A key issue for tenants serving notice on their landlords to purchase their freehold or extend their lease under the provisions of the 1993 Act will always be the offer figure put forward in their initial notice. ‘If the offer figure is too low, the claim will be invalid’ is the conventional wisdom. But is this quite correct?

The starting point is the case of Cadogan v Morris [1996] 4 All ER 643 a Court of Appeal decision in which it was held that simply putting forward a nominal figure (such as a pound) which could not represent adequate compensation in the particular case would invalidate the notice. Following Morris tenants have been advised (no doubt correctly) to obtain valuation advice in order to ensure that they put forward a ‘reasonable offer figure.’

This point was considered further in 9 Cornwall Crescent (London) Limited v Kensington and Chelsea Royal London Borough [2005] EWCA 324, a case which concerned the landlord’s counter-notice and whether this could be invalid if the response figure was too high. The Court of Appeal considered that a subjective element of genuineness was all that was required for the landlord’s counter offer to be valid and that this would meet the subjective test in Morris that it should be made in ‘good faith.’

However, a decision of the Central London County Court from the end of last year (Magnet v Renshaw) shows a further degree of latitude, which may open the door further for the tenant whose offer figure is under attack for being too low.

In Renshaw (which is perhaps more well known for its guidance on who has the actual capacity to serve the counter-notice when the reversion is sold) the court also considered a challenge to the tenants’ offer figure. The court held that the 9 Cornwall Crescent requirement of ‘good faith’ applies equally to the tenant’s offer. In Renshaw the judge rightly said that valuation evidence was of itself not conclusive as to the bona fides of the person making the offer.

Following Renshaw it seems that the tenant’s offer figure could be one that is below the acceptable range of values (as might be ascertained by later valuation evidence) provided that it is made honestly and in good faith (and presumably therefore not merely a nominal figure).

What this means in practice, is that in cases where a tenant has made an offer (honestly, and perhaps without the benefit of valuation advice) that all may not be lost, notwithstanding perhaps a large disparity between the offer figure and the landlord’s counter-notice figure.

Mark Chick

27 August 2008

Mark Chick is a partner at Bishop & Sewell LLP, a committee member of ALEP and is a solicitor specialising in leasehold reform and landlord and tenant matters: www.bishopandsewell.co.uk.

An interesting case from the High Court from the back end of 2007 that appears to have escaped much notice is Typeteam (Typeteam Limited v Douglas James Acton and Sarah Louise Elizabeth Lea CH/07/PTA/0067).

This was a case concerning the assignment (or purported assignment of a Section 42 notice). In August 2006 Mr Rosner entered in to a contract to sell Flat 20, Cavendish Mansions, Mill Lane Hampstead to Mr Acton and Ms Lea. On the same day Mr Rosner served a valid section 42 notice on the landlords, Typeteam Limited.

The contract contained a provision requiring the benefit of the notice of claim to be assigned to the buyer on completion. The clause was in fairly standard terms. The parties also entered into a deed of assignment on the same day in relation to the notice.

However the deed of assignment contained wording to the effect that in consideration of the purchase of the flat, Mr Rosner:-

“hereby assignes unto the the buyers all that right and interest to obtain an extended lease of the property by virtue of service by the seller of the s.42 notice…”

Registration of the transfer completed on 21 September 2005. On 3 November 2005 the landlords served counter-notice expressed to be without prejudice to the contention that the claim had been deemed to be withdrawn by virtue of s.43 of the 1993 Act.

Section 43 of the 1993 Act provides in particular (Section 43(3)) that:

“Notwithstanding anything in subsection (1), the rights and obligations of the tenant shall be assignable with but not capable of subsisting apart from, the lease of the entire flat; and if the tenant’s lease is assigned without the benefit of the notice, the notice shall accordingly be deemed to have been withdrawn by the tenant as at the date of the assignment.”

The conventional wisdom is to rely on the provisions of s.27 of the Land Registration Act 2002 and to assume that the transfer cannot take effect at law until such time as the registration completes. Traditional transfer wordings therefore make mention of the fact that the transfer is not to take effect until such time as the registration completes and the notice is to vest in the buyer from that point.

Following service of the negative counter-notice the landlords commenced court proceedings for a declaration that the notice was deemed to be withdrawn on 7 July 2006. On 20 July 2006 Mr Rosner and the new owners entered into a deed of rectification seeking to rectify the assignment of the rights so that the deed of assignment should be read as if the assignment took place when the new owners became the registered owners of the flat.

