England and Wales Lands Tribunal

Cawthorne & Ors v Hamdan [2006] EWLands LRA_22_2003 (06 March 2006)

LRA/22/2003

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – collective enfranchisement – preliminary issue – nominee purchasers had appealed to Lands Tribunal against decision of Leasehold Valuation Tribunal fixing price to be paid for freehold – shortly before Lands Tribunal hearing freeholder serves notice under Schedule 9 paragraph 5 of Leasehold Reform, Housing and Urban Development Act 1993 requiring a lease back of a flat – dispute as to whether freeholder too late to serve such a notice and whether Lands Tribunal has jurisdiction to determine the point – whether freeholder also too late to serve such a notice by reason of a vesting order having been made by the County Court or by reason of estoppel by convention.

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE SOUTHERN RENT ASSESSMENT PANEL

BETWEEN (1) BETTY AUDREY CAWTHORNE

(2) SIMON JAMES MAURICE

(3) NICOLA ANN MAURICE Appellants

(4) GUITY SAADAT

(5) M & P PROPERTIES LIMITED

and

MICHA'AL HAMDAN Respondent

Re: 6 Palmeira Square

Hove

East Sussex

Before: His Honour Judge Huskinson

Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL

on 27 February 2006

Jeremy Donegan solicitor, Osler Donegan Taylor for the appellants

Steven Schaw Miller instructed by Withers LLP for the respondent


 


The following cases are referred to in this decision:

West Hampstead Management Co Limited v Pearl Property Limited [2002] EWCA Civ 1372

London and Winchester Properties Ltd's appeal (1983) 45 P & CR 429

Maryland Estates Limited v 63 Perham Road Ltd [1997] 35 EG 94

Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167

Troop v Gibson [1986] 1 EGLR 1.

DECISION

Introduction

1. The appellants are the nominee purchaser for the purposes of Part I of the Leasehold Reform Housing and Urban Development Act 1993 as amended of 6 Palmeira Square, Hove, East Sussex ("the Premises") which is a terrace house comprising six floors including a basement. The appellants appealed to the Lands Tribunal out of time (but with permission to appeal out of time pursuant to the order of the Registrar dated 13 August 2003) from the decision of the Leasehold Valuation Tribunal for the Southern Rent Assessment Panel dated 22 July 2002 whereby the leasehold valuation tribunal decided that the price to be paid by the appellants for the freehold of the Premises was £182,190.
2. In the decision of the leasehold valuation tribunal the valuation of the flat on the top floor (namely the fourth floor) of the Premises contributed by far the greatest ingredient (£161,500) to the total value (£182,190) because this flat (hereafter called "the Top Flat") was treated as subject to an assured shorthold tenancy whereas the other flats were subject to long leases at low rents.
3. The appellants in their ground of appeals do not seek to challenge any part of the leasehold valuation tribunal's decision except the part deciding upon the amount contributed to the total value by the Top Flat. The basis of the challenge is that the appellants only discovered after the leasehold valuation tribunal's decision (namely only in May 2003) that in fact the Top Flat was not subject to an assured shorthold tenancy but was instead subject to an agreement between the respondent and a Mr Lloyd in a document entitled Memorandum of Agreement dated 23 March 2000 (hereafter called "the Memorandum of Agreement"). This document purported to constitute an agreement to grant Mr Lloyd a lease of the Top Flat for five years from 17 April 1999 at a rent of £4,940 pa and also provided that the main terms of the lease would include, inter alia:

"(iii) The right for the tenant to renew their lease for a further period of ten years upon the tenant giving written notice to the landlord not less than 3 months before the expiration of the end of term of the lease for a consideration of £10,000. This is subject to the tenant paying the landlord's reasonable administrative costs".

4. The appellants and their solicitors and valuer had not previously been aware of the existence of the memorandum of agreement as it had not previously been revealed by the respondent. Also the respondent's own expert in his submissions to the leasehold valuation tribunal expressly dealt with the position regarding the Top Flat on the basis that the Top Flat was indeed the subject of an assured shorthold tenancy. Accordingly both the appellants and the respondent, through their valuers, proceeded before the leasehold valuation tribunal on the agreed basis that the Top Flat was the subject of an assured shorthold tenancy. The leasehold valuation tribunal, unsurprisingly, proceeded also on this basis and expressly valued the freehold on the basis that the Top Flat was the subject of an assured shorthold tenancy.
5. In due course the appellants submitted to the Lands Tribunal a statement of case. By an order dated 13 June 2005 the Tribunal ordered the respondent to serve a reply within 14 days of the date of the order failing which the respondent was thereafter to be debarred from defending the appeal. The respondent did not submit any statement of case within that period of 14 days or at all.
6. The date of 27 February 2006 was set for the hearing of the appellants' appeal. However, during the course of the week prior to this hearing the following events occurred:

1. By a letter faxed to the Lands Tribunal dated 22 February 2006 Withers LLP indicated they were formally instructed to go on the record as acting for the respondent. On behalf of the respondent they applied to be heard at the forthcoming appeal and they set out grounds for their application, detailing the difficulties which the respondent had had with his previous solicitor.

2. On 22 February 2006 the respondent, through his solicitors Withers LLP, served on 6 Palmeira Square (Hove) Limited a notice stated to be given under Section 36 and paragraph 7 of Schedule 9 of the 1993 Act requiring that he be granted a leaseback of the Top Flat. It can be noted at this stage that the addressee of this notice was not the same as the nominee purchaser for the purposes of the Act, but at the hearing before the Tribunal the respondent's counsel indicated that a notice in the same terms was that day being served upon the nominee purchaser. Mr Donegan, while arguing for the reasons dealt with in detail below that the purported leaseback notice was invalid, did not seek to take the further point that it was invalid by reason of having been given to the wrong addressee. Accordingly no point was taken on the identity of the addressee of the notice.

