9 Cornwall Crescent London Ltd v Kensington and Chelsea Royal London Borough Council
| Jurisdiction | England & Wales |
| Judge | Lord Justice Auld,Lady Justice Arden,Mr Justice Wilson |
| Judgment Date | 22 March 2005 |
| Neutral Citation | [2005] EWCA Civ 324 |
| Docket Number | Case No: B2/2004/1560 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 March 2005 |
[2005] EWCA Civ 324
The Right Honourable Lord Justice Auld
The Right Honourable Lady Justice Arden and
The Honourable Mr Justice Wilson
Case No: B2/2004/1560
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE RICH QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Stan Gallagher (instructed by Comptons) for the Appellant
Mr Anthony Radevsky (instructed by Pemberton Greenish) for the Respondent
Lord Justice Auld:
Introduction
This appeal concerns a claim by the appellant, as nominee of a number of tenants of flats in the same building ("the tenants"), to exercise their right of collective enfranchisement under Part 1, Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 ("the Act"). The appellant has, as the start of that claim, served an initial notice under section 13 of the Act on the common landlord, the Royal Borough of Kensington and Chelsea ("the landlord"), specifying a proposed purchase price of £210. As part of the claim, the appellant challenges the validity of the landlord's counter-notice under section 21 of the Act, proposing a price of £130,000. The tenants' challenge to the landlord's counter-notice is that it proposes an unrealistically high price, relying on the reasoning of this Court in Cadogan v Morris [1999] 1 EGLR 59 in a different context of the Act, namely Part 1, Chapter 2, relating to a tenant's right to acquire a new lease. The claim failed in the court below; if it had succeeded or if the appellant were to succeed in this appeal, the tenants would obtain "in default" of a valid counter-notice, the freehold of the building containing their flats for the price they proposed in the appellant's section 13 notice, namely £210.
The landlord contends that its counter-notice was valid, raising as it did an issue between the parties as to the price at which the tenants should be entitled to exercise their undoubted right of enfranchisement, and that the appropriate price should be determined by a leasehold valuation tribunal under the machinery provided by section 24 of the Act. In so contending, it maintains that the Cadogan v Morris requirement of a "realistic" proposal does not apply to a landlord's counter-notice under section 21 of the Act, or that, if it does, it is satisfied where, as here, the proposed price was made bona fide and on advice from a professional valuer.
Before I turn in more detail to the facts of the case and to the issues of law that it raises, I should attempt a summary of the material parts of the legislative scheme of the Act.
The legislative scheme
In 1993 Parliament, by the Act, conferred for the first time on tenants of flats rights to collective enfranchisement of the premises containing their flats and to the grant of new leases. These were not the first inroads on landlords' right to retain their freehold or to exercise their reversion on the expiry of leases. The first was in the Leasehold Reform Act 1967, which gave residential tenants of houses held on long leases at low rent the right to acquire either the freehold or an extended lease. When considering the proper approach to construction of this type of legislation, it is important to remember that, whilst its effect is expropriatory in nature, that is a necessary consequence of its main purpose, which was to confer benefits on tenants. It is not, therefore, appropriate to construe it strictly in favour of landlords whose property is being subjected to compulsory acquisition, but, as Millett LJ (as he then was) said in Cadogan v McGirk [1996] 4 All ER 643. at 647j-648b,
"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."
Chapter 1 of Part 1 of the Act conferred the right to collective enfranchisement and provided the means and conditions of its exercise, and Chapter 2 of Part 1 made corresponding provision for acquisition of new leases. This appeal is concerned primarily with the right to collective enfranchisement in Chapter 1, though there are comparable provisions in relation to acquisition of new leases in Chapter 2, the interpretation and application of which are of some assistance to the resolution of the issues before the Court.
