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Issue 59 – February 2009

Cases

Statutory instruments
Features
Articles
News


Events
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This e-alert is not intended to provide comprehensive or exhaustive records of information concerning the property and conveyancing sector, but rather to provide a flavour of the issues, news and events which we believe are of relevance to Section members. If you have any feedback or suggestions, please email propertysection@lawsociety.org.uk. This e-alert was created in conjunction with LexisNexis UK Current Awareness. If you would like more details on any of the articles, please contact claire.melvin@lexisnexis.co.uk. The views expressed by the Legal Analysis interviewees are not necessarily those of the proprietor.

Cases

Angel Solicitors (A Firm) V Jenkins O’Dowd and Barth

Citation: [2009] All ER (D) 133 (Jan)
Hearing date: 19 January 2009
Court: Chancery Division
Judge: His Honour Judge QC sitting as a judge of the High Court

Summary: Solicitor – Undertaking – Summary jurisdiction
The claimant and defendant were firms of solicitors who had acted for the purchaser and vendor, respectively, in the course of three residential property transactions during 2007. Two of the properties were mortgaged to Barclays and one was mortgaged to Close Brothers Ltd (Close). In the course of acting in each transaction, the defendant, in its capacity as the seller's solicitors, replied affirmatively to standard form requisitions on title and thereby undertook to redeem or discharge the existing mortgages and send the relevant form of discharge as soon as it was received from the mortgagee. The undertakings were not performed. There was evidence that, had the defendant sought to redeem the relevant charges within a reasonable time after the undertakings were given, both Barclays and Close would have accepted a lesser sum than they subsequently sought to recover. The claimant applied for summary enforcement of the undertakings pursuant to the court's inherent supervisory jurisdiction over solicitors, and for summary judgment, pursuant to CPR part 24.

The defendant submitted that it was not appropriate for the court to make a summary order for enforcement as the correct approach was for the court to conduct an inquiry to ascertain what the mortgagee would have accepted by way of redemption had the defendant performed its undertakings within a reasonable time.

The court ruled:

The purpose of the undertakings was to secure for the purchasers of the properties, the discharge of the relevant mortgages on them. That purpose could only be achieved by the payment to the mortgagees of a sum sufficient to secure the release of the necessary forms of discharge; the sum they might have accepted in the past was irrelevant. Accordingly, there was no reason in law or equity for interfering in any way with the terms, or the extent, of either of the mortgagees' securities. The fact that due to the breach of the defendant's undertakings, the sum required for those undertakings to be performed was greater than if the undertakings had been performed in time, could not detrimentally affect the position of the claimant or the mortgagees.
Summary judgment would be granted against the defendant.

Mirza V Mirza and others

Citation: [2009] All ER (D) 116 (Jan)
Hearing date: 7 January 2009
Court: Chancery Division, Birmingham District Registry
Judges: Stephen Smith QC sitting as a deputy judge of the High Court

Summary: Contract – Enforceability – Loan – Claimant lending money to facilitate purchase of property
 
In 1990, a property in B Road was purchased for £58,000 with the benefit of a mortgage advance of £43,000. It was purchased in the name of the second claimant's (N) brother. He also obtained the mortgage advance. N provided all the money not raised by mortgage. In 2001, N redeemed the mortgage on the property. Later in 2001, N agreed to sell the property to the third and fourth defendants (S and H) for £95,000. They raised part of the purchase price by way of mortgage and the remaining £25,000 was lent to S and H by N. The loan was to be repaid by S and H as and when they were able. The agreement for the loan was not in writing. The proceeds of sale of the property in B Road were used to fund the purchase by N of a property in S Road. After the purchase, the first and second defendants (J and T) and their children rented the property. N sought, inter alia, a declaration that he was the sole beneficial owner of the property in S Road and possession of the property. In relation to B Road, N sought repayment of the loan he made to the third and fourth defendants. The defendants contended, inter alia, that J owned the money with which the property in S Road was purchased as he used to hide his savings in N's bank account and that, accordingly, he was the beneficial owner of the property in S Road. S and H contended that the loan agreement was unenforceable because it was a contract for the sale or disposition of an interest in land which was not made in writing.

The issues were, inter alia: (i) who was the beneficial owner of S Road; and (ii) was the loan agreement between N and S and H enforceable.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applied only to an executory contract for the sale or disposition of an interest in land. Once all the land elements of the contract had been performed, the remaining parts of the contract could be examined without reference to section 2 of the 1989 Act (see [141], [142] of the judgment).

There was no evidential support for the contention that the money for the purchase of S Road belonged to J. Accordingly, N was the sole beneficial owner of the property. In relation to the loan agreement, all the land elements of the agreement between N and S and H for the sale of B Road had been performed. What remained to be performed was the obligation to repay the loan created to facilitate the sale. The fact that the loan agreement was not set out in writing made no difference to its enforceability. Accordingly, the obligation to repay the loan was binding on S and H. However, there was no evidence that the condition under which the loan was to be repaid had been satisfied, accordingly the claim for repayment was rejected (see [125] of the judgment).

The declaration regarding S Road would be granted and N's possession claim to that property would be ordered.

