COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(1) HHJ COLLINS CBE (2) HHJ CRAWFORD LINDSAY QC
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE JACOB
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for the (1) Appellant
Anthony Radevsky (instructed by Forsters) for the (1) Respondents
Philip Rainey (instructed by Pemberton Greenish) for the (2) Appellants
Edwin Johnson QC (instructed by Bircham Dyson Bell) for the (2) Respondent
Hearing dates : 27-28 February 2007
Crown Copyright ©
Lady Justice Arden :
The system for individual lease renewal
Background to these appeals
Relevant provisions of the 1993 Act
"56 Obligation to grant new lease
(1) Where a qualifying tenant of a flat has under this Chapter a right to acquire a new lease of the flat and gives notice of his claim in accordance with section 42, then except as provided by this Chapter the landlord shall be bound to grant to the tenant, and the tenant shall be bound to accept—
(a) in substitution for the existing lease, and
(b) on payment of the premium payable under Schedule 13 in respect of the grant,
a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease.
(2) In addition to any such premium there shall be payable by the tenant in connection with the grant of any such new lease such amounts to the owners of any intermediate leasehold interests (within the meaning of Schedule 13) as are so payable by virtue of that Schedule."
"101 General interpretation of Part I
(1) In this Part—
"common parts", in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it;…
"flat" means a separate set of premises (whether or not on the same floor)—
(a) which forms part of a building, and
(b) which is constructed or adapted for use for the purposes of a dwelling, and
(c) either the whole or a material part of which lies above or below some other part of the building;….
(2) In this Part "lease" and "tenancy" have the same meaning, and both expressions include (where the context so permits) –
(a) a sub-lease or sub-tenancy, and
(b) an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy),
but do not include a tenancy at will or at sufferance; and the expressions "landlord" and "tenant", and references to letting, to the grant of a lease or to covenants or the terms of a lease, shall be construed accordingly."
"62 Interpretation of Chapter II
(2) Subject to subsection (3), references in this Chapter to a flat, in relation to a claim by a tenant under this Chapter, include any garage, outhouse, garden, yard and appurtenances belonging to, or usually enjoyed with, the flat and let to the tenant with the flat on the relevant date (or, in a case where an application is made under section 50(1), on the date of the making of the application).
(3) Subsection (2) does not apply-
(a) to any reference to a flat in section 47 or 55(1); or
(b) to any reference to a flat (not falling within paragraph (a) above) which occurs in the context of a reference to any premises containing the flat."
"57 Terms on which new lease is to be granted
(1) Subject to the provisions of the Chapter (and in particular to the provisions as to extent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date, but with such modifications as may be required or appropriate to take account—
(a) of the omission from a new lease of property included in the existing lease but not comprised in the flat;
(b) of alterations made to the property demised since the grant of the existing lease; or
(c) in a case where the existing lease derives (in accordance with section 7(6) as it applies in accordance with section 39(3)) from more than one separate leases, of their combined effect and of the differences (if any) in their terms."
"(3) In this Part any reference (however expressed) to the lease held by a qualifying tenant of the flat is a reference to a lease held by him under which the demised premises consist of or include a flat (whether with or without one or more other flats)."
"39 Right of qualifying tenant of flat to acquire new lease
(1) This Chapter has effect for the purpose of conferring on a tenant of a flat, in the circumstances mentioned in subsection (2), the right, exercisable subject to and in accordance with this Chapter, to acquire a new lease of the flat on payment of a premium determined in accordance with this Chapter.
(2) Those circumstances are that on the relevant date for the purposes of this Chapter—
(a) the tenant has for the last two years been a qualifying tenant of the flat; and
(3) The following provisions, namely ---
(a) section 5 (with the omission of subsections (5) and (6)),
(b) section 7,…
shall apply for the purposes of this Chapter as they apply for the purposes of Chapter I; and the references in this Chapter to a qualifying tenant of a flat shall accordingly be construed by reference to those provisions.
