England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(His Honour Judge Cooke)

		Royal Courts of Justice Strand London WC2A 2LL
		13th March 2000

1. LORD JUSTICE WALLER: I will ask Lord Justice May to deliver the first judgment.
2. LORD JUSTICE MAY: This is a respondent's appeal from the decision and judgment of His Honour Judge Cooke given in the Central London County Court on 30th September 1999. At issue is the meaning of section 25 of the Leasehold Reform, Housing and Urban Development Act 1993 (which I shall refer as to "the 1993 Act").
3. It is necessary to consider the structure of the 1993 Act. Chapter 1 of Part 1 of this Act deals with collective enfranchisement of tenants of flats. Section 1(1) provides that the Chapter has effect for the purpose of conferring on qualifying tenants of flats in premises to which the Chapter applies a right to have the freehold of those premises acquired on their behalf by a person or persons appointed by them for that purpose and at a price to be determined in accordance with the Chapter. By section 3, the provisions apply to self contained buildings or parts of buildings with two or more flats held by qualifying tenants, where the total number of flats held by qualifying tenants is not less than two thirds of the total number of the flats. By section 5, a person is a qualifying tenant if he is a tenant of the flat under a long lease which is at a low rent or for a particularly long term. Qualifying tenants have to satisfy a residence condition. By section 6, the condition is that the tenant has occupied the flat as his only or principal home for at least 12 months, or for periods amounting to 3 years in the last 10 years.
4. Section 13 provides that a claim to exercise the right to collective enfranchisement is to be made by the giving of an initial notice of the claim. There are extensive particulars which the notice has to contain. It must specify and be accompanied by a plan showing the premises of which it is proposed to acquire the freehold; any related property of which it is proposed to acquire the freehold; and any property over which it is proposed that rights should be granted in connection with the acquisition of the freehold. The notice has to specify any intermediate leasehold interest proposed to be acquired. It has to specify the proposed purchase price of the freehold interests and any leasehold interest to which it relates. It has to state the full names and details of all the qualifying tenants and of the person appointed to be the nominee purchaser. It has to specify the date by which the reversioner must respond to the notice by giving counter notice. That date must not be less than two months after the date of the initial notice. Section 97(1) provides that a notice given under section 13 shall be registrable under the Land Charges Act 1972 or may be the subject of a notice or caution under the Land Registration Act 1925, as if it were an estate contract. Section 19 provides that where the initial notice has been registered, there are limitations on the extent to which the freeholder or any landlord may deal with the property.
5. Section 21 provides for a counter notice to be given by the reversioner to the nominee purchaser by the date specified in the initial notice. Mr Thom, counsel for the appellants, does not suggest that the court has power to extend time for service of a counter notice. In short summary, the counter notice may accept or challenge the participating tenants' rights to seek collective enfranchisement and may accept or challenge the proposals made in the initial notice and make counter proposals. One ground of challenge is that the landlord intends to redevelop the whole or a substantial part of the premises. Section 22 provides for proceedings in court relating to the validity of the initial notice. Section 23 has provisions which apply where the landlord's counter notice expressed an intention to redevelop. If either or both of these grounds of challenge are determined against the landlord, he has the opportunity to serve a further counter notice challenging the tenants' proposals. Section 24 includes provisions that, if the terms of acquisition remain in dispute after a period of two months from the date on which the counter notice, or further counter notice, as the case may be, was given, a leasehold valuation tribunal may determine the matters in dispute on the application of either the nominee purchaser or the reversioner.
6. Section 25 applies where the reversioner fails to give a counter notice or, as the case may be, a further counter notice. It is this section which is central to the present appeal. The critical provision is in subsection (1) which provides:

"Where the initial notice has been given in accordance with section 13 but -

(a) The reversioner has failed to give the nominee purchaser a counter notice in accordance with section 21(1), or

(b) ...

The court may, on the application of the nominee purchaser, make an order determining the terms on which he is to acquire, in accordance with the proposals contained in the initial notice, such interests and rights as are specified in it under section 13."

