Leasehold Reform Act 1967, section 3(1) as amended by the Housing Act 1980 — Whether respondents, underlessees, failed to qualify for enfranchisement because the amended proviso to section 3(1) excluded their underlease from being treated as a ‘long tenancy’ — Amendment to proviso, introduced by the Housing Act 1980, was intended to cut down its scope — Construction of phrase in proviso ‘in pursuance of a contract entered into before that date’, ie before April 18 1980 — Appeal from decision of Vinelott J in favour of underlessees
was whether the respondents’ underlease, which otherwise qualified for
enfranchisement, was defeated because it had been granted in pursuance of such
a contract — The explanation of the problem was as follows — The respondents’
underlease, in common with a number of tenancies granted after 1967, contained
a ‘royal lives clause’, ie a provision that the tenancy was terminable by
notice after the death of the last survivor born before the date of the lease
of the issue of King George the Fifth — This clause was employed by landlords,
or their knowledgeable advisers, to exploit a loophole in the proviso to
section 3(1) as originally enacted — This simply provided that a tenancy
terminable by death or marriage was not to be treated as a long tenancy (and
hence not eligible for enfranchisement) — By introducing a royal lives clause a
landlord could grant a lease much longer than 21 years, if desired, without
creating a ‘long lease’ within the meaning of the Act and so without the danger
of enfranchisement — The 1980 amendment cut down the scope of the excluding
device — It was made subject to two conditions, one of which, condition (a),
was relevant to the present litigation — This provided that a tenancy was not
to be treated as a long tenancy if it was granted before April 18 1980 (the
date of the publication of the Housing Bill) or ‘in pursuance of a contract
entered into before that date’
respondents’ underlease was actually granted in 1982, but it was suggested on
the part of the appellant landlords that it was granted in pursuance of a
contract entered into before April 18 1980 — The appellants’ argument was that
the underlease had been granted in accordance with provisions in a building
lease for 121 years from December 5 1972 — It was an express term of the
building lease that the lessees could sublet only on the terms set out in a
schedule, which included a royal lives clause — The appellants sought to rely
on the terms of the building lease in support of the construction that the
respondents’ underlease was granted in pursuance of a contract entered into
before April 18 1980 — The building lease clearly envisaged that when the
houses had been built the developer would grant tenancies in the prescribed
form — There was, however, no provision obliging the lessees to grant
underleases — Vinelott J and the Court of Appeal found it impossible to spell
out from these circumstances that the respondents’ underlease was granted in
pursuance of a contract entered into before April 18 1980 — In April 1980 the
lessees were not bound to grant an underlease to anyone — The words ‘or in
pursuance of a contract entered into before that date’ were capable of a
perfectly straightforward interpretation, namely, to cover the case where a
contract for a lease had not actually been completed before April 18 1980 — The
appeal was accordingly dismissed
No cases are
referred to in this report.
This was an
appeal by Proma Ltd and Wrotham Park Settled Estates, plaintiffs below, from
the decision of Vinelott J (reported at [1989] 1 EGLR 112; [1989] 10 EG 106)
rejecting the declaration sought by the plaintiffs in regard to the application
of the proviso to the definition of a ‘long tenancy’ in section 3(1) of the
Leasehold Reform Act 1967 and holding that the defendants (present
respondents), Peter James Curtis and Ann Curtis, were entitled to acquire the
freehold of their house at 2 Beaumont Place, Hadley Common, Barnet, Herts. The
freehold and leasehold reversions were held by the appellants: the precise
relationship between Proma Ltd and Wrotham Park Settled Estates was not made
clear.
David
Neuberger QC and Miss Sonia R S Proudman (instructed by Farrer & Co)
appeared on behalf of the appellants; W R Stewart-Smith (instructed by Male
& Wagland, of Potters Bar) represented the respondents.
Giving
judgment, O’CONNOR LJ said: In this case the respondents are entitled to
enfranchise the leasehold of their house under the provisions of the Leasehold
Reform Act 1967 if their lease is a long tenancy as defined by section 3(1) of
that Act as amended by the Housing Act 1980. It is a long tenancy unless
excluded by the proviso to section 3(1). That proviso as originally appearing
in the 1967 statute reads:
Provided that
a tenancy granted so as to become terminable by notice after a death or
marriage is not to be treated as a long tenancy.
The landlord
soon discovered that the purpose of the Act could be circumvented by the
introduction of what became known as a royal lives clause. An example of that
is found in the lease in the present case. It provides:
PROVIDED
ALWAYS [that] THIS LEASE IS MADE UPON [the] EXPRESS CONDITION that the tenant
may at any time after the death of the relevant person give not less than six
months previous written notice to the lessor to terminate this lease on one of
the usual quarter days and the term hereby granted shall cease on the date for
which such notice of termination has been given and every covenant and
condition herein contained shall become void but without prejudice to any
claims by the lessor against the Tenant in respect of any antecedent breach by
the Tenant of any covenants or conditions on the part of the Tenant herein
contained.
‘Relevant
person’ was defined to mean: ‘the last survivor of the issue whether children
or more remote actually born before the date of this Lease of His late Majesty
King George the Fifth’.
