Landlord and Tenant Act 1987 — Purchase by qualifying tenants — Whether tenants entitled to be granted perpetual rights over gardens — Whether date of purchase notice or date of contract or conveyance limits period under section 12(6) of Act — Whether vacant possession value of flat to be included
In Kay-Green
v Twinsectra Ltd [1996] 2 EGLR 43 the Court of Appeal upheld the
validity of a purchase notice served on the appellant landlords in July 1992,
under section 12 of the Landlord and Tenant Act 1987, in respect of certain
buildings divided into flats. With two exceptions, the flats are held on long
leases which contain rights over the gardens and amenity land in favour of the
tenants, subject to the right of the landlords to terminate those rights; in
March 1993 the landlords served notices of termination of those rights.
Following references on behalf of the tenants, in April 1997 the leasehold
valuation tribunal determined the price payable for the freeholds of the
buildings at £100,165: see Kay-Green v Twinsectra Ltd [1997] 1
EGLR 219. Both the landlords and the nominated person appealed that decision.
The landlords contended that the leasehold valuation tribunal was wrong to give
the qualifying tenants perpetual rights over the gardens and amenity lands. The
nominated person contended that the leasehold valuation tribunal was wrong to
include the vacant possession value of a flat which became vacant on the death
of a regulated tenant after the service of the purchase notice.
the original disposal to the present landlords in 1992 must be considered. The
scheme of Part I of the Landlord and Tenant Act 1987 requires the tenants to be
put in the same position as if the original landlords had given them first
refusal on the disposal, and the price and terms of the disposal to the
nominated person on behalf of the tenants are to be related back to those of
the original disposal. At the time of the original disposal the tenants’ rights
over the gardens and amenity land had not been terminated. In view of the
minute of order of the Court of Appeal in 1996, by which the tenants
acknowledged that they had no claim to acquire the landlord’s reversionary
interest in the gardens and amenity land, the leasehold valuation tribunal was
entitled to determine that the tenants should obtain perpetual rights over the
gardens and amenity land. (2) The words ‘at any time since the original
disposal’ in section 12(6) of the 1987 Act are not without some limitation.
Parliament must have intended that changes in circumstances up to the contract
or conveyance are to be taken into account. Accordingly, the leasehold
valuation tribunal was entitled to include the increased value of the flat which
resulted from the death of the regulated tenant in 1996.
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
British
Concrete Pipe Association, Re [1983] 1 All ER 203
Cousins v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 31 EG
56, LVT
Denetower
Ltd v Toop [1991] 1 WLR 945; [1991] 3 All ER
661; [1991] 1 EGLR 84; [1991] 20 EG 194, CA
Fry v Inland Revenue Commissioners [1958] 2 WLR 673; [1959] 1
All ER 819; [1959] Ch 86
Gard v Commissioners of Sewers (1884) 28 ChD 486
Gowan v Wright [1886] 18 QBD 201
Heritable
Reversionary Co Ltd v Millar [1892] AC 598
Jones v Director of Public Prosecutions [1962] AC 635; [1962] 2
WLR 575; [1962] 1 All ER 596
Kay-Green v Twinsectra Ltd [1997] 1 EGLR 219; [1997] 23 EG 146
Kay-Green v Twinsectra Ltd [1996] 1 WLR 1587; [1996] 4 All ER 546;
[1996] 2 EGLR 43; [1996] 38 EG 136
London
& Winchester Properties Ltd’s Appeal, Re (1983)
45 P&CR 429; [1983] 2 EGLR 201; 267 EG 685
Newman v Kay [1991] 2 EGLR 237; [1991] 49 EG 80, LT
Pepper
(Inspector of Taxes) v Hart [1993] AC 593;
[1992] 3 WLR 1032; [1993] 1 All ER 42, HL
R v Committee of Lloyd’s, ex parte Moran The Times June
24 1983
R v Monck [1877] 2 QBD 544
Simon
Brilliant (instructed by Wallace & Partners) appeared for Twinsectra Ltd;
Jonathan Gaunt QC (instructed by Kennedy & Co) represented the nominee
purchaser, Stephen Robert Jones.
Giving his
decision, MR PH CLARKE said: These are two appeals heard together
against a decision of a leasehold valuation tribunal relating to the purchase
of two blocks of flats by a nominated person under Part I of the Landlord and
Tenant Act 1987. References to this Act in this decision are to the Act as unamended
by the Housing Act 1996: the amendments made by this latter Act have no
application to these appeals.
Mr Simon
Brilliant, of counsel, appeared for the owners, Twinsectra Ltd; Mr Jonathan
Gaunt QC appeared for the nominated person, Stephen Robert Jones.
Facts
The facts are
common to both appeals and are not in dispute. They are as follows:
1. London
& City Westcliffe Properties Ltd were the freehold owners of Tudor Court,
Tudor House and Parr Court, Castle Way, Hanworth, Hounslow, Middlesex, comprising
flats, bungalows and terraced houses, which are let. In February 1992 London
& Westcliffe sold their freehold interest to Twinsectra Ltd. The sale was
by auction as one lot. London & Westcliffe failed to serve on their tenants
notices under section 5 of the Landlord and Tenant Act 1987 (the 1987 Act) and
the auction particulars drew attention to this omission. Twinsectra Ltd were
registered as proprietors of the freehold interest on April 13 1992.
2. On May 1
1992 John Lewick Kay-Green, as the nominated representative of the tenants,
served on Twinsectra a notice under section 11 of the 1987 Act requiring
particulars of the terms upon which the disposal had been made to them.
3. Solicitors
acting for Twinsectra replied to this notice giving the information required,
but stated that it was given without prejudice to Twinsectra’s contentions that
the notice was not valid and that the properties were not within Part I of the
1987 Act.
4. On July 20
1992 solicitors acting on behalf of Mr Kay-Green, and 17 other long leasehold
tenants of Tudor Court and Tudor House, served on Twinsectra a purchase notice
under section 12 of the 1987 Act requiring Twinsectra to dispose of the
freehold of a number of units in Tudor Court and Tudor House to Mr Kay-Green as
the nominated person on behalf of the qualifying tenants.
5. Twinsectra
failed to comply with this notice and proceedings were commenced in Staines
County Court by Mr Kay-Green and the tenants. They sought a declaration that
Twinsectra were in default in failing to comply with their section 12 notice.
This application was refused and the applicants appealed to the Court of
Appeal: Kay-Green v Twinsectra Ltd [1996] 4 All ER 546*.
*Editor’s
note: Also reported at [1996] 2 EGLR 43
6. On May 15
1996 the Court of Appeal allowed this appeal and held that the notice under
section 12 was valid. The order of the Court of Appeal was drafted by counsel
and sealed on August 16 1996. It provides, inter alia, that upon the applicants’
counsel acknowledging that the applicants have no claim to acquire Twinsectra’s
reversionary interest in the gardens and amenity land that surround Tudor Court
and Tudor House, the purchase notice is valid in so far as it related to Tudor
House, building 4, Tudor Court and building l, Tudor Court comprising flats
1–3A inclusive (but without prejudice to the right of the applicants and of the
respondent to argue before a leasehold valuation tribunal whether the three
houses, 4, 4A and 4B Tudor Court, can be acquired pursuant to the Act).
