JUDGE COLLINS:
1. On 10th April 2007 the claimants issued an application under s. 25(1) of the Leasehold Reform, Housing and Urban Development Act 1993, seeking that the freehold interest at 1 Redcliffe Street, London SW10 should be acquired by them on the terms set out in the notice dated the 19th September 2006 or such order as the court thought fit.
2. On 21st May 2007, the defendants, who are the freeholders, issued the current application, which is for the claim to be struck out and/or there be summary judgment for the defendant because the claim is misconceived in law.
3. So far as is material, the history is as follows. The claimants served an appropriate notice under s. 13 of the Act on 19th September 2006 on Mr. and Mrs. Gurden, who were the then registered owners. The notice, as was required by statute, gave until 26th November 2006 as the last date on which a counter-notice under section … of the Act could be served.
4. On 8th November 2006, as may be gleaned from the Land Registry entries, although no other documents have been put in evidence, the defendant completed the purchase of the reversion from the Gurdens and on 12th January 2007 the defendants registered that acquisition. Meanwhile, on 20th November 2006 (six days before the expiry of the permitted period) a counter-notice under the Act was served, but it was not served by the Gurdens, who were the registered proprietors until 12th January 2007. It was served by the defendants, who had completed the purchase of their interest but had not registered it.
5. The issue which has to be determined on this application is whether the counter-notice so served was a good counter-notice, in which case the present application by the tenants, being based under s. 25 of the Act, is an inappropriate application because s. 25 applies where no counter-notice has been served. Put at its simplest, the argument for the tenants is that the person on whom notices are to be served under the Act, and who can serve notices under the Act, can only be the registered proprietor, and that position is not affected in the present case by the operation of s. 19 of the Act, which specifically addresses the possibility of one or more disposals of the reversion during the currency of the tenant’s initial notice.
6. Section 9(1) of the Act provides as follows:
“Where, in connection with any claim to exercise the right to collective enfranchisement in relation to any premises [the freehold of the whole of which is owned by the same person], it is not proposed to acquire any interests other than: (a) the freehold of the premises, or [(b) is immaterial for present purposes] that person shall be the reversioner in respect of the premises for the purposes of this Chapter.”
7. In his argument for the tenants, Mr. Radevsky refers quite simply to s. 27 of the Land Registration Act 2002, which is headed “Dispositions required to be registered”, and subsection (1), which is relevant for present purposes, reads as follows:
“If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met.”
8. Mr. Radevsky submits that whether or not the rights and obligations of the parties in equity altered on 8th November 2006, when the transfer of the reversion was effected, none the less, the Gurdens remained the legal owners and the defendants were only owners in equity until 12th January, and the tenants cannot be interested, for the purposes of receiving and serving notices under the Act, in equitable interests.
9. He supported his submission by reference to the decision of Harman J. in Smith v Express Dairy Company Limited, on 27th November 1953, noted briefly in [1954] JPL 45. As the report is extremely short, I will read the whole of it:
“The defendant company, the registered owners, let a shop to the plaintiff. Subsequently the defendants transferred their interest in the property to a subsidiary company. The transfer was not registered but entire control of the property was handed over. Both companies used the same offices but had different writing paper. The subsidiary company served notice to quit on the plaintiff, who commenced county court proceedings under the 1927 Act for a new lease or compensation for loss of goodwill. The defendants denied that they were proper parties to the proceedings and the plaintiff learned for the first time of the transfer of the property. The plaintiff then took out a summons to determine whether the notice to quite served by the subsidiary company was valid.
Held, that as the transfer of the property had not been registered, the legal estate remained in the defendants and, therefore, unless the subsidiary company had given the notice to quit as the agents of the defendants, or could be inferred to have given it as agents, the notice was bad [I need not read the rest of the headnote]”.
10. For a variety of practical reasons, it seems to me that the principle underlying that decision must operate in the present context. Mr. Lonsdale, on behalf of the landlords, conceded, effectively, that rules for service applying to the tenant under the Act must also apply to service by the landlord under the Act. It would not be appropriate for there to be anything other than a consistency of approach. It is easy to imagine situations in which the tenant could have no real idea of the state of play regarding ownership of the property apart from reliance on the register. There is no evidence in this case before the court that the tenants were aware that the property had been transferred, although Mr. Lonsdale indicated that such evidence was available had it been sought to be introduced. But it does not seem to me that the Act can be operated sensibly by relying on a distinction between those cases where the tenant knows that the landlord has sold the reversion and those cases where the tenant does not know that the landlord has sold the reversion. After all, the basic principle underlying land registration is that a purchaser, even with actual notice of an encumbrance that needs to be registered, takes free of that encumbrance unless it is registered, and it seems to me that basic principle runs through the law of land registration and must apply equally in the present case. The tenant has to know who he is to serve notices on, and he has to know who is serving notices on him, and it seems to me that the argument that that has to be the registered owner is irresistible.