7. When this case was called on Mr Donegan and Mr Schaw Miller accepted that the appropriate course to follow was that the Tribunal should consider as a preliminary issue the validity of the leaseback notice.
8. There was a measure of agreement between the parties at least to the following extent:

(1) Mr Donegan and Mr Schaw Miller agreed that, despite the debarring order, Mr Schaw Miller could be heard on this point regarding the validity of the leaseback notice.

(2) They agreed, bearing in mind the date of the Section 13 notice which originally was served by the appellants, that the terms of the 1993 Act prior to the amendments made by the Commonhold and Leasehold Reform Act 2002 were the appropriate terms for consideration.

(3) It was further agreed that if the leaseback notice was finally ruled invalid, then it would be for this Tribunal to continue with the appellants' appeal on valuation against the leasehold valuation tribunal decision fixing the price at £182,190.

(4) However, if the leaseback notice was held to be valid, then it was agreed the effect of this would render pointless the appeal to this Tribunal from the leasehold valuation tribunal's fixing the price at £182,190. This was because having regard to the terms of Schedule 9 and Schedule 6 (especially paragraph 3(4)) of the 1993 Act the Top Flat would in these circumstances (i.e. supposing the leaseback notice valid) make no or no significant contribution to the price to be paid for the freehold of the Premises. Also it was agreed that if the leaseback notice was valid then, in the light of the Court of Appeal decision in West Hampstead Management Co Limited v Pearl Property Limited [2002] EWCA Civ 1372, the valuation date to be adopted for the purpose of valuing the freehold of the premises would be altered from the agreed valuation date of 27 September 2001 (being the date upon the basis on which the leasehold valuation tribunal proceeded) to a later date (being a date not yet reached) when the terms of the leaseback of the Top Flat were agreed or were determined by the leasehold valuation tribunal. It was therefore agreed that, if the leaseback notice was valid, the appropriate course would be for a fresh application to be made to the leasehold valuation tribunal on the basis of a change of circumstances (see section 24(4) of the Act) and that the present appeal could not usefully be pursued and should not be pursued because it had become pointless.

9. The matters in issue at the hearing on 27 February 2006 were:

(1) The question of jurisdiction, namely whether this Tribunal has jurisdiction to decide the validity or otherwise of the claimed leaseback notice of 22 February 2006 (as Mr Donegan contended) or whether instead this Tribunal has no jurisdiction so to decide such that the question of validity should be determined by the County Court or, if that were wrong, then by the leasehold valuation tribunal (as Mr Schaw Miller contended).

(2) The question of whether, supposing the Lands Tribunal did have jurisdiction to decide the point, the leaseback notice was valid.

(3) The question of whether, if this Tribunal decided the leaseback notice was invalid, the respondent should be entitled, despite the debarring order, to participate in the substantive appeal regarding the challenge to the leasehold valuation tribunal's decision on value.

10. Mr Schaw Miller observed that any submissions he made to the Tribunal were made on a basis of reserving the respondent's position regarding such possible arguments as the respondent might have, even at this stage, regarding whether the original section 13 notice served by the appellants was valid. The fact that I have, as requested, recorded this reservation of position by Mr Schaw Miller is not to be taken as any recognition that there may exist any basis on which the respondent can at this stage seek to challenge the original notice served by the appellants.

Chronology of events

11. The section 13 notice originally served by the appellants is not before me, nor is respondent's section 21 counter notice. It is however common ground that the respondent's counter notice was served under section 21(2)(a) in that it stated that the respondent admitted that the appellants were on the relevant date entitled to exercise the right to collective enfranchisement in relation to the Premises. I do not know the precise date of this notice and counter notice, but they were served in 2001. As a result the appellants and the respondent agreed for the purpose of the leasehold valuation tribunal hearing that the valuation date was 27 September 2001.
12. By the date of the hearing before the leasehold valuation tribunal (in July 2002) the parties had agreed most if not all of the terms of the proposed transfer, such that the only point upon which a ruling from the leasehold valuation tribunal was sought was a determination as to the price to be paid. The following dates subsequent to the decision of the leasehold valuation tribunal, namely 22 July 2002, can be noted:

Date
July to November 2002	The parties negotiated the terms of the proposed contract. The appellants' solicitors asked for, but did not obtain, particulars of the tenancy affecting the Top Flat.
19 November 2002	The appellants applied to Brighton County Court for a vesting order and for disclosure of information and certain related matters.
6 January 2003	Order of Brighton County Court requiring the respondent to transfer the freehold of the Premises for the sum of £182,190 and ordering disclosure of information regarding the Top Flat.
31 January 2003	The appellants applied to the County Court for further information and for a variation of the dates specified in the earlier order.
20 February 2003	County Court orders further disclosure of information and alters the dates for the ordered exchange of contracts and consequent completion for the sale of the freehold of the Premises.
10 April 2003	Further order by the County Court requiring disclosure of further information and again altering the dates for exchange of contracts and completion.
23 May 2003	Respondent's then solicitors disclose the Memorandum of Agreement dated 20 March 2000 to the appellants' solicitors.
30 May 2003	Appellants' application to Lands Tribunal to challenge the valuation of £182,190 and seeking permission to appeal out of time, which was granted on 13 August 2003.
23 June 2003	County Court order deferring the time for exchange of contracts within the previously made orders to a date to be fixed dependent upon the Lands Tribunal decision in the appellants' appeal to that Tribunal.
19 November 2003	The respondent purportedly grants a lease of the Top Flat to Mr Lloyd for a term of 15 years from 17 April 1999, with a clause enabling the tenant to seek a further extension of 10 years.
Soon thereafter	The appellants commenced fresh proceedings in the County Court seeking a declaration that the lease of 19 November 2003 is void and not binding on the appellants.
20 October 2004	County Court in these new proceedings declares that the lease is indeed void and not binding on the claimants. It is ordered that the order of 23 June 2003 stands.
13 June 2005	The debarring order made in the Lands Tribunal proceedings (which had temporarily been in abeyance during the County Court proceedings). The respondent is ordered to serve a Reply within 14 days or be debarred from defending the appeal. The respondent fails to serve a reply.

