When is a house not a house?

The answer appears to be when it is on the Grosvenor Estate, used 88.5% as offices and has a lease clause that restricts the property to such use under the terms of the lease.

The latest case on what constitutes a house for the purposes of enfranchisement under the Leasehold Reform Act 1967 takes the question of ‘what is a house?’ a step further although, as the tenant has abandoned their proposed appeal to the House of Lords, we will not be treated to further judicial consideration of the question in this case.

The case in question is Grosvenor Estates Limited v Prospect Estates Limited [2008] EWCA Civ 1281.

In Prospect, the facts were that the building constructed in or around 1850 as a house. Since construction two floors had been added and at the date of the notice of claim in early 2007, the property was held under the terms of a lease for use as offices, with only the topmost floor being set aside for residential purposes.

The terms of the lease stated that the top floor was to be used for residential purposes only by a director, partner, officer or senior employee of the company person or firm in occupation of the remainder of the building.

On the facts 88.5% of the building was used for non-residential purposes under the terms of the lease. The building had been used in this way for the last 50 years.

At first instance the court had determined that the building was a house within the meaning of the 1967 Act. The landlord appealed.

The Court of Appeal reviewed the relevant authorities on this point and considered the applicable tests to be as follows:-

1. If a mixed-use building can reasonably be called a house, it remains a house within the meaning of the 1967 Act even if it could reasonably be called something else.

2. Whether it is reasonable to call something a house is a question of law.

3. If a building is adapted or designed for living in only in exceptional circumstances can it not reasonably be called a ‘house.’

The Court of Appeal (Mummery, LJ) considered that the above principles had been applied without taking into account the full factual circumstances. The requirement in the lease that the building should be used pretty much wholly as offices was persuasive. A consideration of the internal and external features was not enough.

Accordingly, at the relevant date the building was not a house within the 1967 Act and the tenant’s claim failed.

Mark Chick

9 March 2009

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