11. Subject to the operation of s. 19(3), it does not seem to me that that necessarily creates any injustice or difficulty for a purchaser, who is always entitled to protect himself, either by express contract or stipulations or by drawing upon the obligations which remain upon the vendor as a result of whatever remains of the equitable relationship after a transfer has been executed but before it is registered. It seems to me that in principle the reversioner, for the purpose both of receiving and giving notices, must mean the registered proprietor.
12. The more difficult question, in my judgment, relates to the effect of s. 19 of the 1993 Act, and it is headed, “Effective initial notice as respects subsequent transactions by freeholder”. Subsection (1) refers to the initial notice, and
I shall read the whole of subsections (2) and (3), which are material. Subsection (2) reads,
“Where the initial notice has been so registered and at any time when it continues in force:
(a) The person who owns the freehold of the whole, or any part of the specified premises, or the freehold of any property specified in the notice, disposes of his interest in those premises or that property [I shall ignore (b) for the moment]
subsection (3) below shall apply in relation to that disposal”.
13. Subsection (3) provides:
“Where this subsection applies in relation to any such disposal as is mentioned in subsection (2)(a) or (b), all parties shall for the purposes of this Chapter be in the same position as if the person acquiring the interest under the disposal:
(a) had become its owner before the initial notice was given (and was accordingly a relevant landlord in place of the person making the disposal), and
(b) had been given any notice or copy of a notice given under this Chapter to that person, and
(c) had taken all steps which that person had taken [the rest of the subsection refers to subsequent disposals, which I need not read for the purposes of this action].”
14. The submission of Mr. Radevsky, for the tenants, is that all that subsection means is that at the date of the disposal, which is 12th January 2007, the defendants, on acquisition of the reversion, and legally perfecting their title, simply take over everything that has or has not been done up until that date by their predecessors, and whatever the legal status of what has or has not been done enures to the benefit or disadvantage, as the case may be, of the new owner.
15. The submission of Mr. Lonsdale, on behalf of the landlords, is that on the true construction of both subsections, they effectively validate retrospectively, as at 12th January, anything done prior to 12th January which would not otherwise have been a valid act because of the reasons I gave in dealing with the first part of the application.
16. It is necessary to look a little more closely at the wording of the subsections in order to deal with these respective arguments. The key date for considering the operation of the subsections must be the date of the disposal, and, as I have already indicated, in this case it is 12th January. What the Act says happens at 12th January is that the defendants are in the same position as if they had become the owner prior to 19th September, as if they had been given the initial notice and had done anything which the vendors had done and the vendors had done anything in relation to the notice. In my judgment, having considered the respective arguments, it seems to me to be not sensible to hold that, notwithstanding my finding on the first part of the application, the defendants could do something prior to 12th January which they had no legal right or power to do and that that was retrospectively validated, and it seems to me there are good practical reasons for Mr. Lonsdale’s argument about this not being right. The practical reason is that it does not necessarily follow that the purchaser in any particular case would be swift about effecting his registration of his title, and the tenants, in any particular case, might receive a notice from someone who is not entitled to give it, because they were the reversioners, and would have no means of knowing, perhaps until some date far in the future, whether any claim was going to be made that such an act was going to be retrospectively validated as at the date of some future disposal, and it seems to me the position has to be clear as at the date the notice was served. Once that position is clear and regularised, the purchaser simply acquires a clear and regularised position from his vendor, and it seems to me that, in truth, is the way that the subsections operate.
17. So, for those reasons, it seems to me that this application must fail.
[LATER]
18. As I indicated at the commencement of my judgment, it seems to me that although this is formally an application to strike out, and summary judgment, in fact it has been very sensibly and properly argued, as a full argument on the legal question of the validity of the counter-notice, that the defence settled by
Mr. Lonsdale on behalf of the defendants raises no other issues on the
counter-notice other than those which I have determined against him as a matter of law, and, accordingly, it seems to me that Mr. Radevsky is entitled to a declaration that no valid counter-notice has been served.
