Boss Holdings v Grosvenor West End Properties and others [2008] UKHL 5

When is a house not a house?

In this case the tenant had an 18th 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

‘Mind The Registration Gap,’ or a case of ‘Who should Serve the Counter Notice?’ – Renshaw and others v Magnet Properties South East LLP

 

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

MAJORSTAKE LIMITED V CURTIS

How much of a property does a landlord have to wish to redevelop in order to defeat the tenant’s claim to a new lease under Section 47 of the 1993 Act?

Readers will probably be familiar with the fact that long leasehold flat owners have the right under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’) to extend their lease by a term of a 90 years on top of the unexpired term of their existing subject to having owned the property for a period of two years and subject to their lease being a for a term of 21 years or more as originally granted.

The right is subject to the payment of an appropriate premium calculated in accordance with the provisions of the 1993 Act or determined by the Leasehold Valuation Tribunal in default of agreement.

In Central London where there are numerous short lease properties (where leases were originally granted for terms of 40 or 50 years), it is often the case that a flat owner is looking to extend a lease under the 1993 Act where the expiry of the lease term will be within the next 5 years.

One of the only circumstances in which a landlord can refuse to admit what would be an otherwise valid claim to a new lease under the 1993 Act is on ‘redevelopment’ grounds under section 47 where the lease is in its last five years.

The landlord can only succeed if he can show that he intends to demolish or reconstruct or carry out substantial works of construction on the “whole or a substantial part of any premises in which the flat is contained”.

This phrase is at the heart of Majorstake Limited v Curtis [2008] UKHL 10.

In Majorstake the tenant served a Notice in circumstances where section 47 could apply (i.e. the lease had less than 5 years remaining).  The landlord attempted to deny the tenant’s claim on redevelopment grounds.

The landlord in this case owned several other flats in the building and proposed a scheme where the flat in question would be united with the flat immediately below. 

The landlord sought a declaration that the tenant was not entitled to a new lease.  The Central London County Court refused on the basis that meaning of “any premises in which the flat is contained” in Section 47 (2)(b) would have to refer to the entire block in which the flat was contained or at least a substantial part of it.

The landlords appealed to the Court of Appeal and succeeded.  The tenant then appealed to the House of Lords.

The House of Lords held that the question revolved around the meaning, not only of “premises” but also whether the works related to a “substantial” part of the building as a whole. 

The House of Lords held that giving the words in section 47 their natural and ordinary meanings, an intelligent layman reading them would conclude that the reference to the “whole or substantial part of any premises” would have to refer to more than simply the flat and one other flat in the building. This might relate to the block as a whole (although not all of the Judges agreed on this point).

The result; a landlord cannot defeat a tenant’s claim to a new lease under Section 47 simply by seeking to unite the flat in question with another flat within the building. 

Any intended works of redevelopment must relate to a substantial part of the property containing the flat and if not to the whole, at least to a very significant part of the building containing the flat.

Comment

In the decision in Majorstake the House of Lords have given a “purposive” interpretation of the objective of the 1993 Act by giving effect to its key objective of allowing long leasehold flat owners to protect the inherent value in the asset that is their flat striking a balance between the relative interests of landlords and tenants.

Any new lease granted under the 1993 Act will also contains a “no fault” right for the landlord to redevelop under Section 61.

This will apply if the landlord can demonstrate to a court that it intends to redevelop either within 12 months prior to the expiry of the old lease term or within five years of the expriy of the new lease term. In such a case the tenant receives compensation under schedule 14 of the 1993 Act which would amount to market value for the flat but not more. 

The reasoning for section 61 being so that one or more tenants with extended leases cannot hold a proposed development which might otherwise take place at the end of the majority of the leases in a building to ransom simply because they have longer terms than the other flats.

Exactly the same wording appears in Section 61 (1) (a) as within section 47 and the logic must be that the test laid down by the House of Lords would be applied here too.  For landlords, the message is clear that any proposed redevelopment, whenever it takes place, will have to be extensive in order to defeat the tenant’s claim to a new lease. 

The decision in Majorstake provides welcome clarity for those dealing with in Central London (and other) short lease properties where the prospect of redevelopment could be on the event horizon. The decision will perhaps provide a degree of reassurance to the tenant that any proposed redevelopment scheme will have to be substantial in order to lead to the termination of their new lease.

Mark Chick
5.4.2008 

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.