Leasehold enfranchisement — Leasehold Reform Act 1967 as amended — Appeals by lessors by case stated from decision of Lands Tribunal on three references — Question in each case was as to whether the price payable for the freehold was to be calculated subject to an extended lease granted under section 14 of the 1967 Act — Lands Tribunal (Mr W H Rees FRICS) decided, in accordance with the lessees’ submissions, that the price should be so calculated — Rateable values on April 1 1973 were over £1,000 and extended leases had been granted in each case expiring in the year 2047 — The main issue was as to the meaning of the words ‘subject to the tenancy’ in section 9(1A)(a) of the 1967 Act as amended by section 118(4) of the Housing Act 1974 — It was argued on behalf of the lessors that if the words referred to the existing tenancies, that is the new terms created by the extended leases which were substituted for the original tenancies, then an unacceptable anomaly arose — It meant that a lessee who chose to take an extended lease before making his request for the freehold would pay a substantially lower price than the lessee who had not done so — In the present cases the prices would be £45,000, £56,000 and £49,500, as compared with £98,000, £137,500 and £111,000 — Court of Appeal, however, upholding the decision of the Lands Tribunal, held that the words ‘the tenancy’ in section 9(1A)(a) could have no other meaning than the existing tenancy held by the tenant — The original tenancy had been wholly extinguished and the tenancy as extended, which was a new tenancy, in substitution for the old, was the only tenancy to which the words could refer — Appeals dismissed
These were
appeals by case stated by S J Mosley and others, trustees of the Phillimore
Kensington Estate, against the decision of the Lands Tribunal (Mr W H Rees
FRICS) in favour of the submissions of three lessees, John Hickman, David Lloyd
Hagan and Clare Mary Francis, lessees of, respectively, 27, 46 and 13 Argyll Road,
London W8, as to the basis on which the valuation of the freeholds for
enfranchisement should be made. The decision of the Lands Tribunal is reported
at [1985] 1 EGLR 205; (1985) 274 EG 1261 sub nom Hickman v Phillimore
Kensington Estate Trustees.
Derek Wood QC
and David Neuberger (instructed by Frere Cholmeley) appeared on behalf of the
appellants; Nigel Hague QC and Miss Judith Jackson (instructed by Michael
Freeman & Co) represented the respondents.
Giving
judgment, FOX LJ said: This is an appeal from a decision of the Lands Tribunal,
Mr W H Rees. The case concerns three references (which were heard together) to
determine the amounts to be paid by the tenants for the freehold in three
houses in Kensington, London W8, upon enfranchisement under the Leasehold
Reform Act 1967, as amended by the Housing Acts of 1974 and 1980. In each case
prior to the notice of enfranchisement, the tenant for the time being had been
granted an extended lease under section 14 of the 1967 Act.
It is the
contention of the tenants that the valuation should be made subject to the
extended lease; the landlords contend that the extension should be ignored.
In each case
the property is a dwelling-house in Argyll Road. Each had a rateable value on
April 1 1973 of £1,492. The three houses in question are nos 27, 46 and 13
Argyll Road. The tenant at no 27 served notice of his desire to have an
extended lease under section 14 of the 1967 Act on December 18 1980. The
extended lease was granted on September 29 1981. The tenant of no 46 served
notice of a desire to have an extended lease on October 22 1981; the extended
lease was granted on January 17 1983. The tenant of no 13 served notice of a
desire to have an extended lease on July 10 1980; the extended lease was
granted on March 13 1982.
All three
extended leases expire on March 25 2047, which is 50 years after the term date
of the lease running at the date of the service of the notice for an extended
lease. The original leases were granted in 1936 (no 27) and 1947 (nos 46 and
13).
It is accepted
that the new leases, which were granted in pursuance of the notices, comply
with the provisions of section 15 of the 1967 Act. Each of the tenants has
served a notice under section 8 of the 1967 Act of his or her desire to have
the freehold. In each case the notices were accepted. These notices were on
February 9 1982, October 3 1983 and July 23 1982 — in relation, respectively,
to nos 27, 46 and 13 Argyll Road.
