MR JUSTICE MORGAN:
Introduction
- This is an appeal against the order dated 31 January 2018 made by Mrs Recorder McAllister sitting in the County Court at Central London. By her order, the Recorder declared, in effect, that a notice dated 6 June 2016, which was purportedly given under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 ("the 1993 Act"), was invalid.
- The appeal is brought by Ms Villarosa who became the tenant of the relevant property after the date of the notice. The Respondent to the appeal is Mr Ryan who was at all times the landlord of the relevant property.
- The appeal raises two distinct issues. The first issue concerns the meaning and effect of section 42(4A) of the 1993 Act which was introduced into the 1993 Act by section 132 of the Commonhold and Leasehold Reform Act 2002 ("the 2002 Act"). In relation to this first issue, Ms Villarosa failed in the County Court and now seeks to challenge the decision of the Recorder in that respect.
- The second issue arises in relation to section 43 of the 1993 Act. As Ms Villarosa had failed in the county court on the first issue, it was not strictly necessary for the Recorder to deal with this point but she did so. The Recorder held that she would have decided the second issue in favour of Ms Villarosa. Mr Ryan has served a Respondent's Notice challenging the Recorder's conclusion on this second issue.
- Ms Villarosa must succeed on both issues in order to succeed overall.
- Mr Radevsky appeared on behalf of Ms Villarosa and Mr Acton appeared on behalf of Mr Ryan.
The facts
- By a lease dated 6 June 1991, Flat 2, 49 Coningham Road, London W12 8BS was demised for a term of 99 years from 6 June 1991. Title to the lease was registered at HM Land Registry under title number NGL 686916.
- On 15 February 1999, following an assignment to him of the term of the lease, Mr Louis Vambeck became the registered proprietor in relation to the lease under the above title number.
- By 19 March 2001, the Respondent, Mr Ryan had become (and thereafter remained) the sole registered proprietor of the reversion on the lease. The reversion was registered at HM Land Registry under title number LN124864.
- On 4 December 2007, Mr Vambeck died leaving a will, naming executors. On 27 April 2010, the executors named in the will of Mr Vambeck obtained a grant of probate of the will. It was common ground, on the hearing of this appeal, that the legal title to the lease vested in the executors on the death of Mr Vambeck and even before the grant of probate was obtained. It was also common ground that the effect of section 27(5)(a) of the Land Registration Act 2002 was that the vesting of legal title to the lease in the executors on the death of the testator occurred even though the lease was registered at the Land Registry and even though the executors did not become registered as the proprietor of the lease.
- On 6 April 2016, the executors executed a transfer of the lease by completing Form TR1 in favour of the Appellant, Ms Villarosa. Ms Villarosa paid the executors £690,000 for the transfer of the lease. It was common ground that the execution of the TR1 did not have the effect of vesting legal title to the lease in Ms Villarosa. It was accepted that, pursuant to section 27(2)(a) of the Land Registration Act 2002, the transfer required to be completed by registration and by virtue of section 27(1) of that Act, the transfer would not operate at law until the relevant registration requirements were met and those requirements were that the transferee be entered in the register as the proprietor of the lease: see schedule 2, para. 2 to the Land Registration Act 2002.
- On 6 June 2016, the solicitor for the executors served on Mr Ryan a notice (or a purported notice) under section 42 of the 1993 Act. The notice contained the following statements:
"3. The Executors were granted probate on 27 April 2010. Accordingly, the Executors are entitled to, and do, serve this notice in exercise of their right to claim a lease extension under the 1993 Act on the basis that they have been the qualifying tenant of the Flat for the whole of the two year period preceding its service, namely, at all times since they were granted probate with the result that, by operation of law, the legal title to the Existing Lease then became vested in them without the need for the registration of the disposition at HM Land Registry (as need be section 27(5)(a) of the Land Registration Act 2001 and section 1(1) of the Administration of Justice Act 1925 shall be relied on on point).
4. As said, the Executors have been the qualifying tenant (within the meaning of and for the purposes of the 1993 Act) of the Flat for the whole of the period of two years immediately preceding the giving of this notice. Accordingly, the Executors are entitled to be granted a lease extension that is claimed under the 1993 Act."
- On 7 or 8 June 2016, the executors assigned (or purported to assign) to Ms Villarosa the benefit of the section 42 notice. The assignment expressly provided that the assignment of the rights and obligations of the tenant arising from the notice should be conditional upon and contemporaneous with the vesting of the legal title to the lease in Ms Villarosa upon the perfection by registration at HM Land Registry of the assignment of the residue of the term of years created by the lease.
- On 27 June 2016, Ms Villarosa applied to the Land Registry to be registered as proprietor in relation to the term of the lease under title number NGL686916. In due course, she was duly registered as proprietor and in accordance with section 74 of the Land Registration Act 2002, the effective date of the registration was the date of her application for registration.
- On 25 July 2016, the solicitors for Mr Ryan served on the executors and on Ms Villarosa a notice pursuant to section 45 of the 1993 Act. The section 45 counter- notice did not admit the claim pursuant to section 42 of the 1993 Act. The grounds relied upon for this non-admission included the contention that the purported section 42 notice had been given by the personal representatives of a deceased tenant more than two years after the personal representatives had obtained a grant of probate so that the notice was invalidated by section 42(4A) of the 1993 Act and the further contention that the lease had been assigned without the benefit of the section 42 notice which was therefore deemed to have been withdrawn pursuant to section 43(3) of the 1993 Act.
