Leasehold enfranchisement

Citation

Waterson, G. and Lee, R. (1999), "Leasehold enfranchisement", Property Management, Vol. 17 No. 3. https://doi.org/10.1108/pm.1999.11317cab.010

Leasehold enfranchisement

Cadogan v. Morris [1999] 04 EG 155

As readers will be aware, s. 42 of the Leasehold Reform (etc) Act 1993 requires that the tenant of a flat, holding under a long lease, who wishes to apply for the grant of a new extended lease under the machinery provided by the 1993 Act, is required to serve an "initial notice" on the landlord specifying (inter alia) "the premium which the tenant proposes to pay in respect of the grant of [the proposed] new lease". The landlord, for his part is then given the opportunity to respond within a set period, not being less than two months, by serving a counter-notice on the tenant, stating whether the landlord admits the tenant's claim for a new lease and if so which of the tenant's proposals set out in the initial notice, including of course the amount of the premium, are accepted and which of them are not.

In this case the likely amount of the premium which would be required to be paid on the grant of such a new extended lease of the premises in question was said by the court to be somewhere between £100,000 and £300,000. The initial notice served on the landlord specified a proposed premium in the sum of £100. The question arose as to whether, in the circumstance, the tenant had served a valid initial notice.

At first instance the court had held that the notice was valid. The Court of Appeal did not agree, being obviously concerned that if the landlord did not serve a counter-notice on the tenant within the period allowed he might possibly find that he was in consequence of the provision of s. 49 of the Act under an obligation to grant a new lease of 90 years or more at a peppercorn rent for the premium of, in this case, £100. The court was also concerned that the most which the landlord can require to be paid by way of deposit (and in part as security for the landlord's costs in the event that the transaction should not proceed to completion) is £250 or 10 per cent of the proposed premium, whichever is the greater.

In the words of Stuart-Smith L.J: "The process is one of compulsory purchase ... In the same way as in any other transaction of purchase and sale, the purchaser should make a realistic offer, though not necessarily his final offer...". As regards the difficulty of knowing where to draw the line between a purely nominal or otherwise unrealistic offer on the one hand, and an offer which though on the low side was still a bona fide offer his lordship adopted the words of Sir John Donaldson MR in Cresswell v. Duke of Westminster [1985] 2 EGLR 151, where he had said "Where we draw the line I do not know, I doubt whether it is in anybody's interest that I should attempt to draw that line. Many cases will answer the question on their own facts". He went on to say that he thought that the judges in the County Courts could be relied upon "to take a robust line, and not get enmeshed in hearing detailed evidence. A brief enquiry, if necessary with limited evidence from tenant and landlord, should suffice". Finally, he went on to say that when the landlord makes counter-proposals in his counter notice these too should be realistic; they should not suggest an absurdly high premium which might have the effect of intimidating the tenant, and if they did the counter-notice itself would be invalid, with the effect that the tenants' original proposals as set out in the initial notice would then be accepted by default as set out in s. 49 of the 1993 Act.

For a recent Lands Tribunal case involving the valuation aspects of a case involving the granting of a new extended lease, see Goldstein v. Conley [1999] 03 EG 137.

As to calculation of the "marriage value" in relation to the collective enfranchisement of a block of flats, see: Maryland Estates Ltd v. Abbathure Flat Management Co Ltd [1999] 06 EG 177.

As regards the meaning of the term "restrictive covenants" where it is used in the context of the Leasehold Reform Act 1967, the Court of Appeal in Langevad v. Chiswick Quay Freeholds Ltd [1999] 08 EG 173 gave this an extended meaning to include such matters as covenants restricting construction and works as well as covenants restrictive of user, despite the apparently limited meaning implied by a literal interpretation of the words used in the act.