kennet on the terms on which it was made, including the consideration, to Kensington.
[78] The combined effect of sections 1 and 2 was that Campden, as the immediate landlord, was prohibited from making a relevant disposal unless it had served a notice under section 5.
[79] What amounts to a “relevant disposal” is defined in section 4:
(1) In this Part references to a relevant disposal affecting any premises to which this Part applies are references to the disposal by the landlord of any estate or interest (whether legal or equitable) in any such premises, including the disposal of any such interest in any common parts of any such premises but excluding
(a) The grant of any tenancy under which the demised premises consist of a single flat (whether with or without any appurtenant premises); and
(b) any of the disposals falling within subsection (2).
…
(2) The disposals referred to in subsection (1)(b) are —
…
(i) a disposal in pursuance of a contract, option or right of pre-emption binding on the landlord…
…
(3) In this Part “disposal” means a disposal whether by the creation or the transfer of an estate or interest and —
(a) includes the surrender of a tenancy…
[80] Section 4A provides:
(1) The provisions of this Part apply to a contract to create or transfer an estate or interest in land, whether conditional or unconditional and whether or not enforceable by specific performance, as they apply in relation to a disposal consisting of the creation or transfer of such an estate or interest.
As they so apply —
(a) references to a disposal of any description shall be construed as references to a contract to make such a disposal;
(b) references to making a disposal of any description shall be construed as references to entering into a contract to make such a disposal; and
(c) references to the transferee under the disposal shall be construed as references to the other party to the contract and include a reference to any other person to whom an estate or interest is to be granted or transferred in pursuance of the contract.
[81] The combined effect of sections 4(1), 4(2)(i), 4(3) and 4A(1) was that the 2000 agreement, which contained an agreement to surrender, was the relevant disposal.
[82] An offer notice should have been, but was not, served under section 5, stating, inter alia, that the tenants could make an election in relation to the non-monetary consideration: see sections 5E and 8C(2). |page:135|
[83] As a result of the failure to serve a section 5 notice, the tenants had the rights conferred by section 11 et seq, including the right to information, and the rights under whichever of sections 12A, 12B, and 12C applied.
[84] Section 12A did not apply because it applies to cases “where the original disposal consisted of entering into a contract” and deals with the case where the contract has not been completed. It contemplates that a notice is served by the tenants on the landlord electing that the contract shall have effect as though entered into not by the purchaser but by the person or persons nominated by the tenants. This is workable only if the contract has not been completed.
[85] Section 12B provides:
12B Right of qualifying tenants to compel sale, &c by purchaser
(1) This section applies where —
(a) the original disposal consisted of entering into a contract and no notice has been served under section 12A (right of qualifying tenants to take benefit of contract), or
(b) the original disposal did not consist of entering into a contract.
(2) The requisite majority of qualifying tenants of the constituent flats may serve a notice (a “purchase notice”) on the purchaser requiring him to dispose of the estate or interest that was the subject-matter of the original disposal, on the terms on which it was made (including those relating to the consideration payable), to a person or persons nominated for the purposes of this section by any such majority of qualifying tenants of those flats.
(3) Any such notice must be served before the end of the period of six months beginning —
(a) if a notice was served on the purchaser under section 11A (right to information as to terms of disposal, &c), with the date on which the purchaser complied with that notice;
(b) in any other case, with the date by which —
(i) notices under section 3A of the Landlord and Tenant Act 1985 (duty of new landlord to inform tenants of rights) relating to the original disposal, or
(ii) where that section does not apply, documents of any other description indicating that the original disposal has taken place, and alerting the tenants to the existence of their rights under this Part and the time within which any such rights must be exercised,
have been served on the requisite majority of qualifying tenants of the constituent flats.
…
(5) Where the property which the purchaser is required to dispose of in pursuance of the purchase notice has since the original disposal become subject to… [an] incumbrance, then, unless the court by order directs otherwise
….
