Landlord and tenant — Leasehold Reform, Housing and Urban Development Act 1993 — Collective enfranchisement — Forfeiture — Effect of forfeiture on section 13 enfranchisement notice — Whether section 13 notice valid — Whether retrospective grant of leave under para 3 of Schedule 3 to Act
The appellant
landlord owns a building divided into two flats which are each subject to long
leases. In 1995 the landlord commenced forfeiture proceedings against each of
the tenants for arrears of sums due. The proceedings were resolved by consent
orders on July 20 1995 upon terms that the tenants would have relief from
forfeiture, upon compliance with the orders that judgment for interest on the
sums in issue was to be paid within 14 days and judgment for costs within 14
days of agreement or taxation, and if those orders were not complied with, then
the application for relief would be dismissed and the landlord would be at
liberty to enter judgment for possession. On August 3 1995 the tenants served a
notice under section 13 of the Leasehold Reform, Housing and Urban Development
Act 1993 seeking collective enfranchisement, and gave October 20 1995 as the
date for the landlord’s response. On September 12 1995 the landlord served a counternotice,
relying on the forfeiture proceedings and stating that the section 13 notice
was not valid as the tenants were not entitled to participate. Relief from
forfeiture took effect on December 21 1995 when the sums due were paid. The
landlord appealed the decision of the county court judge, who upheld the
validity of the section 13 notice, having granted retrospective leave to the
tenants to serve the notice under para 3(2) and (3) of the Third Schedule to
the 1993 Act.
entitled to rely upon para 3(2) of the Third Schedule to the Act (that, without
leave of the court, a qualifying tenant cannot participate in a section 13
notice when any forfeiture proceedings are pending), the relevant question was
whether, on that date (August 3 1995), forfeiture proceedings were still
pending. The forfeiture proceedings were still pending on August 3, and the
fact that relief was ultimately obtained was not relevant. Leave of the court
under para 3(2) cannot be given retrospectively; the tenants were therefore not
entitled to serve the notice on August 3. The section 13 notice did not become
validated when relief from forfeiture was obtained on December 21. It is an
integral part of the scheme of the Act that there should be an initiating
notice and that the validity of the claim made in the initiating notice must be
tested having regard to, among other things, the qualification of the tenant to
serve that notice on that date.
The following
cases are referred to in this report.
Cadogan v McGirk [1996] 4 All ER 643
Dendy v Evans [1910] 1 KB 263
Liverpool
Properties Ltd v Oldbridge Investments Ltd
[1985] 2 EGLR 111; (1985) 276 EG 1352, CA
Meadows
v Clerical Medical & General Life Assurance
Society [1981] Ch 70; [1980] 2 WLR 639; [1980] 1 All ER 454; (1979) 40
P&CR 238; [1980] 2 EGLR 63; 255 EG 883
This was an
appeal by Maryland Estates Ltd against a decision of Judge Marr-Johnson,
sitting in Clerkenwell County Court, who made declarations in an originating
application made by the respondent, Charlotte Martin, and the other tenants, Mr
and Mrs Yates, under section 22 of the Leasehold Reform, Housing and Urban
Development Act 1993.
Nicholas
Dowding QC (instructed by Malthouse Chevalier) appeared for the appellant;
Stanley Gallagher (instructed by Alistair Keeble & Passmore, of Colchester)
represented the respondent.
Giving
judgment, HOBHOUSE LJ said: This is an appeal from Clerkenwell County
Court by the landlord, Maryland Estates Ltd, against the tenant, Charlotte
Martin, in respect of a matter which arises out of Part I of the Leasehold
Reform, Housing and Urban Development Act 1993, which deals with collective
enfranchisements of tenants of flats. The point that arises is within a very
narrow compass and concerns the validity of a notice which was served by the
tenant under section 13 of the Act. Before coming to the legal point, it is
convenient to refer to the facts.
In 1991 the
tenant had a 125-year lease from 1988 of a ground-floor flat in 24 Ribblesdale
Road, London N8. In the same building were Mr and Mrs Yates, who had a lease of
similar length of the first-floor flat. By 1995 there had been some difficulty
between those tenants and the landlord, and the landlord complained that sums
which were due to the landlord had not been paid. The landlord commenced
forfeiture proceedings by the issue of a specially endorsed writ in March 1995.