*Cadogan V Pitts and another 

Citation: [2008] All ER (D) 101 (Dec)
Hearing date: 10 December 2008
Court: House of Lords
Judge: Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Mance, Lord Neuberger of Abbotsbury

Summary: Landlord and tenant – Leasehold enfranchisement – Valuation
The Leasehold Reform Act 1967 provides, so far as material: '9(1A) The price payable for a [higher value] house … shall be the amount which … the house …, if sold in the open market by a willing seller, might be expected to realise on the following assumptions: (a) on the assumption that the vendor was selling for an estate in fee simple, subject to the tenancy, but on the assumption that this Part of this Act conferred no right to acquire the freehold … (1D) Where in determining the price payable for a house … in accordance with this section, there falls to be taken into account any marriage value arising by virtue of the coalescence of the freehold and leasehold interests, the share of the marriage value to which the tenant is to be regarded as being entitled shall be one-half of it [...] (1E) But where at the relevant time the unexpired term of the tenant's tenancy exceeds 80 years, the marriage value should be taken to be nil.'

schedule 13 to The Leasehold Reform, Housing and Urban Development Act 1993 provides, so far as material: '3(1) The diminution in value of the landlord's interest is the difference between (a) the value of the landlord's interest in the tenant's flat prior to the grant of the new lease; and (b) the value of his interest in the flat once the new lease is granted [...] (2) Subject to the provisions of this paragraph, the value of any such interest of the landlord … is the amount which … that interest might be expected to realise if sold on the open market by a willing seller (with the tenant not buying or seeking to buy) on the following assumptions (a) … (b) on the assumption that Chapter I and this Chapter confer no right to acquire any interest in any premises containing the tenant's flat or to acquire any new lease; (c) on the assumption that any increase in the value of the flat which is attributable to an improvement carried out at his own expense by the tenant … is to be disregarded… 4(1)

The marriage value is the amount referred to in sub-paragraph (2), and the landlord's share of the marriage value is (a) [to be determined by agreement, or in default of agreement by the LVT], or (b) 50 % of that amount, whichever is the greater [...] (2) The marriage value is the difference between the following amounts, namely (a) the aggregate of (i) the value of the interest of the tenant under his existing lease, [and] (ii) the value of the landlord's interest in the tenant's flat prior to the grant of the new lease …, and (b) the aggregate of (i) the value of the interest to be held by the tenant under the new lease, [and] (ii) the value of the landlord's interest in the tenant's flat once the new lease is granted …' schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993 provides, so far as material: '3(1) Subject to the provisions of this paragraph, the value of the freeholder's interest … is the amount which at the valuation date that interest might be expected to realise if sold on the open market by a willing seller (with neither the nominee purchaser nor any participating tenant buying or seeking to buy) on the following assumptions (a) … (b) on the assumption that this Chapter and Chapter II confer no right to acquire any interest in the [building] or to acquire any new lease (except that this shall not preclude the taking into account of a notice given under section 42 with respect to a flat contained in the [building] where it is given by a person other than a participating tenant); (c) on the assumption that any increase in the value of any flat held by a participating tenant which is attributable to an improvement carried out at his own expense … is to be disregarded [...]'

Tenants under long leases, namely leases granted for more than twenty-one years, were first given the right to acquire new leases or to buy their freeholds under the Leasehold Reform Act 1967, which applied only to houses. Section 1 of the 1967 Act originally contained a number of requirements which had to be satisfied before the right arose, including that the value of the house be below a certain level. Section 9 of the 1967 Act contained the formula for assessing the price which the tenant would have to pay to enfranchise. Following the passing of the 1967 Act, a number of tenants promptly sought to exercise their right to enfranchise. The landlord's interest had a special value to each tenant, as he was the only person who could unite it with his leasehold interest, thereby producing an unencumbered freehold.

Further, given that he had served a notice seeking to enfranchise, the tenant had made it clear that he was indeed interested in acquiring the landlord's interest. The assumed presence of the actual tenant as a potential purchaser would accordingly serve to enhance the price payable for the landlord's freehold interest, in many cases quite substantially. That was not the intention of Parliament, which swiftly acted to reverse the decision. Section 82 of the Housing Act 1969 amended section 9(1) of the 1967 Act to insert after the words 'a willing seller', the words 'with the tenant and members of his family who reside in the house not buying or seeking to buy'.

The 1967 Act was subsequently amended by a number of statutes, almost all of which included provisions which widened its scope by removing or cutting down the requirements in section 1 (although the long lease requirement had always subsisted). In particular, the Housing Act 1974 brought many, more valuable, houses within its scope. The 1974 Act also introduced a new subsection 9(1A), which contained a different formula for assessing the price payable for the freehold by the tenant for higher value houses. More leases, including those involved in two of the instant cases, were brought between the ambit of the 1967 Act by the Leasehold Reform, Housing and Urban Development Act 1993. In relation to such leases, sections 9(1C) and 9(1A), added by the 1993 Act, applied. A valuation concept employed by the Leasehold Valuation Tribunal was 'marriage value', whereby the underlying assumption was that the market value of the unencumbered freehold in any property was likely to exceed the aggregate of the values of the interests of tenant and reversioner considered separately; and that (for that or perhaps other reasons) in the real world, the tenant would be willing to pay more for the reversionary interests in his property than other potential purchasers. In cases where the landlord was selling his interest when the tenant was not in the market, a potential purchaser might well think that, in addition to its investment value, the freehold interest carried with it the potential benefit of a possible future sale of the freehold to the current tenant or a successor in title (or indeed the acquisition of the leasehold interest), thereby enabling a release of the marriage value in the future.

