Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Lease extension — Lessee serving section 42 notice on freeholder claiming lease extension — Notice served more than two years after lessee completing purchase of flat but less than two years after registration of title — Section 39(2) of 1993 Act — Whether qualifying tenant for required period of two years prior to service of notice — Whether section 39(2) concerned only with period during which lessee having registered legal title
The defendant contracted to purchase a leasehold interest in a flat. The contract stipulated that the vendor would serve a notice on the claimant freeholder, under section 42 of Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993, claiming a new lease of the flat. This was done in July 2007 and the sale was completed shortly thereafter. By a counternotice, the claimant argued that the vendor was not entitled to a new lease because she had not, at the relevant time, been a qualifying tenant for the necessary period of two years under section 39(2) of the 1993 Act. It relied on the fact that although the vendor had purchased the flat in June 2005, more than two years before the service of her section 42 notice, she had not been registered as the lessee until September 2005.
The claimant applied to the court for declaratory relief. It contended that the 1993 Act was concerned only with the legal title rather than with the equitable rights acquired on exchange of contracts and that section 101(2) of the Act, which provided that an agreement for a lease or tenancy qualified as a tenancy for the purposes of Part I of the Act, did not support the contrary view but merely set out a specific exception to the general rule in a situation where there was no risk of a conflict with the section 5(3) requirement that no more than one person could be regarded as a qualifying tenant of a particular flat at any one time.
Held: The claim was allowed. The system set out in Chapter II of the 1993 Act depends on there being one qualifying tenant at any one time. Accordingly, subject to specific exceptions, only the legal owners on both sides, namely the landlord and the tenant, can be involved in the process and have the necessary rights and obligations. The requirement for the tenant to have been a qualifying tenant for two years before the relevant date is intended to be a simple test and requires registration throughout that period. To hold otherwise would damage the overall structure of the Act and create a risk of there being more than one qualifying tenant. The provision in section 101(2) for agreements for leases does not derogate from the general principle that a tenant becomes a tenant only on acquiring the legal ownership of the lease; a distinction should be made between the vertical transactions contemplated by section 101(2) and the horizontal transaction involved in a sale of the leasehold interest by the lessee. The declaration sought by the claimant was granted.
The following cases are referred in this report.
Biles v Caesar [1957] 1 WLR 156; [1957] 1 All ER 151, CA
Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2001] Ch 733; (1997) 75 P&CR 223; [1997] 1 EGLR 39; [1997] 18 EG 123, CA
Gentle v Faulkner [1900] 2 QB 267; 16 TLR 397
Pearson v Alyo [1990] 1 EGLR 114; [1990] 25 EG 69, CA
Roberts v Church Commissioners for England [1972] 1 QB 278; [1971] 3 WLR 566; [1971] 3 All ER 703, CA
Scribes West Ltd v Relsa Anstalt (No 3); sub nom Scribes West Ltd v Anstalt (No 3) [2004] EWCA Civ 1744; [2005] 1 WLR 1847; [2005] 2 All ER 690; [2005] 2 P&CR 3; [2005] 1 EGLR 22; [2005] 09 EG 190
Smith v Express Dairy Co [1954] JPL 45
Walsh v Lonsdale (1882) LR 21 Ch D 9, CA
This was the hearing of a claim by the claimant freeholder, The Wellcome Trust Ltd, against the defendant, Nazli Baulackey, for declaratory relief in respect of a leasehold enfranchisement claim by a tenant under the Leasehold Reform, Housing and Urban Development Act 1993.
Anthony Radevsky (instructed by CMS Cameron McKenna LLP) appeared for the claimant; Andrew Skelly (instructed by Percy Short & Cuthbert) represented the defendant.
Giving judgment, Mr Recorder Murray Rosen QC said:
Introduction
[1] This case concerns the validity of a claim to a new lease of flat B, 3 Egerton Gardens, London SW3, which is made by Ms Michelle McLaughlan. Ms McLaughlan was at the time a lessee of the flat and served a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). The claimant, The Wellcome Trust Ltd, is the freeholder of the flat and the defendant is now the lessee, having succeeded Ms McLaughlan. I will refer to the defendant simply as Ms Baulackey.
