Conveyance terms — Block of 12 purpose-built flats in Hendon — Original disposal subject to certain rights reserved to transferor including option to repurchase at higher price — Jurisdiction of tribunal — Whether tribunal had discretion to determine terms in form other than and free from those in original disposal — Decision to omit reserved rights from conveyance — Consideration determined at option-to-repurchase price
125-year leases from March 1987 at annual ground rent of £100 for first 25
years increasing at 25-year intervals to £300 — Relevant disposal a sale for
£8,000 in December 1990 — Sale subject to special terms in paras (1) to (5) of
transfer, four of them reserving rights in transferor’s favour: (1) right of
access to rear of subject property, (2) right to alter party wall, (3) ban on
transferee’s parting with ownership for five years, and (4) right to repurchase
for £10,000 at any time — Para (5) provided for costs of transaction to be
borne by transferee
by nominated persons for conveyance to be in form and on same terms as original
transfer except for paras (1) to (5) — No appearance by or on behalf of present
landlord but letter from his solicitors stated he had no objection to
transferring property to nominated persons at £8,000 provided it was on same
terms as original transfer — Observation by applicants’ counsel that £8,000
appeared to be somewhat depressed price, representing only 6 1/2 YP
following provisions of this Part’ in section 12(1) of 1987 Act do not require
tribunal to incorporate verbatim the terms of original disposal
Although Act gives little specific guidance, tribunal’s determination
must in some way take account of terms of original disposal but not necessarily
facilitate continuance of rights created by original disposal or leave
nominated persons ‘to stand in shoes’ of new landlord — Underlying approach of Cousins
v Metropolitan Guarantee followed
Original disposal, by transferring freehold subject to option to
repurchase at any time, was in contravention of Act, since it split reversion
between original landlord and new landlord and tribunal could not, therefore,
order nominated persons to pay £8,000 for conveyance of reversionary interest
Para (5) related solely to costs of original transfer and was in no way
intended to apply to subsequent transactions
By reason of legal doubts, not fully argued before tribunal, as to
validity of paras (1) and (2) and their lack of commercial value, as observed
from state of affairs at tribunal’s inspection of subject property, no
reference to these terms be made in conveyance
Tenants’ having served a purchase notice, the obligation in para (3) not
to part with subject property was no longer effective and the term be not
included in conveyance
To incorporate option to repurchase in para (4) into conveyance would
only perpetuate disposal in contravention of Act; (ii) if no repurchase option
had been granted, price in original disposal would possibly have been more than
£8,000, (iii) since deletion of option would mean new landlord not getting same
bargain as struck in original transaction, any decision on such deletion
required reappraisal of consideration; (iv) continued existence of repurchase
option would render any conveyance of freehold to tenants defeasible by
original landlord’s offering at any time a payment of £10,000; (v) in a case
such as the present the Act, by operation of section 12(3)(b) and section
13(1)(b), enables tribunal to supplement terms of original disposal so as to
comply with purpose of Act, ‘to give the tenants the right to acquire the
reversion’; (vi) accordingly, purpose of Act could best be achieved by
determining consideration at £10,000 plus reasonable and proper solicitors’ and
other costs
The following cases are referred to in
this report.
Cousins v Metropolitan Guarantee Ltd
[1989] 2 EGLR 223; [1989] 31 EG 56, [1989] 2 EGLR 116, LVT
Denetower Ltd v Toop [1991] 1 EGLR 84; [1991]
20 EG 194.
T Fancourt (instructed by Freeman
Pollard) appeared for the applicants; the respondent landlord did not appear
and was not represented.
Giving their decision, THE TRIBUNAL
said: This is an application to a leasehold valuation tribunal under section 13
of the Landlord and Tenant Act 1987 (‘the Act’) made by the nominated persons,
Genevieve B Newman and Ella Schaverien, pursuant to a purchase notice dated
March 12 1991 to determine the terms of the conveyance to be made in accordance
with section 13 of the Act by the respondent landlord, Mr Stephen Kay, to the
nominated persons of the freehold interest in Audley Park, 40 Neeld Crescent,
London NW4 (hereinafter called ‘the premises’).
Mr Fancourt stated the following facts,
which from the correspondence between the parties appeared to be agreed:
(i)
The subject premises were a block of flats comprising 12 flats and were
premises to which Part I of the Act applied.
