Hildron Finance Ltd v Sunley Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 06 July 2010 |
| Neutral Citation | [2010] EWHC 1681 (Ch) |
| Docket Number | Case No: CC/2009/PTA/0518 |
| Court | Chancery Division |
| Date | 06 July 2010 |
[2010] EWHC 1681 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
On Appeal from The Central London County Court
Before: Mr Justice Henderson
Case No: CC/2009/PTA/0518
Mr Alexander Hill-Smith (instructed by John May Law) for the Appellant
Mr Stuart Hornett (instructed by Charles Russell LLP) for the Respondent
Hearing date: 26 May 2010
Mr Justice Henderson:
Introduction
The issue on this appeal is whether the appellant, Sunley Holdings Limited (“Sunley”), is entitled to receive an overage payment pursuant to the terms of an agreement which it entered into on 25 March 1986 (“the Porter's Flat Agreement”) when it sold the freehold interest in a large block of flats on Hampstead High Street, London, NW3, known as “Greenhill”, to Hildron Finance Limited (“Hildron”). Hildron is the respondent to the appeal, which is brought by Sunley (with permission granted by Floyd J) against the relevant parts of the judgment and order of Mr Recorder Antonio Bueno QC dated 10 July 2009 in the Central London County Court.
At the time of the sale in 1986, the porter's flat at Greenhill (flat 9) was occupied by the resident porter employed by the landlord, Sunley. All the other flats (some 136 in all) were let on long leases reserving a ground rent and service charge. It was the understanding of both Sunley and Hildron, as recorded in a recital to the Porter's Flat Agreement, that the leases all provided for the landlord at its discretion to employ a porter and other employees for the purpose of performing the landlord's covenants, and to make available either in the block itself or elsewhere accommodation for such porter or other employees. The important point is that the landlord was at liberty to provide the services of a non-resident porter or porters, although there had in fact been a resident porter living in a flat at Greenhill at all times since the block was built in the 1930s.
The purpose of the Porter's Flat Agreement, in broad terms, was to regulate future dealings with the porter's flat by Hildron and its successors in title for a period of 21 years, and to require Hildron to sell a new long lease of the flat on the open market with vacant possession if there came a time when the flat was no longer required as accommodation for a resident porter or employee. The net proceeds of any such sale were then to be divided equally between Sunley and Hildron, after deducting from the gross proceeds the sum of £10,500 together with the reasonable legal costs and surveyor's fees incurred by Hildron in connection with the negotiation and grant of the new lease.
The present dispute is about the effect on the Porter's Flat Agreement of the collective enfranchisement provisions contained in Part I of the Leasehold Reform, Housing and Urban Development Act 1993. On 8 November 2004 a requisite majority of qualifying tenants served an initial notice on Hildron pursuant to section 13 of the 1993 Act, claiming to exercise the right to collective enfranchisement in respect of the entire block. The proposed nominee purchaser was a company called Greenhill Hampstead Freehold Limited. By a counter-notice dated 20 January 2005 Hildron admitted the tenants' right to enfranchise, and put forward counter-proposals for the price to be paid. Meanwhile, the initial notice was registered at HM Land Registry by the participating tenants pursuant to section 97(1) of the 1993 Act, which provides that such a notice may be registered “as if it were an estate contract”. The effect of the registration was to impose certain constraints on the rights of Hildron as the freeholder to deal with the premises specified in the notice, as set out in section 19. Although Sunley has at times disputed the point, it was common ground at the hearing below, and was again common ground by the time of the hearing of the appeal, that the effect of section 19 would have been to prevent the grant of any new long lease of the porter's flat by Hildron, because the flat formed part of the common parts which the tenants were entitled to acquire under section 2(1) (b) of the 1993 Act. By virtue of section 19(1), any purported grant of such a lease would have been void: the relevant words are “… any transaction shall be void to the extent that it purports to effect … any such grant of a lease as is mentioned in paragraph (a) …”
It follows, and is also now common ground, that once the initial notice had been registered section 19 made it unlawful for Hildron to comply with the express terms of the Porter's Flat Agreement in the event that the porter's flat was no longer required to accommodate a porter or other employee, and if Hildron had purported to grant a new long lease of the flat in such circumstances, the lease would have been void.