[2] The Wellcome Trust issued a claim form under CPR 8 on 15 November 2007, seeking an order, under section 46 of the 1993 Act, declaring that as at the relevant date on which Ms McLaughlan served her notice, namely on 5 July 2007, she had no right to a new lease, essentially because she was not a qualified tenant for the purposes of the 1993 Act. The Wellcome Trust served a counternotice essentially to that effect on 26 September 2007.
Brief facts
[3] The relevant facts are set out in witness statements from Mr Charnock, on behalf of the claimant, and Ms Baulackey, the defendant. The facts are not in dispute and there has been no oral evidence and no cross-examination before me.
[4] The timetable, which is all that is needed, essentially, for present purposes, is as follows. Ms McLaughlan was registered as the lessee of the flat on 8 September 2005, having completed her purchase of it from an unknown predecessor more than three months earlier, on 3 June 2005. She contracted to sell the leasehold interest to Ms Baulackey by exchange on 27 June 2007. The sale and purchase was completed quickly on 6 July 2007. Just before completion, Ms McLaughlan served the notice now in issue under section 42. She had contracted to do that and the notice was in a satisfactory form as far as Ms Baulackey was concerned. The registration of Ms Baulackey’s leasehold acquisition was effected on 16 August 2007. |page:126|
[5] The crucial point as far as that chronology is concerned is that the notice now in issue, served by Ms McLaughlan on 5 July 2007, was more than two years after she had purchased the leasehold on 3 June 2005 but less than two years before her leasehold interest was registered on 8 September 2005. I ought to mention that the lease in question was a lease dated 25 June 1986, for 32 years less 10 days from 25 September 1982 and so expires in September 2014.
1993 Act
[6] The relevant provisions of the 1993 Act are scattered throughout it. The logical place to start is section 39, which is the first section in Chapter II, the chapter entitled “Individual right of tenant of flat to acquire new lease”.
[7] Section 39 is headed “Right of qualifying tenant of flat to acquire new lease” and subsection (1) provides that:
(1) This Chapter [that is Chapter II] has effect for the purpose of conferring on a tenant of a flat, in the circumstances mentioned in subsection (2), the right, exercisable subject to and in accordance with this Chapter, to acquire a new lease of the flat on payment of a premium determined in accordance with this chapter.
[8] Subsection (2) provides that:
(2) Those circumstances are that on the relevant date for the purposes of this Chapter —
(a) the tenant has for the last two years been a qualifying tenant of the flat; …
[9] Subsection (3) provides that:
references in this Chapter to a qualifying tenant of a flat shall accordingly be construed by reference to [the] provisions [of Chapter I].
[10] I will come back to those subsections shortly. Subsection (8) provides that:
(8) In this Chapter “the relevant date”, in relation to a claim by a tenant under this Chapter, means the date on which notice of the claim is given to the landlord under section 42.
That is, in the present case and for present purposes, 5 July 2007.
[11] There are two sections in Chapter I that are pertinent. First, in section 5, which is headed “Qualifying tenants”, there is a definition reading as follows in subsection (1):
(1) Subject to the following provisions of this section, a person is a qualifying tenant of a flat for the purposes of this Chapter [I would add in parentheses and for Chapter II, as we have seen] if he is a tenant of the flat under a long lease…
[12] Subsection (3) of section 5 provides that: “No flat shall have more than one qualifying tenant at any one time.” That subsection has a crucial role in the argument, as I shall explain soon.
[13] Subsection (4) fills that out by beginning “Accordingly” and subsection (4)(a) reads:
(4)(a) Where a flat is for the time being let under two or more leases to which subsection (1) applies, any tenant under any of those leases which is superior to that held by any other such tenant shall not be a qualifying tenant of the flat for the purposes of this Chapter;…
[14] That, too, has a role in the argument, as I shall explain, in particular in the distinction to be drawn between: (a) a vertical hierarchy, under which there may be leases and subleases or agreements for leases and subleases between a freeholder, a head tenant and a subtenant; to be contrasted with (b), what I would call the horizontal hierarchy, in which a leasehold interest or subleasehold interest might be transferred by assignment between one tenant and a successor tenant or one subtenant and a successor subtenant.