7. On July 4
1996 Mr Kay-Green made two applications under section 13 of the 1987 Act to a
leasehold valuation tribunal for the London Rent Assessment Panel. The first
was a composite application relating to buildings 1 and 4, Tudor Court, to
Tudor House and to ‘the estate land’, ie the garden and amenity land. The other
four applications were separate applications relating to the individual
components in the first application. Following a hearing on February 7 1997 the
tribunal gave their decision on April 9 1997. They determined the price payable
for the freehold of buildings 1 and 4 of Tudor Court and Tudor House to be
£100,165. The decision dealt with four issues, namely whether the price to be
paid by the applicants should be increased by the death of the tenant of flat
2A Tudor Court; whether the three houses which form part of building 1, Tudor
Court, could be purchased by the applicants; the extent of the tenants’ rights
over the gardens and amenity land; and whether the applicants should pay the
consideration directly to the bank holding a charge over the properties?
8. On May 2
1997 Twinsectra appealed to this tribunal against the decision of the leasehold
valuation tribunal on the grounds that the ‘tribunal erred in determining that
the Respondent be granted perpetual rights to use the gardens and amenity land
forming part of the common parts of Tudor Court and Tudor House’. This is
appeal no LRA/29/97.
9. On May 6
1997 Mr Kay-Green appealed to this tribunal against the decision of the
leasehold valuation tribunal on the grounds that the ‘tribunal were wrong to
hold that the consideration … must be increased to include the vacant
possession value of Flat 2A’ Tudor Court and ‘that section 12(6) applied to changes
in circumstances after the date of service of a purchase notice under section
12 of the’ 1987 Act. This is appeal no LRA/31/97.
10. On August
8 1997 the registrar ordered that both appeals be heard together and that
Stephen Robert Jones be substituted for Mr Kay-Green as respondent in appeal
LRA/29/97 and as appellant in appeal LRA/31/97.
11. The
appeals are concerned with buildings 1 and 4, Tudor Court, and Tudor House.
Tudor Court consists of four buildings and has a frontage to Castle Way.
Building 1 is the main building. It is an attractive 16th-century domestic
dwelling converted into seven flats (nos 1, 1A, 1B, 2, 2A, 3 and 3A) and three
terraced houses (nos 4, 4A and 4B). The main part of Tudor Court is sited north
to south with two wings protruding in a westerly direction to form three sides
of a courtyard, now a garden. Building 4, Tudor Court, is adjacent to the south
wing of building 1 and is a modern purpose-built block of five flats (nos 8 to
12 inclusive). Tudor House is situated to the west of Tudor Court, at the rear
of the land and close to the frontage to Queen Elizabeth’s Walk. It is a
19th-century mansion, which has been divided into seven flats (nos 1 to 7
inclusive). It has its own driveway passing to the north of Tudor Court leading
to Castle Way.
12. Around
Tudor Court is a garden, which abuts the garden of Tudor House, and to the
south is amenity land comprising ponds and trees.
13. Twinsectra
agree that they are required to sell buildings 1 and 4, Tudor Court and Tudor
House to Mr Jones, as the nominated person on behalf of the qualifying tenants.
14. With two
exceptions, all the flats and houses in buildings 1 and 4, Tudor Court, are
occupied under long leases at low rents on substantially the same terms. Flat
2A in building 1, Tudor Court, was let under a regulated tenancy until the
death of the tenant on April 29 1996. Flat 9, building 4, Tudor Court is let on
a regulated tenancy.
15. The
tenants of Tudor Court and Tudor House have rights over the gardens and other
areas provided for common use (the common parts) subject to the right of the
landlord to exclude those rights on notice. On March 23 1993 Twinsectra sent
letters to each of the tenants giving three months’ notice to terminate those
rights.
Appeal
LRA/29/97
This appeal is
by the landlords, Twinsectra, against the decision of the leasehold valuation
tribunal giving the qualifying tenants perpetual rights over the gardens and
amenity land. I start with a summary of those rights.
A typical
lease of Tudor Court defines ‘the Estate’ by reference to the lessors’
registered title and the estate plan. This shows Tudor Court (buildings 1 to
4), Tudor House and the surrounding gardens, pathways, gardens and amenity
land.
The lease then
defines the ‘Common Parts’ as follows:
all main
entrances passages (external only) gardens gates access yards roads footpaths
parking areas and means of refuse disposal (if any) and other areas included in
the Title above referred to provided by the Lessors for the common use of
residents in the curtilage of the Estate and their visitors and not subject to
any lease or tenancy, to which the Lessors are entitled to the reversion
The tenants of
Tudor Court were granted:
Full right
and liberty for the Lessee and all persons authorised by him (in common with
the Lessors the Managers and all other persons entitled to the like right) at
all times and for all purposes in connection with the permitted user of the
Demised Premises to go pass and repass over and through and along the Common
Parts including the main entrances and the passages landings halls and
staircases leading to the Demised Premises
(I note here
that the lease of flat 2, Tudor Court, does not include reference to the main
entrances, passages, landings, halls and staircases leading to the flat. This
variation is not material to this appeal.) The above rights are subject to
variation or exclusion under two provisos. The first relates to temporary
closure or diversion of the common parts and is not relevant to this appeal.
The second proviso is at the heart of this appeal. The landlords have the right
at any time on at least three months’ written notice to the tenants to exclude
from the tenants’ rights ‘the use of all or any part or parts of the garden or
land forming part of the Common Parts but not so as to make access to the
Demised Premises impracticable’.
A typical
lease of a qualifying tenant in Tudor House defines the common parts as:
all main
entrances passages landings staircases (internal and external) gardens gates
access yards roads footpaths parking areas and garage spaces (if any) means of
refuse disposal (if any) and other areas and as shown within the area edged
yellow on the plan annexed hereto and numbered 2 included in the Title above
referred to provided by the Lessors for the common use of residents in the
curtilage of the Building and their visitors and not subject to any lease or
tenancy to which the Lessors are entitled to the reversion
In the above
definition ‘the Building’ means Tudor House and 1 to 12 Tudor Court, and plan
no 2 excludes from the definition of common parts the courtyard within
buildings 1 and 4, Tudor Court. Tenants of Tudor House were granted the same
rights over the common parts, with the same provisos for variation and
exclusion, as the tenants of Tudor Court.
On March 23
1993 Twinsectra wrote to all tenants as follows:
In accordance
with the provisions of Clause 2(1) of your lease, we hereby give you three
months’ notice, excluding from the easement right and liberty granted by Clause
2(1) of the Lease, the use of all or any part or parts of the garden or land
forming part of the common parts of Tudor Court and Tudor House as defined in
the Lease, save insofar as the same would make access to the premises demised
to you impracticable.
One of the
issues before the leasehold valuation tribunal was: what rights should the
tenants have in the disposal to them over the gardens and the amenity land. The
tribunal came to the conclusion that the wide powers given to them by section
13(1) of the 1987 Act allowed them to include within the transfer to the
nominated person ‘the rights given to the tenants in their leases but not
subject to termination by Twinsectra’, ie perpetual rights. It is against this
part of the decision that Twinsectra appeal. They contend that the nominated
person should be granted no greater rights than under the leases and therefore
should not be granted perpetual rights over the gardens and amenity land. Mr
Jones, the nominated person and respondent in this appeal, seeks to uphold the
decision of the leasehold valuation tribunal. The fundamental question is
therefore whether the nominated person is to be granted perpetual or terminable
rights over the gardens and amenity land.
