Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Collective enfranchisement — Vesting order — Time limit — Terms of acquisition agreed between tenants’ nominee purchaser and freeholder save for nature of title guarantee — Nominee purchaser agreeing to Schedule 7 limited title guarantee offered by freeholder — Application for vesting order under section 24 — Whether application made in time — Whether all terms of acquisition agreed for that purpose on date when positively agreed or date when nominee purchaser having no further prospect of resisting term proposed by freeholder
The respondent was the nominee purchaser on an application to acquire the freehold of a property by collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993. The appellant freeholder admitted the right to enfranchise. The price was agreed in August 2006, whereupon the respondent sent a draft transfer to the appellant in form TR/1. The latter raised two points, namely that the draft: (i) omitted the statutorily required statement that the conveyance was executed for the purposes of Chapter I of the 1993 Act; and (ii) included a full title guarantee, whereas the appellant was willing to give only the limited title guarantee contained in Schedule 7 to the Act. It requested those matters to be amended.
In early September, the respondent sent a revised transfer, which contained the required statement but retained a full title guarantee; it requested the appellant’s approval of those terms. A few days later, the appellant informed the respondent that it had made one amendment to provide for limited title guarantee. In late October, the respondent acknowledged that all the terms of acquisition had been agreed.
On 10 January 2007, the respondent applied to the court for a vesting order transferring title to the property. The appellant contended that the time limit for making such an application, contained in section 24 of the Act, had expired because all the terms of acquisition had been agreed for that purpose prior to 10 September 2006. It contended that: (i) terms were agreed for the purposes of the Act if they were not positively in dispute; (ii) since the respondent could not compel the appellant to give more than the limited title guarantee under Schedule 7, and there could be no further dispute on that issue once the appellant had made its position clear, the matter should be deemed to be agreed at that point. That argument was rejected in the court below, and the application was found to be in time. The appellant appealed.
Held: The appeal was dismissed. Whether a term has been agreed is a question of fact. The Act does not deem a term to be agreed if it is not. A dispute can arise even if the result is a foregone conclusion; it would be a misuse of language to say that there is no dispute simply because the outcome is inevitable. Where it is open to the parties to agree to depart from Schedule 7, the proponent of a change is not obliged to take the other party’s initial refusal at face value and may make a further attempt to secure agreement. The respondent had persisted in its attempt to secure a full title guarantee by submitting a second version of the transfer containing that covenant and asking for it to be approved. It had not by then given up hope of securing the appellant’s agreement to the full title guarantee. Further, the Act requires positive agreement; implicit agreement by silence will not suffice. Any terms that have not been positively agreed are deemed to “remain in dispute” within the |page:43| language of section 24(1). The relevant test is whether it is clear that negotiations have been completed and a final agreement reached, either orally or in writing, on specific terms that are not contingent on agreement or determination of other terms. The respondent had not given an express acknowledgement that the terms were agreed until October 2006. In those circumstances, the terms had not been agreed prior to 10 September 2006 and the respondent’s application for a vesting order had been made in time.
The following cases are referred to in this report.
Goldeagle Properties Ltd v Thornbury Court Ltd [2008] EWCA Civ 864; [2008] 3 EGLR 69; [2008] 45 EG 102
Halki Shipping Corporation v Sopex Oils Ltd (The Halki) [1998] 1 WLR 726; [1998] 2 All ER 23; [1998] 1 Lloyd’s Rep 465
Hayter v Nelson & Home Insurance Co [1990] 2 Lloyd’s Rep 265
Westminster City Council v CH2006 Ltd [2009] UKUT 174 (LC)
This was an appeal by the appellant, Pledream Properties Ltd, from a decision of HH Judge Cryan, sitting in Shoreditch and Clerkenwell County Court, allowing an application by the respondent, 5 Felix Avenue London Ltd, for a vesting order on a collective enfranchisement under Chapter I of the Leasehold Reform, Housing and Urban Development Act 1993.
Joshua Swirsky (instructed by Sheridan & Stretton) appeared for the appellant; James Fieldsend (instructed by Comptons Solicitors LLP) represented the respondent.
Giving judgment, Lewison J said:
[1] When are terms of acquisition agreed for the purposes of section 24 of the Leasehold Reform (Housing and Urban Development) Act 1993 (the 1993 Act)? The date of agreement is important because it starts the procedural clock ticking for the making of various applications. The freeholder says that if a term of the agreement is not positively in dispute or if the tenant has no prospect of resisting the freeholder’s proposed term, it is agreed. The nominee purchaser says that in the absence of positive agreement, there is no agreement. HH Judge Cryan agreed with the nominee purchaser. With the permission of Peter Smith J, the freeholder appeals.