[15] Also in Chapter I is section 7, headed “Meaning of ‘long lease’”, which says, in subsection (1), that:
(1) In this Chapter “long lease” means (subject to the following provisions of this section) —
(a) a lease granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant or by re-entry, forfeiture or otherwise;
The lease in this case, as I have mentioned, was just under 32 years when granted in 1986 and therefore substantially more than the 21-year limit in section 7.
[16] I ought to mention a few other provisions of the 1993 Act. First of all, there is section 40(1), part of Chapter II, which defines a landlord:
(1) In this Chapter “the landlord”, in relation to the lease held by a qualifying tenant of a flat, means the person who is the owner of that interest in the flat which for the time being fulfils the following conditions, namely —
(a) it is an interest in reversion expectant (whether immediately or not) on the termination of the tenant’s lease, and
(b) it is either a freehold interest or a leasehold interest whose duration is such as to enable that person to grant a new lease of that flat in accordance with this Chapter,
and is not itself expectant (whether immediately or not) on an interest which fulfils those conditions.
[17] That sort of definition is found in other statutes, in particular the Landlord and Tenant Act 1954 (the 1954 Act), which is the subject of a number of the authorities cited before me. Of course, in contrast with the way in which the statute defines a landlord in respect of a lease held by a qualifying tenant of a flat, there is no definition of what constitutes a tenant who qualifies under section 31.
[18] Section 42 of the Act, in Chapter II, is headed “Notice by qualifying tenant of claim to exercise right” and begins:
(1) A claim by a qualifying tenant of a flat to exercise the right to acquire a new lease of the flat is made by the giving of the notice of the claim under this section.
The section goes on to specify to whom the notice must be given, including the landlord, and what the notice must contain.
[19] Section 46 is headed “Proceedings relating to validity of tenant’s notice” and provides, in subsection (1), that:
(1) Where —
(a) the landlord has given the tenant a counter-notice under section 45 which… contains such a statement as is mentioned in subsection (2)(b) of that section, and
(b) the court is satisfied, on an application made by the landlord, that on the relevant date the tenant had no right under this Chapter to acquire a new lease of his flat,
the court shall by order make a declaration to that effect.
That is the provision on which the claimant, The Wellcome Trust, relies to give this court the power to make the declarations sought by it.
[20] Finally, I would set out part of section 101, which deals with the general interpretation of Part I of the 1993 Act, which includes both Chapter I and Chapter II, and subsection (2) of which states that:
(2) In this Part “lease” and “tenancy” have the same meaning, and both expressions include (where the context so permits) —
(a) a sub-lease or sub-tenancy, and
(b) an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy),
but do not include a tenancy at will or at sufferance…
Argument
[21] I am very grateful indeed to the parties and in particular counsel, Mr Anthony Radevsky, for The Wellcome Trust, and Mr Andrew Skelly, for Ms Baulackey, for their very concise and helpful presentation of the matter before me. The argument concentrated on the issue of whether Ms McLaughlan became a tenant for the purposes of the Act, in particular section 39 of the Act, when she acquired the lease from her predecessor or whether she became a tenant only on registration of her title as obtained some four months or so later in 2005.
[22] Ms Baulackey did not raise any issue based on her having been treated as a matter of fact as a tenant by her exclusive occupation of the flat and the payment of rent or service charge or any other matters or conduct that would give rise to an estoppel on the part of the |page:127| landlord, preventing The Wellcome Trust from denying that she had become a tenant on her acquisition of the lease prior to registration. I therefore summarise the arguments on the limited legal issue that I bear in mind.
[23] On behalf of the claimant, The Wellcome Trust, the submission was made that Ms McLaughlan did not become a qualifying tenant on the assignment of the lease from her predecessor unless and until she became the registered proprietor. This was a case of registered land and section 27 of the Land Registration Act 2002 (the 2002 Act) applies.
[24] Section 27 of the 2002 Act provides that:
(1) If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met.
