British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Cadogan Estates Ltd v Morris [1998] EWCA Civ 1671 (4 November 1998)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/1671.html
Cite as: [1998] EWCA Civ 1671, [1999] 1 EGLR 59
[New search] [Printable RTF version] [Help]
IN
THE SUPREME COURT OF JUDICATURE
CCRTF
98/0162 CMS2
COURT
OF APPEAL (CIVIL DIVISION
)
ON
APPEAL FROM THE WEST LONDON COUNTY COURT
(MR
RECORDER KALLIPETIS QC
)
Royal
Courts of Justice
Strand,
London, WC2A 2LL
Wednesday
4th November 1998
B
e f o r e :
LORD
JUSTICE STUART-SMITH
LORD
JUSTICE OTTON
LORD
JUSTICE TUCKEY
(1) THE
RT.HON. CHARLES GERALD JOHN EARL CADOGAN
(
formerly
Viscount Chelsea
)
(2) CADOGAN
ESTATES LIMITED
Appellants
v.
HUGH
FRANCIS MORRIS
Respondent
(Handed
down transcript of
Smith
Bernal Reporting Limited
180
Fleet Street, London EC4A 2HD
Tel:
0171 421 4040 Fax: 404 1424
Official
Shorthand Writers to the Court)
MR
ANTHONY RADEVSKY (instructed by Messrs Lee & Pembertons) appeared on behalf
of the Appellants (Plaintiffs).
MR
GARY COWEN (instructed by Messrs Wood Winfield) appeared on behalf of the
Respondent (Defendant).
J
U D G M E N T
(As
approved by the court)
©Crown
Copyright
LORD
JUSTICE STUART-SMITH:
Introduction
1. This
is an appeal from an order of Mr Recorder Kallipetis QC made on 21 January 1998
in the West London County Court whereby he upheld the validity of the
tenant’s notice served under the provisions of the Leasehold Reform,
Housing and Urban Development Act 1993 (the Act). At the hearing below the
respondent, who I shall refer to as the tenant, challenged the jurisdiction of
the court to determine the validity of the notice. The Recorder held that he
had jurisdiction and there is no cross-appeal.
2. The
facts were not in dispute. In June 1990 the tenant took an assignment of the
residue of a 30 year lease of Flat 32, 5 Sloane Court East, London SW3 (the
flat). The contractual term was due to expire on 22 December 1994. The tenant
served the notice pursuant to s.42 of the Act on 6 September 1994. The notice
specified that the premium that the tenant proposed to pay for the grant of a
new lease was £100. The appellants, who I shall refer to as the landlord,
while not accepting the validity of the tenant’s notice, served a
counter-notice.
3. The
tenant inserted the figure £100 knowing that it was a ‘formal
nominal figure’ having been professionally advised that this was
acceptable. It was a deliberate decision. The figure bore no relation to the
realistic figure, which lay probably between £100,000 and £300,000.
The claim is for a 90 year lease from 23 December 1994 at a peppercorn rent
(s56 and Schedule 13 of the Act). It is obvious therefore that any premium
will be very substantial.
The
statutory provisions
4. The
Act gives qualifying tenants, essentially those holding a long lease at a low
rent, two important rights. Chapter 1 of Part 1 introduced the right to
collective enfranchisement, namely the right of a sufficient majority of
tenants to acquire the freehold. Chapter II of Part 1 granted a qualifying
tenant an individual right to a new lease (s39(1)). The new lease is in
substitution for the old lease. The value of the new lease will vary depending
to a considerable extent on how much of the old lease remains unexpired. If
the existing lease has a long time to run, then the premium payable may be
quite small. But if, as in this case, the old lease is nearly expired, what is
being purchased is 90 years at a peppercorn rent. Something which is clearly
very valuable.
5.
A
claim to a new lease is made by notice under s.42(1). There is no prescribed
form. But the notice must contain specified information. S.42(3) provides
that:
"(3)
The tenant’s notice must -
(a) state
the full name of the tenant and the address of the flat in respect of which he
claims a new lease under this Chapter;
(b)
contain
the following particulars, namely-
(i)
sufficient particulars of that flat to identify the property to which the claim
extends,
(ii)
such particulars of the tenant’s lease as are sufficient to identify it,
including the date on which the lease was entered into, the term for which it
was granted and the date of the commencement of the term,
(iii)
such further particulars as are necessary to show that the tenant’s lease
is, in accordance with section 8 ((as that Section applies in accordance with
39(3)), a lease at a low rent [or, in accordance with section 8A (as that
section so applies), a lease for a particularly long term], and
(iv)
particulars of the period or periods falling within the preceding ten years for
which the tenant has occupied the whole or part of the flat as his only or
principal home;
(c)
specify
the premium which the tenant proposes to pay in respect of the grant of a new
lease under this Chapter and, where any other amount will be payable by him in
accordance with any provision of Schedule 13, the amount which he proposes to
pay in accordance with that provision;
(d)
specify
the terms which the tenant proposes should be contained in any such lease;
(e)
state
the name of the person (if any) appointed by the tenant to act for him in
connection with his claim, and an address in England and Wales at which
notices may be given to any such person under this Chapter; and
(f)
specify
the date by which the landlord must respond to the notice by giving a
counter-notice under section 45.