The subsequent events I take from the appellants' chronology which was handed to me at the hearing and in respect of which Mr Schaw Miller did not seek to advance any disagreement.

15 July 2005	Withers LLP (the respondent's present solicitors) write to the Lands Tribunal advising that they act for the respondent and asking for an extension of time for "a defence"
16 August 2005	Lands Tribunal fixes an appeal hearing date of 7 October 2005
30 September 2005	Joint application for a six week stay of appeal for settlement discussions.
23 November 2005	Withers write to appellants' solicitors explaining that they are trying to obtain the file from previous solicitors and asking for a further stay.
25 November 2005	Appellants' solicitors reply agreeing a 21 day stay and offering to provide papers subject to payment of photocopying charges.
16 December 2005	Appellants' solicitors write to Lands Tribunal asking for the appeal to be re-listed for hearing.
13 January 2006	Lands Tribunal fixes appeal hearing for 27 February 2006.
16 February 2006	Withers request copies of Lands Tribunal orders from appellants' solicitors, which are faxed to them.
22 February 2006	Respondent makes application to be heard at the appeal hearing and also serves the leaseback notice.

Statutory provisions

13. The following provisions of the 1993 Act as amended should be noted:

(1) Section 13, which it is not necessary to set out, makes provision for the giving of a notice by qualifying tenants claiming to exercise the right to collective enfranchisement.

(2) Section 21 requires the reversioner to give a counter-notice, which must either admit the right to collective enfranchisement or must state, for given reasons, that such entitlement is not admitted, or must state one or other of the matters previously mentioned and go on to notify that an application will be made for an order under section 23 on the basis of an intended redevelopment of the premises. In the present case the counter-notice was given under section 21(2)(a) admitting the entitlement to enfranchisement. In this regard section 21 provides as follows so far as presently relevant:

"(3) If the counter-notice complies with the requirement set out in subsection (2)(a) it must in addition –

(a) 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 specify –

(i) in relation to any proposal which is not so accepted, the reversioner's counter-proposal, and

(ii) any additional leaseback proposals by the reversioner"

Subsection 21(7) provides:

"(7) The reference in subsection (3)(a)(ii) to additional leaseback proposals is a reference to proposals which relates to the leasing back, in accordance with section 36 and Schedule 9, of flats or other units contained in the specified premises and which are made either –

(a) ….

(b) in respect of flats or other units in relation to which Part III of that Schedule is applicable"

(3) Section 22 makes provision for determination by the court of the question of whether the reversioner is justified in denying the claimed entitled to collective enfranchisement and section 23 makes provision for the tenants' claim being liable to be defeated where the landlord intends to redevelop – and provision is made for an application to the court for an order that the right to collective enfranchisement is not exercisable for that reason.

(4) Section 24 of the Act provides so far as presently relevant as follows:

"(1) Where the reversioner in respect of the specified premises has given the nominee purchaser –

(a) a counter-notice under section 21 complying with the requirement set out in subsection (2)(a) of that section, or

(b) a further counter-notice required by or by virtue of section 22(3) or section 23(5) or (6),

but any of the terms of acquisition remain in dispute at the end of the period of two months beginning with the date on which the counter-notice or further counter- notice was so given, a leasehold valuation tribunal may, on the application of either the nominee purchaser or the reversioner, determine the matters in dispute.

(2) Any application under subsection (1) must be made not later than the end of the period of six months beginning with the date on which the counter-notice or further counter-notice was given to the nominee purchaser.

(3) Where -

(a) the reversioner has given the nominee purchaser such a counter-notice or further counter-notice as is mentioned in subsection (1)(a) or (b), and

(b) all of the terms of acquisition have been either agreed between the parties or determined by a leasehold valuation tribunal under subsection (1),

but a binding contract incorporating those terms has not been entered into by the end of the appropriate period specified in subsection (6), the court may, on the application of either the nominee purchaser or the reversioner, make such order under subsection (4) as it thinks fit.

(4) The court may under this subsection make an order –

(a) providing for the interests to be acquired by the nominee purchaser to be vested in him on the terms referred to in subsection (3);

(b) providing for those interests to be vested in him on those terms, but subject to such modifications as –

(i) may have been determined by a leasehold valuation tribunal on the application of either the nominee purchaser or the reversioner, to be required by reason of any change in circumstances since the time when the terms were agreed or determined as mentioned in that subsection, and

(ii) are specified in the order; or

(c) providing for the initial notice to be deemed to have been withdrawn at the end of the appropriate period specified in subsection (6);

and Schedule 5 shall have effect in relation to any such order as is mentioned in paragraph (a) or (b) above.

(5) ….

(6) ….

(7) ….

