Leasehold Reform Act 1967, section 1 and Housing Act 1974, Schedule 8 — Reduction of rateable value because of improvements in order to bring premises within the enfranchisement limit — Tenant’s notice served in prescribed form requiring landlord to agree to reduction — Failure of parties to reach agreement in regard to the matters specified in para 2(2) of Schedule 8 — Subsequent failure by tenant to apply to county court within time laid down by Schedule 8 to determine these matters — Whether a second application to the court, made within the time-limit, was admissible — Held by Court of Appeal, allowing appeal from decision of county court judge, that the time-table was mandatory; that the first notice was invalid because out of time; and that the applicant was not entitled to serve a second notice — Decision in Pollock v Brook-Shepherd considered and followed in principle
present case the applicant, respondent to the appeal, acquired the residue of the
long term in question in 1981 — He now claimed to be entitled to acquire the
freehold under the Leasehold Reform Act 1967 — At first sight the respondent’s
claim appeared to be ruled out, as the rateable value of the house was above
the relevant limit of £1,500; it was in fact £1,680 — The respondent, however,
invoked the provisions introduced by Schedule 8 to the Housing Act 1980 whereby
a tenant could apply for his rateable value to be adjusted downwards if he, or
a previous tenant, had made, or contributed to the cost of, a qualifying
improvement — The improvement had to consist of works amounting to structural
alteration, extension or addition — By using the machinery of Schedule 8 a
tenant could bring his rateable value down to the limit required for
enfranchisement — In the present case the tenant served on his landlords, in
the form prescribed by Schedule 8, a notice requiring them to agree to the
reduction in the rateable value to £1,402 — No agreement was reached within the
time allowed — The tenant was then entitled to apply to the county court for a
determination but failed to do so within the time-limit laid down for that
application by para 2(3) of Schedule 8; he was four months out of time — After
an unsuccessful attempt to obtain leave to apply out of time, the respondent
adopted the expedient of starting the ball rolling again with a fresh notice
requiring the landlords’ agreement to a reduction and on this occasion followed
it up with a timeous application to the county court — The county court judge
decided that the respondent was entitled to serve a second notice and that the
conditions in regard to improvements were satisfied — The landlords appealed
landlords relied on the decision in Pollock v Brook-Shepherd, which held,
although in relation to para 3(1), not para 2(3), of Schedule 8, that the
time-limit there specified was mandatory — The court in that case also held
that the logic of the time-limit being mandatory was that there could be no
second application — The present Court of Appeal considered Pollock v Brook-Shepherd,
a case ‘much criticised by legal authors’, at length — They concluded that,
although it was concerned with a different time-limit in Schedule 8 from the
time-limit in the present case, the principle was indistinguishable — In any
case they agreed with the result — The consequence was that the second notice
served by the tenant in the present case was ineffective; the rateable value of
the subject premises remained above the enfranchisement level; and the tenant
had no right to acquire the freehold
been certain issues relating to the works claimed to be improvements for the
purpose of Schedule 8 — In view of the court’s decision it had become
unnecessary to deal with these issues but the court did in fact consider and
express a view on these — The appeal was allowed
The following case is referred to in this
report.
Pollock v Brook-Shepherd (1982) 45
P&CR 357; 266 EG 214, [1983] 1 EGLR 84, CA
This was an appeal by the landlords,
Keepers and Governors of the Possessions, Revenues and Goods of the Free
Grammar School of John Lyon, from the decision of Judge Quentin Edwards QC, at
Bloomsbury County Court, whereby he held the respondent, William George Mayhew,
entitled to serve a notice concerning the reduction of the rateable value, in
consequence of improvements, of premises at 31 St John’s Wood Road, London NW8.
The notice was in pursuance of the respondent’s object of acquiring the
freehold of the premises under the provisions of the Leasehold Reform Act 1967.
Anthony Radevsky (instructed by Lee &
Pembertons) appeared on behalf of the appellants; Oliver Ticciati (instructed
by Mayhew & Co) represented the respondent.
Giving judgment, PARKER LJ said:
By a lease dated November 16 1923 the appellants let premises known as 31 St
John’s Wood Road, Marylebone, to a company called Maida Vale Estates Ltd
(‘Maida Vale’) for a term of 70 years from June 24 1922 at an annual rent of
£40. The plan attached to that lease shows the house as having an attached garage.
Thereafter, during the currency of the
term, two bathrooms were created within the house, the first at some time
between November 1923 and January 1924 and the second in about 1932. The
precise date when work on the first bathroom began and ended is not known, but
for present purposes I shall assume that no material work had been done prior
to the grant of the lease.