In such a case, therefore, it could be said that, even though the tenant was not in the market at the time of the sale, the value of the freehold subject to the lease was greater than the aggregate of the capitalised rental stream and the deferred right to possession at the end of the term, and that something should be added for the possibility of a purchaser benefiting from a release of the marriage value. That additional sum was known as 'hope value'. The instant appeals arose from five cases before the Lands Tribunal (the tribunal), in respect of the same landlords. The tenants in each case were, S and S, GPM Ltd, SG Ltd, P and W, and AT Ltd. In the case of S and S, the tenants were seeking a new lease of a flat pursuant to Ch II of the 1993 Act. In the case of GPM Ltd, the tenants of some flats in a building sought to acquire the freehold of the building pursuant to Ch 1 of the 1993 Act. In the case of SG Ltd, tenants of some of the flats in a building sought to acquire the freehold of the building pursuant to Ch 1 of the 1993 Act.

In the case of P and W, the tenants were seeking to acquire the freehold of a house, and the valuation was effected pursuant to section 9(1C) of the 1967 Act, which incorporated the relevant provisions of section 9(1A) of the 1967 Act. In the case of AT Ltd, the tenant was seeking to acquire the freehold of a house pursuant to section 9(1C) of the 1967 Act. In all those cases the tribunal decided that hope value should not be included in the price payable to landlords in respect of a new lease or freehold. The landlords' appeals were dismissed by the Court of Appeal, which upheld the tribunal's decisions. The landlords appealed to the House of Lords.

The questions raised in each of those appeals were whether the landlords were entitled, as a matter of law, to have hope value taken into account as an element in the valuation of their respective interests. The landlords contended that: (i) although marriage value was excluded under section 9(1) of the 1967 Act, hope value was not so excluded; (ii) the fact that marriage value was taken into account under section 9(1A) of the 1967 Act did not prevent hope value being included in addition; (iii) pursuant to schedule 13 to the 1993 Act, the fact that marriage value was specifically included by virtue of paragraph 4 thereof similarly did not exclude hope value being included in paragraph 3; and (iv) pursuant to schedule 6 to the 1993 Act, in addition to the marriage value included in the price through the medium of paragraph 4 thereof in relation to participating tenants, hope value in relation to participating tenants and/or hope value in relation to the non-participating tenants could be included under paragraph 3.

The court ruled: (Lord Hoffmann dissenting)

(1) The words in section 9(1) of the 1967 Act '(with the tenant and members of his family who reside in the house not buying or seeking to buy)', added by the 1969 Act, excluded hope value.
Those words meant that, not only marriage value, but also hope value, was excluded from being taken into account when assessing the price to be paid by a tenant for the freehold of the house. That conclusion was based on the natural meaning of the words and common sense, which together powerfully justified the conclusion that it was inherently improbable that Parliament, when enacting section 82 of the 1969 Act, intended the landlord to be able to seek hope value.

In relation to a valuation under section 9(1) of the 1967 Act, a landlord was not entitled to seek hope value.

(2) Under section 9(1A) of the 1967 Act, the landlord could not claim hope value in addition to marriage value because it was subsumed by marriage value.

As pursuant to section 9(1D) of the 1967 Act, half the marriage value was what the tenant would pay if he was in the market, it seemed logically inconsistent that he should have to pay yet more on the basis that, although not in the market, he might be in the future. To put the point another way, if it was right to split the marriage value equally between the parties, it would, at first blush at any rate, seem to give the landlord more than half the marriage value, through the medium of an additional sum for hope value, which could fairly be characterised as a sum in respect of deferred contingent marriage value.

As the landlord was entitled to half the marriage value, to include a further element of hope value would involve double counting.

(3) The arguments about marriage value and hope value where a tenant was seeking a new lease of his flat under schedule 13 to the 1993 Act were similar, in valuation terms, to those which could be raised in relation to the tenant's acquisition of the freehold of his house under section 9 of the 1967 Act, although the calculation was a little more complex as the tenant was acquiring a new lease rather than the freehold.

Accordingly, the arguments which established that the words '(with the tenant not buying or seeking to buy)' in paragraph 3(2) of schedule 13 to the 1993 Act had the same force as the very similar words inserted into section 9(1) of the 1967 Act by section 82 of the 1969 Act. 

There was no doubt that those words barred marriage value from being included in the valuation of the landlord's interest, and, for the same reasons as those stated when dealing with section 9(1), they also barred the inclusion of hope value.

(4) Hope value could be taken into account under paragraph 3 of schedule 6 to the 1993 Act, in so far as it was attributable to the possibility of non-participating tenants wishing to obtain new leases of their flats in the open market (and not pursuant to schedule 13 to the 1993 Act).

