Terms of the transfer

This page contains details of cases relating to:

  • Appurtenant rights - garden - licence to use converted to irrevocable right
  • Airspace and sub-soil
  • Common parts - caretaker's flat - prohibited disposal

 

Appurtenant rights

Access to adjoining garden – licence turned into irrevocable right

Corp of Trinity House of Deptford Strond v 4-6 Trinity Church Square Freehold Ltd

[2018] EWCA Civ 764

Summary

A nominee purchaser acquiring the freehold interest of three adjoining London townhouses under collective enfranchisement legislation also obtained irrevocable rights of access to an adjoining garden retained by the freeholder, notwithstanding that the tenants had previously held only revocable rights to use it.

Facts

Trinity Church Square is a garden square in Southwark. At 4 - 6 Trinity Church Square comprises three adjoining townhouses which have been converted into flats, the freehold of which is owned by the Appellant, the Corporation of Trinity House of Deptford Strond. The tenants of the flats within the Building who are "qualifying tenants" have the right to collective enfranchisement in relation to the freehold of the Building (section 1(1) of the 1993 Act). The Respondent, 4-6 Trinity Church Square Freehold Limited was the nominee purchaser appointed by a number of those qualifying tenants to acquire the freehold on their behalf.

Each of the tenants of the flats in the Building were entitled to use the Garden, in common with others, under a licence contained in their respective leases. It is an express term of the licence that it may be revoked in writing by the Corporation at any time. The licence had not been revoked at the "relevant date" for the purposes of section 1 of the Act, being the date of the initial notice to exercise the right to collective enfranchisement served pursuant to section 13 of the 1993 Act, although it was so revoked subsequently.

All of the terms in relation to the acquisition of the freehold of the Building were agreed between the parties. It was also agreed that upon the transfer of the freehold of the Building to Freehold Limited, the Corporation will retain the freehold of the Garden. The only remaining issue was the nature of the rights over the Garden which must be granted to satisfy the requirements of section 1(4) of the 1993 Act. This was the subject of this case.

Issues

The issue was whether the right to acquire the garden should be taken to be satisfied by the revocable licence offered under s 1(4)(a), or whether only an irrevocable right would suffice.

The Court of Appeal considered the proper construction of s 1(4) of the Leasehold Reform, Housing and Urban Development Act 1993 for the first time in this case.

Section 1(4) of the 1993 Act provides that:

    "The right of acquisition in respect of the freehold of any such property as is mentioned in subsection 3(b) shall, however, be taken to be satisfied with respect to that property if… either -
      (a) there are granted by the person who owns the freehold of that property –
        (i) over that property, or (ii) over any other property,
      such permanent rights as will ensure that thereafter the occupier of the flat referred to in that provision has as nearly as may be the same rights as those enjoyed in relation to that property on the relevant date by the qualifying tenant under the terms of his lease;"

The Freeholder argued that “such permanent rights” should be considered in the context of s1(4)(a) and that the reference to “permanent rights” was to cater for the fact that the enfranchisement process required rights to be converted from leasehold rights to freehold rights which must be capable of lasting as long as any new long lease granted in the future.

The Nominee Purchaser emphasised that s 1(4) must be interpreted in the context of collective enfranchisement process and Chapter 1 of the Act as a whole. At the end of the process the participating tenants have the ability to grant themselves leases of indefinite length and the Upper Tribunal was correct to find that formerly temporary rights should be replaced, on enfranchisement, by perpetual rights and that this was not an improbable result.

The Upper Tribunal (Lands Chamber) held that the nominee purchaser would also obtain irrevocable rights of access to an adjoining garden retained by the freeholder. The freeholder appealed to the Court of Appeal.

Decision on appeal

The Court of Appeal dismissed the appeal and agreed with the reasoning of the Upper Tribunal that the “requirement of permanence” imposed by s 1(4) required the freeholder to convert the flat owners revocable licence to use a communal garden to an irrevocable right on the completion of the acquisition.

Although there appeared to be a tension between the words "permanent" and "as nearly as may be the same” in relation to the rights acquired by tenants after enfranchisement, s 1(4)(a) had to be construed in the light of Chapter I and s1 as a whole. The primary position in relation to additional land over which qualifying tenants exercised rights in common with others was that they were entitled under s1(2)(a) and s1(3)(b) to have the freehold of that land acquired for them.

Section 1(4) allowed the freeholder to provide an alternative to that default right of acquisition. In that context, it would not be surprising for revocable rights to be replaced with irrevocable ones. Additionally, the words ”thereafter" and ”ensure" in s 1(4)(a) required more than the continuation of the same revocable rights for the period of any new long lease and indicated a continuing, or perpetual state of affairs with the creation of irrevocable rights.

