England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 97/1250/1

(Mr Justice Astill) Royal Courts of Justice

Strand, London WC2

Thursday, 21st May 1998

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE PETER GIBSON and

SIR PATRICK RUSSELL

---------------

SHEFFIELD CITY COUNCIL Plaintiff/Appellant

-v-

RONALD AND MARY MARGARET JACKSON

and Others Defendants/Respondents

---------------

Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited

180 Fleet Street London EC4A 2HD

Tel: 0171 421 4040 Fax: 0171 831 8838

(Official Shorthand Writers to the Court)

---------------

MISS B A ROGERS (instructed by Mr Mark Webster, City Solicitor and Head of Administration, Sheffield City Council) appeared on behalf of the Appellant Plaintiff.

MISS A HAMPTON (instructed by Messrs Irwin Mitchell, Hartshead, Sheffield) appeared on behalf of the Respondent Defendants.

---------------

J U D G M E N T

(As Approved by the Court)

Crown Copyright

Thursday, 21st May 1998

LORD JUSTICE NOURSE: This is a dispute about the liability for service charges of owners of houses on the Jordanthorpe Estate in Sheffield whose freeholds have been purchased under "the right to buy" provisions of part V of the Housing Act 1985. On 24th July 1997 Mr Justice Astill, on the trial of a preliminary issue, held that a covenant by the purchaser in a standard form of conveyance to contribute to the costs incurred by the Sheffield City Council in "the upkeep of landscaping" was unenforceable on the ground that it was unreasonable. The Council now appeal against the judge's decision.

The principal defendants to the action are Ronald Jackson and his wife Mary Margaret Jackson. On 21st March 1987, as secure tenants, they began renting from the Council 23 Selly Oak Road on the Jordanthorpe Estate. By a conveyance dated 5th June 1989 and made between the Council of the one part and Mr and Mrs Jackson of the other part 23 Selly Oak Road was conveyed to Mr and Mrs Jackson for an estate in fee simple pursuant to the right to buy provisions of the 1985 Act at a price of £10,105. By clause 5(2) of the conveyance Mr and Mrs Jackson (for themselves and their successors in title) covenanted with the Council to pay to the Council:

"such reasonable contribution as the Council shall from time to time require (hereinafter referred to jointly as ´Contributions' and individually as a ´Contribution') to the costs expenses and outgoings lawfully incurred or to be incurred by the Council in respect of the upkeep or regulation for the benefit of the locality (that is to say the Housing Estate of the Council) of which the Property forms part or any part of such locality of any land building structure works ways or watercourse such Contributions to be made in respect of such of the benefits to the said locality or part thereof of the type described in the column headed ´The Benefit Referred to' of the SCHEDULE OF BENEFITS hereto annexed as are indicated by means of a tick or the word ´Yes' or other affirmative indication in the column headed ´Where applicable or not' as being applicable to such locality or part thereof and such Contributions to be determined in accordance with Part IV of the said Schedule hereto and collected by the City Treasurer or other duly authorised officer of the Council."

Part IV of the schedule to the conveyance contained regulations to be applied under clause 5(2) in relation to the contributions for which provision was thereby made.

The schedule of benefits annexed to the conveyance had the following sub-heading:

"Being a list of benefits enjoyed by the estate upon which the Property is situated towards the cost of which the Purchaser(s) will contribute in accordance with the provisions of Clause 5(2) of the Conveyance/Transfer".

The relevant applicable benefit was described as "Upkeep of landscaping and play areas", for which the basis of charge was expressed to be "Annual expenditure allocated in proportion to the number of properties served". The estimated cost of that benefit was stated to be £19.02, to which was added an administrative charge of £5, making a total of £24.02.

There are four other defendants to the action, each of whom has acquired the freehold of a house on the Jordanthorpe Estate by a conveyance in the same form. Indeed, that has been the standard form for all conveyances made by the Council pursuant to the right to buy provisions of the 1985 Act. Although there are similar disputes in many other parts of Sheffield, some of which it was hoped might also be dealt with, this action was restricted by the judge to freehold houses on the Jordanthorpe Estate. The claim made against Mr and Mrs Jackson is for £53.72 in respect of service charges between 1989 and 1992, the charge for landscaping running at about £14 a year as opposed to the estimate of about £19. We have been told that the total arrears of service charges outstanding in respect of the Jordanthorpe Estate are approximately £15,655 and in respect of Sheffield as a whole approximately £868,300.

