Landlord and tenant — Landlord and Tenant Act 1987 — Determination of the estate or interest to be disposed of and the consideration — Whether tenants take subject to interests created by landlord subsequent to relevant disposal
was the person nominated by the requisite majority of qualifying tenants of
Warburton Court, Victoria, Ruislip Manor, Middlesex, under Part I of the
Landlord and Tenant Act 1987 — A purchase notice was served on the respondent
landlord on May 17 1991 under section 12 of the Act; the respondent having
purchased the freehold reversion on May 4 1990 for £9,000 under a disposal in
respect of which no notice under section 5 had been served on the tenants —- By
a lease dated November 29 1990 the respondent granted a term of 999 years of
the loftspace and car parking at the subject building — The respondent later
granted a headlease of the building — The applicant sought a determination of
the interest to be acquired under Part I of the Act and the proper
consideration payable
Where a subsequent transaction qualifies as a relevant disposal, and where the
tenants are complying with
the case of incumbrances the property is to be disposed of subject to the
incumbrance but subject to a reduction in price, had no application in the
particular circumstances of this case — The respondent must convey to the
applicant the freehold reversion in consideration of £9,000 free of the lease
of the loftspace and car parking and the purported headlease — The respondent
was not entitled to recover against the tenants the cost of bank interest or
professional fees in respect of the original disposal
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
Englefield
Court Tenants v Skeels [1990] 2 EGLR 230;
[1990] 37 EG 91
J P Nolan
(nominated person), R H Pout of the London Borough of Hillingdon (representing
the tenant of flat 3) and Mrs F Watt (co-tenant with Mr Nolan of flat 5)
appeared for the tenants; R Waple BSc ARICS DipTP MRTPI, of Richard Waple &
Co, chartered surveyors, of Weybridge, appeared for the respondent landlord.
Giving their
decision, THE TRIBUNAL said: This decision relates to an application
under section 13 of the Landlord and Tenant Act 1987 (‘the Act’) by Mr J P
Nolan (‘the applicant’), being the nominated person of the requisite majority
of qualifying tenants, to determine the estate or interest to be disposed of
and the terms thereof including the consideration to be paid upon the disposal
of the land and premises known as Warburton Court, Victoria Road, Ruislip
Manor, Middlesex (‘the subject premises’), by Eagle Wharf Developments Ltd, the
respondent company (‘the new landlord’), to the applicant under Part I of the
Act.
The following
facts were agreed:
(i) That at the date of the original disposal
the subject premises comprised a purpose-built block of flats with parking
space, arranged on three floors comprising 12 one-bedroom flats;
(ii) All the tenants of the 12 flats held under
leases for 99 years commencing on December 25 1964 at a ground rent of £12.60
pa;
(iii) The subject premises were premises to which
Part I applied;
(iv) On July 25 1989 the then landlord, R C Watson
& Co, served a notice under section 5 of the Act upon the tenants and upon
the expiry of the statutory period sold the freehold reversion in the subject
premises to Mr Ian S Shelley on October 19 1989 for an alleged sum of £4,000;
the tenants were so informed by notices in accordance with section 48;
(v) On May 4 1990 Mr Ian S Shelley sold to the
new landlord, Eagle Wharf Developments Ltd, the freehold reversion in the
subject premises for the sum of £9,000. This transaction (‘the original
disposal’) was a relevant disposal of the subject premises under section 4 and
no notice in accordance with section 5 was given to the tenants;
(vi) On August 22 1990 Keene Marsland, solicitors,
acting on behalf of the tenants of flats 1, 2, 4, 5, 6, 7, 8, 9, 10 and 12,
being a requisite majority of qualifying tenants in the subject premises,
served a notice under section 11(1) on the new landlord as transferee of the
original disposal; the tenant of flat 3, the London Borough of Hillingdon,
subsequently joined the qualifying tenants.