(3A) On the death of a person who has for the two years before his death been a qualifying tenant of a flat, the right conferred by this Chapter is exercisable, subject to and in accordance with this Chapter, by his personal representatives; and, accordingly, in such a case references in this Chapter to the tenant shall, in so far as the context permits, be to the personal representatives.
(4) For the purposes of this Chapter a person can be (or be among those constituting) the qualifying tenant of each of two or more flats at the same time, whether he is tenant of those flats under one lease or under two or more separate leases.
(7) The right conferred by this Chapter on a tenant to acquire a new lease shall not extend to underlying minerals comprised in his existing lease if-
(a) the landlord requires the minerals to be excepted, and
(b) proper provision is made for the support of the premises demised by that existing lease as they are enjoyed on the relevant date.
(8) In this Chapter "the relevant date", in relation to a claim by a tenant under this Chapter, means the date on which notice of the claim is given to the landlord under section 42."
"5 Qualifying tenants
(1) Subject to the following provisions of this section, a person is a qualifying tenant of a flat for the purposes of this Chapter if he is tenant of the flat under a long lease …
(2) Subsection (1) does not apply where –
(a) the lease is a business lease; or
(b) the immediate landlord under the lease is a charitable housing trust and the flat forms part of the housing accommodation provided by it in the pursuit of its charitable purposes; or
(c) the lease was granted by sub-demise out of a superior lease other than a long lease …, the grant was made in breach of the terms of the superior lease, and there has been no waiver of the breach by the superior landlord;
and in paragraph (b) "charitable housing trust" means a housing trust within the meaning of the Housing Act 1985 which is a charity within the meaning of the Charities Act 1993.
(3) No flat shall have more than one qualifying tenant at any one time.
(a) where a flat is for the time being let under two or more leases to which subsection (1) applies, any tenant under any of those leases which is superior to that held by any other such tenant shall not be a qualifying tenant of the flat for the purposes of this Chapter; and
(b) where a flat is for the time being let to joint tenants under a lease to which subsection (1) applies, the joint tenants shall (subject to paragraph (a) and subsection (5)) be regarded for the purposes of this Chapter as jointly constituting the qualifying tenant of the flat….
7 Meaning of "long lease"
(1) In this Chapter "long lease" means (subject to the following provisions of this section –
(a) a lease granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant or by re-entry, forfeiture or otherwise;…"
By virtue of s 5(3) and (4)(a), if there is a chain of tenants, the lowest tenant in the chain is the qualifying tenant. This means that a head lessee cannot be a qualifying tenant if he has granted a sublease. The sub lessee gets the benefit of the right of individual lease extension and there is no residence condition. Section 5(5) and (6), which do not apply to individual lease extension (see s 39(3)), would have prevented a person from exercising the right of individual lease extension if he (or in the case of a body corporate, an associated company) had two or more other flats in the relevant building. By contrast, for the purpose of individual lease extension, a tenant can be the tenant of any number of flats under the same or different leases (s 39(4)).
"58 Grant of new lease where interest of landlord or tenant is subject to a mortgage
Where the existing lease is, immediately before its surrender on the grant of a lease under section 56, subject to a mortgage, the new lease shall take effect subject to the mortgage, in substitution for the existing lease; and the terms of the mortgage, as set out in the instrument creating or evidencing it, shall accordingly apply in relation to the new lease in like manner as they applied in relation to the existing lease."
"58A Priority of interest on grant of new lease
(1) Where a lease granted under section 56 takes effect subject to two or more interests to which the existing lease was subject immediately before its surrender, the lease was subject immediately before its surrender, interests shall have the same priority in relation to one another on the grant of the new lease as they had immediately before the surrender of the existing lease.
Subsection (1) is subject to agreement to the contrary…"
"Covenants by lessor
14(1) The lease shall include covenants by the lessor—
(a) to keep in repair the structure and exterior of the demised premises and of the specified premises (including drains, gutters and external pipes) and to make good any defect affecting that structure:
(b) to keep in repair any other property over or in respect of which the lessee has rights by virtue of this Schedule;
(c) to ensure, so far as practicable, that the services which are to be provided by the lessor and to which the lessee is entitled (whether alone or in common with others) are maintained at a reasonable level, and to keep in repair any installation connected with the provision of any of those services.
