Howard De Walden Estates Ltd v Les Aggio & Ors [2007] EWCA Civ 499

[2007] EWCA Civ 499

Case No B2/2006/2707 & 1757

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM CENTRAL LONDON COUNTY COURT

(1) HHJ COLLINS CBE (2) HHJ CRAWFORD LINDSAY QC

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Date: 24 /05/2007

Before

LORD JUSTICE MUMMERY

LADY JUSTICE ARDEN

LORD JUSTICE JACOB

Between

HOWARD DE WALDEN ESTATES LTDAppellant

LES AGGIO & ORSRespondent

EARL CADOGAN AND CADOGAN ESTATES LTDRespondent

26 CADOGAN SQUARE LTDRespondent

HOWARD DE WALDEN ESTATES LTD (1) Appellant- and -LES AGGIO & ORS (1) Respondents EARL CADOGAN AND CADOGAN ESTATES LTD (2) Appellants- and –26 CADOGAN SQUARE LTD (2) Respondent

(Transcript of the Handed Down Judgment of

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Judith Jackson QC & Katharine Holland (instructed by Speechly Bircham)

for (1) Appellant

Anthony Radevsky (instructed by Forsters) for (1) Respondents

Philip Rainey (instructed by Pemberton Greenish) for (2) Appellants

Edwin Johnson QC (instructed by Bircham Dyson Bell) for (2) Respondent

Hearing Hearing dates : 27-28 February 2007

Judgment

Lady Justice Arden :

[1]The terms on which people rent their homes raise important issues of social policy. Some occupiers are holders of long leases, which are often expensive to buy. Long leases are by their nature always wasting assets. Successive Acts of Parliaments have increased the rights of holders of long leases as against their landlords. Thus, the Leasehold Reform Act 1967 gave owners of houses the right to purchase the freehold (the right of leasehold enfranchisement) and the right to extend their leases for fifty years. The Landlord and Tenant Act 1987 gave tenants in blocks of flats the right to acquire their landlord’s interest if he wished to sell. The Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) enlarged the protection for holders of long leases in respect of two very important rights: the right of collective enfranchisement, where the qualifying majority of holders of leases in a block of flats wish to buy out the landlord’s interest collectively and the right of individual lease renewal.

[2]Individual lease renewal enables the holder of long leasehold of a flat to be granted a new lease of his flat by the reversioner. When originally enacted, the 1993 Act contained a residence condition, that is to say that the long leaseholder had to show that he had occupied the flat as his only or principal home for the last three years or for periods amounting to three years in the last ten years. However, s 130 of the Commonhold and Leasehold Reform Act 2002 removed this condition. That amendment has opened the door to the exercise of the right of individual lease extension by landlords, often intermediate landlords in a chain of landlords, who hold head leases of premises comprising or including a flat which is not sub-let (other than short term) and common parts. The essence of the principal issue in this case is whether that is the effect of the 1993 Act, as now in force.

[3]That question is essentially one of interpretation of the 1993 Act, but before I set out the critical provisions it would be convenient to describe the system of individual lease renewal in outline. That will provide the legislative context to the critical provisions. I will then set out the background to the appeals in this case. The 1993 Act has been amended on several occasions, but references in this judgment to the 1993 Act are to that Act as now in force, unless otherwise stated. There is one subsidiary issue (which I will call “the deposit issue”) as to whether the judge in the Howard de Walden case should have ordered the tenants to provide a deposit for the grant of the lease extension even though their right to that extension was disputed by the landlord, but I will deal with that matter separately at the end of this judgment.

The system for individual lease renewal

[4]The statutory right of individual lease renewal is a right possessed by a “qualifying tenant” to be granted, on payment of a premium calculated in accordance with sch 13 of the 1993 Act and in substitution for his existing lease, a new lease of his flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease (see s 56(1)). The meaning of the phrase “qualifying tenant” is a matter which I will need to consider in detail below. A qualifying tenant may be a tenant of two or more flats at the same time (s 39(4)). To exercise the right of individual lease extension, the tenant must give an initial notice in accordance with s 42 of the 1993 Act. The notice must be given to the landlord and any third party in the tenant’s lease. The notice must give details of the tenant’s claim, and in particular it must specify the premises, the premium which the tenant proposes to pay in respect of the new lease and the terms of the new lease.