The
date specified for the landlord’s response must be not less than two
months (ss.5). The particulars required in s.42(3)(b) are designed to show
whether the tenant qualifies for a claim.
6. S.45
provides that the landlord can serve a counter-notice, provided he does so
within the time specified in the tenant’s notice. The counter-notice
must state whether the landlord admits that the tenant qualifies for the right
to acquire a new lease or does not admit that right, or that the landlord
proposes to redevelop. If he admits the tenant’s right, his
counter-notice must specify which of the tenant’s proposals are accepted
and, in relation to any proposal not accepted, specify the landlord’s
counter-proposals (s.45(2) & (3).
7.
S.49(1)
provides that where a counter-notice has not been served in accordance with
s.45(1) the court may, on application by the tenant, make an order determining,
in accordance with the proposals contained in the tenant’s notice, the
terms of the acquisition. We are told by counsel that there has been a
difference of view among County Court judges as to whether the court is bound
to grant a new lease on the terms of the tenant’s proposals, if the
landlord fails to serve a counter-notice in time; or whether it has a
discretion. Mr Cowen, counsel for the tenant, submitted that the court was
obliged to do so and had no discretion. It is unnecessary for this court to
resolve that question. Suffice it to say that if Mr Cowen is right, should the
landlord for whatever reason fail to serve a counter-notice in time, he will
find himself granting a 90 year lease at a peppercorn rent for £100 - if
Mr Cowen’s main contention in this appeal is correct.
8.
The
Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations
1993. S1.No.2407 (the Regulations) were made pursuant to s.98 of the Act.
Schedule 2 is concerned with lease renewals. Paragraph 2(1) provides that the
landlord may give the tenant notice requiring payment of a deposit at any time
when the tenant’s notice continues in force. By paragraph 2(2) the
amount of the deposit is £250 or 10% of the amount proposed in the
tenant’s notice payable on the grant of the lease in accordance with
Schedule 13 - whichever is the greater. By paragraph 3(3) if the deposit has
to be returned to the tenant the landlord is entitled to deduct his costs as
prescribed under s.60 of the Act. These costs can be substantial, including
the cost of obtaining a valuation of the tenant’s flat for the purpose of
fixing the premium. This is a valuable right to the landlord, because we are
told by counsel that not infrequently the tenant, for one reason or another,
does not continue with the claim.
9.
One
further statutory provision should be referred to at this stage. Schedule 12,
paragraph 9(1) provides:
"The
tenant’s notice shall not be invalidated by any inaccuracy in any of the
particulars required by section 42(3) or by any misdescription of any of the
property to which the claim extends."
It
was submitted to the Recorder by Mr Cowen, and also to this court as an
alternative to his principle argument on construction, to which I shall come
shortly, that if the £100 proposal did not satisfy s.42(3)(c), it was an
inaccuracy in the particulars and was therefore cured under this paragraph. It
is not entirely clear whether the Recorder accepted this submission. There is
considerable discussion in his judgment as to whether it amounted to an
inaccuracy or an omission. In my judgment paragraph 9(1) has no application to
s.42(3)(c) or indeed any of the other requirements of s.43(3) other than those
which are specifically called particulars, that is to say those in s.43(3)(b).
This is so as a matter of ordinary construction, quite apart from the fact that
in my view the expression inaccuracy is hardly appropriate to be used in
relation to what must be specified or stated in subparagraph (c)-(f) of s.43(3).
10.
Mr
Radevsky, on behalf of the landlord submits, that the proposal as to premium
must be a bona fide and genuine one, not just a nominal figure or one that
bears no relation to the true value. He submits there are good reasons for this.
11.
The
notice is the start of the procedure, which ideally will lead to the parties
agreeing the terms of the new lease. The Act is designed to encourage parties
to reach an agreement and, if they do so, time and money is saved. Only in
default of agreement does the matter have to be determined by the Leasehold
Valuation Tribunal. If a realistic offer is made at the outset, the landlord
can accept it, without spending time and expense on valuations or negotiations.
And the fact that he may recover most of these costs from the tenant under
s.60, does not alter the policy of the Act. We are told by Mr Radevsky that
not infrequently when tenants realise what they are going to have to pay for
the new lease, they no longer wish to continue. It is better from
everyone’s point of view that this should be realised at the outset, with
consequent saving of costs.
12.
The
process is one of compulsory purchase if the tenant is able and willing to do
so. Effectively the landlord is compelled to offer the new lease for sale to
the tenant, if he qualifies. In the same way as in any other transaction of
purchase and sale, the purchaser should make a realistic offer, though not
necessarily his final offer.
13.
