A landlord who was ordered to transfer the freehold of a London property to his tenants has triumphed in an appeal against the decision.
High Court judge Henderson J overturned the Central London County Court decision in which a judge found that the tenants’ rights of first refusal had been triggered in transactions between Sardar Khan and his investment vehicle, SGR Properties (UK) Ltd (“SGR”).
In August 2011 Khan, the landlord, contracted to transfer the freehold of 161-171 Hoxton Street and 2 Homefield Street, N1, a building comprising three shops and eight flats, to SGR. Khan became a majority shareholder and SGR the new landlord.
The contract stated that SGR “would acquire the freehold at a nominal sum of £225,000 but the sale price will not include the three shops” and that the rental income from the shops would be given to Khan by SGR. A year later, on discovering that the property had been transferred to SGR, five residential tenants served a request for information and then served a purchase notice on 15 December 2013.
SGR did not comply, and the tenants started proceedings against it which revealed that SGR had transferred the property back to Khan in April 2013 for nil consideration. The tenants had to restart the statutory process, this time against Khan. For the first time, Khan then produced a deed of trust (pre-dating the first transfer from Khan to SGR) by which SGR declared it held the beneficial interest in the property for Khan.
After a trial at the county court, Khan was ordered to transfer the freehold to Artist Court Collective, a company formed by the tenants, for nil consideration, under Part I of the Landlord and Tenant Act 1987, which confers on qualifying tenants of residential flats in a building rights of first refusal when a relevant disposal is intended to be made by the landlord.
However, allowing Khan’s appeal, Henderson J said that Artist Court’s claim depended on establishing that the second transfer was a “relevant disposal” of the property. But he ruled that the trust deed never effected a separate disposal by SGR of the beneficial interest in the property, stating: “Accordingly, Mr Khan was not a purchaser of the property from SGR within the meaning of the Act, the purchase notice served upon him was invalid, and he was not in breach of his obligations under the Act.”
He added: “It would be very strange if the transfer of the legal estate in property held on trust to a beneficiary who is absolutely entitled were to trigger a right in the qualifying tenants to acquire the property for nil consideration.”
Artist Court Collective Ltd v Khan High Court (Henderson J) 7 October 2016
Stephen Jourdan QC and Mr William Hansen (instructed by Heritage Solicitors) for the appellant
Mr Lawrence Caun (instructed by Ronald Fletcher Baker LLP) for the respondent