[5]The landlord, on whom the notice must be served, is defined as the person who holds an interest in the flat which satisfies the condition that it is an interest in reversion expectant on termination of the tenant's lease and is either a freehold or leasehold interest whose duration is such as to enable a person to grant a new long lease (s 40(1)). If there are two or more persons who satisfy these conditions, "the landlord" will be the landlord lowest down in the chain of landlords (s 40(2)).

[6]The procedure following the service of the tenant’s notice is set out in ss 45 to 49 of the 1993 Act. On receipt of the tenant’s notice, the landlord can either admit the tenant's right to a new lease, or deny that right (s 45(2)). He can also state in his counter-notice that he intends to make an application to the court for an order that the right of individual lease extension should not be exercisable because he intends to redevelop the premises. If the landlord admits the claim, he must identify which of the proposals in the tenant’s notice he does not accept and set out counter-proposals. If within a period of two months from the date of the landlord's counter-notice admitting the claim, the parties cannot come to an agreement, either party may apply to a leasehold valuation tribunal to have the terms determined. Such an application must be made within six months of the date of the counter-notice. If the landlord does not admit the right of individual lease extension, he must apply to the court for an order that the tenant has no such right. Such application must be made within two months of the counter-notice. If the court dismisses the landlord's application, it will make an order that the landlord’s counter-notice is of no effect and requiring the landlord to serve a further counter-notice. If it accedes to the application, the tenant’s notice will cease to have effect. The 1993 Act also contains provision for the situation where a landlord fails to give a counter-notice, and the situation where a party fails to complete his obligations following service of the tenant’s notice.

Background to these appeals

[7]The appeal in the Cadogan case is concerned with the lease of 26 Cadogan Place, London SW1X OJP. The appellants in that appeal are the freehold owners of the premises, which is a five storey building. The premises, excluding the basement and part of the ground floor, were let pursuant to a head lease dated 26 August 1976 for a term of 65 years from 25 March 1976. The respondent in the Cadogan appeal, 26, Cadogan Square Ltd (“26 CSL”), is now the head lessee. The third to fifth floors are a single flat and the remainder of the premises within the head lease is used as offices. The flat is currently unoccupied. At the date of the notice it was let on an assured shorthold tenancy. There are internal common parts and external areas for parking. These areas are within the head lease. The tenant’s notice was served by Vanmour Ltd (“VL”), then the head lessee of the property but that company has assigned its rights to 26 CSL. When the tenant’s initial notice was served, the offices were either sublet to third parties or vacant and so VL was not in occupation of the commercial portion of the premises for the purposes of its business. Accordingly it did not have the protection of Part II of the Landlord and Tenant Act 1954. Accordingly, the lease was not a “business lease" for the purpose of s 5(2) of the 1993 Act (set out below). The appellant served a counter-notice informing VL that it did not admit that it was entitled to exercise the right of individual lease extension in respect of the flat forming part of the premises.

[8]The appeal in the Howard de Walden case concerns 19 Upper Wimpole Street, London W1G 6LY. This is a single building with five residential flats of which three are let on long leases. The head lease was executed on 6 July 1950 for a term of 62 years. The claim for individual lease extension is made by the head lessee in respect of the raised ground floor flat and subsequently the basement flat, which are not currently sublet. Again there are internal common parts and external areas for parking all of which are included in the head lease. As in the Cadogan case, the landlord has served counter-notices disputing the validity of the tenant’s notice on the grounds that a head lessee is not a qualifying tenant for the purpose of Chapter II of Part 1of the 1993 Act.

[9]In neither case did the head lessee, when serving notice on the owners of the properties of their claim to exercise their asserted rights of individual lease extension, specify precisely what covenants would be required to be given in the new lease.

