Part I of
the Landlord and Tenant Act 1987 has now been in force for a sufficient period
of time that decisions on its provisions are starting to be reported. Although
these are from leasehold valuation tribunals, and therefore of limited
authority, they are a useful indication of the problems which are cropping up.
To that extent they will be of considerable interest to readers. Furthermore,
until such time as cases do make their way into the courts, the decisions of
their brethren will provide welcome guidance for those with the thankless task
of sitting on such tribunals.
framework of the Act
Part I of
the Landlord and Tenant Act 1987 (as amended by section 119 of and Schedule 13
to the Housing Act 1988) gives qualifying tenants (broadly, the definition of
qualifying tenants excludes assured tenants under the Housing Act 1988 and
tenants of public authorities) a statutory right of first refusal should the
landlord wish to make a relevant disposal (a disposal by the landlord of any
legal or equitable interest in the premises or any of its common parts). Part I
applies to premises comprising at least two or more flats, held by qualifying
tenants and which make up at least 50% of the total number of flats in the
premises; where any part of the premises is used for purposes other than
residential Part I does not apply, provided that the internal floor area of the
non-residential part exceeds 50% of the total floor area, excluding common
parts.
Where a
landlord intends to dispose of his interest he is required to serve an offer
notice on the qualifying tenants stating the property and the main terms,
including price, of the disposal; this notice must state that it constitutes an
offer which can be accepted by a majority of the qualifying tenants within a
specified period, which must be at least two months. If the offer is accepted
(the Act makes express provision governing counter-offers) by the requisite
majority, the landlord cannot dispose of his interest, except to a person
nominated by the tenants. If no person is nominated, or the offer is not
accepted, the landlord may make the proposed disposal of the premises to some
other person during the next 12 months, but on terms which are no more
favourable to the transferee than those offered to the tenants.
If a
landlord fails to comply with his obligations to the tenants, and a disposal is
made in contravention of the above provisions, the Act entitles the tenants to
compel the new landlord to provide them with the details of the transaction.
They can then serve a purchase notice on the new landlord requiring him to
transfer the premises to their nominee, either on the terms of the original
disposal or on terms determined by a leasehold valuation tribunal. A
prospective purchaser can avoid this consequence by himself serving notices on
the tenants to elicit whether the vendor has served an offer notice and whether
the tenants wish to avail themselves of their right of first refusal. If a
sufficient proportion either fail to respond or do not wish to exercise their
rights the premises cease to be subject to Part I for the purposes of that
disposal.
decisions
The cases
which have so far been (or will shortly be) reported have all arisen out of a
disposal by the landlord in contravention of the Act. This in itself suggests
that, in the early days at least, either the landlords were ignorant of the new
Act or that they hoped that their tenants were!
In all the cases the problem which the tribunal was being asked to solve
was the price to be paid, a task specifically allotted to leasehold valuation
tribunals by section 13. In this and next week’s column we shall consider the
effect of these rulings.
The first
case to be reported under the Act was Cousins v Metropolitan Guarantee
Ltd [1989] 2 EGLR 223; [1989] 31 EG 56. Here the premises in question had
been sold for £140,750, at public auction, without first being offered to the
tenants. The fact that notices had not been served on the tenants was disclosed
in the particulars. The new landlords promptly informed the tenants of the sale
and the sale price. It appears that the tenants served on the new landlords a
notice under section 11 of the Act requiring the latter to provide details of
the transaction, and that this was not responded to; in any event the tenants
served a purchase notice, under section 12(3)(b), requiring the nature of the
interest and the terms of the disposal to the tenants to be determined by the
tribunal.
The main
difficulty which arose concerned the price to be paid by the tenants. It had
been conceded by the new landlords that there had been, in the sale to them, a
misdescription of the property, which might have the effect of reducing the
price payable by the tenants to a figure lower than the auction price.
Furthermore, the premises had been put up for public auction and withdrawn
because they did not reach their reserve, which had been fixed at the price
paid by the respondents at the earlier auction. Against this background the
tenants, through their nominee, Mr Cousins, were arguing that the tribunal had
the jurisdiction under section 12(3)(b) to revalue the premises and that it
should do so at a figure of £79,000. The landlords argued that the jurisdiction
of the tribunal to determine the terms of the purchase is limited; it cannot
revalue the premises and can fix only the price to be paid by the tenants by
reference to the price actually paid by the new landlord. It can, in some
circumstances, amend this figure, but only in the circumstances envisaged by
the Act; for example, where the land has subsequently been subjected to an
incumbrance, the price can be reduced.
The tribunal
agreed with the landlord’s view: ‘It would be startling, to say the least in
the context of Part I of the Act and the thinking behind it, if a tribunal were
able to embark on such an exercise [ie a revaluation]. If they did, the result
could be remarkable, for a landlord selling his interest after a genuine
arm’s-length negotiation in the open market might find himself out of pocket
because a tribunal took a different view on the value of his property. This
would bring a penal element into the statute which, at least so far as Part I
is concerned, it does not appear to have.’
The tribunal did consider that it had the jurisdiction to adjust that
figure to take account of differences between the two transactions. Thus, in
the present case, it could order a reduction in the price to reflect the
misdescriptions; however, ‘that does not mean that the tribunal could reassess
the original sale figure. That figure, in our view, should be the starting
point . . .’. Accordingly, the tribunal ordered that the price to be paid by
the tenants was the price paid by the new landlords less an agreed sum of
£18,250 on account of the misdescriptions.
This was a
ruling made by the London Rent Assessment Panel on May 8 1990 ([1990] 2 EGLR
227). Here, the subject premises had been sold by the original landlord, in
contravention of Part I. The sale had taken place at public auction and the
premises had been included in a lot comprising a number of properties. The
issue for the tribunal was the price to be paid by the tenants, who had served
a purchase notice under section 12.
The tenants’
valuer submitted a valuation, which he admitted bore no direct relationship to
the £20,000 that had been paid for the whole lot. In his view, it would have
been extremely expensive and time-consuming to carry out a valuation of each of
the properties within the lot, in order to arrive at a figure for the subject
premises. The landlords did not submit a valuation; they merely argued that the
price to be paid must be arrived at by reference to the £20,000. It was for the
tenants to produce evidence of the values of all the properties within the lot
in order for the correct proportion of £20,000 to be calculated. They therefore
asked that the tribunal should refer this question to an independent valuer and
for the costs of such reference to be borne by the tenant.
The tribunal
agreed with the landlords that the valuation put forward by the tenants was, in
effect, a fresh valuation, and that this was, in the light of the Cousins case,
outside the jurisdiction of the tribunal. It therefore agreed that the
valuation must be one which used the £20,000 as a starting point. However, the
tribunal did not consider that this was a question which should be referred to
an independent valuer, since a determination of the price was the very function
entrusted to the tribunal by virtue of section 13 of the 1987 Act. Accordingly,
on the basis of such evidence as had been presented by the tenant, and in the
light of their own knowledge and experience, the tribunal fixed a price of
£1,100 for the freehold.