Right of first refusal — Application under section 13 — Whether one disposal or two — Jurisdiction of tribunal to determine price — Consideration payable — Careful and detailed decision on ‘complex and difficult matter’ — Freehold Victorian house in Harrogate divided into four self-contained flats — Three flats let to qualifying tenants under regulated tenancies, the fourth being vacant — Sale of freehold in October 1988 by landlords (‘vendors’) to Structadene Ltd for £130,000 — Failure of vendors to give right of first refusal to qualifying tenants — In November 1988 Structadene disposed of interest by subsale to respondents for £18,000 ‘together with full benefit and advantage’ of October agreement and an undertaking by respondents to complete purchase with vendors — Transfer executed in December 1988 for consideration of £130,000 — Notice of transfer received by qualifying tenants in February 1989 and section 11 notice served on respondents in March 1989 — Tenants informed transfer executed in December for consideration of £156,000 — Nominated person’s section 12 purchase notice served on respondents in April 1989 in sum of £130,000
jurisdiction to determine price in this case challenged by respondents on
ground that no valid purchase notice served, the purchase price being misstated
— Submission that, since purchase notice was served on respondents rather than
vendors, correct price was £155,749 — That amount composed of £130,000 plus
£18,000 paid under November contract to Structadene, £3,700 introducing agents’
commission, £3,299 solicitors’ costs and £750 for extension of notice to
complete — Contention that tribunal itself did not have jurisdiction to
determine notice’s validity, its jurisdiction being limited to determining
matters specified in unarguably valid notices, and issue should be dealt with
under section 52 in county court — Apart from jurisdiction, substantive issues
were whether there had been one disposal or two and, if latter, the
interrelationship of sections 12 and 16 and amount of consideration payable —
Crux of question was whether initial contract in October to be treated as disposal
for purposes of 1987 Act followed by further disposal by November contract
accepted proposition that its jurisdiction is limited to deciding questions
arising in relation to matters specified in valid purchase notice but did not
agree that it has no jurisdiction to determine what is or is not a valid notice
— When doubt arises as to validity, tribunal may, in its view, proceed to
decide the point, leaving dissatisfied party to take matter to county court or,
if in real doubt, adjourn and leave parties to raise question in county court —
Mere fact that questions of law involved not in itself sufficient reason for
tribunal to cease consideration of a question — Further, absence of pleading,
discovery and evidence on oath could not be regarded as general bar to
decisions by tribunal on most issues
of consideration payable not regarded by tribunal as fatal to purchase notice —
Tenants have to act within certain time-limits and on information for which
they are dependent on other people — Nothing in section 12(1) to compel
tribunal to hold it mandatory at purchase notice stage to state consideration
payable, where genuine dispute exists, with total accuracy which can be
achieved only after substantive issue resolved — Respondents knew from outset
basis on which tenants sought to exercise their rights — Purchase notice valid
whether there was one disposal or two, parties’ complex arguments and
counterarguments discussed by tribunal in detail and at length, including
examination of wording of 1987 Act and of references to ‘disposal’ in other
statutory contexts and having regard to conveyancing practice — On balance,
‘although question not without difficulty’, tribunal of opinion that original
contract of sale not a disposal within meaning of Act and, therefore, there was
only one disposal, scilicet the December transfer between vendors and
respondents
consideration payable, parties agreed, following Cousins v Metropolitan
Guarantee [1989] 31 EG 56, [1989] 2 EGLR 116, not to put forward argument that
tribunal had power to determine this de novo — Tribunal of view that additional
costs incurred by respondents in the acquisition could not be regarded in any
sense as consideration for transfer by vendors — No suggestion that vendors
exacted as part of bargain a promise by respondents to pay various additional
fees and costs referred to above — Such costs wholly collateral to relationship
between vendors and respondents — Sum of £750 paid for extension of notice to
complete, however, was undoubtedly demanded by vendors and could properly be
regarded as part of price payable — Relevant disposal was that which actually
took place in December, time having been extended — Terms of that disposal were
ones by which tenants were bound if they wished to purchase and by those terms
£750 was properly exacted
‘original disposal’ for section 11 purposes was that of December transfer
between vendors and respondents and price payable was £130,750 — Further held
that interest not payable on purchase price from date of completion to date of
purchase by nominated person
The following
cases are referred to in this report.
Abdulla v Shah [1959] AC 124; [1959] 2 WLR 12, PC
Burford
Estate & Property Co Ltd v Creasey
[1986] 1 EGLR 231; (1986) 277 EG 73, LVT
Clifford v Turrell (1845) 1Y & C Ch Cas 135
Cousins v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 32 EG
56, LVT
Cuddon v Tite (1858) 1 Giff 395
Druid
Development Co (Bingley) Ltd v Kay (1982) 44
P&CR 76; 264 EG 1080, [1982] 2 EGLR 108, CA
Furniss v Dawson [1984] AC 474; [1984] 2 WLR 226; [1984] 1 All ER
530, HL
Lysaght v Edwards (1876) 2 ChD 499
R v Fulham Hammersmith and Kensington Rent Tribunal, ex parte
Zerek [1951] 2 KB 1; [1951] 1 All ER 482; [1951] 1 TLR 423; (1951) 49 LGR
275, DC
Rayner v Preston (1881) ChD 1
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
Walsh v Lonsdale (1882) LR 21 ChD 9
Warmington v Miller [1973] QB 877; [1973] 2 WLR 654; [1973] 2 All ER
372; (1973) 25 P&CR 340, CA
Christopher
Tidmarsh (instructed by Walker Morris Scott Turnbull, of Bradford) appeared for
the applicant nominated person, Mrs Venche-Lise Wilkins; Alun Tunkel
(instructed by Eversley & Co) represented the respondents, Messrs H
Horrowitz and I Jacobowitz.
Giving their
decision, THE TRIBUNAL said: This is an application to a leasehold
valuation tribunal (‘the tribunal’) under section 13 of the Landlord and Tenant
Act 1987 (‘the Act’). As there is very little reported authority on the Act so
far, it may be helpful to set out the main provisions relevant to this case.
Part I of the
Act gives tenants of flats rights with respect to the acquisition by them of
their landlord’s reversion, by conferring upon such tenants, if they are
qualifying tenants, the right of first refusal. Section 1(1) of the Act
provides:
A landlord
shall not make a relevant disposal affecting any premises to which at the time
of the disposal this Part applies unless —
(a) he has in accordance with section 5
previously served a notice under that section with respect to the disposal on
the qualifying tenants of the flats contained in those premises (being a notice
by virtue of which rights of first refusal are conferred on those tenants); and
(b) the disposal is made in accordance with the
requirements of sections 6 to 10.
Where such a
disposal has been made without giving the tenants first refusal, then sections
11 to 15 lay down provisions for the enforcement by the tenants of their rights
against the new landlord, and section 16 deals with the rights of the tenants
against subsequent purchasers where the new landlord has in turn disposed of
the estate or interest.
