York House (Chelsea) Ltd v Edward Thompson (1) and Domitila Thompson (2) [2019] EWHC 2203 (Ch)

Summary

A husband and wife who are the joint freeholders of a block of flats, granted a number of leases of various parts of that block to one or other of themselves. These were found to be disposals which were exempt from the provisions of part 1 of the Landlord and Tenant Act 1987 (‘the 1987 Act’), either because these were gifts to family under s.4(2)(e) or disposals within a family under s.4(2)(h).

Facts

The Defendants, who are husband and wife, are the joint freeholders of York House. They became aware that the tenants of that block were intending to acquire the freehold under the Leasehold Reform, Housing and Urban Development Act 1993 (‘the 1993 Act’).

Concerned that the development opportunities in York House would not be properly reflected by a valuation under the Act as matters stood, they granted themselves 14 leases of various parts of the House and its surrounding areas. These included leases of storerooms, subsoil, air space, courtyards and internal corridor spaces, amongst other things. There was no premium payable under any of the leases and the rent reserved was in each case a peppercorn.

The Defendants did not serve notices offering the qualifying tenants rights of first refusal over these leases pursuant to s.5 of the 1987 Act. The tenants contended that they ought to have done so and therefore sought an order that the Defendants transfer the leases to the Claimant company, pursuant to s.19 of that Act.

The Defendants argued that the disposals effected by the leases were exempt disposals, and alternatively argued that many of the disposals were not ‘disposals affecting premises’ to which Part One of the 1987 Act applies.

Issues

1) Did disposals effected by the leases fall within the exclusions under s.4(2)(e) or (h) the 1987 Act?

2) If not, was each lease a disposal affecting premises to which part one of the 1987 Act applies?

Decision

Mr Justice Zacaroli sitting in the Chancery Division of the High Court found that the leases were not relevant disposals, such that the Defendants had not been obligated to offer rights of first refusal to the qualifying tenants of the block.

In relation to s.4.2(e), the Claimant had argued that the disposals could not be gifts because:

1. a) the creation of leases involved consideration. The judge disagreed, finding that it is conceptually possible to describe the grant of a tenancy as the making of a gift: the better analysis was that mutual covenants in a lease were part and parcel of the estate in land created.
2. b) the Defendants were really seeking to retain the benefit of their property, rather than giving a ‘gift’ of leases. The judge disagreed: the purpose of the exception in s.4.2(e) was to allow the landlord to transfer his property to an acquiring party in which he had an interest – any ulterior motive behind the gift was not relevant.
3. c) the Defendants granting leases to one or other of themselves could not properly be described as gifting to a ‘member of their family’ per various strict readings of the statutory language in s.4.2(e). The judge disagreed with these interpretations and further could see no legislative purpose for such an exclusion.

S.4.2(h) excludes “a disposal consisting of a transfer by two or more persons who are members of the same family… to fewer of their number.” The Claimant argued in relation to this subsection that the creation of an estate in land such as a lease was not a disposal ‘consisting of a transfer’. The judge again disagreed: ‘transfer’ in that provision was used for the purpose of identifying ‘between whom’ the disposal is to take place, rather than in the sense of the ‘type’ of disposal permitted.

Although not strictly necessary, the judge went on to consider which of the disposals would be relevant disposals affecting premises to which part one of the 1987 Act applies. Agreeing broadly with the Claimant, he found that appurtenances include areas over which the tenants have rights under their leases and areas usually enjoyed with the building, including those to which access is required by the landlord in order to comply with its repairing obligations [113]. As a result, airspace to the height of the chimneys, subsoil and courtyards (inter alia) were found to be appurtenances.

Comment

Paragraphs 119-169 of the judgment contains in-depth analyses of whether various different parts of a block of flats may be considered as exterior, appurtenant or a common part of a building, which could likely be useful to readers considering the application of these issues to their own facts.