Landlord and tenant — Landlord and Tenant Act 1987 — Tenants’ rights of first refusal — Section 11 notice — Terms of actual disposal differed from contract terms — Whether letter and contract supplied by landlord satisfactory compliance with section 11 notice
In July 1993
the original owner of a freehold block of flats served on the tenants an offer
notice under section 5 of the Landlord and Tenant Act 1987 offering to dispose
of the freehold to them. The tenants failed to nominate a person to act for
them within the stipulated time. In January 1994 the freehold was conveyed to
the respondent landlord. The terms of the disposal did not comply with the
offer notice, and in March 1994 the tenants served on the landlord a notice
under section 11 requiring particulars as to the terms of the disposal of the
freehold. The landlord at first maintained that the tenants were not entitled
to serve a section 11 notice and that the landlord was not obliged to provide
the information sought. The tenants issued proceedings seeking an order
compelling the landlord to provide the information. By a letter dated June 7
1994 the landlord sent a copy of the relevant contract and by its solicitors
refused to confirm that it had complied with the section 11 notice. In fact,
although by terms of the contract the consideration payable by the landlord was
an outright payment of £10,000, a lower consideration of £7,789.95 became
payable following the settlement of a difference between the landlord and the
vendor as to the amount of rent and service charges recoverable. However, on
March 25 1996 the landlord amended its answer in the proceedings to delete a
challenge to the section 11 notice and to substitute a plea that the notice had
been complied with by the provision of the contract on June 7 1994, and that as
the tenants had failed to serve a purchase notice under section 12 of the Act,
they had lost their right to purchase. In the court below it was held that the
landlord had complied with the section 11 notice by the copy contract sent on
June 7 and a subsequent letter of June 13. The applicant, one of the tenants,
appealed.
required that the compliance of the new landlord with a notice served under
section 11(1) must be contained in a single document or given upon the same
date. ‘The terms on which the original disposal was made (including those
relating to the consideration payable)’ are apt to include all terms which,
whether contained in the contract prior to conveyance or provided for
collaterally and operating at the time of the conveyance, amount to an
agreement or arrangement between the parties as to the amount of moneys paid or
payable or yet to be ascertained by the purchaser in connection with the acquisition
of the interest disposed of. There was an obligation on the landlord to make
clear that the terms of the disposal were not the same as those provided for in
the contract. The landlord had prevaricated when asked to confirm if its reply
was in compliance with the section 11 notice; it was incumbent upon the
landlord to make clear the purpose for which it was providing information and
had failed to do so: see Belvedere Court Management Ltd v Frogmore
Developments Ltd [1996] 1 EGLR 59.
The following
cases are referred to in this report.
Belvedere
Court Management Ltd v Frogmore Developments Ltd
[1996] 3 WLR 1008; [1996] 1 All ER 312; [1996] 1 EGLR 59; [1996] 05 EG 131
Belvedere
Motors Ltd v King [1981] 2 EGLR 131; [1981]
EGD 850; (1981) 260 EG 813
Mainwaring
v Henry Smith’s Charity Trustees [1996] 3
WLR 1033; [1996] 2 All ER 220; [1996] 2 EGLR 25; [1996] 29 EG 110
This was an
appeal by the tenant, Frieda Staszewski, from a decision of Mr Recorder William
Rose, who had dismissed an originating application brought by the tenant
against the landlord, Maribella Ltd.
Jonathan Gaunt
QC (instructed by Jeffrey Green Russell) appeared for the tenant; Michael
Daiches (instructed by Edward Lewis) represented the landlord.
Giving
judgment, POTTER LJ said: In this appeal, the appellant (whom I shall
call ‘the tenant’) is the tenant of a flat in a block of 38 flats known as
Melvin Hall and 1 and 2 Arkley Villas (‘Melvin Hall’), Golders Green Road,
London W11. She is the nominee of a group of tenants (‘the tenants’) who occupy
19 of the flats in Melvin Hall under long leases granted by predecessors in
title of the respondents, Maribella Ltd (‘the landlord’) which completed its
purchase of the freehold of Melvin Hall on January 25 1994. The tenants wish to
exercise their right of first refusal and acquire the freehold of Melvin Hall
from the landlord pursuant to the provisions of Part I of the Landlord and
Tenant Act 1987 (‘the 1987 Act’). It is not in dispute that the tenants
constitute a ‘requisite majority of qualifying tenants’ for the purposes of
those provisions.
On March 7
1994, the tenants served notice under section 11 of the 1987 Act on the
landlord requiring the landlord to furnish particulars of the terms upon which
the disposal of the freehold to the landlord had been made. Correspondence then
followed in which the landlord maintained that the tenants were not entitled to
serve a section 11 notice and the landlord was not obliged to provide the
information requested. The tenant issued an originating application for an
order that the landlord disclose the consideration and terms upon which it had
acquired the freehold. The landlord’s solicitors wrote enclosing a copy of the
relevant contract in support of their assertion that the section 11 procedure
was inapplicable. The tenant’s solicitors replied asking for confirmation that
the contents of the letter of June 7 complied with section 11 if such
compliance was necessary. The landlord’s solicitors refused to give such
confirmation and, on June 30 1994, filed an answer contending that the section
11 notice served by the tenant was a nullity.