(ii)
The tenants of the subject premises all held on long leases made between
the original landlord, Mr J Collins, the Audley Management Co and each tenant
for 125 years commencing on March 25 1987 with a ground rent of £100 per year
for the first 25 years, thereafter increasing by £50 at 25-year intervals to
reach £300 in the last 25 years of the term.
(iii)
The said tenants of the subject premises were qualifying tenants under
section 3 of the Act and have nominated the applicants as the nominated
persons.
(iv) By deed of transfer dated December 19 1990 the
original landlord, Mr J Collins, as beneficial owner transferred for the price
of £8,000 the subject premises to Mr Stephen Kay, the new landlord, and the
respondent in this application. The transfer was made subject to the terms (1)
to (5) set out below.
(v)
This was a relevant disposal under section 4 of the Act.
(vi)
A notice dated December 19 1990 of Mr J Collins (enclosed in a letter of
the same date from Woolf Seddon Roscoe Phillips, solicitors on behalf of the
respondent, Mr Kay) was given to all the tenants of the said transfer.
(vii)
On January 31 1991 the qualifying tenants served a notice under section
11 of the Act on Mr Kay.
(viii)
On March 12 1991 the qualifying tenants served a valid purchase notice
on Mr Kay requiring him to dispose of the freehold interest in the subject
premises at a price and on such terms as to be determined by a rent assessment
committee in accordance with section 13 of the Act.
Mr Fancourt, on behalf of the applicant nominated
persons, said that he was asking the tribunal solely to settle the terms of the
conveyance to be made by the respondent to the nominated persons. He requested
that the tribunal direct that the transfer of the freehold by the respondent to
the qualifying tenants should be in the form and on the same terms as the
transfer from Mr Collins to the respondent with the exception of paras (1) to
(5). Paras (1) to (5) of the transfer of December 19 read as follows:
(1)
The Transferee hereby covenants with the Transferor for the benefit of
the Transferor and his successors in title not to grant any easement licence or
right of access to land at the rear of the Building known as 42 Neeld Crescent,
Hendon, London NW4 (as the same is for the purpose of identification only shown
coloured yellow on the plan annexed hereto) whether by vehicle or otherwise
without the prior written consent of the Transferor or his successors in title.
(2)
The Transferor hereby reserves the right at any time to grant such
rights of access as are referred to in clause (1) hereof to such persons as he
shall in his absolute discretion determine and to alter or amend the party wall
dividing the property and 42 Neeld Crescent for the purpose of gaining such
access subject to such alteration being carried out in accordance with the
provisions of the Town & Country Planning Act 1971 as amended and all
regulations made thereunder and the requirements of the Local or other
competent authority and PROVIDED ALWAYS that this right shall be personal to
the Transferor.
(3)
Subject to the provisions of the Landlord & Tenant Act 1987 the
Transferee hereby covenants with the Transferor that he shall not part with
ownership of the property for a period of five (5) years from the date of this
deed unless the Transferor exercises his right pursuant to clause (4) below.
(4)
The Transferor and the Transferee hereby agree that the Transferor will
have the right at any time to re-purchase the property or nominate a person to
whom the Transferee or his successors in title shall sell the property and in
either case the sale price shall be TEN THOUSAND POUNDS (£10,000) plus the
reasonable and proper solicitors and other costs borne by the Transferee or his
successors in title PROVIDED ALWAYS that this right shall be personal to the
Transferor.
(5)
The reasonable and proper solicitors costs and disbursements plus VAT
thereon in respect of this transaction shall be borne by the Transferee.
On behalf of the applicants Mr Fancourt
submitted that the legal position was as follows:
(i)
By section 12 and 13 of the Act the nominated persons were given an
option. They could in the purchase notice require the new landlord to dispose
of the freehold in the subject premises on the same terms as the original
disposal, in which case under section 13(1)(a) the tribunal had jurisdiction to
determine any matter relating to the terms of the original disposal.
Alternatively, the nominated persons could, as they had done in their purchase
notice dated March 12 1991, provide for the disposal to be determined by the
tribunal in accordance with section 13(1)(b). In counsel’s submission, that
subsection gave the tribunal a free hand to determine any terms which it saw
fit for inclusion in the conveyance of the freehold interest to the nominated
persons. The only restriction on the discretion of the tribunal was that it
must be exercised in accordance with the purpose of the Act. The terms which
the tribunal determined need not be the same terms as in the original disposal.