(vii) By lease dated November 29 1990 between the new
landlord and Maria Ecclestone (now known as Mrs Richard Waple and wife of
Richard Waple) the new landlord purported to grant a term of 999 years
commencing on December 25 1990 in the loft space of the building together with
all the car-park area of the subject premises at a rent of £1 pa and in
consideration of the payment of £1;
(viii) On February 25 1991 the applicant
applied to Uxbridge County Court for an order against the new landlord to
comply with the terms of the notice under section 11(1) served on August 22
1990;
(ix) By letter dated February 27 1991 Richard Waple
& Co, chartered surveyors, acting on behalf of the new landlord, supplied
the particulars requested in accordance with the section 11(1) notice and the
said application stating ‘the freehold interest of Warburton Court was disposed
to our clients for a consideration of £9,000 and the sale completed on May 4
1990’;
(x) On May 17 1991 Enever Freeman & Co,
solicitors, acting on behalf of the requisite majority of the qualifying
tenants, served a purchase notice on the new landlord requesting that, in
accordance with section 12(3)(b), the estate or interest of the subject
premises to be disposed of be determined in accordance with the provisions of
section 13 (that is by determination of the leasehold valuation tribunal). The
applicant, Mr J P Nolan, was stated in the purchase notice to be the nominated
person;
(xi) By letter dated November 14 1991 to Mr G
Reynolds of Enever Freeman & Co, Richard Waple & Co on behalf of the
new landlord sent a copy of an undated headlease (lease 14) between the new
landlord and Richard Waple for a term of 2,000 years to commence from the date
of the lease at a rent of £5 pa in consideration of the said Richard Waple
covenanting to perform all obligations imposed on the new landlord by the
leases to the tenants of flats 1 to 12 and by the lease to the loft space of
the building and the parking area (lease 13) in the subject premises;
(xii) On January 20 1992 Enever Freeman & Co,
acting on behalf of the tenants of flats 1, 2, 4, 5, 6, 8, 9, 10, 11 and 12,
being a requisite majority of the qualifying tenants, served a notice on
Richard Waple pursuant to section 11(1) requesting particulars of the terms of
the grant of the leasehold interest in the property made to him including the
consideration and date on which it was made.
The applicant’s
submissions, presented by Mr R H Pout of the London Borough of Hillingdon, were
as follows:
(i) The original disposal of the freehold for
£9,000, the grant of the lease relating to the loft space and parking area
(lease 13) and of the headlease for 2,000 years (lease 14) were all relevant
disposals within the meaning of section 4. The applicant, on behalf of the
requisite majority of tenants, had complied with the statutory requirements of
sections 11 and 12 and was entitled to a transfer of the freehold interest free
of all incumbrances at the same price as that paid by the new landlord.
Accordingly, he requested the tribunal to make an order for the transfer by the
new landlord to the applicant of the freehold interest in the subject premises
free of leases 13 and 14 at a price of £9,000;
(ii) In the alternative, where the statutory
requirements under sections 11 and 12 did not apply, leases 13 and 14 were to
be treated as incumbrances within the meaning of section 12(4)(b) for which a
reduction in the consideration payable to the new landlord should be made.
He submitted
that this reduction in price in relation to lease 13 would give a figure of
£4,800 for the reversion and, in relation to lease 14 which rendered the
freehold virtually worthless, would give a figure no more than 10 times the
annual ground rent, ie £50. Accordingly, if the tribunal were satisfied that
the statutory requirements of the Act did not apply, he requested a transfer of
the freehold subject to lease 13 at a price of £4,800: alternatively, a
transfer of the freehold subject to leases 13 and 14 at a price of £50.
The new
landlord’s submissions, presented by Mr R Waple BSc ARICS DipTP MRTPI, of
Richard Waple & Co, were that the applicant was entitled on behalf of the
tenants to purchase the freehold interest in the subject premises subject to
leases 13 and 14 for the sum of £9,000, but a reduction should be made in
respect of the value, if any, of the two leases and an increase made to reflect
bank interest over the period of ownership of the new landlord together with
professional fees upon acquisition and disposal.
