| Landlord and tenant — Leasehold enfranchisement — Validity of notice of enfranchisement — Landlord entering into contract to surrender headlease to freeholder in return for grant of new lease and consideration — Headlease surrendered and new lease granted pursuant to agreement — Tenants serving notice requiring freeholder to dispose of new lease to tenants’ nominee — Whether appropriate notice — Landlord and Tenant Act 1987, ss 12B, 12C (as inserted by Housing Act 1996, s 92(1), Sch 6, Pt II
Kensington Heights Commercial Co Ltd v Campden Hill Developments Ltd [2007] EWCA Civ 245
CA: Longmore, Lawrence Collins LJJ and Sir Martin Nourse: 21 March 2007
Where a landlord entered into a contract to surrender a headlease without serving a notice on the qualifying tenants under s 5 of the Landlord and Tenant Act 1987, the tenants had the rights conferred by s 12C of the Act rather than those conferred by s 12B. Therefore the appropriate course was for the tenants to serve a notice on the freeholder requiring him to grant a new lease to their nominee on the same terms as the surrendered lease.
The Court of Appeal so held when allowing the appeal of the defendant, Campden Hill Developments Ltd, from the order of Judge Levy QC, sitting in the Central London County Court, on 20 June 2006, that pursuant to Pt I of the Landlord and Tenant Act 1987 the defendant transfer to the claimant, Kensington Heights Commercial Co Ltd, the term granted by a lease of Kensington Heights, 81–89 Campden Hill Road, London W8 (“the property”) dated 27 November 2000, made between the defendant and the freeholder, Kennet Properties Ltd.
In 1973 the freeholder’s predecessor in title granted to the defendant a lease of land for a term of 121 years (“the 1973 lease”). The defendant built a block of flats on it and granted underleases of the flats. On 19 October 2000 the freeholder agreed with the defendant to take a surrender of the 1973 lease and grant it a new lease of the same property, minus a boundary strip over which the tenants had no rights, for a term of 125 years from the date of completion, for a purchase price of £125,000 (“the 2000 agreement”). On 27 November 2000, pursuant to that agreement, the defendant surrendered the 1973 lease, and the freeholder granted the defendant the new lease (“the 2000 lease”). On 28 July 2005 the tenants of the flats served a notice on the freeholder under s 12B of the Act, stating that the freeholder had acquired an interest in the property from the defendant under the 2000 agreement, and that the disposal to the freeholder was a relevant disposal, made without the defendant serving notice on the tenants under s 5 of the 1987 Act. The claimant subsequently sought an order under Pt I of the 1987 Act that the defendant dispose of the 2000 lease, on the terms on which it was made, including the consideration, to the claimant, the tenants’ nominee.
S 12B(1) of the 1987 Act provides: “This section applies where—(a) the original disposal consisted of entering into a contract and no notice has been served under section 12A …”
S 12C(1) provides: “This section applies where the original disposal consisted of the surrender by the landlord of a tenancy held by him …”
LAWRENCE COLLINS LJ said that the combined effect of ss 1 and 2 of the 1987 Act was that the defendant, as the tenants’ immediate landlord, was prohibited from making a “relevant disposal” unless it had served a notice under s 5. The combined effect of ss 4(1), 4(2)(i), 4(3) and 4A(1) was that the 2000 agreement, containing an agreement to surrender, was the relevant disposal. Therefore an offer notice should have, but had not been, served on the tenants under s 5. As a result of that failure, the tenants had the rights conferred by whichever of ss 12A, 12B and 12C applied. S 12A did not apply, because it applied to cases “where the original disposal consisted of entering into a contract” and dealt with the case where the contract had not been completed. Although the opening words of s 12B(1)(a) were literally capable of applying to a contract to surrender, the context showed that they were not intended so to apply. The rest of s 12B did not fit with a surrender; S 12B would make no sense in such a case. The effect of s 4A(1) was that the expression “surrender”, which appeared in s 12C(1), included a contract to surrender. Even if s 4A(1) did not have this effect, s 12C(1) would have that effect in any event, because the only sensible construction to give effect to its intention would be that it applied to a contract to surrender, and to give the tenants the intended remedy, namely that the purchaser was obliged to “grant [to the tenants’ nominee] a new tenancy of the premises which were subject to the relevant tenancy, on the same terms as those of the relevant tenancy” (ie the surrendered tenancy): s 12C(2). So the claimant could have served a s 12C notice on the freeholder and become entitled to a grant by the freeholder of a lease on the same terms and for the same term as that of the 1973 lease. The court did not have power to order the defendant to grant to the claimant a new lease in the same terms as the 1973 lease which had been surrendered. The 1973 lease had been extinguished by a surrender to the freeholder. An order could be made against the defendant only if s 16 applied. But s 16 applied only if the “estate or interest” that was the subject matter of the original disposal (the 1973 lease) was also the subject matter of a later disposal by the freeholder to the defendant. The defendant did not have the same estate or interest that was surrendered to the freeholder; it had a different lease on terms different from those of the 1973 lease.
LONGMORE LJ and SIR MARTIN NOURSE agreed.
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