- On 19 September 2016, Mr Ryan issued a claim form in the county court claiming declaratory relief pursuant to section 46 of the 1993 Act to the effect that the purported section 42 notice was invalid (as a result of section 42(4A) of the 1993 Act) or was deemed to have been withdrawn (pursuant to section 43(3) of the 1993 Act).
- The claim was tried by the Recorder in October 2017 and there was a further hearing before her on 22 January 2018. In her judgment, the Recorder found in favour of Mr Ryan on the first issue. Although this finding meant that it was not strictly necessary to deal with the second issue, the Recorder helpfully did so and held that that she would have decided the second issue in favour of Ms Villarosa. The Recorder made a declaration that the executors had no right under Chapter II of Part I of the 1993 Act to acquire a new lease of the flat on the date on which they gave the purported section 42 notice. The Recorder gave Ms Villarosa permission to appeal and further ordered that if Ms Villarosa did appeal, Mr Ryan should have permission to appeal so as to seek a declaration that any valid section 42 notice was deemed to have been withdrawn pursuant to section 43(3) of the 1993 Act.
- Ms Villarosa duly appealed against the declaration made by the Recorder in relation to the first issue and Mr Ryan has served a Respondent's Notice which challenges the Recorder's decision on the second issue.
The first issue: relevant background
- As will be seen, the first issue raises a question of interpretation of section 132 of the 2002 Act, which amended the 1993 Act, by introducing into the 1993 Act section 39(3A) and section 42(4A). Before setting out these statutory provisions, it is relevant to refer to the background to the amendments made by the 2002 Act in this and in other respects.
- There are three statutory codes which are potentially relevant when considering the amendments made by the 2002 Act. The first code was created by the Leasehold Reform Act 1967 ("the 1967 Act") which provided for enfranchisement and extension of leases of houses. The second code was created by Chapter I of Part I of the 1993 Act; this code provided for collective enfranchisement by tenants of flats. The third code was created by Chapter II of Part I of the 1993 Act; this code provided for the individual right of a tenant of a flat to acquire a new lease.
- Before the amendments made to it by the 2002 Act, section 1 of the 1967 Act, when laying down the circumstances in which a tenant of a leasehold house could seek to acquire the freehold or an extended lease of the house, imposed a requirement that the tenant had occupied the house as his residence for a period in the past: see, in particular, section 1(1)(b) and 1(2) of the 1967 Act.
- Before the 2002 Act, Chapter I of Part I of the 1993 Act also imposed a residence condition which had to be satisfied by some of the tenants who were collectively asserting an entitlement under Chapter I: see, in particular, section 6 and section 13(2)(b) of the 1993 Act.
- Before the 2002 Act, Chapter II of Part I of the 1993 Act also imposed a requirement as to past residence by a tenant seeking to exercise the right conferred by Chapter II. The requirement as to residence in Chapter II was not in the same terms as the residence condition in section 6 in Chapter I of Part I of the 1993 Act.
- In August 2000, the Lord Chancellor published a Draft Bill and Consultation Paper on Commonhold and Leasehold Reform, Cm 4843, which identified certain proposals to amend the 1967 and 1993 Acts and, in particular, to remove from those Acts a requirement as to residence. The parties did not dispute that the court was entitled to consider the terms of the Draft Bill and Consultation Paper in order to see if they assisted with the question of construction which now arises in relation to the first issue. This Draft Bill and Consultation Paper was taken into account by the Supreme Court in Hosebay Ltd v Day [2012] 1 WLR 2884 when construing the amendments made by the 2002 Act to the 1967 Act, see at [3]-[5] per Lord Carnwath.
- The Consultation Paper referred to its proposals in relation to Chapter II of Part I of the 1993 Act in the following terms (at pages 155-156):
"PROBLEMS WITH EXISTING REGIME
1. The right to acquire a new lease, which adds 90 years to the term remaining on the original lease, is an individual right. It provides a useful alternative to the right of collective enfranchisement in cases where (for example) there are insufficient qualifying tenants in the block or there is insufficient support for enfranchisement. In such circumstances, this right is the only available answer to the problem that the lease is a wasting asset.
2. The Government believes that the current rules for acquiring a new lease are too restrictive. For example, to qualify for the right to buy a new lease a leaseholder has to have occupied their flat as their only or main home for the last three years, or periods that add up to three years in the last ten. This contrasts with the current residency rule for collective enfranchisement, which is that the flat has only to be occupied for one year or three years in the last ten. The rules for acquiring a new lease also exclude from the right, for example, those who occupy a flat as a second home or who sub-let their flat.
3. In addition, personal representatives of deceased leaseholders who take over responsibility for leasehold flats with a short remaining term are often placed in a difficult position. They are unable to sell the flat (or at least, get a reasonable price for it) and are unable to qualify for a new lease because of the residence test. This provides an opportunity for landlords to demand an unreasonable price for renewal or extension of the term.
…
6. We have proposed the abolition of the residence test for collective enfranchisement because it has proved to be a major obstacle to the exercise of the collective right. The situation with lease renewals is different. If we were to simply abolish the test, it could open the door to speculative investment in short lease properties, with a prospect of a short-term windfall gain. We only want to help those who have a genuine long-term interest in their property. We have therefore proposed a compromise, replacing a minimum requirement of residence with a minimum (and shorter) term of ownership. We have also proposed specific measures to help personal representatives of deceased leaseholders.
