Panagopoulos and another v Earl Cadogan and another

Hearing dates: 3, 4, 8 and 9 February 2010

MR JUSTICE ROTH:

The statutory regime for collective enfranchisement by tenants of flats is contained in the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”). This case concerns the proper interpretation of certain provisions of that regime when after a claim to collective enfranchisement has been made and registered, the freeholder grants a 999 year lease of a part of the premises. In a thorough and thoughtful judgment in the Central London County Court, HH Judge Marshall QC held that the lease granted by the freeholder in the circumstance of this case was caught by the anti-avoidance provisions in section 19 1 on several grounds. With leave granted by Peter Smith J, the freeholder appeals against that decision.

In fact, there are two appellants since prior to the enfranchisement process being commenced, the Earl Cadogan had agreed to sell property including this freehold to the second appellant, Cadogan Estates Limited (“CEL”), a company which is connected to the Cadogan Estate, but that contract remains uncompleted. Nothing turned on the distinction between the two appellants. However, CEL is also the tenant under the 999 year lease granted by Earl Cadogan that gives rise to this case.

The property

51 Cadogan Square (“the Property”) is in the Knightsbridge area of London. I can take the description of the Property from the judgment of Judge Marshall:

“4. The Property faces west and is terraced. It comprises five converted flats or maisonettes on the ground floor and upper floors, and a basement in which there is, below the rear of the main part of the building, a flat hitherto used as a caretaker's flat. The front of the basement is a storage area, with a front exit door into an open area with a staircase up to the street, and access to vaults under the pavement.

5. The various flats are accessed internally by a staircase in the centre of the property beside its north party wall. The only other material feature of the configuration of the Property is a light well in the rear of the Property, open to the sky from the basement floor level. This light well is on the southern side of the Property and mirrors a similar light well in the adjacent property (No 53) to the south. There is a boundary wall between the two light wells about 10 ft high, topped off with railings. The flats in No 51 wrap around three sides of the light well in No 51.”

I would only add that the floor of the light-well is concreted over and it is accessible by a door from the basement flat. The ground of the light-well, which has also been referred to as the patio, is not otherwise accessible to the occupiers of the building.

The enfranchisement claim

On 25 April 2006, three of the five qualifying tenants in the building served notice on the Appellants under section 13 seeking to acquire the freehold of the Property. The notice specified the Respondents as the nominee purchasers.

On 30 June 2006, the Appellants served a counter notice under section 21. That notice did not include any proposals for any leaseback of any part of the building: see section 21(3)(a)(ii).

On 13 July 2006, the tenants' section 13 notice was duly registered under section 97. Since the price at which the freehold was to be acquired was not agreed, on 13 October 2006, the Respondents made an application to the Leasehold Valuation Tribunal (“LVT”) under section 24 to determine the terms of the acquisition.

Before any hearing took place before the LVT, on 25 March 2007 the Appellants notified the Respondents of their intention to grant a lease of the basement caretaker's flat to a nominee. The Respondents objected to this grant and the question of the potential validity of the intended lease was raised in the LVT proceedings where it was considered as a preliminary issue. However, the LVT concluded that it had no jurisdiction to make a determination on that issue. The parties proceeded to agree terms of the acquisition on alternative bases according to whether the intended lease of the caretaker's flat was, or was not, void.

On 27 March 2008 Earl Cadogan formally granted a lease of the caretaker's flat to CEL (“the Lease”). That is the lease which is at the heart of this dispute.

As mentioned above, the Lease is for 999 years and it comprises the caretaker's flat and the floor of the light-well, described in the lease as the patio. The rent is one peppercorn, if demanded. In addition, there is an obligation to pay what is described as the “insurance rent” and service charge, upon demand, as specified in one of the schedules. It will be necessary to refer to this in more detail later in this judgment. The Lease is what is sometimes referred to as a “eggshell” lease that is expressly limited to the surfaces of the relevant walls, floors and ceilings of the premises and does not include the underlying structure. The Lease contains no proviso for re-entry in the event of breach of any conditions.

On receipt of notification that the Appellants had applied to the Land Registry to register the Lease, the Respondents objected. The matter was referred to the Land Registry adjudicator. However, no substantive decision was made by the adjudicator once the Respondents issued an application in the County Court on 11 June 2008. It is upon that application that Judge Marshall gave her decision which is the subject of this appeal.

The statutory framework

Chapter I of Part I of the 1993 Act contains a detailed and comprehensive code that confers on qualifying tenants of flats contained in eligible premises the right to have the freehold of those premises acquired on their behalf by one or more nominee purchasers. This is referred to as “the right to collective enfranchisement”. The statutory provisions are intricate and almost every aspect of the regime is subject to delineated limitations and/or extensions designed to deal with the many and varied circumstances that could potentially give rise to collective enfranchisement claims. Pursuant to section 3, the regime applies to premises that consist of a self-contained building or part of a building that contains two or more flats held by qualifying tenants, where the total number of flats held by such tenants is at least two-thirds of the total number of flats in the premises.

The qualifying tenants' claim to exercise the right to collective enfranchisement is made by giving a notice under section 13, which notice has to specify the premises and the proposed purchase price and give various other details. The date on which that notice is given constitutes “the relevant date” for the purpose of the other statutory provisions: section 1(8). The qualifying tenants by whom the right is exercised are referred to as “the participating tenants”: section 14. Pursuant to an amendment to the 1993 Act that came into force on 28 February 2005, the relevant date is the date as at which the freeholder's interest is to be valued: section 32 and Schedule 6, para 3. Previously, the valuation date had been the date when the freehold interest to be required was either agreed or determined by the LVT: Schedule 6, para 1(1), prior to the amendment.

Although this regime primarily confers the right to acquire a freehold, in certain specified circumstances it can extend to the acquisition in addition of interests under a lease. Section 2 specifies the circumstances where the participating tenants, by their nominee purchaser, are (a) obliged to acquire a leasehold, and (b) entitled to acquire a leasehold:

“2.—(1) Where the right to collective enfranchisement is exercised in relation to any premises to which this Chapter applies (‘the relevant premises’), then, subject to and in accordance with this Chapter—

(a) there shall be acquired on behalf of the qualifying tenants by whom the right is exercised every interest to which this paragraph applies by virtue of subsection (2); and

(b) those tenants shall be entitled to have acquired on their behalf any interest to which this paragraph applies by virtue of subsection (3);

and any interest so acquired on behalf of those tenants shall be acquired in the manner mentioned in paragraphs (a) and (b) of section 1(1).

(2) Paragraph (a) of subsection (1) above applies to the interest of the tenant under any lease which is superior to the lease held by a qualifying tenant of a flat contained in the relevant premises.

(3) Paragraph (b) of subsection (1) above applies to the interest of the tenant under any lease (not falling within subsection (2) above) under which the demised premises consist of or include—

(a) any common parts of the relevant premises, or

(b) any property falling within section 1(2)(a) which is to be acquired by virtue of that provision,

where the acquisition of that interest is reasonably necessary for the proper management or maintenance of those common parts, or (as the case may be) that property, on behalf of the tenants by whom the right to collective enfranchisement is exercised.”

For present purposes, the material provisions are section 2(1)(b) and (3)(a). Thus, the participating tenants are entitled to have acquired on their behalf the interest of a tenant under a lease that consists of or includes any common parts of the premises, where it is reasonably necessary to acquire that interest for the proper management or...