The Court also held that the Upper Tribunal had been correct to employ in support of its conclusion the fact that, had the freeholder not revoked the rights, Sch 7 para 2(1) of the 1993 Act and the Law of Property Act 1925 s 62 would have deemed on a conveyance that all existing rights enjoyed with the premises were transferred and converted to irrevocable rights.

 

Airspace and subsoil

Intermediate leases - common parts?

L M Homes Ltd v Queen Court Freehold Ltd

[2020] EWCA CIV 371

Summary

On a claim for collective enfranchisement under the Leasehold Reform, Housing & Urban Development Act 1993, the qualifying tenants are entitled to acquire leases of the airspace, the basement and the subsoil; such acquisition is necessary for the proper management or maintenance of the common parts.

Facts

Queen Court is a block of 45 flats and includes a basement under part of the building, which contained installations serving those flats, as well as small areas of decorative planting.

The freeholder granted a lease of the entire building to an intermediate lessee who in turn granted sub leases of:

  1. The “roof area and airspace up to a height of 7 metres above the surface of the roof” for a term of 999 years with no restriction on alterations (structural or otherwise);
  2. About two thirds of the basement “the area for the time being occupied by two boilers, two hot water tanks and a number of electricity meters but includes areas occupied by an oil storage tank, a gas meter, a water pump and other service installations.”
  3. A lease of the sub-soil of Queen Court, for a term of 999 years

The leases were granted for the purpose of constructing additional living accommodation which would have required excavation and re-siting of appliances.

Issues

The question before the Court of Appeal was whether:

  • All or any of the areas demised by the three leases fall within the definition of common parts; and, if they do,
  • Is it reasonably necessary to acquire the leases themselves for the proper management or maintenance of those common parts, on the tenants’ exercise of the right of collective enfranchisement?

First instance

The FTT held that on the facts the basement, sub-soil and airspace where all part of the common parts and the long leaseholders were entitled to acquire both the freehold and long leasehold interests in them on collective enfranchisement.  Being part of the ‘common parts’ did not require actual use by the tenants. 

Decision on first appeal

The UTT dismissing the landlords’ appeal, agreed that long leaseholders were entitled to acquire the basement, sub-soil and airspace leases not withstanding that the freeholder had granted leases for the purpose of development.

The landlords appealed to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal dismissed the landlords’ appeal, upholding the decision of the Upper Tribunal.

On the exercise of the right of collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993, the qualifying tenants are entitled to acquire  the freehold of the “premises to which this Act applies” together with the freehold of appurtenant property as defined under section1(2) or of common parts. In addition, section 2(3) of the Act the tenants are entitled to acquire “..the interest of the tenant under any lease [of or including] common parts of the relevant premises…where the acquisition of that interest is reasonably necessary for the proper management or maintenance of those common parts” by the tenants.

  1. Were the tenants entitled to the freehold of the basement, sub-soil and airspace?

Making the point that “In the case of a lease of a whole building, the grant of the lease will carry with it the airspace above the building” Lewison LJ added that “To come to the contrary conclusion would produce a result which, although not theoretically impossible, is virtually unknown in ordinary conveyancing. It would produce a result which is undesirable and impracticable, if not actually absurd” and concluded that “for the purposes of the 1993 Act, the airspace and the sub-soil form part of the "premises" to the freehold of which the qualifying tenants are entitled”

Referring to earlier cases, including a number under the Landlord and Tenant Act 1987, the court concluded that “all three areas demised by the leases in issue are parts of the building, as that word is used in section 3” of the Act.

  1. Did these areas demised by the leases fall within the definition of ‘common parts’?

The court, looked to Carnwath LJ’s comments in Cadogan v Panagopoulos [2010] EWCA Civ 1259 (see below) that common parts include “those parts of the building that either may be used by or serve the benefit of the residents in common (using that expression in a non-technical sense), as opposed to those parts of the building that are for the exclusive benefit of only one or a limited number of the residents or for none at all. Thus, I consider it will cover the boiler room or a room housing the lift machinery, although those rooms may be kept locked and no resident ever goes into them.” It quoted, with approval, the Upper Tribunal’s comment that "It is necessary to have regard to the function served by an area when considering whether it is or is not a common part. If the purpose to which a particular room is put is to accommodate service installations used for the benefit of the whole Building that is sufficient to render the whole of the space part of the common parts of the Building." The areas did not cease to be common parts on the grant of the leases.

  1. Was it ‘reasonably necessary’ to acquire the leases?

Again, the court agreed with the Upper Tribunal that it was: in particular the court made the point that the freeholder would have no say in the developments that took place, but would remain liable for e.g. the new roof, the foundations etc. In addition, the court accepted the Upper Tribunal’s finding that the current access to the basement boilers was more appropriate for the smooth running of the boilers and electrical apparatus than the access proposed under the basement lease.