The respective
amounts payable by the tenants would be as follows — if the contentions of the
tenants are correct — no 27, £45,000; no 46, £56,000, and no 13, £49,500. If
the contentions of the landlords are correct, no 27, £98,000; no 46, £137,500,
and no 13, £111,000.
Section 1 (1)
of the 1967 Act, as amended, 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;
(b) (I can omit this provision)
and to confer
the like right in the other cases for which provision is made in this Part of
this Act.
Subsections
(5) and (6) were added by the Housing Act 1974 and extend the provisions of the
Act to higher rated properties. It is not in dispute that the houses in the
present case fall within the relevant extended provisions.
At first sight
the form of section 1 suggests that the tenant can have either the freehold or
an extended lease. It is common ground, however (and indeed it appears from
later provisions of the Act, for example, section 16), that the tenant is
entitled both to have an extended lease and to acquire the freehold. The rights
are cumulative.
Section 8(1)
of the 1967 Act provides:
Where a
tenant of a house has under this Part of this Act a right to acquire the
freehold, and gives to the landlord written notice of his desire to have the
freehold, then except as provided by this Part of this Act the landlord shall
be bound to make to the tenant, and the tenant to accept (at the price and on
the conditions so provided), a grant of the house and premises for an estate in
fee simple absolute, subject to the tenancy and to tenant’s incumbrances, but
otherwise free of incumbrances.
Section 14(1)
of the 1967 Act provides:
Where a
tenant of a house has under this Part of this Act a right to an extended lease,
and gives to the landlord written notice of his desire to have it, then except
as provided by this Part of this Act the landlord shall be bound to grant to
the tenant, and the tenant to accept, in substitution for the existing tenancy
a new tenancy of the house and premises for a term expiring fifty years after
the term date of the existing tenancy.
Section 15
deals with the terms of the tenancy to be granted on extension. Subsection (2)
(a) and (b) provide:
The new
tenancy shall provide that as from the original term date the rent payable for
the house and premises shall be a rent ascertained or to be ascertained as
follows:
(a) the rent shall be a ground rent in the sense
that it shall represent the letting value of the site (without including
anything for the value of buildings on the site) for the uses to which the
house and premises have been put since the commencement of the existing
tenancy, other than uses which by the terms of the new tenancy are not
permitted or are permitted only with the landlord’s consent;
(b) the letting value for this purpose shall be
in the first instance the letting value at the date from which the rent based
on it is to commence, but as from the expiration of twenty-five years from the
original term date the letting value at the expiration of those twenty-five
years shall be substituted, if the landlord so requires, and a revised rent
become payable accordingly.
No premium is
payable on the extension of the lease.
The purchase
price to be paid on enfranchisement is dealt with by section 9 of the 1967 Act;
subsection (1) (a) of that section is as follows:
Subject to
subsection (2) below, the price payable for a house and premises on a
conveyance under section 8 above shall be the amount which at the relevant time
the house and premises, if sold in the open market by a willing seller . . .
might be expected to realise on the following assumptions:
(a) on the assumption that the vendor was selling
for an estate in fee simple, subject to the tenancy but on the assumption that
this Part of this Act conferred no right to acquire the freehold; and if the
tenancy has not been extended under this Part of this Act, on the assumption
that (subject to the landlord’s rights under section 17 below) it was to be so
extended.
Section 9(1)
(a) was amended by the Housing Act 1969, which inserted, after the words
‘willing seller’, words which excluded the tenant and members of his family
residing with him as possible purchasers of the freehold.
The 1967 Act,
as amended by the Housing Act 1969, applied to all houses of the specified
rateable value in Greater London.
Section 9(1)
provided a single formula to determine the price, and in particular it provided
that where the tenant had not obtained an extended tenancy under section 14,
the price was to be calculated on the assumption that such an extension was to
be made.