[2] The facts are all agreed. The leaseholder served an initial notice on 6 March 2006 claiming the right to buy the freehold of 5 Felix Avenue, in Haringey, and proposing a purchase price. The reversioner served a counternotice on 27 April 2006. It admitted the right to collective enfranchisement but put forward a counter-proposal as to the price. At some point, the claimant company was put forward as the nominee purchaser. Following negotiations, the price was agreed on 9 August 2006, when the nominee purchaser’s solicitor sent a transfer in form TR/1 to the reversioner’s solicitor. Box 10 of form TR/1 contains spaces in which it can be shown whether the transferor is to transfer with full title guarantee or limited title guarantee. The box for full title guarantee was marked as the relevant box. In addition, the draft transfer did not include a statement that the conveyance was executed for the purposes of Chapter 1 of the 1993 Act.
[3] On 11 August 2006, the reversioner’s solicitor wrote to the nominee purchaser’s solicitor asking for the transfer to be amended by showing that the sale was to be with limited guarantee and incorporating a declaration that the transfer was executed for the purpose of Chapter 1 of the 1993 Act. The letter concluded: “This limited title guarantee and a declaration are the requirements of the 1993 Act.” As Mr Joshua Swirsky, who appeared for the appellant, agrees, this was an overstatement of the legal position at least with regard to the limited title guarantee.
[4] On 1 September 2006, the nominee purchaser’s solicitor sent a revised draft transfer. The judge found that it contained the required statement but still contained a covenant for full title guarantee.
[5] On 8 September 2006, the nominee purchaser’s solicitor wrote to the reversioner’s solicitor asking for confirmation that the transfer was approved. Approval was not in fact forthcoming. On 11 September, the reversioner’s solicitor said:
We have made one amendment to the transfer which is in item 10 to provide for the transfer with limited title guarantee. This is the requirement under the 1993 Act.
Thus, until 11 September, the only draft transfer in existence was one that contained the full title guarantee. Little more was heard about the terms of the transfer until the nominee purchaser’s solicitor’s letter of 24 October 2006, in which it said:
Further to our telephone conversation we agree that having to exchange contracts is probably not necessary as we have agreed all terms of the acquisition. For the avoidance of doubt, we believe the agreement was made on 11th September in your letter when the last of the terms of the transfer were settled. We note from our telephone conversation that you also agree that all matters between us have been agreed.
[6] On 10 January 2007, the nominee purchaser issued a claim for an order commonly known as a vesting order. If time began to run earlier than 10 September 2006, the claim would be out of time. Time begins to run when all the terms of the acquisition are agreed or determined by the leasehold valuation tribunal (the LVT). The reversioner says that the terms were agreed on 10 or 11 August, when its solicitor asked for the draft transfer to be amended to include the limited title guarantee. The nominee purchaser says that they were not agreed until 11 September at the earliest, when the transfer was in fact finally amended.
[7] The basic scheme of Chapter 1 of the 1993 Act is as follows. Part 1 of Chapter 1 gives certain tenants of flats the right to collective enfranchisement with regard to the freehold of the premises in which their flats are situated. In addition to the right to acquire the freehold of the flats, qualifying tenants also have the right, under the 1993 Act, to acquire the freehold of certain appurtenant premises and, in some circumstances, certain intermediate leasehold interests. Tenants who take advantage of this right to collective enfranchisement act through a nominee purchaser, usually a company created specifically for this purpose. The enfranchisement process is begun by the tenants by the service of an initial notice pursuant to section 13. The initial notice must be served on behalf of not less than one-half of the qualifying tenants of any premises. These are known as the participating tenants. There is certain information that an initial notice must contain. This includes the proposed price to be paid for the freehold and any other property to be conveyed to the tenants, and details of the rights of the qualifying tenants to seek collective enfranchisement. It does not go into such details as what title guarantee is to be provided.
[8] The next substantive step in the procedure is the service by the landlord of a counternotice under section 21. The counternotice must either admit or dispute the participating tenants’ right to collective enfranchisement; and, if the right is admitted, it must contain details of any counter-proposals that the landlord wants to put forward.
[9] The next part of Part 1 deals with various applications that can be made either to the court or to the LVT. The relevant section for the purposes of this case is section 24. This concerns applications relating to the terms of acquisition and the making of a binding contract. Section 24(1) provides as follows:
Where the reversioner in respect of a specified premises has given the nominee purchaser
(a) a counter-notice under section 21 complying with a requirement set out in subsection (2)(a) of that section, or
(b) a further counter-notice required by or by virtue of section 22(3) or section 23(5) or (6)
but any of the terms of acquisition remain in dispute at the end of the period of two months beginning with the date on which the counter-notice or further counter-notice was so given, a leasehold valuation tribunal may, on the application of either the nominee purchaser or the reversioner, determine the matters in dispute.
