Summary

Where a freeholder of a property comprising separate apartments had granted a lease to a third party of the property's basement, which was used as a caretaker's flat, after a notice of a claim by tenants to exercise the right to collective enfranchisement had been registered, the lease was void, as it was contrary to the Leasehold Reform, Housing and Urban Development Act 1993 s.19(1)(a)(ii) because it was a lease of a common part which it was reasonably necessary for the tenants to have acquired.

Facts

The appellants (E and C) appealed against a ruling that the grant of a lease of part of the relevant property after a claim to collective enfranchisement by the respondent tenants (P) had been registered was void. E was the freeholder of the property, which comprised five converted apartments and a basement that was used as a caretaker's flat. There was also a light well in the rear of the property. The ground of the light well was described as the patio. E had agreed to sell the property to C, but the contract remained uncompleted. P, who were qualifying tenants, served notice for collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 s.13, seeking to acquire the freehold of the property, which was duly registered under s.97. E granted a 999-year lease of the caretaker's flat and patio to C. The rent was one peppercorn, if demanded, but there was an obligation to pay the "insurance rent" and service charge, upon demand. P objected to E's application to register the lease at the Land Registry. The issues were whether, as the judge held, (i) the grant of the lease was contrary to s.19(1)(a)(ii) as it was a lease of or including "common parts", namely the caretaker's flat and patio, which it was reasonably necessary for P to have acquired; (ii) the grant of the lease constituted a "disposal severing the freeholder's interest" in the property, contrary to s.19(1)(a)(i); (iii) P would be entitled to acquire the lease from C by virtue of s.19(2) and s.19(3).

Please see related case of Earl Cadogan v Dimitris Panagopoulos (2010)

Held

(1) The lease was void on the basis that it fell within s.19(1)(a)(ii). The caretaker's flat did amount to a common part. "Common parts" was defined in s.101(1) and included those parts of a building that either could be used by or served the benefit of the residents in common, as opposed to those parts of the building that were for the exclusive benefit of a limited number of residents or none at all. A flat housing a caretaker who serviced the building constituted a common part irrespective of whether there was an obligation to provide a resident caretaker. If that approach was wrong, the caretaker's flat also constituted a common part on the basis of obligations in the leases of the other flats in the property concerning the provision of a resident caretaker, McGuckian's Appeal, Re Unreported January 3, 2008 Lands Tr considered. The acquisition of the caretaker's flat by P was reasonably necessary for the proper management or maintenance of it. If P did not acquire the interest under the lease they would not be able to use that flat to accommodate a caretaker, and if the lease remained in force the flat would not be maintained as a common part at all. The patio was also a common part, but its acquisition by P was not reasonably necessary. (2) The lease did not fall within the scope of s.19(1)(a)(i). Although the 999-year lease of the caretaker's flat and patio with a peppercorn rent left very little practical interest in the reversion, it was still a lease and not a freehold. "Severance" was a clear concept. There was no reason, having regard to the statutory language, to blur the distinction between freehold and leasehold. In addition, the lease did not come within the enlargement provisions in the Law of Property Act 1925 s.153 to convert it into a freehold. The "insurance rent" and service charge constituted rent for the purpose of s.153, Escalus Properties Ltd v Robinson (1996) QB 231 CA (Civ Div) applied. Having regard to s.205(1)(xxiii) of the 1925 Act it was clear that the definition of rent in that Act was broad, and there was no basis or rationale to restrict it to rent relating solely to the possession of the property so as to exclude the relevant payments. If, contrary to the ruling, the lease fell within s.153, the grant of such a lease would amount to a disposal severing the freehold interest under s.19(1)(a)(i). (3) Sections 19(2) and 19(3) clearly covered the situation where the freeholder transferred the freehold to a third party after a collective enfranchisement notice under s.13 had been registered. The new freeholder stood in the place of the old freeholder in the enfranchising process. However, a lease granted by the freeholder once a s.13 notice had been registered was not subject to acquisition in the enfranchising process on behalf of the participating tenants. Section 19(2)(a) referred simply to the situation when the freeholder disposed of his interest. That condition was set out only for the purpose of the application of s.19(3) which provided the context in which it fell to be interpreted. If s.19(2)(a) were to apply to the grant of a lease by the freeholder, the language of s.19(3) would be inapt and it was difficult to see how it would operate. Accordingly, "disposes of his interest" in s.19(2)(a) referred to a transfer of the freehold interest, and not the grant of a lease out of that interest.

Appeal dismissed