The qualifying tenants and Hildron were unable to agree on the price to be paid for the freehold of Greenhill, and the matter was referred to the Leasehold Valuation Tribunal (“LVT”) to determine. In its decision dated 12 July 2006 the LVT determined the total value of the landlords' interests in the property (including the agreed value of the interests of certain intermediate landlords) as £2,298,172. Of this sum, the amount attributable to the porter's flat was £50,000. In reaching this conclusion, the LVT accepted Hildron's submissions, buttressed by expert evidence, that a willing buyer in the market place would not have been purchasing the porter's flat as a stand-alone investment, but as part of a complex investment in the whole block, and that the service charge provisions in the leases did not allow for the recovery of a notional market rent by the landlord in respect of the porter's flat.
Hildron then appealed to the Lands Tribunal, and one of the issues in respect of which permission to appeal was given was the amount to be attributed to the porter's flat. The appeal was heard by His Honour Judge Reid QC and Mr N J Rose FRICS on 12 and 13 November 2007, and on 10 January 2008 they gave their decision. They held that the total price payable by the nominee purchaser was £2,835,255, and that the sum attributable to the porter's flat was £200,000. It was agreed between the expert valuers on both sides that the open market value of the porter's flat was £300,000 as at the valuation date of 20 January 2005 (the date of Hildron's counter-notice, which the Lands Tribunal held in agreement with the LVT to be the correct date to take). The Lands Tribunal differed from the LVT in holding that the later tranches of long leases contained clear provisions which entitled the lessor to recover a notional rent for the porter's flat as part of the service charge, but they agreed that no notional rent was recoverable under the “old leases” which comprised the first tranche. They also expressly found that it was open to the lessor to discharge its obligations in relation to portering services by the provision of non-resident porters, and thus to sell the porter's flat (paragraph 72 of the decision). Nevertheless, they declined to place a value on the flat equivalent to its agreed open market value, but instead settled on the figure of £200,000. For present purposes, their reasoning appears sufficiently from paragraph 76 of the decision:
“In our view the value put on the flat by [Hildron] is over-optimistic. The sale of the flat or its reduction into possession so as to let it would create other problems in relation to the provision of portering services. It is unlikely that any purchaser would regard the flat as a stand alone investment for which he would be prepared to pay the full open market price as if it were a one-off retail sale. In addition, were the flat retained as a porter's flat, there would be a shortfall on the notional rent because of the terms of the old leases. As against that, the figures proposed by Mr Maunder-Taylor [the expert witness for the nominee purchaser] seem to us to be too low. Even allowing for the “bulk discount” point and the difficulty created by the terms of the old leases as to recovering the notional rent, we take the view that a purchaser would attribute a greater value than £150,000 to the flat. In our judgment the appropriate figures is one of £200,000. If we are wrong in concluding that the sale of the porter's flat is not prohibited, our opinion as to the value which a purchaser would attribute to the right to receive a notional rent under the more recent leases – amounting, we understand, to some two-thirds of the total – would be £100,000.”
Following the decision of the Lands Tribunal, Hildron was still unwilling to execute a voluntary transfer of the freehold to the nominee purchaser. One of the reasons for this was that Hildron and Sunley were unable to agree whether the overage provisions in the Porter's Flat Agreement had been triggered, and the restriction against the registered title which had been entered to protect Sunley's rights under the agreement remained in place. Eventually, on 23 May 2008 the nominee purchaser issued a Part 8 Claim Form in the Central London County Court seeking a vesting order pursuant to section 24 of the 1993 Act. The defendants to the claim were Hildron and Sunley. Apart from a vesting order, the claimant asked for declarations that Sunley was not entitled to any payment from Hildron before giving its consent to a transfer of the freehold to the claimant, and that Sunley was obliged to give its unconditional consent to such a transfer.
In due course Hildron made a Part 20 claim against Sunley seeking declarations to the same effect as those sought by the nominee purchaser, and Sunley filed a defence and counterclaim asking for declarations that Hildron was in breach of the...
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