This action was commenced in the Sheffield County Court on 19th January 1993. Subsequently, it was transferred to the High Court. Shortly stated, the principal defences raised are the following:

(1) The covenant to pay service charges is void for uncertainty, further or alternatively, is unenforceable on the ground of unreasonableness.

(2) The Council have not shown that the charges have been reasonably incurred.

(3) The works have not been carried out to a reasonable standard.

By an order made by District Judge Lambert on 20th March 1996 it was ordered that the issue raised by the first of those defences should be tried as a preliminary issue. The trial of the issue took place before Mr Justice Astill on 18th and 19th June and 11th July 1997, when judgment was reserved. In giving judgment on 24th July, the judge held that the covenant was not void for uncertainty. On the question of unreasonableness, he rejected all the arguments raised by the defendants, except for one. That, however, was enough to entitle them to succeed.

The convenient course is to go at once to the provision of the 1985 Act on which the outcome of the appeal principally depends. Section 139(1) provides that a conveyance of the freehold executed in pursuance of the right to buy shall conform with parts I and II of schedule 6. Paragraph 5, in part I of that schedule, provides:

"Subject to paragraph 6, and to Parts II and III of this Schedule, the conveyance or grant may include such other covenants and conditions as are reasonable in the circumstances."

It is agreed that the covenant contained in clause 5(2) of the conveyance is a covenant falling within that paragraph. However, the Council's primary contention is that the reasonableness of any such covenant can only be challenged by the purchaser before he enters into it on the execution of the conveyance. Once the conveyance has been executed, the challenge comes too late. In order to assess the validity of that contention it is necessary to consider several other provisions of the 1985 Act with some care.

A start can be made with section 125, subsection (1)(a) of which provides that where, as here, a secure tenant has claimed to exercise the right to acquire the freehold and that right has been established the landlord shall within eight weeks serve on the tenant a notice complying with the section. Subsection (2) provides that the notice shall describe the dwelling-house, shall state the price at which, in the opinion of the landlord, the tenant is entitled to have the freehold conveyed to him and shall, for the purpose of showing how the price has been arrived at, state, amongst other things, "(a) the value at the relevant time". Subsection (3) provides:

"The notice shall state the provisions which, in the opinion of the landlord, should be contained in the conveyance or grant."

Subsection (4)(a) provides that where the notice states provisions which would enable the landlord to recover service charges from the tenant the notice shall also contain the estimates and other information required by section 125A.

The Council duly complied with section 125 in Mr and Mrs Jackson's case, their notice proposing a price of £10,105 and stating that the conveyance would include a power to recover service charges. The notice continued:

"In accordance with Section 125(4) and the Housing Act 1985 the attached schedule of Benefits states (a) the Council's estimate of the average annual amount (at current prices) which would be payable in respect of each head of charge (b) the aggregate of these estimated amounts."

The attached schedule of benefits was in the same form as the schedule of benefits later annexed to the conveyance of 5th June 1989. Mr and Mrs Jackson accepted the price proposed and the other provisions referred to in the Council's notice.

On receipt of a notice under section 125, the tenant has the right to have the value of the house redetermined under section 128, subsection (1) of which provides that any question arising under part V as to the value of a dwelling-house at the relevant time shall be determined by the district valuer in accordance with that section. I will read subsection (2), which in due course will be seen to be material to the Council's primary contention:

"A tenant may require that value to be determined, or as the case may be redetermined, by a notice in writing served on the landlord not later than three months after the service on him of the notice under section 125 (landlord's notice of purchase price and other matters) or, if proceedings are then pending between the landlord and the tenant for the determination of any other question arising under this Part, within three months of the final determination of the proceedings."

Section 127(1) provides that the value of a dwelling-house at the relevant time shall be taken to be the price which at that time it would realise if sold on the open market by a willing vendor (a) on the assumptions stated for a conveyance in subsection (2) and (c) on the assumption that any service charges payable will not be less than the amounts to be expected in accordance with the estimates contained in the landlord's notice under section 125. The assumptions in subsection (2) include:

"(c) that the dwelling-house was to be conveyed with the same rights and subject to the same burdens as it would be in pursuance of this Part."