Relevant provisions of the 1993 Act

[10]The 1993 Act sets out the provisions about individual lease extension in Chapter II of Part 1. The starting point is the statutory statement of the right of individual lease extension in s 56(1) of the 1993 Act, which provides: “56 Obligation to grant new lease(1) Where a qualifying tenant of a flat has under this Chapter a right to acquire a new lease of the flat and gives notice of his claim in accordance with section 42, then except as provided by this Chapter the landlord shall be bound to grant to the tenant, and the tenant shall be bound to accept— (a) in substitution for the existing lease, and (b) on payment of the premium payable under Schedule 13 in respect of the grant, a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease.

(2) In addition to any such premium there shall be payable by the tenant in connection with the grant of any such new lease such amounts to the owners of any intermediate leasehold interests (within the meaning of Schedule 13) as are so payable by virtue of that Schedule.” (b) on payment of the premium payable under Schedule 13 in respect of the grant,

[11]This has to be read with a definition of the expression “flat” in s.101(1) of the 1993 Act. It should be noted that this definition does not define the term “flat” by reference to a demise but by reference to its physical features. For convenience I set out also with the provisions of s 101(1) dealing with “common parts” and s 101(2) dealing with the meaning of “lease” and “tenancy”:

“101 General interpretation of Part I (1) In this Part— … “common parts”, in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it;… “flat” means a separate set of premises (whether or not on the same floor)— (a) which forms part of a building, and (b) which is constructed or adapted for use for the purposes of a dwelling, and (c) either the whole or a material part of which lies above or below some other part of the building;…. (2) In this Part “lease” and “tenancy” have the same meaning, and both expressions include (where the context so permits) – (a) a sub-lease or sub-tenancy, and (b) an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy), but do not include a tenancy at will or at sufferance; and the expressions “landlord” and “tenant”, and references to letting, to the grant of a lease or to covenants or the terms of a lease, shall be construed accordingly.” (1) In this Part— … “common parts”, in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it;… “flat” means a separate set of premises (whether or not on the same floor)— (a) which forms part of a building, and (b) which is constructed or adapted for use for the purposes of a dwelling, and (c) either the whole or a material part of which lies above or below some other part of the building;…. (2) In this Part “lease” and “tenancy” have the same meaning, and both expressions include (where the context so permits) – (a) a sub-lease or sub-tenancy, and (b) an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy), but do not include a tenancy at will or at sufferance; and the expressions “landlord” and “tenant”, and references to letting, to the grant of a lease or to covenants or the terms of a lease, shall be construed accordingly.”

[12]That definition of “flat” does not deal with property enjoyed with the flat, such as a garage. This is dealt with in s 62:

“62 Interpretation of Chapter II (2) Subject to subsection (3), references in this Chapter to a flat, in relation to a claim by a tenant under this Chapter, include any garage, outhouse, garden, yard and appurtenances belonging to, or usually enjoyed with, the flat and let to the tenant with the flat on the relevant date (or, in a case where an application is made under section 50(1), on the date of the making of the application). (3) Subsection (2) does not apply- (a) to any reference to a flat in section 47 or 55(1); or (b) to any reference to a flat (not falling within paragraph (a) above) which occurs in the context of a reference to any premises containing the flat.” (a) to any reference to a flat in section 47 or 55(1); or (b) to any reference to a flat (not falling within paragraph (a) above) which occurs in the context of a reference to any premises containing the flat.”

[13]There are various indications in Chapter II of Part 1 of the 1993 Act that the lease held by the tenant may relate to property other than the flat (even with property taken into account as forming part of the flat). These references are significant to the resolution of the issue on this appeal. One example can be found in s 57, which deals with the terms on which a new lease is to be granted:

“57 Terms on which new lease is to be granted (1) Subject to the provisions of the Chapter (and in particular to the provisions as to extent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date, but with such modifications as may be required or appropriate to take account— (a) of the omission from a new lease of property included in the existing lease but not comprised in the flat; (a) of the omission from a new lease of property included in the existing lease but not comprised in the flat; (b) of alterations made to the property demised since the grant of the existing lease; or (c) in a case where the existing lease derives (in accordance with section 7(6) as it applies in accordance with section 39(3)) from more than one separate leases, of their combined effect and of the differences (if any) in their terms.”

[14]The significance of section 57 is that, while the provisions of s 62 make it clear that the flat can include, for example, a garage, this provision contemplates that a lease of a flat may include other property which is not a flat even within the extended meaning of the term given by s 62.

