Summary

Head lessees did not have the right of individual lease extension conferred on them by the Leasehold Reform, Housing and Urban Development Act 1993.

Facts

The appellant freeholders in two conjoined cases appealed against the decision that the respondent head lessees had a right of individual lease extension conferred on them by the Leasehold Reform, Housing and Urban Development Act 1993. The appellant in the first case was the freehold owner of a five storey building of which the respondent was the head lessee. The appellants in the second case were the freehold owners of a single building containing five residential flats in relation to two of which the respondent head lessee had made a claim for individual lease extension. In both cases there were internal common parts and external areas for parking all of which were included in the head lease. In each case the landlord had served counter-notices disputing the validity of the tenant's notice to extend the leases on the grounds that a head lessee was not a qualifying tenant for the purpose of Part 1 Chapter II of the Act. In neither case did the respondents, when serving notice on the appellants of their claim to exercise their asserted rights of individual lease extension, specify what covenants would be required to be given in the new lease. The appellants submitted that the Act made no provision for the separation of the existing leases into several different parts, that they would require to be substantially rewritten to create a new scheme of covenants for use of the common parts, and that this indicated that Parliament could not have intended that a head lessee should have the right of individual lease extension. In the alternative they submitted that the fact that the extension was effected by a substitution of the old lease and the grant of a new lease meant full substitution and that therefore the "rump" of any prior lease was extinguished, such that there was no question of covenants affecting the "rump" property being severed from those replaced by the new lease of the flat. The respondents argued that it was quite clear that Parliament envisaged that a tenant could exercise the right of individual lease extension even though his lease included other property.

Held

(1) There were several indications in Part 1 Chapter II of the Act that Parliament expressly contemplated that a tenant exercising the right of individual lease extension might have a lease that included some property other than the flat in respect of which the right of extension was being exercised. The words in parenthesis in s.101(3) of the Act "whether with or without one or more other flats" did not restrict all references in Part 1 of the Act to leases that comprised only flats. A lease under Chapter II of the Act could include property other than a flat, but that did not include the common parts held by the head lessee. However, the fact that a lease under the Act could include property other than a flat did not necessarily mean that the right of individual lease extension was conferred on the head lessee. The more compelling point was that if Parliament had considered that head lessees could exercise the right of individual lease extension it would surely have made provision for the tenant under the new lease to be in the same position, as respects the head lessee, as he would have been if the lease to the flat had been in separate ownership before the exercise of the right. The omission of a provision for the apportionment of rent for the residual lease remaining after the grant of the new lease was curious if head lessees were likely to be qualifying tenants. The absence of provision for the separation of the existing lease into several parts, the failure to make provision for the extensive modifications that might be required to the existing lease in relation to common parts, and the absence of any comparable statutory extension of the intermediate lease were significant. On its true interpretation, the Act did not confer on head lessees the right of individual lease extension. The expression "qualifying tenant of a flat" appearing in Part 1 Chapter II of the Act referred to a tenant of the flat who at the time of exercising the right of individual lease extension was a tenant of that flat and that flat alone, whether under one or more leases, unless s.62(2) of the Act applied or the other property comprised another flat in respect of which the right was not then being exercised, or constituted property for which specific provision for its exception was made, as in s.39(7) of the Act, Maurice v Hollow-Ware Products Ltd (2005) EWHC 815 (Ch), (2005) 2 EGLR 71 overruled. This conclusion was not inconsistent with s.101(3) of the Act as the expression "flat" in that provision did not include appurtenances because of the provisions in s.62(3)(b) and the draftsman was therefore correct to refer in s.101(3) of the Act to demised premises which "consisted of or included the flat". (2) There was no justification for treating the "rump" lease as extinguished when the new lease was granted on exercise of the right of individual lease extension. (3) (Obiter) Decisions of the High Court, whether made on appeal or at first instance, were binding on the County Court.