(ii)
The rights conferred by the deed of transfer were effective and the
tribunal could in no way interfere with what had happened between Mr Collins
and the respondent.
(iii)
To the extent that Mr Collins had reserved rights, the transaction was
completed and would, if valid, bind any successor.
(iv)
The applicant nominated persons were subject to such rights as are
binding in law and to that extent stood in the shoes of the respondent. In that
sense they would have already received property on the same terms as Mr Collins
conveyed it.
(v)
The general purpose of the Act under sections 12 and 13 is to put the
nominated persons in the same position as nearly as possible to that of the
transferee, the respondent. The terms on which the respondent bought were the
sole terms on which Mr Collins was willing to make the property available on
the market. On behalf of the applicants counsel accepted that they were bound
by those terms and he was not asking the tribunal to exercise any discretion in
relation to them.
(vi)
If the subsequent conveyance to the nominated persons were in the same
terms as the deed of transfer the effect would be not to put the nominated
persons in the respondent Mr Kay’s shoes but make them subject not only to Mr
Collins’ obligations but also to a new set of obligations enforceable by the
respondent.
Accordingly, Mr Fancourt, on behalf of
the applicants, requested the tribunal to exercise its discretion under section
13(1)(b) and to determine that the respondent convey the freehold of the
subject premises to the applicants free of paras (1) to (5) in the original
disposal.
In answer to questions from the tribunal,
Mr Fancourt said that he accepted that the ‘terms’ referred to in section
13(1)(b) of the Act included the consideration payable but that he did not
consider the tribunal had discretion to increase the amount of consideration
payable above the price paid for the original disposal. He considered that the
rights reserved to Mr Collins were registrable, those in paras (1) to (2) as an
easement or charge, in para (3) as a restrictive covenant and in para (4), the
option, as an estate contract. While he thought the rights in paras (1) to (2)
might be inconsistent with the rights already granted in the freehold by the
respondent Mr Kay and might, therefore, be invalid, he considered the rights
reserved to the transferor in paras (3) and (4) to be unchallengeable.
In reply to further questions from the
tribunal, Mr Fancourt submitted that the effect of paras (1) and (2) in the
deed of transfer was to reserve a right of way to Mr Collins and his successors
in title to the land at the rear of the block of flats on the subject premises
and a personal right to alter the wall or fence between the subject premises
and no 42.
Mr Fancourt called as witness Mr Martin
Brooks, a tenant of Flat 10 in the subject premises, who produced a plan of the
subject premises and the adjacent property no 42, which he stated he believed
to be owned by a company in which Mr Collins held an interest. He outlined on
the plan the location of a new building on no 42 in course of construction for
six new flats and four parking spaces. Rear access to this building would
enhance its value. The building was not completed, work having ceased about a
year ago, and there was no current attempt to sell it. Mr Brooks said that to
obtain access from no 40 two of the parking places nos 2, 4, 6, 8, 10 in the
subject premises would be required to provide the necessary width of access for
vehicles. At the present time only parking space no 11 was not let and this by
itself was too narrow for access and in any event was parallel to the new
conservatory constructed on no 42. Mr Brooks said that the ground levels of nos
40 and 42 were at present different, with that of the subject premises being
some two or three feet lower.
So far as paras (3) and (4) of the deed
of transfer were concerned, Mr Fancourt submitted that they gave Mr Collins a
personal option exercisable for an unlimited period of time to buy back the
freehold at the price of £10,000. Subject to the provisions of the Act the
respondent was prevented from parting with the ownership of the subject
premises for a period of five years. The right of option did not, in counsel’s
submission, greatly affect the value of the consideration of the purchase
price, though its exercise at the fixed price might deprive the transferee of
the value of any capital appreciation. The consideration of £8,000 would appear
to be a somewhat depressed price representing only 6 1/2 years’ purchase on 12
leases at a ground rent of £100 per year each.
As to para (5) relating to costs in the
transfer, Mr Fancourt said that it was usual for each party to bear its own
costs and para (5) was, therefore, an onerous provision upon the transferee.
