The severance of a reversion to a lease does not give rise to separate tenancies; the tenant retains a single lease, even though the reversion has become vested in different landlords. What then happens if the owners of the split reversion are unable to agree on a course of action when a tenant’s business lease expires? Can any of the reversioners act independently or must they act in concert to serve a section 25 notice to terminate the tenant’s lease?
The conventional view that all the reversioners must join in giving a section 25 notice was enshrined in section 44(1A) of the Landlord and Tenant Act 1954 with effect from 1 June 2004. Does this mean that a tenant can effectively prevent its landlords from terminating its lease by acquiring one of the reversionary interests?
Eastern Power Networks plc (formerly EDF Energy Networks (EPN plc) v BOH Ltd [2011] EWCA Civ 19; [2011] PLSCS 28 concerned a lease of land that included essential rights of passage to and from the public highway. Over time, the reversion was divided among several landlords. Acting independently, the owner of the land that housed the tenant’s substation, , purported to serve a section 25 notice on the utility company terminating its lease of the substation land.
The utility company did not apply to the court for a new tenancy. It paid a substantial sum to acquire the freehold of the substation and became a co-owner of the leasehold reversion. However, because the rights of passage to and from the substation were not appurtenant to its freehold interest, it remained reliant on the continuation of the lease for the continued existence of rights across the land belonging to its co-reversioners.
The High Court decided that the lease had not been properly terminated because the section 25 notice had not been given by all the reversioners. Consequently, the lease remained in existence, and had continued to do so even though the utility company had acquired the reversion to the substation.
The co-reversioners appealed. They claimed that the leasehold and freehold interests in the substation land had merged, thus extinguishing the leasehold rights of access. They argued that it would be inequitable, and contrary to Article 1 of the First Protocol to the European Convention on Human Rights, to conclude otherwise because the utility company’s ownership of part of the reversion would prevent the service of a section 25 notice terminating the lease.
The Court of Appeal applied section 185 of the Law of Property Act 1925, which precludes mergers by operation of law where there is an equitable presumption against merger. The equitable rule is that the landowner must intend to merge its leasehold and freehold estates and, in the absence of evidence of its intentions, there is a presumption against any merger that would prejudice its interests.
Consequently, the lease remained in existence . It was not necessary to consider the interaction between the Human Rights Act 1998 and the Landlord and Tenant Act 1954 because it was not relevant on the facts of the case. However, the point is an important one and it may resurface in another case.
Allyson Colby is a property law consultant