In 1981 the residue of the term granted
by the lease was assigned to the respondent. He asserts that he is entitled to
purchase the freehold of the premises from the appellants pursuant to the
provisions of the Leasehold Reform Act 1967 as subsequently amended (‘the 1967
Act’) and Schedule 8 to the Housing Act 1974 also as subsequently amended (‘the
8th Schedule’).
The basic provision of the 1967 Act is
section 1(1), which provides:
This Part of this Act shall have effect
to confer on a tenant of a leasehold house, occupying the house as his
residence, a right to acquire on fair terms the freehold or an extended lease
of the house and premises where —
(a) his tenancy is a long tenancy at a low rent
and subject to subsections (5) and (6) below the rateable value of the house
and premises on the appropriate day is not (or was not) more than £200 or, if
it is in Greater London, than £400; and
(b) at the relevant time (that is to say, at the
time when he gives notice in accordance with this Act of his desire to have the
freehold or to have an extended lease, as the case may be) he has been tenant
of the house under a long tenancy at a low rent, and occupying it as his
residence, for the last three years or for periods amounting to three years in
the last ten years; and to confer the like right in the other cases for which
provision is made in this Part of this Act.
In the respondent’s case, however,
subsection (1)(a) must be read, by virtue of subsection (6), as if for
the words ‘the appropriate day’ there were substituted the words ‘1st April
1973’ and for the figures of £200 and £400 there were substituted the figures
£750 and £1,500. As the premises are in Greater London, the relevant figure is
£1,500.
But for other provisions, to which I
shall shortly come, the respondent could not establish any right because the
rateable value of the house and premises on that day was, it is common ground,
£1,680. Section 1(4A), however, provides:
Schedule 8 to the Housing Act 1974 shall
have effect to enable a tenant to have the rateable value of the house and
premises reduced for purposes of this section in consequence of tenant’s
improvements.
I turn, therefore, to the provisions of
the 8th Schedule. Paras 1 and 2 provide:
1.–(1)
Where the tenant, or any previous tenant, has made or contributed to the
cost of an improvement on the premises comprised in the tenancy and the
improvement is one to which this Schedule applies, then, if the tenant serves
on the landlord a notice in the prescribed form requiring him to agree to a
reduction under this Schedule, their rateable value as ascertained for the
purposes of section 1 of the Leasehold Reform Act 1967 shall be reduced by such
amount, if any, as may be agreed or determined in accordance with the following
provisions of this Schedule.
(2).–
This Schedule applies to any improvement made by the execution of works
amounting to structural alteration, extension or addition.
2 (1)
The amount of any such reduction may at any time be agreed in writing
between the landlord and the tenant.
(2)
Where, at the expiration of a period of six weeks from the service of a
notice under paragraph 1 of this Schedule any of the following matters has not
been agreed in writing between the landlord and the tenant, that is to say, —
(a) whether the improvement specified in the
notice is an improvement to which this Schedule applies;
(b) what works were involved in it;
(c) whether the tenant or a previous tenant
under the tenancy has made it or contributed to its cost; and
(d) what proportion his contribution, if any,
bears to the whole cost;
the county court may on the application
of the tenant determine that matter.
(3)
An application under the last foregoing sub-paragraph must be made
within six weeks from the expiration of the period mentioned therein or such
longer time as the court may allow.
The prescribed form in Schedule 8 reads:
Notice by Tenant to Landlord of Tenant’s
Improvements affecting Rateable Value.
Date . . . . . . . . .
To . . . . . . . . . landlord of . . . .
. . . . .
1. [I] [A previous tenant of the above
mentioned premises under the tenancy] [made] [contributed to the cost of] the
improvement[s] to the above mentioned premises particulars of which are set out
in the First Schedule hereto (Note 1).
2. I hereby require you to agree to a
reduction in the rateable value of the premises for the purposes of the
Leasehold Reform Act 1967.
3. I propose that the rateable value
shall be reduced to £ (Note 2).
4. If you do not agree to this reduction
(Note 3), do you agree that —
(a) the
improvement[s] [is] [are] [an] improvement[s] made by the execution of works
amounting to the structural alteration or extension of the premises or a
structural addition thereto;
(b) the
works set out in the Second Schedule hereto were involved in the making of the
improvement[s];
(c) [I]
[A previous tenant under the tenancy] [made the improvement[s]] [contributed to
the cost of the improvement[s]];
(d) the
proportion of the cost borne by me or a previous tenant is . . .