In other words, it is clear that an obligation on the tenant such as was contained in clause 5(2) of the conveyance is one which must be taken into account in assessing the value of the house and thus the price at which it is to be acquired.

I have already referred to section 139(1), which provides that the conveyance shall conform with parts I and II of schedule 6. Part I (paragraphs 1 to 8) contains provisions applicable to both conveyances of freeholds and grants of leases. Part II (paragraphs 8 to 10) contains provisions applicable to conveyances of freeholds. Part III (paragraphs 11 to 19) contains provisions applicable to grants of leases. The majority of the provisions are directed to what should or should not be included in a conveyance or the grant of a lease. Thus paragraph 1 provides that, with certain exceptions, the conveyance or grant shall not exclude or restrict the general words implied under section 62 of the Law of Property Act 1925. Paragraph 3(a) provides that the conveyance or grant shall include such provisions (if any) as the tenant may require for the purpose of securing to him rights of way over land not comprised in the dwelling-house, so far as the landlord is capable of granting them, "being rights of way that are necessary for the reasonable enjoyment of the dwelling-house". Paragraph 4 provides that the conveyance or grant shall include such provisions (if any) as the landlord may require to secure that the tenant is bound by, or to indemnify the landlord against breaches of, restrictive covenants.

I have already read the all-important paragraph 5. Paragraph 6 provides:

"A provision of the conveyance or lease is void in so far as it purports to enable the landlord to charge the tenant a sum for or in connection with the giving of a consent or approval."

The form of paragraph 6 is significant. It does not provide that a provision of the kind referred to shall not be included in a conveyance or grant. It provides that, if it is included, it shall be void. Provisions applicable to leases and in similar form are found in paragraphs 17, 18 and 19. Thus paragraph 17 provides that a provision of the lease is void in so far as it purports to prohibit or restrict the assignment of the lease or the sub-letting, wholly or in part, of the dwelling-house.

Next I refer to sections 167 and 168, to which the marginal notes are "Power to give directions as to covenants and conditions" and "Effect of direction under s.167 on existing covenants and conditions" respectively. Section 167(1)(a) provides that where it appears to the Secretary of State that, if covenants or conditions of any kind were included in conveyances executed in pursuance of the right to buy, the conveyances would not conform with parts I and II of schedule 6:

"he may direct landlords generally, landlords of a particular description or particular landlords not to include covenants or conditions of that kind in such conveyances or grants executed on or after a date specified in the direction."

So far as material, section 168 provides:

"(1) If a direction under section 167 so provides, the provisions of this section shall apply in relation to a covenant or condition which -

(a) was included in a conveyance or grant executed before the date specified in the direction, and

(b) could not have been so included if the conveyance or grant had been executed on or after that date.

(2) The covenant or condition shall be discharged or (if the direction so provides) modified, as from the specified date, to such extent or in such manner as may be provided by the direction; and the discharge or modification is binding on all persons entitled or capable of becoming entitled to the benefit of the covenant or condition."

Thus the combined effect of sections 167 and 168, so far as material, is that where a conveyance does not conform with parts I and II of schedule 6, for example because it includes a covenant which is in breach of paragraph 5 on the ground of unreasonableness, the Secretary of State has power to discharge the covenant.

Finally in relation to the Council's primary contention, I must refer to section 181(1) which, in the form in which it stood in 1989, provided:

"A county court has jurisdiction -

(a) to entertain any proceedings brought under this Part, and

(b) to determine any question arising under this Part or under a shared ownership lease granted in pursuance of this Part

but subject to sections 128 and 158 (which provide for matters of valuation to be determined by the district valuer)."

Basing herself on the other provisions of the 1985 Act to which I have referred, Miss Rogers, for the Council, argues that it is clear that a challenge to the reasonableness of a covenant falling within paragraph 5 of schedule 6 can only be made to the County Court under section 181(1)(b) before the conveyance is executed or, after execution, to the Secretary of State under sections 167 and 168. In support of that argument, she relies on the following considerations, which I state in what appears to me to be their logical sequence. First, section 127 provides that the value of a dwelling-house shall be assessed by reference, amongst other things, to the burdens to which it is conveyed pursuant to the Act; in other words, with a discount being made by reason of a covenant to pay service charge. The price of the house being fixed by reference to the value so assessed, Miss Rogers submits that it cannot have been intended, in the absence of specific provision, that the reasonableness of the covenant should be capable of being reopened after the conveyance has been executed.