The chairman
of the tribunal asked the parties whether they accepted that the tribunal had
jurisdiction under section 13 of the Act to determine the issues raised. Mr
Pout submitted that where, as in the present case, a purchase notice requested
the determination of the estate or interest or any terms of the disposal to be
made by the tribunal in accordance with section 12(3)(b), that section, with
section 13(1)(b), virtually empowered the tribunal to determine all the issues
arising between landlord and tenant in relation to the disposal. Mr Waple, on
behalf of the new landlord, agreed that, on the authority of Englefield
Court Tenants v Skeels [1990] 2 EGLR 230; [1990] 37 EG 91, the
tribunal had jurisdiction to determine the issues: if he was unhappy with the
decision he could always take it to appeal.
After an
adjournment, the tribunal held that the purchase notice, dated May 17 1991 and
served on behalf of the tenants, requested the tribunal, in accordance with
section 12(3)(b), to determine the estate or interest to be disposed of, and by
section 13(1)(b) we had jurisdiction to make such a determination. As we could
not reach such a determination without considering the effect under the Act of
the subsequent leases granted by the new landlord, we concluded, in accordance
with the decision in Skeels, that we had jurisdiction to determine the
issues raised by the parties.
Mr Pout said
that he worked for the London Borough of Hillingdon in the housing department
and had the management for the case so far as it concerned the borough’s
interest as tenant of flat 3 in the subject premises. On August 20 1990 a
written authorisation had been given by the tenants of flats 1, 2, 4, 5, 6, 7,
8, 9, 10 and 12 to Keene Marsland, solicitors, to serve a purchase notice under
section 12(1) on the new landlord. The London Borough of Hillingdon was a
member of the Tenants’ Association and had also authorised the notice. Lengthy
correspondence had then taken place between Keene Marsland, Mr Scott, on behalf
of the tenant of flat 8, and the new landlord; the latter refused to provide
information as to the original disposal on the basis that a section 5 notice
had been complied with. However, after the tenants had instructed new
solicitors and made an application to Uxbridge County Court on February 25
1991, Mr R Waple of Richard Waple & Co provided the particulars of the
original disposal as required by the section 11 notice served on August 22
1990. Thereafter, negotiations took place between the tenants and the new
landlord with a view to a purchase of the freehold and possible surrender of
lease 13; on April 4 1991 Waple & Co informed Enever Freeman & Co that
a planning application had been made for flats in the loft space of the subject
premises; this application was refused in relation to new flats, but a
possibility existed for extension of the four top-floor flats into the loft
space to make them into four maisonettes.
Despite the
service of the purchase notice on May 17 1991 and the application to the
tribunal of May 23 1991, negotiations continued between the new landlord and
the tenants, with the latter offering a price of £10,000, increased on
September 13 1991 to £10,500. On or about October 28 1991 this offer was
rejected by the new landlord and in his letter of November 14 1991 Richard
Waple, on his behalf, informed Enever Freeman & Co of the creation of lease
14 for 2,000 years. A copy of this headlease contained no date and neither the
tenants, their solicitors nor the applicant had received any written notice of
its date up to the time of the present hearing. On January 20 1992,
accordingly, a notice pursuant to section 11(1), requesting such date and other
particulars of this lease had been served by Enever Freeman on behalf of the
requisite majority of tenants on Richard Waple as the new landlord of lease 14.
Mr Richard
Waple said that he was senior partner in Richard Waple & Co, chartered
surveyors, based in Weybridge, Surrey, and that he was a minority shareholder
and non-executive director in Eagle Wharf Developments Ltd, the new landlord.