Unsurprisingly, those forfeiture proceedings were subsequently resolved by
consent between the parties on terms. On July 20 consent orders in both actions
(against Miss Martin and Mr and Mrs Yates) were made so that the judgment for
interest was to be paid within 14 days; judgment for costs was to be paid
within 14 days of agreement or taxation; and, third, relief from forfeiture was
to be granted on compliance with the two former orders. If those orders were
not complied with, then the application for relief would be dismissed and the
landlord would be at liberty to enter judgment for possession.
The county
court judge rightly concluded, and it is not challenged on appeal, that that
did not bring to an end the forfeiture proceedings. They remained pending until
either, on the one hand, the terms were complied with and therefore relief was
granted, or the terms were not complied with and the landlord obtained judgment
for possession. While those proceedings were still pending, a section 13 notice
was served on August 3 1995. It was a notice in the prescribed form which was
served on behalf of the three tenants to which I have referred. It sought to
exercise their rights under section 13 and it gave as the date for the response
to the notice as October 20 1995. That was about a fortnight outside the
minimum period which the landlord was allowed for responding to that notice.
In fact the
landlord did not wait that long. On September 12 the landlord served a
counternotice relying upon the forfeiture proceedings and stating that the
notice was not a valid notice and the tenants were not persons who were
entitled to participate in that notice. There were only three tenants who
participated in the notice, so no question arose (then or subsequently) of the
notice arguably having been served properly on behalf of participating tenants
who were entitled to serve it, although it may have included tenants who were
not entitled to be participating tenants. I merely mention that because that is
one of the situations which is visualised by para 16 of the Third Schedule to
the Act, but no point arises under that in the present case. The counternotice
having been served, therefore, that issue arose as between the tenants and the
landlord, and in due course it would have to be resolved under section 22 of
the Act.
However, on
October 24 the costs of the forfeiture actions were agreed. They were not paid
at that date; they were not in fact paid until December 21 1995. No point has
been taken on the lapse of time between October 24 and December 21. It is
accepted that the payments made on December 21 were effective to comply with
the conditions that had been imposed on relief against forfeiture and that
relief then took effect.
During that
interval, on November 7, an originating application had been made on behalf of
the tenants seeking a declaration under section 22. That was responded to by
the landlord in December. The following February the application was amended to
introduce an additional ground relied upon by the tenant, but the matter did
not come before the county court judge for another year and a half. Judge
Marr-Johnson QC gave his judgment on July 21 1997. It is perhaps a matter for
comment that there should have been that extensive delay.
Three points
were taken on behalf of the tenant before the county court judge in support of
the notice. First of all, it was said that, on a correct view of the facts, the
proceedings for forfeiture had already been concluded by August 3, because the
consent order had been made on July 20. As I mentioned earlier, the judge did
not accept that submission. He held that proceedings were still pending as of
August 3, and that conclusion of the judge has not been challenged.
The next
argument which he considered was the argument that, because the proceedings had
ultimately resulted in relief against forfeiture, that relief against
forfeiture, upon ordinary principles, related back to validate the tenant’s
position as from the outset and therefore the tenant should, so the judge held,
be regarded as having never been liable to forfeiture at all and was to be
treated throughout as having been a legitimate participating tenant. In that
context the judge had recourse to well known authorities applying that
principle which date from Dendy v Evans [1910] 1 KB 263, CA. No
doubt he had regard to what is described as the trancelike existence of a lease
pending the determination of the tenant’s application as a period of limbo,
during which he cannot be certain whether the lease will ever truly come to an
end. Those expressions were used in Meadows v Clerical Medical &
General Life Assurance Society [1981] Ch 70*, and in Liverpool
Properties Ltd v Oldbridge Investments Ltd [1985] 2 EGLR 111.
Therefore he was persuaded by Mr Stanley Gallagher, who appeared before the
county court judge as he appeared before us, that the notice should be treated
as having been validated by the subsequent successful grant of relief against
forfeiture.