(2) Any application under subsection (1) must be made not later than the end of the period of six months beginning with the date on which the counter-notice or further counter-notice was given to the nominee purchaser.
(3) Where
(a) the reversioner has given the nominee purchaser such a counter-notice or further counter-notice as is mentioned in subsection (1)(a) or (b), and |page:44|
(b) all of the terms of acquisition have been either agreed between the parties or determined by a leasehold valuation tribunal under subsection (1),
but a binding contract incorporating those terms has not been entered into by the end of the appropriate period specified in subsection (6), the court may, on the application of either the nominee purchaser or the reversioner, make such order under subsection (4) as it thinks fit.
[10] Section 24(4) sets out the orders that the court may make, and these include what is commonly known as a vesting order. Section 24 continues:
(5) An application for an order under subsection (4) must be made not later than the end of the period of two months beginning immediately after the end of the appropriate period specified in subsection (6).
(6) For the purposes of this section, the appropriate period is
(a) where all the terms of acquisition have been agreed between the parties, the period of two months beginning with the date when those terms were finally so agreed;
(b) where all or any of those terms have been determined by a leasehold valuation tribunal under subsection (1)
(i) the period of two months beginning with the date when the decision of the Tribunal under that subsection becomes final or,
(ii) such other period as may have been fixed by the tribunal when making its determination.
[11] I omit subsection (7). Section 24 continues:
(8) In this Chapter “the terms of acquisition”, in relation to a claim made under this Chapter, means the terms of the proposed acquisition by the nominee purchaser whether relating to
(a) the interests to be acquired,
(b) the extent of the property to which those interests relate or the rights to be granted over any property,
(c) the amounts payable as the purchase price for such interests,
(d) the apportionment of conditions or other matters in connection with the severance of any reversionary interest, or
(e) the provisions to be contained in any conveyance
or otherwise, and includes any such terms in respect of any interests to be acquired in pursuance of section 1(4) or (21)(4).
[12] Section 38(4) of the Act says that:
Any reference in this Chapter to agreement in relation to all or any of the terms of acquisition is a reference to agreement subject to contract.
[13] Under section 28, the participating tenants may withdraw from the transaction at any time before a binding contract is entered into. They can withdraw even if the landlord makes an application to the court under section 24(3); this is done by withdrawing the initial notice. Inevitably, there are costs consequences of such a withdrawal. In addition, once an initial notice has been withdrawn, there is a moratorium before the tenants can serve another. This may have the effect of increasing the price that they would have to pay on any subsequent exercise of the right to collective enfranchisement, either because the market has risen or because the unexpired terms of their leases are shorter, or both.
[14] As well as an actual withdrawal of an initial notice, the Act prescribes circumstances in which an initial notice is deemed to be withdrawn. Thus, if the terms of acquisition have been agreed and no binding contract entered into but no application is made to the court for a vesting order within the period of two months after the end of the appropriate period, there is a deemed withdrawal of the initial notice under section 20(2). There is also a deemed withdrawal under sections 24(2) and 29(2) if the terms of acquisition remain in dispute and no application is made to the LVT within six months of the date of the counternotice. There are other circumstances as well, but the details of these do not matter.
[15] The contents of the conveyance are dealt with by section 34. The parts of that section relevant to this appeal are as follows:
(9) Except to the extent that any departure is agreed to by the nominee purchaser and person whose interest is to be conveyed, any conveyance executed for the purposes of this Chapter shall
(a) as respects the conveyance of any freehold interest, conform with the provisions of Schedule 7, and
(b) as respects the conveyance of any leasehold interest, conform with the provisions of paragraph 2 of that Schedule…
(10) Any such conveyance shall in addition contain a statement that it is a conveyance executed for the purposes of this Chapter, and any such statement shall comply with such requirements as may be prescribed by rules made in pursuance of section 144 of the Land Registration Act 1925 (power to make general rules).
[16] Schedule 7 contains the following. In para. 2.2:
The freeholder shall not be bound
(a) to convey to the nominee purchaser any better title than that which he has or could require to be vested in him, or
(b) to enter into any covenant for title beyond those implied under Part 1 of the Law of Property (Miscellaneous Provisions) Act 1994 in a case where a disposition is expressed to be made with title guarantee;
and in the absence of agreement to the contrary the freeholder shall be entitled to be indemnified by the nominee purchaser in respect of any costs incurred by him in complying with a covenant implied by virtue of section 2(1)(b) of that Act (covenant for further assurance).
