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 CIVIL JUSTICE CENTRE
HHJ COWELL
CHY 06359

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 December 2008

Sir William Aldous:

1. The appellants contend they are entitled to acquire the freehold of No. 59 Great Cumberland Place, London, W.1 by enfranchisement under the Leasehold Reform Act 1967. The respondents dispute that contention on two grounds. Only the first is relevant, namely that on the date when the claim was made the appellants were no longer tenants of the whole of No. 59 under a tenancy to which the 1967 Act applied. That depends upon whether termination of the lease was prevented by service of a section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993.
2. The respondents are the freehold owners of No. 59. It was let for a term of fifty years expiring on 29 September 2001 at a ground rent of £225 per annum. That term was assigned to the appellants on 28 May 1998.
3. No. 59 comprises five flats situated in the basement, first, second, third, and fourth floors with consulting rooms on the ground floor and storage in the basement. The appellants reside in Flat 3.
4. By an initial notice dated 11 May 2000 served under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993, the appellants sought collective enfranchisement of No. 59. A counter-notice was served and proceedings started. On 18 January 2002 the appellants claim for collective enfranchisement was dismissed on the ground that No. 59 did not consist of a single flat but consisted of five flats and that the appellants were not qualifying tenants. An application for permission to appeal was refused by the Court of Appeal on 19 March 2002.
5. By notice dated 24 September 2001, served under section 42 of the 1993 Act, the appellants claimed to exercise the right to acquire a new lease of Flat 3. In proceedings arising from service of that notice, the respondents objected to the claim for a new lease on the ground that they wished to redevelop the house. That issue has been stayed pending determination of this claim.
6. There followed the claim for freehold enfranchisement. By notice dated 18 April 2002 the appellants gave notice to acquire the freehold under section 8 of the 1967 Act. The respondents objected to enfranchisement of the freehold on three grounds:

(1) There was no longer a tenancy of the whole of No. 59 to which the 1967 Act applied;

(2) No. 59 was excluded from the definition of a "house" by section 2(2)of the 1967 Act;

(3) On the date of the April notice, the residence test under the 1967 Act was not satisfied.

7. Since service of the notice the respondents have accepted that the residence test was satisfied. Thus the only grounds of objection were the first two set out above.
8. By a second notice dated 30 October 2002, the appellants gave notice claiming to acquire the freehold of No. 59 under section 8 of the 1967 Act. The respondents disputed that claim relying upon grounds (1) and (2) set out above.
9. In summary the respondent's case that succeeded before the judge was that when the appellants served their notice under section 42 they were no longer tenants of the whole of the property because the lease had expired by effluxion of time on 28 September 2001. To arrive at that conclusion the judge rejected the submission of the appellants that the lease had been extended by service of the section 42 notice on 24 September 2001 and the provisions of schedule 12 paragraph 5 (1) of the 1993 Act.

The Statutory Framework.

10. Chapter 2 of the 1993 Act deals with the right of a tenant of a flat to acquire a new lease. Section 39 provides:

"39(1) This Chapter has effect for the purpose of conferring on a tenant of a flat, in the circumstances mentioned in sub-section (2), the right, exercisable subject to and in accordance with this Chapter, to acquire a new lease of the flat on the payment of a premium determined in accordance with this Chapter. ………………

(4) For the purpose 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."

11. Section 42 provides the mechanism for the tenant to exercise his claim.

"42(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 giving notice of the claim under this section.

(2) A notice given by a tenant under this section ("the tenant's notice") must be given –

(a) to the landlord, and

(b) to any third party to the tenants lease.

(3) The tenants notice must –

(a) state the full name of the tenant and address of the flat in respect of which he claims a new lease under this Chapter;

(b) contain the following particulars namely –

(i) sufficient particulars of that flat to identify the property to which the claim extends ……………..

(c) specify the premium which the tenant proposes to pay in respect of the grant of a new lease under this chapter and, where any other amount will be payable by him in accordance with any provision of schedule 13, the amount which he proposes to pay in accordance with that provision; ……………………

(9) Schedule 12 (which contains restrictions on terminating a tenant's lease where he has given a notice under this section and makes other provision in connection with the giving of notices under this section) shall have effect."

12. Section 56, of which the relevant parts are in these terms, contains the landlord's obligation to grant a new lease.

"56 (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 for under 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."

13. Section 57 is concerned with the terms of the new lease. It provides as far as relevant:

"57(1) Subject to the provisions of this chapter (and in particular to the provisions as to rent 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 the 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.

14. Section 61A was added by amendment in 1996. It provides for compensation for postponement of termination for ineffective claims. So far as relevant it is in these terms."

"61A(1) This section applies where, on or after the 15 January 1999-

(a) a tenant of a flat makes a claim to acquire a new lease of the flat, and

(b) the claim is not made at least two years before the term date of the lease in respect of the claim is made ("the existing lease.")

