England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE DEAN QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th December 2007

Sir Peter Gibson:

1. The issue in this appeal is whether a purported notice served under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 ("the Act") by the intended nominee purchaser of the freehold reversion to a block of flats, is valid. The claimant, Cascades and Quayside Limited ("the appellant"), appeals from the order made on 31 March 2006 by HHJ Dean QC in the Central London County Court. By his order, the judge dismissed the claim of the appellant, acting on behalf on certain of the tenants of the block of flats known as Cascades, Sufferance Wharf, West Ferry Road, London E4 ("the Property"), for an order under section 25 of the Act determining the terms on which the appellant came to be entitled to acquire from the defendant, Cascades Freehold Limited ("the respondent") which is the landlord, the freehold of the Property under the collective enfranchisement provisions of the Act. The appeal is brought with the permission of the judge.
2. The scheme of collective enfranchisement under the Act in force at the time relevant to this appeal can be summarised in this way. Chapter I of Part I of the Act confers on qualifying tenants of flats contained in premises to which that chapter applies the right, called "the right to collective enfranchisement", to have the freehold of those premises acquired by a person or persons appointed by them for that purpose at a price determined in accordance with that chapter. The term "qualifying tenants" is defined in section 5 of the Act as tenants of flats held under long leases. Chapter I of Part I of the Act applies to premises consisting of a self-contained building, containing two or more flats held by qualifying tenants, where the total number of flats held by such tenants is not less than two thirds of the total number of flats contained in the premises (section 3 of the Act).
3. The acquisition process is initiated by the giving of what is called "the initial notice" under section 13, that notice being of a claim to exercise the right to collective enfranchisement with respect to any premises (section 13(1)). The initial notice must be given to the reversioner in respect of those premises and:

"must be given by a number of qualifying tenants of flats contained in the premises at the relevant date [I leave out some words] and is not less than one-half of the total number of flats so contained" (section 13(2)).

The relevant date is the date on which notice of the claim is given (section 1(8)). Section 13(3) contains details of what the initial notice must specify and what must accompany the notice. What must be specified includes the premises of which the freehold is proposed to be acquired, including the freehold of any property which is called in the Act appurtenant property. Also to be specified is the proposed price of each of those two freeholds, that is to say, the freehold of the specified property and the freehold of the appurtenant property (section 13(3)(d)). Also, there must be specified the full names of the qualifying tenants and the date by which the reversioner must respond to the notice by giving a counter-notice under the Act. That counter-notice is given under section 21.

4. By section 14 of the Act the participating tenants are the qualifying tenants by whom the initial notice is given. Section 15 of the Act provides for the appointment by the participating tenants of the nominee purchaser, whose function it is to conduct on behalf of those tenants all proceedings arising out of the initial notice with a view to the eventual acquisition by the nominee purchaser on their behalf of the freehold of the premises.
5. Section 21 requires the reversioner to give a counter-notice under the section to the nominee purchaser by the date specified in the initial notice. Subsection (3) of section 21 requires the counter-notice to state which, if any, of the proposals contained in the initial notice are accepted by the reversioner and which, if any, of those proposals are not so accepted, and then to state any counter-proposal in relation to any proposal not so accepted. The consequences of a failure by the reversioner to give a counter-notice, following the giving of the initial notice in accordance with section 13, are spelt out in section 25(1):

"…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(3)."

6. Section 99 contains provisions governing notices required or authorised to be given under Part I of the Act, which includes all the provisions to which I have referred. By subsection  (5):

"Any notice which is given under Chapter I or II by any tenants or tenant must --

(a) if it is a notice given under section 13 or 42, be signed by each of the tenants, or (as the case may be) by the tenant, by whom it is given; and

(b) in any other case, be signed by or on behalf of each of the tenants, or (as the case may be) by or on behalf of the tenant, by whom it is given."