In order to
put the Act back on the rails, Parliament amended the proviso in 1980, so that
it now reads:
Provided that
a tenancy granted so as to become terminable by notice after a
(a) it was granted before 18th April 1980 or in
pursuance of a contract entered into before that date; or
(b) the notice is capable of being given at any
time after the death or marriage of the tenant
and various
other provisions which are not material to the present case.
In the present
case the only point is whether the appellants can bring themselves within that
part of the proviso ‘or in pursuance of a contract entered into before that
date’. Quite shortly, what happened was that a building lease was created in
1973. It was an express term of that lease that the lessees could sublet only
on the terms of a lease which was set out in full in a schedule to the lease,
and those terms included a royal lives clause, so that as at the date of the
creation of the building lease the Leasehold Reform Act was effectively
excluded.
It took a bit
of time to build the three houses which were the subject-matter of the building
lease and they were not ready before 1980, so that the sublease of the
respondents’ house came into being in 1982, and the question here is,
therefore, ‘can the appellants rely on the terms of the headlease to bring
themselves within the terms of the proviso?’
The learned judge has held that they cannot. Mr Neuberger QC has submitted
that the true construction of the words ‘in pursuance of a contract entered
into before that date’ enables the appellants to rely on the 1973 lease. Mr
Stewart-Smith, for the respondents, submits that there is no ambiguity in the
proviso, that it is dealing with two things: a tenancy granted so as to become
terminable by a notice after death if, namely, such a tenancy was granted
before April 18 1980 — this one was not — or if it was granted in pursuance of
a contract entered into before that date, namely that there was a contract which
made it a term that such a tenancy was to be granted. There is no provision in
the 1973 lease which requires the lessee to sublet. Of course it was intended
that he should. There is no point in a building lease unless the lessee can
realise the object of the exercise by creating subleases. But there was no
obligation so to do. The judge so held. In my judgment he was right and I would
dismiss this appeal.
STOCKER LJ agreed and did not add anything.
Also agreeing,
NICHOLLS LJ said: The Leasehold Reform Act 1967 came into force on
January 1 1968. The Act conferred valuable rights on certain tenants. The
object of Part I of the Act was to confer on a tenant of a leasehold house who
occupied the house as his residence a right to acquire the freehold or an extended
lease when prescribed conditions were fulfilled. One of the conditions was that
the tenancy was a long tenancy at a low rent. The meaning of ‘long tenancy’ was
set out in section 3. Shortly stated, section 3(1) provided that a long tenancy
was a tenancy granted for a term of years certain exceeding 21 years, whether
or not terminable earlier. But a proviso to the subsection excluded one class
of tenancies from this definition. As originally enacted the proviso read:
Provided that
a tenancy granted so as to become terminable by notice after a death or
marriage is not to be treated as a long tenancy.
I would think
that in 1967 commercial leases terminable in this way were comparatively rare
creatures. It may be that the draftsman had in mind section 149(6) of the Law
of Property Act 1925. Be that as it may, lawyers were quick to exploit the
loophole afforded by this proviso. They saw how this proviso could be used to
exclude leases from enfranchisement, even though they were granted for a term
much longer than 21 years. A long lease could be granted containing a power to
terminate after the death of the last survivor of a group of individuals. This
would be within the proviso and thus the lease would be outside the
enfranchisement provisions, even though the chosen group of individuals might
have no connection whatever with the parties. Hence the provision might be so
drawn that in practice the lease would not be terminable short of the
expiration of the prescribed term of years.
That is what
lay behind the arrangements made in this case in 1973. Had the 1967 Act
remained in its original form, clearly the defendants would not have qualified
for enfranchisement. Their underlease would have fallen squarely within the
ambit of the excluding proviso. But in 1980 the Housing Act of that year had
been enacted. That Act amended the definition of ‘long tenancy’ in the 1967
Act. That amendment was made after the grant of the building lease in 1973, but
before the development was finished, and Originola Properties Ltd [headlessees]
granted an underlease of 2 Beaumont Place to Olive Blyth in 1982. She was the
defendants’ predecessor in title. The effect of the amendment was to cut down
the scope of the excluding proviso. Thenceforth, a tenancy terminable by notice
after a death or marriage had to satisfy one or other of two conditions before
it fell within the proviso. These conditions have since been amended further in
1985, but nothing turns on the further amendments. The condition material in
the present appeal is condition (a). As amended in 1980 by the addition
of condition (a), the proviso to section 3(1) read as follows:
Provided that
a tenancy granted so as to become terminable by notice after a death or
marriage is not to be treated as a long tenancy if . . . (a) it was
granted before 18th April 1980 or in pursuance of a contract entered into
before that date. . . .
We were
informed that April 18 1980 was the date of publication of the Housing Bill.
In this case
the first limb of condition (a) was not satisfied. The defendants’
underlease was not granted before April 18 1980. What is in issue is whether
their underlease was granted ‘in pursuance of a contract entered into before
that date’. Clearly the 1973 building lease envisaged that when the houses had
been put up the developer would grant tenancies in the prescribed form. That
was the way in which it would sell the houses, recoup its expenditure and
obtain its profit. The issue in this case is whether those circumstances are
sufficient to satisfy the second limb of condition (a).