7. Section 25(2) provides that the terms to be determined by the court under sub-section (1) shall include terms providing for the leasing back of flats or other units contained in the specified premises where section 36 and Part II of Schedule 9 make this mandatory. Section 25(3) provides that the court shall not make an order under subsection (1) where the reversioner has failed to give a counter notice unless it is satisfied (a) that the participating tenants were on the relevant date entitled to exercise the right of collective enfranchisement of the specified premises, and (b) that copies of the initial notice were given to relevant landlords as required by Part II of Schedule 3.
8. In the present proceedings, the respondents, Globalgrange Limited, were the landlord and freeholder of 29 Langham Street, London W1. The premises were divided into flats. By a notice dated 29th July 1998, the applicant, Mark Willingale, as nominee tenant on behalf of himself and four other qualifying tenants, served on the respondents and a company that was an intermediate landlord of one of the flats an initial notice under section 13 of the 1993 Act. The notice proposed to acquire the freehold of the premises with some rights of drainage and so forth. The notice specified some other leasehold interests which it was proposed to acquire. The proposed purchase price of the freehold was £7,000 with smaller additional amounts for the leasehold interests. The date specified for giving a counter notice under section 21 of the 1993 Act was 13th October 1998.
9. The respondents failed to give a counter notice. So Mr Willingale made an application dated 9th April 1999 to the Central London County Court for an order determining the terms on which he was to acquire the freehold in accordance with the proposals contained in the initial notice. The respondents opposed the application. They said that the initial notice was not in accordance with the 1993 Act. The respondents said, in the alternative, that the proposed purchase prices for the freehold and leasehold interests were not proper prices. They said that the price for the freehold should be £14,000 and for the leasehold interest £1,000. They also said that provision should be made for easements for means of escape in case of fire. Mr Willingale said that these contentions were not open to the respondents because they had not served a counter notice and because section 25(1) of the 1993 Act means that the terms which the court has to determine are those in the tenants' initial notice. The section, he says, does not give the court a discretion to determine different terms. In particular, the respondents were stuck with the proposed purchase price of £7,000.
10. The court ordered that there should be a determination of preliminary issues. These were heard by His Honour Judge Cooke on 30th September 1999. The first issue was whether the initial notice was valid. The judge held that it was. There is no appeal against this finding. The second issue was whether the respondents were able to challenge the terms proposed in the initial notice. The judge held that they were not. The respondents appeal against this finding. The judge gave permission to appeal. He was aware that other judges in the county court had reached differing conclusions on whether section 25(1) of the 1993 Act gives the court a discretion to depart from the terms proposed in the tenants' initial notice. There is also a difference of opinion in various text books on landlord and tenant law.
11. The judge considered a number of submissions for and against the construction of section 25, which I shall refer to shortly. His conclusion was that the reasons against there being a discretion seemed to him to be stronger than the reasons in favour of it. The passage in his judgment which was central to that conclusion was this:

"I ask myself what discretion is imported, in what circumstances and what kind. If it is a general discretion to depart from the terms of the notice, one cannot really see why the provision is in at all in the first place. Why should it matter in those circumstances whether a counter notice is given or not. It must be something less than that. ... Is it a residual dispensing power in extreme circumstances? Why not say so?"

12. Chapter II of the 1993 Act contains provisions giving qualifying individual tenants a right to acquire a new lease. The procedure is similar to that in Chapter I. Section 49 contains provisions similar to those in Section 25. In Cadogan v Morris [1999] 1 EGLR 59, this court considered the validity of a tenant's initial notice under section 42 of the 1993 Act. The tenant was claiming a new long lease of a flat at a time when the contractual lease was about to expire. A realistic amount to pay the landlord for the proposed 90 year lease at a peppercorn rent was between £100,000 and £300,000. The tenant's initial notice deliberately specified £100 as the proposed premium; but the court held that the tenant's initial notice was invalid because it did not specify the premium which the tenant proposed to pay. The tenant had deliberately specified a sum which he did not propose to pay. The sum specified had to be realistic, as had any sum specified in a landlord's counter notice. In determining whether a sum was realistic, the court would allow a fairly wide margin to allow for the realities of genuine negotiation. But deliberately specifying an unrealistic sum invalidated the notice. In his judgment at page 60K of the report Stuart-Smith LJ said this:

"It is at least arguable that section 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 very harsh 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 year lease for virtually nothing."