…
9. We propose to abolish the residence test for the right to acquire a new lease bringing it in line with the proposal to abolish the test for collective enfranchisement. It would, however, be replaced by a provision requiring the qualifying tenant at the relevant date to have held the long lease for a period of at least two years. This should ensure that people who occupy leasehold flats as second homes, or sub-let them, have a remedy to the wasting asset problem. It would not prevent investors from securing a windfall gain completely. But it would restrict the scope for short-term speculative gains.
…
10. We propose to give the personal representative of a deceased leaseholder the right to acquire a new lease where the leaseholder would have qualified for the right to a new lease immediately before they died. This right would only be exercisable in the period of six months following the grant of probate or letters of administration."
- The Consultation Paper also made proposals as to changes in relation to the 1967 Act. At page 189, it was proposed to remove a residence requirement for the right to enfranchise or to extend the lease of a house. The Consultation Paper also contained proposals in relation to the 1967 Act in respect of the position of the personal representatives of a deceased tenant. At page 190, the Consultation Paper stated:
"INTRODUCTION
PROBLEMS WITH EXISTING REGIME
1. The Leasehold Reform Act 1967 already gives a member of a deceased's family a right to succeed to the tenancy of a house (and qualify for enfranchisement or lease extension). The right applies if, at the time of the leaseholders death, the family member was resident in the house as their only or main place of residence. This is a very specific and restrictive right.
2. Where flats are concerned, we have put forward the proposal that the personal representative of a qualifying tenant, who, at the time of death, had held the lease for at least two years, be given the right to acquire a new lease within six months of the granting of probate or letters of administration (paragraph 10 of Section 3 Chapter III). This is because personal representatives who take over a flat which has a short remaining term are often placed in a position where they cannot sell the flat (or cannot get a reasonable price for it). There would on that basis be an inconsistency between the rules for houses and flats in relation to who actually qualifies for the right to seek a lease renewal (flats) or lease extension (houses).
3. Where enfranchisement is concerned, no special provisions are needed to allow a person inheriting a long lease on a flat to participate in collective enfranchisement. Where a participating tenant dies after the serving of the initial notice, personal representatives already have a right to take over.
4. For houses however, specific provision would be needed to allow the deceased leaseholders personal representatives the right to enfranchise without having to meet the proposed requirement that they hold the lease for at least two years in their own name.
OVERALL OBJECTIVE OF PROPOSALS
5. We therefore have two main objectives. Firstly, to give the same right to obtain a lease extension to the personal representatives of houses as are proposed for flats. Second, to give the personal representative of a qualifying tenant who, at the time of death had held the lease for at least two years, the right to acquire the freehold within a limited period after the granting of probate or letters of administration.
Proposals for legislation
6. We propose to amend the Leasehold Reform Act 1967 to give personal representatives of qualifying tenants who, at the time of death, had held the lease for at least two years, the right to extend their lease within six months of the granting of probate or letters of administration. This will harmonise the rights for flats and houses, and would also help personal representatives who did not meet the definition of "family".
7. We also propose to provide a right to enfranchise for the personal representative of a qualifying tenant who, at the time of death had held the lease for at least two years. This would also have to be exercised within six months of probate or letters of administration.
8. However, for houses, the present rights for a member of the deceased leaseholders family to acquire the freehold or extend their lease (see paragraph 1. above) are not time limited and can be exercised at any time. We do not propose to take away or reduce any existing rights that a personal representative may already have. Where these are more favourable, these rights would continue to apply."
- A number of points emerge from these passages in the Consultation Paper. In the case of the codes under the 1967 Act and Chapter II of Part I of the 1993 Act, the first proposal was a general proposal to remove the requirement as to residence; this was combined with a proposal to replace that requirement with a new requirement as to a period of ownership of the lease. It was explained that this would allow a tenant who occupied the property as a second home or who sub-let it to exercise the relevant statutory right. The second proposal was in addition to the general proposal and was a specific proposal to allow the personal representatives of the deceased tenant to exercise the relevant statutory right even if they had not been the owner of the lease for two years, provided always that the deceased tenant had satisfied the requirement as to two years ownership. It is also clear from the above passages that it was intended that the position of personal representatives would be the same in relation to the rights under the 1967 Act and the rights under Chapter II of Part I of the 1993 Act.
- The proposed position of personal representatives in relation to Chapter II of Part I of the 1993 Act was dealt with by clause 103 of the draft Bill which was published with the Consultation Paper. The explanatory note in relation to clause 103 of the draft Bill stated:
"Clause 103 makes special provision for the benefit of those who inherit leases. Provided that the deceased had been a qualifying tenant for at least two years (see clause 101), their personal representative will have the right to a new lease notwithstanding the fact that they have not, themselves, held the lease for at least two years. This right will be limited to a period of six months starting from the date of the grant of probate or of letters of administration."
- Clause 103 of the draft Bill was in the same terms as section 132 of the 2002 Act as later enacted save that the period of six months referred to in the draft Bill was changed to the period of two years. The draft Bill published with the Consultation Paper did not contain a clause setting out the proposed amendment to the 1967 Act in relation to personal representatives.
- Later in this judgment, I will refer to the Bill as presented in Parliament and to statements made in the course of the passage of the Bill through Parliament.