On March 25
1996, in a last minute volte-face before the hearing of the application, that
answer was amended to delete the challenge to the section 11 notice and to
substitute a plea that the notice had been complied with by the landlord’s
provision of the copy contract on June 7 1994 and that, because in the interim
the tenants had failed to serve a purchase notice under section 12 of the 1987
Act, they had lost their right to purchase.
At the
hearing, Mr Recorder Rose found that the landlord had furnished the required
information in or under cover of the letter of June 7, as supplemented by a
subsequent letter dated June 13 1994. The issue on this appeal is whether those
letters did indeed constitute compliance with the landlord’s duty under section
11(3) of the 1987 Act so as to start time running for the service by the
tenants of a purchase notice under section 12.
Part I of
the 1987 Act
Part I of the
1987 Act operates by imposing upon a landlord of premises to which it applies,
who wishes to make a disposal of his interest, a duty to serve notice upon the
qualifying tenants (defined in section 3) of the principal terms of the
proposed disposal including in particular the property to which it relates, the
estate or interest to be disposed of and the consideration required by the
landlord for making the disposal: see sections 1 and 5(1) and (2). Such a
notice constitutes an offer to sell on the terms stated in it, which the
requisite majority of qualifying tenants may accept. If they do so, they have
to nominate a person to act for them under section 6. If such a person is
nominated, the landlord is precluded from disposing of his interest to anyone
else. If the tenants do not nominate a person within the time stipulated in
section 5(2)(c), then the landlord may dispose of his interest to any
person during the next 12 months, provided that the consideration is not less
than that specified in the offer notice and that the other terms of the
disposal, so far as they relate to any matters specified in the offer notice,
correspond to those terms: see sections 6(1) and 6(2).
In the present
case, the mortgagee of the landlord’s predecessor in title (‘the vendor’)
served an offer notice on the tenants under section 5 in July 1993, offering to
dispose of the freehold for £80,000 on terms that the purchaser would be
responsible for paying all arrears of rent and service charge since a
particular date. In September 1993 the tenants served notice that they accepted
the offer, but failed to nominate a person to act for them in time. However,
when the subsequent contract and disposal to the landlord were made, the terms
did not correspond with those in the section 5 offer notice. As a result the tenants
became entitled to rely on sections 11 and 12, which give to tenants the right
against a purchaser from the original landlord to elicit from him particulars
of the terms of disposal to him and to force a sale of the interest which he
has acquired at the price he paid and on the terms that he acquired it (see
next below).
Section 11
Where a
landlord (or his mortgagee in exercise of a power of sale: see section 4(1A) of
the 1987 Act as amended) has made a relevant disposal and either has served no
offer notice ‘with respect to that disposal’ (ie in the same terms as
the disposal actually made), or the disposal has been made in contravention of
any provision of sections 6 to 10, the requisite majority of tenants may serve
on the acquiring landlord a notice requiring him to furnish a specified person:
with
particulars of the terms on which the original disposal was made (including
those relating to the consideration payable) and the date on which it was made.
The reference
to ‘the original disposal’ is a reference to the terms of the completed
transaction and not to the contract, the terms of which might have been varied
prior to or at completion of the transfer: see Mainwaring v Henry
Smith’s Charity Trustees [1996] 3 WLR 1033*.
*Editor’s
note: Also reported at [1996] 2 EGLR 25
Section 11(2)
provides in effect, that a section 11 notice has to be given within two months
of the tenants having notice that the disposal has taken place.
It is not in
dispute in the present case that because the terms of the disposal to the
landlord from the vendor did not correspond with the original section 5 notice
of offer to the tenants, this is a case where either no offer notice was served
in respect of the disposal in question or the disposal was in contravention of
section 6. Accordingly, section 11 applies.
As already
indicated, the tenants served a section 11 notice on the landlord on March 11
1994.
Accordingly,
by section 11(3), the landlord was required to:
comply with
the notice within the period of one month beginning with the date on which it
is served on him.
Section 12
Where section
11 applies, the requisite majority of the qualifying tenants has the right to
serve a purchase notice upon the new landlord requiring him to dispose of the
interest he acquired to a person nominated by them on the terms on which the
new landlord acquired that interest: see sections 12(1) and (3).
The period for
the service of such a purchase notice by the tenants is set out in sections
12(2)(a) and (b) as being either:
(a) in a case
where a notice has been served on the new landlord under section 11(1), the
period of three months beginning with the date on which a notice is served by
him under section 11(3) …
in any other
case, the period of three months beginning with the date mentioned in section
11(2).
