Leasehold Enfranchisement Update - Queensbridge Investment Ltd v 61 Queens Gate Freehold Ltd

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Leasehold Enfranchisement Update

Leasehold Enfranchisement

Leasebacks

Queensbridge Investment Ltd v 61 Queens Gate Freehold Ltd [2014] UKUT 437 (LC)

Summary

After the LVT had determined in respect of certain flat the terms of leasebacks which the freeholder had sought in his counter notice, the freeholder granted new leases of the those flats on different terms. The Upper Tribunal held that those new leases were effective.

Facts

This case involved a collective enfranchisement where after the terms were determined by the then Leasehold Valuation Tribunal including the terms of leasebacks of three flats (which included a service charge percentage collectively of 33.69%), the reversioner during the appeal to the Upper Tribunal of the LVT’s decision granted long leases of the three flats to companies connected with the reversioner on terms different to the leasebacks that the LVT had determined (in particular the collective service charge contribution of the flats were 8.23%) and argued that the reversioner was not now entitled to leasebacks and there was no obligation on the reversioner to take the previously determined leasebacks and that the terms of acquisition should be modified accordingly and premium lowered to the figure that the LVT determined without the leasebacks. The grant of the new leases were not s.19 void disposals.

Issues

The nominee purchaser argued that the Upper Tribunal had no jurisdiction to decide upon the effect of the new leases because:

1.    The parties had agreed that there would be leasebacks and s.24(1) and s.91(1) of the 1993 Act only gave the appropriate tribunal jurisdiction to determine matters in dispute and the fact that there would be leasebacks was not in dispute.

1.    Alternatively s.175(4) CLRA 2002 provides that on appeal the UT can only exercise the power that was available to the LVT and the power to determine whether leasebacks were to be granted was not available to the LVT because it had been agreed.

2.    An application to modify terms that had been agreed or determined in order to take into account a change of circumstances could only be made following a direction from the County Court under s24(4) on an application for a vesting order.

Decision on appeal

The UT held that it did have jurisdiction. It held that the UT has the power to consider the terms of acquisition including whether there should be leasebacks, in light of the current circumstances. The parties expectation that there would be leasebacks was not contractual and the reversioner has a right to receive leasebacks rather than an obligation to accept them, it would take more than a non-contractual consensus to deprive the UT of jurisdiction under s.24(1). Further the UT held that the three reasons why the UT had jurisdiction given in Cawthorne v Hamdan [2006] 3 EGLR 183 at paras 23-25 were correct.

As for the grant of the new leases, the UT held that:

1.    There was nothing in the 1993 Act to prevent the grant of the new leases (in particular referring to para 53 in Barrie House Freehold Ltd v Merie Bin Mahfouz [2012] EWHC 353 (Ch)).

2.    The only time at which it can be finally known whether a leaseback is to be granted is ‘immediately before the appropriate time’. If at that time the flat is let to a qualifying tenant then there is no obligation on the reversioner to take a leaseback and no entitlement to do so. Nor is there any obligation on the nominee purchaser to grant a leaseback.

3.    The Tribunal does not have a discretion to refuse to recognise a change of circumstances the effect of which is that the conditions for the grant of a leaseback are no longer satisfied. The discretion under s.24(4) does not give the Tribunal the power to re-write paras 2(1) and 5(1) of Sch 9. The exercise of the discretion must be consistent with the terms of the statutory scheme.

4.    There was no enforceable contract for the grant of the leasebacks and hence the reversioner was not bound to take them.

5.    There was no estoppel because there was nothing unconscionable in a reversioner exercising the freedom to deal with its own property which the 1993 Act allows until completion of the acquisition. The effect of any such dealing would be reflected in the price to be paid.

Notwithstanding the extreme circumstances of this case, the Upper Tribunal held that the reversioner was not required to take the leasebacks that had been determined by the LVT and the terms of acquisition would be modified accordingly.

(Thanks to Carl Fain, who was counsel for the nominee purchaser for this summary)

Comment

The Tribunal recognised that the participating tenants had incurred substantial expenditure arguing about the terms of the leasebacks in the LVT and that they were without a remedy in that respect. The Tribunal took the view that despite that expenditure it was not inequitable for the landlord to resile from the position in the counter notice that it sought a leaseback. The judge opined the risk of such expenditure was simply a risk which the nominee purchaser and the participating tenants must take to obtain the freehold.

The case has wider application as it would apply equally to the situation where the landlord had not sought leasebacks but, unhappy with the valuation arrived at by the tribunal, grants long leases of flats which were in hand.

The UT held that it did have jurisdiction. It held that the UT has the power to consider the terms of acquisition including whether there should be leasebacks, in light of the current circumstances. The parties expectation that there would be leasebacks was not contractual and the reversioner has a right to receive leasebacks rather than an obligation to accept them, it would take more than a non contractual consensus to deprive the UT of jurisdiction under s.24(1). Further the UT held that the three reasons why the UT had jurisdiction given in Cawthorne v Hamdan [2006] 3 EGLR 183 at paras 23-25 were correct.

As for the grant of the new leases, the UT held that:

1.    There was nothing in the 1993 Act to prevent the grant of the new leases (in particular referring to para 53 in Barrie House Freehold Ltd v Merie Bin Mahfouz [2012] EWHC 353 (Ch)).

2.    The only time at which it can be finally known whether a leaseback is to be granted is ‘immediately before the appropriate time’. If at that time the flat is let to a qualifying tenant then there is no obligation on the reversioner to take a leaseback and no entitlement to do so. Nor is there any obligation on the nominee purchaser to grant a leaseback.

3.    The Tribunal does not have a discretion to refuse to recognise a change of circumstances the effect of which is that the conditions for the grant of a leaseback are no longer satisfied. The discretion under s.24(4) does not give the Tribunal the power to re-write paras 2(1) and 5(1) of Sch 9. The exercise of the discretion must be consistent with the terms of the statutory scheme.

4.    There was no enforceable contract for the grant of the leasebacks and hence the reversioner was not bound to take them.

5.    There was no estoppel because there was nothing unconscionable in a reversioner exercising the freedom to deal with its own property which the 1993 Act allows until completion of the acquisition. The effect of any such dealing would be reflected in the price to be paid.

Notwithstanding the extreme circumstances of this case, the Upper Tribunal held that the reversioner was not required to take the leasebacks that had been determined by the LVT and the terms of acquisition would be modified accordingly.