Appellants’
case (Twinsectra)
Mr Brilliant
said that Mr Jones is purchasing three separate freehold interests in three
separate buildings on behalf of three separate groups of tenants. Twinsectra
retain ownership of the remainder of the land they originally purchased, that
is to say Parr Court, buildings 2 and 4, Tudor Court and the gardens, pathways
and amenity land forming the common parts.
Mr Brilliant
emphasised the limited rights of the tenants over the gardens, pathways and
amenity land. The respondent acknowledged in the Court of Appeal that he had no
claim to acquire the freehold of these areas. At no time before the service of
the purchase notice had any part of these areas been demised to the tenants.
The tenants’ rights are restricted to going, passing and repassing and they do
not, for example, have the right to sit on the lawns. Furthermore, the tenants’
limited rights could be cut back by notice from the landlords under the second
proviso in the leases, as has occurred under the landlords’ notice dated March
23 1993. Mr Brilliant referred to, and distinguished, the decision of a
leasehold valuation tribunal in Newman v Kay [1991] 2 EGLR 237. A
tenant would have been aware of the possibility of service of notice cutting
down his access rights. It was accepted by the nominated person’s valuer that
the landlords’ notice in this case has not increased the value of the
reversion.
Mr Brilliant
said that, following the decision of the Court of Appeal in Denetower Ltd
v Toop [1991] 3 All ER 661*, a nominated person can acquire buildings
and appurtenances. In theory therefore, in this appeal, Mr Jones is entitled to
ask for either the freehold or for perpetual rights over the pathways leading
directly to buildings 1 and 4, Tudor Court and Tudor House, although, having
regard to their use by the landlords and by tenants other than the qualifying
tenants in this appeal, it would be wrong to give more than perpetual rights.
The landlords should remain the freeholders. But the nominated person is not
entitled to ask for perpetual rights of way over the gardens and amenity land,
because the qualifying tenants have no such rights. The amenity land is not
appurtenant to the buildings and notices have now been served by the landlords
excluding the tenants’ use of the gardens. The service of this notice after the
date of the purchase notice under section 12 of the 1987 Act is immaterial. The
Court of Appeal in Kay-Green held that a landlord is required to give
effect to a purchase notice, but the 1987 Act does not give the nominated
person any rights in the premises to be acquired prior to a binding contract
pursuant to the purchase notice: see section 14 of the 1987 Act. The transfer
by the original vendor is not void or voidable. Changes in value are dealt with
under section 12(4)(b) and (6) of the 1987 Act.
*Editor’s
note: Also reported at [1991] 1 EGLR 84
Mr Brilliant
submitted that the decision of the leasehold valuation tribunal on this issue
is flawed. If the original landlords had served notice on the tenants under
section 5 of the 1987 Act, the nominated person would have acquired the
freehold of the three buildings in these appeals, but the original landlords or
their successors would have remained the freeholders of the gardens, pathways
and amenity land with the right to serve notice excluding the tenants’ rights.
The leasehold valuation tribunal should not have given to the nominated person
(for the benefit of the qualifying tenants) greater rights than those tenants
had under their leases. The correct approach, said Mr Brilliant, is for the
nominated person to be given perpetual rights over the gardens, pathways and
amenity land in terms identical to those enjoyed under the leases, ie subject
to exclusion by the landlords under the second proviso, a right which would not
pass to the nominated person.
In reply to Mr
Gaunt, Mr Brilliant said that the extent of the demised premises is the
governing factor in this appeal. The managers of the flats, who recover costs
in the service charge, are now separate from Twinsectra. The operation of the
proviso terminating the tenants’ rights in the gardens and land is not the same
as the operation of a break clause in a lease. There is no provision in the
1987 Act preventing the landlord from serving notice under the lease to exclude
the tenants’ rights during the currency of the claim, similar to para 6 of
Schedule 3 to the Leasehold Reform, Housing and Urban Development Act 1993. If
parliament had intended to limit a landlord’s right to serve notice under the
lease after service of a purchase notice it would have included a specific
provision to this effect in the 1987 Act.
Respondent’s
case (Jones)
Mr Gaunt QC
said that the fundamental issue in this appeal is whether the nominated person
should be granted perpetual or terminable rights over the gardens and amenity
land for the benefit of the qualifying tenants. This was the form of the
landlords’ appeal, but they now seek to take the matter further by referring to
the construction of the original grant and by making a distinction between the
gardens and amenity land. Mr Gaunt said that it is clear from the relevant
terms of the leases that the tenants have the right to the use of the gardens
and land forming part of the common parts. These areas are maintained and the
cost is recovered through the service charge. Mr Gaunt said that the tenants’
rights over the common parts and the second proviso for the exclusion of those
rights should be considered as a whole. The common parts should not be limited
to footpaths and access ways, and there is no reason to exclude the amenity
land from the common parts. The tenants’ rights over the gardens are wider than
mere access rights and there is no distinction between rights over the gardens
and rights over the amenity land.
Mr Gaunt
referred to the relevant chronology and to section 1(1) and (2) of the 1987
Act. He emphasised the words ‘at the time of the disposal’ in section 1(1) and
said that the ‘premises’ to be identified under subsection (2) are those which
existed at the time of the original disposal by London & Westcliffe to
Twinsectra. At that time the tenants had rights over the gardens and amenity
land which had not been terminated.
Mr Gaunt said
that the Court of Appeal held in Denetower Ltd v Toop that a
purchase notice can require the landlord to transfer the
appurtenances, that is to say areas over which they have express or prescriptive
rights; and that it is a matter for the leasehold valuation tribunal to decide
whether the tenants should acquire the freehold of the appurtenant land or be
granted perpetual rights over it.
The effect of
a purchase notice under section 12 is that the new landlord must transfer to
the nominated person the estate or interest that was the subject-matter of the
original disposal on the terms on which it was made. Where the disposal related
to property in addition to the premises to which Part I of the 1987 Act
applies, then the new landlord is required to transfer only those latter
premises on modified terms: section 12(3)(a). The premises to which the Act
applies include land over which the tenants have rights and, prima facie,
the tenants are entitled to have the freehold of that land, being the estate
that was the subject-matter of the original disposal. The tenants may, however,
elect under section 13(3)(b) to have the estate or interest which they are to
receive, and the terms of the disposal, determined by a leasehold valuation
tribunal. This was the course of action taken by the tenants in this appeal.
The leasehold
valuation tribunal has a discretion (see Newman v Kay, at p239F),
having regard to the terms of the original disposal and to the fact that the
premises which the tenants are entitled to acquire include the land over which
they enjoyed appurtenant rights. It is not open to Twinsectra to cut down those
rights after the service of the purchase notice or at all. The leasehold
valuation tribunal were right to include within the transfer to the nominated
person the rights given to the tenants under their leases but not subject to
termination by Twinsectra.
Mr Gaunt said
that the appellants’ case is, in effect, that the tenants should have no rights
over the gardens and amenity land, because they were served with notice of
termination after the purchase notice. They are incorrectly asserting the
ability to detract from the obligation created by the purchase notice and to
remove the gardens from the premises to which the Act applies. Moreover, the
gardens are maintained by managers and paid for by the tenants, whether or not
they have the use of them, because their rights have been terminated. In these
circumstances it is only right that the tenants should have perpetual rights
over these common areas.