Non-acquisition “would make the maintenance and management of those common parts more complicated and expensive, at the ultimate cost of the qualifying tenants through the service charge. Acquisition of the three leases would avoid that consequence.”

The landlords’ appeal was dismissed.

Comment

The Court of Appeal reiterated the point made in Millett LJ in Cadogan v McGirk [1996] 4 All ER 643 that "[it] is the duty of the court to construe the 1993 Act fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy".

Common parts

Caretaker's flat - prohibited disposal

The Earl Cadogan v Panagopoulos

[2010] EWCA Civ 1259

Summary

Where the freeholder had granted a new lease of a caretaker’s flat in the basement of a building after the service of an initial notice, the lease was void as the flat formed part of the “common parts” of the building and was therefore liable to acquisition.

Facts

In this case three of five qualifying tenants at 51 Cadogan Square had commenced a claim for collective enfranchisement during the course of which the freeholder (Cadogan) granted to an associated company a 999 year lease of property comprising a caretaker’s flat and a light-well. The leaseholders argued that the disposal was caught by s19 of the 1993 Act and was accordingly void. In the county court the leaseholder had succeeded in this argument. On appeal to the High Court Roth J dismissed the appeal. The second appeal to the Court of Appeal was dismissed.

Issue

There were three issues at the High Court stage but only one issue was appealed to the Court of Appeal. That was whether the grant of the Lease was contrary to section 19(1)(a)(ii) because it was a lease of or including "common parts" which it was reasonably necessary for the participating tenants to have acquired as set out in section 2(1)(b) and (3)(a), on the grounds that the caretaker's flat constituted common parts.

Discussion

Carnwarth LJ pointed out that in construing the provisions of the Act it was not only the interests of the freeholder and participating tenants which were relevant:

    “It should also be borne in mind that the issues are not only of concern to the participating tenants, on the one hand, and the freeholder on the other. The interests of the other tenants (whether qualifying or not) cannot be ignored. As the law stands at present (and as it appears likely to remain), the other tenants, even if they are 'qualifying', have no right to participate in the acquisition. However, they have a right to the protection of their own property interests, one aspect of which may be the need for the new freeholder to obtain the rights necessary to secure their own continued use and enjoyment of the building as they were before the transfer.”

He upheld Roth J's conclusion that the existence of a legal entitlement to a common facility was not critical. He said:

    “45. Moreover, I do not think that to satisfy the definition the part must be devoted to this purpose as a matter of obligation in the residents' leases. For example, Mr Munro gave the example of a gym as something that would constitute a 'common facility', and I agree. But if the freeholder has devoted, say, a large room in the basement to serve as a gym and placed exercise machinery there, to which any resident may have access, I consider that this constitutes a common facility (and thus a ‘common part’) even if there is no covenant in the leases to provide such a facility. The test is applied as at the ‘relevant date’, which is the date of the tenants' section 13 notice.”

Cadogan’s main argument turned on a relatively narrow interpretation of the statutory definition. It was submitted:

    “that ‘common parts' of the building are parts to which the lessees have access and ‘common facilities' are facilities within the building to which the lessees have access … A caretaker's flat to which tenants have no rights and over they have no access cannot be part of the common parts for the purposes of s 2 and 19.”

Carnwarth LJ rejected this as an unjustified restriction on the natural meaning of the definition:

    ““Access”, as such, is not a necessary part of it. It is sufficient in my view that the lessees share the benefit of the caretaker's flat, by enjoying the services for the purposes of which it was provided.”

The second question was, is it reasonably necessary for the Respondents to acquire the caretaker’s flat “for the proper management or maintenance of those common parts”.

Roth J had held that it was on the basis that if the Lease remained in force, the basement flat would not be maintained as a common part at all. Carnwarth LJ agreed. Counsel for Cadogan argued that statutory acquisition of the flat was not necessary for this purpose, either because Cadogan had indicated a willingness to negotiate terms to make it available or because it could have been provided in another flat. Carnwarth LJ dismissed this:

    “I see nothing in either point. First, the willingness of the freeholders to negotiate alternative terms cannot be relevant in determining the extent of the statutory right. Secondly, once the existing caretaker's flat has been identified as “common parts” the only issue is whether acquisition of that part is necessary for its management. The fact that the service might be provided elsewhere is irrelevant.”

Comment

There is nothing terribly surprising in the result. Caretakers’ flats are a sore point for the large estates as they perceive that tenants will often get to acquire them cheaply on the basis that they will be used as a caretaker’s flat, when in reality the tenants intend to sell them at a later date. The other tactic often adopted by landlords in this situation is to contend for a restriction in the transfer to the effect that the flat has to be used as a caretaker’s flat and then to seek a premium for a release of the covenant at a later date. There are cases going either way in the LVT on the issue of whether such a covenant should be included. Given the sums at stake tenants would always be well advised to oppose such a restriction.

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