It is to be
observed that the terminology of section 12(2)(a) is somewhat confusing in
referring to ‘a Notice … served by him under section 11(3)’. Section 11(3) does
not refer to the serving of a notice by the new landlord, but simply to
compliance with the tenants’ notice. However, it seems that the purpose of the Act
is clear, (in which respect counsel are agreed), namely to provide that, in a
case where notice has been served on the new landlord under section 11(1), the
purchase notice must be served within three months from the date on which the
new landlord complies with the section 11(1) notice served upon him.
Correspondence
By letter of
June 7 1994, in response to the tenant’s solicitors’ letter enclosing a copy of
the originating application, the landlord’s solicitors wrote as follows:
notwithstanding
that your clients are not entitled to serve a notice pursuant to Section 11 of
the Landlord and Tenant Act 1987 we enclose a copy of the contract dated 13th
December 1993 pursuant to which our clients purchased the above mentioned
property from Gentra Limited. We would refer you to the consideration set out
in the contract and specifically to clause 19.1 of the contract from which you
will see that our clients contracted to pay the sum of £10,000 to Gentra
Limited towards expenditure properly incurred by them but unrecovered from the
tenants.
Our clients’
accountants are in the process of preparing a report which we understand will
show that arrears of service charge and ground rent, as referred to in the
section 5 Notice dated 23rd July 1993 were, at the relevant date, significantly
less than £10,000. We will forward to you a copy of our clients’ accountants’
report as soon as possible.
We trust that
in view of the above you will now be able to advise your clients that the
disposal to our clients was made entirely in accordance with S6 of Landlord and
Tenant Act 1987 and indeed the disposal was actually made on less advantageous
terms than were offered to your clients by the said Section 5 Notice.
The copy
contract enclosed showed Egil Trust Co Ltd as the purchaser and January 10 1994
as the date for completion. The sale price stated in the contract was £80,000.
As to the arrears of service charge and ground rent, the contract provided:
19. Rent
and Service Charge Arrears
19.1 On
completion the Purchaser shall in addition to the purchase price pay to the
Vendor the sum of Ten Thousand Pounds (£10,000.00) towards expenditure properly
incurred by the Vendor pursuant to sub-clause B,T,E and F of clause 5 of Leases
and being unrecovered from the tenants of the Property …
22.3 The
Vendor will provide at completion such information and vouchers for expenditure
or otherwise in respect of Total Costs [the definition of which included
service charges] as the Purchaser may reasonably require to enable the
Purchaser to take all actions and steps necessary to render properly
recoverable the proportion of the total costs payable by the tenants of the
Property …
On June 10
1994, the tenant’s solicitors wrote back:
Arising out of
the agreement, please confirm the following: —
1. If Egil
Trust Co Limited changed its name to Maribella Limited. If so please provide a
copy of the change of name certificate.
2. If not,
please explain how your client Maribella Limited came to purchase the freehold.
3.
Notwithstanding that you allege that our clients are not entitled to serve a
notice pursuant to Section 11 of the Landlord and Tenant Act 1987 would you
please confirm whether you accept that your letter of 7th June 1994 complies
with Section 11(2) of the 1987 Act, if such compliance is necessary.
On June 13
1994 the landlord’s solicitors responded:
We would
respond to your numbered points as follows: —
1. It did
not.
2. On
completion of the contract on 25th January 1994, the vendor was directed by
Egil Trust Company Limited to transfer the property to Maribella Limited in
accordance with the terms of the contract.
3. We do not
understand the point you are raising here. You know full well that our client
does not accept that your clients are entitled to serve a notice under Section
11 of the Landlord and Tenant’s Act 1987 upon our client. Therefore the
question of our acceptance of the status of our letter of 7th June is with
respect irrelevant.
By a ‘second
letter’ of June 13 1994 the landlord’s solicitors further stated:
Pleadings have
only now been served and your clients now have in their possession all the
information concerning the terms under which our clients purchased the freehold
to the property …
In the
meantime, we enclose a copy of a letter from our client’s accountants detailing
the level of ground rent and service charge arrears at the date of completion
of the purchase which clearly shows that the consideration required by the
vendor for the disposal of the property was not less than the consideration as
stated in the Section 5 notice dated 23rd July 1993.
It is to be
noted in relation to the last paragraph quoted that it was plainly intended as
a ‘follow up’ to the first two paragraphs of the letter of June 7 1994 earlier
quoted. It seems plain (and Mr Michael Daiches for the landlord has not sought
to argue otherwise) that, taken together, those paragraphs demonstrate: (a) the
view of the landlord’s solicitors at the time that the provision in clause 19.1
of the contract for the payment of £10,000 towards, inter alia, unpaid
rent and service charge arrears constituted part of the consideration required
for the disposal of Melvin Hall; and (b) an attempt by the solicitors, without
directly saying so, to suggest that £10,000 towards the arrears had indeed been
paid as required by clause 19.1, a subsequent accountant’s report having
revealed that to have been an over payment. Thus, it was suggested, the
disposal had been on less advantageous terms than those offered to the tenants
under the original section 5 notice, which simply required payment of all
arrears.
The suggestion
under (b) was a misleading one, because in fact £10,000 had not been so paid.