The other shareholders were his wife, Maria Waple, and his father, Thomas
Waple, who held 98 shares and one share respectively. After the new landlord
acquired the freehold interest, Richard Waple & Co, as the managing agents
for the new landlord, held on July 9 1990 a management meeting with the tenants
but after service of the section 11 notice by Keene Marsland on August 22
management had been suspended. The new landlord had not complied with this
notice because it was believed that a section 5 notice had been served on the
tenants, making the disposal a permitted one under the Act, and further there
was doubt as to whether the notice was authorised by the requisite majority of
qualifying tenants. The new landlord made plain throughout this period that it
was prepared to sell the freehold interest for £12,000 subject to lease 13.
Mr Waple said
that the subject premises were located in Victoria Road adjacent to Ruislip
Manor shopping centre and station and opposite the public library. The grounds
to the property mainly comprised a hardstanding area which provided vehicular
and pedestrian access to Cornwall Road with a rear service road accessed via
Ashburton Road. The lease for each of the 12 flats included a right to use a
parking space, but the lease plan did not show any car spaces and none had been
physically laid out at the property.
Two leases
were created subsequent to the new landlord’s acquisition of the freehold
interest. The first lease, lease 13, was to Mrs M Waple dated March 29 1990 and
was in respect of the roof space and car-parking area for a term of 999 years
at a peppercorn rent. The second lease, no 14, was a headlease on the whole
property from the new landlord to Richard Waple for a term of 2,000 years at a
rent of £5 pa. The property had a rental income of £151.20 pa with commission
on insurance of the premises and management fees amounting respectively to
approximately £184 and £300 pa. Current leases had about 71 years unexpired and
there was a possibility of premiums for lease extensions in the sum of £1,500
to £2,000 per extension. On May 2 1991 a planning application was submitted for
extension of the four top-floor flats into the roof spaces, thus forming four
two-floor maisonettes, and for a car-parking layout for 15 cars. This
application had not yet been determined. A fresh application for three lock-up
garages with access via Ashburton Road was also under consideration.
So far as the
legal position was concerned, Mr Waple said that the new landlord now accepted
that no section 5 notice had been served by his predecessor in title on the
tenants and that the applicant on their behalf was entitled to purchase the
freehold interest. The applicant’s solicitors had suggested that the
unencumbered freehold interest should be conveyed either on the same terms or
on open-market value. In the new landlord’s view, this would impose a penal
element on the current freeholder in that bank interest on the purchase price
over the period of ownership would be lost together with solicitors’ and
surveyors’ fees on acquisition and disposal.
The leasehold
valuation tribunal decision of Cousins v Metropolitan Guarantee Ltd [1989]
2 EGLR 223; [1989] 31 EG 56 established that a tribunal does not have power
under section 13 of the Act to embark upon a valuation exercise de novo nor
is the Act intended to have penal effect for, if it did, clear words would be
required to give it effect. Consequently, bank interest and professional fees
must be taken into account in any subsequent transfer. With regard to the legal
interest to be conveyed, Englefield Court Tenants v Skeels decided
that a lease granted subsequent to the service of a purchase notice constitutes
an incumbrance within the meaning of section 12 , [1989] 2 EGLR 116(4)(b) and
consequently any transfer of the freehold interest to the tenants must be
subject to both lease 13 and lease 14.
In answer to
questions relating to lease 13 from Mr Pout on behalf of the applicant, Mr
Waple said that the tenants were aware of the creation of lease 13 in November
1990. Mr Pout was informed of lease 13 in a letter from Waple & Co dated
November 6 1990 and his attention was drawn to the decision in Skeels which
had recently been published. A letter of November 6 1990 to Keene Marsland
enclosed a copy of the letter to Mr Pout and stated: ‘A separate lease to the
roof space has now been granted’. No copy of the lease was supplied at this
time to Keene Marsland. Mr Waple relied on these two letters as constituting
the notification of lease 13 as required by section 11. He further relied on a
letter from Waple & Co to Keene Marsland dated January 30 1991, copies of
which were sent to Mr Pout and to the applicant, which stated: ‘As you are
aware the freehold interest is now subject to the lease in regard to the roof
space.’ On February 14 1991 Enever
Freeman & Co, the new solicitors acting for the tenants, requested a copy
of lease 13 and on February 20 1991 offered £10,000 for the freehold subject to
a surrender of lease 13. On May 22 1991 Enever Freeman & Co offered £3,000
for the surrender of the lease and on August 29 requested Waple & Co to
send a copy of lease 13 to the tribunal. On these facts Mr Waple maintained
that the new landlord had supplied sufficient information to enable the tenants
to serve a purchase notice had they so wished. He denied that it was necessary
under the Act to serve separate written notices on each tenant.