(2) The lease shall include a covenant requiring the lessor—
(a) to insure the specified premises for their full reinstatement value against destruction or damage by fire, tempest, flood or any other cause against the risk of which it is the normal practice to insure;
(b) to rebuild or reinstate the demised premises or the specified premises in the case of any such destruction or damage".
"Deemed surrender and re-grant of leases of other landlords
10 (1)Where a lease is executed under section 56 or 93(4) or in pursuance of any order made under this Chapter, then (subject to sub-paragraph (3)) that instrument shall have effect for the creation of the tenant's new lease of his flat, and for the operation of the rights and obligations conferred and imposed by it, as if there had been a surrender and re-grant of any subsisting lease intermediate between the interest of the competent landlord and the existing lease; and the covenants and other provisions of that instrument shall be framed and take effect accordingly.
(2) Section 57(2) shall apply to the new lease on the basis that account is to be taken of obligations imposed on any of the other landlords by virtue of that or any superior lease, and section 59(3) shall apply on the basis that the reference there to the tenant's landlord includes the immediate landlord from whom the new lease will be held and all superior landlords, including any superior to the competent landlord.
(3) Where a lease of the tenant's flat superior to the existing lease is vested in the tenant or a trustee for him, the new lease shall include an actual surrender of that superior lease without a re-grant, and it shall accordingly be disregarded for the purposes of the preceding provisions of this paragraph."
Maurice v Hollow-Ware Products Ltd
Discussion and conclusions on the question whether a head lessee can exercise the right of individual lease extension
"Article 1 -- Protection of property
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. "
"5(1) Where the landlord will suffer any loss or damage to which this paragraph applies, there shall be payable to him such amount as is reasonable to compensate him for that loss or damage.
(2) This paragraph applies to-
(a) any diminution in value of any interest of the landlord in any property other than the tenant's flat, which results from the grant to the tenant of the new lease; and
(b) any other loss or damage which results therefrom to the extent that it is preferable to the landlord's ownership of any such interest."
"(3) A term, at a rent or granted in consideration of a fine, limited after the commencement of this Act to take effect more than twenty-one years from the date of the instrument purporting to create it, shall be void, and any contract made after such commencement to create such a term shall likewise be void; but this subsection does not apply to any term taking effect in equity under a settlement, or created out of an equitable interest under a settlement, or under an equitable power for mortgage, indemnity or other like purposes."
"These requirements [requirements of the Convention as to the quality of the law in question] are based on the principle that any restrictions on the rights and freedoms of the individual must be prescribed by law in a way that is sufficiently accessible and sufficiently precise to enable the individual to foresee the consequences."
(1) the clear references to other property argument. This is the argument that there is clear statutory recognition that the lease held by tenant exercising the right of individual lease extension may include property other than a flat.
I agree with this point, so far as it goes, but I do not accept that the other property includes the common parts held by the head lessee. It is capable of referring to other property held by the tenant of a flat in the sense I have interpreted that term, for example a second flat owned by him in the same block of flats.
(2) the complete extinction argument (the argument that the statutory substitution of the new lease on the existing lease in s 56 results in the extinction of the old lease)
I agree with the respondents' response that there is no justification for treating the "rump" lease as extinguished when the new lease is granted on exercise of the right of individual lease extension.
(3) the apportionment of rent argument (the argument that it is significant that the statute makes no provision for the apportionment of rent for the residual lease remaining after the grant of the new lease)
I agree that it may be possible for rent to be apportioned at common law but find the omission of a provision for apportionment curious if head lessees were likely to be qualifying tenants.
(4) the integrity of covenants argument (the argument that the 1993 Act makes no provision for the separation of the existing lease into several parts)
I consider that the appellants' argument on this and (5), (6) and (7) below (which are connected and to some extent overlap) mean that the court has to find clear indications in the 1993 Act if the head lessees are to be qualifying tenants entitled to exercise the right of individual lease extension. The absence of the detailed provisions found elsewhere in Chapter II is significant.