(8) In this Chapter "the terms of acquisition", in relation to a claim made under this Chapter, means the terms of the proposed acquisition by the nominee purchaser, whether relating to –

(a) the interests to be acquired,

(b) the extent of the property to which those interests relate or the rights to be granted over any property,

(c) the amounts payable as the purchase price for such interests,

(d) the apportionment of conditions or other matters in connection with the severance of any reversionary interest, or

(e) the provisions to be contained in any conveyance,

or otherwise, and includes any such terms in respect of any interest to be acquired in pursuance of section 1(4) or 21(4)."

(5) Section 34 makes provision for the conveyance to a nominee purchaser.

(6) Section 36 is in the following terms:

"(1) In connection with the acquisition by him of a freehold interest in the specified premises, the nominee purchaser shall grant to the person from whom the interest is acquired such leases of flats or other units contained in those premises as are required to be so granted by virtue of Part II or III of Schedule 9.

(2) Any such lease shall be granted so as to take effect immediately after the acquisition by the nominee purchaser of the freehold interest concerned.

(3) Where any flat or other unit demised under any such lease ("the relevant lease") is at the time of that acquisition subject to any existing lease, the relevant lease shall take effect as a lease of the freehold reversion in respect of the flat or other unit.

(4) Part IV of Schedule 9 has effect with respect to the terms of a lease granted in pursuance of Part II or III of that Schedule."

(7) Schedule 5 makes provisions relating to vesting orders under section 24 and 25. In particular where this procedure is followed then the nominee purchaser is to obtain a conveyance, executed by such person as the court may designate, upon payment into court of the appropriate sum of money.

(8) Schedule 6 paragraph 3(4) makes specific provision for valuation of the freehold of the premises in circumstances where there is to be a leaseback.

(9) Schedule 9 paragraph 5 provides so far as present irrelevant:

"5(1) Subject to subparagraph (3) this paragraph applies to any unit falling within subparagraph (1A) which is not immediately before the appropriate time a flat let to a person who is a qualifying tenant of it.

(1A) A unit falls within this sub-paragraph if –

(a) the freehold of the whole of it is owned by the same person and

(b) it is contained in the specified premises

(2) Where this paragraph applies, the nominee purchaser shall, if the freeholder by notice requires him to do so, grant to the freeholder a lease of the unit in accordance with section 36 and paragraph 7 below.

(3) This paragraph does not apply to a flat or other unit to which paragraph 2 or 3 applies.

Paragraph 6 of Schedule 9 makes provision in relation to circumstances where there is a flat occupied by a resident landlord.

Paragraph 7 makes provisions regarding the terms of the leaseback to be granted to the freeholder.

14. So far as concerns the question of jurisdiction sections 90 and 91 should be noted. Section 90 provides that any jurisdiction which is expressed to be conferred on the court is to be exercised by a county court. Section 90(2) confers on the county court jurisdiction to deal with any proceedings for determining any question arising under or by virtue of any parts of the Act relevant to the present case which is not a question falling within the jurisdiction of the leasehold valuation tribunal by virtue of section 91.
15. Section 91 provides:-

"(1) Any question arising in relation to any of the matters specified in subsection (2) shall, in default to agreement, be determined by a leasehold valuation tribunal.

(2) Those matters are –

(a) the terms of acquisition relating to –

(i) any interest which is to be acquired by a nominee purchaser in pursuance of Chapter I, or

(ii) any new lease which is to be granted to a tenant in pursuance of Chapter II,

including in particular any matter which needs to be determined for the purposes of any provision of Schedule 6 or 13;

(b) the terms of any lease which is to be granted in accordance with section 36 and Schedule 9;"

Respondent's submission

16. On the question of whether the Lands Tribunal had jurisdiction to determine the validity of the respondent's leaseback notice of 22 February 2006, Mr Schaw Miller contended that any question of validity of such a notice was for the county court. He referred to section 22 as an example of how the validity of a notice is left to the county court and he contended that this principle should equally apply to a leaseback notice, such that it would be for the county court to decide whether a valid notice has been served (ie to decide whether there was to be a leaseback at all) but it would be for the leasehold valuation tribunal to decide consequential matters such as the terms of any such leaseback and the effect on price. He argued that section 24(8) was not sufficiently wide to result in the question of whether or not there should be a leaseback to be part of "the terms of acquisition" upon which the leasehold valuation tribunal should rule. If the foregoing were wrong then Mr Schaw Miller argued that the jurisdiction was given to the leasehold valuation tribunal and not to the Lands Tribunal, such that the question of the validity of the leaseback notice should be made the subject of a fresh application to the leasehold valuation tribunal as contemplated in section 24(4)(b) so that it could decide whether there had been a relevant change of circumstances and, if so, what the consequences of this should be.
17. On the question of whether the leaseback notice of 22 February 2006 was valid Mr Schaw Miller advanced the following arguments:

(1) He drew attention to the wording of Schedule 9 paragraph 5 which contemplates that the entitlement to serve a leaseback notice is to be tested by reference to the situation pertaining "immediately before the appropriate time", which is an expression defined in paragraph 1 of Schedule 9 as being the time when the freehold of the flats or other units is acquired by the nominee purchaser.

(2) He argued that the flat (here the Top Flat) would not be acquired by the nominee purchaser (namely the appellants) until the execution of a conveyance, see schedule 5. Accordingly that time has not yet been reached.

(3) It therefore follows that a notice under paragraph 5 of Schedule 9 can be served up until the last moment before the execution of the conveyance (indeed there may even be an argument that it should not be served before that date because it is not known for sure before that date whether the conditions in paragraph 5 are satisfied).