13. This passage seems to have had some influence on Stuart Smith LJ's conclusion, but was not, I think, necessary to the decision which turned on the meaning of section 42.
14. Mr Thom's submission, on behalf of the appellant/respondents in support of a meaning of section 25(1), which gives the court a discretion to depart from the terms proposed in the initial notice, were as follows:
15. (1) the expression "the court may" imports a discretion. So does the word "determining" in section 25(1) since that implies that the court has something to decide which is more than just putting a rubber stamp upon the proposals in the initial notice. This is a general discretion, but an important, and perhaps decisive, factor to be taken into account is that the landlord has not served the counter notice which section 21 requires.
16. (2)other surrounding provisions use "shall" or "must" and this shows that "may" was intended to import a discretion.
17. (3) the more natural way of expressing a power subject to conditions being satisfied - which is one of the counter submissions - would be to say "the court shall, subject to subsection (3)", and so forth
18. (4) an initial notice could be given, by virtue of section 99 and section 7 of the Interpretation Act 1978, without it coming to the attention of the recipient within the period required for a counter notice; or it might be received but overlooked. If there is no discretion, this could mean that the freeholder could be deprived of property at an inadequate price. Cadogan v Morris means that the price in the initial notice has to be realistic, but this may still be far lower than the freeholder could substantiate. Of this it is right to remember that the minimum period for the service of a counter notice is two months.
19. (5) the notice may make proposals to acquire other related land to which the freeholder might have serious objection. If there is no discretion, the objection cannot be heard.
20. (6) the prejudice which the freeholder would suffer if there were no discretion is irretrievable. By contrast, if the tenant's notice were to cease to have effect, he could serve another one.
21. (7) it is no objection that the Act does not provide machinery or guidelines for exercising the discretion. Discretions are often conferred in general unfettered terms and jurisdiction is given in this instance as a safety net under sections 90 and 91. I will refer to these sections later.
22. (8) a ministerial statement in Parliamentary committee on 19th November 1992 referring to what became section 25 of the 1993 Act included:

"The clause permits the nominated purchaser to apply immediately to the court for the terms to be determined if the reversioner fails to serve the counter notice by the relevant date."