Signature of tenant . . . . . . . . .
On December 22 1983 the respondent served
notice in the prescribed form proposing that for the purpose of the 1967 Act
the rateable value should be reduced to £1,402 in respect of improvements
consisting in the garage and the two bathrooms. There was no agreement within
six weeks thereafter. The respondent was therefore entitled to make an
application to the county court. He made no application within the time limited
by para 2(3) of the 8th Schedule, but on July 24 1984, four months out of time,
he issued an originating application and sought leave to apply out of time.
That application was refused on December 14 1984. There was no appeal. On
January 4 1989, however, the respondent served a further notice under Schedule
8 in which the improvements were slightly differently specified and in which
the reduction proposed was from £1,680 to £1,275. Again there was no agreement
within six weeks. On this occasion the respondent made an application to the
county court. This application was within the time limited. The application was
heard in March 1990 before His Honour Judge Quentin Edwards QC.
The principal issues which then fell to
be determined were as follows:
(a)
whether the respondent had any right to give the notice of January 4
1989 having regard to the fate of the earlier notice.
(b)
whether the bathrooms were improvements within the Schedule.
(c)
whether the garage which was complete or substantially complete at the
date of the lease and was included in the demise fell within the Schedule.
In a reserved judgment delivered on July
3, the judge held that the respondent was entitled to serve the notice of
January 4 1989, that the garage and bathrooms were improvements within the
Schedule, that the works involved in the improvements were such works as were necessary
to effect the same and that a previous tenant or tenants under the respondent’s
tenancy had made the improvements. He made declarations to that effect.
From that judgment the landlords now
appeal to this court. I shall consider the three principal issues in the order
in which I have set them out above.
Was the respondent entitled to serve the
notice of January 4 1989?
This is a narrow but important point. The
appellants’ contention is simple. It is that para 2(3) provides that an
application under that paragraph must be made within the time limited or such
longer time as the court may allow. The provision is clearly mandatory. The
respondent not having applied within time and his application for an extension
having been refused he could not thereafter make a fresh application. The
Schedule permits of one try only. Any other construction makes nonsense of the
mandatory time-limit. If, notwithstanding that he is out of time and must
obtain an extension in order to proceed, the tenant can serve a second notice,
the time-limit becomes meaningless.
In support of this contention the
appellants rely on the decision of this court in Pollock v Brook-Shepherd
(1982) 45 P&CR 357, which they submit is binding upon us.
That case has been much criticised by
legal authors. For the respondent it is submitted that it is distinguishable
and that it does not apply to the factual situation here under consideration.
It is necessary to examine it in some detail.
The facts in that case were that the
tenant had served a notice under section 8 of the 1967 Act of his desire to
purchase the freehold of a house and premises which he held under a qualifying
lease. It was not disputed that he was entitled to serve such a notice. The
result was that, by virtue of section 5(1) of the 1967 Act, a statutory
contract for sale and purchase of the freehold was created between the tenant
and the landlords. The rateable value of the house and premises, as at April
1973, was £1,034 but, by virtue of the provisions of section 9 of the 1967 Act,
the purchase price payable would have been more favourable to the tenant if the
rateable value had been £1,000 or less. Section 9(1B) provided, however:
For the purpose of determining whether
the rateable value of the house and premises is above £1,000 . . . the rateable
value shall be adjusted to take into account any tenant’s improvements in
accordance with Schedule 8 to the Housing Act 1974.
It was common ground between the landlord
and tenant that a qualifying improvement had been made which would result in
some downward adjustment. It was in dispute only whether such adjustment would
bring the actual rateable value to £1,000 or less. The tenant initiated the
Schedule 8 procedure. He failed, however, to comply with the time-limits
thereby imposed — not, as I understand it, the limit for applying to the county
court but the limit imposed by para 3(1) of the Schedule. That subparagraph
provides that where, after service of a notice under para 1, certain matters
are agreed in writing or determined by the county court:
. . . then if, at the expiration of a
period of two weeks from the agreement or determination, it has not been agreed
in writing between the landlord and the tenant whether any or what reduction is
to be made under this Schedule, and
application to the valuation officer for a certificate under the next following
sub-paragraph, that question shall be determined in accordance with the
certificate unless the landlord and the tenant otherwise agree in writing.
Although the tenant had not applied
within the time so limited, the valuation officer in fact gave a certificate
for a reduction in the rateable value by £50. If this were valid, the value for
the purpose of determining the basis of the purchase price would thus be that
more favourable to this tenant. The difference between the two price bases was
some £30,000.
