Transfer of land — Rectification — Freehold of flats transferred on understanding that all flats let on long leases — Two flats not so let — Judge granting rectification requiring purchaser to grant back to vendor long leases of two flats — Whether transfer giving effect to common intention of parties — Whether rectification would breach section 10A of Landlord and Tenant Act 1987 — Appeal dismissed
The respondent vendor transferred the freehold of a block of 39 flats to the appellant purchaser for £60,000, calculated on the basis that all the flats were let on long leases, for 99 years, at a ground rent. In fact, flats 11 and 18 were not so let, although the vendor did plan to let them. Prior to completing the transfer, the vendor served offer notices on the tenants of all the flats, as required by the Landlord and Tenant Act 1987, offering them first refusal on the purchase of the freehold, and stating the consideration for the proposed transfer to be £60,000.
The parties proceeded with a simple transfer of the freehold, which did not reserve to the vendor any continuing interest in flats 11 and 18. The vendor brought proceedings for rectification on the ground of a common intention that the purchaser was to take all 39 flats subject to 99-year leases. It initially sought rectification in two alternative forms, but later confined its claim to seeking the inclusion in the transfer of a term requiring the purchaser to grant back to it 99-year leases of the two flats. That claim was allowed.
The purchaser appealed on the grounds that: (i) the vendor, by initially pleading two alternatives, had shown that there was no certain common intention; (ii) the judge had failed to distinguish between the parties’ intentions, which were simply to transfer the freehold, and their beliefs as to the quality of what was transferred and the effects upon their respective rights; (iii) the parties had never agreed the means of giving effect to the intention found by the judge to exist; and (iv) rectification was contrary to public policy, since it would result in the commission, by the vendor, of an offence under section 10A of the 1987 Act, namely a failure to serve an offer notice in compliance with section 5. In relation to the latter point, the purchaser submitted that: (i) upon rectification, the consideration for the disposal was £60,000 plus the grant of two 99-year leases, with the result that the consideration was incorrectly stated in the offer notice, contrary to section 5D; and (ii) the additional requirements of section 5E, applicable to disposals for which the consideration was not wholly monetary, had not been fulfilled.
Held: The appeal was dismissed.
1. The vendor had not pleaded two alternative common intentions, merely a single intention to transfer the freehold of 39 flats, each subject to a 99-year lease. It had simply pleaded two alternative ways in which the transfer could be rectified to give effect to that intention, and it had been entitled to do so: CH Pearson & Sons Ltd v Stonechester Ltd (CA) The Times 17 November 1983 distinguished.
2. The mistake made by the parties was not simply as to the quality of what was transferred, nor as to the consequences that, it was believed, would follow from that transfer. The thing transferred, namely the freehold of 37 flats subject to 99-year leases at a ground rent, plus two with vacant possession, was not what was intended. It had been the continuing intention of the parties, up to the time of transfer, to transfer all 39 flats subject to leases, and the agreed price reflected that.
3. It was unimportant that the parties had not considered or discussed the means of giving effect to their common intention. Once a common intention was identified, the courts were free to determine the best way to give effect to it, and to reform the transfer in such a manner as to put the parties in the same position, vis-à-vis each other, as they had intended: Whiteside v Whiteside [1950] Ch 65 applied. That could be achieved, in the instant case, by inserting into the transfer a requirement that the purchaser grant back to the vendor 99-year leases of flats 11 and 18.
4. The 1987 Act did not present an obstacle to rectification. The consideration of £60,000 for the transfer would remain. Rectification would simply put in place the mechanism for giving effect to the parties’ agreement, and would not affect the terms of that agreement. Accordingly, the consideration had been correctly stated in the offer notice, in compliance with section 5D, and section 5E did not apply.
Mark West (instructed by Stevensons Solicitors, of Huntingdon) appeared for the appellant; Wayne Clark (instructed by Kosky Seal) appeared for the respondent.
Sally Dobson, barrister