The respondent, Mr Kay, did not appear
and was not represented. In a letter dated February 6 1991 to the applicant’s
solicitors, Woolf Seddon Roscoe Phillips, acting on behalf of the respondent,
stated that their client had complied with the Act in respect of serving
details of the terms of purchase upon the tenants. The letter continued:
We have already indicated that our client
will be only too happy to transfer the property to your clients but such
transfer must take the form of that of December 19 1990 in accordance with the
provisions of the Act. Section 12(3) states that the transfer is to be in the
same terms or subject to such modifications as are necessary or expedient in
the circumstances. If you wish to refer the matter to a Rent Assessment
Committee we look forward to hearing from you. However, we would point out that
the purpose of the Act is to ensure that the lessees gain the right to purchase
the freehold on the same terms as the original freeholder would have subjected
them to. If the restricted covenants had not been imposed when the transfer to
our client was
transferring the property.
The letter continued by noting that a
previous solicitor acting on behalf of the qualifying tenants had written
requesting evidence that the consideration of the transfer was actually paid
and suggesting that the matter was a sham. The letter of February 6 1991
continued:
We refute this allegation in its entirety
and would confirm that the transaction was not a sham and that it was an arms
length transaction in which purchase monies changed hands.
In a letter dated July 9 1991 to the
tribunal, Woolf Seddon stated that the respondent had no objection to
transferring the property at the price of £8,000 to the nominated persons
provided it was in the same terms as the transfer of December 19 1991. The main
reason for Mr Kay’s entering the transaction was stated to be his wish to
assist Mr Collins, whom he knew to be in some financial difficulty, and had the
respondent known at the time that court proceedings would follow the transfer
he would not have become involved.
Inspection. We found the subject premises to
comprise a three-storey purpose-built block comprising 12 self-contained flats
built circa 1986, in a pleasant, tree-lined road. It is constructed of
brick with a tiled mansard roof, with deep overhanging eaves.
There were two separate entrances, each
providing access to six individual flats. The premises were set back from the
pavement behind well-planted and maintained flower beds. Access to the paved
car-parking area was via a wide private road. At the side and rear were 13
car-parking spaces only 12 of which were numbered. In addition, there was a
pleasant garden at the rear.
The adjoining property, 42 Neeld
Crescent, comprised a three-storey block containing six flats, none of which
appeared to be occupied. At the rear of the two ground-floor flats were brick
and glass conservatories, the rear garden being in an uncultivated state.
The brick boundary wall separating the
subject property from no 42 varied in height from 2ft-4ft and only one of the
original wooden panels which sit on the brick remains.
It would appear that the construction of
the conservatory to the south-western corner of the adjoining block seriously
impedes the possibility of gaining access to the rear of no 42 via the unmarked
car-parking space backing on to the party wall. There was little or no
difference between the ground levels of the two properties at this point.
Decisions and
reasons
Jurisdiction of tribunal
Mr Fancourt submitted that the tribunal
had a discretion to determine the terms of conveyance in a form other than and
free from those in the original disposal.
The tenants in their purchase notice of
March 12 1991 opted for the tribunal to determine the terms of the disposal
pursuant to section 13(1)(b) in accordance with section 12(3)(b). They did not,
therefore, tie themselves to the terms of the original disposal as an
application under section 13(1)(a) relating to matters specified in the
purchase notice pursuant to section 12(1)(b) would have required. We accept
that the words in section 12(1)(b) ‘except as provided by the following
provisions of this Part [of the Act]’ do enable us to exercise a wider
jurisdiction as to terms and do not require us to incorporate verbatim into the
conveyance the terms of the original disposal.
But how wide is our jurisdiction? The Act gives little specific guidance. Mr
Fancourt says the only restriction is that we must act in accordance with the
purpose of the Act. In an earlier decision, the London Leasehold Valuation
Tribunal has held that under the Act it has no power to determine de novo
a value for the premises and that the starting point for determining the terms
of the disposal to the tenants is the terms of the original disposal including
the consideration paid: Cousins v Metropolitan Guarantee Ltd
[1989] 2 EGLR 223; [1989] 31 EG 56, [1989] 2 EGLR 116. Although this decision
turned on the construction of the Act relating to the consideration payable
rather than the other terms, we accept the underlying approach. We do not think
the tribunal has a roving discretion to impose any terms it pleases on the new
landlord, particularly if these have a penal effect, which, in the absence of
express words, appears not to be the intent of the legislation. We, therefore,
take a narrower view of our discretion than Mr Fancourt submitted in that we
consider our determination must in some way take account of the terms in the
original disposal.