The 2002 Act
- As enacted, the 2002 Act gave effect to the proposals contained in the Consultation Paper (so far as relevant for present purposes). Thus, the residence requirement in Chapter I of Part I of the 1993 Act was removed: see para. 1 of schedule 14 to the 2002 Act. As regards Chapter II of Part I of the 1993 Act, section 39 was amended to remove the residence requirement in Chapter II and to replace it with a requirement for two years ownership of the lease: see section 130 of the 2002 Act. The residence requirements in section 1 of the 1967 Act were significantly reduced so that there was a residence requirement in limited circumstances only: see section 138 of the 2002 Act.
- In relation to the position of personal representatives in respect of Chapter II of Part I of the 1993 Act, section 132 of the 2002 Act provided:
"132 Personal representatives
(1) In section 39 of the 1993 Act, after subsection (3) insert—
"(3A) On the death of a person who has for the two years before his death been a qualifying tenant of a flat, the right conferred by this Chapter is exercisable, subject to and in accordance with this Chapter, by his personal representatives; and, accordingly, in such a case references in this Chapter to the tenant shall, in so far as the context permits, be to the personal representatives."
(2) In section 42 of the 1993 Act (notice by qualifying tenant of claim to exercise right), before subsection (5) insert—
"(4A) A notice under this section may not be given by the personal representatives of a tenant later than two years after the grant of probate or letters of administration." "
- The explanatory note to section 132 stated:
"Section 132 makes special provision for the benefit of those who inherit leases. Provided that the deceased had been a qualifying tenant for at least two years (see section 130), their personal representatives will have the right to a new lease notwithstanding the fact that they have not, themselves, held the lease for at least two years. This right can only be exercised during a period of two years starting from the date of the grant of probate or of letters of administration"
- In relation to the position of personal representatives in respect of the 1967 Act, section 142 of the 2002 Act provided:
"142 Personal representatives
(1) After section 6 of the 1967 Act insert—
"6A Rights of personal representatives
(1) Where a tenant of a house dies and, immediately before his death, he had under this Part of this Act—
(a) the right to acquire the freehold, or
(b) the right to an extended lease,
the right is exercisable by his personal representatives while the tenancy is vested in them (but subject to subsection (2) below); and, accordingly, in such a case references in this Part of this Act to the tenant shall, in so far as the context permits, be to the personal representatives.
(2) The personal representatives of a tenant may not give notice of their desire to have the freehold or an extended lease by virtue of subsection (1) above later than two years after the grant of probate or letters of administration."
(2) In paragraph 6(2) of Schedule 3 (particulars to be contained in notice), after "6" (in both places) insert ", 6A". "
- The explanatory note to section 142 stated:
"Section 142 amends section 6 of the 1967 Act. It improves the rights of those who inherit leasehold houses. Where the deceased leaseholder qualified for the right to extend the lease and/or enfranchise at the time of death, personal representatives would be able to exercise those rights within two years of the grant of probate or letters of administration. …"
The relevant provisions of the 1993 Act as amended by the 2002 Act
- Section 39 of the 1993 Act as amended by section 132 of the 2002 Act creates the right for a qualifying tenant of a flat to acquire a new lease. Section 39 as so amended reads:
"39.— Right of qualifying tenant of flat to acquire new lease.
(1) This Chapter has effect for the purpose of conferring on a tenant of a flat, in the circumstances mentioned in subsection (2), the right, exercisable subject to and in accordance with this Chapter, to acquire a new lease of the flat on payment of a premium determined in accordance with this Chapter.
(2) Those circumstances are that on the relevant date for the purposes of this Chapter—
(a) the tenant has for the last two years been a qualifying tenant of the flat;
(3) The following provisions, namely—
(a) section 5 (with the omission of subsections (5) and (6)),
(b) section 7 ,
shall apply for the purposes of this Chapter as they apply for the purposes of Chapter I; and references in this Chapter to a qualifying tenant of a flat shall accordingly be construed by reference to those provisions.
(3A) On the death of a person who has for the two years before his death been a qualifying tenant of a flat, the right conferred by this Chapter is exercisable, subject to and in accordance with this Chapter, by his personal representatives; and, accordingly, in such a case references in this Chapter to the tenant shall, in so far as the context permits, be to the personal representatives.
(4) For the purposes of this Chapter a person can be (or be among those constituting) the qualifying tenant of each of two or more flats at the same time, whether he is tenant of those flats under one lease or under two or more separate leases.
(7) The right conferred by this Chapter on a tenant to acquire a new lease shall not extend to underlying minerals comprised in his existing lease if—
(a) the landlord requires the minerals to be excepted, and
(b) proper provision is made for the support of the premises demised by that existing lease as they are enjoyed on the relevant date.
(8) In this Chapter "the relevant date", in relation to a claim by a tenant under this Chapter, means the date on which notice of the claim is given to the landlord under section 42. "
- Section 39 refers to sections 5 and 7 which are in Chapter I of Part I but which, by virtue of section 39(3), apply also for the purposes of Chapter II of Part I. By section 5(1), a tenant is a qualifying tenant of a flat if he is the tenant of the flat under a long lease (subject to certain exceptions which are not material). "Long lease" is defined by section 7 and it is not in dispute that the lease in the present case is within that definition.