Secondly, Miss Rogers points to the tenant's right under section 181(1)(b) to object to the proposed covenant on an application to the County Court and she relies on section 128(2) as showing that if, at the time that a tenant requires the value of the house to be redetermined, proceedings are then pending for the determination of any other question, the redetermination of the value is not to take place until after those proceedings have come to an end. Thirdly, Miss Rogers relies on the form of paragraph 5 of schedule 6 which, in contrast to the form of paragraphs 6, 17, 18 and 19, does not provide for an unreasonable covenant to be automatically void. Fourthly, Miss Rogers relies on the specific power of the Secretary of State to discharge a covenant under sections 167 and 168 which, she submits, demonstrates that there is no other route by which a covenant falling within paragraph 5 can be invalidated after the conveyance has been executed.

The contrary argument of Miss Hampton, for the defendants, is to the following effect. She says, correctly, that the 1985 Act contains no express time limit for a challenge to the reasonableness of a covenant. Further, she submits that it contains no express provisions from which such a limit can be inferred. On the contrary, section 139(1) effectively directs that a conveyance shall not contain an unreasonable covenant. Miss Hampton also submits that because a right to buy purchaser is exercising a statutory right the purchase is not a commercial transaction, the landlord being obliged to sell to the tenant whether it wishes to do so or not. She refers to the well known reluctance of certain authorities to permit the sale of their housing stock to their tenants, from which she argues, at all events where there is any doubt about it, that the statutory provisions should be construed favourably to purchasers. She then relies on analogies with modern consumer protection legislation, in particular on an analogy with section 6(3) of the Unfair Contract Terms Act 1977.

Although counsel have told us that this question was fully argued on both sides before Mr Justice Astill, he dealt with it only briefly at the end of his judgment. Having held that the covenant was and always had been unreasonable and that it should cease to have effect, the judge said:

"In those circumstances, and although it should have been challenged before the Conveyance was entered into, the Defendants are entitled to challenge it now. If they were not permitted to do so they would be condemned, as would be their successors in title, to obey the terms of an unreasonable covenant which should never have been entered into."

The only authority known to counsel which touches on this question is Coventry City Council v Cole [1994] 1 WLR 398, where right to buy lessees claimed that a service charge in their lease at a fixed annual rate, subject to escalation by reference to a price index, was unenforceable against them. It was held by this court that the covenant to pay the charge fell outside paragraph 16A of schedule 6 to the 1985 Act and therefore outside the scope of paragraph 18. It was also held that the covenant did not infringe paragraph 11.

Although the question with which we are here confronted was not decided by this court in Coventry City Council v Cole , it was decided by His Honour Judge Harrison-Hall QC at first instance. We have been supplied with a transcript of his judgment, from which I read two passages. The first is at p.3C:

"I should say that the broad scheme of the Act is that there are provisions whereby the tenants can establish a right to buy. If they do establish it then they must negotiate and failing that a lease will be imposed by the court. The lease should be negotiated. If they consider during the course of negotiations that a particular clause is unreasonable then there is a provision to go to the County Court at that stage when the County Court may or may not modify that and other provisions at the same time, and the tenant then can either accept the whole deal as the Court has modified it or the tenant can refuse it. So there is full provision here for negotiation and ultimately for the court to decide what is reasonable in the particular circumstances."

The second passage starts at p.6F, where the judge, having read paragraph 5 of schedule 6, said of the covenant in that case:

"As to whether this is a reasonable one or not, it seems to me the appropriate time to take that if there are questions of fact involved is to take it when the covenant is submitted by the landlord for the tenant's approval. In this case it was. In this case both tenants executed the lease, while I gather under protest, but that means nothing. They signed it, and the appropriate step then was to challenge the reasonableness of that in the County Court before the lease was executed and then have the right of an objection if it went against them at that stage."

So one of the grounds of Judge Harrison-Hall's decision was that the question whether a covenant was reasonable could only be raised before the lease was executed.

