Smith and Another v Jafton Properties Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Aikens,Master of the Rolls |
| Judgment Date | 02 November 2011 |
| Neutral Citation | [2011] EWCA Civ 1251 |
| Docket Number | Case No: B2/2011/0758 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 November 2011 |
[2011] EWCA Civ 1251
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON
CIVIL JUSTICE CENTRE
His Honour Judge Dight
CHY09701
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Aikens
and
Lord Justice Lewison
Case No: B2/2011/0758
Mr Stephen Jourdan QC (instructed by Forsters LLP) for the Appellant
Mr Anthony Radevsky (instructed by Wallace LLP) for the Respondent
Hearing date: 24 October 2011
The issue
Mr Jourdan QC identifies the issue in this appeal as follows:
"If there is a lease of four flats, flats 1 to 4, and there are two assignments of part of the demised premises held under the lease, one to A of flats 1 and 2, and another to B of the remaining two flats, flats 3 and 4, then for the purposes of section 5 of the Leasehold Reform Housing and Urban Development Act 1993 ("the 1993 Act"):
(a) is A the tenant of his two flats and B the tenant of his two flats, or
(b) are A and B together to be regarded as the tenants of all four flats?
If (a) is correct, then A and B are qualifying tenants for the purposes of the 1993 Act. If (b) is correct then they are not."
The facts
The facts are summarised in the lucid judgment of HH Judge Dight. In brief they are these. Jafton Properties Ltd is registered at HM Land Registry under title numbers 314960 and 314961 as the sole proprietor of the freehold interest in Newbury House, 10–13 Newbury Street, London EC1 ("the property"). The freehold of 10–12 Newbury Street is registered under title number 314961 and the freehold of 13 Newbury Street is registered under title number 314960. The property is a self-contained building which now consists of 4 flats, one on each floor, with a lower ground floor storage area and certain common parts.
On 26 January 1926 the then freeholder granted a lease of the property as a whole for a term of 99 years from 24 June 1924 at an annual rent of £85 payable quarterly in advance on the usual quarter days. The lease was registered at HM Land Registry under title number 318551. The lease contains a number of relatively usual covenants to be observed by the tenant but there are no express covenants against assignment or underletting.
In October 2004 Mr Smith and Mr Dennis bought the lease at auction and it was assigned to a company called City Apartments Ltd ("City"). Messrs Smith and Dennis own 75% of City's shares and have at all material times been its only directors. When City acquired the lease the property was in a dilapidated condition; but City carried out substantial works of refurbishment and created four separate flats, numbered 1 to 4.
Following completion of the works, and creation of the four flats, on 27 May 2008 City executed three transfers of separate parts of the property purporting to assign the property comprised in the lease in three parts by three separate instruments as follows:
i) a transfer of flats 1 and 2, with lower ground floor storage space, to Mr Smith alone;
ii) a transfer of flats 3 and 4, also with lower ground floor storage space, to Mr Dennis alone; and
iii) a transfer of the remainder of the Property (essentially its common parts) to Messrs Smith and Dennis jointly.
The transfers purported to apportion, without the consent of the landlord, the yearly rent payable under the lease as to £34 in respect of the premises transferred to Mr Smith, £34 in respect of the premises transferred to Mr Dennis, and £17 in respect of the premises transferred to Messrs Smith and Dennis jointly.
It is common ground that (a) the landlord was not consulted about the assignment of parts of the lease, (b) it did not consent to the assignments, and (c) it has refused to accept rent from the assignees separately since the transfers came to its attention.
On 15 September 2008 the claimants were registered at HM Land Registry as proprietors of the leasehold interests which had been transferred to them as follows:
i) Mr Smith is registered as sole proprietor of a leasehold interest in flats 1 and 2 (and associated storage space) under title number EGL544839;
ii) Mr Dennis is registered as sole proprietor of a leasehold interest in flats 3 and 4 (and associated storage space) under title number EGL544842; and
iii) Messrs Smith and Dennis are jointly registered as the proprietor of the remainder of the Property under title number EGL544844.