In Typeteam Judge Cowell in the County Court heard argument from the landlords to that effect. However, he rejected this saying that in his view it was permissible to interpret section 43(3) as also including an equitable assignment so that there was no deemed withdrawal of the claim.

Whilst the landlords appealed the High Court agreed with the lower court and held that Mr Rosner had done ‘everything he could’ to pass the rights on to the buyer.

The court held that the clear intention of the parties was to assign the rights under the s.42 notice and that those rights should pass with the benefit of the lease. The assignment ‘could not take effect any other way.’

As such Sir Donald Rattee held that any other construction would have produced a ‘wholly unrealistic’ and ‘nonsensical’ result and held that on a ‘proper construction’ the lease was never assigned without the benefit of the s.42 notice and that the notice was not deemed withdrawn by virtue of Section 43(3).

This is an interesting case because it is not completely clear whether the decision tells us that an assignment will not fall foul of the provisions of Section 43(3) if it is expressed in such a way that it could take effect in equity only. The presence of the deed of rectification somewhat muddies the waters. However, notwithstanding the permissive view taken in this case, the standard precedent wording is clearly less likely to cause arguments.

Mark Chick

9 March 2009

When is a house not a house?

In this case the tenant had an 18^th Century Central London house. The property was originally designed as a house but had subsequently been used as commercial premises. As at the date that the notice of claim was served under the 1967 Act claiming the freehold to the house the upper floors were dilapidated and not habitable.

The court had to consider the question as to whether the property constituted a ‘house’ within the meaning of section 2(1) of the 1967 Act. The county court and the Court of Appeal both looked at the meaning of ‘designed or adapted for living in’ as at the date of the notice of claim.

The House of Lords disagreed. It was their view that whether the property was ‘designed or adapted for living in’ at the relevant date was not material and that the question should be considered having regard to whether the property had been designed or adapted in this way at the date it was built.

In this particular case nothing had happened to the building during its lifetime to substantially detract from the fact that the upper three floors had been set out for residential use.

There was an argument that the property had been adapted for mixed business and residential use but if this did not affect the outcome of the appeal. A property does not need to be adapted solely for living in to be a house.

This is an important decision, but one key point to note is that the question as to whether a building originally designed for living in but subsequently adapted to another use would qualify for the purposes of the 1967 Act has not yet been answered. It is my view that it would not, but we will have to wait and see.

Mark Chick

31 March 2008

The registration gap (the so-called interval between completion of a purchase and completion of the registration of the buyer’s title at the land registry) has the scope to cause a variety of problems in the field of leasehold reform as a decision of the Central London County Court from September of last year, Renshaw and others v Magnet Properties South East LLP quite clearly demonstrates.

In this particular case the enfranchising tenants had served a notice under Section 13 of the 1993 Act and the landlord had subsequently exchanged contracts for the sale of the freehold subject to the tenant’s notice of claim.

The purchaser (having completed its purchase, but before registration had completed) served a landlord’s counter notice under Section 21 admitting the tenants’ claim but disputing the price to be paid. The tenants brought an action under s.25 of the 1993 Act on the basis that no valid counter notice had been served and the court was asked to decide (among other things), whether the landlord’s counter notice in response was valid. The court held that it was not.

The court’s reasoning was based on the fact (as argued by the tenants) that Section 27 of the Land Registration Act 2002 states very clearly that no disposition will take effect at law (regardless of the position in equity) until it has been registered.

As a result of this the freehold owner (whose title was not at that time registered) lacked the relevant standing to serve the notice. The court also stated that it had come to this view on the basis that the tenants were entitled to rely on the register for information concerning the ownership of the freehold. It would always be open to a purchaser to protect itself by requiring that the Seller serve any counter notice that was required at its direction as a term of the contract.

The purchaser advanced an argument based on s.19(3) of the 1993 Act. This section states that if the reversion is assigned during the course of a claim to the freehold that all the relevant parties are to be in the same position as if the purchaser had been the owner before the notice was given. In other words the situation is to be as if he had in all respects ‘stepped into the shoes’ of the seller. The thrust of the purchaser’s argument was to assert that s.19 could retrospectively ‘validate’ anything done by the buyer on behalf of the seller. However, the court rejected this argument.

Conclusion

This is a cautionary tale for anyone acting for a landlord purchasing in circumstances where an initial notice has been served under s.13.

To protect the client’s position a contractual provision must be sought requiring the seller to serve a counter notice at the buyer’s direction in the event that the response date is likely to fall during the ‘registration gap.’    

Mark Chick

25.03.2008