- Section 42 of the 1993 Act as amended by section 132 of the 2002 Act provides for a qualifying tenant to give a notice of his claim to exercise his right to acquire a new lease. Section 42 as so amended provides:
"42.— Notice by qualifying tenant of claim to exercise right.
(1) A claim by a qualifying tenant of a flat to exercise the right to acquire a new lease of the flat is made by the giving of notice of the claim under this section.
(2) A notice given by a tenant under this section ("the tenant's notice") must be given—
(a) to the landlord, and
(b) to any third party to the tenant's lease.
(3) The tenant's notice must—
(a) state the full name of the tenant and the address of the flat in respect of which he claims a new lease under this Chapter;
(b) contain the following particulars, namely—
(i) sufficient particulars of that flat to identify the property to which the claim extends,
(ii) such particulars of the tenant's lease as are sufficient to identify it, including the date on which the lease was entered into, the term for which it was granted and the date of the commencement of the term,
(c) specify the premium which the tenant proposes to pay in respect of the grant of a new lease under this Chapter and, where any other amount will be payable by him in accordance with any provision of Schedule 13, the amount which he proposes to pay in accordance with that provision;
(d) specify the terms which the tenant proposes should be contained in any such lease;
(e) state the name of the person (if any) appointed by the tenant to act for him in connection with his claim, and an address in England and Wales at which notices may be given to any such person under this Chapter; and
(f) specify the date by which the landlord must respond to the notice by giving a counter-notice under section 45.
(4A) A notice under this section may not be given by the personal representatives of a tenant later than two years after the grant of probate or letters of administration.
(5) The date specified in the tenant's notice in pursuance of subsection (3)(f) must be a date falling not less than two months after the date of the giving of the notice.
(6) Where a notice under this section has been given with respect to any flat, no subsequent notice may be given under this section with respect to the flat so long as the earlier notice continues in force.
(7) Where a notice under this section has been given with respect to a flat and—
(a) that notice has been withdrawn, or is deemed to have been withdrawn, under or by virtue of any provision of this Chapter, or
(b) in response to that notice, an order has been applied for and obtained under section 47(1),
no subsequent notice may be given under this section with respect to the flat within the period of twelve months beginning with the date of the withdrawal or deemed withdrawal of the earlier notice or with the time when the order under section 47(1) becomes final (as the case may be).
(8) Where a notice is given in accordance with this section, then for the purposes of this Chapter the notice continues in force as from the relevant date—
(a) until a new lease is granted in pursuance of the notice;
(b) if the notice is withdrawn, or is deemed to have been withdrawn, under or by virtue of any provision of this Chapter, until the date of the withdrawal or deemed withdrawal; or
(c) until such other time as the notice ceases to have effect by virtue of any provision of this Chapter;
but this subsection has effect subject to section 54.
(9) Schedule 12 (which contains restrictions on terminating a tenant's lease where he has given a notice under this section and makes other provision in connection with the giving of notices under this section) shall have effect."
- Section 43 of the 1993 Act contains further provisions as to the effect of a tenant's notice under section 42. I will refer to section 43 again in connection with the second issue. Section 45 provides for the landlord to serve a counter-notice stating whether the landlord admits or does not admit (giving his reasons) the tenant's right to acquire a new lease. Section 46 permits the landlord to make an application to the court for a declaration that the tenant did not have the right to acquire a new lease.
The positions of the parties in relation to the first issue
- Mr Acton, for Mr Ryan, submits that, in this case, section 42(4A) applies in the following way. On 6 June 2016, the executors of the deceased tenant held the lease of the flat in their capacity as personal representatives of the deceased. On 6 June 2016, the executors purported to give notice under section 42 of the 1993 Act. The section 42 notice which was purportedly given on 6 June 2016 was given by the personal representatives of the deceased tenant. However, 6 June 2016 was more than two years after the grant of probate on 27 April 2010. Section 42(4A) expressly provides that a section 42 notice may not be given by the personal representatives of a tenant later than two years after the grant of probate. Therefore, the personal representatives were not able to serve a valid section 42 notice on 6 June 2016 and their purported notice was invalid. Mr Acton submits that the language of section 42(4A) is clear; he says it is not ambiguous or obscure nor does it lead to an absurdity if it is given its ordinary literal meaning.
- Mr Radevsky, for Ms Villarosa, submits that Mr Acton's argument starts in the wrong place. The right place to begin is with section 39(2). On 6 June 2016, the executors were qualifying tenants who had owned the lease for more than two years. They therefore satisfied the requirements of section 39(2). They did not need to rely on the special provision in section 39(3A) to serve a valid section 42 notice. Mr Radevsky submitted that the two-year period specified by section 42(4A) only applied where the personal representatives need to rely on section 39(3A) in order to be able to serve a valid section 42 notice. He submits that the purpose of section 42(4A) is to limit the operation of section 39(3A) but not to limit the operation of section 39(2). He submits that section 39(3A), as limited in its operation by section 42(4A), is a specific provision which adds to the general provisions of section 39(2) and does not limit the operation of section 39(2).
- The Recorder accepted the submissions made to her on behalf of Mr Ryan and, applying section 42(4A) in the way contended for on his behalf, she held that the notice served on 6 June 2016 was not valid as it was served by the personal representatives of the deceased tenant later than two years from the grant of probate. The Recorder held that the wording of section 42(4A) was clearly to this effect. She added some further reasoning which is not specifically relied upon by Mr Acton on this appeal.
