England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice
		23rd November 2007

SIR DONALD RATTEE:

1. This appeal concerns the application of s.43(3) of the Leasehold Reform, Housing & Urban Development Act 1993. Section 39 of that act gives what is called a qualifying tenant of a flat the right to acquire a 90 year extension of his lease in certain specified circumstances.
2. To exercise the right the tenant has to serve a notice on the landlord in accordance with s.42 of the 1993 Act, specifying in particular the tenant's proposal for the terms of the new lease and the premium to be paid on its grant. S.45 of the 1993 Act provides for a landlord served with such a notice to serve a counter-notice on the tenant, indicating which of the tenant's proposals the landlord accepts and making counter-proposals if so desired.
3. S.43, on which the present appeal turns, provides as follows:

"(1) Where a notice has been given under section 42 with respect to any flat, the rights and obligations of the landlord and the tenant arising from the notice shall enure for the benefit of and be enforceable against them, their personal representatives and assigns to the like extent (but no further) as rights and obligations arising under a contract for leasing freely entered into between the landlord and the tenant.

"(2) Accordingly, in relation to matters arising out of any such notice, references in this Chapter to the landlord and the tenant shall, in so far as the context permits, include their respective personal representatives and assigns.

"(3) Notwithstanding anything in subsection (1), the rights and obligations of the tenant shall be assignable with, but shall not be capable of subsisting apart from, the lease of the entire flat; and if the tenant's lease is assigned without the benefit of the notice, the notice shall accordingly be deemed to have been withdrawn by the tenant as at the date of the assignment".

4. The relevant facts are not in dispute and I take a helpful summary of them from the skeleton argument provided for my assistance by counsel for the appellant. The appellant, Typeteam Limited, is the freehold owner of certain premises at 17 - 40 Cavendish Mansions, Mill Lane in Hampstead.
5. On 26^th August 2005 a Mr. Rosner, the leasehold owner of Flat 20 comprised within that property, served a notice under s.42 of the 1993 Act on the appellant seeking a lease extension. The notice was a valid notice and has been accepted as such, and Mr. Rosner was a qualifying tenant. The notice proposed a premium of £14,600.
6. On the same day, 26^th August 2005, Mr. Rosner entered into a contract to sell his flat, Flat 20, to the respondents. The contract included a provision in clause 9 that:

"Immediately following exchange of contracts, the seller [that is Mr. Rosner] will serve a notice under s.42 of the Leasehold Reform, Housing & Urban Development Act 1993 in the form annexed hereto and all rights and obligations arising therefrom will be assigned to the buyer on completion, and the buyer will in the assignment indemnify the seller against all obligations, costs and expenses arising from or in connection with the said notice.

7. On 1^st September 2005 Mr. Rosner completed the sale of his flat to the respondents. On the same day Mr. Rosner and the respondents entered into an assignment purporting to transfer the benefit of the notice to be served under s.42 to the respondents.
8. I should refer to some of the terms of that assignment. It recites that Mr. Rosner was the lessee of Flat 20 and it recites that Mr. Rosner served a s.42 notice on the appellant, as landlord. It also recites that Mr. Rosner had agreed to sell the leasehold interest in the flat to the respondents, together with assigning to them the benefit of Mr. Rosner's right to obtain an extended lease in the flat pursuant to the s.42 notice.
9. Then the deed witnessed that, in consideration of the respondents purchasing the leasehold flat from Mr. Rosner, Mr. Rosner:

"hereby assigns unto the buyers [that is the respondents] all that right and interest to obtain an extended lease of the property by virtue of service by the seller of the s.42 notice under the Leasehold Reform, Housing & Development Act 1993 as amended".

10. On 21^st September 2005 the transfer of Mr. Rosner's leasehold interest in the flat executed by him on completion of the contract of sale to the respondents was registered, and the respondents were registered as proprietors of that leasehold interest.
11. On 3^rd November 2005 the appellant's solicitors served on the respondents' solicitors a counter-notice pursuant to s.45 of the 1993 Act, in which they admitted the respondents' right to the new tenancy, but without prejudice, it said, to the contention which they raised, that the s.42 notice had been deemed to be withdrawn by virtue of s.43(3) of the 1993 Act.
12. On 7^th July 2006 the appellant commenced proceedings in the county court for a declaration that the s.42 notice had been deemed to be withdrawn, pursuant to s.43(3) of the 1993 Act. On 20^th July 2006 Mr. Rosner and the respondents executed what was called a deed of rectification, by which they sought to rectify the assignment of the rights under the s.42 notice, so that the assignment should be read and construed as if the assignment took effect on the date on which the respondents were registered as leasehold owners of the flat.
13. The proceedings brought by the appellant for a declaration were heard by Judge Cowell QC on 6^th December 2006. The appellant's case before the learned Judge, as indeed before this court, was that the effect of s.43(3) of the 1993 Act was that the s.42 notice was deemed to have been withdrawn in the present case, because:

1) The transfer of the lease from Mr. Rosner to the respondents did not take effect in law until registered (see s.27 of the Land Registration Act 2002).