In answer to
questions from the tribunal, Mr Waple said that no notices as required by
section 16 had been served by the new landlord on Maria Waple or himself in
respect of lease 13 or lease 14. The car-parking space was not demised to the
tenants; physically it was impossible to park more than 10 cars in the subject
premises at present but it was planned to provide three lock-up garages.
In answer to
questions by Mr Pout relating to lease 14, Mr Waple said that he relied on the
letter of Waple & Co to Enever Freeman & Co on November 14 1991 as
giving sufficient notification of the creation of lease 14. The lease was sent
to his office undated for execution by the parties and on signature was
returned to the solicitors, who dated it and put it on deposit with the Land
Registry. He contended that the fact that the date of the lease was not stated
in the letter of November 14 was immaterial. Sufficient notification of a
disposal had been given and the two-month period in section 11(2) ran from
November 14 1991. Consequently the tenants were now out of time and the service
of the purported section 11 notice on their behalf on January 20 1992 was
invalid and of no effect. In any event,
stated to be the consideration for lease 14.
Decision
and reasons
We have found
this a difficult case to determine, largely because the Landlord and Tenant Act
1987 contains little clear guidance as to what is to happen when a landlord,
having acquired the freehold contrary to the Act, enters into subsequent
transactions. We endorse the Court of Appeal’s view in Denetower Ltd v Toop
[1991] 1 EGLR 84; [1991] 20 EG 194 that it is an ‘ill-drafted, complicated
and confused Act’.
The broad
scheme of Part I is plain. The preamble states that it is ‘an Act to confer on
tenants of flats rights with respect to the acquisition by them of the
landlords’ reversion’. Section 1 prohibits a landlord from disposing of the
freehold interest in premises to which Part I applies without giving the qualifying
tenants a first right of refusal. To this end the landlord, when proposing to
sell the freehold, is required by section 5 to serve a notice on the tenants so
informing them and thereafter to comply with the procedure in sections 6 to 10.
Where a disposal of the interest in the premises is made contrary to the Act’s
requirements, the tenants, provided they comply with the procedure in sections
11 and 12, are given rights to require the transfer to them from the new
landlord of the interest on the same terms as the original disposal. Service of
the purchase notice under section 12 identifies the estate or interest and the
terms on which it is to be disposed by the new landlord to the tenants.
In the present
case the parties now agree that the sale of the freehold reversion to Eagle
Wharf Developments Ltd on May 4 1990 was a relevant disposal, made without
service of a section 5 notice and hence contrary to the Act; and that a
requisite majority of qualifying tenants served a valid section 11 notice and a
valid purchase notice pursuant to section 12(1). Accordingly, they agree that
the applicant, as the nominated person representing a qualifying majority of
the tenants, has a statutory right to require the new landlord company to
dispose of the freehold interest to him on the same terms as the new landlord
acquired it.
In the
meanwhile, however, the new landlord alleges that he has entered into two
further transactions relating to the subject premises (which, for ease of
reference, we refer to as leases 13 and 14). What account must we, as a
tribunal, take of these transactions? Mr
Pout submits that they also constitute relevant disposals within the meaning of
section 4 and, as such, with the tenants having complied with the statutory
procedures, may be disregarded; consequently the tribunal should determine that
the applicant pay £9,000 for the freehold interest free of leases 13 and 14. Mr
Waple submits that they are incumbrances within the meaning of section
12(4)(b), for which a reduction in the price of £9,000 is to be made.