7. The presence in paragraph (b) of the words "or on behalf of" signifying that an agent may sign on behalf of the tenant is in marked contrast to the absence of those words in paragraph (a). It accordingly follows that a notice under section 13 must be signed by the tenant himself and cannot be signed by an agent; and there are two decisions, one in the County Court (Viscount Chelsea v Hirshorn [1998] 2 EGLR 90), and one in the High Court: (St Ermins Property Company v Tingay [2002] 3 EGLR 53) to that effect.
8. The following facts were agreed between the parties or found by the judge:

(1) The Property comprises 174 flats, each let on a long lease together with three retail units, car-parking spaces, appurtenant property and common parts.

(2) The tenants of the Property have formed a tenants' association, of which Mr David Harris is the secretary and Mr Roberts is a director.

(3) Some of the tenants do not reside at the Property, some live abroad and it is difficult to assemble all the tenants together.

(4) In July 2004 Mr Harris sent the tenants a letter on behalf of the tenants' association in which he recommended the exercise of the right to enfranchise. He told the tenants that at least half of them had to set up a company to buy the freehold from the landlord and that if the purchase price could not be agreed, the Leasehold Valuation Tribunal would fix the price. He further said that a professional valuation would be required, and that from previous cases fourteen times the annual ground rent was realistic, so that, on the typical ground rent of £150 per annum the purchase price would be £2,100 per flat plus acquisition costs. (I add the comment that if 150 qualifying tenants became participating tenants, the purchase price would be £315,000 on that basis.) Mr Harris told the tenants that the association had already set up a company for the purchase. The tenants were invited to indicate their support for the proposal by completing a form to that effect.

(5) Approximately 150 tenants completed the form and returned it to the tenants' association.

(6) By a further letter dated January 2005 (but which from subsequent letters would appear to be dated 14 January 2005) and signed by Mr Harris and Mr Roberts, the tenants were told that 150 tenants had confirmed their intention to participate, that the tenants' association had written to the respondent requesting a meeting to discuss and agree the purchase price, but that the respondent had not replied. The tenants were further told that the appellant had been formed to acquire the freehold, and that it had been established with 177 shares, one share to be issued to each participating tenant when the cost of the shareholding had been paid. They were informed that because the respondent was unwilling to reach an amicable agreement, an accurate price for the purchase of the freehold could not be given. They were told that the full price, including costs, would be likely to be in the region of £2,500 or £3,750 for flats with a ground rent of £150 per annum and that the prices for those with a higher or lower ground rent would vary accordingly. They were invited to complete a formal participation agreement and to pay £250 per property immediately to meet costs. (I add the comment that on the basis of 150 flats at £2,500 and £3,750 respectively per flat, the purchase price would be £375,000 and £562,500 respectively.) The tenants were told that a copy of the memorandum and articles of association of the appellants and of the registered title to the property were available for inspection. The document headed Participation Agreement was enclosed and stated as follows:

"I hereby confirm I/we will participate in the application to purchase the freehold of Cascades and Quayside and will pay the purchase price and cost of my share when demanded. I confirm that Cascades Limited is my nominated purchaser. I enclose a cheque for £250…".

(7) On 2 February 2005 a further letter was sent by Mr Roberts and Mr Harris to those who had responded to the letter of July 2004 but had not responded to the letter of 14 January 2005. This stated:

"We will shortly be involved in preparing a formal notice to the Landlord to which we are required to attach a schedule of those participating and a signature from each applicant. Therefore, to confirm your participation, please send us your cheque now for £250 per flat and complete the two forms enclosed with this letter. The forms need to be signed and dated by all the co-owners."

(I add the comment that it is not entirely clear what the two forms were; I assume that they were the Participation Agreement and a signature form which when signed was appended to the initial notice; however, there is no other document which shows when the signature forms were in fact sent to the participating tenants, it may be that a letter like this was sent requiring the completion of the signature form.)

(8) On 12 February 2005 a further chaser was sent to those who had not responded. The addressees were told that if they did not respond within seven days the application would proceed without their involvement. Although it was stated in the letter that the formal notice to purchase would be issued to the landlord in the near future, this letter, like the earlier letters, did not supply the initial notice in draft, nor did it give an indication of the contents of the initial notice.

(9) Some of the forms returned by qualifying tenants were considered by the organisers of the intended proceedings for enfranchisement to be unsatisfactory for inclusion with the initial notice. The organisers were content to rely on 109 forms returned, signed by the tenants of 109 flats.