Decision
In Denetower
(at p668b) Sir Nicolas Browne-Wilkinson V-C referred to the 1987 Act as
‘ill-drafted, complicated and confused’, a criticism subsequently said to be
‘understated’ by Sir Thomas Bingham MR in Belvedere Court Management Ltd
v Frogmore Developments Ltd [1996] 3 WLR 1008*, at p1027. The Master of
the Rolls also referred to the Act as an ‘obscure statute’ and he wished that
it ‘provided as many answers as it raised problems’. In the proceedings in this
case, Staughton LJ in the Court of Appeal referred to the Act as ‘the most
remarkable case of statutory interpretation that I have ever seen’: Kay-Green
at p561c. Against this background of judicial comment, I consider first the
scheme of the Act and the relevant provisions in the context of this appeal.
*Editor’s
note: Also reported at [1996] 1 EGLR 59
The purpose of
Part I of the 1987 Act is to give the tenants of flats rights of first refusal
when the landlord sells his reversionary interest. It applies to certain
premises containing ‘qualifying tenants’ (where more than half of the flats are
held by such tenants). Section 1(1) provides that the landlord shall not make a
‘relevant disposal’ of his interest without first serving on the qualifying
tenants a notice under section 5 giving them the right of first refusal. In
this appeal the original landlords, London & Westcliffe, failed to serve
such a notice before disposing of their reversionary interest to Twinsectra.
This failure to comply with the Act brought into operation sections 11 to 17 of
the Act.
Section 11
requires the new landlord to comply with a notice served on behalf of the
qualifying tenants requiring him to supply particulars of the terms on which
the original disposal was made to him. A section 11 notice in these proceedings
was served on May 1 1992 and a reply was given on behalf of Twinsectra. Section
12 then gives the qualifying tenants the right to serve a ‘purchase notice’ on
the new landlord requiring him to dispose of the estate or interest that was
the subject-matter of the original disposal, on the terms on which it was made,
to the nominated person. This notice was given on July 20 1992 and the
nominated person is now Mr Stephen Robert Jones.
It is now
necessary to look in more detail at section 12 and the purchase notice. Section
12(1) provides that, where a landlord has made a relevant disposal without serving
notice under section 5 and the premises are still within Part I of the Act, the
requisite majority of qualifying tenants may:
serve a
notice (‘a purchase notice’) on the new landlord requiring him (except as
provided by the following provisions of this Part) to dispose of the estate or
interest that was the subject-matter of the original disposal, on the terms on
which it was made (including those relating to the consideration payable), to a
person or persons nominated for the purposes of this section by any such
majority of qualifying tenants of those flats.
I emphasise
here that the disposal by the new landlord (Twinsectra) to the nominated person
is to be ‘of the estate or interest that was the subject-matter of the original
disposal’, ie from London & Westcliffe to Twinsectra.
Section 12(3)
deals with the situation where the original disposal related to any property in
addition to premises under Part I of the 1987 Act. That is the position in this
appeal where the original disposal was of the whole of Tudor Court, Tudor House
and Parr Court. In these circumstances section 12(3) provides that:
A purchase
notice —
(a) shall,
where the estate or interest that was the subject-matter of the original
disposal related to any property in addition to the premises to which this Part
applied at the time of the disposal —
(i) require
the new landlord to dispose of that estate or interest only so far as relating
to those premises, and
(ii) require
him to do so on the terms referred to in subsection (1) subject to such
modifications as are necessary or expedient in the circumstances;
(b) may,
instead of specifying the estate or interest to be disposed of or any
particular terms on which the disposal is to be made by the new landlord
(whether doing so expressly or by reference to the original disposal), provide
for that estate or interest, or (as the case may be) for any such terms, to be
determined by a rent assessment committee in accordance with section 13.
The tenants’
purchase notice of July 20 1992 provided that:
the terms on
which the above mentioned majority of tenants require you to dispose of the
said estate or interest to them are (1) the same terms on which the said estate
or interest was disposed of to Twinsectra Ltd; or (2) alternatively on such
terms as may be determined by a rent assessment committee pursuant to section
12(3)(b) of the above mentioned enactment.
The
jurisdiction of a rent assessment committee, known as a leasehold valuation
tribunal for this purpose (see section 13(5)), is set out in section 13(1) as
follows:
A rent
assessment committee shall have jurisdiction to hear and determine —
(a) any
question arising in relation to any matters specified in a purchase notice
(whether relating to the nature of the estate or interest, or the identity of
the property, to be disposed of or relating to any other terms on which the
disposal by the new landlord is to be made); and
(b) any
question arising for determination in consequence of a provision in a purchase
notice such as is mentioned in section 12(3)(b).
An appeal lies
to the Lands Tribunal against the decision of a leasehold valuation tribunal:
para 2 of Schedule 22 to the Housing Act 1980. It would appear that the Lands
Tribunal has the same jurisdiction as the leasehold valuation tribunal: see Re
London & Winchester Properties Ltd’s Appeal (1983) 45 P&CR 429*, at
p434 (not cited). This tribunal is not, of course, bound by the decision of a
leasehold valuation tribunal, but I was referred to the decision of such a
tribunal
of the terms in the original disposal, but not necessarily to facilitate the
continuance of the rights created by the original disposal or leave the
nominated person ‘to stand in the shoes’ of the new landlord. I do not dissent
from this approach.
*Editor’s
note: Also reported at [1983] 2 EGLR 201
The decision
of the leasehold valuation tribunal on the issue in this appeal was as follows:
we have come
to the conclusion that the wide powers given to us by section 13(1) … allow us
to include within the transfer the rights given to the tenants in their leases
but not subject to termination by Twinsectra. We are satisfied from the
reasoning in Denetower that easements are rights which can be
compulsorily acquired as appurtenances under Part I, by analogy with Part III.
If the original vendors had complied with their statutory duty (as it was found
to be in this case in the Court of Appeal) to offer the relevant freeholds to
the tenants, the tenants would have received with them the appurtenant right to
use the gardens and amenity land in accordance with their leases. Had they done
so, the owner of the freehold of the land would in our view have met with
insuperable difficulties had it tried to restrict those rights, the right to
determine them having passed to the applicant with the freehold.
The question
for my determination is: is that decision correct?