Section 118 of
the Housing Act 1974 altered that position; houses of higher rateable value
were brought within the provisions, and a different method of assessment of the
price payable for the freehold of such houses was also provided. That provision
is dealt with in the new subsection (1A) as follows:
Notwithstanding,
the foregoing subsection, the price payable for a house and premises, the
rateable value of which is above £1,000 in Greater London and £500 elsewhere,
on a conveyance under section 8 above, shall be the amount which at the
relevant time the house and premises, if sold in the open market by a willing
seller, might be expected to realise on the following assumptions:
(a) on the assumption that the vendor was selling
for an estate in fee simple, subject to the tenancy, but on the assumption that
this Part of this Act conferred no right to acquire the freehold;
(b) on the assumption that at the end of the
tenancy the tenant has the right to remain in possession of the house and
premises under the provisions of Part I of the Landlord and Tenant Act 1954;
(c) on the assumption that the tenant has no
liability to carry out any repairs, maintenance or redecorations under the
terms of the tenancy or Part I of the Landlord and Tenant Act 1954;
(d) on the assumption that the price be
diminished by the extent to which the value of the house and premises has been
increased by any improvement carried out by the tenant or his predecessors in
title at their own expense;
There then
follow further subparagraphs which it is not necessary to set out.
It is common
ground that if the tenants of the three houses in Argyll Road with which we are
concerned had not obtained the extended leases, the purchase price which they
would have had to pay for the freehold would have been calculated on the
assumption that the freehold was subject to the original lease. However, it is
the contention of the tenants (accepted by the Lands Tribunal) that in cases
within section 9(1A), if the tenant has obtained an extended lease under
section 14, the price payable for the freehold must be assessed subject to the
extended lease.
The crucial
provision is to be found in section 9(1A) (a); it is the words:
on the
assumption that the vendor was selling for an estate in fee simple, subject to
the tenancy, but on the assumption that this Part of this Act conferred no
right to acquire the freehold.
The question
to be decided is the meaning of the words ‘subject to the tenancy’. Do they
mean the original tenancy — as the landlords submit? Or do they mean the existing tenancy, as the
tenants submit?
In approaching
those questions, there are a number of circumstances to which I should refer.
First, by section 1 of the 1967 Act, the right to enfranchisement is conferred
upon the tenant of a leasehold house, and his tenancy must be a long tenancy at
a low rent. His tenancy is the basis of his right to enfranchisement and must,
when he gives notice of his desire to enfranchise, be a subsisting tenancy.
Second, the
1967 Act provides expressly, in section 14(1), that an extended lease is ‘in
substitution for the existing tenancy’. As a matter of property law, if a
landlord and tenant agree that the tenant’s existing lease should be extended,
the extension can be effected either by the grant of a lease taking effect in
reversion expectant upon the determination of the existing lease or by the
surrender of the existing lease and the grant of an entirely new lease. One
cannot convert an existing lease into a different estate by adding more years
to that lease (see Jenkin R Lewis & Son Ltd v Kerman [1971]
Ch 477 at p 496). It is clear that the procedure under the 1967 Act involves
the grant of a new lease — indeed, section 14(1) uses the expression ‘a new
tenancy’. It is as much a new tenancy as if the parties negotiated a new
tenancy themselves.
The extended
leases granted in the present case complied with that; they created new terms
entirely. They are clearly new terms, notwithstanding that the expiry date of
those extended leases is 50 years after the expiry date of the original term,
in accordance with section 14 of the 1967 Act.
Third, in
section 9(1) of the 1967 Act (which deals with the purchase price payable on
enfranchisement by a leaseholder of the lower rateable properties) there are
the words, ‘on the assumption that the vendor was selling for an estate in fee
simple, subject to the tenancy’. The ‘tenancy’ referred to must be the existing
tenancy, otherwise there is no point in the words which follow, namely ‘and if
the tenancy has not been extended under this Part of this Act’.
Fourth, in
determining the value of a freehold reversion for the purposes of a purchase by
a sitting tenant, the length and provisions of the existing tenancy are, apart
from any express statutory provision, ordinarily of central importance to the
valuation.
Fifth, section
9(1A), like section 9(1), is dealing with the price payable by the tenant for a
house and premises ‘on a conveyance under section 8 above’. Section 8(1)
requires the landlord to make to the tenant, and the tenant to accept ‘. . . a
grant of the house and premises for an estate in fee simple absolute, subject
to the tenancy’. That is dealing with the content of the actual conveyance to
the tenant; the tenancy referred to cannot, it seems to me, be other than the
existing tenancy.