The landlord contended that, as the
tenant had failed to comply with the time-limit, the certificate was bad and
the higher valuation basis must therefore apply. The question went to the
county court, where it was held that the timetable was mandatory but it was
declared that the tenant was entitled to serve a further notice under Schedule
8. The landlord appealed. The tenant cross-appealed contending that the
timetable was not mandatory.
By the time the appeal was heard the
tenant, relying on the county court decision, had again initiated the Schedule
8 procedure and in fact carried it through within the timetable. It had
resulted in a further certificate in the same amount as the first. There were
thus before this court for consideration, first, whether the first certificate
was good albeit the timetable had not been complied with and, second, whether
the second certificate was good albeit there had been a previous non-timeous
certificate.
Lawton LJ, who gave the leading judgment,
having set out the terms of para 2(3) (with which the present appeal is
concerned) said at p 361:
In my judgment, it is clear from paragraph
2 of Schedule 8 that any dispute as to whether an improvement had been made
must be brought within that time, that the time limit is mandatory and cannot
be exceeded without the consent of the county court judge.
He stressed, when setting out para 3(1),
that the right to apply for a certificate was conditional upon the application
being made within the time-limit and at p 363 said:
In my judgment, Judge Peter Macnair was
right in adjudging that the time limits in Schedule 8 were mandatory and not
merely directory. That being so, in my judgment it is difficult to see how the
tenant can have another go at getting a certificate when he has failed on his
first attempt to do that which the Act says he should have done within a
specified time, because a second attempt would create more prejudice to the
landlord. If he can do it twice he can do it three or four times. There might
come a time when it will be possible, by injunction or otherwise, to stop him
making a nuisance of himself to the landlord. But Parliament seems to have
envisaged that, if he does fail to go on, then he cannot go on again until the
expiration of another three years. Reading the 1967 Act (as amended) as a
whole, in my judgment time was mandatory and being mandatory it was not right
that the tenant should have been given another chance to put right that which
he had not done properly in the first place.
The sentence which I have emphasised may
be, to some extent at least, inaccurate. The three-year restriction comes from
section 9(3) and has nothing to do with a renewed application under the
Schedule. It prevents a further application under section 8 where the tenant,
having taken the procedure to the point where he knows what price is or is
likely to be paid, desires to withdraw. He may do so but, if he does, the
original section 8 notice ceases to have effect and he can serve no further
valid notice under the section for three years. In my judgment, however, Lawton
LJ was not seeking to equate the section 9 three-year limitation on a second
notice under section 8 with a second notice under Schedule 8 but was merely
pointing to a general Parliamentary intent that a tenant should get on or take
the consequences. In any event, the error, if error there be, cannot affect the
rest of the paragraph.
Griffiths LJ delivered a short but
compelling judgment at p 363, which I cite in full:
I agree, for the reasons given by Lawton
LJ and the county court judge, that the timetable set out in Schedule 8 to the
Housing Act 1974 must be read as being mandatory. Once one has come to the
conclusion that the timetable is a mandatory timetable, I think it must follow
as a matter of necessary implication that there is no right in the tenant to
make a second application under Schedule 8, because if a second application was
permitted under Schedule 8 it would completely destroy the purpose of inserting
a mandatory timetable. Accordingly, I must respectfully dissent from the county
court judge’s view that such a second application was permissible. I agree with
Lawton LJ it is not and that the landlords’ appeals must be allowed.
In the present case the learned judge
said:
. . . once a notice of leaseholder’s
claim is served it behoved the tenant to act with reasonable expedition and the
periods in the Schedule provided a measure of what is reasonable. The passage
at the end of Lawton LJ’s judgment, when he refers to the three-year moratorium
under section 9(3) of the Act, shows, in my judgment, that that was the real ratio
of the decision. It follows that the case is not to be regarded as an
authority for the proposition that a tenant who had not served a notice
of leaseholder’s claim may not make more than one application under Schedule 8
to the Act of 1974.
In this case Mr Mayhew has not served, at
any time, a notice of leaseholder’s claim. He wished, before doing so, to have
established, if he can, the true position as to rateable value under Schedule 8
to the Act of 1974. That fact, as I have said, is sufficient to distinguish
this case from Pollock v Brook-Shepherd and I hold that Mr Mayhew
is entitled to make a second application.
