Freehold disclaimed — Freehold vested in Crown — Freehold interest determined — Leases surviving — High Court holding that mortgagee had effective power of sale of freeholds
The plaintiff, nominated under section 12 of the Landlord and Tenant Act 1987, by the tenants of 1-90 Southwold Mansions and 1-60 Cleveland Mansions, Maida Vale, London W9, sought to enforce the right under Part I of the Act to purchase the freehold of the premises (consisting of three registered titles) from the defendant. The freehold titles were formerly vested in GR. By a legal charge dated March 31 1988 they were charged to G, as security for a debt. In 1991 a demand was made for payment of the sums secured by the legal charge. In 1992 receivers of the freeholds were appointed. By April 1993 GR had gone into insolvent liquidation. The official receiver, as liquidator of GR, disclaimed the freeholds pursuant to section 178 of the Insolvency Act 1986. In October 1993 G, as mortgagee, sold the freeholds to the defendant for £90,000. The defendant argued that on a disclaimer of the freeholds they vested in the Crown under the medieval doctrine of escheat. The legislation did not apply to the Crown, unless it expressly or impliedly so provided. The 1987 Act, like the old Rent Acts, applied in rem rather than in personam, except as provided in the Act. It therefore had no application to any premises in which the Crown had an interest. When the mortgagee disposed of the freeholds to the defendant, they were vested in the Crown. The Act therefore did not apply to the disposal; and the plaintiff had no right under the Act resulting from that disposal.
Held Part I of the Act applied to the disposal of the freeholds by G to the defendant.
1. On disclaimer of a lease it ceased to exist, although it might be deemed to continue for certain purposes if the lease was not vested in the original lessee when it was disclaimed: see In re A E Realisations (1985) Ltd [1988] 1 WLR 200; Hindcastle Ltd v Barbara Attenborough Associates Ltd [1994] 43 EG 154.
2. The effect of disclaimer was that there was no tenant of the freehold. The Crown had unfettered right to the land.
3. On an escheat brought about by disclaimer the Crown became the owner of the land freed from the previous freehold interest.
4. However, an escheat did not terminate a subordinate interest. The legal charge dated March 31 1988 over, and the leases of the tenants created out of, the freeholds survived the disclaimer: see Re Middle Harbour Investments Ltd [1977] 2 NSWLR 652.
5. At the date of disclaimer the tenants had no right to be preserved by section 178(4). The right which they claimed to enforce arose as a result of the disposal of the freeholds by their mortgagee subsequent to the disclaimer.
6. The freeholds were outside the provision of section 56 of the 1987 Act and Part I of the Act was not excluded by reason of any interest in the Crown. The tenants in this case did not in any meaningful sense become tenants of the Crown.
7. The defendant was the proprietor of the freeholds by reason of a disposal within the meaning of section 4(1A) of the 1987 Act. The draftsman of section 4(1A), which brought a disposal by mortgagee within the scope of Part I of the Act did not have the present circumstances in mind. If this case had been before Parliament it would have expected the Act to be applicable to G’s sale of the freeholds.
James Thom (instructed by Malkins) appeared for the plaintiff; Sian Thomas (instructed by Alice Shackleton) appeared for the defendant; David Elvin appeared as amicus curiae.