Discussion of the first issue
- Although the provisions which fall to be construed now appear separately as sections 39(3A) and 42(4A) of the 1993 Act, the provision to be construed is the single section 132 of the 2002 Act. For that purpose, it is obviously right to construe section 132 of the 2002 in the light of any other provisions of the 2002 Act which might help to disclose the intended effect of section 132. It is also right to consider the background to the 2002 Act and, in particular, the Draft Bill and Consultation Paper to which I have referred.
- Mr Acton is entitled to say that if one reads section 42(4A) in isolation, the wording suggests that if the lease is vested in a personal representative and if he wishes to give a section 42 notice, then he may only do so within two years of the grant of probate or letters of administration. He is also entitled to say that there does seem to be much point to the two year limit in section 42(4A) unless it is intended to apply to any notice served by a personal representative and not just a notice served in reliance on the special right conferred on a personal representative by section 39(3A). He says that it is noteworthy that the two year period referred to in section 39(2) will almost always be different from the two year period referred to in section 42(4A). This will be the case unless, somewhat improbably, probate or letters of administration were granted on the date of death of the tenant. For example, in the present case, the two year period for section 39(2) began on the date of death which was 4 December 2007 whereas the two year period for section 42(4A) began on the grant of probate on 27 April 2010.
- However, there are contrary arguments which can be put forward. First of all, it is wrong to construe section 42(4A) in isolation. Indeed, the section which falls to be construed is section 132 of the 2002 Act. That single section deals with both a special right for a personal representative to serve a section 42 notice and a limitation on the right of a personal representative to serve a section 42 notice. Given that a personal representative who has owned the lease for two years appears to have a right, like every other tenant, to serve a section 42 notice, the question immediately arises: is the limitation on the power of a personal representative to serve a section 42 notice meant to be a limitation on the special right or is it meant to go further and place a personal representative at a disadvantage which is not imposed on other tenants, including tenants who are trustees?
- Further, section 132 of the 2002 Act is to be read in the light of the amendments to the 1967 Act and, in particular, section 142 of the 2002 Act. Under the 1967 Act as amended, personal representatives who have owned the lease for two years can exercise the rights conferred by the 1967 Act. This is the effect of section 1(1)(b) of the 1967 Act, as amended. Section 6A of the 1967 Act (introduced by section 142 of the 2002 Act) confers on personal representatives the special right to exercise the rights under the 1967 Act even before they themselves have owned the lease for two years. This special right is subject to section 6A(2), which like section 42(4A) of the 1993 Act, provides that the personal representatives must exercise the relevant right within two years of the grant of probate or letters of administration. Section 6A(2) makes it clear that this two year cut-off period only applies to the exercise of the special right and does not apply when the personal representatives are in a position to exercise the general right under section 1(1)(b) of the 1967 Act. It will be remembered that the Consultation Paper disclosed an intention to achieve the same result in relation to Chapter II of Part I of the 1993 Act and the 1967 Act.
- Yet further, the Consultation Paper disclosed an intention to confer a special right on a personal representative and not to place a personal representative at a disadvantage not shared by other tenants, including trustees.
- In addition, in response to Mr Acton's argument that the two year period in section 42(4A) does not achieve anything if the contrary arguments are right, it is relevant to recall that the draft Bill which was published with the Consultation Paper initially proposed a period of six months rather than two years. At that stage, having regard to the explanations given by the Consultation Paper, it is far from clear that one should construe the limitation to a six month period from probate or letters of administration as preventing a personal representative from serving a section 42 notice after the personal representative had owned the lease for two years. Instead, one would probably have regarded the six month period as being a limitation which related only to the special right of a personal representative to serve a section 42 notice even before he had owned the lease for two years. When the period of six months in the draft Bill became two years in section 132, the intention appeared to be to produce a result which would be more generous to the personal representative in relation to the exercise of the special right rather than to impose for the first time a restriction on the personal representative exercising the general right relying on two years ownership of the lease.
- In view of the competing arguments, I would not regard the meaning of section 42(4A) to be clear and in his favour, as Mr Acton contends. I would regard it, at best from the point of view of his argument, as ambiguous or obscure. In the absence of any other material, I would assess the argument in favour of the tenant in this case to be stronger than that of the landlord. I consider it is possible to read section 42(4A), in the light of the material referred to above, so that it only applies to a case where the personal representative, seeking to serve a section 42 notice, has to rely on the fact that he is a personal representative and has to rely on section 39(3A) rather than relying on the fact that he is a tenant who has owned the lease for two years and can rely on section 39(2).
- However, the argument as to the meaning of section 42(4A) did not stop there. Mr Radevsky for Ms Villarosa sought to rely on some Parliamentary material which he submitted clearly supported his construction of section 42(4A).
- The rule as to when Parliamentary materials may be referred to as an aid to the construction of a statute was expressed by Lord Browne-Wilkinson in Pepper v Hart [1993] AC 593 at 640 B-D in these terms:
"I therefore reach the conclusion, subject to any question of Parliamentary privilege, that the exclusionary rule should be relaxed so as to permit reference to Parliamentary materials where (a) legislation is ambiguous or obscure, or leads to an absurdity; (b) the material relied upon consists of one or more statements by a Minister or other promoter of the Bill together if necessary with such other Parliamentary material as is necessary to understand such statements and their effect; (c) the statements relied upon are clear."