In fact, by an arrangement between the landlord’s solicitors and the solicitors
for the vendor, the sum of £10,000 had not been paid outright on completion as
provided for under clause 19.1, but was paid on the basis that it was held by
the vendor’s solicitor to the order of the landlord pending receipts of
statements as to the arrears from the previous managing agents. There then
followed correspondence as to the sums due, the landlord having instructed its
own accountants in that respect. On June 10 1994, the very day of the request
by the tenant’s solicitors for confirmation of the position, the landlord’s
solicitor wrote to the vendor’s solicitors proposing that the sum of £7,789.95
be released in settlement of the sums due under clause 19.1 of the contract. On
June 15 1994 the vendor’s solicitors accepted the offer and repaid £2,210 to
the landlord. Thus the sum actually paid to the vendor was not £10,000, but
£7,780.
That position
was not made clear to the tenant until the service of the landlord’s answer to
the tenant’s originating application on June 30 1994. At that stage, all the
matters pleaded were directed to, and part of an elaborate plea contending that
the disposal to the landlord was not made in contravention of any provision of
sections 6 to 10 of the 1987 Act, with the effect that the notice purportedly
served under section 11 was of no effect. As already indicated, that remained
the landlord’s position until the plea was abandoned in its entirety to be
replaced two weeks before trial by the simple plea that the notice (now
accepted as valid) had been complied with by enclosure of the contract under
cover of the letter of June 7 1994 and the tenant’s right to purchase had now
gone.
Judge’s
decision
Before the
recorder, it was argued (as it has been argued here) for the tenant that the
duty imposed upon the landlord, as the ‘new landlord’ under section 11(3), to
furnish particulars of the terms on which the disposal to the landlord of the
freehold had been made was not discharged for the following reasons:
(1) the
contract enclosed with the letter of June 7 1994 did not accurately express
either:
(a) the
identity of the transferee to whom,
(b) the date
of the transfer when, or
(c) the terms
upon which the disposal took place, and so did not in fact furnish the
information required. Nor did the letter state expressly (as indeed it could
not) that the disposal had taken place in accordance with the terms of the
contract. Further, these defects were not cured by the letter of June 13 1994
because, although that letter clarified the identity of the transferee and the
date of completion, it remained the position that as at June 13 1994, the terms
of the actual disposal had not been disclosed in so far as the sum of £10,000
provided for under clause 19(1) had not been paid outright, but on terms to the
effect that such sum would be held pending agreement as to the amount of the
arrears.
(2) In any
event, the disclosure of the contract in the letter of June 7 1994, as
supplemented by the letter of June 13 1994, did not amount to furnishing the
particulars of the terms of the disposal of the freehold to the landlord
pursuant to section 11(3) given that:
(i) The
contract was disclosed under cover of a letter denying that the tenant was
entitled to be furnished with such particulars;
(ii) It was
not the apparent intention or purpose of the landlord or its solicitors at the
time to furnish particulars of the disposal for the purposes of the 1987 Act;
(iii) The
landlord continued to deny by its answer to the tenant’s originating
application that the tenant was entitled to be furnished with such particulars.
More
particularly, it was said for the tenant that the letter of June 7 1994 was
designed to persuade the tenant that she was not entitled to serve a section 11
notice, the purpose of enclosing the contract being to demonstrate that the
landlord was paying more than the consideration provided for in the section 5
notice. Nor was that position altered by the letter of June 13 1994 because
(apart from the continued non-disclosure of the position under clause 19.1) the
landlord was still denying that it was under any duty under section 11, and the
letter expressly refused to answer the tenant’s invitation in her solicitors’
letter of June 10 to confirm that the letter of June 7 complied with section
11. It was contended that such refusal was tantamount to denying that the
letter of June 7 should be read as a ‘without prejudice’ furnishing of the
particulars required by the section 11(3) notice.
In this
connection reliance was placed by the tenant upon Belvedere Court Management
Ltd v Frogmore Developments Ltd [1996] 3 WLR 1008* where, in
relation to the obligation of a new landlord who has himself sold on to serve a
notice informing the tenants’ nominee of the name and address of the subsequent
purchaser (see section 16(1)(a)(ii), the court held that, in order to be valid
as such a notice, a letter conveying that information must make clear in terms
that it is intended, and to be understood, as such a notice (per Sir
Thomas Bingham MR at p1025D); it has ‘patently’ to be served under the section
(per Hobhouse LJ at p1029H).
*Editor’s
note: Also reported at [1996] 1 EGLR 59
In a lengthy
reasoned judgment, the recorder held that the copy of the contract forwarded to
the tenant’s solicitors under cover of the letter dated June 7 1994, read in
conjunction with the letter of June 13 1994 did constitute the particulars
required to be furnished in response to the section 11(1) notice. As to the
identity of the transferee and the date of transfer, he held that, although
they were incorrectly stated in the copy contract provided on June 7, such
errors were rectified by the text of the letter of June 13.