*Editor’s
note: Also reported at [1980] 2 EGLR 63
The judge was
also prepared to find in favour of Miss Martin on the third point: if Miss
Martin had applied for consent under para 3(2) and (3) of the Third Schedule to
the Act, then she would have been granted such leave and therefore he should be
prepared to grant leave retrospectively, and that again would have the effect
of validating the notice.
Those were the
arguments which were successfully placed before the county court judge. The
landlord has appealed to this court and submits that that reasoning cannot be
supported.
I agree. We
have called upon Mr Gallagher again to present the persuasive arguments which
he placed before the county court judge, and he has done so. But, in my
judgment, those arguments cannot stand with the scheme of the Act and the
express wording used. The scheme of the Act in Part I is to provide for the
collective enfranchisement of tenants of flats. I have in mind that this is a
statute which is intended to benefit tenants, and one should in no way feel
reluctant to give effect to the rights which the tenant is granted by the Act.
I would quote
from what Millett LJ said in Cadogan v McGirk [1996] 4 All ER
643, at p648a, where he said:
It would, in
my opinion, be wrong to disregard the fact that, while the 1993 Act may to some
extent be regarded as expropriatory of the landlord’s interest, nevertheless it
was passed for the benefit of tenants. It is the duty of the court to construe
the 1993 Act fairly and with a view, if possible, to making it effective to
confer on tenants those advantages which Parliament must have intended them to
enjoy.
The scheme of
drafting is that it provides for tenants to serve a notice which initiates the
exercise of the right to collective enfranchisement. That is made clear by two
provisions. One is section 1(8), which says:
In this
Chapter ‘the relevant date’, in relation to any claim to exercise the right to
collective enfranchisement, means the date on which notice of the claim is
given under section 13.
The other is
section 13(1) itself:
A claim to
exercise the right to collective enfranchisement with respect to any premises
is made by the giving of notice of the claim under this section.
The remainder
of section 13 contains various provisions with regard to the notice and the
right to serve notice. Subsection (13) provides that in Schedule 3 to the Act
further provisions are made in that connection.
Schedule 3
makes various provisions. The relevant one is in para 3 of the Schedule, of
which I will read the first three subparagraphs:
(1) A
qualifying tenant of a flat shall not participate in the giving of a relevant
notice of claim if at the time when it is given he is obliged to give up
possession of his flat in pursuance of an order of a court or will be so
obliged at a date specified in such an order.
(2) Except
with the leave of the court, a qualifying tenant of a flat shall not
participate in the giving of a relevant notice of claim at a time when any
proceedings are pending to enforce a right of re-entry or forfeiture
terminating his lease of the flat.
(3) Leave
shall only be granted under sub-paragraph (2) if the court is satisfied that
the tenant does not wish to participate in the giving of such a notice of claim
solely or mainly for the purpose of avoiding the consequences of the breach of
the terms of his lease in respect of which proceedings are pending.
The fourth
subparagraph deals with the situation where leave is granted and a relevant
notice is therefore given, and then forfeiture proceedings subsequently are
determined.
The objection
which was taken by the landlord to the notice raised those considerations under
para 3. The duty of the county court judge, having the notice and the
counternotice in front of him, was to make a determination under section
22(1)(b), which reads:
Where —
…
(b) the court is satisfied, on an application
made by the nominee purchaser, that the participating tenants were on the
relevant date entitled to exercise the right to collective enfranchisement in relation
to the specified premises,
the court
shall by order make a declaration to that effect.
That was the
declaration which the county court judge made and which is the subject of this
appeal. It will be noticed at once that that refers again to ‘the relevant
date’ and the entitlement ‘on the relevant date’ to exercise the right to
collective enfranchisement.