(5) the silence on rights over the common parts argument (the argument that it is significant that Parliament has not provided for the extensive modifications that may be required to the existing lease)
See under (4) above.
(6) the intermediate lease argument (the absence of any comparable statutory extension of the intermediate lease with the result that the owner has to grant rights for the period commencing with the determination of the intermediate lease)
See under (4) above.
(7) the patchwork argument (the effect of individual lease extension in the case of individual flats in a block of flats is to create an onerous management structure, which so far as the owner is concerned is sometimes through the head lessee and sometimes direct with the tenant of flat)
See under (4) above.
(8) the solution by negotiation argument (the argument that in practice, the owner and head lessee will get together to fill the gaps left by Parliament)
While it may be possible for there to be successful negotiations in practice about the covenants in the new lease over the common parts for the remainder of the head lessee's term, this is not a basis on which it can be assumed that Parliament would have legislated.
(9) The article 1 of the first protocol argument, that is, the appellants' argument that the 1993 Act should be interpreted as not conferring a right of individual lease extension on head lessees because that would interfere with the landlords' rights under article 1 of the first protocol to the Convention .
It is unnecessary to decide this issue but I express reservations about whether Chapter II satisfied the requirements of the Convention as to the quality of law so far as the freehold owners of property are concerned.
(10) The perpetuities argument, that is, the appellant's argument that the freehold owner could not grant rights over the common parts to protect the tenant under the new lease, because that grant would be void by reason of s149(3) of the Law of Property Act 1925.
I have proceeded on the basis that the respondents' argument is correct but have found their solution to this problem (which arises in relation to the freehold owner's covenants to take effect on the termination of the head lease) to be artificial and cumbrous.
(11) the flat curtilage argument: that is, the 1993 Act provides no means for the determination of where the boundaries of the flat should lie as between head lessee and owner.
I consider that weight should be given to this point as Chapter II provides no solution to the problem how the curtilage of the flat is to be defined if it has not previously been agreed between the parties, but this problem will not arise in every case.
(Howard de Walden appeal only) The deposit issue
"(1) a claim by a qualifying tenant of a flat to exercise the right to acquire a new lease of the flat is made by the giving of notice of the claim under this section.
(2) a notice by a tenant under this section ("the tenants notice") must be given-
(a) to the landlord…
(8) Where a notice is given in accordance with this section, then for the purposes of this Chapter the notice continues in force from the relevant date-
(a) until a new lease is granted in pursuance of the notice;
(b) if the notice is withdrawn, or is deemed to have been withdrawn, under or by virtue of any provision of this Chapter, until the date of the withdrawal or deemed withdrawal; or
(c) until such other time as the notice ceases to have effect by virtue of any provision of this Chapter;
but this subsection has effect subject to section 54.".
"Payment of deposit
2 (1) The landlord may give to the tenant a notice requiring him to pay a deposit on account of the premium payable for the lease at any time when the tenants notice continues in force under section 42(8)…
(3) The tenant shall pay the deposit so required to the landlord's solicitor or licensed conveyancer as stakeholder within the period of fourteen days, beginning with the date the notice is given.
Return of Deposit
3 (1) Subject to subparagraph (3), the tenant may give to the landlord a notice requiring him to procure the return of the deposit to the tenant at any time after the tenant's notice is withdrawn, deemed to have been withdrawn or otherwise ceases to have effect.
(2) The landlord shall comply with any such requirement within the period of fourteen days, beginning with the date the notice is given.
(3) The landlord shall be entitled to have deducted from the deposit any amount due to him from the tenant in accordance with section 60 (tenant's liability for costs)."
"(1) The court may, on the application of any person interested, make an order requiring any person who has failed to comply with any requirement imposed on him under or by virtue of any provision of Chapter II to make good the default within such time as is specified in the order…. "
Disposition of these appeals
Lord Justice Mummery :
Lord Justice Jacob:
Judgment of the Court on Precedent