(10) On 28 February 2005 a process server served the initial notice on the respondent. The notice was headed, with a reference to section 13, Initial Notice of Claim. It was addressed to the respondent, and stated that, by the notice, the freehold was claimed of what were called "the specified premises", being the block of flats, and of the appurtenant premises, being common parts. The proposed purchase price was £93,060 for the specified premises, and £940 for the appurtenant premises. Particulars of the qualifying tenants and of the nominee purchaser were given. The respondent was told that it must give a counter-notice by 4 May 2005. The notice contained the statement:

"This Notice is signed by each of the participating tenants on the separate sheets which are attached to and form part of this Notice and comprise the Third Schedule hereto."

Each of the separate sheets was a signature form and this stated, before it was completed by the qualifying tenant:

"I/we (full name/s) [and then a space is left for the qualifying tenants to put their names] is/are the leaseholder/s of the property [and then a gap is left for the qualifying tenants to specify their flats]. I/we as qualifying tenants hereby append my/our signature/s as applicants under the terms of Section 13. I/We confirm I/we have appointed Cascades and Quayside Limited as my/our nominated purchaser. Signature/s [and then space is left for the signatures]".

However, there is no reference to a date and none of the signature forms which were completed had any date on it.

(11) Dennis O' Riordan is one of the participating tenants, and he has been one of the organisers of the application. At the Annual General Meeting of the tenants' association on 28 February 2005, he informed the meeting that, earlier that day, the initial notice had been served on the respondent. In response to questions, Mr O' Riordan said that the purchase price proposed in the initial notice was £94,000, and that the deadline set for the respondent to serve a counter-notice was 4 May 2005.

(12) Far less than 50 per cent of the tenants ever saw the initial notice, which was not in existence when the vast majority signed the forms; nor did they know the purchase price proposed for either the specified premises or the appurtenant premises, nor the deadline for the respondent to serve a counter-notice.

(13) By a document dated 11 April 2005 the respondent purported to give a counter-notice under section 21.