The relevant
parts of section 11 provide:
(1) Where —
(a) a landlord has made a relevant disposal
affecting any premises to which at the time of the disposal this Part applied
(‘the original disposal’), and
(b) . . .
no notice was served by the landlord under section 5 with respect to that
disposal . . . and
(c) those premises are still premises to which
this Part applies,
the requisite
majority of qualifying tenants of the constituent flats may, before the end of
the period specified in subsection (2) below, serve a notice on the transferee
under the original disposal requiring him to furnish a person (whose name and
address are specified for the purpose in the notice) with particulars of the
terms on which the original disposal was made (including those relating to the
consideration payable) and the date on which it was made; and in the following
provisions of this Part the transferee under that disposal is referred to as
‘the new landlord’.
(2) The period referred to in subsection (1) is
the period of two months beginning with the date by which —
(a) notices under section 3 of the Landlord and
Tenant Act 1985 . . . relating to the original disposal, or
(b) documents of any other description
indicating that the original disposal has taken place,
have been
served on the requisite majority of qualifying tenants of the constituent
flats.
(Subsection (3)
provides for compliance within one month and is not relevant here.)
Under section
12:
(1) Where —
(a) paragraphs (a) and (b) of section 11(1)
apply to a relevant disposal affecting any premises to which at the time of the
disposal this Part applied . . ., and
(b) those premises are still premises to which
this Part applies,
the requisite
majority of qualifying tenants of the constituent flats may, before the end of
the period specified in subsection (2), 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.
(2) The period referred to in subsection (1) is —
(a) in a case where a notice has been served on
the new landlord under section 11(1), the period of three months beginning with
the date on which a notice is served by him under section 11(3); and
(b) in any other case, the period of three
months beginning with the date mentioned in section 11(2).
(3) A
purchase notice —
. . .
(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 other
parts of section 12, although referred to in argument, are not of direct
application in this case.)
The
jurisdiction of the tribunal is provided for in section 13:
(1) 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, 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).
(2) An application to a rent assessment committee
under this section must be in such form, and contain such particulars, as the
Secretary of State may by regulations prescribe.
. . .
(5) A rent assessment committee shall, when
constituted for the purpose of hearing and determining any question falling
within subsection (1) above, be known as a leasehold valuation tribunal, and
paragraphs 1 to 3 and 7 of Schedule 22 to the Housing Act 1980 (provisions
relating to leasehold valuation tribunals) shall accordingly apply to any such
committee when so constituted.
With regard to
subsequent purchasers, under section 16:
(1) Where, at
the time when a notice is served under section 11(1) or 12(1) on the new
landlord, he no longer holds the estate or interest that was the subject-matter
of the original disposal, then —
(a) in the case of a notice served
under section 11(1), the new landlord shall, within the period specified in
section 11(3) —
(i) furnish such person as is specified in the
notice with the information that he is required to furnish by virtue of it, and
(ii) serve on that person a notice informing him
of the name and address of the person to whom the new landlord disposed of that
estate or interest (‘the subsequent purchaser’), and
(iii) serve on the subsequent purchaser a copy of
the notice under section 11(1) and of the information furnished by him under
subparagraph (i) above;
(b) in the case of a notice
served under section 12(1), the new landlord shall forthwith —
(i) forward the notice to the subsequent
purchaser, and
(ii) serve on the nominated person such a notice
as is mentioned in paragraph (a)(ii) above.
(2) If the new landlord serves a notice in
accordance with subsection (1)(a)(ii) or (b)(ii) above, sections 12 to 14
shall, instead of applying to the new landlord, apply to the subsequent
purchaser as if he were the transferee under the original disposal.
The facts
These are
taken principally from the documents supplied to the tribunal, oral evidence
being taken upon only one matter to be referred to later. The tribunal also
conducted an inspection of the exterior of the premises and of the interior of
one of the flats, prior to the hearing.
No 6 Park
Avenue, Harrogate, is a large, freehold, Victorian, semi-detached house,
divided into four self-contained flats, at basement, ground-, first- and
second-floor levels. Three of the four flats are let under regulated tenancies,
the fourth (flat 2 on the ground floor) has been vacant at all material times.
The tribunal is satisfied that the house fulfils the requirements of section
1(2) to (4) as to ‘premises’ and that the three tenants are ‘qualifying
tenants’ under section 3. It is further satisfied that for all relevant
purposes the ‘requisite majority’ of qualifying tenants was reached (all the
documents having been signed by all three) and that the ‘nominated
person’ to act for them (hereinafter called ‘the applicant’) was properly
appointed and has continued to be authorised to act.
The chronology
is as follows:
On October 18
1988 the then landlords, Messrs Riley and Hall, as personal representatives
(‘the vendors’), contracted to sell the freehold to Structadene Ltd, for a
price of £130,000, a deposit of £13,000 being paid to the vendors’ solicitors
as vendors’ agents. It is common ground that, in contravention of section 1 of
the Act, the landlords did not offer the tenants the right to buy it.
On November 21
1988 Structadene Ltd agreed to sell all its ‘estate and interest . . . in the
property . . . together with the full benefit and advantage of [the October 18]
agreement including the benefit of and right to the said deposit of £13,000’ to
Messrs Jacobowitz and Horrowitz (‘the respondents’). The purchase price of the
interest sold was stated as £18,000; in addition, the respondents undertook to
complete the purchase with the vendors and further to pay by way of an
additional price: (a) the fees of Structadene’s selling agent for the
introduction (£3,700) and (b) the fees of Eversley & Co (solicitors) in
relation to the October 18 agreement and the present agreement as if they had
been instructed by the respondents from the inception.
On December 21
1988 the vendors executed a transfer to the respondents (completion having been
delayed and £750 having been paid for extension of the notice to complete). The
consideration was stated as £130,000.
On or about
February 21 1989, the tenants received a letter from Eversley & Co enclosing
a letter from the vendors’ solicitors authorising the payment of rent to
Structadene but going on to state that Structadene had transferred its interest
as at December 21 1988 to the respondents and authorising the tenants to pay
the rent to the latter. This letter is actually dated December 21 1988, but it
has now been agreed that it was not actually received by the tenants until
about February 21. There was some discussion at the hearing as to whether the
tenants may have known of at least the first contract before this date, but the
tribunal has proceeded upon the basis that this was the first date at which
they received documents such as are referred to in sections 11(2) and 12(2).
There was also evidence in correspondence from the respondents that they had
approached two of the tenants before December 21 to inquire informally of them
whether they were interested in buying the freehold and had received a negative
response.
At the end of
March 1989 a notice was served on behalf of the tenants upon the respondents
under section 11, seeking information as to the estate or interest transferred,
the consideration paid or payable, the date of the transfer and any other
relevant details. This was acknowledged by Eversley & Co on behalf of the
respondents on April 3, stating that the estate was freehold subject to the
tenants’ leases, the consideration was £156,000 and the date of transfer was
December 21 1988.
On April 7
1989 a purchase notice under section 12 was served by the applicant upon the
respondents, requiring them to dispose of the freehold interest in the property
for the sum of £130,000 ‘upon the same terms and conditions as the transfer
dated December 21 1988 between Peter Riley and Anthony Malcolm Hall [and]
Structadene Ltd’. The printed words ‘ie upon the terms upon which the original
disposal was made’ follow, the alternative ie, ‘We require that the estate or
interest and the terms of the disposal be determined by a Rent Assessment
Committee in accordance with section 13 . . .’, being deleted.