The scheme of
Part I of the 1987 Act, in so far as it is relevant to this appeal, has two
features. First, it gives to the qualifying tenants the right to buy the
landlord’s estate or interest when he wishes to make a relevant disposal. Under
section 4(1) references to a ‘relevant disposal’ ‘are references to the
disposal by the landlord of any estate or interest (whether legal or equitable)
…, including the disposal of any such estate or interest in any common parts
…’. The second feature is that, where the original landlord is in default by
his failure to serve notice under section 5 (giving the qualifying tenants the
right of first refusal before disposing of the property), the tenants may
enforce that right against the new landlord (the purchaser). In my view, the
tenants are to be put in the same position as if the original landlord had
given them first refusal on the disposal, and the price and terms of the
disposal to the nominated person on behalf of the tenants are to be related
back to those of the original disposal, subject only to the changes
specifically referred to in section 12 and Part I. This can be seen by
reference to the following provisions. Under section 11 the new landlord is
required to furnish particulars of the terms and consideration on the original
disposal. Under section 12(1) the new landlord is required to dispose of the
estate or interest that was the subject-matter of the original disposal, on the
terms and conditions on which it was made, to the nominated person. In Cousins
v Metropolitan Guarantee Ltd [1989] 2 EGLR 223 (not cited) the leasehold
valuation tribunal, in my view correctly, restricted their jurisdiction to the
scope of the purchase notice under section 12 which, in turn, referred back to
the original disposal: see also Newman v Kay. The section 12
notice in this appeal requires Twinsectra to dispose of their estate or
interest to the nominated person on the same terms as the disposal to
Twinsectra or, alternatively, on terms determined by the leasehold valuation
tribunal. Section 12(4)–(6) contains provisions for adjusting the consideration
on the original disposal for new charges or incumbrances or for a change in
circumstances, but, again, the starting point of these adjustments is the
original disposal.
I am satisfied
therefore that in determining this appeal I should look back to the original
disposal to Twinsectra. At that time London & Westcliffe owned the freehold
interest in the flats and gardens and amenity land and the tenants had rights
over the gardens and land. Those rights had not been excluded under the second
proviso in the lease. The tenants could expect to have conveyed to them either
the freehold of the gardens and amenity land or perpetual rights over them. I
was referred to the decision in Denetower where the tenants had rights
of way over roadways and paths. The Court of Appeal held that these were
appurtenances of the building and therefore were to be included in the disposal
as part of the building. How they are to be dealt with in the disposal is a
matter for the rent assessment committee under section 13(1), which ‘may reach
the conclusion that the appropriate provision should be that the tenants should
not acquire the freehold in the land of the roadway and paths, but be granted
perpetual rights of way over them’: per Sir Nicolas Browne-Wilkinson
V-C, at p668f.
A similar
decision was reached by the leasehold valuation tribunal in this appeal. At the
hearing before that tribunal, counsel for the nominated person did not ask for
the freehold of the gardens and amenity land, but said that the tenants wanted
perpetual rights over the common parts. In the order drawn by counsel following
the decision of the Court of Appeal in Kay-Green v Twinsectra it
was acknowledged that the tenants had no claim to acquire Twinsectra’s
reversionary interest in the gardens and amenity land. Accordingly, the
leasehold valuation tribunal included in the transfer to the tenants the rights
given to the tenants in their leases, but not subject to termination by
Twinsectra, that is to say perpetual rights over the gardens and amenity land.
I am not persuaded that this decision was wrong. Mr Brilliant’s contentions
that this decision was wrong may be considered under two headings.
First, he said
that the qualifying tenants did not have perpetual rights over the gardens and
amenity land and therefore the nominated person is not entitled to ask for
those rights. Furthermore, if perpetual rights are given then they must be
subject to the proviso for termination. I do not agree. The qualifying tenants
are not restricted to the position under their leases. The purpose of Part I of
the 1987 Act is to enable them to acquire the landlords’ reversionary interest
and change their position. If, on the original disposal, the tenants had been
able to acquire the freehold of the gardens and amenity land as appurtenances
to the flats in the building, they would have acquired additional rights,
notwithstanding the proviso for termination.
Second, Mr
Brilliant argued that the notices excluding the tenants’ rights over the
gardens and amenity land should be taken into account even though they were
served after the purchase notice. For the reasons given above I do not agree.
The consideration and terms of the disposal from Twinsectra to Mr Jones must be
related back to the position as at the original disposal by London &
Westcliffe to Twinsectra, long before the notices of exclusion were served on
the tenants. I have considered section 14 of the 1987 Act, but I do not think
that this provision, which essentially deals with the reimbursement of the
landlords’ costs where the nominated person withdraws from the transaction,
requires me to have regard to the termination of the tenants’ rights and
prevents me from basing my decision on the position at the time of the original
disposal.
Following an
examination of the scheme of the 1987 Act and the relevant provisions, I have
reached the conclusion that the decision of the leasehold valuation tribunal is
correct. I am also satisfied that it is a fair conclusion. It must not be
forgotten that the original landlords were in breach of their obligation under
the 1987 Act to give the tenants first refusal on their proposed sale and were
aware of this breach of obligation when they sold to Twinsectra. It would be
wholly wrong if the qualifying tenants are to be prejudiced by the subsequent
termination of their access rights over the gardens and amenity land (and the
reason for this termination was not explained to me), which would not have
occurred if London & Westcliffe had complied with section 5 of the Act. To
counteract this unfairness it is necessary to look back to the position at the
time of the original disposal and I am satisfied that this is what I am
required to do under Part I of the Act. It would be wrong if Twinsectra, who
were aware when they purchased the flats that London & Westcliffe had not
served a section 5 notice, could now gain an advantage over the tenants by this
omission by their predecessors in title.
I agree with
Mr Gaunt that Mr Brilliant’s submissions appear to go beyond the grounds of
appeal and into matters of construction and the extent of the tenants’ rights
over the gardens and amenity land. I have no jurisdiction to determine the
tenants’ rights under their leases and it is not necessary to do so in
disposing of this appeal.
The appeal is
dismissed.
This decision
determines the substantive issues raised between the parties and my award is
final. Costs are reserved. The parties are
accompanies this decision as to the procedure for submissions in writing. I
will in due course, incorporate a decision or order as to the costs in an addendum
to this decision. Rights of appeal under section 3(4) of the Lands Tribunal Act
1949 and Rules of the Supreme Court Ord 61 will not accrue until the decision
has been thus completed, ie from the date of the addendum.
Addendum
Neither party
has made submissions on costs. I order the appellants to pay the respondent’s
costs of this appeal, such costs, if not agreed, to be taxed by the registrar
of the Lands Tribunal on the High Court standard basis.
Appeal
LRA/31/97
This appeal is
by the nominated person, Stephen Robert Jones, against the decision of the
leasehold valuation tribunal that the consideration for the purchase of buildings
1 and 4, Tudor Court and Tudor House is to include the vacant possession value
of flat 2A, building 1, Tudor Court. This flat was let on a regulated tenancy
until the death of the tenant on April 29 1996. The parties have agreed that,
if the vacant possession value of this flat is to be included in the
consideration, then it is to be increased by £56,950 to £100,165. The appellant
contends that section 12(6) of the 1987 Act (which requires the original
consideration to be increased where the property has increased in value ‘at any
time since the original disposal’ owing to any change in circumstances) does
not apply to circumstances occurring after the date of the section 12 purchase
notice and therefore the death of the tenant of flat 2A, which occurred nearly
four years after the service of the notice, is not to be taken into account to
increase the consideration. Twinsectra accept the decision of the leasehold
valuation tribunal.
Appellant’s
case (Jones)
Mr Gaunt QC
referred to section 12(4) and (6) of the 1987 Act and said that these
provisions do not make it clear as to the time of a change in circumstances. It
may be when the requirement by the landlord to dispose of his interest pursuant
to the purchase notice crystallises or it may refer to any time at which the
requirement is unfulfilled. There must be a cut-off point, but can this be
after the purchase notice? Possible cut-off dates are: the service of the
purchase notice; when the price is agreed or determined; when the parties enter
into a binding contract; or at the transfer to the nominated person. It is not
clear from section 12(6) which of these dates is correct, but the first and
last seem most likely.