Section 12(4)
provides that, where the property which the new landlord is required to dispose
of to the tenants has at any time since the original disposal become subject to
any incumbrance, then (other than in the case of a charge to secure the payment
of money etc by the new landlord) the property shall be disposed of subject to
the incumbrance but with a reduction in the price payable to the new landlord
corresponding to the amount by which the incumbrance reduces the value of the
property. Mr Waple’s submission, if correct, would effect a considerable
erosion of the tenants’ right given them by section 12(1) to acquire the
freehold on the same terms as it was made to the new landlord. If the new
landlord is free at any time after his acquisition of the freehold to sell
either the whole or part of the freehold interest to third parties, the tenants
lose their rights to acquire the same interest as the new landlord acquired.
Furthermore, the reduction in the price paid by the new landlord, which section
12(4)(b) provides where the freehold interest has since its acquisition become
subject to an incumbrance, may in no way adequately compensate the tenants for
the loss of the reversion and the capacity to convert their own tenancies into
freeholds; creation of intermediate interests may produce a minus value rather
than a reduction in the price.
As a tribunal
we would, therefore, require strong arguments to persuade us that all
subsequent transactions effected by the new landlord rank as incumbrances
within the meaning of section 12(4)(b). It seems particularly difficult to us
for such an argument to be advanced when the subsequent transaction qualifies
itself as a ‘relevant disposal’ within section 4 of the Act and, therefore,
attracts the application of the statutory procedure of section 5 so far as the
new landlord is concerned and sections 11 and 12 in so far as any transferees
are concerned.
Giving the
best consideration that we can to this difficult piece of legislation, we have
come to the conclusion that, where a subsequent transaction executed by a new
landlord qualifies as a relevant disposal and where the tenants have or are in
process of complying with the statutory procedure which entitles them to the
right to acquire the freehold, in respect of both the original disposal and any
subsequent attempt by further disposal to affect the reversion, section
12(4)(b) has no application. In so deciding, we have had regard to Englefield
Court Tenants v Skeels (supra), where a subsequent lease made
by the new landlord after service of the purchase notice was accepted as an
incumbrance, for which a reduction in the price was made. Owing to the peculiar
circumstances of that case referred to below, the lease in that case did not
qualify as a relevant disposal. The case can accordingly be distinguished on
that ground. Standing back from the detail, we remain convinced that, if the
purpose of the Act to give the tenants a right to acquire the freehold is to be
preserved, our present approach is correct and that the Act does not treat all
subsequent transactions by the new landlord as incumbrances.
In our view,
both leases 13 and 14 constitute relevant disposals within the meaning of
section 4 of the Act. Section 4(1) defines ‘disposal’ as covering any disposal
by the landlord ‘of any estate or interest (whether legal or equitable) in any
such premises, including the disposal of any such estate or interest in any
common parts’. Lease 13, dated November 29 1990, purported to be a lease made
to Maria Waple of the loft space and parking area for 999 years at a rent of £1
pa and a consideration of £1. It was a disposal by the new landlord of a legal
interest in part of the subject premises which had not been demised to the
tenants (the loft space) and part of the common parts (the parking area). Lease
14 was also a relevant disposal in that it was a lease for 2,000 years of the
reversion in the whole of the subject premises subject to the leases in the 12
flats and lease 13 at a yearly rent of £5. A further factor relevant to our
determination is that neither disposal was made to a third party at arm’s
length. The transferee of lease 13 was the majority shareholder in the new
landlord company. The transferee of lease 14 was also a shareholder and acting
throughout as the agent of the new landlord.