- I have already explained why I have reached the conclusion in this case that the legislation can be said to be ambiguous or obscure and certainly not clear as contended for by Mr Acton.
- When the Commonhold and Leasehold Reform Bill was introduced into Parliament, it contained clauses which were in the same terms as were later enacted as sections 132 and 142 of the 2002 Act, save that the clauses provided in each case for a period of six months rather than two years. During the passage of the Bill, both of these clauses were amended so that the period of six months was changed to a period of one year. Later still, on 13 March 2002, the Bill was debated again in the House of Commons when the relevant Minister, Ms Keeble, the Parliamentary Under Secretary of State for Transport, Local Government and the Regions moved Government amendments to these clauses so as to change the period of one year to a period of two years. Amendment number 44 related to the clause that became section 132 and amendment number 45 related to what became section 142. Ms Keeble is recorded in Hansard as having said the following:
"It might be helpful to begin with a little background to amendment no. 44, which relates to the right to new longer leases for flats. Under existing law, when leaseholders die, their personal representatives can be left in a difficult position. Their inheritance may consist of a lease that is too short to sell easily, and the freeholder may insist that they pay over the odds for an extended lease. The Bill provides that, when the deceased leaseholder would have qualified for the right to a new longer lease, that right will pass to the personal representatives, but that they will have to exercise that right within a year of the grant of probate or letters of administration. The amendment will extend that period to two years.
Arguments have been made previously for a longer extension, but it is worth noting that, after holding the lease for two years, the personal representatives will qualify for the right to a new longer lease in the normal way, and, for the information of the Hon. Member for Stone (Mr. Cash), clauses 129, 137 and 138 will apply. Personal representatives will no longer need to rely on the special rights granted to them.
Amendment No. 45 makes an equivalent change to clause 141 [which was enacted as section 142], which pertains to the right to a lease extension and the right to enfranchise as it relates to personal representatives of leaseholders of a house.
I commend the amendments to the House. They will make a welcome addition to the rights of leaseholders."
- The amendments were duly passed.
- I consider that this statement by the Minister promoting the Bill is clear as to the relationship between the special provision allowing a personal representative to serve a section 42 notice (by relying on the fact that the deceased tenant had been the owner of the lease for two years) and the general provision (allowing a personal representative to serve a section 42 notice relying on the fact that the personal representative has been the owner of the lease for two years). The special provision was meant to be an additional right for a personal representative and was not to detract from the general right which remained available to the personal representative. There was to be a limitation on the exercise of the special right such that it had to be exercised within two years of the grant of probate or letters of administration but this limitation was not to affect the exercise of the general right. The position was to be same as regards the right to a new lease under Chapter II of Part I of the 1993 Act and the right to acquire the freehold or an extended lease under the 1967 Act.
- Having regard to the arguments considered earlier which led me to the conclusion that the effect of section 42(4A) of the 1993 Act was ambiguous or obscure and in the light of the Parliamentary material, I now conclude that the right construction of section 42(4A) is that the limitation imposed by that subsection only applies to a notice served by a personal representative which relies on the special provision in section 39(3A) and that the limitation does not apply to a notice served by a personal representative which satisfies the general requirement in section 39(2). As a matter of construction of section 42(4A), this result can be arrived at in one or other of two ways. The first way is to construe section 42(4A) as implicitly limited so that it only applies to a notice given "by virtue of section 39(3A)"; this follows the drafting style used in section 6A of the 1967 Act. The alternative way to construe section 42(4A), producing the same result, is to hold that section 42(4A) only applies where the giver of the notice has to rely upon having the capacity of a personal representative (and therefore coming within section 39(3A)) rather than on the fact that he has been a qualifying tenant of the flat for two years (and thereby satisfying section 39(2)).
- Accordingly, I reach the conclusion that the section 42 notice in this case was a valid notice which satisfied the requirement of section 39(2) and was not invalidated by section 42(4A). Accordingly, I will allow the appeal in relation to the first issue.
The second issue
- The second issue concerns the possible application of section 43(3) of the 1993 Act in this case. Section 43(1)-(4) provides:
"43.— General provisions as respects effect of tenant's notice.
(1) Where a notice has been given under section 42 with respect to any flat, the rights and obligations of the landlord and the tenant arising from the notice shall enure for the benefit of and be enforceable against them, their personal representatives and assigns to the like extent (but no further) as rights and obligations arising under a contract for leasing freely entered into between the landlord and the tenant.
(2) Accordingly, in relation to matters arising out of any such notice, references in this Chapter to the landlord and the tenant shall, in so far as the context permits, include their respective personal representatives and assigns.
(3) Notwithstanding anything in subsection (1), the rights and obligations of the tenant shall be assignable with, but shall not be capable of subsisting apart from, the lease of the entire flat; and, if the tenant's lease is assigned without the benefit of the notice, the notice shall accordingly be deemed to have been withdrawn by the tenant as at the date of the assignment.
(4) In the event of any default by the landlord or the tenant in carrying out the obligations arising from the tenant's notice, the other of them shall have the like rights and remedies as in the case of a contract freely entered into.
