Relevant disposal — Qualifying tenant — First refusal — Mandatory requirement that landlord serve notice on qualifying tenants — Permissive notice by prospective purchaser to ascertain tenants’ rights — High Court holding landlords not in breach of statutory duty in failing to serve mandatory notices — Court of Appeal allowing appeal against that decision
The appellant was the statutory tenant of flat 40 Yeoman’s Row, London SW3, which fell within the scope of the Landlord and Tenant Act 1987. The building was part of the Kensington Estate, owned by Henry Smith’s Charity Trustees, which comprised 58 acres of prime residential and commercial development. In October 1994 the trustees applied to the leasehold valuation tribunal for approval of a proposed estate management scheme under section 70(1) of the Leasehold Reform, Housing and Urban Development Act 1993. The object was to enable the trustees to continue exercising powers of management over parts of the estate of which they had ceased to be the freeholders. In July 1995 the trustees agreed to sell the estate to Wellcome Trust Ltd for £1,057,255.
The appellant complained that the trustees had violated her rights under the 1987 Act. Section 5 was directed to ensuring that the aim of the Act, to give qualifying tenants an opportunity to purchase their landlord’s reversion if he proposed to make a relevant disposal, was effectively achieved. By contrast, section 18 enabled a prospective purchaser to protect himself against the risk that he might buy the landlord’s interest only to find that the tenants asserted their right to acquire that interest from him.
A majority of qualifying tenants in the building responded to section 18 notices by stating that they would avail themselves of the right of first refusal conferred by a section 5 notice if it were served. The appellant issued her application in these proceedings. The judge ruled against her, holding that section 5 notices were not required until the decision of the leasehold valuation tribunal was known. The appellant appealed.
Held The appeal was allowed.
1. Section 18 enabled a prospective purchaser to ascertain whether the tenants had rights under the Act and to call upon them to assert those rights; if they did not, they lost them and the prospective purchaser could proceed without risk of losing the fruits of its purchase.
2. In this case there had not been a “relevant disposal” under section 4 of the Act. It was the completed conveyance and not the exchange of contracts which constituted the “relevant disposal” under the 1987 Act: see Wilkins v Horrowitz [1990] 2 EGLR 217.
3. The natural reading of section 5 was that a landlord must serve a notice on the qualifying tenants as soon as he “proposed” to make a relevant disposal (which included settlement of the purchase price and the terms upon which he proposed to sell). Section 18 envisaged that a section 5 notice should have been served by the time a prospective purchaser might serve notice.
4. It was thus clear that in contemplating a “proposed” disposal, there was a state of mind somewhere between mere consideration of a possible course of action, at one extreme, and a fixed and irrevocable determination to pursue that course of action at the other.
5. Accordingly, the trustees should have served section 5 notices on the appellant and the other qualifying tenants of the building at, or within a few days of, the date of their contract with Wellcome, possibly even sooner.
6. They were in breach of their statutory duty and such notices should now be served.
The appellant appeared in person; David Neuberger QC and Erica Foggin (instructed by Denton Hall) appeared for the trustees.