Paragraph 3(1)(b) of schedule 13 to the 1993 Act appeared to indicate that, while the bracketed words in the opening part of paragraph 3(1) were to be construed widely, they did not prohibit taking into account the possibility of non-participating tenants seeking to negotiate new leases of their respective flats. That view was reinforced by the contents of paragraph 4, under which marriage value should be taken into account in relation to the participating tenants' ability to take new leases of their respective flats. It would be both arbitrary and unfair if a landlord, who could recover marriage value in relation to the participating tenants' flats, could not recover hope value in respect of the non-participating tenants' flats. It would be arbitrary because, in so far as they were purchasing the reversion to the non-participating tenants' leases, the participating tenants were acquiring an investment, whereas, in so far as they were purchasing the reversion to their own leases, they were acquiring greater security in their homes.

They were plainly anxious to enhance the value of their interests in their respective flats, as otherwise they would not be exercising their Ch 1 rights. It was therefore quite logical to oblige them to pay a share of the resultant marriage value, as envisaged by paragraph 4: Parliament could have decided to release them from that obligation, as it did to tenants under section 9(1) of the 1967 Act, but it had not done so.

The appeal in the case of S and S would be dismissed, as the landlord had no right to claim hope value under paragraph 3 of schedule 13 to the 1993 Act, and the appeals in P and W and AT Ltd would similarly be dismissed as the landlord had no right to claim hope value under section 9(1A) of the 1967 Act. However, the appeals in GPM Ltd and in SG Ltd would be allowed, as the landlord had been entitled to claim hope value under paragraph 3 of schedule 6 to the 1993 Act in relation to non-participating tenants' flats, albeit not in relation to participating tenants' flats.

*Admiral Taverns (Cygnet) Ltd V Daniel and another

Citation: [2008] All ER (D) 251 (Nov)
Hearing date: 25 November 2008
Court: Court of Appeal, Civil Division
Judge: Tuckey, Jacob LJJ and Sir William Aldous

Summary: County court – Execution – Warrant for possession of premises
The proceedings concerned possession proceedings between the claimant landlord against the defendants. During the course of those proceedings, the defendant applied to set aside an order of 10 July 2008, in which the judge sitting in the High Court discharged a stay of execution in relation to an order for possession made on 17 June 2008, pending the determination of an appeal. An issue arose as to whether section 89(1) of the Housing Act 1980 restricted the power of an appellate court to grant a stay of execution, pending the determination of an appeal. The judge held that an appellate court had jurisdiction to preserve the position until the appeal was heard. He accordingly directed that the order of the 10 July 2008 would be set aside and the execution of the order stayed, pending determination of the appeal. The claimant appealed against that decision.
 
The claimant submitted that section 89(1) of the Act prevented a court from making an order which postponed an order for possession by variation, suspension or stay of execution to a date later than 14 days or in exceptional circumstances six weeks. The claimant submitted that that restriction related to any court and thus any court could not suspend an order for longer than the periods set out in the provision.

The appeal would be dismissed.

An appellate court had jurisdiction to suspend an order pending an appeal which came within 89(1) of the Act.

The construction contended for by the claimant would prevent an appeal court from, in appropriate circumstances, preserving the position until it could be dealt with in the appeal. It would need clear words in the statute to interfere with the courts inherent jurisdiction. There were no such clear words. Section 89(1) could be properly read as restricting the jurisdiction of the court granting the order, but not as to an appellate court considering its inherent jurisdiction. To decide an appellant court had no power to suspend an order could lead to injustice, which Parliament could not have intended.

Orchard (Developments) Holdings PLC V Reuters Ltd

Citation: [2009] All ER (D) 85 (Jan)
Hearing date: 16 January 2009
Court: Court of Appeal, Civil Division
Judge: Rix, Smith and Toulson LJJ

Summary: Landlord and tenant – Lease – Clause in lease enabling defendant tenant to terminate lease after break point.

The claimant landlord, Orchard (Developments) Holdings Plc, owned the premises which were let under a lease dated 2 February 2001 for a term of 15 years. An assignment took place on 19 August 2004 to the defendant tenant, Reuters Ltd. The lease contained a break clause. Clause 8.14 of the lease, provided that the defendant could terminate the lease at the end of the fifth or tenth year of the term by giving six months' notice. Clause 8.1.2 made it clear that a valid notice was either one which had been given by hand, sent by registered post or sent by recorded delivery and served in accordance with clause 8.1.3 (formal notice) or a notice given and/or served in some other way provided, however, receipt of such a notice had been acknowledged by the receiving party or its registered agent (informal notice).

A formal notice was effective by itself, and an informal notice could only be validated by acknowledgement of its receipt by or on behalf of the receiving party. The tenant sent notices to the landlord by letter and fax on 29 and 30 July 2005. The letters were posted in the wrong letter box and became ineffective; however, the faxes retrospectively became effective. The tenant vacated the premises by the break date and handed back the keys to the landlord. The tenant sought to obtain an acknowledgment from the landlord of receipt of the letters and/or faxes that had been sent. In December 2006, the landlord replied to a letter from the tenant stating, inter alia, that the tenant had not validly exercised its break right and that the lease was continuing. In a further paragraph in that letter, the landlord acknowledged receipt of the faxes. The landlord commenced proceedings against the tenant claiming that the notice was ineffective.