[LATER]
19. In the light of my judgment, all that remains in this case is, firstly, the matter pleaded in paragraph 2 of the defence (which I will call the Cadogan v Morris point) and, secondly, the waiver point pleaded in paragraph 3 of the reply. The matters can be dealt with very shortly.
20. It is the obligation of the court, under the Civil Procedure Rules, where any case comes before it, to deal with as many outstanding matters as it can on that occasion, for the obvious reason, firstly, of saving costs, and, secondly, to ensure that litigation is progressed with expedition, and it seems to me entirely appropriate that I should consider what directions to give for the future conduct of the case.
21. The Cadogan v Morris point is based on the decision of the Court of Appeal in the case of that name, reported at [1996] 4 All ER 643, and, essentially, the decision of the Court of Appeal in that case was that the tenant is under an obligation in his notice to specify the price he proposes to pay, and therefore if he puts in his notice a figure which he never proposes to pay, because he knows it is ludicrously low, he has not served a notice which accords with the letter of the Act, and in Cadogan v Morris the figure was an obviously nominal one.
22. A later constitution of the Court of Appeal considered the position in
23. How does the judge go about deciding whether or not the tenants’ proposal is made in good faith? Lord Justice Auld refers to this in paragraph 44. In the middle of that paragraph he says,
“As I have mentioned in the last paragraph, and as the judge observed at paragraph 62 of his judgment, Stuart Smith L.J.’s contemplation of the County Court’s resolution of such an issue by a brief enquiry, with limited evidence from the tenants and landlord, not apparently the respective professional valuers, suggests that it was a subjective element of genuineness of the proposal that was uppermost in his mind. I am therefore of the view that if the judge needs to consider this at all, he was right to find that lack of good faith is the sole necessary pre-condition of a declaration of the invalidity of a landlord’s counter-notice under these provisions”.
24. Counsel will obviously be able to agree the directions for disclosure and witness evidence necessary for the matter to be dealt with, but the matter about which there is a dispute, and about which I have to make a ruling, is whether the judge needs, in order to determine whether the tenants’ proposal was in good faith, expert evidence, either from both sides or from a jointly instructed surveyor, as to what the possible range of purchase price might be. Plainly, Mr. Radevsky is right when he submits that offering below that range does not of itself mean that an offer is made in bad faith, it may be a perfectly legitimate opening bid, contrasted with Cadogan v Morris itself, where the proposal was never a sensible proposal, even for the purpose of starting negotiations, just a purely nominal offer. But it seems to me that a situation could easily arise where the initial offer was very greatly below the lowest range but the judge, nevertheless, concluded that the tenant had made the offer honestly. Possibly the defendant had not obtained any expert advice, possibly the defendant might have put in simply what they thought it was worth to them, bearing in mind what they had paid for their leaseholds and what they expected to be able to get out of it, one just does not know, but the valuation evidence is certainly not evidence which could be capable of being conclusive as to the bona fides of a person making the offer. What is a much better guide is not opinion evidence but what the facts are, and, on the face of it, the defendants paid for the property more or less what the tenants offered. The landlords may have got a bargain, but I suppose that proves the point of the tenants wanting to get a bargain as well. So, it seems to me that although there is a reference to the court hearing evidence from the tenant and the landlord,
I am not really very sure what the landlord can add. It is for the tenant to satisfy the judge that he was acting in bona fides, and there will be rare cases where the landlord has got any evidence to offer on the point, but this may be one, I do not know.
25. It seems to me this is a very short enquiry for the judge to make. The tenants will have to give their evidence, explain why they have put the figure in and the judge will have to decide whether they were honest or not. It is the sort of job that judges do all the time, and it seems to me the cheaper and quicker that exercise can be, the better for everybody. So I am not going to order expert evidence. I will direct disclosure of documents and for the service of witness statements in the ordinary way to deal with both the Cadogan v Morris point and the waiver point, and counsel can agree dates for all that.
JUDGE COLLINS: How long should we allow? A day should be plenty for that,
I would have thought.
MR. RADEVSKY: I would have thought so, my Lord.
JUDGE COLLINS: We will allow a day for the trial. I do not think there is any point reserving it to myself, because I have not heard any evidence and it will be a completely different point anyway, so I am quite happy to do it if it comes in front of me in the normal way, but it does not need to. So that is that.
MR. RADEVSKY: That, I think, just leaves the question of costs.
JUDGE COLLINS: Yes, costs.
MR. RADEVSKY: I ask for an order that the defendants pay the claimants’ costs. As I mentioned, there is a costs schedule, which I hope your Honour has. If you do not, I can provide one.