(2) In the case of a registered estate, the following are the dispositions which are required to be completed by registration —
(a) a transfer;
[25] The claimant’s submission was that: (i) until registration took place, Ms McLaughlan was the equitable owner; (ii) she acquired that equitable status on exchange of contracts; and (iii) as between her and her predecessor, there was a relationship of trustee and beneficiary. However, in law, the completion of her purchase and the execution of the transfer by her predecessor made no difference to her status. She remained no more than an equitable owner and it was only on registration that a change in legal ownership was effected.
[26] It was next submitted that the tenant would not be concerned, for the purposes of the 1993 Act and, indeed, other Acts, with any beneficial ownership of the landlord’s interest but would deal only with the legal owner, the legal owner, namely the registered landlord, being the only party that can serve notices and otherwise effect statutory rights. The same should apply with regard to the tenant, the landlord not being concerned with any beneficial ownership of a tenant’s interest but only with the legal ownership of that interest. So while between the lessee and her predecessor there would be an equitable assignment on the exchange of contracts or the execution of a transfer, only registration effects the legal interest and their relationships with third parties.
[27] It was suggested that that was emphatically highlighted by cases such as Gentle v Faulkner [1900] 2 QB 267, which led complainants and others subsequently to make sure that equitable assignments would be treated in the same way as parting with possession. Absent some express reference in equitable assignments, they would not be treated as having legal effect for the purposes of general covenants.
[28] A number of other cases were cited as examples of this principle, largely in the context of who is to constitute a landlord for the purposes of the 1954 Act: for example, Biles v Caesar [1957] 1 WLR 156 and Pearson v Alyo [1991] 1 EGLR 114*. Other cases appear to support a similar line of reasoning, at least as concerns landlords: see, in particular, Smith v Express Dairy Co [1954] JPL 45 and Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2001] Ch 733†, which concerned the lessee executing a transfer of the lease but that transfer not being registered at the Land Registry.
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* Editor’s note: Also reported at [1990] 25 EG 69
† Editor’s note: Also reported at [1997] 1 EGLR 39; [1997] 18 EG 123
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[29] Finally, in respect of the arguments as laid out by the claimant, The Wellcome Trust, they drew attention to section 101(2) of the 1993 Act, which I have rehearsed, suggesting that that constitutes an exception to what it would submit was the general rule requiring the registration of the tenant’s interest in order to constitute its qualification as a tenant. That exception would allow a tenant that becomes a tenant in equity under a specifically enforceable provision of a lease to count as a qualifying tenant under the Act, reflecting the principle in Walsh v Lonsdale (1882) LR 21 Ch D 9.
[30] The point that was made on behalf of the claimant was that that is an exception to the generality as set out in the specific statutory provision at section 101(2), and was an exception that merely reflected established law to the effect that an agreement for a lease was as good as a lease and did not give rise to any conflict with section 5(3) of the 1993 Act because it did not give rise to the risk that there might be two people simultaneously being regarded as a qualifying tenant. In contrast, the claimant says, if the assignment of a lease without or prior to registration were to be treated as giving rise to a tenancy for this purpose as far as the assignee was concerned, that problem would arise. So, too, would it arise if, for example, a registered tenant were an express trustee, not by virtue of the sale and assignment of the lease but simply under a trust holding for the benefit of another.
[31] So it is said by the claimant that, by contrast with section 101(2), where the disposal of vertical interests would not give rise to a conflict with section 5(3), a horizontal transaction between a registered tenant and either a purchaser or some other beneficiary would give rise to such a problem were the statute to be construed such as to allow a purchaser to qualify as a tenant following mere purchase rather than registration.
[32] On behalf of the defendant, the starting point for the submissions was, as one might expect, entirely different. What was said was that the 1993 Act did not give any special definition to the word “tenant” or “tenancy” so as to limit those who would count as such a person to registered owners. Attention was drawn to the fact that the requirement for the tenant to have been for the last two years prior to the relevant date of giving notice a qualifying tenant of the flat suggested that there had to be a continuous period during which the tenant counted as such, and that it might well be that there would be a delay or registration gap during which the successor tenant had done everything by way of taking an agreement of sale and purchase of the lease and paying the price, but prior to registration. It was suggested that there was no reason why, with regard to that period, that same person should not be treated as having qualified.