On July 5 1989
the applicant applied under section 13 to the tribunal to settle the price
payable under section 12 (but not to determine the other terms of the
conveyance). In answer to the question ‘What price do you consider payable
under section 12 of the Act?’ the
applicant stated ‘£130,000’, and to ‘What price does the landlord consider to
be payable?’, ‘£155,749’.
The hearing
Jurisdiction
Mr Tunkel, for
the respondents, first challenged the jurisdiction of the tribunal to determine
the price in this case. There might be now no live issue as to whether the
notices under sections 11 and 12 had been served in time, but, he contended,
there was no valid purchase notice served under section 12. His argument was
based upon the premise that the purchase notice did not contain the correct
details, in misstating, as he said, the purchase price as £130,000. He would be
arguing that, the purchase notice having been served upon the respondents
rather than Structadene, the correct consideration payable under section 12 was
£155,749 (the argument for this figure is dealt with later). If his argument
upon this point were accepted, then, he contended, that was such a defect as to
invalidate the purchase notice. Moreover, he submitted that the tribunal itself
did not have the jurisdiction to determine the validity of the notice, its
jurisdiction under section 13 being limited to determining matters specified in
unarguably valid notices, and that this matter should be dealt with, under
section 52 of the Act, in the county court as a more appropriate forum for
determining questions of evidence and clarifying issues by its interlocutory
procedures.
On the
question of whether a misstatement of price should invalidate a purchase
notice, he argued that there were certain matters which must essentially be
stated accurately: referring to the wrong property or the wrong date of
disposal would invalidate a notice, and the price was equally vital. If the
applicant was unsure of the price, there was always the option of leaving the
whole matter open under section 12(3)(b) for the tribunal to determine (which
the applicant had not chosen to do here), but if the price was stated, it must
be right. On this view, it would appear that the scope of the tribunal to
determine the price, where section 12(3)(b) was not used, was strictly limited.
It could deal with questions of valuation and apportionment in the more unusual
cases arising under section 12(4)(b) and 12(6), but in an ‘ordinary’ case,
either the price was to be as stated in the purchase notice or, if that was
inaccurate, there was never a valid purchase notice at all. He cited the one
reported decision upon the Act, Cousins v Metropolitan Guarantee Ltd
[1989] 31 EG 56, [1989] 2 EGLR 116* as authority, albeit obiter, for the view
that the tribunal does not have power to investigate the circumstances
surrounding a sale, the abatement of price in that case being upon the basis of
an agreement between the parties.
*Editor’s
note: Also reported at [1989] 2 EGLR 223.
Mr Tidmarsh,
for the applicant, contended that the words of section 13(1)(a) were of wide
application: there was no suggestion that the powers of the tribunal in
relation to the price payable had a scope limited to the unusual circumstances
of section 12(4)(b) and (6) nor should they be.
The
application here was simply to decide the consideration payable, upon a proper
construction of the Act, not requiring any investigation into surrounding
circumstances. He drew attention to the words of section 12(1) itself, which
provided that a purchase notice ‘may’ be served, requiring the sale on the
terms of the original disposal. This was different from the mandatory nature of
notices in other contexts, for instance, under the Landlord and Tenant Act
1954. Moreover, it would be extraordinary if the applicant were to lose the
right to purchase, simply by misstating the consideration payable by, say, £1.
Indeed, if the applicant had here relied upon the information provided in response
to the section 11 notice and stated a figure of £156,000, would that have
invalidated the notice? It was
unfortunate that the draftsman had not inserted a saving provision, but in its
absence he contended that the wording should here be interpreted to achieve a
reasonable rather than an unreasonable result.
If the
tribunal took the view that it was within its own jurisdiction to determine the
validity of the purchase notice, Mr Tunkel’s argument as to validity, dependent
upon the price payable, involved some complex arguments concerning whether
there had been one disposal or two here, and, if the latter, the
interrelationship of sections 12 and 16 and also the consideration thereby
payable. The tribunal therefore decided to reserve the question of jurisdiction
and to hear argument upon these substantive issues. In any event, Mr Tunkel was
not seeking an adjournment to the county court but wished for a ruling on the
jurisdictional point from the tribunal in due course.
One
disposal or two?
This question was
accepted by both counsel as being central to the issues here, since it would
determine the consideration payable (and, in the respondents’ contention, the
validity of the purchase notice also).
Mr Tunkel
developed his initial argument thus: under section 11, the landlords (the
vendors) made a relevant disposal affecting the premises when they entered into
the contract in October, this therefore being ‘the original disposal’ and
Structadene becoming ‘the transferee’ and, thereby, ‘the new landlord’. In November,
there was a second disposal from Structadene to the respondents. The Act
contemplates such a further disposal in section 16, and
on the new landlord, Structadene, who should then follow the procedure laid
down for informing the person acting for the tenants and the person to whom the
second disposal was made (‘the subsequent purchaser’). If that had been done,
the applicant would have been entitled, under section 16(2), to exercise the
right to purchase as against the respondents as if they were the transferee
under the original disposal, that is, at the consideration payable under the
October contract. But, in the absence of any evidence that notice was served
upon Structadene, the rights under section 16(2) cannot be exercised. The
applicant is still entitled to serve a purchase notice, as was done here,
directly upon the respondents, treating the second disposal as a new ‘original
disposal’ under section 11, but in this case the consideration must be that
payable under the second disposal. He accepted that, if neither the October nor
the November agreement was capable of being a disposal, the only disposal would
have been the transfer of December 21 direct from the vendors to the
respondents, and then the consideration would arguably have been that stated in
the transfer. (It should be added that counsel agreed that nothing turned upon
the fact that the legal estate would not actually vest in the respondent until
registration.)
Mr Tidmarsh
agreed that if there had indeed been two disposals, then in order for the
section 16 procedure to apply, the purchase notice would have had to be served
upon Structadene. He also agreed that if there were two disposals, it would be
open to the applicant to serve the notice upon the subsequent purchaser as ‘new
landlord’ under section 12, the consideration payable being that under the
second disposal. However, he contended, there was only ever one disposal in
this case, that is the transfer from the vendors to the respondents on December
21 1988, the stated consideration in that document being £130,000.
The crux of
the question was therefore whether the initial contract in October was to be
treated as a disposal for the purposes of the Act (followed by another disposal
by contract in November).
Mr Tunkel
argued that it should, on the following basis. Section 4 provides:
(1) In this Part references to a relevant
disposal affecting any premises to which this Part applies are references to
the disposal by the landlord of any estate or interest (whether legal or
equitable) in any such premises, . . .
. . .
(3) In this Part ‘disposal’ means a disposal
whether by the creation or the transfer of an estate or interest and —
(a) includes the surrender of a tenancy and the
grant of an option or right of pre-emption,
. . .
and
references in this Part to the transferee in connection with a disposal shall
be construed accordingly.
These words, he
said, were clearly apt to include the equitable interest in land created by the
formation of a specifically enforceable contract, that is, an estate contract,
which is a right in rem capable of being an estate or interest in the
land. It would be difficult to find more general words than these that the
draftsman chose to use.
Upon the
general position of a purchaser between contract and completion he cited Emmet
on Title, para 6.001 ff for the proposition that the purchaser becomes the
equitable owner of the property pending completion. While he did not deny that
there are various rights, obligations and entitlements in the vendor (depending
upon the standard and special conditions of sale), in particular the right to
receive rents and profits, the purchaser has an equitable interest and one
which is insurable from the date of contract.