Words take
their meaning from the context in which they are used. The purpose of the
introduction of conditions (a) and (b) into the proviso was, as I
have said, to cut down the scope of the proviso. Thenceforth, not all leases
terminable by notice after a death or marriage were to qualify for exclusion
from the enfranchisement provisions. Thenceforth, under condition (b),
the lease had to be one where the notice was capable of being given at any time
after the death or marriage of the tenant, the notice required must not exceed
three months in length, and assignment or subletting of the whole of the
demised premises had to be precluded by the terms of the lease. None of those
requirements, I observe in passing, was satisfied in the case of the underlease
granted to Olive Blyth: the giving of the termination notice was not geared to
the death or marriage of the tenant, more than three months’ notice was
required, and assignment and subletting of the whole was not absolutely
prohibited.
Amending the
proviso by adding the requirements of condition (b) left a transitional
problem. Was the amendment to apply to existing leases? Parliament decided that the amendment should
not so apply. That is the first limb of condition (a) to the proviso.
Having taken that step, it was eminently sensible that Parliament should treat
in the same way a case where, before the prescribed date in April 1980, a
contract had been entered into for the grant of a lease which was duly
completed after that date. If a lease between two parties was to be outside the
scope of the amendment if entered into before April 1980, there would seem to
be little sense in not affording the same treatment to a specifically
enforceable contract between those parties for the grant of a lease made before
that date but duly completed thereafter.
Thus far there
is no difficulty. Nor is there any difficulty with a case on the other side of
the line, where there was no contract at all in existence before April 1980. A
landowner might have bought land and decided to develop it by granting a long
lease terminable after the death of a person other than the tenant. The 1980
Act would apply to such a case even though it affected the plans made by the
landowner, on the basis of the existing legislation, for the most advantageous
way in which to realise his property.
In the present
case, in April 1980 Originola was not bound to grant an underlease to anyone.
True, it was precluded from granting an underlease of the houses separately,
which was the way it expected to sell them, save by an underlease in the
prescribed form. But in the context of this proviso I do not think one would
regard the underlease granted by Originola to Olive Blyth in 1982 as one
granted in pursuance of a contract entered into before April 1980. The
underlease was not granted in fulfilment of an obligation to anyone. In
agreement with the judge, I think that in condition (a) there is the
notion that the underlease granted post-April 1980 was by way of completion of
a contractual obligation brought into existence before that date. The contract
referred to in condition (a) is one pursuant to which a lease is
granted. In normal usage a grant of a lease in pursuance of a contract
contemplates that the grant was in fulfilment of obligations initially
undertaken by the party in that contract: the one party to grant the lease, the
other to accept it.
Mr Neuberger
drew our attention to section 37(1)(f) of the 1967
equity. It is pointed out that the second limb of condition (a) in the
proviso is not needed to cover a case where a lessee has gone into possession
under a contract and completion is due but the parties have not actually
executed a formal lease. This may be so, but I do not think that this casts
doubt on the construction which I prefer of condition (a).
Notwithstanding section 37(1)(f), this construction still leaves the
paragraph with a sensible scope for operation. In particular, it applies in an
obvious transitional case — namely, where the contract had been entered into
before April 1980 and the contractual date for completion had not arrived by
the prescribed date in April 1980.
Mr Neuberger
further submitted that it would be anomalous if obligation were the touchstone.
He pointed out that would mean that if in the present case Originola had been
obliged, as distinct merely from being permitted, to grant underleases in the
prescribed form, those underleases would have been outside the scope of the
amendment. I am not able to attach weight to this feature. It is a consequence
which flows from drawing the line between a grant made pursuant to an
obligation and a grant not made pursuant to an obligation in an unusual case.
The present case is unusual because it is one where what is relied on, as a
contract pursuant to which a lease has been granted, is not the normal form of
a contract preceding the grant of a lease but a formal headlease out of which
underleases were to be carved in favour of others. One can perhaps test the
appellants’ case by considering another example. Take the case of a long lease
of a single house entered into before April 1980 containing a royal lives
termination provision. The lease prohibits underletting except on terms which
include a like termination provision. On the appellants’ argument such an
underlease, if one were ever to be granted, would, whenever it was granted,
satisfy condition (a). Mr Neuberger did not shrink from supporting that
conclusion. But I do not find it at all attractive. A construction of condition
(a) which would include such a case seems to me to be far wider than
could have been intended.
I return to
the present case. I agree with Mr Stewart-Smith that here the contract pursuant
to which the underlease to Olive Blyth was granted was and was only the
contract, if any, made by her with Originola immediately prior to the grant of
the underlease. The plaintiffs may indeed have made dispositions of their
property on terms which under the then current legislation would not have given
the householders a right of enfranchisement. Unhappily for the plaintiffs, the
legislation was changed, and the transitional relief afforded was not, in my
view, couched in terms wide enough to embrace the arrangements made by the plaintiffs.
I, too, would
dismiss this appeal.
The appeal
was dismissed with costs; application for leave to appeal to the House of Lords
was refused.