When Coventry City Council v Cole reached this court the decision was based on the different grounds I have stated. However, at [1994] 1 WLR 408G Neill LJ, with whose judgment Steyn and Rose LJJ agreed, said:

"Schedule 6 and the protection which it confers on a tenant have to be looked at in the context of the statutory control relating to variable charges. The reasonableness of a fixed charge can be examined at the time when the long lease is being negotiated. Assuming the fixed charge is reasonable the tenant is protected over the whole period of the lease from fluctuating and unpredictable costs. His only exposure to risk is in the risk attendant on a clause which depends on inflation."

In the context of Judge Harrison-Hall's decision, Miss Rogers submits that, if anything, those observations support her argument. That may or may not be so. On the whole, I think they are neutral.

In my judgment the argument of Miss Rogers, supported by her analysis of the material provisions of the 1985 Act and the views of Judge Harrison-Hall, is to be preferred to the more generalised submissions of Miss Hampton. Bearing in mind that a covenant by the tenant falling within paragraph 5 of schedule 6, especially one to pay service charge, will place a burden on the tenant and that that burden is specifically required by section 127 to be taken into account in assessing the value of the house and thus the price to be paid for it, I do not think it is permissible, in the absence of a specific provision to that effect, to construe the 1985 Act as allowing a tenant who has entered into the covenant by executing a conveyance to secure his release from it except under the provisions of section 167 and 168. Further, although this point has not been specifically taken by Miss Rogers, I find great difficulty in seeing how, in the absence of some specific provision, the tenant could be released from his covenant and at the same time be able to affirm the remainder of the transaction. That confirms my view that the challenge can only be made before the conveyance is executed.

Miss Rogers is also entitled to claim support from the contrast between paragraph 5 of schedule 6 and paragraphs 6, 17, 18 and 19. Not only is it not provided that an unreasonable covenant or condition shall be void. It is specifically provided that certain other provisions shall be void. This contrast can only point to an intention that once a covenant has been entered into it shall be binding on the tenant, subject only to sections 167 and 168. I also find confirmation of this view in paragraph 3(a) of schedule 6, which is linked to tests of necessity and reasonableness. It can hardly have been intended that rights of way granted to a tenant should be capable of being reopened after execution of the conveyance.

For these reasons, I would hold that the defendants cannot now challenge clause 5(2) of the conveyance on the ground of unreasonableness. As I have said, the judge rejected all the defendants' arguments on that question, except for one, which was that the landscaping was of benefit not just to the residents of the Jordanthorpe Estate but to the residents of Sheffield as a whole. By way of a respondent's notice the defendants have raised the other grounds of unreasonableness on which they relied below. It being unnecessary on the view expressed on the first question to determine the question of reasonableness, and since we have not heard full argument on it, I prefer to express no view on that latter question.

It is still open to the defendants to contend that the covenant in clause 5(2) of the conveyance is void for uncertainty, a question also raised by the respondent's notice. Miss Hampton has made submissions on that question. Here the judge was wholly against her. He referred, amongst other authorities, to the judgment of Megarry J in Brown v Gould [1972] Ch 53, where it was held that an option for renewal contained in a lease was not void for uncertainty. At p.56F, Megarry J said that the court was reluctant to hold void for uncertainty any provision that was intended to have legal effect. That proposition is one which is so familiar to lawyers that it hardly needs authority to support it. If authority is needed, a useful summary will be found in Brown v Gould between pp.56G and 58A. I would say that the court is especially reluctant to hold void for uncertainty a provision in a lease or conveyance.

Miss Hampton submits that the covenant in clause 5(2) of the conveyance is void for uncertainty on three different grounds. First, she says that the expression in clause 5(2) itself "the locality (that is to say the Housing Estate of the Council) of which the Property forms part" is uncertain. As to that, the judge said:

"I am satisfied that the term ´Jordanthorpe Estate' was and is understood by the Defendants and would be understood by the reasonable man as being the area bounded by Parkway, Dyche Lane and Sheffield College and the ´Jordanthorpe Council Estate' as the area within that area owned by the Plaintiff."