Further, the
analogy with a lease was relevant. On the Walsh v Lonsdale
principle [(1882) 21 Ch D 9], an agreement for a lease was to be regarded as as
good as a lease, and, indeed, section 59 of the Act provides that ‘lease’
includes ‘an agreement for a lease’. If the landlord decided to dispose of a
long lease in the premises rather than the freehold and, as might happen,
simply made an agreement for a lease rather than executing a formal lease,
surely this agreement should be caught as a disposal; if so, why not the same
in the case of the freehold?
He also drew
attention to the approach in capital taxation legislation, where liability
would be triggered by a disposal at the contract rather than completion stage.
He argued that
if, as might easily have happened, the final result had been arrived at by two
legal transfers, to and then from Structadene, there could have been no
question but that two disposals had taken place. Instead, the parties had
followed the usual method of proceeding upon a subsale, the effect being
intended to avoid payment of two sets of stamp duty, and the position ought not
to be different.
Mr Tidmarsh
strongly contended that there was one relevant disposal, on December 21, and
that the previous contracts were not material, as a contract is not capable of
being a disposal under the Act. In his very helpful written skeleton argument,
which he amplified at the hearing, he argued first that the disposal which took
place in December, upon the transfer being executed, was more than a mere
formality relating to the bare legal estate. This was why stamp duty was paid,
as usual, on the transfer by reference to the full value of the property. Until
then, the vendors were entitled to possession of the property, including the
rents and profits therefrom and any insurance moneys arising. Thus, it was in
every sense a disposal.
Conversely, he
argued, the contract which precedes a disposal taking place upon completion is
not capable itself of being a disposal. As a matter of general principle, the
statement that the vendor is a trustee for the purchaser is true only in a
qualified sense (per Cotton LJ in Rayner v Preston (1881)
18 Ch D 1). He further cited Brett LJ in the same case:
Whether there
shall ever be a conveyance depends on two conditions; first of all, whether the
title is made out, and, secondly, whether the money is ready; and unless those
two things coincide at the time when the contract ought to be completed, then
the contract never will be completed and the property never will be conveyed. .
. . I venture to say that I doubt whether it is a true description of the
relation between the parties to say that from the time of the making of the
contract, or at any time, one is ever trustee for the other. They are only
parties to a contract of sale and purchase of which a Court of Equity will
under certain circumstances decree a specific performance.
To find that
the contract itself was a disposal would mean that in every sale there would be
two relevant disposals, requiring two section 12 notices, which cannot have
been intended. The general unworkability of the provisions in the contractual
area was also material. If in the instant case there were regarded as being two
disposals by contract, and the section 16 machinery had actually been utilised,
for what would the purchase notice served on Structadene after completion have
asked? Its rights under the original
contract had by then not so much passed to the respondents as merged in the
conveyance.
He pointed out
that the word ‘disposal’ was not actually defined in the Act; section 4(1) and
(3) did not purport to do so but rather stated that the disposal in question
could be of any legal or equitable estate or interest, by creation or transfer.
Therefore, the question of what was capable of being described as a disposal
was still open as a matter of general principle, and should not, he contended,
include a contract of sale.
He supported
this by an examination of various detailed provisions of the Act, which he said
compelled these conclusions. Section 4(2)(i) showed that a transfer in
pursuance of a contract could be a relevant disposal; by excluding as a
‘disposal’ a disposal in pursuance of any obligation created before the
commencement of the statute, the inference was that one made pursuant to a
contractual obligation created after the commencement was indeed a disposal.
For the exclusion of contracts, he cited section 4(2)(d) and (j), which
respectively exclude from the definition of relevant disposals ‘a disposal in
pursuance of a compulsory purchase order or in pursuance of an agreement
entered into in circumstances where, but for the agreement, such an order would
have been made or (as the case may be) carried into effect’, and ‘a disposal
consisting of the surrender of a tenancy in pursuance of any covenant,
condition or agreement contained in it’. If the disposal were to have been
effected by the contract itself, then these provisions were not apt to achieve
their purpose.
Moreover, he
argued that even if a contract were capable of being a disposal, the second
such disposal contended for by the respondents (the November contract) was not
within section 4(1) or section 11(1)(a), since it was not made by ‘a landlord’.
Until December 21, the vendors were the landlords in receipt of the rents and
from that date the respondents were the landlords; Structadene was never a
landlord.
In response to
Mr Tunkel’s leasehold analogy, he argued that agreements for leases were
different and could stand on their own feet (cf, for example, section 42
of the Law of Property Act 1925). Section 59 of this Act was in the context of
the Act as a whole, in some parts of which the provision would be more relevant
than here.
Mr Tunkel, in
response to the arguments upon the statutory provisions, suggested that it was
unsafe to draw inferences from
this subsale situation) was to be excluded one would have expected this to be
done explicitly. ‘Disposal’ must be broader than simply ‘transfer’, as section
4(3) made clear: it could include the ‘carving out’ of part of one’s interest,
for instance, by a declaration of trust (other than under section 4(2)(e)). Such
dealings would not put the tenants at risk until they received notice under
section 11(2), and the risk of several transactions taking place without their
knowledge could as easily apply to the situation where a chain of proper
transfers took place: normally they would hear about only the last one.
Finally, he contended that Structadene was indeed a landlord for the purposes
of the second disposal via contract. If one accepted that the first contract
was a disposal then the transferee under it was, by section 11(1), ‘the new
landlord’.
In response to
questions from the tribunal concerning the availability of specific performance
of a contract such as this, which is made in breach of the tenants’ right of
first refusal, he argued that this would not be a bar; the performance of the
contract does not actually defeat the tenants’ rights but simply makes them
enforceable instead against the new landlord.
The
consideration payable
Assuming that
the purchase notice was valid, then the question of the consideration payable
by the applicant for the exercise of the right to purchase arose. It was agreed
by counsel that following Cousins v Metropolitan Guarantee (supra)
the argument that the tribunal had power to determine the consideration de
novo would not be put forward. The question of price lay, therefore, within
a quite narrow range. The applicant was seeking to purchase for £130,000, that
being the consideration stated in the eventual transfer from the vendors to the
respondents and which, as already explained, Mr Tidmarsh argued to be the only
relevant disposal. The respondents were asking for £155,749: this was composed
of the £130,000 paid to the vendors, plus the sums agreed to be paid under the
November contract with Structadene, viz £18,000 to Structadene for the benefit
of the contract, £3,700 commission paid to the introducing agents, £750 for the
extension of the notice to complete, and £3,299 for Eversley & Co’s costs
as solicitors acting in both transactions.
One issue of
fact arose at the hearing. The November contract provided for the benefit of
the £13,000 deposit already paid by Structadene to pass to the respondents. Mr
Tidmarsh therefore argued that the global figure should be reduced by that
amount, since the respondents had only had to pay the balance of the purchase
price (ie £117,000) to the vendors. Mr Tunkel produced the cash statement
rendered to the respondents by Eversley & Co containing the statement ‘paid
to Structadene Ltd (£13,000 less contribution of £750 towards fees)’ implying that
the deposit was in fact substantially repaid by the respondents to Structadene.