(4) He noted that the requirement in section 21(3) and (7) that a counter-notice which admits the right to enfranchisement should also include any additional leaseback proposals by the reversioner. However he argued that "leaseback proposals", even when read together with subsection 21(7) was an expression different from a notice requiring a leaseback. Thus section 21 contemplates the landlord should give advance warning of a leaseback proposal, but failure to do so does not prevent him subsequently serving a leaseback notice under paragraph 5 of Schedule 9.

(5) Mr Schaw Miller referred to the Court of Appeal decision in West Hampstead Management Co Limited v Pearl Property Limited [2002] EWCA Civ 1372 especially at paragraph 52 and argued that this was recognition of the difficulties regarding what if any time limit there was for the service of a leaseback notice and a recognition that there may be a statutory oversight.

(6) Mr Schaw Miller referred to a work entitled Leasehold Enfranchisement – The New Law by D N Clarke at paragraph 9.5.5 which states:

"A potentially important issue is whether a freeholder who is the reversioner (as will usually be the case) has to give his proposals for leaseback in the counter-notice or whether a later written notice prior to the binding contract will suffice. On the statutory wording, the better view is that a later notice suffices; the counter notice need only contained leaseback "proposals" whereas schedule 9 states that a reversioner 'shall grant' the leaseback on notice being given. Moreover, the counter-notices given by the reversioner who will usually be the freeholder but may not be. The right to leaseback includes any unit not occupied by a qualifying tenant before completion of the acquisition of the freehold; so a unit might have a qualifying tenant (not participating) at the date of the counter-notice but cease to have a qualifying tenant before completion. It would therefore seem that a notice requiring leaseback could be given subsequent to a counter-notice but before the terms of acquisition are finally agreed or settled and incorporated into the contract. An argument could easily be made for the contrary view which ensures that a nominee purchaser will know the extent of the property to be acquired by the time the counter-notice is served and avoid the difficulties discussed. Caution would indicate that a reversioner who is the freeholder should put all leaseback requirements as proposals in the counter notice."

(7) He also referred to Hague on Leasehold Enfranchisement 4^th edition which states:

"The notice should be contained in the counter-notice, if the intention has then been formed. However, since the leaseback takes effect at completion of the freehold transfer, it is considered that a separate notice could be served after the counter-notice. However, since the terms of the leaseback are to be determined by the leasehold valuation tribunal in default of agreement, it is necessary that a notice is served before the determination of the price. The apparent ability of the landlord to serve a notice immediately before completion, and after the price has been agreed, seems to be a statutory oversight. This is, indirectly, another good reason for having a contract …. The statutory procedure comes to an end when the contract is entered into so arguably the landlord could not give notice requiring a leaseback after the date of the contract."

(8) In connection with the forgoing Mr Schaw Miller distinguished the present case (where there has been no contract and where the matter is ultimately to proceed by way of a vesting order) with a case where a contract is entered into. He accepted that once a contract is entered into then it may well be too late for the service of a leaseback notice, whereas if the matter proceeds through the vesting order route then the parties are not ultimately bound until the conveyance is actually executed. Accordingly, even if there was a court order fixing all the terms of the proposed conveyance and this has not been appealed, a landlord could still serve a Schedule 9 notice the day before the date fixed by the court order for completion. As regards the passage cited from Hague Mr Schaw Miller did not accept the passage suggesting that "it is necessary" that a leaseback notice is served before the determination of the price – he pointed out that it is always possible to make a further application to the leasehold valuation tribunal to reconsider the price based on changed circumstances.

Appellants' submission

18. On the question of the Lands Tribunal jurisdiction, Mr Donegan submitted that section 91(2)(a) was comfortably wide enough to confer jurisdiction on the leasehold valuation tribunal to deal with the question of whether there should be a leaseback or not. He drew attention to the definition in section 24(8) to "the terms of acquisition" which he argued would embrace the question of whether or not there should be a leaseback. Once it was clear that it was for the leasehold valuation tribunal rather than the court to decide the point, then he argued that the Lands Tribunal had equally jurisdiction as had the leasehold valuation tribunal.
19. On the question of whether the leaseback notice was valid Mr Donegan accepted, in the light of the material by the learned authors mentioned above, that failure to include a requirement for leaseback in a section 21 counter-notice was not fatal to the freeholder subsequently requiring a leaseback. However while Mr Donegan accepted a leaseback notice could be served after the counter-notice, he contended that it could not be served after a leasehold valuation tribunal had determined the outstanding disputed matters, including especially price, and had done so on the basis that there would be no leaseback. As regards the West Hampstead case Mr Donegan submitted that this was concerned with the valuation date and that in that case the leaseback notices had in fact been served in time in a counter-notice. He submitted therefore that anything said in that case in relation to late notices was not central to the decision. He drew attention to the wording of paragraph 55 of the decision where Arden LJ stated:

"Accordingly, while appreciating that there would appear to be some difficulty in this point arising on optional leaseback, it is a point that, in my judgment, should be put to one side for the purpose of construing the definition of 'valuation date' in Schedule 6."

He submitted that the court had in effect put the problem on one side and reached no decision on it.

