The draftsmen of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) foresaw that individual tenants of flats might seek to exercise their rights to acquire new leases under section 42 while a process of collective enfranchisement is ongoing. And they provided for this by suspending the operation of section 42 notices during the currency of the collective claim: section 54.
The issue that arose in Rees v 82 Portland Place Investments Ltd [2020] EWHC 1177 (Ch) resulted from an error by the Land Registry. It had accepted a tenant’s application to register a unilateral notice against an intermediate leasehold title (which had only 12 years left to run) to protect a section 42 notice. But it had refused – mistakenly – to register a similar notice against the freehold title because it believed that an ongoing collective enfranchisement claim prevented it from doing so.
On completion of the collective enfranchisement claim, the nominee purchaser created a new concurrent long leasehold interest in the flat and applied to merge the “fag end” of the original long leasehold interest into the freehold title. And, because section 97(1) of the 1993 Act requires tenants’ rights pursuant to section 42 notices to be registered as estate contracts, and section 29 of the Land Registration Act 2002 (the 2002 Act) provides that registered dispositions take priority over interests that are not protected on the register, the tenant’s claim for a new lease did not bind the new freeholder.
Could the Land Registry’s mistaken refusal to register a notice against the freehold title be rectified pursuant to the provisions of the 2002 Act? If not, the tenant would have to rely on a new section 42 notice and was likely to have to pay around £1.8m more for her new lease.
The judge was satisfied that he had the jurisdiction to make an order to place the parties in the position in which they should have been had the Land Registry registered the unilateral notice: MacLeod v Gold Harp Properties Ltd [2014] EWCA Civ 1084; [2014] PLSCS 228. But paragraph 3(2)(b) of schedule 4 of the 2002 Act prohibits alterations that affect the titles of innocent proprietors in possession without their consent, unless it would be unjust for the alteration not to be made. This is a high hurdle to clear – and section 131 of the 2002 Act treats land in the possession of a tenant as being in the possession of the landlord.
The judge noted that the loss of rights that lack appropriate protection is a function of the legislation. The freeholder knew – but it was not its fault – that the section 42 notice was unprotected. And it would undermine the reliability of the register and the purpose of registration – which is to make conveyancing faster, easier and cheaper – if mere knowledge of the existence of an unprotected interest could expose buyers to a material risk of rectification, in the event that there has been a mistake.
The judge refused to be influenced by the amount at stake. The freeholder would not benefit from a windfall because the freehold price was determined as at the date on which the collective enfranchisement notice was served. And, if it lost, it would lose exactly what the tenant would gain. So it would not be unjust not to order rectification of the register – and to leave the tenant to make a claim against the Land Registry and/or her solicitors instead.
Allyson Colby, property law consultant