[15]Another example of an indication that a tenant’s lease can include property other than a flat (or property to which section 62(2) applies) can be found in s 101(3) dealing with references to leases:

“(3) In this Part any reference (however expressed) to the lease held by a qualifying tenant of the flat is a reference to a lease held by him under which the demised premises consist of or include a flat (whether with or without one or more other flats).”

[16]I now turn to the provisions relating to eligibility. S 39 deals with who can exercise the right of individual lease extension. S 39 provides so far as material:

“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; and (b) … (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 the 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.”

[17]The effect of s39(3) is that the term “qualifying tenant” used in s 39 is required to be construed (subject as stated) in accordance with ss 5 and 7, and thus s 39 introduces into Chapter II of Part 1 of the 1993 Act the concept of “qualifying tenant” to be found in Chapter 1 of Part 1. Chapter I deals with the newly-created right of collective enfranchisement. Ss 5 and 7 provide (so far as material) as follows:

“5 Qualifying tenants (1) Subject to the following provisions of this section, a person is a qualifying tenant of a flat for the purposes of this Chapter if he is tenant of the flat under a long lease … (2) Subsection (1) does not apply where – (a) the lease is a business lease; or (b) the immediate landlord under the lease is a charitable housing trust and the flat forms part of the housing accommodation provided by it in the pursuit of its charitable purposes; or (c) the lease was granted by sub-demise out of a superior lease other than a long lease …, the grant was made in breach of the terms of the superior lease, and there has been no waiver of the breach by the superior landlord; and in paragraph (b) “charitable housing trust” means a housing trust within the meaning of the Housing Act 1985 which is a charity within the meaning of the Charities Act 1993. (3) No flat shall have more than one qualifying tenant at any one time. (4) Accordingly— (a) where a flat is for the time being let under two or more leases to which subsection (1) applies, any tenant under any of those leases which is superior to that held by any other such tenant shall not be a qualifying tenant of the flat for the purposes of this Chapter; and (b) where a flat is for the time being let to joint tenants under a lease to which subsection (1) applies, the joint tenants shall (subject to paragraph (a) and subsection (5)) be regarded for the purposes of this Chapter as jointly constituting the qualifying tenant of the flat…. (a) the lease is a business lease; or (b) the immediate landlord under the lease is a charitable housing trust and the flat forms part of the housing accommodation provided by it in the pursuit of its charitable purposes; or (c) the lease was granted by sub-demise out of a superior lease other than a long lease …, the grant was made in breach of the terms of the superior lease, and there has been no waiver of the breach by the superior landlord; (a) where a flat is for the time being let under two or more leases to which subsection (1) applies, any tenant under any of those leases which is superior to that held by any other such tenant shall not be a qualifying tenant of the flat for the purposes of this Chapter; and (b) where a flat is for the time being let to joint tenants under a lease to which subsection (1) applies, the joint tenants shall (subject to paragraph (a) and subsection (5)) be regarded for the purposes of this Chapter as jointly constituting the qualifying tenant of the flat…. 7 Meaning of “long lease” (1) In this Chapter “long lease” means (subject to the following provisions of this section – (a) a lease granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant or by re-entry, forfeiture or otherwise;…”

By virtue of s 5(3) and (4)(a), if there is a chain of tenants, the lowest tenant in the chain is the qualifying tenant. This means that a head lessee cannot be a qualifying tenant if he has granted a sublease. The sub lessee gets the benefit of the right of individual lease extension and there is no residence condition. Section 5(5) and (6), which do not apply to individual lease extension (see s 39(3)), would have prevented a person from exercising the right of individual lease extension if he (or in the case of a body corporate, an associated company) had two or more other flats in the relevant building. By contrast, for the purpose of individual lease extension, a tenant can be the tenant of any number of flats under the same or different leases (s 39(4)).

[18]As already explained, prior to the Commonhold and Leasehold Reform Act 2002, s 39 also provided that the tenant had to satisfy a residence condition, but that has now been repealed. The reason for the repeal is not entirely clear but counsel are agreed that it reflected the view that a lease is a wasting asset and that the marriage value arising on its termination should not belong wholly to the landlord.