As to the
terms on which the disposal took place, the recorder said that the
consideration of £80,000 was accurately shown and that the requirement for
payment of outstanding sums by way of service charges and arrears pursuant to
clause 19 was no more than a provision for reimbursement to the vendor for
expenditure made, it being intended that the payment over by the landlord as
new purchaser would be something recoverable in any event from the tenants
themselves.
In going on to
consider whether or not the sale agreement accurately stated that the terms of
the original disposal, he said:
It is said
with some force and indeed some justification by Mr Van Hee [for the tenant],
that the purpose of the Act is to enable the applicants to determine what has
been paid so that they can decide whether or not to match the terms they would
be required to do by statute in the event of them serving a notice
under section 12(1). He says, ‘how can one say that a clause which maintains
the payment of £10,000 towards the payment of arrears and sums due, can
accurately reflect a situation in which only £7,700 odd has actually been
paid?’ That argument has some force, but it seems to me that in order to be
fully effective it will have to be shown that the contract itself, as exhibited
to the applicants, did not in fact reflect the legal position between the
parties, or that the contract itself was a sham or the result of collusion
between the respondent and the vendor with a view to disguising the true nature
of the transaction …
He then went
on to examine at length the nature of the dispute between the landlord and the
vendor about the arrears of service charges, against the background that under
the original section 5 agreement, it had been expected that the tenants would
have to pay some £18,500 of arrears. He concluded that the motive of the
landlord in pressing for details of the arrears prior to completion was no more
than to establish their position as to further recovery from the tenants or, as
he put it, ‘to maximise the potential value of the asset’ (ie the right to
recover arrears), which the landlord was purchasing for the £10,000 provided
for in section 19(1). He went on to infer that when the landlord discovered
that the arrears were less than £10,000 it only then took the opportunity to
argue that the terms of section 19(1) were ambiguous in effect and to propose
that the sum of £7,789.95 calculated by the landlord’s accountants be the sum
to be released from the £10,000 paid over under the earlier arrangement in
‘full and final settlement’ of a transaction which both solicitors were anxious
to complete. So holding, the recorder found that:
In answer to
the question … ‘Did Clause 19.1 of the sale agreement accurately state the
relevant term of the original disposal,’ it seems to me in my judgment that the
answer has to be Yes.
As to the
nature and effect of the letter of June 7, the recorder accepted there was no
doubt whatsoever that, upon furnishing the information the tenant had
requested, the landlord’s solicitors expressly denied the tenant’s entitlement
to give notice, and specifically refused and failed to answer the tenant’s solicitors’
further letter asking for confirmation that the information they had given was
given pursuant to section 11(3). None the less, he distinguished the Belvedere
case and held that, in all the circumstances, it was plain that the information
was in effect a ‘without prejudice’ compliance with the section. The key
passage of his judgment reads as follows:
there is no
doubt that the information supplied did not carry with it a flag to the effect
that it was information provided for the purposes of the section.
On the other
hand, there is no doubt, it seems to me, that it could not have been anything
else. The fact that the respondent directly stated that, in their view, the
application was misconceived, does not of course make it misconceived. One can
call a fish a bicycle but it does not mean to say that one can ride it to work.
Whether or not the application was misconceived was a matter for the applicant
and their solicitors. Whether or not sufficient information had been provided
for the purposes of the Act is a matter of law. I fully agree and accept that
it would have been far preferable had the information been provided in a
somewhat less grudging manner, that it could have been provided under cover of
a letter saying, ‘this is without prejudice to our right to contend that you
are not entitled to make the application’. But, in my judgment, the net effect
of the totality of the information provided was sufficient for the purposes of
the Act. It was not, of course, for the applicants to take the respondent’s
word or even be advised by them as to the view they took as to the validity of
their application. There is a manifest difference, or two manifest differences,
it seems to me, between the Belvedere case and the present … there was a
material misrepresentation of a fact by the new purchasers in the Belvedere
case, which was not the case in the present one, and second … it was a notice
which was capable of being construed as something else and for other purposes
and which in fact was given for other purposes, and was only incidentally and
coincidentally one that would also have complied with the provisions of section
16(1).
If one looks
at what is required under section 11(1) of this Act, one can see that what is
required is particulars to be furnished of the terms on which the original
disposal was made, including the consideration payable or those relating to the
consideration payable, and the date on which it was made. There is no provision
for saying that it has to be provided at the same time, although clearly it
seems to me that the time cannot begin to run until such time as the entirety
of the information has been furnished, such as to enable the applicants to
consider whether or not to make an application under section 12.
Finally, he
made clear that no question of estoppel or waiver arose, because any
representation made by the landlord in the correspondence was no more than an
expression of opinion and not a misrepresentation of fact or otherwise of a
quality apt to give rise to a plea of estoppel.