9. On 4 July 2005 the appellant applied under section 25(1) to Bow County Court. The case was then transferred to the Central London County Court in the Chancery List. Throughout the proceedings it has not been in dispute that (a) the Property is premises to which Chapter I of Part I of the Act applies, (b) the respondent did not serve a valid and effective counter-notice, and (c) if the initial notice were valid, the appellant's claim under section 25(1) would succeed and the appellant would be entitled to acquire the freehold interest specified in the initial notice on the terms proposed, including the proposed purchase price of £94,000.
10. Before the judge the respondent had challenged whether the signature forms were included in the envelope containing the initial notice served on the respondent. The judge held on a preliminary ruling that they were so included. The judge then heard argument on whether what was served on the respondent was a valid initial notice under section 13. Mr O' Riordan, who argued the case on behalf of the appellant before the judge as he has done before us, argued that it was a valid initial notice. The judge disagreed. In his judgment he said that a notice which is not yet in existence cannot be signed. The correct analysis of the situation, he said, was that Mr O' Riordan was authorised by each participating tenant to act as the tenant's agent in completing the initial notice and to attach the earlier completed signature form to the notice once completed. The judge held that that attachment by the participating tenant's agent of the tenants' signatures to the notice was inconsistent with section 99(5)(a), just as the Tingay line of authorities had held that an agent cannot sign a section 13 notice.
11. Mr O' Riordan, although not a lawyer, appears to have drafted the grounds of appeal challenging the correctness of the judge's decision on the validity of the initial notice; in particular, he challenged the judge's finding of an agency relationship. He has helpfully expanded those grounds in a skeleton argument with which he provided us and, in addition, he has addressed us this morning. He has accepted that the central point which he wishes to take is that there was no agency between the qualifying tenants as principals and the nominee purchaser or the organisers as agent or agents.
12. His submission is that, on the face of what was served on the respondent, each participating tenant had signed the signature form. There was no agency signature appearing on the document. He has told us that the organisers were aware that the notice given to the landlord must be signed by all the participating tenants and could not be signed on their behalf. He has submitted that, as a result, each participating tenant was required to sign what he called a statement of notice. He has drawn our attention to judicial statements as to the purpose of the legislation and, in particular, he has relied on the remark of Millett LJ in Cadogan v McGirk [1996] 4 All ER 643 at 647 and 648, which requires the court to construe the Act "fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy".
13. However, he accepted that, where the Act was clear, it was not possible to confer advantages on the tenants if the provision plainly operated against the tenants. The court must give effect to the will of Parliament expressed in the Act. Mr O' Riordan further accepted that the purpose of section 99(5) must have been to ensure that the tenant should really know what he is doing. Mr O' Riordan described the initial notice as a very preliminary notice. He said that it was not a consensual document and that it was not binding on the landlord. However, it is quite plain from the Act, and in particular from the details of section 13 and from the provisions to which I have referred in section 21, that the initial notice must contain in precise detail the matters which are proposed as part of the offer which the landlord can accept or refuse by his counter-notice. Amongst those matters are not only who is the nominee purchaser and that an offer is being made in exercise of the right of enfranchisement, but also further details, such as the price to be paid for each item of property to be acquired, as well as the date by which any counter-notice must be served.
14. The initial notice is a document which has serious and important consequences, not merely for the landlord, but also for the tenants. If the landlord wishes to accept the initial notice and so indicates, then that will enable the parties to enter into a binding contract on the accepted terms and the tenants will have to pay the price which they have proposed. If such a contract is not entered into, either party can apply for a vesting order to give effect to the agreement. If the tenants decide to withdraw the offer, then they will be liable to pay the costs of the landlord.
15. Mr O' Riordan's submission that there was no agency in this case seems to me to fly in the face of what actually was done at each stage. Given that the initial notice did not exist at the time when the vast majority of the participating tenants signed, the initial notice could not have been signed by them at that date. The actions of the organisers and of the nominee purchaser must be analysed. If one conducts that analysis, the participating tenants, by signing the signature forms, were giving to the organisers authority to act on their behalf by completing the initial notice in whatever way the organisers thought appropriate to enable the acquisition of the freehold reversion by the nominee purchaser on their behalf to be completed. When the initial notice, with their signature forms attached, was served, the vast majority of the participating tenants not only had never seen the initial notice, nor a draft of it, but had not even been informed of what would be some of the core contents of the notice. In particular, they did not know what would be the price which would be proposed to the respondent, or the date by which the respondent was to be required to respond.
16. The organisers and the participating tenants may well not have thought of themselves as creating an agency relationship, but in my judgment that is precisely what was created, and had to be created, given that at the date of the signature forms the initial notice was not in existence. As I have indicated, it is not in dispute that the purpose of section 99(5) in requiring the tenant himself to sign it and not allowing an agent to do so, must have been so that the tenant really knew what he was doing.
17. In this particular case it was impossible for the vast majority of the participating tenants to know the details of the proposed purchase at the time when they signed the signature forms. I do not suggest for one moment that there was any intention on the part of the organisers to hoodwink the tenants or to hide from them what was to be done on their behalf, but the method that was adopted in this case seems to me to run counter to what was the intention of Parliament in providing as it did by section 99(5)(a).
18. Mr O' Riordan has pointed to the practical difficulties, when there are many participating tenants, in having the initial notice signed by each of them. Parliament has, in the Commonhold and Leasehold Reform Act 2002, enacted provisions providing for the repeal of the relevant part of section 99, but that repeal is not yet in force. I do not know why there has been such delay in bringing that repeal into force. When the repeal goes through, the difficulties to which Mr O' Riordan referred would, of course, be met, because the nominee purchaser would be able to sign and it would not be necessary to have each participating tenant sign the initial notice.
19. We were invited by counsel for the respondent to offer guidance for the benefit of those who are faced with a similar situation of many participating tenants having to sign the initial notice. For my part, I think it would be inadvisable for us to be proffering general advice in this area. Each case must turn on its own facts. It is sufficient to say that in this particular case it is quite clear that what was done was simply not adequate, the initial notice not being in existence when most of the signature forms were signed, and most of the participating tenants not having seen the initial notice nor a draft of it, nor having been informed of the contents of it, so that those participating tenants were to that extent left in the dark.
20. For the reasons which I have given, it seems to me, therefore, that this appeal falls to be dismissed. I confess that I have some sympathy with the participating tenants who, quite naturally, were wanting to acquire the freehold; but the Act is one of some complexity, and it is unfortunate that professional help was not enlisted to enable the claim to be made in a form which complied with the Act. For these reasons, therefore, I would dismiss this appeal.

