Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Initial notice – Respondent serving initial notice under section 13 of 1993 Act to acquire freehold and superior leasehold interests in building – Notice not registered under section 97 – Appellant companies granting new leases to each other out of superior leasehold interests – Court permitting amendment to claim under para 15(2) of Schedule 3 to Act to include new leases – Whether possible for enfranchisement claim to include leasehold interests not existing at date of initial notice – Whether appellants taking new leases free of enfranchisement claim – Appeal allowed
The respondent was the nominee purchaser for the purposes of a collective enfranchisement claim brought by himself and other participating tenants of flats in a building in Mayfair, London W1, under Chapter I of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. The building was subject to various leasehold interests, including occupational underleases of the seven flats for terms expiring in 2023, of which the participating tenants held four, and overriding leases of those flats for terms expiring in 2122, three of which were held by the appellant companies.
The participating tenants sought to acquire the freehold and all other leasehold interests in the building save for the occupational underleases. They served initial notice of their claim, under section 13 of the 1993 Act, on the freeholder and the appellants in December 2010 but they did not, as they could have done, register the notice against the titles to the appellants’ overriding leases under section 97(1) of the Act. The freeholder served a counternotice admitting the right to collective enfranchisement. In September 2011, the respondent applied to the leasehold valuation tribunal (LVT) to determine the terms of acquisition.
Meanwhile, in April 2011 the appellants had each granted new underleases to each other, out of their overriding leases, for terms expiring in September 2122. Those leases had been duly registered. When the respondent learned of the new leases, he applied to the county court for permission, under para 15(2) of Schedule 3 to the Act, to amend his particulars of claim so as to acquire those leases in addition to the interests already specified.
The county court gave permission to amend, on terms that the new leases should be valued as at December 2011 for the purposes of determining the price payable to acquire them. It also dismissed a counterclaim by the appellants for a declaration that they took the new leases free from the initial notice and the claim that it represented. The appellants appealed.
Held: The appeal was allowed.
Participating tenants in a collective enfranchisement claim under Chapter I of the 1993 Act were only entitled to claim leases that existed at the “relevant date”, defined in section 1(8) to mean the date of their initial notice. The statutory intention, as demonstrated by the express provisions of section 1 of the 1993 Act, was to confer the right of collective enfranchisement on “qualifying tenants” in relation to premises that satisfied the requirements of Chapter I as at the relevant date. Every element of those requirements had to be tested as at the relevant date, including that the premises be self-contained, that they contain two or more flats held by qualifying tenants and that the total number of flats held by qualifying tenants be not less than two-thirds of the total number of flats in the premises. The statutory procedural machinery for the exercise of the collective right was also inextricably linked to the position as it existed at the relevant date. The initial notice could not specify a leasehold interest that did not yet exist or a purchase price in relation to such an interest. Moreover, an interest that did not exist at the relevant date could not be valued by reference to the criteria laid down by Schedule 6 to the Act, so far as it required a valuation according to the amount that the interest might be expected to realise at the relevant date in an open-market sale. There was nothing in the wording of the provision to support the notion that a later-created interest could be valued on the artificial and false hypothesis that the leasehold interest had been created at some unknown earlier date.
Accordingly, an analysis of the statutory provisions led to the conclusion that section 2 of the 1993 Act did not permit a right to collective enfranchisement to be exercised in relation to leasehold interests that were not in existence at the relevant date. Likewise, the power conferred by para 15(2)(b) of Schedule 3, enabling the court to permit the amendment of an initial notice to specify a leasehold interest that was not originally included in the notice, did not apply to a leasehold interest that was not in existence at the relevant time.
That conclusion was supported by the provisions for registration of an initial notice under section 97 of the Act as if it were an estate contract. If the initial notice was so registered, then any subsequent purported grant of a leasehold interest by a relevant landlord was void by virtue of section 19(1) and no need for amendment of the notice arose. In the absence of registration, however, the grant of such a leasehold interest would be valid. Pursuant to section 29 of the Land Registration Act 2002 dealing with the priority of interests, the appellants, as registered disponees for valuable consideration under the new leases, took free of the respondent’s claim made in the initial notice, which could have been, but was not, registered against the superior interest.
It followed that the respondent could not acquire the new leases by way of amendment pursuant to its December 2010 initial notice. However, as was common ground between the parties, the respondent could still acquire the new leases by serving fresh initial notices in respect of them; the commercial purpose of the litigation had therefore been to secure a later date for valuing those leases.
Jonathan Gaunt QC and Anthony Radevsky (instructed by Pemberton Greenish LLP) appeared for the appellant; Stephen Jourdan QC and Thomas Jefferies (instructed by Withers LLP) appeared for the respondents.
Sally Dobson, barrister
