Tenants’ right of first refusal on disposal by landlord — Part I of Landlord and Tenant Act 1987 — Agreement for surrender and regrant of landlord’s own lease — Whether relevant disposal occurring for purposes of Part I — Whether claimant tenants serving correct notice entitling them to exercise their right — Claim allowed in part
The defendant held a lease of a block of flats that were let on subleases to individual tenants. The claimant company was formed by the tenants for the purpose of exercising their right, as qualifying tenants under Part I of the Landlord and Tenant Act 1987, to first refusal on any disposal by the defendant. In 2000, the defendant entered into an agreement with its own landlord to surrender its lease in exchange for the grant of a new one of the same property, minus a boundary strip, with the landlord paying £125,000 in consideration. No offer notice was given to the tenants under section 5 of the Act, in respect of that transaction. In 2004, the defendant served an offer notice in relation to a planned grant of a lease to a third party. The tenants purported to accept the offer under section 6(3), but the defendant disputed the validity of their acceptance notice and granted the lease to the third party.
The tenants served a notice on the defendant’s landlord, seeking information pursuant to sections 11 and 11A regarding a “sale or grant of a lease or other disposal”, and referring to the provisions of section 16. As a result of the information received pursuant to that notice, they served a purchase notice under section 12B. The claimant brought proceedings seeking an order that the defendant transfer to it the estate or interest that had been the subject matter of the 2000 agreement, on the same terms, including the consideration, and free of the subsequent lease granted to the third party. It also claimed a payment or account for rents received by the defendant since the date of the 2000 disposal.
Issues arose as to: (i) whether any relevant disposal had taken place; (ii) if so, its nature; and (iii) whether the claimants had proceeded correctly. The defendant argued a relevant disposal had not taken place because the transaction fell within the exclusion in section 4(1)(b) and (2)(i) for disposals in pursuance of a contract, option or right binding on the landlord. In the alternative, it submitted that any relevant disposal had been in the nature of a surrender, so that the notice served by the qualifying tenants seeking information had been inappropriate and the purchase notice should have been served under section 12C rather than 12B.
Held: The claim was allowed in part.
(1) The 2000 agreement, although a contract, was not a contract binding on the landlord at the time it was made. The exclusion in section 4(1)(b) and (2)(i) was directed at a contract prior to the “disposal”, whereas the 2000 agreement amounted to a disposal. Accordingly, it was a relevant disposal within section 4, in respect of which the defendant had breached its obligations under Part 1, and the qualifying tenants had been entitled to serve a notice seeking information.
(2) The subject matter of the relevant disposal was the 2000 agreement, and not the consequent surrender and regrant of the lease. The 2000 agreement was the original disposal from which all else followed. It had been appropriate to identify the defendant’s landlord as the purchaser and to draw its attention to the provisions of section 16. Moreover, it had been appropriate to serve the subsequent purchase notice under section 12B, rather than section 12C, given that the claimant sought the disposal of the 2000 lease on the terms on which it had been acquired by the defendant following the completion of the 2000 agreement. The notice served had been in the form required by section 12B and made it clear that the claimant wished to be in the position that it would have been in had notice of the 2000 agreement duly been served: Kay-Green v Twinsectra Ltd [1996] 2 EGLR 43; [1996] 38 EG 136 applied.
(3) The claimant was, in principle, entitled to relief that would put it in the position that the defendant was now in under the 2000 lease. It would be unjust to consider the surrender in isolation from the 2000 lease. However, the claimant was not entitled to take free of the lease to the third party because it had failed to mention clearly in its purchase notice that it sought such relief.
Anthony Radevsky and Zia Bhaloo (instructed by Trowers & Hamlins) appeared for the claimant; Jonathan Gaunt QC and Mark Sefton (instructed by Pemberton Greenish) appeared for the defendant.
Sally Dobson, barrister