Lord Justice Jacob:

21. I agree. Out of deference to the short but pithy arguments of Mr O'Riordan I will give my own brief reasons. Mr O'Riordan submitted that the purpose of section 13 was essentially fulfilled if what was served on the landlord by way of a purported notice under section 13 contained all the details required by section 13, and that that is exactly what happened here. He submitted further that the section 13 notice should be regarded really as no more than an initiating document on negotiations. That would have been quite a sensible thing for the Act to provide. But it does not. The Act goes out of its way to say that, if the landlord accepts any of the proposals in the section 13 notice, that is binding. Therefore those who make the proposals may find themselves bound by those proposals. And it logically follows that they ought before they make those proposals to be absolutely sure of what they are offering. And the Act's machinery for achieving that is that a tenant must sign the offer. For that purpose they have to know what it is. And that is the machinery that is actually provided by section 99.5(a).
22. Putting it another way, the purpose of the Act is wider than just that the landlord should know what the offer is. The tenant has to know it too, and has to know it exactly, just as if the tenant were actually offering in the open market to buy the property.
23. These tenants did not know that. They knew roughly speaking the price that would be reached. They knew it would be settled if agreement could not be reached, but they did not actually know what offer, in terms of a precise sum of money, they were making, so they did not comply with one of the purposes of the Act as it stood unamended.
24. Mr O'Riordan also submitted that there was a real difficulty for large blocks of flats such as the one in question. How do you get the signatures from all the tenants when some of them are away, some of them are several tenants in one flat? In reality, if there was no machinery of this kind sought to be applicable here, then in practice tenants could not exercise their rights. That cannot have been what Parliament intended, and that therefore, as far as possible, the Act should be construed so as to assist tenants to get what Parliament obviously intended them to get.
25. There are two answers to this. Firstly, Parliament did intent the tenants to get whatever it is they were entitled to, provided they made a clear offer and knew what offer they were making. Parliament did not intend that tenants could find themselves bound by something of which they could not know precisely the details. Secondly, I am by no means convinced that it is not possible to devise machinery for large blocks of flats like this even with then unamended legislation. This was a particularly, if I may say so and I hope I am forgiven, a crude attempt; and I have a feeling that with a little more thought it might well be possible to achieve an adequate machinery to comply with section 99 and I am afraid the machinery adopted in this case just does not work. I agree that the appeal must be dismissed.

Lord Justice Dyson:

26. I also agree. Sections 99(5)(A) of the 1993 Act plainly and unequivocally provides that an initial notice given under section 13 must be signed by each of the tenants by whom it is given. Signature by an agent will not suffice. Where premises comprise a large number of flats, procuring signatures from each of the participating tenants may be logistically difficult in some cases. Mr O'Riordan says that this was such a case. No doubt it was such practical difficulties that inspired the amendment introduced by section 122 of the Commonhold and Leasehold Reform Act 2002 which makes detailed provision for RTE companies. In summary the effect of this provision is that the participating tenants would each be members of the RTE company and it would be the RTE company rather than the participating tenants collectively who would serve the initial notice. But section 122 is not yet in force, we have not been told why this is so. Section 99(5) of the 1993 Act therefore remains in force. It follows that whatever the practical difficulties presented by a large block of flats, the language of section 99(5) must be given its plain effect. By signing the forms before the section 13 notice came into existence, the participating tenants in this case were doing no more than authorise Cascades and Quayside Limited to give a notice. Mr O'Riordan disavows an agency because he recognises that section 99(5)(A) requires that each participating tenant must sign the notice personally. For the reasons given in detail by Sir Peter Gibson and also by my Lord Jacob LJ, the initial notice given on 28 February 2005 was not signed by the participating tenants. It follows for those reasons that the decision of the judge below was correct, and I too agree that this appeal must be dismissed.

Order: Appeal dismissed