Evidence was therefore taken from Mr Jacobowitz, who stated that the agreement
into which he and Mr Horowitz entered was for the purchase from Structadene
£148,000 plus commission and legal costs and that the price was what was paid.
Upon the legal
question, Mr Tidmarsh referred to the wording of section 12(1), by which the
purchase was to be upon the terms of the original disposal, including those
relating to the consideration payable. The property was here disposed of by the
vendors, and only by them (whether one argued that there was only ever one
disposal or that there were two, the second being the December transfer), for
£130,000. To argue for more was to argue for the terms of the acquisition
by the respondents rather than the disposal by the landlords. Moreover, on the
clear policy of the Act, surely the tenants’ rights were to be put into the
same position as if the landlords had complied with their statutory duty and
offered them first refusal.
He agreed that
consideration does not necessarily have to move to the promisor, but if it is
to move to another, that must be at the request of the promisor. He
distinguished two situations: where there was a sale from A to B and A had
employed an agent X to find B — if A said to B that he would sell to B provided
that B paid X’s fees then the fees would form part of the consideration. If
there was a sale from A to B and B employed X to find the property X’s fees
could not form part of the consideration. As far as the vendors were concerned,
the only consideration moving to them or at their request was the £130,000; if
some of the fees had not been paid, they would not have had the right to take
action upon that; the consideration could not include terms of which the
persons disposing had no knowledge and no right to enforce.
Mr Tunkel’s
contention was based upon the identification of the ‘original disposal’ as
being not the transfer in December but the contract between Structadene and the
respondents in November. If one asked what the respondents had to pay to get
it, the answer was £155,749. Those were the terms demanded by Structadene for
selling the benefit of its contract with the vendors.
Even if, in
fact, the December transfer was to be regarded as the ‘original disposal’, it
should be seen, in the context not of the first contract but of the second. It
was permissible to go behind the consideration stated in a transfer to look at
the contract: thus a lease might simply record the rent, while the contract for
the lease might contain reference to a premium payable as part of the
consideration. If the transaction had taken place by means of two formal
transfers, rather than by the short cut as here, there would have been no doubt
that the consideration for the second would have been the higher figure, and
the statement of the consideration in the December transfer should not prevail
against that. In substance, there were two disposals, and the authorities in
recent years had directed attention to the underlying nature of a transaction
(eg Street v Mountford [1985] AC 809*).
*Editor’s
note: Also reported at [1985] 1 EGLR 128.
Mr Tunkel
further argued that, although there was no provision in the Act for the payment
of interest upon the purchase price, the Act did refer to a purchase on the
terms upon which the original disposal was made. The contract between the
vendors and Structadene included a term in the general conditions of sale for
the payment of interest. In the event of the tribunal’s finding that the terms
of that contract were the relevant ones, he suggested that it might be within
the tribunal’s discretion to determine that interest at the contract rate be
paid on the purchase price from the date of completion to the date of actual
purchase by the applicant. At times of rapid property price rises, it could be
injurious to a respondent if the nominated person delayed matters unduly.
Mr Tidmarsh’s
response was that the term of the contract provided for payment of interest if
completion was late; completion had long taken place. There were time-limits to
protect the purchaser, and the prospective purchaser could always have
protected himself by making the proper inquiries of tenants as to their
interest in the matter under section 18.
Finally, it
was agreed that any question concerning the discharge of mortgage upon purchase
would be dealt with in accordance with Schedule 1 to the Act, and was not a
matter for the tribunal to deal with.
The decision
Jurisdiction
We accept the
proposition that the tribunal’s jurisdiction is limited to deciding questions
arising in relation to any matters specified in a valid purchase notice, but we
do not agree that the tribunal has no jurisdiction to determine what is or is
not a valid purchase notice. We have approached this matter in the same way as
when sitting as a leasehold valuation tribunal (cf section 13(5) of the Act)
and have followed the general approach which tribunals of first instance, such
as leasehold valuation tribunals and rent tribunals, follow in relation to
questions of jurisdiction. A tribunal has to satisfy itself that it has
jurisdiction to determine the matter before it, and hence it not only may but
must examine a purchase notice, or other such document, upon which its
jurisdiction is founded. The question arises, however, as to the approach to
follow when some doubt arises as to the validity of the notice.
Mr Tunkel in
effect has argued that the tribunal should then cease all consideration of the
matter, as it is an inappropriate forum in which to deal with it, and leave it
to the county court. The tribunal has not taken such a limited view of its
jurisdiction. In our view, a tribunal may proceed to decide the point, leaving
the dissatisfied party to take the matter to the county court, or, if it is in
real doubt, it may adjourn and leave the parties to raise the question in the
county court. We agree that there may be instances where it is more appropriate
for the county court procedure to be used (for instance, where allegations that
a written agreement is a sham or a forgery require evidence on oath to be
tested by cross-examination and there is a heavy burden of proof to discharge —
per Devlin J in R v Fulham, Hammersmith and Kensington Rent
Tribunal, ex parte Zerek [1951] 1 All ER 482. However, the mere fact that
questions of law are, as here, involved is not in itself sufficient. There are
many examples of
jurisdiction (cf, for example, the leasehold valuation decision in Burford
Estate & Property Co Ltd v Creasey (1986) 277 EG 73*).
*Editor’s
note: Also reported at [1986] 1 EGLR 231.
Mr Tunkel’s
other argument was the lack of ability to define and determine the issues
involved, in the absence of pleading, discovery and evidence on oath. In the
tribunal’s view, while this may be the case on some occasions (as referred to
above), it cannot be regarded as a general bar to decisions on most issues: the
relevant provisions of Schedule 22 to the Housing Act 1980 and of the Rent
Assessment Committee (England and Wales) (Leasehold Valuation Tribunal)
Regulations 1981 as amended by the 1987 (Amendment) Regulations, enable parties
to receive relevant documents and to provide information as required by the
tribunal. Sensibly used, these provisions enable the issues to be clarified in
good time, as indeed the applicant’s solicitors sought in this instance. Had a
matter emerged at the hearing which was not evident beforehand from the
documents and which required an adjournment the tribunal would have considered
whether it was appropriate to be left to the county court, but that did not in
fact arise.
The tribunal
has therefore considered the question of whether a ‘misstatement’ of the
consideration payable in the purchase notice should invalidate the notice and
thereby the application. Even to ask whether there is such a misstatement
creates a logical difficulty, since that is also the substantive question which
the tribunal is being asked to determine, hence the validity of the application
would be able to be determined not in limine but only at the end of the
whole hearing. Leaving aside that point, however, we do not regard such a
misstatement as fatal to a purchase notice, for the following reasons:
Had the
question arisen in relation to the actual application form itself, under
section 13, there would have been no problem; the question is framed in terms
of ‘What price do you consider to be payable under section 12?’, hence
allowing for such a figure to be put tentatively. But Mr Tunkel’s argument was
that in the purchase notice itself there is no room for manoeuvre: the
applicant has to get the consideration payable ‘right’ or else the notice is
invalid. This is a very strong line to take and not one which the tribunal
would willingly adopt without being strongly convinced.