Mr Gaunt
submitted that section 12(6) is inherently ambiguous. It is therefore open to
the tribunal to interpret it in accordance with the following canons of
construction. First, by looking at the respective results of the alternative
constructions: see Bennion, Statutory Interpretation section 286.
Second, by construing the statute so as to suppress the mischief, advance the
remedy and avoid a countermischief: see Bennion, sections 289, 291 and 318.
Third, by adopting a construction which leads to the least inconvenience: see
Bennion section 314 and Gard v Commissioners of Sewers (1884) 28
ChD 486, at p511. Fourth, by adopting a construction which avoids injustice and
keeps within the purpose of the statute, in preference to one which produces
injustice: see Heritable Reversionary Co Ltd v Millar [1892] AC
598, at p623; R v Monck [1877] 2 QBD 544, and Gowan v Wright
[1886] 18 QBD 201, at p204. Fifth, by rejecting a construction which enables a
person to defeat a statute or impair his obligations by his own act or
otherwise profit by his own wrong: see Bennion, section 349 and Gowan,
at p204.
The Court of
Appeal in Kay-Green held that service of a purchase notice under section
12 gives rise to an obligation on the part of the new landlord to effect a
disposal on either the terms of the notice or as determined by a leasehold
valuation tribunal. Receipt of the purchase notice is therefore the moment when
the new landlord is required to dispose of the property to the nominated
person: see section 12(4). This is the cut-off date under section 12(6) and any
interpretation of this provision which gives the landlord the benefit of
changes after that date would enable him to profit from his own failure or
delay. It would give him a reason to delay matters, eg by disputing the
validity of the notice. This incentive to litigate is a counter-mischief which
should not be created by statutory construction.
Mr Gaunt said
that the purpose of sections 11 to 15 of the 1987 Act is to provide the
machinery to enable the qualifying tenants to enforce the right of first
refusal given by sections 1 to 10, where a disposal has been made in
contravention of this right. The mischief at which sections 11 to 15 is aimed
is the attempt to evade the rights and obligations created by sections 1 to 10.
The remedy is to give the tenants the right to acquire the property from the
new landlord. The respondents’ interpretation of section 12(6) enables, or
encourages, them to compound the mischief and complicate the tenants’ remedy.
The appellant’s interpretation, however, suppresses the mischief by removing
the rewards of delay and advances the remedy by giving the tenants the property
at its value at the date of their election to purchase.
There is no
apparent policy reason why parliament should give the benefits of a change of
circumstances after the purchase notice to the new landlords. They took a
transfer which was made in breach of statutory duty and, from the service of
the purchase notice, they have been under a duty to dispose of the property to
the nominated person. If one of the parties is to have the benefit of an advantageous
change in circumstances it should be the qualifying tenants, whose statutory
rights accrued before the change occurred.
The
respondents’ interpretation produces injustice and inconvenience for two
reasons. First, if the cut-off date is other than the date of the purchase
notice then the price could be constantly changing up to the date of transfer.
This could mean references back to the leasehold valuation tribunal to
determine the consideration. Second, it may not be easy for tenants to assemble
the necessary majority to raise the purchase price and exercise their rights. A
significant increase in the price after they have taken the initial decision to
proceed may make it impossible for them to do so. It is unlikely that this was
the intention of parliament.
In order to
achieve a result which is just, which advances the objective of the 1987 Act
and which avoids inconvenience, it is necessary to construe section 12(6) to
apply only to changes in circumstances up to the moment when the new landlords
became under an obligation to dispose of the property to the nominated person.
The courts have recognised that there are drafting difficulties in the 1987 Act
and that there is need for a purposive construction: see Belvedere Court
Management Ltd v Frogmore Developments Ltd.
Mr Gaunt drew
a distinction between subsections (4) and (6) of section 12. Subsection (4) is
concerned with charges and incumbrances. It is clear that they could be imposed
after the service of the tenants’ purchase notice. The property under the
original disposal is then discharged from the charge on disposal to the
nominated person or, in the case of an incumbrance, there is a reduction in the
consideration. Mr Gaunt submitted that subsection (6) differs from subsection
(4) in three ways. First, subsection (6) is concerned with a change in
circumstances which is outside the control of either party. Second, subsection
(4) is discretionary, but the adjustment under subsection (6) is mandatory. In
subsection (4) the specified adjustment is to be made ‘unless the court by
order directs otherwise’; these words are absent from subsection (6). Third,
subsection (4)(a) refers to the instrument of disposal to the nominated person,
but subsection (6) refers only to the consideration for the disposal of the
property in pursuance of the purchase notice.
Respondents’
case (Twinsectra)
Mr Brilliant
urged me to accept the decision of the leasehold valuation tribunal on this
issue and to dismiss the appeal.
He said that
the words ‘at any time since the original disposal’ in section 12(6) of the
1987 Act are clear and unambiguous. They mean
limited to the service of the tenants’ purchase notice. Section 12(6) is
concerned with the price to be paid by the qualifying tenants. Since the
original disposal to Twinsectra, but before the consideration has been paid and
the freehold transferred to the nominated person, the statutory tenant of flat
2, Tudor Court has died. This is clearly a ‘change in circumstances’ within
section 12(6). The words ‘at any time since the original disposal’ mean at any
time up to the contract or conveyance for the disposal to the nominated person.
That is the cut-off date; it is not the date of the tenants’ purchase notice
under section 12. Mr Brilliant referred to part of the judgment of Lord Reid in
Jones v Director of Public Prosecutions [1962] AC 635 where he
said (at p668) that it is a cardinal principle of statutory construction that a
meaning is not to be attached to a statutory provision which it cannot bear. If
it is capable of more than one meaning then a choice can be made between the
two meanings, but one cannot go further.
Mr Brilliant
observed that section 12(6) of the 1987 Act (as originally enacted) is now
section 12B(7) of the amended Act and that the words ‘at any time’ have been
omitted.
Mr Brilliant
said that, even if section 12(6) is ambiguous, the ambiguity can be resolved in
the respondents’ favour. Following the decision of the House of Lords in Pepper
(Inspector of Taxes) v Hart [1993] AC 593 it is permissible in
certain circumstances to look at parliamentary material as an aid to statutory
construction. Mr Brilliant referred to Hansard, April 23 1987, at column
41, etc, where the minister made it clear in the standing committee that a flat
becoming vacant is just the sort of event which falls within subsection (6).
There is no suggestion that the words ‘at any time since the original disposal’
are to be qualified by the insertion of the words ‘but prior to the service of
the purchase notice’. In his reply on this point, Mr Gaunt said that the
statement by the minister does not make it clear whether the vacation of the
flat had to occur before the purchase notice or could occur after that date. It
is not therefore the clear statement required under Pepper v Hart.