The judge found that the letter of December 2006, and further witness statements had been an acknowledgment in writing of the receipt of the two faxes. He went on to find that the tenant succeeded on the basis that the effective notices to terminate the lease had been served by fax on 29 and 30 July 2005. The landlord appealed against that decision.

The question was whether a later acknowledgment could retrospectively validate an informal notice even after the effluxion of the whole of the six months' notice period and the passing of the break date itself. The landlord submitted, inter alia, that an acknowledgement for the purposes of clause 8.1.2 could not be given beyond a reasonable time after service of the informal notice.
The appeal would be allowed.

It was settled law that there was no obligation to acknowledge an informal notice. Accordingly, there was no room for an implication of a reasonable time in which to acknowledge receipt of an informal notice. An informal notice, if made and acknowledged in time, was a valid break clause notice; otherwise it was ineffective (see [29] and [42] of the judgment).

An informal notice would suffice, provided it was acknowledged; the acknowledgment was vital. The notice was potentially valid and effective, if given in time, but without acknowledgment invalid and ineffective. The informal notice only became valid at the time of its acknowledgment, which had to be in writing since the notice by itself was not effective. If it was to become effective subsequently because of an acknowledgment, then its effectiveness dated from a time later than its receipt. The acknowledgment was retrospective in the sense that a notice which, before the acknowledgment, was ineffective to entitle the tenant to break the lease at the fifth year break point subsequently and after the beginning of the six months' notice period became a good and effective notice. Since clause 8.1 was not concerned with the timing of a notice, a notice might be acknowledged, even though the notice itself was out of time.

Such a notice, even though acknowledged was not effective. Therefore, it was only an informal notice which had been acknowledged before the beginning of the six months' notice period that was the subject matter of the clause. If an informal notice was ineffective at the critical moment six months before the lease anniversary, it could not be made effective within the six months' notice period. It therefore did not matter that the landlord had no obligation to acknowledge an informal notice; the tenant retained the ability to serve a formal notice until it became too late to do so. The lease could not be retrospectively ended by an acknowledgment prior to or during litigation since it would be destructive of all certainty. The express terms of the lease provided the solution in the instant case, and it was too late for an acknowledgment once the break point had passed (see [29], [35]-[39], [42], [48] and [54] of the judgment).

Rouf V Tragus

Citation: [2009] All ER (D) 29 (Jan)
Hearing date: 13 January 2009
Court: Chancery Division
Judge: Morgan J (judgment delivered extempore)

Summary: Landlord and tenant – Assignment of lease – Validity

The defendant landlord had a headlease of premises in south-west, London. In 1998, by an underlease for a term of 25 years, the defendant demised the premises to M and H. The underlease could not be assigned without the consent of the landlord. As the underlease was not registered, a legal estate was not vested at any time in M and H. In March 1999, an agreement provided for the transfer of the underlease to the claimant and another person, and the claimant began to run a business from the premises. In October 2006, M and H sought the defendant's consent to the assignment, which was refused on the basis that the claimant's status provided no assurance that he could pay the rent. For a lengthy period there were negotiations between the claimant and the defendant but he did not become an underlessee.

Certain communications from the defendant to the claimant referred to him as a 'tenant' of the premises and he made substantial payments of rent, though no rent was paid after July 2007. By September 2008, the arrears of rent were £85,000 and the defendant took possession of the premises. Subsequently, the claimant obtained an injunction restraining the defendant from interfering with his possession and enjoyment of the premises. In December 2008, the claimant was adjudicated bankrupt. He applied for the injunction to be continued.

The claimant submitted that he had a right to be in the premises because he was either a tenant with a lease for a specified term, or, if he was not, a third party had a lease behind which he was able to shelter. The issue further arose as to the effect of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 on the relationship between the parties.

The application would be dismissed.

The court ruled:

The underlease had not been assigned to the claimant and he had not taken any steps to obtain an assignment. Further, although he had been involved in lengthy negotiations with the defendant, it could not be said that the parties had a binding contract within the meaning of section 2 of the 1989 Act. At most, the claimant had an arguable case that he had a periodic tenancy. Such a tenancy would contain a forfeiture clause. Further, there was no lease belonging to a third party behind which the claimant could shelter: due to non-registration, the underlease could not take effect as a legal estate and the absence of specific performance, by way of the payment of rent, meant that it could not take effect in equity either. Against the background of substantial arrears and the claimant's bankruptcy, it was not appropriate to grant an injunction to protect an arguable claim to a periodic tenancy when that tenancy was vulnerable to forfeiture.

Ackerman and another V Lay and others

Citation: [2008] All ER (D) 172 (Dec)
Hearing date: 16 December 2008
Court: Court of Appeal, Civil Division
Judge: Tuckey, Jacob and Sir William Aldous LJJ

Summary: Landlord and tenant – Leasehold enfranchisement – Tenant's notice – Tenant giving notice to landlord of desire to acquire freehold.