In another respect, however, we take a
wider view of our jurisdiction than Mr Fancourt in that we do not accept that
in exercising it we must necessarily facilitate the continuance of the rights
created by the original disposal or leave the nominated persons ‘to stand in
the shoes’, in Mr Fancourt’s words, of the new landlord.
In exercising our jurisdiction, we are
satisfied that we must do nothing which is contrary to the Act. In the words of
Sir Nicolas Browne-Wilkinson V-C in Denetower Ltd v Toop [1991] 1
EGLR 84; [1991] 20 EG 194:
Part I of the Act confers on (qualifying)
tenants a right of first refusal, when the landlord is proposing to dispose of
his reversion. If the landlord assigns the reversion in breach of such a right
of first refusal, the tenants are given a right to acquire the reversion from
the assignee.
This right is of a compulsory nature, set
in motion by the service of a purchase notice. Other provisions in the Act:
(a) section 12(3)(a) where
property is disposed additional to the premises to which the Act relates,
(b) section 12 where the
premises disposed of subsequently become subject to a charge or incumbrance,
and
(c) section 16(3) where the
new landlord disposes of part of the premises prior to service of the purchase
notice
confirm the compulsory effect of the
purchase notice. They all make arrangements whereby the freehold conveyed
represents as nearly as possible the reversion in its entirety or the full
value of the original premises to which the tenant’s right of first refusal
relate.
In the present case the original
landlord’s disposal in para (4) was in contravention of the Act, for it split
the ‘reversion’ between the original and new landlords, transferring the
freehold subject to an option to repurchase at any time. For the tribunal to
determine a conveyance on terms which in any way perpetuates this split in the
reversion would, in our view, be to continue the terms of a disposal in
contravention of the Act. For this reason we do not consider we can order the
tenants to pay £8,000 to the respondent for the conveyance of the reversionary
interest in the subject premises.
Terms of transfer
Bearing these general considerations in
mind as to the purpose of the Act and our jurisdiction, we now turn to the
issues before us.
Mr Fancourt, on behalf of the nominated
persons, requests us to order the conveyance of the freehold in the subject
premises free of any rights as set out in paras (1) to (5) of the original
disposal of December 19 1990 between Mr Collins and the respondent. The
respondent, by letter of his solicitors dated July 7 1991, requests us to order
the conveyance to the nominated persons on the same terms as the original
disposal.
We accordingly turn our attention to the
terms of the transfer. Para (5), in our view, relates solely to the costs of
the original transaction and is in no way intended to apply to subsequent
transactions. Paras (1) to (4) can be said to reserve four separate items in Mr
Collins’ favour — the right of access to the rear of 42 Neeld Crescent (para
(1)), the right to alter the party wall (para (2)), the ban on the transferee’s
parting with the ownership of the property for five years (para (3)) and the
right to repurchase at any time for £10,000 (para (4)). We consider each of
these in turn.
Para (3) is made expressly ‘Subject to the
provisions of the Landlord and Tenant Act 1987′. We construe this to mean that
in the event of the tenants’ exercising their right to serve a purchase notice
under the Act to acquire the freehold interest, this right ceases to operate.
The tenants have in the present case served a purchase notice under the Act. It
therefore seems to us that the obligation not to part with the property is no
longer effective. Accordingly, we do not include this term in the conveyance.
Para (4) purports to give Mr Collins a right to
repurchase the property for £10,000. In our view, to make a determination as the
applicants’ representative requests in respect of para (4) would leave a
purchase price of £8,000 in place but would delete the right to repurchase
which may well have affected the parties’ agreement to that figure as the
consideration. Para (4) of the transfer of December 1990 shows that the parties
valued the freehold to be conveyed in exercise of the option to purchase at
£10,000; it seems possible that had no option been granted the initial purchase
price would have been more than £8,000, a price which, as Mr Fancourt observed,
can be regarded as somewhat depressed, representing as it does only six and a
half years’ purchase of the 12 leases at a ground rent of £100 a year each.
The deletion of the option to purchase
from any transfer to the
as was struck between Mr Collins and the respondent. Any decision as to
deletion of this term from the transfer must, therefore, in our view, require a
reappraisal of the consideration which the original parties would have paid.
