Swainland Builders Ltd v Freeland Properties Ltd

JurisdictionEngland & Wales
Judgment Date12 April 2002
Neutral Citation[2002] EWCA Civ 560
Docket NumberNo. A3/2001/1419
CourtCourt of Appeal (Civil Division)
Date12 April 2002
Swainland Builders Limited
Freehold Properties Limited

[2002] EWCA Civ 560


Lord Justice Peter Gibson

Lord Justice Jonathan Parker

No. A3/2001/1419




(Mr Justice Neuberger)

Royal Courts of Justice


London WC2

MR MARK WEST (Instructed by Stevensons, Cambridgeshire PE29 3NR) appeared on behalf of the Appellant.

MR WAYNE CLARK (Instructed by Kosky Seal, Harrow, Middlesex, HA1 3RW) appeared on behalf of the Respondent.

Friday, 12th April 2002


The defendant, Freehold Properties Ltd, appeals with the permission of Mr Justice Neuberger from the order made by him on 10th May 2001 whereby he ordered rectification of a transfer dated 10th December 1999.


The relevant facts are these. The claimant, Swainland Builders Ltd, was the registered owner until 20th December 1999 of a property known as College Close, College Avenue, Grays, Essex. College Close consists of a building built by the claimant with 39 flats. By 1993 the claimant had granted long leases for 99 years of 37 flats but it had retained possession of two flats, Flats 11 and 18, subject to letting them from time to time on secure shorthold tenancies.


In mid 1998 the claimant decided to sell the freehold of College Close but to retain Flats 11 and 18 for the time being, as suitable selling prices for long leases of those flats could not be obtained. It was advised by Richard Irving, the manager of some ground rent brokers, that College Close should be marketed for about £60,000. That was based on the assumption that it consisted of 39 flats, each let on a long lease for 99 years at £125 per annum. The aggregate ground rents were mistakenly thought to come to £5,070. The correct aggregate figure was in fact £4,875 if, but only if, all 39 flats were so let. College Close was marketed for £60,000 and the defendant made an oral offer to buy the freehold at that price. The claimant's agents subsequently informed the defendant's agents that what was being sold was a purpose-built block of 39 flats sold on 99 year leases at a (combined) rising ground rent of £5,070 per annum, and that was later corrected so that the aggregate figure became £4,875. The defendant decided to proceed with the purchase at £60,000 as its agents confirmed on 5th October 1998. In so doing it correctly understood that the true aggregate figure for the ground rent was £4,875. That was therefore on the basis that all 39 flats were so let.


The disposal by the claimant of its interest in College Close was subject to the provisions of Part 1 of the Landlord and Tenant Act 1987. That gives tenants the right of first refusal when a landlord intends to sell his interest. By section 5 the landlord is required to serve a notice on the relevant tenants. That notice has to comply with the provisions, so far as relevant, of section 5D, and section 5(2) provides that in the case of a disposal to which section 5E applies, the offer notice must also comply with the requirements of that section. Section 5D applies to offer notices where the disposal is not made in pursuance of a contract binding on the landlord. By subsection (2):

"The notice must contain particulars of the principal terms of the disposal proposed by the landlord, including in particular—

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

(b)the consideration required by the landlord for making the disposal."


Section 5E applies

"…where, in any case to which section 5 applies, the consideration required by the landlord for making the disposal does not consist, or does not wholly consist, of money."


By subsection (2) the offer notice is to state certain matters in addition to complying with whichever is applicable of sections 5A to 5D.


Section 7 relates to a case where there has been a failure by the tenants to accept the landlord's offer. By subsection (1)

"Where a landlord has served an offer notice on the qualifying tenants … and

(a)no acceptance notice is … served on the landlord

the landlord may, during the period of 12 months … dispose of the protected interest to such person as he thinks fit, but subject to the following restrictions".


Subsection (3) provides that:

"… the restrictions are—

(a)that the deposit and consideration required are not less than those specified in the offer notice, and

(b)that the other terms correspond to those specified in the offer notice."