20. Mr Donegan argued that the County Court Order of 6 January 2003 (as varied by subsequent orders) was in effect a vesting order under section 24(4) and that this took effect as a statutory contract. As a result the respondent could no more seek to reopen the matters and seek to serve a leaseback notice after the making of such an order than he could after the entry into a contract.
21. Mr Donegan drew attention to the potential great inconvenience which could arise if it remains open to a freeholder to serve a leaseback notice until the last moment before the execution of a conveyance pursuant to a vesting order. He invited consideration of the hypothetical case where there were several separate units in the premises to be enfranchised which were not let on long leases at low rents and were therefore potentially open to a leaseback notice. He argued that the parties could get to the brink of completion and the freeholder could serve a leaseback notice in respect of one such unit, which could then result in the matter of price and terms of leaseback having to be dealt with such that, some months later, the parties could again get to the brink of execution of the conveyance when the freeholder could once again serve another leaseback notice in respect of one of the other flats etc.

Decision on preliminary issue

22. I reject Mr Schaw Miller's contentions substantially for the reasons advanced by Mr Donegan. My reasons for so concluding are as follows.
23. I conclude that on the facts which have emerged in the present case it open to the Lands Tribunal to decide on the validity of the claimed leaseback notice dated 22 February 2006. It is not necessary for the Lands Tribunal to conclude that it has no power to deal with this point and that it must await a decision by the court or the leasehold valuation tribunal on the point. The following matters are relevant:

(1) The Act confers jurisdiction on certain specific matters upon the county court see for instance sections 22 and 23. There is no such provision in relation to leaseback notices.

(2) It is for the leasehold valuation tribunal to decide "the terms of acquisition" if the parties are unable to agree these. I conclude that the terms of acquisition include the question of whether or not there is to be a leaseback. It seems to me that the question of whether there is or is not to be a leaseback centrally affects the quality of the interest to be acquired, see section 24(8)(a) and the analysis in the West Hampstead case. Even if the question of leaseback did not fall within section 24(8)(a), the question of leaseback is centrally relevant to the question under section 23(8)(c) namely the amount payable as the purchase price for the interest to be acquired. Even if, contrary to my conclusion, the question of leaseback does not fall within either of these subparagraphs (a) or c), then it is noted that the words "or otherwise" also appear in section 24(8) and indicate that a broad interpretation is to be given to the expression "the terms of acquisition". This interpretation is wide enough to include the question of whether or not there should be a leaseback.

The jurisdiction thereby being conferred by the statute on the leasehold valuation tribunal, it is not a matter where the matter must be left to the county court.

24. I reject also any suggestion that the Lands Tribunal must decline itself to decide the point and must require the matter to be raised by a fresh application to the leasehold valuation tribunal. I reached this conclusion because an appeal from the leasehold valuation tribunal lies to the Lands Tribunal and in the present case this takes the form of a rehearing, see London and Winchester Properties Ltd's appeal (1983) 45 P & CR 429 and Maryland Estates Limited v 63 Perham Road Ltd [1997] 35 EG 94. This being an appeal by way of rehearing the Lands Tribunal must have equal powers to determine the matter as would the leasehold valuation tribunal.
25. Quite apart from the foregoing, there is the following point. It is common ground between parties that if the leaseback notice is valid then the present appeal to the Lands Tribunal is one which is pointless (putting matters at their lowest) and may even be a matter in respect of which the Lands Tribunal ceases to have any jurisdiction, because a valid leaseback notice would wholly undermine the leasehold valuation tribunal's decision on the only point which is challenged before the Tribunal, namely the contribution made by the Top Flat to the overall value of the Premises. In my judgment the Lands Tribunal must have jurisdiction to decide a point the outcome of which will decide whether the substantive appeal before it is pointless (and perhaps one as regards which the Tribunal no longer has any jurisdiction to entertain).
26. I now turn the substantive matter as to the validity of the leaseback notice.
27. I accept that no specific time limit is laid down in Schedule 9 for the giving of a leaseback notice under paragraph 5(2) thereof. However, I reject the contention that this means that such a notice can be given at any time at all, including right up to the eve of completion.
28. I should record that I can see a strong argument for concluding, in the light of section 21(3) and (7) of the 1993 Act, that if the reversioner has not laid the foundation for a leaseback notice by including proposals for leaseback in the counter-notice, then it is not open for the freeholder at a later date to seek a leaseback by serving a notice under paragraph 5 of Schedule 9. However, Mr Donegan specifically did not so argue. Accordingly for the purposes of the present case I am prepared to assume in the respondent's favour (although I have reservations on the point and I am not to be taken as deciding the point in favour of the respondent) that the requirement in section 21(3) does not prevent a leaseback notice being served subsequent to the counter notice. However, even on this basis I conclude that the leaseback notice of 22 February 2006 was too late and was invalid. I reach that conclusion for the following reasons:

(1) It is for the parties if they cannot agree the terms of acquisition to apply to the leasehold valuation tribunal to determine the matters in dispute (and unless this is done within a specified time limit the tenants' initial notice under section 13 is deemed to have been withdrawn, section 24(1) (2) and section 29). I have already concluded that the definition of "terms of acquisition" is sufficiently wide to include the question of whether or not there should be a leaseback.

(2) In the present case both parties went to a formal hearing before the leasehold valuation tribunal on an agreed basis, namely that the Top Flat was subject to an assured shorthold tenancy and as a result would be available to the appellants to sell after acquisition of the freehold. This agreed basis was wholly inconsistent with there being any question of a leaseback to the respondent. The leasehold valuation tribunal decided the price to be paid on this agreed basis, which was fundamental to the decision of the leasehold valuation tribunal. Both parties having participated in this leasehold valuation tribunal hearing on the foregoing agreed basis and having obtained the decision of the leasehold valuation tribunal, it is not in my judgment open to the respondent subsequently to seek to throw over this agreed basis and seek at the last moment a leaseback.