Terms of
the disposal
Before us, Mr
Jonathan Gaunt QC for the tenant has relied only lightly on the point that the
letter of June 7 did not accurately express the identity of the transferee to
whom, or the date of the transfer when, the disposal took place. He was right
to do so. It seems clear to me, as it was clear to the recorder, that those
defects were cured by the letter of June 13 1994. There is nothing in section
11(3) which requires that the compliance of the new landlord with a notice
served under section 11(1) must be contained in a single document or given upon
the same date. Provided the requisite particulars of the terms on which the
original disposal was made are furnished within the period of one month
stipulated, then, subject to what is said below, the new landlord complies with
his obligation under section 11.
However, Mr
Gaunt pursues his point that neither letter correctly set out the terms on
which the original disposal (ie the conveyance) was made.
He submits
that it is plain that the contract provided for outright payment of £10,000
under clause 19.1, a provision which the landlord’s solicitors’ letters were
designed to suggest had been complied with. Yet, in fact, disposal was effected
on terms that the sum was to be held to the order of the landlord. Whereas this
might ordinarily be regarded as an insignificant departure from the terms of
the contract, it was in the event significant because it led to subsequent
payment of a lesser sum.
Mr Daiches, on
the other hand, submits that the recorder was right to hold that payment of the
sum of £10,000 referred to in clause 19.1 was a term of the disposal
notwithstanding that in the event only £7,789.95 was paid. He accepts that it
is clear that the words ‘particulars of the terms on which the original
disposal was made’ referred to in section 11(1) mean ‘particulars of the terms
agreed between the original landlord and the new landlord for the disposal of
the relevant interest to the new landlord’. He says that the terms so agreed
were, as at January 25 1994, to be found in the contract, given (as the
recorder found) that the contract was not a sham and not the subject of any
formal variation. He submits that the effect of the correspondence and the
recorder’s findings was no more than that the vendor (for whatever reason, not
being a collusive or improper reason) simply chose not to enforce its right to
recover the whole of the £10,000 provided for in clause 19.1, and was content
to await the outcome of the landlord’s accountant’s investigation. Once that
had been carried out, the vendor was content to agree to receive the lesser sum
of £7,789.95 in settlement of a dispute as to the meaning of clause 19.1 raised
by the landlord.
We have been
informed by counsel that the recorder heard no oral evidence upon the events
surrounding the issues before us. He dealt with the matter on the basis of the
agreed correspondence and other documents placed before him. In tracing those
through, he analysed the position in a manner which led him to find that, as at
the date of completion, the express words of clause 19.1 still governed the
terms of the disposal.
In particular,
he took the view that, on the evidence before him, there was nothing to
indicate that, at the date of the conveyance, the arrangement reached in
January 1994 was proposed for any reason other than as a lever for the landlord
to obtain the information required to be supplied under clause 22 and that it
was not until June 1994, after completion, that the landlord proffered the
arrears shown to be due under clause 22 be tendered in full and final
settlement of the sums due under clause 19.1, which offer, for reasons which
did not appear, was promptly accepted by the vendor’s solicitors.
The recorder
inferred, without having before him any direct evidence of the existence or
timing of such a dispute, that a bona fide dispute as to the meaning of clause
19.1 arose only after completion.
the disposal were accurately contained in the contract at the time of
completion. He omitted, however, to make any express finding upon the question
of whether or not the arrangement between the solicitors that the £10,000 be
paid ‘to the order of the landlord’ was a ‘term of the disposal’. By
implication, it seems that he did not consider that it amounted to such a term.
Mr Gaunt’s
criticism of the recorder’s approach and findings is that he never addressed
himself directly to the simple question whether the arrangement reached was
indeed such a term and, consequently, that the terms of the disposal were
different from those provided in the contract. Had he done so, Mr Gaunt submits
that, squarely faced, there could only have been one answer.
I consider
that Mr Gaunt’s argument is correct. It seems to me that the words ‘the terms
on which the original disposal was made (including those relating to the
consideration payable)’ are apt to include all terms which, whether contained
in the contract prior to conveyance or provided for collaterally and operating
at the time of the conveyance, amount to an agreement or arrangement between
the parties as to the amount of moneys paid or payable or yet to be ascertained
as payable, by the purchaser in connection with the acquisition of the interest
disposed of.
In this case,
while the correspondence prior to completion suggests that the vendor’s
solicitors were reluctant to agree to hold £10,000 to the order of the
landlord’s solicitors, they plainly did agree to do so. The last letter prior
to completion on January 25 1994 is one dated January 10 1994 from the
landlord’s solicitors to the vendor’s solicitors stating that:
notwithstanding
your reluctance to hold the sum of £10,000 to my order I must insist that such
sum is so held pending receipt by me or my client’s agent of the information
required by the contract.
I trust that
you will complete on the above basis and I look forward to receiving the
completed transfer … from you by return.
It is plain
that completion took place on that basis and on February 16 1994, the vendor’s
solicitors wrote:
I confirm
that I am still holding the £10,000 retention monies but do not yet have
instructions to forward to you the arrears statement …
So the
position remained on the correspondence between the solicitors until June 10
1994, when the landlord’s solicitors wrote:
We refer to
previous correspondence between us concerning the sums due to your client
pursuant to clause 19.1 of the contract dated 13th December 1993.