Although the
form of the subordinate legislation providing for the section 13 application
form cannot militate against the clear wording of the Act itself, it seems
unfortunate that the application would seem to leave the question still open,
in genuine cases of doubt, if in fact the applicant has already lost the right
to purchase under section 12 by taking the ‘wrong’ view of the consideration in
that notice. Such an interpretation would clearly take any question of the
consideration, other than in the unusual price adjustment situations, out of
the hands of the tribunal. We are not suggesting that the whole question of the
consideration payable is at large, nor are we expressing a view as to the
‘investigation of surrounding circumstances’ which may or may not take place. But
where there is a clearly defined dispute, as here, between two views, each
being arguably the appropriate one under section 12, it would be strange if
this particular ‘matter specified in a purchase notice’ were taken out of the
tribunal’s hands without section 13(1)(a) so providing.
Considering
the broader question of policy, our view is that the purpose of the section 12
notice is to enable the new landlord to be aware of the general nature of the
rights being sought to be exercised against him. We bear in mind that he is the
person who is in fuller possession of the facts than the tenants themselves,
who may in most cases be relying on the information provided by him. The figure
provided by the respondents’ solicitors in this case was not itself entirely
accurate even within their own terms. Even supposing the tenants had used that
figure, we see no reason why they should not, in their later section 13
application, have asserted the figure of £130,000 as being what they now, on
further investigation, considered to be the price payable. If a tribunal found
in favour of the £130,000, were the tenants to lose because they had used the
figure provided by the new landlord in the purchase notice? It is interesting to notice here that the
section 12 notice also referred to the disposal as being a transfer to
Structadene, rather than to the respondents. This again was presumably based
upon the information which the tenants had received by this stage, and no point
was taken to suggest that this invalidated the notice.
The tribunal
has therefore taken into account that the tenants are here having to act within
certain time-limits and upon information for which they are dependent upon
other people. In our view, there is nothing in the wording of section 12(1) to
compel us to hold that it is mandatory at that stage to state the consideration
payable, where a genuine dispute exists, with the total accuracy which can be
achieved only with hindsight after the substantive dispute has been resolved.
Instead, we follow the approach exemplified in Druid Development Co
(Bingley) Ltd v Kay (1982) 264 EG 1080 CA, [1982] 2 EGLR 108 and ask
whether anyone has been in any way misled or prejudiced over the contents of
the notice. In our view, the respondents knew from the outset the basis upon
which the tenants were seeking to exercise their rights. We have therefore
found the purchase notice to be valid and gone on to consider the matter
referred to us.
One
disposal or more than one?
The tribunal
having decided that it has the jurisdiction to determine the consideration
payable, that being one of the terms of the ‘original disposal’, it has
proceeded to consider which is the disposal in question.
It has
accepted the point agreed in argument that this is not to be treated as an
application under section 16, whereby the tenants would seek to enforce their
rights against a ‘subsequent purchaser’ but at the consideration payable under
the ‘original disposal’; whether or not it is found that there has indeed been
more than one disposal, it would appear that, in accordance with section 16(2),
the purchase notice would have had to be served on Structadene for that
machinery to have come into operation, and the applicant has not sought to
argue otherwise. Instead, the purchase notice under section 12 has been served
directly upon the respondents, treating them as a ‘new landlord’ under section
11, acquiring under an ‘original disposal’. The provisions of sections 11 and
12 would appear to permit of this possibility; however, in this case, the consideration
payable will be that included among the terms upon which ‘a landlord’ made a
‘relevant disposal’ to them.
The crux of
the matter would therefore appear to be to identify the disposal under which
the respondents acquired their interest in the property. The applicant points
to the December transfer as being the only relevant disposal in this case; the
respondents argue that there has been more than one and that if the applicant
is to take a short cut and proceed against them without using the section 16
machinery then the consideration must be at the higher figure which was
involved in the subsequent disposal.
The tribunal
has therefore considered whether there has been any disposal other than the
December transfer. This turns upon whether the original contract for sale in
October is to be treated as a disposal; the relevance of the November contract
is secondary to that, for this reason.
It may well be
that the sale of an existing equitable interest (ie the rights under an estate
contract) in November is to be treated as a disposal. But in order to be an
original disposal under section 11 it would have to be by ‘a landlord’. If the
October contract was a disposal then Structadene would be a ‘new landlord’; it
could then be argued (not necessarily conclusively but persuasively) that, in
the somewhat artificial usage of the Act, Structadene was then a ‘landlord’ to
make a disposal in turn to the respondents, which disposal was now being
treated as the original disposal. On the other hand, if the October contract
was not a disposal, then it would be very hard to argue that Structadene, not
being a ‘new landlord’ under section 11(1), was in any sense a ‘landlord’.
There is nothing in the provisions as to ‘landlord’ in section 2 of the Act
which would compel such a conclusion, and the position of Structadene simply as
purchaser before completion would not, under ordinary legal principles, be
appropriately regarded as that of a landlord; in particular, there would be no
right to receive rents and profits pending completion.
Thus, if the
original contract of sale was not a disposal, there was only one transaction
which is undoubtedly to be treated as a disposal, and a relevant disposal for
the purposes of section 11, that is the December transfer from the vendors to
the respondents. If the original contract was a disposal, then a fortiori the
disposal of the rights acquired under it by the ‘new landlord’ as landlord
would be a disposal, and that would be the original disposal whose terms were
to be examined to ascertain the consideration payable.
Is a
contract of sale a disposal?
This is by no
means an easy question to answer, and the tribunal has approached it from
several angles. Clearly, the wording of the
wording of this Act is complex and extremely difficult to construe, and that is
certainly the case here. As Mr Tidmarsh pointed out, a close reading of certain
sections leads to the conclusion that a contract is not included: section
4(2)(d), for instance, in order to achieve its purpose should have referred to
a disposal ‘by way of’ rather than ‘in pursuance of’ an agreement, if in fact
the agreement itself were regarded as effecting a disposal. On the other hand,
one could point to the wording of section 4(3)(a): the grant of an option is
included within the definition of a disposal; an option is an interest which,
for example, within the land charges system can be treated as an estate
contract, and surely here such a contract made in the usual bilateral form is
therefore a fortiori able to be included.
Mr Tunkel
rightly points out that the general wording is very wide: the disposal is one
of ‘any estate or interest (whether legal or equitable)’ and may be by creation
or transfer. Thus, it may be quite possible for a disposal to be by means of a
creation of an equitable interest, for example by a declaration of trust.
However, it does not logically follow that every creation of an
equitable interest is necessarily to be labelled as a disposal. The wording of
section 4(3) provides that ‘disposal’ means ‘a disposal whether by the creation
or transfer . . .’. Thus the question to be asked is not simply ‘has there been
the creation or transfer of an estate or interest?’ but ‘has there been a
disposal (whether by means of a creation or transfer)?’. The tribunal is
mindful of his reference to section 59(1)(b) but would question his contention
that the situations relating to the grant of a lease and sale of a freehold are
analogous here. If we have regard, as we consider ourselves entitled to do, to
the practice of conveyancers here, the situations are not on all fours. It is
quite common for the rights and obligations in the leasehold instance to remain
on the basis of contract for relatively long periods; that is not so in
relation to sale of the freehold. Whether a contract for a lease would thereby
constitute a disposal is not necessary for us to decide in this case.
