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Right of first refusal
See the article “Developers beware! The pitfalls of tenants’ rights of first refusal and collective enfranchisement” by Radevsky, Dollar and Thompson-Copsey – Some practical guidance on how to avoid the pitfalls.
"Building"
Definition of “building” to include airspace
Dartmouth Court Blackheath Limited v Berisworth Limited
[2008] EWHC 350 (Ch)
Summary
Part 1 of the Landlord and Tenant Act 1987, broadly speaking, gives residential tenants the right of first refusal where their landlord proposes to dispose of an interest in the premises in which their flats are situated. The premises must consist of the whole or part of a building. The Act does not define “building”. In this case, the High Court held that the tenants of a block of flats should have been offered first refusal of a lease that included the airspace above the block, which had been granted to allow a developer to build additional flats on the roof.
Facts
Dartmouth Court is a 1930's block of flats in South London consisting of 72 flats on 4 floors (“the main building”). There are also basement rooms in the main building which do not form part of any flat. In addition there is a garage block (containing fewer garages than flats and let on separate leases), driveways, paths and gardens. Some of the ground floor flats open out into a lightwell over which the tenants have rights of way. On the roof of the main building are pipes and a water tank which serve the flats and chimneys which are still in use, as well as a mobile phone mast.
In 2003, the landlord:
1. Transferred the freehold of 3 garages, a plant room, a caretaker’s office and an electricity sub-station to D; and
2. Granted a lease to D of:
a. The airspace above the roof
b. The lightwell
c. Some basement rooms
d. The rear garden
without first offering the transfer or the lease to the tenants.
All disposals of an interest in premises to which the Act applies are caught by the Act, save the grant of a tenancy of a single flat and those disposals specifically excluded in s4(2) of the Act. The Act also applies to the disposal of an interest in the common parts of the premises.
It was common ground between the parties that the disposals in question did not fall within any of the Act’s specified exclusions. The question before the court, therefore, was whether the above disposals were of “premises” to which the Act applied.
Decision
Following the reasoning of Sir Nicholas Browne-Wilkinson VC in Denetower Limited v Toop [1991] 1 WLR 945, that ‘building’ may include the appurtenances of the building (although this is not part of the definition of ‘building’ within the Act), the court went on to look at whether the areas transferred or demised fell within the judicial gloss of this extended definition of ‘building’. The court stressed that what is or is not appurtenant is very much a question of fact and degree in each case.
The transfer
The court held that the garages could not be considered as part of the building proper nor as appurtenances to the building. Warren J at para 59:”The tenants of the garages do not enjoy the use of the garages as part of their enjoyment under their flat tenancies. The garages are held under quite separate leases and not every flat holder has a garage tenancy .….The garages are not, I consider, enjoyed in such a way as to make them appurtenant to the Main Building.” The court also held that the plant room housing equipment belonging to a third party and having nothing to do with the enjoyment of the main building was similarly not within the definition of ‘building’. Although the landlord was obliged to provide caretaker services, he was not obliged to provide a caretaker’s office on site and the fact that he had chosen to do so could not make the office appurtenant to the main building. Finally the electricity substation was let to an electricity supplier and housed its equipment. Even if it supplied electricity to the main building, the tenants had no right to demand that and the substation could not therefore be considered appurtenant to the main building.
The transfer had therefore not been of premises within the Act.
The lease
Both parties accepted that the Act applied to the basement rooms.
The court held that the garden and the lightwell either formed part of the building, or were appurtenant to it as the tenants had rights in common to use them. To consider otherwise would, the court held, “produce a capricious result”.
The roof, the court held, clearly formed part of the main building and the question that remained was the status of the roof space above it. In the court’s view, the landlord’s need to have access to the roof in order to fulfil his repairing obligations meant that the airspace was, if not part of the building proper, then certainly an appurtenance to the building. Warren J at para 70 of the judgment:”At a time when the airspace is actually owned by the owner of the building, I consider that it is correct to regard the airspace up to that height as appurtenant to the building if not actually part of it. To echo the words of the Vice-Chancellor in Denetower, it would be to attribute to Parliament an entirely capricious intention if I were to hold that the tenants' rights to purchase did not extend to the airspace above the roof the enjoyment of which is necessary to maintain the structure, including the roof and chimneys, in the state of repair in which the Landlord is obliged to keep it. In my judgment, it is perfectly legitimate meaning of the world "building" that it includes the airspace necessary to enable maintenance to be carried out.” Warren J went on to say that if he were wrong on that point he would hold the airspace to be part of the common parts of the building, and so caught by the Act:”It makes perfectly good sense, in my judgment, to include the airspace above the roof as part of the exterior when the enjoyment of that space is from time to time necessary for the protection of the building ie by repairing it. I would accordingly hold that the airspace is part of the common parts and, as such, a disposal of it will be a relevant disposal within section 1. “ Comment
Extra care should be taken disposing of an interest in a property caught by the Act especially where the disposal is of only part of the property, and in disposing of parts of the property not physically forming part of the building; had the garages here been let in the same leases as the flats they may well have fallen within the Act.