As I have indicated, Chapter 1 of Part 1 of the Act sets out the procedural machinery by which tenants of flats can in certain circumstances assert a right to collective enfranchisement. One of the critical matters for resolution in the exercise of such a statutory right is the price to be paid for the freehold of the premises in which the tenants live. The Act provides a mechanism for resolution of that matter and satisfaction of other requirements of exercise of the right, consisting broadly of two stages. The first is that of an exchange of notices between the tenants, or their nominee, and the landlord, which serves to identify at an early stage whether and broadly what issue or issues there are between them as to the tenants' right to exercise the power and/or as to the terms, including price, of its acquisition. It does not serve, as the Judge appears to have considered at paragraph 25 of his judgment, as a means of securing a final definition of, or constraint on, the issue or issues for determination by court or a leasehold valuation tribunal, if the matter goes that far. Rather, it serves as a useful negotiating stage during which any issues may be resolved so as to avoid, if possible, recourse to the second stage, namely application to the court to determine the tenants' entitlement to enfranchisement and/or, as the case may be, to a leasehold enfranchisement tribunal to determine the price and/or other terms.
The Act, in section 13(1) provides that qualifying tenants who wish to exercise their right to collective enfranchisement must do so by "the giving of notice" under the section, described as an initial notice. The section includes, in subsection (3)(d) a requirement that such a notice must "specify the proposed purchase price" for the freehold interest(s) sought to be acquired.
If, for some reason, the notice is agreed or held to be invalid for want of compliance with the requirements of section 13, there would be no bar to the tenants giving a valid notice without delay. And, if, by the operation of some provision of Chapter 1 of the Act, it is withdrawn or deemed to have been withdrawn or otherwise ceases to have effect, then the only inhibition on the giving of a further notice by the tenants in respect of the same premises is, as provided by section 13(9), read with 13(11), that they must wait a year from the date of withdrawal or of it ceasing in some other way to be of effect before doing so.
On giving a valid notice, which remains in effect, section 21 of the Act requires the landlord to respond by way of a counter-notice. As a result of section 13(3)(g) and (5), this will be not less than two months after receipt of the initial notice. The counter-notice must state whether the landlord admits that the tenants on whose behalf the initial notice was given are entitled to exercise their right to enfranchisement and, if so, which, if any, proposal in the notice he accepts and which, if any, proposal he does not accept. By section 21(3)(a)(i), he must specify "in relation to any proposal which" he does not accept, his "counter-proposal". And, by section 24(1) and (2), if the landlord, by his counter-notice admits the participating tenants' right to exercise their right of enfranchisement, but disputes the proposed price or any other term of the acquisition, and the parties remain in dispute for a period of two months after the giving of the counter-notice, there is then a further period of four months in which they can apply to a leasehold valuation tribunal for determination of the matter. Thus, the exchange of notice procedure specified by the Act allows the parties a generous period—normally up to six months—for negotiation before one or other of them is driven to put the matter before the tribunal.
If the landlord fails to serve a counter-notice the tenants are entitled, by virtue of the Court's interpretation of section 25 of the Act in Willingale v Globalgrange Ltd [2000] 2 EGLR 55, to acquire the freehold on the terms, including those as to price, proposed in their notice. Section 25 provides, so far as material, that where a landlord fails to serve a counter-notice under section 21 in response to an initial notice under section 13 the court "may" on an application on behalf of the tenants make an order determining the terms on which they are to acquire, in accordance with the proposals in the initial notice, the freehold interest sought. In that case May LJ, with whom Waller LJ agreed in a short concurring judgment, held that the word "may" in this context means "must", or, put another way, means "shall have power to" and does not confer on the court a discretion whether or not to make an order. It followed, he said, that the court has to make an order in such circumstances, and the landlord, in the absence of a duly given counter-notice cannot challenge the tenants' proposals, including that as to price.
May LJ's approach involved a recognition, as he put it at page 57B, of the "irretrievable" prejudice to the landlord arising from this construction, which he contrasted with the position of the tenant who, if his notice were to cease to have effect, "could serve another one"....
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