Mr Brilliant
submitted that Twinsectra are not benefiting or profiting from the vacant
possesson of flat 2A. They are simply being paid the market value of what is
being transferred to the nominated person at the time of the disposal. It is a
fallacy to suggest that the tenants should be no worse off because they are
obliged, due to the default by London & Westcliffe, to rely on sections 11
to 15 of the 1987 Act rather than sections 5 to 10. The death of the tenant of
flat 2A was a fortuitous event over which the parties had no control. It is
irrelevant that Twinsectra acquired the freehold without the qualifying tenants
having had the first opportunity to purchase. Section 12(6) is simply doing
justice between the parties. There has been no default by Twinsectra: no civil
breach of duty or criminal offence in their purchase from London &
Westcliffe.
Mr Brilliant
said that, even if London & Westcliffe had served notices on the tenants
under section 5 of the 1987 Act, there would inevitably have been a challenge
as far as the Court of Appeal. In the litigation which has arisen in this case,
the Court of Appeal held that a landlord in receipt of a section 12 notice is
required to give effect to it. But this is not a case where the landlords have
simply ignored the notice served on them. It was not until January 1995 that
the nominated person accepted that he was not entitled to acquire buildings 2
and 3, Tudor Court. It was not until May 1996 that it was first held that a
valid purchase notice had been served. This was four years after the section 12
notice and after the death of the tenant of flat 2A, Tudor Court. The appellant
landlords are fulfilling their duty to comply with the purchase notice, but
they cannot transfer the freehold to the nominated person until it has been
judicially determined what is to be transferred and on what terms. Section 14
of the 1987 Act contemplates that the parties will enter into a binding
contract in pursuance of a purchase notice. The date of this contract is the
cut-off point in section 12(6). No rights are given to the nominated person
before this contract. There is no incentive for the landlords to delay the
disposal to the nominated person; the price was fixed many years ago and there
is no provision for interest.
Decision
The issue in
this appeal is the true construction of section 12(6) of the 1987 Act and, in
particular, the meaning of the words ‘at any time since the original disposal’.
These words must be construed in the context of Part I of the Act and the other
relevant provisions in section 12.
Part I of the
1987 Act gives to certain tenants of flats rights of first refusal when their
landlord sells his reversionary interest. If the landlord disposes of his
interest without giving the tenants the opportunity to buy they may serve on
the new landlord a purchase notice under section 12(1). This requires him:
(except as
provided by the following provisions of this Part) to dispose of the estate or
interest that was the subject-matter of the original disposal, on the terms on
which it was made (including those relating to the consideration payable)
to the person
nominated by the tenants as purchaser. The notice under section 12(1) fixes the
estate or interest and consideration, subject to possible changes under Part I,
particularly under subsections (4) and (6) of section 12.
Subsection (4)
of section 12 is concerned with the adjustment of the consideration on the
original disposal for any charge or other incumbrance to which the property has
become subject ‘at any time since the original disposal’.
Section 12(6)
of the 1987 Act is concerned with a change in circumstances after the original
disposal. It provides as follows:
Where the
property referred to in subsection (4) has at any time since the original
disposal increased in monetary value owing to any change in circumstances
(other than a change in the value of money), the amount of the consideration
payable to the new landlord for the disposal by him of the property in
pursuance of the purchase notice shall be the amount that might reasonably have
been obtained on a corresponding disposal made on the open market at the time
of the original disposal if the change in circumstances had already taken
place.
The ‘property
referred to in subsection (4)’ is ‘the property which the new landlord is
required to dispose of in pursuance of the purchase notice’, that is to say
‘the estate or interest that was the subject-matter of the original disposal on
the terms on which it was made (including those relating to the consideration
payable)’: subsection (1).
Although Mr
Brilliant submitted that the words ‘at any time since the original disposal’ in
subsection (6) are clear and unambiguous, he accepted, as did Mr Gaunt, that
they are subject to a limitation, a cut-off date. Mr Brilliant said that this
is the date of the contract or conveyance between Twinsectra and Mr Jones. Mr
Gaunt said that it is the date of the service of the section 12 notice. It is
common ground that the death of the tenant of flat 2A, Tudor Court on April 29
1996 was a ‘change in circumstances’ within section 12(6). If Mr Gaunt is
correct, and the words ‘at any time since the original disposal’ are limited by
reference to the date of the purchase notice, then this was not a change of
circumstances under section 12(6) and the consideration on the disposal to Mr
Jones is £43,215. If Mr Brilliant is correct and the limitation date is the
contract or conveyance, then this was a change of circumstances under section
12(6) and the consideration is increased by the agreed vacant possession value
of flat 2A (£56,950) to £100,165. The leasehold valuation tribunal accepted
this latter approach and it is against this decision that Mr Jones appeals. The
issue for my decision is what is the true meaning of the words ‘at any time
since the original disposal’ in section 12(6) of the 1987 Act.
Traditionally,
there are three rules for the interpretation of statutes: the literal rule, the
golden rule and the mischief rule. The literal rule says that, if the meaning
of the words is plain, then they are to be given that meaning regardless of the
result. This approach may be modified by the golden rule. In Re British
Concrete Pipe Association [1983] 1 All ER 203 Donaldson MR said, at p205c:
Our task, as
I see it, is to construe the 1969 Act, and in so doing the prima facie rule is
that words have their ordinary meaning. But that is subject to the
qualification that if, giving words their ordinary meaning, we are faced with
extraordinary results which cannot have been intended by Parliament, we then
have to move on to a second stage in which we re-examine the words and see
whether they must in all the circumstances have been intended by Parliament to
have a different meaning or a more restricted meaning.
In this
appeal, although Mr Brilliant argued that the words ‘at any time since the
original disposal’ are clear and unambiguous, I think that he accepted that ‘at
any time’ cannot mean at any time without limitation. This would be an
extraordinary result. It would extend beyond the disposal by Twinsectra to Mr
Jones. Both counsel sought, in effect, to limit these words to give them a more
restricted meaning by reference to a cut-off date. The issue essentially is what
is the date to be inserted by implication to limit the words ‘at any time’? Is
it the date of the purchase notice or the date of the contract or conveyance?
The decision
in this appeal involves looking at two alternative interpretations. In Fry
v Inland Revenue Commissioners [1959] Ch 86 Romer LJ said, at p105:
It seems to
us that on the language of section 7(6) neither the view of the Inland Revenue
Commissioners nor that of the plaintiff can be said to be obviously wrong. The
court, then, when faced with two possible constructions of legislative
language, is entitled to look at the results of adopting each of the
alternatives respectively in its quest for the true intention of Parliament.
In R v
Committee of Lloyd’s, ex parte Moran The Times June 24 1983 Mustill J said
that ‘a statute or contract cannot be interpreted according to its literal
meaning without testing that meaning against the practical outcome of giving
effect to it’. Mr Brilliant referred to part of the judgment of Lord Reid in Jones
v Director of Public Prosecutions. Lord Reid, when considering what
evidence was prohibited under the Criminal Evidence Act 1898, said, at p662:
That question
can only be answered by taking the words which Parliament has used and applying
to them the ordinary methods of construction of modern statutes. It is a
cardinal principle applicable to all kinds of statutes that you may not for any
reason attach to a statutory provision a meaning which the words of that
provision cannot reasonably bear. If they are capable of more than one meaning,
then you can choose between those meanings, but beyond that you must not go.
The dicta
of Romer LJ and Mustill J above are modern statements of the third and oldest
of the traditional rules of statutory interpretation, the mischief rule. This
directs attention to the general policy of the statute and the mischief which
it was intended to remedy. I propose to use this approach, together with an
examination of the results of each alternative interpretation, to the
determination of this appeal but, before doing so, I look briefly at a recent
development in statutory interpretation, the use of parliamentary material.
