Belvedere Court Management Ltd v Frogmore Developments Ltd

THE MASTER OF THE ROLLSThis appeal raises an important and novel question on the rights of tenants under Part I of the Landlord and Tenant Act 1987. The purpose of this Part of the Act is to confer on tenants of flats rights to acquire their landlord's reversion. This appeal concerns the rights of the tenants of flats in Belvedere Court.

Belvedere Court is a purpose-built block of flats in Lyttleton Road, London N2. It is part of the Hampstead Garden Suburb Estate. The block was put up shortly before the Second World War. There are 56 self-contained flats in the block. There are the usual common parts, not included in the lettings of the 56 flats.

The freehold of the block has been owned by different companies over the years. None of them plays any part in this story. In 1938 an under-lease of the whole block and its grounds was granted to a mesne tenant for 99 years from 24 June 1936. In 1969 the then freeholder granted a head-lease of part of the Estate, including Belvedere Court, to another mesne tenant (subject to the 99 year lease) for 1992 years from 25 March 1969. The flats have been occupied by different sub-tenants on different terms. It is the current occupying tenants whose rights are effectively in issue.

A time came (the dates are unimportant) when Liverpool Victoria Friendly Society became the registered leasehold proprietor of both the 1938 and the 1969 leases. It is common ground that these two leasehold interests remained separate and did not merge. But in due course Liverpool Victoria decided to part with its interest in a number of properties including Belvedere Court. So, on 8 October 1993, contracts were exchanged which indirectly transferred the entirety of Liverpool Victoria's interest in Belvedere Court to Frogmore Developments Limited ("Frogmore"), the appellant in this court and the respondent in the court below. Frogmore is a subsidiary of Frogmore Estates PLC.

After this exchange of contracts Liverpool Victoria wrote to the Belvedere Court Residents' Association to report that this exchange had taken place. Liverpool Victoria did not tell the Association or the tenants before the exchange took place. It would seem that this omission was quite deliberate. But it was a breach of the society's duty under Part 1 of the Landlord and Tenant Act 1987.

II

Section 1 of the 1987 Act provides:

" Qualifying tenants to have rights of first refusal on disposals by landlord

1.(1) A landlord shall not make a relevant disposal affecting any premises to which at the time of the disposal this Part applies unless -

(a)he has in accordance with section 5 previously served a notice under that section with respect to the disposal on the qualifying tenants of the flats contained in those premises (being a notice by virtue of which rights of first refusal are conferred on those tenants); and

(b)the disposal is made in accordance with the requirements of sections 6 to 10.

(2)Subject to subsections (3) and (4), this Part applies to premises if -

(a)they consist of the whole or part of a building; and

(b)they contain two or more flats held by qualifying tenants; and

(c)the number of flats held by such tenants exceeds 50 per cent. Of the total number of flats contained in the premises."

The premises to which section 1 applies are further described by way of exclusion in subsections (3) and (4) of section 1. It is clear that the section applied to Belvedere Court.

The effect of these subsections is dependent on a number of statutory definitions and stipulations.

The meaning of "landlord" is defined in section 2. It means the immediate landlord of the qualifying tenants of the flats contained in the premises or (where any of those tenants is a statutory tenant) the person who would be entitled to possession of the flat in question apart from the statutory tenancy. Where the immediate landlord has a superior landlord who holds for a term less than or terminable within seven years that superior landlord may also fall within the statutory definition of landlord, but that is not this case. There is no doubt that Liverpool Victoria was the immediate landlord within the definition before the transfer to Frogmore.

"Relevant disposal" is defined in section 4 of the Act. The expression refers to

"(1)…the disposal by the landlord of any estate or interest (whether legal or equitable) in any such premises, including the disposal of any such estate or interest in any common parts of any such premises but excluding -

(a)the grant of any tenancy under which the demised premises consist of a single flat (whether with or without any appurtenant premises); and

(b)any of the disposals falling within subsection (2)."

One exclusion in subsection (2) is relevant in this appeal. It is subsection (2)(l):

"where the landlord is a body corporate, a disposal to an associated company".

"Associated company" is defined in section 20 of the Act. Section 4 makes it clear that the restricted definition only applies where the phrase "relevant disposal" is used. It is the disposal which is to trigger the right of first refusal under section 1 which must be a "relevant" disposal.

"Qualifying tenants" are defined in section 3 of the Act. Protected shorthold tenancies as defined in section 52 of the Housing Act 1980, business tenancies, service tenancies and assured tenancies or assured agricultural occupancies within the meaning of Part I of the Housing Act 1988 are excluded. Other tenants (including statutory tenants) are, generally speaking, within the statutory definition. Most of the tenants of Belvedere Court (many of whom were statutory tenants) were qualifying tenants and fell within the statutory definition.

A landlord (such as Liverpool Victoria) making a relevant disposal (such as a sale to Frogmore) of any premises covered by Part I of the Act (such as Belvedere Court) is obliged by section 1 of the Act before doing so to serve a notice under section 5 of the Act on the qualifying tenants of flats in the premises (as a majority of the tenants of Belvedere Court were). The effect of section 5 is encapsulated in the section heading: "Requirement to serve notice conferring rights of first refusal".Section 5 is a detailed section. The detail does not matter for present purposes, since such a notice was not served by Liverpool Victoria. It is enough to quote subsections (1) and (2), which convey the legislative intention underlying the provision:

" Requirement to serve notice conferring rights of first refusal

5.(1) Where, in the case of any premises to which this Part applies, the landlord proposes to make a relevant disposal affecting the premises, he shall serve a notice under this section on the qualifying tenants of the flats contained in the premises.

(2)A notice under this section must -

(a)contain particulars of the principal terms of the disposal proposed by the landlord, including in particular -

(i) the property to which it relates and the estate or interest in that property proposed to be disposed of, and

(ii) the consideration required by the landlord for making the disposal;

(b)state that the notice constitutes an offer by the landlord to dispose of the property on those terms which may be accepted by the requisite majority of qualifying tenants of the constituent flats;

(c)specify a period within which that offer may be so accepted, being a period of not less than two months which is to begin with the date of service of the notice; and

(d)specify a further period within which a person or persons may be nominated for the purposes of section 6, being a period of not less than two months which is to begin with the end of the period specified under paragraph (c)."

One of the apparently strange features of this legislation is that although section 1 lays a clear mandatory duty on a landlord (such as Liverpool Victoria) to follow the statutory procedure, no sanction attaches to violation of this duty whether inadvertent or (as here, it would seem)deliberate. Qualifying tenants who caught wind of what was proposed could of course invoke civil remedies to procure compliance by a landlord with his statutory duty, but that is a right of little value where (as here) the qualifying tenants were presented with a fait accompli. Unless a landlord respects his statutory duty and the rights of his tenants, there is no reason why a tenant should learn that a landlord contemplates making a relevant disposal.

Section 6 governs the procedure where 50 per cent or more of qualifying tenants wish to accept the landlord's offer made under section 5. Where such notice of acceptance is given, the landlord "shall not during the relevant period dispose of the protected interest except to a person or persons nominated for the purposes of this section by the requisite majority of qualifying tenants of the constituent flats." Since, in the present case, no section 5 notice was served on the qualifying tenants, it of course...