At entries number 2 in the property registers of EGL544839 and EGL544842 after the particulars of the lease are given there is a note which states "The lease includes other land". At entries number 4 to each property registered there is reference to the transfers dated 27 May 2008 and a statement that the rent was thereby "informally apportioned".
On 17 July 2009 Messrs Smith and Dennis served an initial notice under section 13 of the 1993 Act claiming the right of collective enfranchisement of the whole of the property pursuant to Part I of Chapter 1 of the 1993 Act; and naming themselves jointly as the nominee purchaser for the purposes of the intended acquisition. By a counter-notice dated 11 September 2009 Jafton did not admit that Messrs Smith and Dennis had the right to acquire the freehold of the property for three reasons. The first reason was that they were not qualifying tenants for the purposes of Chapter I of the 1993 Act. It is that reason that was the subject of a preliminary issue, which HH Judge Dight decided in the landlords' favour.
The judge set out the relevant terms of the 1993 Act impeccably. I reproduce his summary of the key provisions. Chapter 1 of the 1993 Act "has effect for the purpose of conferring on qualifying tenants of flats contained in premises to which this Chapter applies on the relevant date the right, exercisable subject to and in accordance with this Chapter, to have the freehold of those premises acquired on their behalf… and that right is referred to in this Chapter as "the right to collective enfranchisement"."
Section 3 of the 1993 Act provides that the right to enfranchisement "applies to any premises if (a) they consist of a self-contained building or part of the building; (b) they contain two or more flats held by qualifying tenants; and (c) the total number of flats held by such tenants is not less than two thirds of the total number of flats contained in the premises". The property comprises four flats. Those flats are all held by the claimants. The question is whether such flats are held by the claimants as qualifying tenants.
The principal definition of qualifying tenants is to be found in section 5(1) as follows: "subject to the following provisions of this section, a person is a qualifying tenant of a flat for the purposes of this Chapter if he is a tenant of the flat under a long lease." In this case the lease is a long lease.
Subsection (3) provides that "no flat shall have more than one qualifying tenant at any one time". That provision is further explained by subsection (4) which states that "accordingly…(b) where a flat is for the time being let to joint tenants under a lease to which subsection (1) applies, the joint tenants shall (subject to… subsection (5)) be regarded that the purposes of this Chapter has jointly constituting the qualifying tenant of the flat." Thus, insofar as the claimants are joint tenants of any flat they are to be regarded together as a single tenant of that flat. The defendant asserts that they are joint tenants of all four flats. The claimants assert that they are sole tenants of two flats each.
Section 5 (5) of the 1993 Act, which is the key provision, says that:
"Where apart from this subsection—
(a) a person would be regarded for the purposes of this Chapter as being (or as being among those constituting) the qualifying tenant of a flat contained in any particular premises consisting of the whole or part of a building, but
(b) that person would also be regarded for those purposes as being (or as being among those constituting) the qualifying tenant of each of two or more other flats contained in those premises,
then, whether that person is tenant of the flats referred to in paragraphs (a) and (b) under a single lease or otherwise, there shall be taken for those purposes to be no qualifying tenant of any of those flats."
The judge considered that the issue was concluded in the landlord's favour by the decision of this court in Lester v Ridd [1990] 2 QB 430. Before coming to that case, I will look at first principles and some of the older case law.
The common law
At common law a lease or tenancy can only be created by contract, express or implied. In addition it creates a relationship of landlord and tenant between the parties to the contract. This relationship is one of status; not contract: City of London Corporation v Fell [1994] 1 AC 458, 466. The creation of a tenancy also results in the creation of a legal estate in the land comprised in the tenancy. The legal estate created at the inception of the tenancy is a transmissible interest in land. At common law the contract remained in being notwithstanding any transmission of the estate in land. Thus at common law the landlord remained entitled to sue the original tenant on the contract, even if the latter had disposed of the estate in land created by the lease. At an early juncture in legal history the common law devised additional remedies for the landlord. The first of these was the right to distrain for rent. The common law regarded the rent as "issuing out of" the land. This meant that if...
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