Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Section 13 notice served and registered on behalf of qualifying tenants – Appellant landlord granting long lease of caretaker basement flat to associated company – Whether lease void as severance of freehold interest under section 19(1)(i) — Whether lease void as disposal of acquirable common parts under sections 19(1)(ii) and 2(1)(b) – County court giving judgment for respondents – Appellant landlords appealing – Whether judge erring in law in finding that lease caught by anti-avoidance provisions – Appeal dismissed
The first appellant owned the freehold of a building divided into five flats on the ground and upper floors, and a basement caretaker’s flat. The second appellant was a company associated with the first appellant. In 2006, three of the five qualifying tenants in the building served notice on the appellants, under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993, to acquire the freehold of the building; the respondents were the nominee purchasers for that purpose. The appellants served a counternotice, under section 21, in which they sought no leaseback of any part of the building. The section 13 notice was subsequently registered. The respondents applied to the leasehold valuation tribunal (LVT), under section 24 of the 1993 Act, to determine the terms of acquisition.
The appellants subsequently notified the respondents of their intention to grant a lease to a nominee of the basement caretaker’s flat. The respondents objected to the grant of the lease and registered a caution against first registration. They maintained that such grant would be void by virtue of section 19 of the 1993 Act. The validity of the intended lease was raised in the LVT proceedings as a preliminary issue. The LVT concluded that it had no jurisdiction to make a declaration on that issue and, accordingly, the parties agreed terms of acquisition on alternative bases, dependent on whether or not the lease of the basement flat would be void. In March 2008, the first appellant formally granted the lease of the basement flat and the adjacent light well to the second appellant for a term of 999 years at a peppercorn rent.
The respondents objected to the appellants’ application to register the lease, which was referred to the Land Registry adjudicator. They issued proceedings to determine the effect of section 19 of the 1993 Act with regard to the lease. The county court held that the lease was caught by the anti-avoidance provisions in section 19: see [2009] PLSCS 159. The appellants appealed. In an argument not advanced below, the appellants submitted that the insurance rent and service charge payable under the lease constituted rent for the purposes of section 153 of the Law of Property Act 1925.
Held: The appeal was dismissed.
(1) The lease did not fall within the scope of section 19(1)(a)(i) of the 1993 Act, nor did it fulfil the criteria under section 153 of the 1925 Act, permitting its enlargement into a freehold merely by the unilateral declaration of the tenant made by deed. The payment of insurance rent and service charge pursuant to the lease constituted rent within the scope of section 153. The 1925 Act provided a broad definition of rent and there was no basis or rationale to restrict it to rent relating solely to the possession of the premises so as to exclude rent payable for reimbursement of expenditure. Section 153 was for situations where there was no continuing payment obligation from the lessee to the lessor for the occupation of the property demised by the lease: Escalus Properties Ltd v Robinson [1995] 2 EGLR 23; [1995] 31 EG 71 considered.
(2) However, the lease was void since it consisted of the caretaker’s flat, which constituted “common parts” as defined in section 101(1) of the 1925 Act and therefore fulfilled the conditions of section 19(1)(a)(ii) of the 1993 Act. The statutory definition in section 101(1) was inclusive and not exhaustive; it was intended to include those parts of the building that either might be used by or serve the benefit of the residents in common, as opposed to those parts of the building that were for the exclusive benefit of only one or a limited number of the residents.
A flat that housed a caretaker who serviced the building at the relevant date constituted a common part within the statutory definition irrespective of whether the obligation under the leases to provide a caretaker required that caretaker to be resident. Furthermore, it was necessary for the respondents to acquire the flat for the proper management or maintenance of the common parts within section 2(3) of the 1993 Act since, if they did not acquire the interest under the lease, they would not be able to use that flat to accommodate a caretaker.
That was sufficient to dispose of the appeal but, had it been necessary to decide the point, the court took the view that the light-well also constituted a common part since it was entirely closed within the building. However, the terms of the lease were adequate to protect the respondents’ need to manage and maintain the common parts on behalf of participating tenants. Therefore the inclusion of the light-well did not afford a basis to bring the lease within section 19(1)(a)(ii): Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350 (Ch); [1995] 2 EGLR 141 considered.
(3) If it had not been void, the grant of the lease would not have engaged the provisions of sections 19(2) and (3), which covered situations where, after a notice under section 13 had been registered, the freeholder transferred his freehold interest to a third party. The words “disposes of his interest” in section 19(2)(a) referred to a transfer of the freehold interest, not the grant of a lease out of that interest. Once the participating tenants’ claim had been registered, section 19(1) prohibited the freeholder from dividing its reversion since that would disrupt the enfranchisement process, requiring the tenants to deal with two freeholders, one for each part of the premises, rendering obsolete the terms of their section 13 notice that covered the entire premises. By contrast, disposal of the freehold in its entirety was not restricted, but by placing the person acquiring the freehold in the shoes of the original freeholder, the disruption to the enfranchisement process that would otherwise ensue was avoided.
Kenneth Munro (instructed by Pemberton Greenish) appeared for the appellants; Andrew Walker (instructed by Bircham Dyson Bell LLP) appeared for the respondents.
Eileen O’Grady, barrister