The respondent landlord was the freehold owner of a property. The property comprised five flats. It was let for a term of 50 years expiring on 29 September 2001 at a ground rent of £225 per annum. That term was assigned the appellant tenants in May 1998. The appellants resided in one of the flats (flat three). On 24 September 2001, the appellants served a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 claiming to exercise the right to acquire a new lease of flat three. The respondent objected to that claim. Proceedings arising out of that notice were stayed pending the determination of proceedings arising out the service of a notice, in April 2002, by the appellants to acquire the freehold of the property by enfranchisement under section 8 of the Leasehold Reform Act 1967.

The respondent contended, inter alia, that on the date when the claim was made the appellants were no longer tenants of the whole of the proper under a tenancy to which the 1967 Act applied because the lease had expired in September 2001. That depended upon whether termination of the lease was prevented by service of a section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993. The appellants submitted that the lease had been extended by service of a notice under section 42 of the 1993 Act in September 2001 and the provisions of paragraph 5(1) of schedule 12 to the 1993 Act. In the event, the judge rejected that claim. The appellants appealed against that decision.

The appellants submitted that: (i) paragraph 5 of schedule 12 did not provide for continuation of only a part of lease; (ii) it was the whole lease that continued upon service of the section 42 notice; and (iii) for that reason the lease of flat three had not terminated.

The appeal would be dismissed.

Paragraph 5 of schedule 12 to the 1993 Act was clear. The lease that was continued was the lease of the flat, the subject of the claim, and only that lease. The purpose of paragraph 5 was to preserve the position pending the determination of the claim. Section 39 of the 1993 Act conferred on a tenant of a flat the right to acquire a new lease of the flat. The section 42 notice, which made the claim, had to give particulars of the flat in respect of which the new lease was claimed. In the instant case it was the flat. The new lease was, as section 56 stated, in substitution for the existing lease which could be a head lease. Paragraph 5 of schedule 12 referred to a notice under section 42. In the instant case that was a notice which related solely to flat three and claimed a new lease of flat three. That being so, 'then during the currency of the claim and for three months thereafter the lease of the flat should not terminate.' The paragraph was confined to the lease insofar as it related to the flat in question and did not apply to other flats or parts of the building which could be comprised in the lease. After service of a section 42 notice relating to a single flat, there was no need to continue the lease insofar as it demised other flats pending determination of one claim for a new lease. To do so could give rise to inequity. Accordingly, the judge had been right to reject the appellants claim (see [20]-[22] and [35] of the judgment).

Statutory instruments

Local authorities (England) (Charges for Property Searches) Regulations 2008

Number: 2008/3248
Enabling power: Local Government and Housing Act 1989, section 150
Commencement: 23 December 2008

Summary: Allow local authorities to make charges for services provided in connection with property searches, specifically “access to property records” and “answering enquiries about a property”. The charging arrangements set out in the Regulations apply whether or not a local authority provides the services under a power or duty. However, they do not apply where a local authority has another power to charge or is under a duty to do so. They also do not apply in respect of access to “free statutory information”.

In calculating charges for the granting by a local authority of access to property records these charges must not amount to more than the costs of granting access. In respect of answering enquiries about property charges must have regard to the costs to the local authority in answering enquiries. The Local Authorities (Charges for Land Searches) Regulations 1994 are revoked.

Home information Pack (Amendment) (No 3) Regulations 2008


Number: 2008/3107
Enabling power: Housing Act 2004, sections 163, 250(2)
Commencement: 1 January 2009 and 6 April 2009
Summary: Amend the Home Information Pack (No 2) Regulations 2007 so as to:

  •  provide for a new required document to be included in the HIP. The Property Information 
     Questionnaire (PIQ) will be completed by sellers and will contain basic information about the  
     property that is likely to be of assistance to potential buyers;
  • provide that documents (apart from a copy of the lease itself) currently required to be included in HIPs in the case of leasehold sales, are instead authorised for inclusion in HIPs, with effect from 1 January 2009;
  • further extend the temporary application of the first day marketing provisions in regulation 34 of the principal Regulations;
  • further extend the temporary period in paragraph 4(a) of Schedule 6 of the principal Regulations during which information gaps in personal searches may be covered by insurance where local authorities have refused access to the relevant records; and
  • amend regulation 30 so that the exception of portfolios of properties from the requirement to 
    provide a HIP applies where some of the properties in the portfolio do not have vacant possession.

Land Registration Act 2002 (Amendment) Order 2008


Number: 2008/2872
Enabling power: Land Registration Act 2002, section 5(1)
Commencement: 6 April 2009

Summary: Introduces two new events, to be known as the “new trustee trigger” and the “partition trigger”, that will trigger compulsory first registration of title under the Act. The new trustee trigger is in two parts. The first limb applies when land vests in a new trustee by deed. This may be the deed that appoints the new trustee, if it contains an express vesting declaration, or one that is implied into it by the Trustee Act 1925, section 40(1) or a conveyance or assignment by deed to the new trustee following their appointment. This limb also applies when land vests in a new trustee under of the Charities Act 1993, section 83(2) under a memorandum evidencing their appointment by resolution, if executed as a deed. The second limb applies when the High Court or a county court makes an order under the Trustee Act 1925, section 44 vesting land in a new trustee. The partition trigger applies when land held on trust is partitioned between the beneficiaries of the trust.

