Philip Rainey QC and Jonathan Upton successful in 1993 Act appeal

30th April 2020

In Consensus Business Group (Ground Rents) Ltd v Palgrave Gardens Freehold Company Ltd [2020] EWHC 920 (Ch) the High Court (Falk J) considered the correct legal test when construing a statutory notices; the scope of the court’s power to permit an initial notice to be amended under para 15(2) of Sch 3 to the 1993 Act; and the meaning of “self-contained building”.

Background

Palgrave Gardens comprises five residential blocks (the “Blocks”). Looked at externally, each Block appears to be attached to the adjacent Block or Blocks. There is a single basement car park that runs underneath all of the Blocks and, importantly, extends underground beyond the ground level footprint of the Blocks, covering most but not all of the remainder of the site. At ground level, the area not covered by the Blocks and other above ground development comprises gardens, an access way leading from the sole entrance to the development over the entire length of the plot and down a ramp to the car park, and a turning circle. There is no internal access at ground level or above between the Blocks. There is, however, a direct lift and stair access to each of the Blocks from the car park.

Each Block is, in structural engineering terms, an independent self-supporting structure supported on his own piled foundations. It sits on columns (and to some extent walls) that go through the car park and rest on large pile caps at basement level. There is a “podium slab” at ground level around the Blocks and above the car park, and a basement slab that runs the full length of the car park, including under the Blocks. That basement slab is generally ground bearing, although small parts of it are supported by the large pile caps which support the Blocks. There are movement joints filling what would otherwise be small gaps (usually 50mm in width) between the Blocks where they meet above ground, between the podium slab and the ground floors of the Blocks, and around the pile caps at basement level.

There are 288 flats in total in the Blocks, all let on long leases in similar form. Some of the leases include the right to exclusive use of a specific parking space in the basement car park.

In December 2016, 182 of the tenants of Palgrave Gardens served a notice pursuant to s.13 (the “Notice”). The landlord served a counter-notice pursuant to s.21 not admitting the claim on the basis that the premises specified in the notice did not consist of a self-contained building or part of a building. The tenants (through the nominee purchaser) commenced proceedings under s.22 for a declaration as to their entitlement to enfranchise. The landlord counterclaimed for a declaration that the Notice was invalid alleging that there were a number of defects including that it failed to make clear whether the specified premises included or excluded the basement car park. The tenants applied to amend the claim so as to rely, in the alternative, on an amended notice (“the Amended Notice”).

At first instance, it was held “on balance” that the natural and objective meaning of the Notice was that the claim under s.1(1) was restricted only to the ground floor outline of the Blocks. The judge also decided that, on that basis, the tenants had failed to include part of the relevant premises, namely the car park, and that permission to amend should be given. The judge went on to consider whether the Amended Notice related to a self-contained building for the purposes of s.3, concluding that the Blocks comprised a single building which included the car park. Jonathan Upton acted for the tenants at trial.

The landlord appealed. It argued that: the Notice was invalid because it was not clear what premises the tenants were claiming; the court had no jurisdiction to permit the Notice to be amended in the manner sought by the tenants and, in any event, the premises claimed were not a self-contained building.

The Decision

Dismissing the appeal, the court (Falk J) held:

There are two types of validity: a notice which does not comply with the mandatory requirements as to the contents is of no effect (“formal” invalidity), whereas a notice may formally comply with requirements of s.13 but make a claim which the tenants are not entitled to make under the 1993 Act (“substantive” invalidity). A notice which is invalid in the first sense cannot be saved by amendment but a notice which is formally valid but substantively invalid may be amended under para 15(2) of Sch 3 to the 1993 Act.
Whether the Notice was formally invalid depends on the construction of the Notice. The correct approach to adopt in construing a notice is that established by the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (“Mannai”), namely: “Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?” The court rejected the appellant landlord’s submission that the correct test is whether a reasonable recipient would be left “in no reasonable doubt” as to what the notice meant. In the instant case, the way in which the draftsman chose to identify the relevant property was first and foremost by means of a plan. Although the description of the premises was not as clear as it might have been, the plan attached to the Notice was sufficiently (or “quite”) clear what premises the tenants were claiming.
Para 15(2) of Sch 3 covers any property or interest that the tenants either are or are not entitled to acquire under ss.1 or 2. The words “property or interest…liable to acquisition” refer to property or an interest that is liable to be acquired if a notice is served in the appropriate form. The natural meaning encompasses property that “may” be acquired, or that the tenants are entitled to acquire, and not simply property that “must” be acquired if the tenants choose to serve a notice. There was no rationale for restricting the scope of para 15(2) to property that “must” be acquired as the appellant contended. Parliament clearly intended the court to have the ability to grant permission to amend notices in a way that either removes property or adds to what was previously claimed. The court has power to permit amendments that either add property to a notice or remove it from a notice. It follows that property claimed under one section can be ‘moved’ to another section.
A building is not limited to the built structure above ground; it includes all parts immediately below. If a structure, such a basement car park, is not structurally detached then it is part of the building and the right to acquire the specified premises includes it together with the airspace and the subsoil. The question of whether a building is structurally detached is not simply one for structural engineers and dependent solely on the existence or otherwise of structural interdependence or loadbearing connection. Design and function are also relevant to whether a building is structurally detached. Once the correct legal test is identified, the question becomes one of fact and degree. In the instant case, the Blocks are clearly not structurally detached at basement level because there is a continuous slab that forms the floor of the car park. The Blocks were designed and constructed together as part of single development connected by a common basement. Accordingly, the court below was correct to hold that the specified premises are a self-contained building.

What are the practical implications of this case?

This case is a cautionary tale of the difficulties that arise when drafting notices claiming the right to acquire premises which include complex composite structures. The decision should, however, make it less difficult for tenants to exercise the right to collective enfranchisement.

The premises which are being claimed must be sufficiently clear to the reasonable recipient. The fact that a specialist enfranchisement practitioner would know that the notice is making an invalid claim (in the sense that it is a claim which the tenants are not entitled to make under the Act) does not mean that the notice is formally invalid by reason of a failure to comply with the mandatory requirements of s.13. Where the description of the premises is not as clear as it might have been, a notice may still be valid if the attached plan makes it sufficiently clear what premises the tenants are claiming.

The court has a wide power under para 15(2) of Sch 3 to permit amendments to the notice. The notice may be amended to include property that “may” be acquired and not simply property that “must” be acquired if the tenants choose to serve a notice. The court also has power to permit amendments that either add property to a notice or remove it from a notice. It is, therefore, possible to ‘move’ property claimed under one section to another section.

The question of whether a building is structurally detached is not simply one for structural engineers and dependent solely on the existence or otherwise of structural interdependence or loadbearing connection, but such evidence will undoubtedly be relevant and important. Design and function are also relevant. It is, ultimately, a matter of fact a degree. The test under the 1993 Act is, therefore, the same as for that for RTM claims under the 2002 Act (see CQN RTM Co Ltd v Broad Quay North Block Freehold Ltd [2018] UKUT 183 (LC)). The courts appear willing to adopt a common sense approach to such matters so that tenants of complex composite structures can exercise the right to collective enfranchisement.

Philip Rainey QC and Jonathan Upton acted for the tenants.

Team: Philip Rainey KC

Expertise: Real Property