It is accepted
by both parties that no section 5 notices have been given in respect of these
relevant disposals by the new landlord nor were the individual tenants served
with written notification. The tribunal are, therefore, of the view, as in the
case of the first original disposal, that the tenants were entitled, subject to
the service of section 11(1) and section 12(1) notices on the transferees, to
require the transfer of these interests under the disposals to themselves.
Does the fact
that, at the time these disposals took place, the tenants had initiated the
statutory procedures in respect of the original disposal and that, in the
period when the new landlord was failing to comply with this statutory procedure,
he purported to enter into another disposal contrary to the Act, prevent the
latter from being construed as an incumbrance under section 12(4)(b)? In our view, it does, provided that the
statutory time-limits for challenge of the subsequent transactions have not
expired.
That this must
be the intention of the Act would seem to be made clear when the above
statement of the legal position is applied to the facts relating to the
creation of lease 13. From the evidence it appears that the tenants, throughout
the period when under the legislation they would otherwise have been serving a
section 11 notice on Maria Waple with regard to lease 13, were still
unsuccessfully seeking to pursue their statutory rights against her predecessor
in title, the new landlord.
There is some
uncertainty as to the date on which the tenants first received written
information as to lease 13, but it is clear that by February 20 1991 Enever
Freeman & Co knew of its existence, since they offered £10,000 for its
surrender. At this date, some six months had passed since the service of a
section 11(1) notice in respect of the original disposal by a requisite
majority of qualifying tenants on the new landlord and during this period the
new landlord had failed to comply with this notice and did so only when the
tenants applied to the county court for an order. On May 17 1991 Enever Freeman
& Co, on behalf of the tenants, served a purchase notice on the new
landlord in respect ‘of the property full details of which have been disclosed’
requesting the determination of the interest in the subject premises to be
determined by the leasehold valuation tribunal in accordance with section
13(1).
From these
facts it appears that the new landlord purported to create lease 13 at a date
after the service of the section 11 notice by the
purchase notice. He did so with full knowledge that the tenants wished to
exercise their right to the reversion and at a time when he was refusing to
disclose particulars of the original disposal. Further, at no time did he serve
notices under section 16(3) on the tenants on Mrs Maria Waple to inform her of
the tenants’ rights in lease 13. The effect of this action was to deprive the
tenants of their opportunity of pursuing their remedy against Mrs Waple by
means of the sections 11(1) and 12(1) procedures within the statutory
time-limits. We do not consider that the conduct of the tenants or solicitors
can be said to constitute a waiver of these procedures. Throughout this period
the tenants and their solicitors were attempting to negotiate a settlement with
the new landlord; the new landlord and his agents Richard Waple & Co, on
the other hand, appear to have devised the creation of lease 13 as a means to
obtain a better price for the freehold interest than they were entitled to
under the Act.
Mr Waple now
asks us to treat this purported transaction of lease 13 as an incumbrance
within the meaning of section 12(4)(b) of the Act for which a reduction in the
consideration payable in respect of the original disposal may be made. We do
not consider that a transaction such as lease 13, which was in contravention of
the Act, was entered into at a time and in the manner described above when the
new landlord was subject to the statutory procedures initiated by the tenants
and in circumstances where the tenants were barred by the time-limits from
pursuing any remedy against the transferee, Mrs Waple, can be brought within
the meaning of section 12(4)(b) so as to be construed as a validly enforceable
incumbrance.
Whatever the
legislation intended the scope of section 12(4)(b) to be in respect of
subsequent transactions generally, we do not think it was intended or can be
construed to apply when the parties are actively engaged in the statutory
procedures laid down in the Act and enacted to achieve the Act’s purpose, as
stated in the preamble, of conferring rights on the tenants as to the
acquisition of the landlord’s reversion. To do otherwise would defeat the purpose
of the Act in favour of landlords who act in bad faith.