On the face of it, that passage contains two findings by the judge, which were open to him on the evidence, as to what would be understood by the reasonable man by the expressions "Jordanthorpe Estate" and "Jordanthorpe Council Estate" respectively. Miss Hampton's first objection is that clause 5(2) refers not to either of those expressions but to "the Housing Estate of the Council". However, it is important to emphasise that the reference is to the Housing Estate of the Council "of which the Property forms part". In my view it was open to the judge to interpret that as a reference to that part of the Jordanthorpe Estate which was owned by the Council. Moreover, that seems to have been the common-sense view. Miss Hampton has made a number of other points and has referred to a number of Council documents, but she has been unable to persuade me that we can properly differ from the judge's view on what was basically a question of fact for him.

Secondly, Miss Hampton submits that the expression "the upkeep of landscaping" in the schedule of benefits is uncertain. As to that, the judge said:

"It is sufficient for me to say that in my view the concept of landscaping in the context of this case is clear. Witnesses were clear what it meant and stated it to be the open areas, whether grass areas or areas of planting or contouring. It can and should be given its widest meaning as all the areas within the estate which are grassed or planted and which are tended. There was no uncertainty at the date of the Conveyance and there is none now."

Again, Miss Hampton has made a number of points and has referred to several documents. But again the judge's view was based on evidence which was before him and again we cannot properly differ from his view of this question.

Thirdly, Miss Hampton submits that the expression "the number of properties served" in the basis of charge set out in the schedule of benefits is uncertain. As to that, the judge said:

"The area around the precinct on the Jordanthorpe Estate is but a small part of the landscaped areas over the whole. The ´Properties served' are clearly those on the Jordanthorpe Estate because the landscaped areas provide a pleasant environment for all residents there. So much was conceded by the witnesses. Those areas are considerably greater than the areas immediately around the precinct which are used by persons from elsewhere and that fact cannot distract from the clear meaning that those living on the Jordanthorpe Estate benefit from and are therefore ´served by' the landscaped areas over the whole of the Estate. Those areas provide a more pleasant environment which is enjoyed by the residents on the Jordanthorpe Estate."

Miss Hampton submits that the judge there equated the expression "the number of properties served" with the expression "the number of properties on the estate" which appears in two other places in the schedule of benefits. I think that that is correct. But that does not invalidate the judge's view of the former expression. Once more this appears to have been largely a question of fact for him. Miss Hampton also submits that the "properties served" could include properties outside the Council's Jordanthorpe Estate and that it is uncertain whether they do or not. In my view that submission fails on the simple ground that the properties served cannot be taken to include properties which are not themselves liable or presumptively liable to contribute to the expenditure. Properties outside the Council's Jordanthorpe Estate would not be so liable.

I therefore conclude that no ground has been shown on which we in this court can differ from the judge's view that all or any of the expressions referred to, either individually or collectively, do not render the covenant void for uncertainty. That means that the Council are entitled to succeed on this appeal and I would allow it accordingly.

LORD JUSTICE PETER GIBSON: I agree that the appeal should be allowed. But as we are differing from the judge, and because this case has an importance and interest extending well beyond the modest sums claimed from and the particular circumstances of the defendants, I add a few words of my own.

The total of the service charges which we were told was outstanding in Sheffield is perhaps some indication of the extent of the unhappiness felt by those in the position of the defendants with the attempts by the Council to exact contributions from them. But the questions for this court are dry questions of law turning on the true construction of the Housing Act 1985, as amended by the Housing and Planning Act 1986, and of the standard form conveyance used by the Council in right to buy cases.

I shall confine my remarks to the first issue raised on the appeal: is the challenge to the reasonableness of the covenant in clause 5(2) of the conveyance to pay the contributions one which can be mounted after the execution of the conveyance to the tenant exercising the statutory right to buy? I stress that that issue must be determined as a matter of statutory construction, having regard to the scheme to be discerned in Part V of the Housing Act as amended, and that construction is unaffected by the facts of any particular case.

The judge dealt with the point somewhat cursorily. He recognised that the challenge to the reasonableness of clause 5(2) should have been mounted before the conveyance was entered into, but gave as the only reason why it was not too late to make the challenge that the defendants and their successors in title would be condemned to obey the terms of an unreasonable covenant which should never have been entered into.