You may be
aware that our client’s managing agents have been in contact with your client’s
agents by letter dated 20th May 1993 proposing that, following our client’s
accountant’s report on the service charge position, a sum of £7,789.95 be
released to your client in full and final settlement of the sums due under
clause 19.1 of the contract.
Accordingly
we are instructed to release to you the sum of £7,789.95 in full and final
settlement of the sums due under clause 19.1 of the contract and we look
forward to receiving your cheque for the balance of the sum held by you.
By their reply
the vendor’s solicitors accepted without qualification, enclosing a cheque
‘being the balance of the £10,000 retention due to your clients’.
In those
circumstances, it seems to me surprising that the recorder felt able to infer
that the agreement or arrangement arrived at between the landlord’s and
vendor’s solicitors prior to completion was not one directly related to the sum
which should ultimately be paid under clause 19.1. On the basis of the
solicitors’ correspondence, it seems to me that in January 1994 the parties
plainly reached an agreement whereby the sum of £10,000 referred to in clause
19.1, which was, on the face of it, a provision for outright payment, should
not be treated as such, but should be held to the order of the landlord pending
ascertainment of the sum payable in the light of subsequent calculation and/or
investigation by the landlord’s accountants. In the event, the sum ascertained
and paid was less than £10,000. That being so, there was an obligation upon the
landlord’s solicitors to make clear that the terms of the disposal were not the
same as those provided for in the contract.
Status of
the landlord’s letter of June 7 1994
I also
consider that Mr Gaunt’s submissions as to the status and effect of the June 7
letter are correct.
It is not in
dispute that the section 11 notice served by the tenants was served, and
understood to be served, with a view to the tenants exercising their rights of
first refusal and acquisition under Part I of the Act. It is not in dispute
that in order to do so, once they had received the particulars of the terms of
the original disposal, the tenants would lose their rights if they did not
serve a purchase notice within three months from receipt of the particulars
requested. It was therefore important for them to establish whether the
response received from the landlord was proffered as ‘particulars of the terms
on which the original disposal was made’, thus constituting, in the words of
section 12(2)(a), ‘a Notice … served by him under section 11(3)’. If it were,
then in order to preserve the tenants’ rights, a purchase notice would require
to be served. If it were not, then it would be necessary to seek an order from
the court for such particulars.
Nor is it in
dispute, as the recorder accepted, that the terms of the letter, which enclosed
the contract between vendor and landlord, were patently directed to persuading
the tenant that she was not entitled to serve a section 11 notice, the purpose
of enclosing the contract simply being to demonstrate that the consideration
for the section 5 notice had been lower than that originally required of the
tenants and that the landlord was paying more. That letter not only did not
purport to comply with section 11(3), but denied that compliance was required.
Nor did it state expressly that the disposal (ie conveyance) had taken place on
terms provided in the contract. When asked to confirm that the letter complied
with section 11(3) the landlord’s solicitors, by their reply of June 13 1994,
not only declined the confirmation requested, but continued to assert no duty
to give it. The nearest they came to asserting compliance was in their ‘second
letter’ of June 13 1994, written in relation to the proceedings, when they
asserted that the tenants now had in their possession all the information
concerning the terms on which the landlord had purchased, which was, in all the
circumstances, a further evasion of the confirmation required. That letter was,
in any event, not relied on by the landlord in the amended answer or by the
recorder in his judgment.
In Belvedere
Court Ltd v Frogmore Ltd (supra), in somewhat different
circumstances relating to the obligation of a new landlord to serve notice
under section 16(1)(a)(ii), Sir Thomas Bingham MR stated:
Frogmore
contended that its solicitors’ letter of May 10 1994 was a notice complying
with section 16 (1)(b)(ii) of the Act. It informed Belvedere, through its
solicitors, of the name and address of the person (Atherton) to whom the new
landlord (Frogmore) had disposed of its estate or interest. No form of notice
is prescribed. It was not necessary to refer to section 16 if the effective of
the letter was to give clear notice. The effect of Frogmore’s letter was to
give clear notice, it argued, as evidenced by the fact that Belvedere’s
solicitors reacted by giving notice under section 16 (3).
Belvedere
argued that Frogmore’s solicitors’ letter of May 10 1994 did not comply with
section 16(1)(b)(ii) of the Act for a number of reasons. The most substantial
of these was that the letter made no reference to section 16 and was not
clearly to be understood as giving notice under the section.
I prefer
Belvedere’s argument. Given the complexity of these provisions there is, in my
view, a very clear onus on a new landlord to serve a notice which will leave
the tenants or their nominee in no doubt that it is a section 16(1)(b)(ii)
notice which is intended. This is most easily done by reference to the section
itself, but I would not hold express reference to the section to be essential
if the purport of the notice is quite clear … It seems quite plain to me that
Frogmore’s solicitors did not intend their letter of May 10 1994 to be such a notice,
and I am satisfied that it was not such a notice as would have left an informed
recipient clear as to its effect.