(b) … the property shall be so disposed of subject to the encumbrance but with a reduction in the consideration payable to the purchaser corresponding to the amount by which the existence of the incumbrance reduces the value of the property.
[86] Section 12C provides:
12C Right of qualifying tenants to compel grant of new tenancy by superior landlord
(1) This section applies where the original disposal consisted of the surrender by the landlord of a tenancy held by him (“the relevant tenancy”).
(2) The requisite majority of qualifying tenants of the constituent flats may serve a notice on the purchaser requiring him to grant a new tenancy of the premises which were subject to the relevant tenancy, on the same terms as those of the relevant tenancy and so as to expire on the same date as that tenancy would have expired, to a person or persons nominated for the purposes of this section by any such majority of qualifying tenants of those flats.
(3) Any such notice must be served before the end of the period of six months beginning —
(a) if a notice was served on the purchaser under section 11A (right to information as to terms of disposal, &c), with the date on which the purchaser complied with that notice;
(b) in any other case, with the date by which documents of any description —
(i) indicating that the original disposal has taken place, and
(ii) alerting the tenants to the existence of their rights under this Part and the time within which any such rights must be exercised,
have been served on the requisite majority of qualifying tenants of the constituent flats.
[87] In Kay-Green, it was held that a purchase notice must give adequate notice of the qualifying tenants’ desire to purchase the estate or interest that they should have been offered, and that that requirement was imperative: see at pp1600 and 1601, per Aldous LJ.
[88] Although the opening words of section 12B(1)(a) (“the original disposal consisted of entering into a contract…”) are literally capable of applying to a contract to surrender, I am satisfied that the context shows that they are not intended so to apply. First, the rest of section 12B does not fit with a surrender. In particular, it speaks of requiring the “purchaser” (Kennet) “to dispose of the estate or interest that was the subject-matter of the original disposal on the terms on which it was made…”: see section 12B(2). Section 12B would make no sense in the case of a surrender. The “purchaser” (that is, the superior landlord to whom the lease has been surrendered (see section 11(3)) could not be required to “dispose of the estate or interest that was the subject-matter of the original disposal” to the qualifying tenants because the subject matter is the lease and, following the surrender, the lease no longer exists. Section 12B speaks also of the case “where the property which the purchaser is required to dispose of… has since the original disposal become subject to any charge or incumbrance” (see section 12B(5)), and this could not apply in the case of a surrender.
[89] Section 12C applies “where the original disposal consisted of the surrender by the landlord of a tenancy…”: see section 12C(1). The effect of section 4A(1) is that the expression “surrender” includes a contract to surrender, because “(a) references to a disposal of any description shall be construed as references to a contract to make such a disposal; (b) references to making a disposal of any description shall be construed as references to entering into a contract to make such a disposal…”. Even if section 4A(1) did not have this effect, in my judgment, section 12C(1) would have that effect in any event because the only sensible construction to give effect to its intention would be that it applied to a contract to surrender and to give the tenants the intended remedy, namely that the purchaser is obliged to “grant [to the nominated person] a new tenancy of the premises which were subject to the relevant tenancy, on the same terms as those of the relevant tenancy“ (that is, the tenancy that has been surrendered): see section 12C(2).
[90] The purchase notice of 28 July 2005 was undoubtedly made under section 12B. First, the covering letter addressed to Kennet stated: “we enclose by way of service a Purchase Notice under Section 12B…” Second, the purchase notice contained on its frontsheet: “NOTICE GIVEN UNDER SECTION 12B LANDLORD AND TENANT ACT 1987”. Third, the notice itself was headed “NOTICE UNDER SECTION 12B”. Fourth, the notice required Kennet “to dispose of the estate or interest that was the subject-matter” of the disposal, which tracks the wording of section 12B(2), and has no counterpart in section 12C.
[91] There is, therefore, no basis for Kensington’s contention that the notice should be treated as though it were a section 12C notice.
[92] In any event, the tenants had no right to call on Kennet to forward the section 12B notice to Campden under section 16 of the 1987 Act and state that they would be seeking an order from the court under section 12B(5), directing that “the lease” be transferred to Kensington “free from any lease entered into subsequent to October 19, 2000”.