On the
particular facts of the present case we are empowered to rule on lease 13 by
the fact that the purchase notice of May 12 1991 served after the date on lease
13 was expressed in sufficiently wide terms as to cover the new landlord’s
conduct in purporting to carve out lease 13 in respect of the reversion as well
as the original disposal.
Mr Waple drew
the tribunal’s attention to the decision in Skeels. That decision is
distinguishable on the facts; the transaction was made subsequent to service of
the purchase notice in respect of the original disposal; section 16(3)
accordingly had no application and it related to a gift made to a member of the
landlord’s family, which prevents it from falling within the category of
relevant disposals under section 4.
Accordingly,
we determine, pursuant to sections 12(3)(b) and 13(1)(b), that the new landlord
in consideration of the payment of £9,000 by the tenants, convey the freehold
interest on the same terms as it was made to him and free of the purported
grant of lease 13.
There remains
to consider the transaction which the new landlord purported to make in respect
of lease 14. A preliminary issue arises whether the time-limits have expired so
as to debar the tenants from serving a section 11(1) notice in respect of this
transaction on Mr Waple.
From the
evidence it appears that notice of an undated lease was given on November 14
1991 to the tenants’ solicitors. We do not consider that this letter, as Mr Waple
contended, complied with the requirements of section 11(2), by which the period
for service of the section 11 notice is calculated either from the date of
notices to the tenants informing them of their new landlord pursuant to the
Landlord and Tenant Act 1985 section 3 (which is not the case here) or from the
service of documents indicating that ‘the original disposal has taken place’.
An undated lease does not indicate that it has been granted or that a disposal
has taken place. The correct action for Mr Waple would have been to have sent
another letter informing the tenants’ solicitors of the date of the lease once
he had received this information from his own solicitor. He did not do so. We
find, accordingly, that the service of the section 11(1) notice by Enever
Freeman & Co on January 20 1992 was made within the time-limits and at the
date of the hearing there was still opportunity for the tenants to exercise
their remedy against Mr Waple in respect of lease 14 by service of a purchase
notice.
We are of the
view, as with lease 13, that the interest and terms of the new landlord’s
disposal of his interest to the tenants can be determined taking into account
lease 14. As in the case of lease 13, at the time of the purported grant of
lease 14 the tenants were pursuing their statutory procedures and had applied
to the tribunal; and, as we have now held, they are still within the
time-limits to pursue the statutory procedures against Mr Richard Waple.
Mr Waple also
offered in his written proof to provide figures as to bank interest and
professional fees incurred by the new landlord in respect of the acquisition of
the freehold interest for £9,000. We do not require further evidence on these
items as we are satisfied that the new landlord is not entitled to them under
the legislation. Mr Waple was unable to indicate any section in the Act which
entitled the new landlord to recover these sums but argued, on the authority of
Cousins v Metropolitan Guarantee Ltd, that the Act was not
intended to be penal. It seems to us that the Act states a procedure which has
to be complied with if a landlord wishes to dispose of his freehold interest.
If the new landlord acquires a freehold interest in premises to which Part I of
the Act applies without compliance with the statutory procedure, he must
inevitably place himself at risk of intervention by the tenants and referral of
the matter to a tribunal such as our present one. Such a risk, including
interest likely to be incurred on capital payments and cost of professional fees,
is all part of the calculation which a landlord makes when he decides to
conduct his leasehold property arrangements in a manner not strictly in
accordance with the Act’s requirements. We find no provision in the Act, nor
reason in law or justice why the tenants should indemnify the new landlord for
such sums.
Accordingly,
we decide as follows:
(i) In respect of lease 13 and lease 14 that the
new landlord, on payment of £9,000 by the tenants, shall convey to the
nominated person the freehold interest in the subject premises on the same
terms as it was disposed to him and free of the purported lease 13 to Mrs Maria
Waple and of the purported lease 14 to Mr Richard Waple.
(ii) The new landlord is not entitled to recover
against the tenants the cost of any bank interest or professional fees incurred
in respect of the original disposal.