Section 10A makes a failure to comply with the requirements of Part 1 an offence. By subsection (1):

"A landlord commits an offence if, without reasonable excuse, he makes a relevant disposal affecting premises to which this Part applies—

(a)without having first complied with the requirements of section 5 as regards the service of notices on the qualifying tenants of flats contained in the premises, or

(b)in contravention of any prohibition or restriction imposed by sections 6 to 10."


By subsection (5) it is provided that:

"Nothing in this section affects the validity of the disposal."


A notice in substantially the requisite form was sent to the tenant of each flat let on a long lease. It stated that the notice constituted an offer by the landlord to dispose of an interest in 1–39 College Close for a consideration of £60,000 on the terms set out in the notice. It specified the landlord's interest of which he intended to dispose as freehold. It specified the required deposit as £6,000.


No, or an insufficient number of, tenants of the flats served counter notices, with the result that the claimant was entitled under section 7(1) to dispose of its interest to such persons as it thought fit, subject of course to the restrictions in section 7(3).


The claimant informed the defendant that its offer was accepted. Thereafter there was correspondence between the claimant's solicitors, Kosky Seal, and the defendant's solicitors, Stevensons, for whom an assistant solicitor, Rebecca McPhun, acted in the transaction. She sent the defendant's agents a lease report and a sample lease. The report set out a summary of the essential terms of the leases of the flats. She said that all but four of the flats were let on the same terms, though she had not seen the leases for Flats 11 and 18. Those terms were that the lease was for 99 years from 1st January 1989 at a rent of £125,000 for the first 30 years and rising thereafter. The terms of the leases for the four flats, let on slightly different terms, showed a difference only as to the date of the increases in the ground rents in three cases and in the fourth case the amount of the ground rent in the final period was different.


On 7th April 1999 Stevensons wrote to Kosky Seal saying that there did not appear to be any leases for Flats 11 or 18 and asking if that was correct and, if so, why. On 7th June 1999 Kosky Seal replied that the claimant owned both flats. On 8th June Stevensons wrote to Kosky Seal saying:

"With regard to flats 11 and 18 which remain in the ownership of your clients please can you advise whether or not these are being sold or whether or not it is your clients intention to retain possession of these."


Kosky Seal replied that they were taking further instructions about the two flats. Mr Swainland, a director of the claimant, told Kosky Seal orally and also by letter dated 31st August 1999:

"We confirm that we do not intend to sell flats 11 and 18 in the short term. We will dispose of the properties in due course."


On 14th September 1999 Kosky Seal told Stevensons that the claimant

"[does] not intend to sell in the short term but will dispose of the properties in due course. Accordingly, in the interim they are to be treated as any other tenant of the block."


The judge commented in his judgment:

"It appears from the subsequent silence in the correspondence, from the parties then proceeding to the transfer, and the oral evidence, that this was accepted by the defendant."


The matter then proceeded to completion, which was fixed for 10th December 1999. On 7th December a schedule of arrears was sent by Kosky Seal to Stevensons. This showed Swainland & Son as the tenant of Flats 11 and 18. No ground rents were said to be due from that tenant for the half year to 24th December 1999, in contrast to all the other tenants.


Completion took place on 10th December when the transfer by the claimant of College Close to the defendant for £60,000 was executed. It was transferred subject to, and with the benefit of, leases referred to in the Charges Register. This did not, of course, include leases in respect of Flats 11 and 18, which had not then been let on a long lease. There was no reference to those two flats. Nor were any rights reserved or granted to the claimant in respect of the two flats. But the claimant nonetheless proceeded on the basis that it still retained a substantial interest in the two flats. Mr Swainland, shortly before completion, instructed agents to market a long lease of Flat 18 at a price of just under £50,000. That price was reduced in January 2000 to just under £45,000 and an offer was accepted in that amount on 1st February 2000. On 7th February 2000 the claimant instructed its agents to market the other flat for just under £62,000. The claimant, after the transfer, continued to manage Flats 11 and 18 as landlord and to receive rents from short lettings.


In February 2000 it was realised by Kosky Seal that something had gone wrong. They wrote to Stevensons on 22nd February that it had been intended...

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