In Pepper
v Hart the House of Lords held (Lord Mackay of Clashfern LC dissenting),
at p594C:
that, subject
to any question of Parliamentary privilege, the rule excluding reference to
Parliamentary material as an aid to statutory construction should be relaxed so
as to permit such reference where (a) legislation was ambiguous or obscure or
led to absurdity, (b) the material relied upon consisted of one or more
statements by a Minister of other promoter of the Bill together if necessary
with such other Parliamentary material as was necessary to understand such
statements and their effect and (c) the statements relied upon were clear
Mr Brilliant
referred to Hansard for April 23 1987 and the proceedings in standing
committee A on the Landlord and Tenant (No 2) Bill. An amendment was moved to
delete from what is now section 12(6) of the Act the words ‘change in
circumstances (other than a change in the value of money)’ and to insert
‘improvements made to the property by the new landlord’. The minister (Mr Mark
Robinson) said (column 42):
From what the
hon Gentleman said, we are extending the debate on the previous clause. The
question is one of fairness and equity.
Clause 12(6)
is intended to deal with when a landlord has failed to comply with the right of
first refusal and the property has changed in value since the original sale.
That could happen because of improvements carried out since the original sale,
as provided for the amendment, but it could also happen for other reasons. I
think that the hon Gentleman is seeking examples of such reasons, so I will
give him one. A flat in the building could have become vacant and could be sold
on a long lease. In that case, the tenants exercising the right of first
refusal would be buying a property with a different value from that which they
would have bought at the time of the original disposal had they been given the
opportunity to do so. It would be impossible to turn back the clock, and it is
reasonable that the new purchaser should have the benefit.
Mr Gaunt
argued that this statement does not make it clear whether the change in
circumstances can occur before or after the tenants’ purchase notice and is not
therefore the clear statement required under Pepper v Hart. I
agree. The minister’s reply to the amendment makes it clear that the vacation
of a flat after the original disposal is a change in circumstances and that the
new purchaser is to have the benefit of the increase in value, but it is silent
as to the timing of the change, the issue in this appeal. I derive no
assistance from this parliamentary material.
I consider now
the effect of the adoption of the alternative dates proposed by the parties.
On behalf of
Mr Jones it was argued that the operation of section 12(6) of the 1987 Act is
limited to the period between the original disposal and the purchase notice. In
my view, this would have the following results. First, it would discourage
delay on the part of landlords because they would not benefit from any changes
after the service of the purchase notice. Second, in this appeal, the tenants
would obtain a windfall gain due to the death of the tenant of flat 2A, Tudor
Court after the purchase notice. On the agreed values, the tenants will
purchase a property worth £100,165 (as at the date of the original disposal),
including the vacant possession value of flat 2A, for a consideration of only
£43,215. Third, it gives effect to the purpose of Part I of the Act, namely to
give the tenants right to buy as at the time, price and circumstances of the
original disposal. Fourth, it fixes the circumstances and consideration at the
date of the purchase notice, giving certainty to the tenants as to the price
they must pay, and removing the possibility of further changes up to contract
or disposal, which would result in further negotiations to settle the new
consideration and possibly further applications to the leasehold valuation
tribunal and appeals to this tribunal.
On behalf of
Twinsectra it was argued that the operation of section 12(6) of the 1987 Act is
not limited to the period up to the purchase notice. The limiting date is
effectively the contract or conveyance. In my view, this would have the
following results. First, it might encourage delay by a landlord wishing to
harass the tenants, hoping for a fortuitous change in circumstances to increase
the price. I accept that in this appeal the consideration is fixed at values at
the original disposal in February 1992 and that there is no provision for
interest. Second, in this appeal, the landlords get the benefit of the vacant
possession valued of flat 2A at the increased consideration of £100,165 due to
a purely fortuitous event, the death of the tenant. The landlords will dispose
of a property worth £100,165 (at February 1992 prices) for that amount; the
tenants will pay that price and do not get the windfall gain, which would have
occurred if the change in circumstances is limited to the date of the purchase
notice. In short, the landlords get the right price for the property sold and
the tenants pay the right price for the property received, although the
property sold has changed and is worth more due to a fortuitous event outside
the control of either party. Third, the consideration for the disposal could be
a changing amount if several changes of circumstances occur up to the contract
or conveyance. This would result in further negotiations between the parties
and possibly further applications to the leasehold valuation tribunal and
appeals to this tribunal.
Whichever
limitation date is used in this appeal the result is not ideal. Neither date
can be seen to be clearly correct. Having regard to the results of the
alternative dates summarised above and to the scheme of Part I of the 1967 Act,
I have reached the conclusion that the decision of the leasehold valuation
tribunal was correct. The scheme of the Act is that a purchase notice under
section 12(1) fixes the estate or interest, which is the subject-matter of the
original disposal, and the terms and
section 12(3) where the subject-matter of the original disposal relates to any
property in addition to premises within Part I of the Act. The second is under
section 12(4) and (5) where the property has, since the original disposal,
become subject to any charge or other incumbrance. The third adjustment is
under section 12(6) in respect of an increase in monetary value caused by a
change in circumstances (other than a change in the value of money). In my
view, it cannot be implied that the change in circumstances must occur before
the tenants’ purchase notice. I think that parliament recognised that a change
could occur at any time up to the date of a binding contract or the conveyance
between the landlords and the nominated person. If parliament had intended to
limit the change in circumstances to the period between the original disposal
and the purchase notice, I think it would have said so in express terms. In my
view, I should not produce this result by adding words of limitation to
subsection (6). In the absence of express words of limitation the implication
must be that parliament intended that changes of circumstances up to the
contract or conveyance are to be taken into account under subsection (6).
This
interpretation does not defeat the purpose of the Act and produces, if not an
ideal result, at least one which is not manifestly unfair or unworkable. The
tenants pay more than they would have done if they had purchased at the time of
the original disposal, but they get what they pay for, ie a block of flats with
a vacant flat which is worth more than when it was let to a statutory tenant at
the time of the original disposal. To some extent the landlords get a windfall
gain, but they get the right price for the property which they actually
transfer to the nominated person. If numerous changes of circumstances occur
after the tenants’ purchase notice, then the procedures leading to the eventual
disposal could be lengthy and cumbersome. In practice, however, I suspect that
this objection to the interpretation which I have adopted may be more apparent
than real.
I conclude
that the decision of the leasehold valuation tribunal was correct and I dismiss
the appeal.
This decision
determines the substantive issues raised between the parties and my award is
final. Costs are reserved.
The parties
are invited to make submissions as to the costs of this appeal and a letter
accompanies this decision as to the procedure for submissions in writing. I
will, in due course, incorporate an order as to costs in an addendum to
this decision. Rights of appeal under section 3(4) of the Lands Tribunal Act
1949 and Rules of the Supreme Court, Ord 61 will not accrue until the decision
has been thus completed, ie from the date of the addendum.
Addendum
Neither party
has made submissions on costs. I order the appellant to pay the respondents’
costs of this appeal, such costs, if not agreed, to be taxed by the registrar
of the Lands Tribunal on the High Court standard basis.