The Order is being made so that Land Registry can increase progress towards the creation of a comprehensive land register for England and Wales, which is one of its strategic objectives.

The “comprehensive land register” will include the majority of freehold land forming the surface of England and Wales. Currently 67%  of the land in England and Wales is registered and there are approximately 22million registered titles, of which over 17 million are freehold.

The impact on business, charities or voluntary bodies is possibly significant. This is because charities and voluntary bodies will often have trustees, as will small businesses where there is land held on trust (which would normally be the case with a partnership),and where there are trustees there is clearly the possibility of the new trustee trigger operating.


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Features

Issue of whether to scrap HIPs is red herring

Home Information Packs (HIPs) are continuing to create problems for conveyancing solicitors more than a year after their introduction.

HIPs were introduced in stages a year ago and are now a requirement for all residential properties on the market. However, they have been dogged by criticism since they were first proposed.


Bristol solicitor John Escott, partner, Clutton Moore & Lavington, accused the Government of 'ignoring' solicitors’ views and called on the Government to scrap HIPs. “The consultation process was just cosmetic—the Government hasn’t taken anyone’s views into consideration apart from their own,” he said.

“The Government was faced with the fact it had signed up to a European Treaty that obliges it to audit the energy efficiency of residential property and it tried to pin the expense of this on the conveyancing process. The [energy performance certificate] EPC is a total irrelevance for all practical purposes—except for the Government’s practical purpose of getting the general public to pay for the cost of complying with its European treaty obligations—which it has not had the political ‘bottle’ to admit to throughout the HIPs process. Instead of bringing in HIPs it could have simply brought in regulations requiring properties on the market to have an EPC. These cost about £57 plus VAT.

“What’s in HIPs is either out of date or incomplete. They are useless,” he said. “In the vast majority of cases, the first time a HIP sees the light of day after its production is when the buyer’s conveyance asks for a copy or for online access. Even then the contents are of very limited value with the only constituent part having any practical relevance being the water and drainage search. I have yet to come across a HIP with a useable local authority search, usually because it is out of date—at least that helps persuade the client to invest in an official search.

“If the Government wanted to speed up conveyancing they could have introduced funding for local authorities to get IT in place to speed up their searches, or they could have leaned on the Council of Mortgage Lenders to encourage faster approval of mortgages.


“As for gazumping, in 31 years of practice I can count the number of gazumpings on one hand. Perhaps it’s more prevalent in London? Even so, HIPs are bait to a gazumper because a buyer with a HIP is in a better position to proceed quickly with a HIP.”

Focus group research into HIPs—The Department of Communities and Local Government report, Hips, Consumer Focus Groups: Qualitative Research, published on 31 October 2008—backs up Escott’s views. Buyers reported concerns that HIPs missed out vital information and unfairly penalised older properties. Participants generally felt confused about the point of HIPs.
Commenting when the research was published, David Marsden, real estate partner at Matthew, Arnold and Baldwin Solicitors, said HIPs often contained out of date and unreliable personal searches rather than local authority searches.

Richard Barnett, senior partner at Barnetts, a north of England volume conveyancing firm, and chair of the Law Society’s conveyancing and land law committee, agreed there were problems but said the issue of whether to scrap HIPs was a 'red herring'.

The EPC was 'going to remain anyway', and problems occurred with the rest of the legal pack where non-lawyers became involved, he said. Where HIPs were provided by agents outside of the legal conveyancing process, they would create “at least an administrative burden, at most a considerable expense to the buyer.”

Barnett has championed a scheme called ‘HIPs Plus’ or ‘Transaction Plus’, under which the seller’s solicitor would prepare the HIP plus other required legal information so the sale could complete more quickly.

(20/01/09)
Legal News Analysis


Drafting error renders contracting-out of the 1954 Act Security of tenure null and void

In Newham LBC v Thomas-Van Staden [2008] EWCA Civ 1414 the Court of Appeal had to decide whether, contrary to the judgment at first instance, the appellant remained in occupation of the premises under a tenancy to which the ‘security of tenure’ provisions contained in the Landlord and Tenant Act 1954 (the 1954 Act) sections 24–28, applied.

The landlord, the London Borough of Newham (Newham) granted a lease to the appellant tenant. Newham intended to grant only ‘contracted-out’ leases because it wanted to include the area in a major regeneration scheme. If tenants have 1954 Act security of tenure the cost and delay of removing them can be enough to undermine the feasibility of such a scheme.

The tenant remained in occupation after the specified lease expiry date. The landlord served notice to quit, arguing that the agreement to exclude security of tenure in respect of the original lease also covered any period of ‘holding over’. The judge at first instance agreed stating that on the expiry of the contracted-out lease, the tenant had not entered into a new periodic tenancy but remained in possession of the property on the same terms as the original tenancy. Because the original tenancy was not a protected tenancy, the holding-over was also not protected.