I respectfully disagree. It is true that
there was in this case no notice under section 8, but it is a distinction
without a difference. In my judgment, the ratio of both Lawton LJ and Griffiths
LJ was clearly (a) that the time-limits were mandatory and (b) that there could
be no second application without destroying the entire structure of the
Schedule.
I regard the decision as binding and
determinative of the issue under consideration. If I be wrong, I would also
conclude that there can be no second application for the reasons so cogently
and succinctly expressed by Griffiths LJ. That para 2(3) is mandatory admits,
in my view, of no contrary argument. If it is mandatory, there is no room for a
second notice. It is impossible to suppose that, having made it mandatory to
apply within the time limited or any further time permitted by the court,
Parliament can have intended that the tenant could start afresh. If he could,
there would be no time-limit at all. A tenant who was out of time would not
need to apply for an extension. He could simply initiate the procedure over
again. If he did apply and was refused he could do the same.
Mr Ticciati advanced a series of
ingenious arguments, some particular and some general, for the propositions
that Pollock v Brook-Shepherd was not binding and that a second
attempt is permissible. I do not rehearse them. They cannot, in my view,
displace the plain wording.
I would add this, that a single application
and no more, in my view, accords with the general scheme of the Act and the
Schedule. I hold, therefore, that the respondent, having failed to apply to the
county court within the time-limit, was not entitled to serve a second notice;
that, although he has now done so and obtained a certificate which, if valid,
would have entitled him to serve a section 8 notice, the factual rateable value
remains the value for the purposes of the Act, and that he has accordingly no
right to acquire the freehold under the 1967 Act.
I add that there was considerable time
spent in argument on the question of the time at which a first notice must be
served in order to be effective. It is unnecessary to reach a firm conclusion
on this matter, but it appears to me that, since the right to serve a notice
under section 8 of the 1967 Act is given only to a person who has a right to
purchase under section 1, a tenant who needs a notional reduction of actual
rateable value in order to bring himself within section 1 can serve a notice
under section 8 only when he has obtained the certificate by virtue of the
Schedule 8 procedure.
The remaining issues do not fall to be
determined but, lest I be wrong on the first issue, I shall consider them
briefly.
Were the bathroom and garage improvements
within the Schedule?
It is common ground that, if made or
contributed to by a former tenant under the tenancy, the garage was a
qualifying improvement. As to the bathrooms it is common ground that they
cannot be regarded as additions or extensions and therefore that they will
qualify only if they are structural alterations. It is submitted that they are
because alterations to the structure were required for the plumbing. The matter
is, in my view, a matter of fact and degree. I see no reason to interfere with
the judge’s conclusion.
Was the garage a qualifying improvement?
That it was an improvement within the
Schedule is, as I have said, not in dispute. The question is simply whether a
previous tenant under the tenancy made it or contributed to its cost.
It is, in my view, clear on the evidence
that the garage was included in the lease of November 16. That was the date
when Maida Vale became a tenant under the lease and therefore a previous tenant
under the tenancy. It is also clear that as at that date what was left to be
done consisted in a minimal amount of outside drainage works and such things as
light fittings. I do not regard them as significant. The garage, which was
constructed by or at the cost of Maida Vale can, in my view, therefore qualify
(if at all) only if Maida Vale can be
the date of the lease. It is said that, if this is so, the provisions of the
Schedule are satisfied because section 37(f) of the Act of 1967 provides
that ‘tenancy’ means a tenancy at law or in equity and this definition must
apply also to the Schedule. I accept that the definition does so apply. Maida
Vale can, however, have been an equitable tenant under the tenancy only if it
can be shown that in the period preceding the grant it had an enforceable
agreement for a lease for a term and at the rent provided for by the lease. It
was not, in my view, so shown. Accordingly, the garage does not, in my view,
qualify.
I should perhaps add that I am not
convinced that, even if it had been so shown, it could be said that the garage
was made by a previous tenant under the tenancy. The tenancy under which the
respondent holds is a legal tenancy granted on November 16 1923. I find it
difficult to accept that if Maida Vale were tenants under an equitable tenancy
prior to that date they should be regarded as tenants under the tenancy.
Suppose, for example, that an individual has a long lease of a house which he
has occupied as a residence throughout. Suppose also that he has, prior to the
grant of the lease, an enforceable agreement for a lease on the same terms
conditional upon building a garage. He builds the garage and is granted a lease
of the house and garage. Has he made an improvement of the premises comprised
in the tenancy? I would regard it as
doubtful.
For the reasons set out above I would
allow this appeal.
STOCKER and NOLAN LJJ agreed and did not
add anything.
The appeal was allowed with costs.