(3) I conclude that the scheme of the Act requires the reversioner (assuming in his favour he was not required to give the relevant leaseback notice in his counter-notice) to raise the matter of a leaseback as part of the terms of acquisition which, if not agreed, are to be ruled on by the leasehold valuation tribunal. If no question of leaseback is raised until after the decision of the leasehold valuation tribunal fixing the terms of acquisition has been received, then it is too late to raise the question of leaseback for the first time. This is because section 24(1) deals with the position where "any of the terms of acquisition" remain in dispute and empowers the leasehold valuation tribunal, if an application is made to it, to determine "the matters in dispute". What is contemplated is that the leasehold valuation tribunal will determine all the matters in dispute and not just some of them (with either party being free thereafter to raise fresh matters of dispute). This conclusion is supported by the fact that subsections (4), (5) and (6) of section 24 contemplate that once a leasehold valuation tribunal has made its determination as to the matters in dispute, then the "appropriate period" under subsection (6) commences to run and the ending of this period triggers the time limit in subsection (5) within which (unless a binding contract has been entered into, see subsection (3)) an application to the court for an order under subsection (4) is to be made. The tenant's initial notice under section 13 is deemed to be withdrawn if no such application to the court under section 24(4) is made within that time limit, see section 29. Thus it is envisaged that, once the leasehold valuation tribunal has made its determination under section 24(1), all relevant matters in dispute will have been sufficiently determined for the court to be able to proceed to make a vesting order under section 24(4) and Schedule 5. The statute does not contemplate that, despite the making by the leasehold valuation tribunal of its determination as to the matters in dispute, there should remain the ability for either party to raise a fresh matter which could have been raised previously and the raising of which plunges the parties back into a state of dispute such that there are no settled terms of acquisition by reference to which the court can make the contemplated vesting order.

(4) If, contrary to my view, the foregoing analysis is wrong, then I conclude the leaseback notice is invalid for the following reason. In the present case the county court has made what in my judgment is in effect a vesting order under section 24(4), see the order of 6 January 2003 and the subsequent orders altering the relevant dates by which certain steps were to be taken. The terms of this order made no provision for the grant of a leaseback and were in terms which were clearly inconsistent with there being any leaseback, because the terms ordered that there should be an exchange of contracts and completion at the price of £182,190, which is fundamentally inconsistent with there being any leaseback. Such a court order for vesting having been obtained, being an order inconsistent with there being any leaseback, I conclude it is not open to the respondent by unilateral action to seek to upset that unappealed order by now requiring a leaseback. There is force in Mr Donegan's argument recorded in paragraph 21 above. It weighs against the construction contended for by Mr Schaw Miller that his construction could in some circumstances make the operation of the Act unworkable and subject to abuse.

(5) Alternatively even if the foregoing is wrong, I conclude that the respondent in the present case is, on the facts which have occurred, estopped by convention from seeking at this very late stage to alter the fundamental basis upon which the enfranchisement has been proceeding since 2001 and upon which the respondent and the appellant have both gone to a formal hearing before the leasehold valuation tribunal and received its decision and upon which the court has made an unappealed vesting order. For the necessary requirements to give rise to such an estoppel by convention see for example Troop v Gibson [1986] 1 EGLR 1 especially at p.5-6. In the present case the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted by them as true (namely that the Top Flat will be available to the appellants, after completion of their purchase of the freehold, to be disposed of on a long lease at a premium). It would be unfair and unjust to allow the respondent now to go back on that agreed assumption by serving a leaseback notice which would take the ability to dispose of the Top Flat out of the appellants' hands. This question of estoppel by convention was not raised in argument before me. However, as it merely confirms me in a conclusion which I would have in any event reached for the reasons set out above I have not considered it necessary to restore the matter for further argument.

(6) I have not overlooked the wording of Schedule 9 paragraph 5. No express time limit is laid down for the service of a counter notice. I also accept that the wording contemplates the ultimate entitlement of the freeholder to require a leaseback is to be tested by reference to circumstances pertaining "immediately before the appropriate time", ie immediately before the time when the freehold of the flat is acquired by the appellants (see paragraph 1 of Schedule 9). However the foregoing must be read in the light of the scheme of the Act as a whole. As already indicated I conclude that this scheme, in so far as it permits a leaseback notice to be served after the reversioner's counter-notice, does not permit it to be served after the terms of acquisition have been determined by the leasehold valuation tribunal and have been determined on a basis which clearly does not involve any leaseback. Also the absence of a time limit in Schedule 9 paragraph 5 for a leaseback notice cannot override the considerations in subparagraphs (4) or (5) above.

