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Aldford House Freehold Limited v Grosvenor (Mayfair) Estate (1) and K Group Holding Inc (2) [2018] EWHC 3430 (Ch)

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29th March 2019

Summary

The Claimant failed in its claim for a declaration that it was entitled to acquire the freehold of a building under Chapter 1 of Part 1 of the Leasehold, Reform, Housing and Urban Development Act 1993 (“the Act”). The Second Defendant had taken various steps to prevent the building being collectively enfranchised, including transferring the titles to various underleases of its flats.

Facts

This case concerned the proposed collective enfranchisement of a 7-floor building. It was accepted that there were 26 flats on floors 1-5. There was however a dispute as to the 6^th and 7^th floors. Planning permission had been granted to construct 2 flats on each floor respectively, but at the time the notices had been served only work to the structure of these had been completed.

C served 2 notices to enfranchise the building, both given on 23 July 2015. In the first (“the Initial Notice”), it was contended that there were 26 flats in the Building and the leaseholders of the contested premises were not named as QTs. The Second, served without prejudice to the primary position, was served protectively in the event that there were 30 flats, and naming the potential QTs of the further flats. A preliminary issue was therefore whether the Building contained 26 or 30 flats. The Initial Notice had been given purportedly on behalf of 17 QTs, but the landlord contended that in respect of 3, notices had been given without authority, and 3 were not QTs in any event because each held their respective interests under two separate underleases from different landlords. If correct, the initial notice would be invalid for failing to be given on behalf of a sufficient number of QTs.

Issues

1) (a) How many flats were there in the Building per Part 1 of LRHUDA93

 and (b) If there were 30 flats, could the Claimant rely on the Second Notice given that it was not referred to in the Claim Form?

2) Was the participating tenants’ solicitor given valid authority to serve Initial and Second Notices on the behalf of 3 particular QTs which were companies;

3) Were 3 tenants holding 2 separate underleases from different landlords ‘qualifying tenants’, and was the Claimant entitled to assert that overriding underleases were unlawfully granted;

4) Did the premises qualify for enfranchisement at all by virtue of the floor space within that was neither common parts or intended to be occupied for residential purposes (D2 applying for permission to adduce evidence of this);

5) Was the Initial Notice invalid if there were more than 26 flats in the Building at the relevant date (C applying to amend the claim form to plead this);

6) Was the Initial Notice otherwise invalid per para 16 schedule 3 of the Act due to its being given by fewer than 2/3 of the total number of QTs in the Building.

Decision

Mr Justice Fancourt found that the Initial Notice was invalid as it did not include the details of the QTs of the 6^th and 7^th floor flats as required by s.13 of the Act. The Second Notice was deemed withdrawn as no application relating to it had been made to the court in time. As such there was no valid application on the basis of which the court could make a declaration, and the claim was dismissed. The decision on the particular issues above were as follows:

1) J agreed with D2 that each part of the 6^th and 7th floors was a separate flat both due to being enclosed by dividing walls but also as they had been given functional identities by terms of new underleases. Although not yet inhabitable, the premises had been constructed or adapted for the purposes of a dwelling. As such there were 30 flats in the Building at the relevant time and the First Notice was invalid.

C contended that it had met the 2 month time limit under s.22(1) of the Act by issuing a claim form, and that this was an application even though the claim form appeared to refer only to the First and not the Second Notice. Fancourt J found against C on this point because reliance on 14 QTs in Claim Form, and failure to attached the Second Notice, was inconsistent with reliance on the Second Notice (48).

2) One party, Leclipse, had failed to give valid authority to their solicitor to serve the Notices in issue. J ruled that subsequent ratification of a Notice could not render it valid at the time it was ‘given’ as this would be inconsistent with the whole structure of Chapter 1 of Part 1 of the 1993 Act. The retrospective ratification of a proxy signatory’s authorisation permitted by Panamanian law was ultimately ineffective because an initial notice under the 1993 Act could not be retrospectively ratified as a matter of Englishlaw.

3) 3 tenants (MBOSE, Aweer and Kirama) were not QTs because each tenant held two separate underleases of part of their flats with different landlords of each. Fancourt J refused to reach a decision on whether the leases were granted unlawfully pursuant to Part 1 of the Landlord and Tenant Act 1987, as this allegation had not been pleaded and was not merely a point of law, evidence being required.

J found it unnecessary to reach a decision on points 4), 5) and 6) in light of the conclusions reached on the other issues.

Comment

The decision that each of the partially finished flats had been constructed for use for residential purposes even though their condition precluded actual use for those purposes is both controversial and of wider import.

It is controversial because the statutory requirement that a flat should be “constructed or adapted for use for the purposes of a dwelling” suggests one should have regard to the physical characteristics of the flat.

As to the wider import, lawyers are in the habit of advising developers that Part I LTA 1987 does not apply to a block of flats until there are a sufficient number of qualifying tenants of “flats”. Conventional wisdom has always been that a flat is not a flat for the purposes of that Act until practical completion. Given the similarity in the definition of “flat” under the 1987 Act and the 1993 Act the decision in this case that a unit in a shell state could be a flat should sound alarm bells.

This case serves as a stark reminder to tenants of the importance of getting an Initial Notice right the first time around. Invalid notices had been served by some of the tenants in the Building back in 2014, leading D2 to seek legal advice [14]. D2 then had time to close off the incoming claim before it had even begun, constructing the contested flats in a certain way and transferring ownership of the reversion to their  underleases before C could serve new Initial notices in 2015.

The case also highlights that all the issues in a claim must be correctly identified as soon as possible:

a) The question of whether the Second Notice was invalid had not appeared on the list of issues. Fancourt J ruled however that it would not be right to stop the Defendants from relying on it at trial as it was a pure question of law;

b) There was a dispute as to whether or not C had made clear the basis of its argument on issue 3). Fancourt J ruled that C should have applied to for permission to rely on a new allegation of unlawfulness, given that, if correct, D2 would perhaps have committed a criminal offence. J suggested it would have been prudent to direct for statements of case to be formally drafted in early directions, notwithstanding this case having been issued under Part 8 of the CPR.

Lastly, the discussion at paragraphs 53 to 101 of the judgment illustrate the difficulties that may be involved in assuring a solicitor is properly authorised to sign an Initial Notice on behalf of a tenant, particularly one which is a foreign domiciled company. The Claimant was obliged to rely on the evidence of separate experts on the company law of Jersey, the Bahamas and Panama. Those acting for foreign domiciled companies ought to seek confirmation from a lawyer in the relevant jurisdiction that proper authorization has been given.

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