References to
‘disposal’ in other statutory contexts may be of interest but are not
conclusive. Mr Tunkel referred to the capital gains tax position. Clearly,
there was the need to have a statutory provision as to the time of disposal
when contract was followed by conveyance. That provision (section 27 of the
Capital Gains Tax Act 1979) points to the date of the contract as being the
date of disposal in that case. It is not conclusive as to the status of the
contract per se in general terms, as to whether it is to be regarded as
a disposal at all and, if so, whether as a full or part disposal. Under the
Housing Act 1985, the disposal of certain land in a Housing Action Area is
prohibited without first notifying the appropriate body; section 262 of the Act
expressly includes a contract of sale in the definition of ‘disposal’. The fact
that a draftsman in another context inserted such a provision, whether because
it was regarded as necessary or ex abundanticautela, cannot compel a
conclusion upon the present Act.
The tribunal
has therefore also considered the more general question of the position of a
purchaser between contract and completion and asked the question whether the
rights created under a specifically enforceable contract lead to the conclusion
that there has been at that stage something which can appropriately be labelled
a disposal. The dicta in the cases concerning the general position of a
purchaser are not helpful. It is widely recognised that statements concerning
the ‘trusteeship’ of the vendor (eg per Jessel MR in Lysaght v Edwards
(1876) 2 Ch D 499 at p 506) are to be read in a somewhat qualified sense, as
the doctrine of conversion is, in the vendor-purchaser context, an
oversimplification. The purchaser indeed acquires certain valuable equitable
rights in the land, which are themselves alienable as in the present case. He
is regarded as having an insurable interest in the property, the risk having
passed upon contract, and he is entitled to any physical accretions to the
property.
On the other
hand, the vendor retains possession of the property and is entitled to the
rents and profits until the contractual completion date (Cuddon v Tite
(1858) 1 Giff 395). He would be the actual person responsible for reletting the
property, albeit subject to consultation with the purchaser (Abdulla v Shah
[1959] AC 124); in the present instance the October contract incorporated the
Law Society’s General Conditions of Sale (1984 ed), in which condition 6(5)
provided for reletting at the purchaser’s direction, subject to indemnity.
The varied
dicta in Rayner v Preston ((1881) 18 Ch D 1) cited by counsel,
thus illustrate the general view of the ‘qualified’ nature of the trusteeship
which is created by the contractual relationship of vendor and purchaser. The question
whether such a contract thereby creates a disposal cannot be answered
conclusively by inference from these general principles. However, in this
particular context, if one were to ask whether there has been, by the contract,
a disposal by a landlord of his rights qua landlord to a new landlord,
the particular indicia referred to above would seem to lead to a negative
answer, and we have regarded this as a pertinent question to ask.
The tribunal
has also had regard to conveyancing practice as urged by Mr Tunkel, and
considered whether, whatever is the situation in a normal two-party case, there
should be a different approach where there is a genuine subsale. It is accepted
that in such cases there is usually only one transfer for stamp duty purposes,
but it could be arguable that in substance the property has been disposed of
twice and that, in this situation at any rate, the original contract is a
disposal. This would also be a way round Mr Tidmarsh’s contention that if every
contract of sale is a disposal, every transaction will inevitably involve two
disposals, by limiting its application to contracts of sale where the ultimate
transferee is a third party. However, in our view, the result should not depend
upon whether completion is between the original parties, or whether there has
been an arm’s-length subsale, or indeed some intermediate position whereby the
original purchaser directs or requests completion to be with some related
person or company. It is important to know at the date of the original contract
whether that has itself been a disposal which triggers the various provisions
of the Act; it is not satisfactory that the situation should remain in limbo
until completion.
There are
other instances, in the two-party situation, where to hold that a contract is a
disposal could lead to legal difficulties. For instance, if the disposal takes
place when the contract is concluded, what is the position if it is
subsequently rescinded? Could the
tenants still seek to exercise their rights and, if so, against whom? Again, supposing the tenants had used the
section 16 machinery and sought to exercise rights against Structadene: what
exactly is being sought, after completion, bearing in mind the doctrine of
merger of contract in conveyance?
The tribunal has
carefully considered the broader questions of policy raised by this problem.
The statutory provisions are, in our view, intended to put the tenants, as far
as possible, into the same position as if the landlord had offered them first
refusal, rather than acting in contravention of section 1 of the Act. On the
other hand, we do not see the Act as intended to have punitive effect on
purchasers. But in this more complex ‘chain’, these principles are not easy to
reconcile, and it is, we believe, permissible to consider the measures which
are available to each side to protect their own interests in such cases. Any
person who is considering the purchase of premises to which the Act applies may
serve the requisite notices under section 18 to ensure that the tenants are
aware of the proposed disposal and of their rights of first refusal. If the
machinery of section 18 is used, without a positive response from the majority
of tenants, then the purchaser can safely proceed. As already mentioned, the
respondents strongly argued in the correspondence that they had made at least
two of the tenants informally aware of the proposed purchase at an early stage
and they feel now somewhat aggrieved at the turn which events have taken. Be
that as it may, it would not appear that any formal notices under section 18
were actually served. In general terms, however, a prospective purchaser has
the means to protect himself from having to reconvey at what may be a lower
price than he paid. In addition, there may, of course, be the usual remedies
via the implied covenants for title.
The tenants
may be in a more difficult position. If a contract is a disposal, there could
well be several such disposals at increasing prices before the tenants are made
aware, on completion, that there is a change of landlord. True, they can, via
the nominated person, buy at the price of the first disposal if they use the
section 16 procedure, but that depends upon knowing the identity of that first
purchaser; in a normal case they will most probably know only the name at the
end of the chain and there is no provision in the Act for notices to be passed
‘backwards’, as opposed to ‘forward’ under section 16. Thus they would have to
use the section 12 machinery and buy at the price of the last disposal. It is true
that in the present case the tenants were aware of Structadene’s existence and
that it had transferred its interest to the respondents; it so happened that
the same solicitors were acting for Structadene and the respondents and letters
had been prepared for the tenants on the assumption that the transfer would be
to Structadene. However, this situation would not be typical of what could
happen in an ordinary subsale, and indeed in this case seemed
were concerned.
It is true
that the tenants could be argued to be equally at risk if there were a chain of
legal transfers. Their situation then would surely depend upon the timespan
involved. If the transfers took place over a matter of months or years, then
one would expect notices under the Landlord and Tenant Act 1985 to be served in
the usual way. If in fact the transfers were executed in effect as part of one
process over a very short period, then it might be a matter for inquiry whether
in reality there was more than one disposal (cf Furniss v Dawson
[1984] AC 474). It is in any event unlikely that such a method would be
adopted, precisely for the reason that Mr Tunkel mentioned, that is, the stamp
duty implications. However, if it is asserted that for stamp duty purposes
there is in reality only one disposal, hence the usual practice in subsales, it
would seem somewhat inconsistent to say that on the other hand for the purposes
of the present Act there is actually more than one.
We are aware
that to hold that there is no disposal until completion may open up ways of
avoiding the statute, in terms of deferring completion to a date which would
defeat tenants’ rights. In an Act as complex and confusing as this, there will
inevitably be possibilities for avoidance. In our view, to hold that a contract
for sale is a disposal is equally likely to defeat tenants’ rights, in practice
if not legally at any rate, by means of a chain of contracts, particularly at a
time of rapidly escalating prices.