We, therefore, do not accept that our determination can be solely an order to
convey the freehold of £8,000 to the nominated persons.
On the other hand, to incorporate para
(4) into the conveyance to the nominated persons would, in our view, only
perpetuate the disposal in contravention of the Act which had been effected by
Mr Collins.
We agree with Mr Fancourt that to
incorporate the terms verbatim would create a new set of obligations in favour
of the respondent and reduce even further the tenants’ rights to a disposal of
the landlord’s interest under the Act; this reduction, if having no other
effect, should at least effect a reduction in the £8,000 consideration. We put
to Mr Fancourt the possibility of a conveyance including terms (1) to (5) of
the transfer of December 19 1990 but with Mr Collins’ name in place of the word
‘transferor’. Mr Fancourt submitted that this would have no effect on the
consideration as we would be repeating obligations which, in his submission,
were already in place against the nominated persons.
A more serious objection, in our view, to
this proposed course, or indeed any course which leaves Mr Collins’ right to
repurchase unexercised, is the effect which such a right to repurchase has on
the tenants’ statutory right to acquire the reversion under the Act. The
continued existence of such a right to repurchase would render any conveyance
of the freehold interest to the tenants immediately defeasible by the original
landlord’s offering at any time a payment of £10,000. In these circumstances,
we gave careful attention to the exact terms of para (4). Para (4) of the
transfer of December 19 1990 states:
. . . the Transferor will have the right
at any time to repurchase the property or nominate a person to whom the
Transferee or his successors in title shall sell the property and in either
case the sale price shall be £10,000 plus the reasonable and proper solicitors’
and other costs borne by the Transferee or his successors . . .
It seems to us that, taking into account
the terms of para (4), we can best achieve the purpose of the Act, ‘to give the
Tenants the right to acquire the reversion’, by determining that the nominated
person to whom the transferee shall sell the property shall be the applicants
and the sale price shall be £10,000 plus the reasonable and proper solicitors’
and other costs. In doing so we substitute our nomination for that of Mr
Collins, the transferor. Whereas in the more usual out-and-out conveyance the
purpose of the Act is effected by a transfer on the same terms of the original
disposal in accordance with section 12(1), in a case such as the present one
the Act, by operation of section 12(3)(b) and section 13(1)(b), enables the
tribunal to supplement the terms of the original disposal so as to comply with
the purpose of the Act.
Paras (1) and (2). With regard to the right of
access to land at the rear of the adjacent building, 42 Neeld Crescent, in para
(1) and the right to alter or amend the party wall for the purpose of gaining
such access in para (2), from our inspection we have concluded that the manner
in which 42 Neeld Crescent has been developed, in particular the siting of the
conservatory in relation to the unallocated parking space on the subject
premises, effectually prevents the exercise of these reserved rights in any
practicable means which can be of commercial value to Mr Collins or any
successor in title or owner of 42 Neeld Crescent.
Mr Fancourt in argument conceded that
such reserved rights of access and modification of party walls might conflict
with the right which the Act gives to the tenants to acquire the block of flats
and any appurtenances of that building. However, this point was not
fully argued before us and we reach no decision upon it. None the less, by
reason of these legal doubts as to the validity of these reserved rights and
their lack of commercial value as observed from the state of affairs at our
inspection, we have determined to include no reference to these rights in the
terms of the conveyance to the tenants, nor do we think their deletion makes
any adjustment of the consideration payable.
Accordingly, on the basis of the above
reasons we, as the leasehold valuation tribunal pursuant to section 13 of the
Landlord and Tenant Act 1987,
(i)
nominate the applicants, Genevieve B Newman and Ella Schaverien, as the
persons to whom, pursuant to para (4) of the deed of transfer dated December 19
1990 between Mr J Collins, the original landlord, and the respondent, Mr S Kay,
the respondent shall sell the property, Audley Park, 40 Neeld Crescent, NW4,
and
(ii)
determine that the respondent, Mr S Kay, shall convey the freehold in
Audley Park, 40 Neeld Crescent, NW4, to the said nominated persons in
consideration of the price of £10,000, plus the reasonable and proper
solicitors’ and other costs, which the said nominated persons shall pay to the
respondent, Mr S Kay.
