A statutory right of first refusal under Part 1 of the Landlord and Tenant Act 1987 exists for qualifying tenants of premises, held under a long lease, when their landlord makes a relevant disposal. In the absence of a reasonable excuse, it is a criminal offence for a landlord to make such a disposal to a third-party purchaser without first offering the interest to the QTs. The 1987 Act also provides a mechanism to compel the third-party purchaser to transfer the interest acquired to the QTs’ nominee.
S Franses Ltd and others v Block 6 Ashley Gardens Roof Gardens Ltd and others [2023] EWHC 2880 (Ch); [2023] PLSCS 191 provides useful guidance on the contents of the notices served in compliance with that mechanism.
The provisions
Section 1 prohibits a landlord from making a relevant disposal of the premises to which Part 1 applies without first serving a notice under section 5 on the QTs offering them the right of first refusal.
In default of a section 5 notice being served, a requisite majority of the QTs can serve a purchase notice under section 12B(2) requiring the third-party purchaser to dispose of the interest to the QTs’ nominee on the “terms on which it was made (including those relating to the consideration payable)”.
Section 19(1) empowers the court, on the application of any interested person, to make an order requiring any person who has defaulted in complying with any duty imposed on him by any provision under Part 1 to make good the default. Section 19(2) provides that an application cannot be made unless a notice has first been served on the person in question requiring the default to be made good (“the default notice”).
No offer
Block 6 Ashley Gardens Ltd was the freeholder of a block of flats in London. The long leaseholders of the flats were all QTs and shareholders in the freeholder.
During the April 2012 AGM, the directors of the freeholder were given authority to negotiate leases of the roof with S Franses Ltd, James Ramsey and Ian McCaig, who held long leases of flats on the top floor of the block. However, the other QTs were not notified of their rights under section 5.
The roof leases were granted in July 2012 for a premium of £1. It was a condition of the grant that S Franses, Ramsey and McCaig would carry out certain defined works. Additionally, S Franses and Ramsey orally agreed to undertake works to the common parts of the building.
The realisation
The QTs subsequently learnt that they had been deprived of their right of first refusal. In March 2020, a requisite majority of the QTs served purchase notices on S Franses and Ramsey, requiring them to dispose of the roof leases on the terms made under the original disposal to the tenants’ nominee purchaser, Block 6 Ashley Gardens Roof Gardens Ltd.
In July 2020, default notices, appending a form TR1, were subsequently served on S Franses and Ramsey. The default notice referred to the purchase notices and required them to transfer the roof leases to Block 6 Ashley Gardens Roof Gardens. At trial, S Franses and Ramsey argued (among other things) that the default notices were invalid because they did not require compliance with the purchase notices; rather, the notices sought the execution of a form TR1 for consideration of £1, which imposed an entirely different obligation.
The penalty
The trial judge found that the default notices were valid. They essentially called on S Franses and Ramsey to comply with their obligations under section 12B. Further, it was sufficient notice under section 19(2)(a) as it required them to make good their default.
Exercising its discretion under section 19, the court declared that Block 6 Ashley Gardens Roof Gardens was entitled to acquire the roof leases, on the terms they were originally made, including the consideration payable. The sums expended by S Franses and Ramsey for the works carried out to the roof and under the oral agreement were also to be reflected in the purchase price payable.
Clarity
In dismissing S Franses and Ramsey’s appeal, the High Court clarified that there was not a prescribed form for a default notice. The requirement was simply for a document that complied with section 19(2). Additionally, the document did not have to accurately set out all the steps that the person in default was required to take to comply with their duty under section 12B(2). Section 19(2) prescribed only the overall meaning that was to be conveyed in a default notice.
Block 6 Ashley Gardens Roof Gardens’ cross-appeal was also dismissed. The High Court found that section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 applied to the oral agreement. It was a contract for the sale or other disposition of an interest in land that was not in writing. The use of the word “terms” in section 12B(2) was not qualified, as contended by the first respondent, to only enforceable terms. Parliament had placed no express limitations on the “terms that mattered” for the purposes of section 12B.
Section 12B had to be construed purposively. It was engaged only when a third-party purchaser had acquired land without a right of first refusal being given to the QTs under section 5. The Act addressed matters looking backwards from the date of the purchase notice, ascertaining what the third-party purchaser had to pay to acquire the interest and broadly speaking allowing the QTs to step into the third-party purchaser’s shoes by acquiring the interest on those terms.
Elizabeth Dwomoh is a barrister at Lamb Chambers