23. Mr Radevsky's submissions on behalf of Mr Willingale in support of the meaning of section 25(1) which gives the court no discretion to depart from the terms proposed in the initial notice were:
24. (1) the word "may" can be used to create a discretion or an obligation. Cases in which the court has held that the word "may" in a statute did not import a discretion include Macdougall v Patterson 11 CB 755, 138 ER 672; In re Eyre and Corporation of Leicester [1892] 1 QB 136; Rv Roberts [1901] 2 KB 117; Sheffield Corporation v Luxford [1929] 2 KB 180; and Firstcross Ltd v Teasdale [1983] 1 EGLR 87. Needless to say, the meaning of the word "may" in an individual statute will depend on the terms of the individual statute.
25. (2) the scheme of Part I of the 1993 Act is to provide a strict procedural timetable with serious consequences if either the tenant or the freeholder does not comply with it. There are a number of circumstances in which a tenant may lose out if the tenant does not take steps which the timetable requires.
26. (3) there would be no one point in machinery for the court or the leasehold valuation tribunal determining differences arising after the service of counter notice, if the court had an equivalent discretion even if a counter notice were not served. The provisions for counter notices could simply be ignored.
27. (4) the Act has the safeguard recognised by Cadogan v Morris. The tenant's proposals must be realistic.
28. (5) there are examples of landlord and tenant statutes requiring strict compliance with their timetable; for example, the procedure for terminating a long residential tenancy under Part I of the Landlord and Tenant Act 1954 (replaced by Schedule 10 of the Local Government and Housing Act 1989); the procedure for terminating a business tenancy and applying for a new one under Part II of the Landlord and Tenant Act 1954; and the setting of a new rent for an assured tenancy under section 13 of the Housing Act 1988. In Tadema Holdings v Ferguson [1999] ECGS 138, a landlord obtained a four-fold increase in rent from a mentally incapable tenant who did not serve a counter notice.
29. (6) the statute does not work if there is a discretion. There is no guidance how the discretion should be exercised. The statute provides for disputes about the terms of acquisition to be referred to the leasehold valuation tribunal. But section 25 does not so provide and there is no reversioner's counter notice to form the basis for the dispute.
30. (7) the court is not obliged to make an order in every circumstance - hence the empowering use of the word "may". The court has to be satisfied that the matters referred to in section 25(3) are proved. If they are not, there will be no order. If they are, the court has to determine the terms of acquisition "in accordance with" the proposal in the initial notice.
31. In my judgment, the judge reached the right conclusion in this case. The appellant's submissions really boil down to little more than saying that (i) the word "may" is usually permissive, and (ii) there could be circumstances in which it would be very hard on a freeholder who did not serve a counter notice if the court had no residual discretion to save him from his failure. The considerations which in my view show that the judge was correct are, firstly, that the terms have to be determined "in accordance with the proposals contained in the initial notice" and that what is to be acquired by the determination is "such interests and rights as are specified in [the initial notice] under section 13(3)". Thus the court cannot alter the specified interests and rights: and the determination has to be in accordance with the proposals contained in the initial notice. What the court can do is to decline to make an order if it is not satisfied of the matters in section 25(3). There is also power in paragraph 15 of Schedule 4 to amend inaccuracies or misdescriptions in the initial notice. In the present appeal, if the court determined a price for the acquisition of the freehold other than £7,000, that would not be in accordance with the proposals contained in the initial notice. There is nothing intrinsically surprising about statutory provisions which mean that a reversioner can challenge the proposed terms if he serves a counter notice in due time but cannot do so if he does not.
32. Secondly, the word "may" is in my view sufficiently explained by the fact that the court is not obliged to make an order in every case. It cannot do so, if the requirements of section 25(3) are not satisfied. In this instance, "may" means "shall have the power to", not "must", although there are circumstances in which the exercise of the power is obligatory. There is a parallel use of the word "may" in section 23(1) of the 1993 Act, which provides the court's power to deal with a landlord's challenge to the initial notice on the ground of an intention to redevelop. There is another example of this use of the word "may" in section 24(1) of the Act, which empowers, but in appropriate circumstances requires, a leasehold valuation tribunal to determine matters in dispute.
33. Thirdly, there is no point in a counter notice and the provisions related to it, if the need for it can be ignored by invoking a general discretion under section 25(1). I am not persuaded that section 25(1) can be read as conferring a residual discretion of the kind contended for. For all that Mr Thom suggests that the discretion is general, but the fact that there has been no counter notice may often be decisive, I consider that in substance he is contending for a residual discretion to relieve hard cases.
34. Fourthly, if the discretion contended for is more restrictive in some way [to try to overcome the third point] there is no convincing scope or machinery for the exercise of the discretion. In particular, there is no sense in having the terms of the acquisition settled by the valuation tribunal if they are disputed by a counter notice; but by the court if the reversioner fails to serve a counter notice, since there is no basis, in my view, for a jurisdiction in the valuation tribunal in these circumstances. Mr Thom suggests that the second limb of section 91(1) would enable the court to refer the matter to a valuation tribunal. In my view, this whole subsection applies "where jurisdiction is expressed to be conferred on a leasehold valuation tribunal", which it is not if the landlord has failed to serve a counter notice and the court is operating under section 25. This submission would also mean that the court was not determining the terms of the acquisition, which is what section 25 requires.
35. Fifthly, Cadogan v Morris provides a safeguard against unrealistic proposals.
36. Finally, in my view, leaving aside Pepper v Hart considerations, the ministerial statement to which Mr Thom refers is neutral and does not add anything material to the terms of what is now section 25. So I would get no help from that if it were proper to look at it.
37. For these reasons, I consider that the judge reached the right conclusion and I would dismiss this appeal.
38. LORD JUSTICE WALLER: I agree and I will just add a short word of my own.
39. It is common ground that the word "may" when used in a statute can grant a power which, if exercised, can only be exercised one way or can confer on the court a discretion when the power is being exercised. It is a question of construction of the particular statute what the word "may" means. The authority cited by Mr Radevsky in his skeleton demonstrates that point, and the point is not contested by Mr Thom.
40. I agree with my Lord that there are significant pointers in favour of "may" meaning in section 25(1) that, if exercised, it must be exercised one way. As it seems to me, the reason for the word "may" as used in this subsection is to recognise that there are certain circumstances, and only certain circumstances, in which the court will not make an order under the section. Those circumstances exist, and only exist, where the participating tenants are not on the relevant dates entitled to exercise the right to collective enfranchisement in relation to the specified premises, as contemplated by section 25(3). Once the court is satisfied that the tenant qualifies under section 25(3), it seems to me that there are significant pointers to the court not having a discretion then to consider the terms on which the tenant is entitled to acquire the interests and the rights specified in the notice.
41. In short, the significant pointers are:
42. (1) if it were not so there really would seem to be little between the situation in which the landlord would have served a counter notice under section 24 and the situation under section 25;
43. (2) section 25(1) provides for determination "in accordance with the proposals contained the initial notice";
44. (3)the landlord would wish the discretion, if there was one, to equal assessment of the price or value. That is the key feature which a landlord would wish to dispute. But if section 25 envisaged a valuation one would expect there to be provision for valuation to be by a leasehold valuation tribunal which is given the jurisdiction to carry out that valuation under section 24(1).
45. I am not persuaded that Parliament intended that under section 25 the court was to have jurisdiction to determine the price, referring the valuation to a tribunal under section 91(1). In my view, the fact that a tribunal was not given the jurisdiction to value under section 25(1) is an important pointer in favour of no valuation exercised being required, i.e. in favour of the court being required to make a determination at the price proposed by the tenant if the landlord fails to serve a counter notice.
46. I agree with my Lord that this appeal should be dismissed.

Order: Appeal dismissed with costs.