"A building"
Long Acre Securities Ltd v Karet
3 March 2004, Ch D. Geoffrey Vos QC sitting as a Deputy High Court Judge)
There were four separate buildings always managed as part of an estate with common appurtenant areas. The landlord decided to sell off part of the estate and served one notice under s5B of the Landlord and Tenant Act 1987 on all the tenants of the flats (55 in all). His notice was challenged on the basis that there should have been a separate notice for each building. However, the judge held having regard to the purpose of the Act and the facts of the case that all the structures together could be considered as a building and that the notice was valid.
Notice of proposed disposal
Kensington Heights Commercial Co Ltd v Campden Hill Developments Ltd
[2007] EWCA Civ 245
In this case the landlord was accused of not having complied with the 1987 Act in that he did not serve a notice on the tenant before making a relevant disposal. So far, so normal. But in this case the landlord was not the freeholder and the relevant disposal was not the sale of his interest but the surrender of his interest to the freeholder and the re-grant of a longer term. Thus in essence the landlord was not disposing of it but enlarging it. That, however, did not mean that there was no relevant disposal within the Act.
The agreement to surrender, was the relevant disposal. An offer notice should have been, but had not been, served under s.5 in respect of the agreement to surrender. As a result the tenant could have brought an action against the freeholder for a grant of a lease on the same terms as that surrendered.
But it had not done that. It had sought the grant of a new lease from the landlord in the same terms as the one the landlord had surrendered. Section 16 of the Act gives the court the power to order the transfer of the estate or interest that was the subject-matter of the original disposal. But that estate no longer existed; the old lease had been brought to an end by the surrender. It could not be said that the new lease which was in different terms was substantially the same interest.
Notice requiring information
M25 Group Ltd v Tudor and Others
[2003] EWCA Civ 1760
Right of first refusal under Part 1 of the Landlord and Tenant Act 1987. The tenants served a notice on the purchaser, pursuant to s 11A of the Landlord and Tenant Act 1987 requesting information but in breach of s54 did not state their addresses on the notice. Held: The omission was not fatal and did not invalidate the notice.
Rectification and right of first refusal
Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560
The freehold of a block of flats was sold subject to an agreement for grant back of long leases in respect of all the flats. Appropriate notices were served on the tenants under s5 of the Landlord and Tenant Act 1987. By mistake long leases were not granted in respect of two of the flats and the vendor sued for rectification. The purchaser argued that an order for rectification would breach s10A of the Act because of the failure to serve further notices under ss5, 5D and 5E. The argument failed. Rectification would simply put in place the mechanism for giving effect to the parties intentions.
Service of documents
Savva v Galway-Cooper
[2005] EWCA Civ 1068
This was a claim in which tenants were seeking to enforce a purchase notice served upon the landlord under s12 of the Landlord and Tenant Act 1987. Under s11(2)(b) the tenants had to show that documents, indicating that the original disposal of the leases had taken place, had been served on the requisite majority of qualifying tenants within a three-month time limit of service of their purchase notice. The landlord argued that service of the documents indicating the original disposal had taken place more than three months prior to service of the purchase notice; so that the tenants claim was out of time. In respect of one flat a letter had been sent by the tenants solicitor to the tenant. In the case of another flat there was evidence that the tenants solicitor, following the acquisition of the lease in 1996, had sought and obtained office copy entries from the Land Registry in which the disposal was mentioned in a schedule.
The trial judge held that service had taken place. He held that the word "served" under the 1987 Act had no special connotation. It did not matter where the documents came from, or when; nor whether they were received by the tenants individually or collectively. In effect, he said "served" simply meant "received". It was enough therefore if each of the tenants making up the requisite majority had at some received a document or documents "indicating" that the
transfer had taken place.
On appeal it was held that the judge was wrong in his interpretation of the word "service" in s.11(2). Service is a formal step and none of the steps taken in respect of the flats could be said to be service. Thus, notice had not been served to the majority of qualifying tenants and the tenants did not fall foul of the three month time limit from that step.Service of documents under 11(2) is intended to provide a defined and workable trigger point for the running of time against the tenants for something they are to do collectively. To achieve this, one would expect the documents to be provided in a manner and form which would fairly alert a reasonably informed tenant to their significance. (Carnwarth LJ at para 17)
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