Miss Hampton, for the defendants, in her careful and well-sustained argument, supported the judge's conclusion and relied in particular on three provisions of the Housing Act: first, section 181, because it is silent as to any time limit for proceedings to be brought under Part V; second, section 139(1), because it contains the mandatory requirement that a conveyance of the property should conform with Parts I and II of the Sixth Schedule to the Act; and third, paragraph 5 in Part I of the Schedule, allowing the inclusion in the conveyance of only such covenants and conditions as are reasonable in the circumstances. She accepted that if she was right in her submission it would be open to a purchaser exercising the right to buy or to a successor in title to challenge the reasonableness of a covenant at any time after the exercise of the right to buy, it may be many years later, even though, as was common ground, the reasonableness of the covenant in all the circumstances had to be assessed at the time of the proposed conveyance and in the circumstances then pertaining. Of course, there may well be practical difficulties facing a person making such a challenge many years after the conveyance and those difficulties could defeat that challenge. But it is at first sight improbable that Parliament contemplated or intended the making of a challenge at any time after the conveyance was entered into. That seems to me to be powerfully supported by the other considerations which Miss Rogers, for the Council, drew to our attention.

The first point is that the Act itself expressly envisages that questions arising under Part V (other than a question as to value), which can be determined by the High Court but only at a penalty as to costs (section 181(3)) or by the County Court (section 181(1)), will be decided before the question of valuation is determined by the district valuer (section 128(2)).

Second, the valuation exercise is designed to produce the price which, before the application of discounts, the property would fetch in the open market. Among the assumptions to be taken into account in that valuation will be the assumption that any service charge payable will not be less than the amounts to be expected in accordance with the estimates contained in the landlord's notice which the landlord is required to give the tenant under section 125 and which must state provisions which would enable the landlord to recover service charges from the tenant (section 127(1)(c)). A further assumption is that a dwelling-house is to be conveyed subject to the same burdens as it would be in pursuance of Part V (section 127(2)(c)). The assumption in relation to a provision entitling a landlord to a service charge may well have a depreciatory effect on the market value. It would be unjust if, after the price had been fixed on that basis and the conveyance completed, the purchaser could challenge the reasonableness of the covenant imposing the service charge or burden with no provision for adjustment of the purchase price if the challenge is upheld.

Third, there is a marked contrast in Part V between provisions which must satisfy certain conditions if they are to be included in the conveyance or lease (for example, paragraph 3 of Schedule 6 relating to the rights of way necessary for the reasonable enjoyment of the dwelling-house or of other property of the landlord or paragraph 5 of Schedule 6 requiring covenants to be reasonable in the circumstances) on the one hand and provisions of the conveyance or lease which are void (paragraphs 6, 17, 18 and 19 of Schedule 6).

Fourth, after the execution of the conveyance the Secretary of State has power under sections 167 and 168 to discharge and modify covenants not conforming with the relevant provisions of Schedule 6. Thus the judge was wrong in so far as he was saying that the defendants and their successors in title were necessarily condemned to obey the terms of an unreasonable covenant which should never have been entered into, as it is open to them to seek to persuade the Secretary of State to intervene.

In the light of these statutory provisions it seems to me that Miss Rogers' submissions on this point are to be preferred to those of Miss Hampton. They produce a sensible, coherent and workable scheme for the operation of the Act and one which does not produce unfairness to the landlord or to the tenant. In my judgment His Honour Judge Harrison-Hall QC, sitting in Coventry County Court, was entirely right so to hold in Coventry City Council v Cole and, whilst on the appeal from him the decision of this court ([1994] 1 WLR 398) cannot be said to decide the point, I am comforted that Neill LJ pointed to the time of the negotiation of the lease, on the facts of that case, as the time when the reasonableness of a provision could be examined.

For these, as well as the reasons given by my Lord, I also would hold that the defendants were too late to challenge the reasonableness of clause 5(2) after the execution of the conveyances to them respectively.

On the question of uncertainty, there is nothing which I would wish to add to what my Lord has said, with which I am in entire agreement.

I too would allow this appeal.

SIR PATRICK RUSSELL: I agree with both judgments and there is nothing that I can usefully add.

Order: appeal allowed with costs of the preliminary issue here and before the judge; counsel to agree a form of declaration confirming the judge's declaration as regards the covenant not being void for uncertainty but substituting another for the declaration on unreasonableness; leave to appeal to the House of Lords refused.