(5) …
(6) … "
- The critical matters in this case are as follows:
(1) the executors of the deceased tenant executed a TR1 in relation to the lease in favour of Ms Villarosa on 6 April 2016;
(2) legal title to the lease remained with the executors after 6 April 2016;
(3) on 6 June 2016, the executors served the section 42 notice;
(4) on 7 or 8 June 2016, the executors assigned to Ms Villarosa the benefit of the section 42 notice so that the benefit of the notice would pass when the legal title to the lease vested in Ms Villarosa;
(5) on 27 June 2016, legal title to the lease vested in Ms Villarosa and at the same time the benefit of the notice passed to Ms Villarosa.
- Mr Radevsky submitted that, on these facts, the benefit of the notice was assigned with the lease. Mr Acton submitted that, on these facts, the lease was assigned without the benefit of the notice and the notice was therefore deemed to have been withdrawn by the tenant at the date of the assignment of the lease. These arguments require one to consider what is meant by the reference in section 43(3) to the lease being assigned and to the date of assignment of the lease.
- If the lease had been assigned by the TR1 on 6 April 2016, then it would follow that the lease was assigned without the benefit of the notice which had not even been served by that date. Conversely, if the lease was assigned on 27 June 2016, then the lease was assigned with the benefit of the notice and no difficulty arises.
- It was not disputed that legal title to the lease did not pass to Ms Villarosa on 6 April 2016. The TR1 executed on that day resulted in Ms Villarosa having the entire beneficial interest in the lease and having the right, without further recourse to the executors, to apply to the Land Registry to become the registered proprietor of the leasehold title but she only acquired the legal title to the lease on 27 June 2016. The gap between the TR1 and the application by the transferee for registration is usually referred to as "the registration gap" and is well understood in relation to registered conveyancing. It was common ground in this case that during the registration gap, the "tenant" for the purposes of Chapter II of Part I of the 1993 Act remained the executors and that Ms Villarosa was not the "tenant". Thus, during the registration gap, a section 42 notice could be given by the executors and could not be given by Ms Villarosa.
- One case which illustrates the position during the registration gap is Brown & Root Ltd v Sun Alliance Ltd [2001] Ch 733. In that case, a lease was granted to T1. The lease contained a tenant's break clause and the terms of the break clause expressly stated that the break clause would cease to have effect "upon the assignment of the lease" by T1. Title to the lease was registered at HM Land Registry. T1 executed the form of transfer of the lease required under the Land Registration Act 1925 in favour of T2. Thereafter T1 served a notice to operate the break clause. The landlord contended that the lease had been assigned to T2 and the break clause had ceased to have effect. T1 successfully argued that the lease was not assigned to T2 by the execution of the transfer but would only be assigned to T2 upon T2 applying for, and becoming, registered as the proprietor of the lease (which had not occurred).
- Brown & Root concerned the true interpretation of the terms of the break clause in that case. However, the reasoning in that case ought to produce the same result in relation to the references in section 43(3) of the 1993 Act to the lease being assigned and the date of assignment of the lease.
- In this case, at all times up to 27 June 2016, the legal title to the lease and the benefit of the notice were vested in the same persons, the executors. On and after 27 June 2016, the legal title to the lease and the benefit of the notice were vested in the same person, Ms Villarosa. That would seem to be perfect compliance with what is required by section 43(3), namely, that the lease and the notice go together and there is no attempt to separate the one from the other.
- In the event, Mr Acton did not argue that the lease was assigned on 6 April 2016. However, he did submit that the lease was assigned without the benefit of the notice in the sense that the executors were able to sell the lease and receive the purchase price without having served a section 42 notice and, so far as the evidence went, without having undertaken to serve such a notice. He submitted that this infringed the requirement of section 43(3) that the lease was not to be assigned without the benefit of the notice. I am unable to accept that argument. Section 43(3) does not say that a tenant cannot contract to sell the lease prior to the service of a section 42 notice. Nor does it say that a tenant cannot execute a TR1 in relation to a registered lease and accept payment of the purchase price prior to the service of a section 42 notice. Instead the section prevents the lease being "assigned" without the benefit of the notice and it is therefore critical to establish when the lease is assigned and what is the date of that assignment. As Mr Acton accepts that a lease is only assigned, for the purposes of section 43(3), when legal title to the lease passes to the assignee, he cannot avoid a finding in this case that legal title to the lease and the benefit of the notice were vested in the same hands at all times. They were held together by the executors from 6 June 2016 until 27 June 2016 and by Ms Villarosa on and after 27 June 2016.
- The bundles of authorities in this case contained a number of decisions in the County Court and in the High Court which raised various points under the 1967 Act and the 1993 Act arising out of the fact that in registered conveyancing legal title to the registered lease passes on registration of a transfer of the lease and not on the execution of the transfer itself. Some of these cases considered the operation of section 43(3) of the 1993 Act and the equivalent provision in section 5(2) of the 1967 Act. Mr Acton did not submit that any of these decisions supported his submission as to the operation of section 43(3) on the facts of this case. I have read the cases in the bundles and I do not consider that any one of them is contrary to my reasoning. Indeed, those decisions appear to be entirely consistent with my reasoning as to the registration gap and the effect of section 43(3). In those circumstance, it is not necessary to refer specifically to any of these earlier decisions.
- Accordingly, I agree with the Recorder on the second issue and Mr Ryan's challenge to this part of her decision fails.
The overall result
- In the result, I will allow the appeal and set aside the declaration made by the Recorder. I will consider with counsel the terms of a declaration and any other order needed to give effect to my decision and to section 46 of the 1993 Act.