Thus, on
balance, although the question is not without difficulty, we are of the opinion
that the original contract of sale was not a disposal within the meaning of the
Act. There is a final argument which disposes us to this view. All the arguments
for such a contract being a disposal are based upon the premise that there is a
contract which is specifically enforceable in equity, thus creating an
equitable interest in the property sufficient to be a disposal. However, as was
raised in argument, what if we are to say that this contract is not capable of
specific performance, since it is in prejudice of third party rights (cf,
for example, Warmington v Miller [1973] QB 877)? While accepting the force of Mr Tunkel’s
reply, the tribunal remains doubtful whether a court would, in full possession
of the facts, order specific performance here. We are fortified in this view by
reference to section 19(3), which provides that ‘the restriction imposed by
section 1(1) may be enforced by an injunction granted by the court’. Thus, if
the tenants become aware that the landlord is proposing to make a relevant
disposal they may intervene to ensure that this does not take place without the
appropriate statutory machinery being used to offer them first refusal. The Act
therefore expressly contemplates equity’s intervention as between landlord and
prospective purchaser and it is surely possible to envisage an equivalent
equitable bar to specific performance.
If this is so,
then all the arguments above which are predicated upon the position of a
purchaser between a specifically enforceable contract and completion fall to
the ground. However, we would not wish to base our decision upon this sole
point, in the absence of any decided authority upon the Act yet; hence we have
dealt with the other arguments upon the basis that there is a specifically
enforceable contract. Our conclusion, however, remains the same: that the
original contract here was not a disposal and that therefore there was only one
disposal, ie the December transfer from the vendors to the respondents. We now
proceed, therefore, to examine the terms of that disposal, in particular in
relation to the consideration payable.
The
consideration payable
Our starting
point must be the consideration stated in the December transfer, ie £130,000.
However, we have adopted the view that ‘where there is one consideration stated
in the deed, you may prove any other consideration which existed not in
contradiction to the instrument, and it is not in contradiction to the instrument
to prove a larger consideration than that which is stated’ (per
KnightBruce V-C in Clifford v Turrell (1845) 1 Y & C Ch Cas
135 at p 149). Hence, as Mr Tunkel argued, a premium might form part of the
consideration for a lease though not so stated in the instrument. Similarly, A
might sell his land with a recently built house to B for £51,000, of which
£1,000 might be payable to A for the land and £50,000 to the builder. The
consideration for the transfer would not be limited to the £1,000 shown in the
transfer.
Thus it is
permissible to look behind the transfer. However, we are still to look for the
‘consideration’ payable under the terms of the disposal, and, as we have
decided, there has been only one disposal, from the vendors to the respondents.
What was the consideration upon which they executed the transfer? With one exception, to be referred to below,
we do not see how the additional costs incurred by the respondents in acquiring
the premises can be regarded in any sense as the consideration for the transfer
by the vendors. We are aware of the pitfalls involved in any analysis of
consideration, in terms, for instance, of benefit/detriment. However, our view
would be that the consideration must move, if not to the promisor, at least at
his request. Here there is no suggestion that the vendors exacted as part of
the bargain which resulted in the eventual transfer a promise by the
respondents to pay the various additional fees and costs itemised above; indeed
it is doubtful that they would even be aware of them let alone be in a position
to ensure that they were paid. These costs were wholly collateral to the
relationship between the vendors and the respondents. (The form whereby
Structadene and the respondents authorised and requested the transfer instead
to the respondents and undertook to keep the vendors indemnified ‘against any
costs claims or demands arising from compliance with this request’ does not, in
our view, alter this state of affairs.)
Hence we are
seeking to establish what was required by the vendors as consideration for
executing the transfer (cf the wording in section 18(2) of the Act: ‘the
consideration required by him for making the disposal’). Our starting point is
the £130,000, but we have considered one other item, which in our view is to be
treated differently from the others, that is, the £750 paid by the respondents
to the vendors for extension of a notice to complete (the original contractual
completion date being November 15 and the eventual completion being on December
21). The contract was subject to the Law Society’s General Conditions of Sale
(1984), including conditions 22 and 23 relating to compensation for late
completion and completion notices. This sum was undoubtedly one which was
demanded by the vendors, apparently after service of a notice to complete, and
received by them. Whether such a sum should properly be labelled as part of the
consideration for the ultimate transfer is perhaps open to question. However,
in our view it can properly be regarded as part of the ‘price payable’ under
this application: section 12 provides that the purchase notice requires the new
landlord to dispose of the subject-matter of the original disposal ‘on the
terms on which it was made (including those relating to the consideration payable)’
and those terms can be regarded as including the sum exacted for extension of
the completion date. It may appear that this is hard upon the tenants, who
could say that had they been offered the opportunity to buy for £130,000 they
would have completed on time and should not have to bear the cost of delay for
which they were in no sense responsible. Nevertheless, if we accept the fact,
the relevant disposal is that which actually took place, time having been
extended, on December 21, the terms of that disposal are the ones by which the
tenants are bound if they now wish to purchase and, by those terms, the sum of
£750 was properly exacted; this may appear to the tenants to be an onerous
term, but there may be others of a similar nature in a disposal and it is a
matter for their judgment whether they wish to take up the property upon these
terms.
The tribunal
has not, however, accepted Mr Tunkel’s point concerning the interest, payable
until completion under the original contract, continuing to run until completion
by the nominated person in this application. By the time of the eventual
December completion such contractual provision had run its course. If we are to
say that it revives now, then it can, under the terms of the original disposal,
surely do so only between contractual completion date and the date of actual
completion. It may be that if, as a result of this application, a binding
contract is entered into in due course between the nominated person and the
respondents, then such a term will again come into force in case of late
completion, but that is not a matter for decision by this tribunal. We accept
that from December onwards the respondents have been subject to outgoings while
not being able to seek a corresponding increase in the purchase price. However,
equally, the respondents will have been in receipt of rents during this period.
Because of our
primary finding, it has been unnecessary to decide what consideration would
have been payable if there had been found to be two disposals. The tribunal
would have had to give more detailed thought to the question of whether there
was an independent subsale (bearing in mind the special condition H of the
October contract: ‘The vendor will transfer to the purchaser or to whom the
purchaser shall direct’). On the assumption that such a subsale were
found to exist, then Mr Tunkel’s arguments as to the extra items being able to
be included would have obviously had greater weight. Even so, there would have
been problems: the question of fact as to whether the subsale was with the
benefit of the deposit would have involved a consideration of whether the
parole evidence was being adduced to add to or to contradict the written
contract. Moreover, it is questionable whether the full amount of the
solicitors’ bill would have been allowable, including, as it apparently did,
items which were in any case to be borne by the respondents and not properly to
be labelled as part of the consideration exacted by Structadene for the
bargain.
Upon the
tribunal’s view of the matter as a whole, therefore, the ‘original disposal’
upon the terms of which the applicant has the right to require a disposal is
that of the December transfer between the vendors and the respondents, and the
price payable under that disposal is £130,750.
We would wish
to express our gratitude for the very helpful arguments of both counsel in this
complex and difficult matter.