Against that
background, I come to the meaning of the words ‘the tenancy’ in section 9
(1A)(a). I do not feel able to give the words any other meaning than the
existing tenancy. In my opinion, in this provision dealing with the
determination of the price to be paid by a sitting tenant for the acquisition
of the freehold reversion, the words ‘the tenancy’ must, prima facie,
refer to the existing tenancy held by the tenant.
There is no
other tenancy affecting the property; the original tenancy has been wholly
extinguished. The extended tenancy is a new tenancy and by section 14 of the
Act it is expressly provided that it is in substitution for the original
tenancy.
The words ‘the
tenancy’ are, in a proper context, capable of referring to an extinguished
tenancy. Thus in section 16(1)(a) by the words ‘. . . given not later than the
original term date of the tenancy’ I would agree that the tenancy there refers
to the original tenancy. But that does not alter the fact that, for example, in
subpara (c) of the same subsection, the words ‘the tenancy’ quite clearly refer
to the extended tenancy.
In section 9
(1A) it seems to me that, as a matter of the ordinary use of the English
language, the words ‘the tenancy’ refer to the existing tenancy and that there
is no context which compels any different conclusion. It has to be borne in
mind that the subsection directs that the price shall be the amount which, at
the relevant time, ‘the premises, if sold in the open market . . ., might be
expected to
date of the tenant’s notice that he wishes to have the freehold (see section
37). At the ‘relevant time’ in the present cases the original tenancies had
ceased to exist.
That
Parliament, having directed that the assumed sale should be at the relevant
time, and that it would be subject to the tenancy, must have intended that the
words ‘the tenancy’ should refer to something which has already ceased to exist
— and even though there is a subsisting tenancy at the relevant date — is a
conclusion which, in my view, the language of the statute will not bear.
Mr Wood, for
the landlords, says that if ‘the tenancy’ is read as ‘the existing tenancy’ an
unacceptable anomaly arises in that the tenant who chooses to take an extended
lease prior to making his request for the freehold will pay a substantially
lower price than the tenant who has failed to do so.
But that
anomaly does not, in my view, justify the court in departing from the clear
language of the statute. The practical results of which the landlords complain
is really the consequence not so much of section 9 (1A) but of the fact that
Parliament chose to confer on the tenants of these houses a right to extend
their leases for a substantial period at ground rents, and without premiums.
Mr Hague for
the tenants is, I think, correct when he says that if we adopt the landlords’
construction, we are introducing another anomaly, namely, that Parliament
having conferred on a tenant the right to extend the tenancy (which is obviously
a valuable right) should, when it comes to a valuation of the reversion,
disregard the exercise of that right by language which is quite inappropriate
to such a course.
Any anomalies
which result from the construction which I have adopted of the words ‘the
tenancy’ can, I think, only be corrected by Parliament.
I accept that
we must construe section 9 (1A) in the light of the statute as a whole; but
looked at as a whole I do not see compelling indications in support of the
landlords’ case. It is true that section 9 (1A) is introducing a new provision
for a different type of property from that originally dealt with by the 1967
statute, but the court must construe it according to its actual language. The
landlords are really saying that for the words ‘the tenancy’, we must
substitute the words ‘the tenancy or, if it is an extended tenancy, the
previous tenancy’. That is a very substantial rewriting which in my view wholly
displaces the ordinary meaning of the words ‘the tenancy’ in their context in
this statute; and which involve the requirement of valuation by reference to a
tenancy which has wholly ceased to exist.
The fact that
section 9(1)(a) provides that, if the tenancy has not been extended, it shall
be assumed that it is to be extended is not a reason for reading into section 9
(1A) a provision that, if the tenancy has been extended, it shall be assumed
that it has not.
It is true
that section 9 (1A)(b) requires the assumption of a right to remain in the
house at the end of the tenancy under Part I of the Landlord and Tenant Act
1954, which, in the case of an extended lease, is excluded by section 16(1)(c)
of the 1967 Act. But that is only an assumption in favour of the tenant and
does not displace the meaning which the words ‘the tenancy’ would otherwise
bear.
In my view the
Lands Tribunal came to the correct decision, and I would therefore dismiss
these appeals.
MUSTILL and
STOCKER LJJ agreed and did not add anything.
The appeals
were dismissed with costs. Leave to appeal to the House of Lords was refused.