2) Therefore, the assignment of the rights under s.42 was ineffective because it purported to transfer those rights immediately not only on the transfer of the legal interest in the lease being registered, as appears from the citation I have made of s.43(3). The first part of the sub-section provides that the rights and obligations of the tenant by virtue of a s.42 notice shall be assignable with, but shall not be capable of subsisting apart from the lease of the flat.

3) Therefore, ran the argument of the appellant, when the transfer of the lease became effective at law by registration, it took effect without the benefit of the s.42 notice, within the meaning of the words s.43(3): "If the tenant's lease is assigned without the benefit of the notice".

14. The learned Judge rejected that argument. He decided that it was permissible to read s.43(3) as referring, in the words I have just again quoted, to an assignment, whether taking effect at law or in equity. The transfer of the lease, held the Judge, was an assignment, albeit equitable within the meaning of s.43(3), and it was accompanied by the simultaneous assignment of the rights under the s.42 notice, so that there was no deemed withdrawal under s.43(3) of the s.42 notice.
15. The appellant has appealed from that decision and contends that the Judge was wrong to conclude that the word "assignment" in s.43(3) is capable of including an assignment effective only in equity. Counsel for the appellant relied on a decision of the Court of Appeal in Brown & Root Technology Ltd. v. Sun Alliance [1997] 19 E.G.L.R. 39, in which the court decided that the word "assignment" in a break clause in a lease meant an assignment of a legal and not equitable estate.
16. Counsel for the appellant also submitted that it was wrong of the Judge, in the context of the whole of sections 39 - 53 of the 1993 Act, to construe the word "assignment" as including an equitable assignment or an assignment of an equitable interest, because it is essential, submitted counsel, for the working of those provisions of the 1993 Act, that each of the landlord and the tenant need only look to the identification of their opposite number tenant or landlord, and that that might well prove impossible if it was necessary for a landlord or a tenant to take account of possible transfers of only equitable interests in the lease or the reversion.
17. Counsel for the respondents submitted, in effect, that it was really unnecessary to consider the question of whether the word "assignment" in s.43(3) includes an equitable assignment, because the simple answer to the appellant's case is as follows. It is clear, submitted counsel for the respondents, that Mr. Rosner and the respondents intended the assignment of the s.42 notice rights and the transfer of the lease to take effect together, to pass the lease and the s.42 notice rights with it.
18. Indeed, any assignment of the s.42 rights could not take effect, other than together with the assignment of the lease (see the first part of s.43(3), which I have quoted). The only way, submitted counsel, in which the assignment of the s.42 rights, which was clearly intended by the parties to be effective, could be effective at all was on the basis that it effected a vesting of the rights under the s.42 notice in the respondents at the same time as the transfer of the lease became effective; that is to say on registration. Therefore, submitted counsel, the assignment of the rights under the s.42 notice should be construed as taking effect in that way.
19. To say, within the terms of s.43(3), that registration of the lease transfer constituted an assignment of the lease without the benefit of the s.42 notice when Mr. Rosner had clearly done everything he could to pass the benefit of those rights together with the lease, by transferring both at the same time would, submitted counsel for the respondents, be nonsensical.
20. I agree. In my judgment, the clear intention of the parties to the assignment of the rights under the s.42 notice was that those rights should pass to the respondents, together with the benefit of the lease. The assignment simply could not take effect in any other way. There is no difficulty, in my judgment, in effecting that intent by construing the assignment as a transfer of the s.42 rights to take effect, together with the transfer of the legal title to the lease, which was perfected on registration of the latter, and I do so construe it.
21. To give it any other construction would, in my judgment, produce a wholly unrealistic and, as counsel for the respondents suggested, nonsensical result. On the basis that the proper construction is that which I have described, the lease concerned was never assigned without the benefit of the s.42 notice, and accordingly, that notice is not deemed by s.43(3) to have been withdrawn. Accordingly, I shall dismiss this appeal.