29. I have not overlooked the fact that the appellants seek by their appeal to the Lands Tribunal to vary the leasehold valuation tribunal's valuation of the premises. I do not however conclude that it can properly be contended that, as the appellants are themselves challenging the leasehold valuation tribunal's decision, then this opens the way to the respondent to reopen such matters as he wants including the question of leaseback. The appeal documentation to the Lands Tribunal has always made clear that only one point was raised, namely the effect on value of the existence of the Memorandum of Agreement. There exist good reasons why, out of time, the appellants have been allowed to appeal to the Lands Tribunal so that this point could be reconsidered. It is regrettable and surprising that the respondent did not produce the Memorandum of Agreement until May 2003, such that until then both parties have proceeded on the fundamental understanding that the Top Flat was subject only to an assured shorthold tenancy. However, the fact that there is an appeal to the Lands Tribunal on this point does not alter the reasoning set out above. The parties have referred matters to the leasehold valuation tribunal on an agreed basis (which involves no leaseback) and have received a decision as to value from the leasehold valuation tribunal on that basis and the county court has made what is in effect a vesting order on a basis inconsistent with a leaseback. There is a distinction between (a) seeking a ruling from the Lands Tribunal as to whether the valuation, which was carried out on an agreed basis, contains an error in the respondent's favour because of a failure of disclosure by the respondent and (b) seeking fundamentally to alter this agreed basis of valuation by service of a leaseback notice.
30. I therefore decide that the purported leaseback notice of 22 February 2006 is invalid. The respondent is not entitled to a leaseback of the Top Flat.
31. The only point which the appellants wish to raise before the Lands Tribunal is an argument that, having regard to the existence of a document which the respondent should have disclosed but failed to disclose, both parties and the leasehold valuation tribunal have proceeded on a misunderstanding regarding a fact which affected the valuation. In my judgment they are entitled now to have decided this question of what if any difference the existence of the Memorandum of Agreement makes to the price to be paid for the freehold.

Consequential matters: the debarring order and costs

32. In my judgment the appellants are entitled to be critical of the way in which the respondent has conducted these proceedings, having omitted to comply with the order of 13 June 2005 (the debarring order) and having not even served a reply to the appellant's statement of case prior to the hearing on 27 February 2006. Mr Donegan did not seek to argue that, at the adjourned hearing of this case when the question of valuation in the light of the Memorandum of Agreement falls to be considered, the respondent should be wholly prevented from being heard at all. He accepted that the respondent's counsel should be entitled to cross-examine the appellants' expert witness and to make submissions on points of law, but he argued that the respondent should be precluded from calling an expert witness. He argued that the respondent had frustrated the appellants at every step of the way and that there was no point in making a debarring order if someone could ignore it and still in effect get away with it.
33. For the following reasons I conclude that the respondent should be permitted to participate in the adjourned hearing and to call expert evidence if he chooses to do so. My reasons in summary are as follows:

(1) The hearing on 27 February 2006 was devoted to the preliminary issue which has been dealt with above. It was not possible to reach the question of the substantive appeal, with expert evidence. Thus the substantive appeal must in any event to be dealt with at a later date.

(2) Leaving aside any prejudice that can be dealt with by an order for costs, I can see no prejudice to the appellants in permitting the respondent, provided that a reply and any proposed expert evidence is now promptly served, to participate. The only prejudice to the appellants which I can see which arises from allowing the respondent to call expert evidence is that the appellants are deprived of the advantage which they might have otherwise been hoping to enjoy, namely to have an effectively unopposed hearing on their appeal. However, to allow the respondent to participate will not make the hearing of the appeal unfair. Indeed I can see an argument that, despite the failures by the respondent, it will be unfair to the respondent to prevent him from participating with the assistance of expert evidence.

(3) The failure of the respondent to comply with the debarring order and the respondent's inaction thereafter is regrettable. However I accept that the respondent has had difficulties with his previous solicitor as described in the letters from Withers LLP.

(4) The evidence on which the appellants seek to rely includes evidence served only about two weeks ago from their valuer Mr Holden.

(5) While Mr Donegan was entitled to criticise the way the respondent failed to comply with the debarring order, Mr Schaw Miller rightly reminded the Tribunal that a party is not to be punished, by being deprived of a right to a proper trial, as a consequence for disobedience to an order, provided of course that further proceedings can be satisfactory (the position would be otherwise if a party's conduct had been such as to render unsatisfactory any subsequent proceedings in which that party was allow to participate), see Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167.

34. There is also a further point. The present appeal to the Lands Tribunal is based upon grounds of appeal submitted by the appellants which seek certain relief in paragraph 6, namely an order that their application be remitted to the same leasehold valuation tribunal for a fresh hearing in the light of the new evidence disclosed by the respondent (ie in the light of the Memorandum Agreement). Mr Donegan accepted that this payer for relief had not at any stage been amended and that, viewing the matter strictly, this was the relief which, on the papers, the appellants sought. It is not open to this Tribunal to remit the matter to the leasehold valuation tribunal, but that is the relief which the appellants sought. It seems to me it is one thing to debar the respondent from participating in proceedings in which the relief sought is expressed as stated above, and it is another thing to allow the appellants to amend the relief which they seek so as to become an application to the Tribunal to alter the valuation fixed by the leasehold valuation tribunal, but for the Lands Tribunal still to hold the respondent to the debarring order which was made when the relief sought was in its unamended form.
35. In summary and in substance I conclude that there can be a fair hearing for both parties if the respondent is entitled to participate in the substantive appeal and that it would not be right, and would make for a hearing which was unfair to the respondent, if he was prevented from calling expert evidence.
36. The respondent must serve on the appellants and on the Tribunal their reply to the appellants' statement of case and also any expert evidence relied upon no later than 28 days after the date of this decision.
37. So far as concerns costs, the substantive appeal by the appellants to the Tribunal remains outstanding and the question of costs, save for the cost expressly mentioned below, can and should properly be dealt with in the Tribunal's order on the substantive appeal. However the costs of the hearing on 27 February 2006 regarding the preliminary issue (namely the validity of the claimed leaseback notice) needs specifically to be dealt with. I conclude that the respondent must pay these costs, to be assessed on the standard scale if not agreed, to the appellants. Such costs to include the attendance of Mr Holden, who understandably attended expecting to give evidence but who was not ultimately needed on 27 February because of the preliminary issue raised by the respondent.

Dated 6 March 2006

His Honour Judge Huskinson