With that
introduction and an explanation of the issues which arose, in my judgment, this
case only admits of one answer. One has to look at ‘the relevant date’ and ask
whether on that date the relevant tenant was a qualifying tenant? The ground
which is relied upon by the landlord is not that the tenant’s lease had already
been forfeited. It is the ground under para 3(2) of the Schedule, namely that
there was at the time of the giving of the relevant notice pending proceedings
to enforce a right of re-entry. What subsequently happened in those
proceedings, and the successful outcome of them from the point of view of the
tenant, does not alter the fact that at the relevant date (that is August 3)
there were proceedings pending. In my judgment, the county court judge was
clearly persuaded to err when he looked at the outcome of the proceedings and
did not address the relevant question. The relevant question was not whether
the tenancy was subsequently forfeited, the question was whether at the
relevant date there were proceedings pending. There is no escape from that
factual situation and the application of the Act to it.
The second
ground upon which the county court judge relied meets with a similar answer.
One has to ask whether, as at August 3, the tenant was a tenant who had leave
to serve a notice. The tenant did not have leave to serve a notice. Nothing
that subsequently happens alters that state of affairs. So, again, the county
court judge’s approach was mistaken. It did not address the right question of
examining and considering the position as at August 3. It may well be that this
tenant, Miss Martin, and indeed her fellow tenants, Mr and Mrs Yates, if they
had applied before August 3 for leave to serve the notice, would have been
granted it without any difficulty. That clearly was the view of the county
court judge and nothing I have read would lead one to an opposite conclusion.
But the fact is she did not apply for such leave, nor did Mr and Mrs Yates, and
therefore they served a notice when they were not a tenant entitled to serve
such a notice under para 3 of the Schedule.
The last
argument addressed to us was not put before the county court judge, and it was
urged upon us that we should nevertheless treat the notice as a valid notice
given on December 21 1995. The argument, as I understand it, is that the notice
is accepted for this purpose as having been invalid when given in August; it therefore
has a status of being a notice in limbo until it is subsequently validated by
the satisfaction of the requisite conditions, namely the ceasing of the
pendency of the forfeiture proceedings. That argument not only flies in the
face of the language of the statute, but also the whole of the scheme of the
statute, as indeed do the other arguments which have been persuasively advanced
by Mr Gallagher.
The scheme of
the Act is one which provides a clear, or hopefully clear, and sequential
procedure which has to be followed. It recognises that there are conflicting
interests in play; that rights of property are affected; and indeed, there may
be rival tactics which are adopted by one side or the other. But the clear
scheme of the Act is to provide steps which have to be taken by one side or the
other which then lead to a determination of the right of the tenant, if it
exists, and the giving effect to that right and its appropriate enforcement.
It is an
integral part of that scheme that there should be the initiating notice, and
that the validity of the claim made in the initiating notice must be tested
having regard to, among other things, the qualification of the tenant to serve
that notice on that date. The notice and the Act require the landlord, within a
limited time, to respond to that notice and, among other things, the landlord
must say whether he accepts it as a valid notice. If the landlord does not
accept that it is a valid notice, then the matter has to be determined under
section 22, as happened in this case.
All those
provisions exist to give certainty to the procedures which are being followed,
both in the interests of the tenant and the landlord, to provide a coherent and
effective scheme by which enfranchisement can take place and the rights of the
respective parties can be identified and determined. The arguments presented by
the tenant on this appeal strike across that whole scheme and, if admitted,
would then lead to uncertainty, because, for example, the landlord could not
know at any one time whether or not the notice with which he had been served
was a valid notice. He could serve his counternotice; it may be it would be a
justifiable counternotice, but then it would subsequently be held to be an
ineffective counternotice, because of something which had subsequently
happened. That is not the scheme of the Act, and it is not necessary to
elaborate this judgment by referring to the other provisions of the Act under
the schedule which supports that conclusion.
In my
judgment, the approach which Mr Gallagher so attractively persuaded the county
court judge to adopt is one which is not open to either the tenant or the judge
under this Act, and therefore the order of the judge cannot stand. This appeal
should be allowed.
Agreeing, SIR
JOHN BALCOMBE said: I only add that this construction of the Act does not
put any undue difficulties in the way of qualifying tenants. If forfeiture
proceedings are pending, they can apply for the leave of the court before they
give or participate in the giving of a relevant notice. If they do not do this
or are not granted leave, all they need to do is await the successful (from
their point of view) outcome of the forfeiture proceedings.
Appeal
allowed with costs.