[93] A purchase notice under section 12B(2) requires the purchaser “to dispose of the estate or interest that was the subject-matter of the original disposal”.
[94] Section 16 applies where the purchaser “no longer holds the estate or interest that was the subject-matter of the original disposal” (see section 16(1)), and the purchaser serves notice on “the person to whom he has disposed of that estate or interest”: see section 16(2)(a). Section 16 provides:
(1) This section applies where, at the time when a notice is served on the purchaser under section 11A, 12A, 12B or 12C, he no longer holds the estate or interest that was the subject-matter of the original disposal. |page:136|
(2) In the case of a notice under section 11A (right to information as to terms of disposal, &c) the purchaser shall, within the period for complying with that notice —
(a) serve notice on the person specified in the notice as the person to whom particulars are to be provided of the name and address of the person to whom he has disposed of that estate or interest (“the subsequent purchaser”), and
(b) serve on the subsequent purchaser a copy of the notice under section 11A and of the particulars given by him in response to it.
(3) In the case of a notice under section 12A, 12B or 12C the purchaser shall forthwith —
(a) forward the notice to the subsequent purchaser, and
(b) serve on the nominated person notice of the name and address of the subsequent purchaser.
(4) Once the purchaser serves a notice in accordance with subsection (2)(a) or (3)(b), sections 12A to 14 shall, instead of applying to the purchaser, apply to the subsequent purchaser as if he were the transferee under the original disposal.
[95] Section 16 had no application to the 2000 lease because the 2000 lease was not “the estate or interest that was the subject-matter” (see section 16(1)) of the agreement to surrender. The interest in the 1973 lease was extinguished. Campden was not “the person to whom [Kennet] has disposed of that estate or interest”, namely the 1973 lease.
[96] I accept Campden’s argument that the tenants were seeking to obtain not what Campden was giving up (the 1973 lease) but what it was buying, at a price represented by the value of the interest that Campden was giving up.
[97] The tenants could have served a section 12C notice on Kennet and become entitled to a grant by Kennet of a lease on the same terms and for the same term as that of the 1973 lease.
[98] In my judgment, the court does not have the power to order Campden to grant to Kensington a new lease in the same terms as the 1973 lease, which was surrendered. The 1973 lease was extinguished by a surrender to Kennet. An order can be made against Campden only if section 16 applies. However, section 16 applies only if the “estate or interest” that was the subject matter of the original disposal (the 1973 lease) was also the subject matter of a later disposal by Kennet to Campden. Campden does not have the same estate or interest that was surrendered to Kennet; it has a different lease on terms different from those of the 1973 lease.
[99] In the respondent’s notice, Kensington seeks in the alternative a declaration that the time for service of a section 12C notice on Kennet has not arrived. Although this point was raised in argument in the court below, no such relief was sought. Kennet is not a party, and it is not open to Kensington to seek in this court a declaration, not sought below, that the tenants are still entitled to serve a section 12C notice on Kennet.
[100] The cross-appeal on the Vodafone lease does not arise in view of the conclusions to which I have come.
[101] I would add that, in my judgment, these conclusions are consistent with the scheme and purpose of the 1987 Act. Campden was the head lessee before the transaction and Campden was the head lessee afterwards. Commercially, Campden was not disposing of its head leasehold interest. It was enlarging it. As I have said, the 1987 Act was intended to give effect to a policy restricting the right of the landlord to dispose of its interest in the reversion without reference to the wishes of the tenants, and leaving tenants uncertain as to the identity of their landlord and therefore unable to take any effective action; and to give the tenants in a block where the majority wanted it a power to manage the block themselves and so to have a greater say in their own affairs.
[102] I would therefore allow the appeal, and dismiss the cross-appeal.
Sir Martin Nourse said:
[103] I agree.
Longmore LJ said:
[104] I also agree.
Appeal allowed; cross-appeal dismissed.