(2) The tenant shall be liable to pay compensation if the claim is not effective and- ………….

(c) the existing lease is continued under paragraph 5 (1) of Schedule 12 by virtue of the claim.

(3) Compensation under subsection (2) shall become payable at the end of the appropriate, period and be the right of the person who is the tenant's immediate landlord at that time.

(4) The amount which the tenant is liable to pay under sub-section 2 shall be equal to the difference between –

(a) the rent for the appropriate period under the existing lease, and

(b) the rent which might reasonably be expected to be payable for that period were the property to which the existing lease relates let for a term equivalent to that period on the open market by a willing landlord on the following assumptions –

(i) that no premium is payable in connection with the letting,

(ii) that the letting confers no security of tenure, and

(iii) that, except as otherwise provided by this paragraph, the letting is on the same terms as the existing lease."

15. Paragraph 5 (1) of schedule 12 is as follows:

"5(1) Where by a notice under section 42 a tenant makes a claim to acquire a new lease of a flat, then during the currency of the claim and for three months thereafter the lease of the flat shall not terminate –

(a) by effluxion of time, or

(b) in pursuance of a notice to quit given by the immediate landlord of the tenant, or

(c) by the termination of a superior lease;

but if the claim is not effective, and but for this sub-paragraph the lease would have so terminated before the end of those three months, the lease shall so terminate at the end of those three months."

The Appeal

16. The notice served by the appellants under section 42 named the flat in respect which a new lease was claimed as Flat 3 and the particulars given, as required by section 42, related only to that flat.
17. Mr Radevsky for the appellants submitted that paragraph 5 of schedule 12 did not provide for continuation of only a part of a lease. It was the whole lease that continued upon service of the section 42 notice. For that reason the lease of No. 59 had not terminated. He went on to support that submission by reference to other sections of the Act which he submitted were consistent and only consistent with that construction. He also referred us to the reasoning in the judgment of Neuberger J. in Malekshad v Howard De Walden Estates Ltd. (No.2) [2003] EWHC 3106, [2004] 1 WLR 862. Although that case was concerned with a differently worded paragraph in another Act, there was, he submitted, no reason to suppose that the position was different under the similarly worded provisions of the 1993 Act.
18. Mr Jonathan Gaunt Q.C. who appeared with Mr Edward Cole for the respondents submitted that the wording of paragraph 5 of Schedule 12 of the 1993 Act was clear. The claim under Chapter 2 of the Act was for a new lease of Flat 3 and all that continued was the lease of that flat. There was he submitted no reason why the lease of the flat insofar as it demised the flat should not be severed. All that paragraph 5 was doing was to preserve the position pending determination of the claim. That being so, he submitted, the only construction which provided a sensible and commercial result and which was consistent with the Act as a whole limited continuation to the lease insofar as it demised Flat 3. Mr Gaunt did not accept that Malekshad (No.2) was rightly decided, but submitted that in any case it was not an authority which threw light upon the construction of paragraph 5 of schedule 12 of the 1993 Act. He referred us to the recent House of Lords decision of Howard De Walden Estates Ltd v Aggio & others [2008] 3 WLR 244 as support for his construction of paragraph 5 of schedule 12 and to cast doubt on the correctness of the decision in Malekshad, (No. 2).
19. The first stage to a decision on construction must be consideration of the statutory language. Thereafter it is appropriate to look at the other provisions of the Act and practical results to see whether they require a different conclusion.
20. I, like the judge, believe that paragraph 5 of the schedule 12 of the 1993 Act is clear. The lease that is continued is the lease of the flat the subject of the claim and only that lease.
21. Section 39 confers on a tenant of a flat the right to acquire a new lease of the flat. The section 42 notice, which makes the claim, has to give particulars of the flat in respect of which the new lease is claimed. In this case it was Flat 3. The new lease is, as section 56 states, in substitution for the existing lease which could be a head lease. It could, as was made clear in the Aggio case, have adjusted terms. Paragraph 5 of schedule 12 refers to a notice under section 42. In this case that was a notice which related solely to Flat 3 and claimed a new lease of Flat 3. That being so, "then during the currency of the claim and for three months thereafter the lease of the flat should not terminate." The paragraph is confined to the lease insofar as it relates to the flat in question and does not apply to other flats or parts of the building which may be comprised in the lease.
22. The purpose of paragraph 5 is to preserve the position pending determination of the claim. The construction I have arrived at is consistent with just that. After service of a section 42 notice relating to a single flat, there is no need to continue the lease insofar as it demises other flats pending determination of one claim for a new lease. In fact to do so could give rise to inequity. If the claim was effective, the landlord would be kept out of possession of the other flats for perhaps a number of years. That would appear to be contrary to Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms. If the claim was ineffective, section 61A would require the applicant to pay compensation calculated using the market rent of the whole building, not the lease that was sought to be extended. That would seem odd having regard to the claim only to extend the lease in respect of a particular flat.
23. Mr Radevsky supported his submission that the words "lease of the flat" in paragraph 5 of schedule 12 meant the lease as a whole by the absence of any provision in that paragraph for severance from the lease. He submitted that when severance was contemplated the Act made specific provision: for example sections 2 and 61A and also in sections of the Landlord and Tenant Act 1954.
24. I do not find the Landlord and Tenant Act 1954 helpful in construing paragraph 5 of schedule 12. It contains a different regime giving landlords rights not contained in chapter 2 of the 1993 Act.
25. Section 61A was added by amendment to the 1993 Act and therefore it is difficult to construe the words of schedule 12 by its terms. In any case I do not understand its provisions to be inconsistent with the meaning of paragraph 5 schedule 12 when read as I believe it should be.
26. Section 2 of the 1993 Act deals with intermediate leases. Such a provision is necessary, but it does not indicate that severance was not contemplated in paragraph 5 of schedule 12.
27. As I said, Mr Radevsky relied upon Malekshad( No.2). In that case Neuberger J. had to construe paragraph 3 (1) of schedule 3 of the Leasehold Reform Act 1967. So far as relevant it is in these terms:

"Where a tenant makes a claim to acquire the freehold …of any property, then during the currency of the claim and for three months thereafter the tenancy in that property shall not terminate … but if the claim is not effective, and but for this sub-paragraph the tenancy would have so terminated before the end of those three months, the tenancy shall so terminate at the end of the three months."

28. In that case the judge held that the tenant's notice continued the lease of all the property demised in the lease including parts that were not referred to in the notice.
29. The landlord, whose claims failed, had submitted that the reference to "any property" in the paragraph only referred to the property that had been sought to enfranchise. The judge concluded in paragraph 72 that there were "powerful reasons" for concluding that the paragraph had the meaning for which the landlords contended. He went on in paragraph 72 to say that there were "strong arguments the other way". He weighed up the arguments and concluded in paragraph 87 that they were "finely balanced".
30. Mr Gaunt came prepared to submit that Malekshad (No.2) was wrongly decided. He did not amplify his reasons for that submission perhaps because of the attitude of the court. Even without his help, it is clear that the decision was finely balanced and would be fit for consideration, in an appropriate case, by this court.
31. Malekshad (No.2) is not an authority which supports the submissions of the appellants. First the paragraph construed in that case is materially different to paragraph 5 of schedule 12 of the 1993 Act. In particular it relates to construction of the word "property" rather than the lease of a flat . Second, two of the four submissions, namely the third and fourth, that swayed the judge to find in favour of the tenant's argument are specific to that case and do not apply to the present case. Third the reasoning of the House of Lords in the Aggio case indicates that severance can be dealt with in an appropriate way. For example paragraph 76 in Malekshad refers to difficulties in respect of easements. In the Aggio case similar submissions were deployed. However Lord Neuberger in paragraphs 57 and following did not envisage that such difficulties would be insurmountable upon grant of a new lease. If so, it would seem odd that they would indicate that severance should be seen as an obstacle to the construction of paragraph 5 of schedule 12 as proposed by the appellants.
32. Finally I turn to the submissions concerning the Aggio case. In that case the claimants, in the first case before the House, were the freeholders who had granted long leases to the defendant in respect of premises consisting of a single building with five residential flats. Two of those flats were let as assured shorthold tenancies. The head lessees served notices under Chapter 2 of the 1993 Act claiming long leases of two of the five flats. The landlords served a counter-notice alleging that the head lessees were not qualifying tenants of a flat within the meaning of section 39 of the 1993 Act and therefore entitled to a new lease. The House of Lords held that section 39, properly construed, used the term "a tenant of a flat" as including a lessee whose lease included a flat, irrespective of whether there were other flats or any other property included in the demise. That construction was they held consistent with the policy of the Act to remedy the problems caused by a lease becoming a wasting asset.
33. Mr Rakevsky was right that the speeches in the Aggio case did not consider the issue raised in the present appeal and in particular did not construe paragraph 5 of schedule 12 of the 1993 Act. Further much of the reasoning could not apply. However it would appear from the speech of Lord Neuberger that the court should not resist a proper construction requiring severance because of alleged difficulties with easements and the like.
34. Mr Gaunt referred us to the respondents notice. Having regard to the conclusion I have reached there is no need for me to deal with it and I decline to do so.
35. I conclude that the judge was right and I would dismiss the appeal.

Lord Justice Jacob: I agree

Lord Justice Tuckey: I also agree