In Artist Court Collective Ltd v Khan [2016] EWHC 2453, the owner of premises in north London, containing eight flats and three commercial units, has won an appeal against a decision of the central London county court. It has overturned a ruling that required the owner to transfer the freehold for a nominal consideration and the reimbursement 0f the rental income from the commercial units to Artist Court, a company formed on behalf of the flat leaseholders. The proceedings were brought under Part I of the Landlord and Tenant Act 1987.
In July 2011 Mr Khan arranged for a company (‘SGR’) to be formed in which he had a controlling interest. The following month, he entered into a ‘…strange sequence of transactions…’ which included entering into a trust deed between himself and SGR (under which the company holds property on trust for him), followed by a contract for the sale of the freehold, which was completed the same day at a price of £225,000 (which he lent to the company).
No notices under the Act were served on the leaseholders and they did not become aware of the transfer until a year later. They formed their Artist Court company which in 2013 served notices on the new landlord (SGR) seeking information on the sale and demanding the transfer of the freehold on payment of £225,000. Proceedings were started seeking orders including the transfer of the property for the price paid.
However, by then the title had been transferred back into Mr Khan’s name though this was not disclosed until after proceedings were started. The leaseholders then served notices in relation to this second transfer and in the current proceedings they sought an order requiring transfer of the property for a nil consideration. Only then was the existence of the trust deed disclosed.
Mr Khan appealed and he challenged the decisions on eight grounds. Artist Court, opposing the appeal, sought to uphold the decision on three additional grounds.
On appeal (Mr Justice Henderson) the main focus was on the effects of the trust deed, the contract and the first transfer. Following the transfer to SGR the company held the title subject to Mr Khan’s interest as the majority shareholder. The combined effect of the execution of the trust deed and the contract to sell to SGR was to transfer title subject to a trust. As a result, SGR held the title on trust for Mr Khan.
This brings one to the second transfer. Section 4 of the Act exempts some transactions. A transfer of an estate or interest in connection with the appointment of a new trustee or the discharge of any trustee is exempt. The Court concluded that SGR as trustee transferred the legal estate to Mr Khan the sole beneficiary. The trust then came to an end and SGR became discharged from its trusteeship on legal and equitable interests becoming united in the person of Mr Khan.
As the Court found that Mr Khan was not in breach of his obligations under the Act, it was unnecessary for the Court to deal with all of the appeal grounds which related to the consequences of a breach.
As permission to appeal was given we may hear more of this case.
Professor James Driscoll is a solicitor and a writer
