Philip Rainey QC appears in another finely balanced case concerning restrictive covenants and lease extensions under the 1993 Act
20th April 2020
Philip Rainey QC has recently appeared for the Defendants in another interesting case under the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) before HHJ Hellman in Central London County Court (a copy of the decision can be found here).
Lupin Limited v 7-11 Princes Gate Limited & Princes Gate Partnership LLP concerned notices served under section 42 of the 1993 Act and whether or not they had been served on the correct landlord. Underlying it all was the question of whether the tenant was able to enforce restrictive covenants against the freeholder.
The case crystallised into three substantive issues:
- Does the grant of an overriding lease of one flat sever the reversion, so that the tenant of the flat has two landlords – the overriding tenant in respect of the flat, and the freeholder in respect of the retained building? This included a sub-issue as to whether a restrictive covenant be an “appurtenance” within the meaning of the 1993 Act?
- Does a restrictive covenant contained within a lease which is restrictive of the use of other property of the landlord gain priority and thus bind a purchaser of the landlord’s interest simply because the lease is entered on the landlord’s registered title?
- Is a notice under section 42 of the 1993 Act validly given where a tenant has two landlords and the notice is served initially on one of the landlords and then on the second landlord at a later point in time?
HHJ Hellman held:
- “Yes”, but “No” on the sub-issue.
In 1989 the then freeholder of 7-11 Princes Gate in Kensington, London (“the Building”) granted a long lease (“the Lease”) of the penthouse flat (“the Flat”) to the Claimant (“C”). The demise did not include the roof of the Building, which was retained by the freeholder. The Lease granted easements over the rest of the Building in the usual manner (for access and conduits etc), as well as containing a restrictive covenant by the freeholder with C not to build on the roof of the Building.
The Lease was entered onto the landlord’s registered freehold title, but particulars of the restrictive covenant were not included.
In August 2010, the First Defendant (“D1”) became registered freehold owner of the Building. Shortly afterwards, in September 2010, they granted an overriding lease of the Flat (“the Overriding Lease”) to the Second Defendant (“D2”). The Overriding Lease contained identical easements over the Building as were found in the Lease, but did not contain the restrictive covenant.
C subsequently sought a statutory lease extension pursuant to Chapter 2 of Part I of the 1993 Act. They originally served a section 42 notice on D2 alone. D2 admitted the claim but proposed that the new lease should not contain the restrictive covenant.
C then served two further notices without prejudice to each other – one on D1 and D2 as together constituting “the landlord” for the purposes of the 1993 Act, and one on D1 and D2 treating D2 as “the landlord” and D1 as a “third party”. C maintained that the initial notice was invalid, and that one of the later notices was valid.
C issued a claim seeking declarations as to the validity of the notices, and D1 and D2 sought counter-declarations as to their invalidity.
HHJ Hellman found in favour of C on this issue. He agreed that both D1 and D2 were C’s landlord within the meaning of the 1993 Act because (he held) the effect of granting the Overriding Lease of the Flat was to sever D1’s reversion. Accordingly, D1 remained C’s landlord in respect of the building and the easements over it, and D2 was C’s landlord in respect of the Flat.
Furthermore, the effect of section 140 of the Law of Property Act 1925 (“the 1925 Act”) was to require the apportionment of covenants within the Lease, and the restrictive covenant was to be apportioned to D1 as it touched and concerned the rest of the Building (which D1 retained).
The Judge was particularly concerned with the intention and purpose of the 1993 Act, which he noted was to grant extended leases on terms as similar as possible to those contained within the original lease. He considered that the intention of Parliament would be defeated if a landlord could avoid an inconvenient covenant by granting an overriding lease of a flat that enjoyed the benefit of the covenant to a separate entity they controlled.
These findings meant that D1 was required to be a party to the lease extension to repeat the covenant not to build on the roof of the Building (which, it has to be remembered, was not a covenant that bound D2).
Although this was sufficient to dispose of Issue (1), HHJ Hellman did comment that he was not satisfied that the restrictive covenant “touched and concerned” the other easements contained within the Lease. This was the application of the common law principle whereby a successor in title of a landlord is bound by positive covenants if they touch and concern land (easements coming within the wide definition of “land” in section 205 of the 1925 Act). This would have afforded C another route to enforcing the restrictive covenant against D1 and requiring it to be included in the new lease.
