Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Section 13 notice served and registered on behalf of qualifying tenants – Defendant landlord subsequently granting long lease of basement flat to associated company – Whether lease void as severance of freehold interest under section 19(1)(i) — Whether void as disposal of acquirable common parts under sections 19(1)(ii) and 2(1)(b) – Judgment for claimants
The first defendant owned the freehold of a building that was divided into five flats on the ground and upper floors, with a basement flat below. The second defendant was a company connected with the first defendant. In 2006, three out of the five qualifying tenants in the building served notice on the defendants, under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993, that they wanted to acquire the freehold of the building; the claimants were the nominee purchasers for that purpose. The defendants served a counter-notice, under section 21, in which they sought no leaseback of any part of the building. The section 13 notice was then registered. The claimants applied to the leasehold valuation tribunal (LVT), under section 24 of the 1993 Act, to determine the terms of acquisition.
Subsequently, the defendants notified the claimants of their intention to grant a lease to a nominee of the caretaker’s flat, which had recently ceased to be occupied by a caretaker. The claimants objected to the grant of the lease and registered a caution against first registration. They maintained that any such grant would be void by virtue of section 19 of the 1993 Act. The potential 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, depending upon whether or not the lease of the basement flat would be void. In March 2008, the first defendant formally granted the lease to the second defendant for a term of 999 years at a peppercorn rent; the lease comprised the caretaker’s flat and the adjacent light well.
The claimants objected to the defendants’ application to register the lease, which was referred to the Land Registry adjudicator. They then issued proceedings to determine the effect of section 19 of the 1993 Act with regard to the lease. They submitted that a freeholder could not enter into a long lease of a flat in the building of which it had control if it had not requested a leaseback in its section 21 counter-notice, since that would subvert the statutory leaseback provisions.
Held: Judgment was given for the claimants.
The fact that a landlord could ask for a leaseback only in its section 21 counter-notice did not mean that the freedom of disposition that the terms of the Act otherwise appeared to leave to the landlord was constrained in any other way. The Act created a form of compulsory purchase, thereby infringing the landlord’s legal right to deal with its property as it saw fit for its own benefit. It was to be assumed that parliament had intended that infringement to be the minimum required to implement the Act. A constraint on the landlord’s exercise of its rights should be found only where parliament had decreed it. The grant of a lease was not merely “sidestepping” the leaseback process since it was a different form of transaction, placing not the landlord, but another party, in the position of tenant of the nominee purchaser.
However, the grant of the lease to the second defendant was void as a “disposal severing” the freeholder’s interest in the premises within the meaning of section 19(1)(a)(i). That phrase referred to a disposal of a kind that would effect a “severance” of the interest in the normally understood meaning of that term in a conveyancing context; namely one that split the freehold reversion by creating more than one reversion. The lease granted to the second defendant was one that fulfilled the criteria under section 153 of the Law of Property Act 1925, permitting its enlargement into a freehold merely by the unilateral declaration of the tenant made by deed. Where the second defendant could have the freehold of the basement flat simply by its own act, the grant of the lease to it was a disposal severing the freehold interest within the meaning of section 19(1)(a)(i) and was accordingly void.
Per curiam: Had it not fallen within section 19(1)(a)(i), the lease would, in any event, have been void under subpara (ii) as a lease that, if granted before the relevant date, would have been liable to acquisition by virtue of section 2(1)(b) of the Act. It would have been acquirable as a lease of common parts given the existence of covenants in certain tenants’ leases regarding the provision of a resident caretaker: Oakwood Court (Holland Park) Ltd v Daejan properties Ltd [2007] 1 EGLR 121 distinguished; McGuckian v 29 Eaton Place Management Co Ltd LRA/85/2006 unreported 3 January 2008 not followed. Alternatively, the lightwell qualified as a common part such that its inclusion within the second defendant’s lease would have brought that lease within section 2(1)(b).
Andrew Walker (instructed by Bircham Dyson Bell LLP) appeared for the claimants; Kenneth Munro (instructed by Pemberton Greenish) appeared for the defendants.
Sally Dobson, barrister