Hobhouse LJ
stated at pp1029G–1030A:
The character
of this notice is that it forms part of the machinery of section 16. It is part
of the process by which the new landlord invokes section 16 in order,
from his point of view, to shift his obligation to transfer to the
subsequent purchaser. From the tenants’ point of view it is, if the
section is to be construed literally, a notice which the tenants are entitled
to have to make section 16 applicable and to enable the tenants to invoke that
section against the subsequent purchaser. Thus it must be a notice that
is patently served under that section and which tells the tenants that the
notice is being so served. The letter of May 10 1994 was not and did not
purport to be such a notice. It overtly had a different purpose — to tell the
tenants that Frogmore would, under section 12(4), be transferring the reversion
encumbered by the reversionary leases they had granted to Atherton. It was only
incidentally and by reference to an enclosed document that the full information
required by section 16(1)(b)(ii) was imparted. This stance was further
confirmed by the solicitors … in the correspondence which followed. It is
beside the point that the tenants, on learning of the further disposal and of
the existence of Atherton, themselves appreciated that section 16 was relevant
and that they (unlike Frogmore) might wish to invoke it. The letter was not a
section 16(1) notice.
In my view,
those observations are applicable, and should be applied, in this case. It does
not seem to me that either of the ‘two manifest differences’ which the recorder
found between the situation in this case and that in the Belvedere case
amounted to valid grounds for distinction. In both cases the tenants were faced
with a predicament as to which course to pursue dependant on the effect of a
notice.
It is not
entirely clear what was the ‘material misrepresentation of a fact’ by the new
purchasers which the recorder considered was made in the Belvedere case.
He appears to have been referring to a passage from a letter to the effect
that:
Frogmore …
still retains the interests required from Liverpool Victoria and accordingly
these Notices … appear inappropriate and misconceived.
Suffice it to
say that, in my view, that observation was not, considered in context, a
misrepresentation of fact (certainly it does not appear that the Court of
Appeal so regarded it), but a contention of law based on the effect of
transactions the details of which had been disclosed to Belvedere and the
effect of which was in issue in the case.
The second
difference noted by the recorder was that the relevant notice in the Belvedere
case was capable of being construed as something else and for other purposes,
being only ‘incidentally and coincidentally one that would also have complied
with the provisions of Section 16(1)’, whereas in this case, there was no doubt
that the information supplied was provided for the purposes of section 11(3).
Again, that does not seem to me a proper characterisation of the letter of June
7 on the particular facts in this case. First, it ignores the purpose for which
the landlord’s solicitors ostensibly supplied the particulars, namely in
support of their assertion that the tenants’ notice served under section 11 was
of no effect. Second, it ignored the reasoning which appears to me to underlie
the observations of the Court of Appeal in the Belvedere case, namely
that, in relation to a notice which forms part of the machinery by which
qualifying tenants may compel sale to them of the landlord’s reversion, a
tenant is entitled to receive notice in a form or manner which makes clear for
what purpose and under what statutory provision it is served.
While the
statute does not require a specific ‘label’ to be attached, and in most cases
the context in which the document is served will make its purpose clear, that
was not so in the Belvedere case and, in my view, it was not so here.
Nor was there any good reason, or any difficulty inherent in the situation,
which prevented the landlord’s solicitors from making clear their position in
response to the reasonable inquiry of the tenant’s solicitors who rightly
regarded the landlord’s position as equivocal. Yet the landlord’s solicitors
resolutely declined to do so. Instead of making clear that, without prejudice
to their contention that the section 11 notice was invalid, they were supplying
the information requested as to the terms of disposal, they continued to
prevaricate.
The recorder
considered that gave rise to a situation in which it was up to the tenant to
protect her own interests, by treating the reply of the landlord as a
compliance under section 11(3) and as a notice served under section 12(2). That
of course had the effect of casting the burden on to the tenant, without
prejudice to her contention that she was entitled to pursue her summons for
further information, to serve a purchase notice.
While that may
or may not be an appropriate approach in other fields of the law in which the
rights of a litigant depend upon service within a time-limit of a particular
notice, the Belvedere case makes clear that it is not an appropriate
approach to the enforcement by tenants of their rights against new landlords
under Part I of the 1987 Act. In that context, a notice served by a landlord is
part of a statutory machinery which makes differing routes or procedural steps
available to tenants according to the nature and appropriate categorisation of
the notice served. In such cases, it is incumbent upon a landlord to make clear
the purpose for which the notice has been served. In my view, the landlord
failed to do so in this case.
I would
therefore allow the appeal.
That being so,
the parties are agreed that, albeit the tenant is now fully in possession of
the terms upon which the disposal was made, an order should none the less be
made requiring disclosure of those terms in the form of notice under section
11(3) of the 1987 Act. That will have the effect of preserving the right of the
tenants to serve a purchase notice under section 12(1) within the period of
three months from the date of receipt of the section 11(3) notice as provided
in section 12(2)(a).
HENRY and STUART-SMITH LJJ agreed and did not add anything.
Appeal
allowed.