The Judge also rejected C’s alternative argument that D1 was C’s landlord as the restrictive covenant was an “appurtenance” within the meaning of the 1993 Act and therefore part of “the flat”. He held that an appurtenance was something positive; something to be used or enjoyed with the demised premises. Although C sought to characterise the negative covenant as a negative easement, the Judge approved Megarry and Wade’s comparison of them as being fundamentally different interests. In any event, “appurtenances” within the meaning of the 1993 Act had to be positive and therefore did not include negative easements either.
HHJ Hellman found for Ds on this issue. He held that D1 was not bound by the restrictive covenant as details of the covenant itself was not entered onto the landlord’s title when D1 purchased the freehold. The fact that the Lease itself was noted was not sufficient; the covenant must be mentioned in the particulars on the register. Otherwise a prospective purchaser would not have real and effective notice that the restrictive covenant existed.
HHJ Hellman considered this “quite straightforward” and dealt with it in three paragraphs. He noted that, where “the landlord” and/or “a third party” consist of more than one person, the 1993 Act did not require them to be served with a joint section 42 notice. Nor do separate notices have to be “issued” or served on the same date.
He went on to find that the initial notice served on D2 alone was a valid notice to D2, and that the later notice to D1 and D2 as “the landlord” (i.e. in the second set of notices) was a valid notice to D1. The additional effect of this was that the time for D2 to serve a counter-notice was extended to the date given in the later notice.
It may be hoped that an appeal will be pursued, permission to appeal to the Court of Appeal having been granted by HHJ Hellman, giving rise to an authoritative decision less constrained by precedent in order to resolve the tensions seen in this case.
The Judge evidently found the case difficult to decide and the arguments finely balanced – indeed he noted at the outset that this was an abstruse corner of the law. In particular on Issue (1) there were a number of authorities that HHJ Hellman had to consider, including one dating back to 1857. Each party’s case relied on High Court authority, however the Judge considered the particular passages on which D1 and D2 relied to be obiter and therefore not binding on him, whilst he was bound to follow the case on which C relied.
Philip Rainey QC raised a further point in respect of C’s case on this issue in his skeleton argument – he submitted that C’s analysis could not be right otherwise numerous tenants in the Building would be part of “the Landlord” as a result of the easements that formed part of the Lease. These easements gave C the right to enter any flat in the Building for certain purposes, but they would expire on expiration of the Lease. The tenants would then have their flats free of these easements, which it was said gave them a quasi-reversionary interest. However the Judge considered that this had not formed part of the counter-notice under the 1993 Act, it had been raised too late, it was highly contentious, and it had not been sufficiently explored in argument. He did not therefore deal with it substantively. This is unfortunate, as the point was advanced in order to show the apparent difficulties in C’s case whether or not it was open to Ds to challenge the validity of the notice on this basis. Questions now have to be considered as to the degree to which every objection raised by a landlord (even those that are an analysis of a tenant’s own case) has to be contained within the counter-notice.
Turning to Issue (3), although HHJ Hellman found this sufficiently straight-forward so as to enable him to deal with it briefly in his Judgment, his decision would appear to be plainly wrong. He also adopted a position not contended for by either party.
Finding that a notice required to be given to two landlords can be given in separate documents addressed to them individually at separate times leads one to ask ‘What is the effect of the documents by themselves’? The Judge was referred in argument to John Lyon’s Free Grammar School v Secchi  10 WLUK 295, which would clearly indicate that the first notice was invalid because the date given for the s.45 counter-notice would be “short” if it expired before the second landlord was served. But this does not appear in the judgment.
Further questions arise on the Judge’s analysis. If C gives a notice to D2 alone, is that notice invalid and then it is validated once a further notice is given to D1? Or is its validity held in abeyance pending the service of a further notice on D1? Is there a period within which the second notice must be given to D1 before the first notice is held to be invalid? How does one square section 42(6) of the 1993 Act with the decision of HHJ Hellman? And does the 1993 Act really envisage that the second notice to D1 would extend the time for D2 to serve a counter notice, a period which may be unknown to them and will certainly not be featured on the original section 42 notice received by D2? On the basis of the Judge’s finding on Issue (1), the answer to all these questions ought to have been simply that the first notice was invalid, and that it was the second notice, which was served on D1 and D2 as joint landlords, which was the sole valid notice.
It is fair to say that, for now at least, this case produces as many questions as it does answers.
By Philip Rainey QC