Dowden, solicitor and a member of the Property Litigation Association, says: “The county court judge was overruled by the Court of Appeal in terms that make the landlord’s argument look like a spectacular own goal. Rather than the original ‘contracting-out’ extending to the period of holding over, the period of holding over invalidated the original ‘contracting-out’ process. The lease had never validly excluded the 1954 Act security of tenure and the original court order authorising the parties’ agreement to ‘contract out’ was a nullity. The lease did not create a ‘term certain’ and so the court had exceeded its jurisdiction in authorising that agreement.”

The Court of Appeal said that the complication arose from the definition of the term created by the lease as including “…any period of holding over or extension of it whether by statute or at common law or by agreement.

“The case turned on the construction and effect of those additional words and most precedents warn practitioners to delete them if the lease is to be ‘contracted-out’. The potential problem for landlords (and their lawyers) is that drafting notes to precedents are easily ignored,” says Dowden.
He adds: “At one level, the ruling is simply about the meaning of some wording that is commonly added to the definition of ‘term’ in a business lease. That wording emerged as a drafting response to the House of Lords ruling in City of London v Fell [1993] 4 All ER 968to ensure that former tenants and guarantors remained liable for lease covenants if the tenancy continued after the expiry of the contractual term (eg because of 1954 Act security of tenure).”

Wording along those lines has become a standard element of precedents. However, good precedents have notes warning practitioners to delete the extension wording if the lease is to exclude the 1954 Act security of tenure. This is because a reference to extension or holding over was thought to sit uncomfortably with the 1954 Act requirement that a lease must create a ‘term certain’ if it is to exclude security of tenure. In the present case the lease created a term certain until the date of expiry of the contractual term, after that date the lease continued under section 24 and as it had not been determined by the landlord in accordance with section 25 the tenant was entitled to remain in possession of the demised premises.

The Court of Appeal ruling in Nicholls v Kinsey [1994] 1 EGLR 131confirmed that a contracting-out order made in respect of a lease would be invalid if it created anything other than a ‘term certain’.
The practical impact of the Newham ruling will be on due diligence says Dowden: “Anyone buying land subject to business tenancies will have to check the definition of term to ensure that the extension wording was been omitted if the leases were ‘contracted-out’. If a lawyer’s report on title states that leases are contracted-out, only to find that the term definition falls into the Newham trap, the client’s claim might well extend to the full cost of removing 1954 Act protected tenants, plus potential loss of chance or loss of bargain elements in a falling market.”

(14/01/09)
Legal News Analysis

Pressure build up for property agency legislation

Office of Fair Trading plans to launch a market study into home buying and selling is another costly exercise that will not reveal anything new, says Sharon Buthlay, property lawyer at CMS Ltd.
Buthlay says the study—which will examine the traditional estate agency models and alternative ways of buying and selling homes as well as the relationships between estate agents and mortgage brokers, surveyors, solicitors—is unnecessary.

She says: “There was 10 years of research and consultation into the property industry prior to the advent of the Home Information Pack. I don't believe it is needed as the market is already moving towards new alternatives.” For example, she says, there are now several online agencies—virtual agencies where an estate agent will provide a traditional service without the High Street office—and online agencies where the public can pay an up-front fee and sell their property privately.

“All of this creates competition in the market place. As competition tightens more agencies will adopt the virtual model and abandon their costly high street offices. Most buyers now search online for property and few bother to visit the estate agent so this model makes more sense,” she says.
The market study—to start early 2009—will take a comprehensive look at home buying and selling in terms of: competition on price and quality between service providers; the prospects for new entry by, eg, internet property retailers, and the extent to which consumer interests are protected by the existing regulatory framework.

Buthlay concedes that there are several ways in which the relationship between mortgage brokers/estate agents and conveyancing lawyers/conveyancers might be improved, particularly if more estate agents could be persuaded to embrace new technology such as email/online updates rather than relying on the post and telephone.

She says: “Many lawyers have invested in sophisticated case management systems that allow estate agents and clients to track their case online—many estate agents still call despite this.” There always has and possibly always will be a degree of antipathy between conveyancing lawyers and mortgage brokers/estate agents, she says. “The conveyancing lawyer is an independent adviser paid by the client to give independent advice and to act on the client's instructions. The advice may not always be to the liking of the mortgage advisor/estate agent who wants the sale to progress to completion so that they can be paid. While good working relationships are formed between conveyancing lawyers and other property professionals such as mortgage advisors and estate agents the conveyancing lawyer is duty bound to put the interests of their client first.”

Further education of the legal progress would be useful for mortgage advisors/estate agents who often do not understand the problems that are preventing the sale from progressing, she says.


She says there is plenty of scope to improve the existing regulatory framework which is “disjointed and does not work particularly well in favour of the consumer”. There should be one regulatory body such as the Law Society for solicitors, she says, all estate agent offices should be licensed and the partners should be put through criminal and credit checks.

“Every office should have professional indemnity insurance to protect the consumer. They should maintain a separate client account for client monies and this account should be audited by the regulators. Files of valuations/sales/prices/offers should be kept and these should be subject to spot checks by the auditors to ensure consumer interest is being complied with. Estate agency contracts should be standardised to avoid unfair contract terms.”

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