The
sum proposed by the tenant by way of premium determines the amount of the
deposit. While it is not permissible to construe primary legislation in the
light of subordinate legislation, it seems to me that the provision in the
regulations relating to deposits would be effectively negated if Mr Cowen is
right. No-one will ever pay a deposit of more than £250. This is a
valuable right to the landlord. Although of course he may have other remedies
for recovering his Section 60 costs, it can be very difficult in the case of a
tenant who has gone out of possession; it may not be worth the trouble and
expense of pursuing him for a few thousand pounds.
14.
It
is at least arguable that s.49(1) has the effect that the court must grant a
new lease in accordance with the tenant’s proposals set out in the
notice. It would be a very harsh result if for whatever reason the landlord
failed to serve a counter-notice in what is a very short time span, to find
that he had to grant a 90 years lease for virtually nothing.
15.
Mr
Cowen submits that there is no warrant for introducing some such words as bona
fide and genuine into s.43(3)(c). The purpose of the provisions is merely to
initiate a process of negotiation, and for this purpose it matters not whether
a nominal or realistic figure is proposed. He also submitted that if the
appellant’s contention was correct the County Court would be beset with
the difficult question of assessing whether the proposal was genuine and
realistic or not. Suppose for example the tenant in this case put forward
£50,000, knowing that at the end of the day he might well have to go to
something like £200,000; would that be sufficient? This was an argument
that weighed heavily with the Recorder, indeed as I understand it, it was the
decisive consideration. Mr Cowen also contended that valuation was the
province of the Leasehold Valuation Tribunal, and if the court had to determine
whether or not the offer was realistic, it would in some way encroach on the
Tribunal’s jurisdiction or the court might have to refer the case to the
Tribunal for a preliminary opinion.
16.
Finally,
Mr Cowen contrasted the provisions of s.42 with the corresponding provisions of
s.13 which deal with the question of collective enfranchisement and notice to
be given by those proposing to purchase. As originally drafted s.13 contained
a subsection which required that a notice should not be given unless the
qualifying tenants had obtained a valuation prepared by a qualified surveyor of
the relevant interests and the notice had to specify that this was done and the
name of the surveyor (s.13(6)). Mr Cowen contended that this indicated, by
contrast with s.42, that the proposed purchase price which had to be specified
(s.13(3)(d)), was to be a realistic and genuine one. Quite apart from the fact
that subsection (6) of Section 13 was subsequently repealed in the Housing Act
1996, the conclusion does not in my view follow from the premise. Parliament
may have thought there were good reasons for requiring a valuation to be
obtained in the case of collective enfranchisement, not least because the
valuation is likely to be very substantial, whereas in the case of a lease
renewal, for reasons I have already explained, it may not always be so. But if
s.13(3)(d) requires a bona fide and genuine proposal as to a purchase price, as
Mr Cowen concedes, I cannot see why the same should not apply to s.42(3)(c).
17. I
do not consider it is necessary to read any words into s.42(3)(c). The tenant
is required to specify the premium that he proposes to pay. He did not do so;
he deliberately specified a figure which he did not propose to pay. I do not
think the tenant is required to offer his final figure which he may be prepared
to go to, but he should in my view offer a realistic figure. The judge was
troubled by the difficulty in telling whether the offer was a realistic one. I
very much doubt whether in practice this will prevent the difficulties that the
judge envisaged. It ought to be possible both for the landlord and the judge
to recognise whether the offer is a realistic one or simply a nominal or wholly
unrealistic one. The landlord would need to be on fairly firm ground if he
sought to challenge a substantial offer, even if he thought it was considerably
too low. The court will obviously allow a fairly wide margin. If the landlord
unsuccessfully challenges the validity of the notice, he will find himself
paying the costs. On the other hand, even if it is the tenant’s opening
bid, it should in my view be a realistic one. I decline to lay down any more
precise guidelines. In this I follow what
Sir
John Donaldson MR
said in
Cresswell
v Duke of Westminster
[1985] 2 EGLR 151 at 152:
"Where
we draw the line I do not know, I doubt whether it is in anybody’s
interest that I should attempt to draw that line. Many cases will answer the
question on their own facts."
This
seems to me to be an application of the well known elephant test. It is
difficult to describe, but you know it when you see it. I think we can trust
to the good sense of landlords not to make frivolous applications and County
Court judges to take a robust line and not get enmeshed in hearing detailed
evidence. A brief enquiry, if necessary with limited evidence from tenant and
landlord should suffice.
18. I
also consider that when the landlord makes counter proposals in his
counter-notice (see s.45(3)(b)) this too should be a realistic figure and not
an absurdly high one, which might have the effect of intimidating the tenant.
If the landlord does not give a valid counter-notice in the time allowed, the
consequences in s.49(1) will result. But here again there is no reason why the
landlord should not specify the highest figure that he realistically hopes to
get.
19.
For
these reasons I would allow the appeal and hold that the tenant’s notice
was invalid.
LORD
JUSTICE OTTON: I agree.
LORD
JUSTICE TUCKEY: I also agree.
Order:
Appeal
allowed with costs here and below.