[17] Mr Swirsky said that the Act makes a binary distinction: either terms are agreed or they are in dispute. There is no halfway house. The mechanism for resolving disputes over the terms of a conveyance is to go to the LVT. If there is nothing for the LVT to decide, there cannot by definition be a dispute. If there is no dispute, then, by default, the terms must be agreed. In the present case, the first objection taken to the form of the draft transfer was that it did not contain the statement required by section 34(10). This is a mandatory requirement. There was quite simply nothing to argue about and therefore there was no dispute about that. So far as the second objection was concerned, the Act says that unless a departure from Schedule 7 is agreed, the terms set out in Schedule 7 must be included in the conveyance. Those terms include the limited title guarantee. Once the reversioner had said that it was not prepared to give a full title guarantee, that was the end of that. The LVT could not have compelled the reversioner to agree to depart from the default terms of Schedule 7; the reversioner was in an impregnable position. So once again there was nothing to argue about. Since there was nothing to argue about, there was no dispute. Once again, if there was no dispute, the terms must have been agreed. Mr Swirsky recognised that the nominee purchaser might be unhappy that the reversioner refuses to give a full title guarantee, but his remedy in that case is to withdraw from the transaction, as the Act entitles it to do.
[18] The judge did not accept this argument and nor do I. First, whether a term has been agreed is, in my judgment, a question of fact. The Act does not deem a term to have been agreed when in fact it has not. Second, a dispute may arise in fact even if the outcome of a dispute is a foregone conclusion. We all have experience of litigants advancing hopeless cases with no prospects of success. It would be a misuse of language to say that there was no dispute simply because the outcome was inevitable. This is consistent with the view of the ordinary meaning of the word “dispute” addressed by Savile J in Hayter v Nelson Homes Insurance Co [1990] 2 Lloyd’s Rep 265 and confirmed by the Court of Appeal in Halki Shipping Corporation v Sopex Oils Ltd (The Halki) [1998] 2 All ER 23.
[19] Third, in a case such as the present, where it was open to the parties to agree a departure from the default provisions of Schedule 7, I see no reason why the proponent of a change must take an initial refusal at face value and cannot make another attempt to secure agreement. It is plain on the facts of this case that the nominee purchaser’s solicitor persisted in its attempt to secure a full title guarantee by submitting a second version of the transfer containing that covenant on 1 September and, moreover, asking for it to be approved on 8 September. To put it at its lowest, it had not then given up hope of securing the reversioner’s agreement to the full title guarantee. In addition, until 11 September the only draft transfer actually in existence was that which contained the full title guarantee.
[20] Fourth, such indications as there are in case law suggest that what one is looking for is positive agreement rather than silence. In Goldeagle Properties Ltd v Thornbury Court Ltd [2008] EWCA Civ 864; [2008] 3 EGLR 69, HH Judge Collins held that there was no |page:45| agreement on the terms of a transfer until there had been an express indication that the terms of a transfer had been agreed. His decision was upheld by the Court of Appeal. It rejected an argument that agreement on terms was implicit in the fixing of a price for the freehold. The lesson that Jacob LJ drew from the case was, as he put it in [28]:
When a party makes a reference it should ensure that all the points that are not agreed are put before the LVT for determination at the outset. It should say what it wants. If even seemingly minor matters (for example, the terms of the transfer in a case where these are likely to be routine) have not been positively agreed, the LVT should be asked to determine them.
[21] Thus, it is clear, in my judgment, that the Court of Appeal took the view that positive agreement rather than implicit agreement was that which was necessary. This, as I see it, is the opposite approach to that which Mr Swirsky advocated. Assuming, therefore, that there is a stark dichotomy between terms that are agreed and terms that are in dispute, Jacob LJ held in effect that terms that are not positively agreed are deemed to be in dispute or, to use the language of section 24(1), “remain in dispute”. Likewise, in Westminster City Council v CH2006 Ltd [2009] UKUT 174 (LC), HH Judge Robinson, sitting in the Upper Tribunal, said that so long as any of the terms of acquisition are not agreed those terms remain in dispute. The test that she proposed in [23] of her judgment, which I consider to be a workable test, was:
it must be clear that negotiations have been completed and final agreement has been reached, either orally or in writing, on a specific term or terms that is not in any way contingent on agreement or determination of some other term or terms.
[22] In the present case, there was an express acknowledgement by the nominee purchaser that the terms had been agreed but that acknowledgement did not take place until the letter of 24 October 2006. For these reasons, I consider that the judge was right to hold that the terms of the acquisition had not been agreed earlier than 11 September 2006, with the consequence, as I understand it, that the application for a vesting order was made in time. Consequently, I dismiss the appeal.
Appeal dismissed.