[33] The defendant’s submission was that a tenant for this purpose should be treated as any person with exclusive possession or occupation of the flat dealing with the normal incidents of tenancy, such as the payment of ground rent and so on.
[34] Some authority was relied on to suggest that this was right, in particular Scribes West Ltd v Relsa Anstalt (No 3) [2004] EWCA Civ 1744* and Roberts v Church Commissioners for England [1971] 3 WLR 566. It was suggested that Brown & Root was to be distinguished and Scribes was to be preferred, even though Scribes appeared to turn simply on the interpretation of a statutory phrase, namely section 141(2) of the Law of Property Act 1925, that provided that covenants might be enforced by “a person… entitled… to… income”: note the emphasis there on persons entitled, as opposed to persons who have their status by ownership, whether legal or otherwise.
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* Editor’s note: Reported at [2005] 1 EGLR 22; [2005] 09 EG 190
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[35] With regard to Roberts, it was suggested that this case is helpful in showing what is required to constitute a long tenancy “in law or equity”, notwithstanding, again, that that case was concerned with a statutory definition in which the phrase “in law or in equity” specifically appears.
Conclusions
[36] Although I have been attracted by some aspects of the arguments on both sides, in the end I consider that the right answer in this matter is clear. I accept the submissions of the claimant, The Wellcome Trust. Looking at the statute and the statutory provisions on their face, it appears to me that the system set out in Chapter II of the 1993 Act is one that: (a) depends very much on the requirement that there be only a single qualifying tenant at any one time; and (b) suggests very strongly that it is the legal owners on both sides, the landlord and the tenant (subject of course to specific explanations, exceptions or provisos), that are those who are to take part in the process and have the rights and concomitant obligations under the process.
[37] I am not impressed by the suggestion made at one stage on behalf of the defendant that the record of parliamentary debates indicated that the 1993 Act would replace residential requirements for tenants seeking an enfranchisement, or, rather, new leases, with the qualification of a two years’ ownership condition in order to address the danger from short-term speculators and therefore, the defendant would |page:128| infer, was not intended to distinguish between those who had had two years since they purchased the flat and those who had been legal owners of the flat for two years. I do not consider that that purpose, if it was a purpose, is needed to resolve any ambiguity in the 1993 Act or is or was the subject of a clear expression by the promoter of the 1993 Act. I am not persuaded that any debate with regard to the purpose of the 1993 Act assists in any way with regard to the relevant issue.
[38] What assists more, in my judgment, are two things: first, the analogies with landlord and other rights with regard to transfers and transferees in the various cases to which I have very briefly referred, and, second, the good sense of equating the system under the 1993 Act with other statutory regimes in which notification between legal owners gives rise to rights.
[39] With regard to the section 101(2) point, I am entirely satisfied that the fact that the 1993 Act provides for agreements for leases or subleases does not in any way derogate from the general principle that a tenant becomes a tenant only on acquiring the legal ownership of the lease, that is, on registration. I consider that to construe otherwise would actually damage the overall structure of the 1993 Act in giving rise to a risk that there would be more than one qualifying tenant under section 5(3). The distinction, as I have sought to adumbrate it, between vertical transactions and horizontal transactions can, I think, be well explained and maintained in that context.
[40] There was some debate as to whether what mattered by way of (a) continuity of ownership over the two years and (b) service of notices could be dealt with by some construction of the 1993 Act that required the tenant to be registered at the time of serving the notice, even though not necessarily registered for the whole of the previous two years — if, for example, for some small part of that period, the tenant had completed his or her purchase but there was a small registration gap before becoming the legal owner.
[41] For my part, however, again I do not consider that that sort of debate assists. At the end of the day, the tenant has to be a qualifying tenant for a period of two years prior to the relevant date. That seems to me a very simple test, or at least intended to be a very simple test, and it is one that is met with sufficient clarity, in my judgment, if registration is required throughout that period.
[42] For those reasons, without, I fear, doing justice to some of the more subtle points that were made in the submissions before me, I am minded to grant the declaration sought. I will hear counsel as to the precise form of order and with any other arguments consequential on that decision.
Claim allowed.