[19]Some assistance in resolving the issues on this appeal may be derived from the statutory provisions dealing with the consequences of the exercise of the right of individual lease extension. In particular, s 58 deals with a situation where the prior lease was subject to a mortgage. The new lease is substituted for the prior lease and the terms of the mortgage are not otherwise affected:

“58 Grant of new lease where interest of landlord or tenant is subject to a mortgage Where the existing lease is, immediately before its surrender on the grant of a lease under section 56, subject to a mortgage, the new lease shall take effect subject to the mortgage, in substitution for the existing lease; and the terms of the mortgage, as set out in the instrument creating or evidencing it, shall accordingly apply in relation to the new lease in like manner as they applied in relation to the existing lease.”

[20]Section 58A confirms that, where the prior lease was subject to a mortgage, priorities are not affected, unless otherwise agreed:

“58A Priority of interest on grant of new lease (1) Where a lease granted under section 56 takes effect subject to two or more interests to which the existing lease was subject immediately before its surrender, the lease was subject immediately before its surrender, interests shall have the same priority in relation to one another on the grant of the new lease as they had immediately before the surrender of the existing lease. Subsection (1) is subject to agreement to the contrary…”

Subsection (1) is subject to agreement to the contrary…”

[21]I have referred above to the indications in Chapter II of Part 1 of the 1993 Act that the tenant may under his lease (which he seeks to extend by the exercise of his right of individual lease extension) hold property which does not form part of his flat, even within the meaning of that in s 62(2). The 1993 Act is silent about what is to happen when this property is separated from the flat. It may be appropriate to compare the position here with the provisions in Chapter 1 of Part 1 of the 1993 Act, which go into detail, for instance, regarding the matters to be included in any lease of any part of the premises, which is required to be made back to the freeholder at the exercise of the right of collective enfranchisement. This is dealt with in schedule 9 to the1993 Act as follows: “Covenants by lessor 14(1) The lease shall include covenants by the lessor—(a) to keep in repair the structure and exterior of the demised premises and of the specified premises (including drains, gutters and external pipes) and to make good any defect affecting that structure:

(b) to keep in repair any other property over or in respect of which the lessee has rights by virtue of this Schedule;

(c) to ensure, so far as practicable, that the services which are to be provided by the lessor and to which the lessee is entitled (whether alone or in common with others) are maintained at a reasonable level, and to keep in repair any installation connected with the provision of any of those services. (2) The lease shall include a covenant requiring the lessor— (a) to insure the specified premises for their full reinstatement value against destruction or damage by fire, tempest, flood or any other cause against the risk of which it is the normal practice to insure; (b) to rebuild or reinstate the demised premises or the specified premises in the case of any such destruction or damage”. (a) to keep in repair the structure and exterior of the demised premises and of the specified premises (including drains, gutters and external pipes) and to make good any defect affecting that structure: (b) to keep in repair any other property over or in respect of which the lessee has rights by virtue of this Schedule; (c) to ensure, so far as practicable, that the services which are to be provided by the lessor and to which the lessee is entitled (whether alone or in common with others) are maintained at a reasonable level, and to keep in repair any installation connected with the provision of any of those services. (2) The lease shall include a covenant requiring the lessor— (a) to insure the specified premises for their full reinstatement value against destruction or damage by fire, tempest, flood or any other cause against the risk of which it is the normal practice to insure; (b) to rebuild or reinstate the demised premises or the specified premises in the case of any such destruction or damage”.

[22]There is a curious silence in the 1993 Act as to what is to happen to the covenants in the truncated prior lease if the right of individual lease extension is exercisable by a head lessee. By contrast, where the sub lessee exercises the right, para 10 of schedule 11 recognises the practical need for the covenants in the intermediate lease to be confirmed subject to appropriate modifications, and operates to surrender and re-grant the intermediate lease, thereby keeping the covenant structure in place for the remainder of the term of the intermediate lease. The 1993 Act deems there to have been a surrender and regrant of the prior intermediate lease:

“Deemed surrender and re-grant of leases of other landlords 10 (1)Where a lease is executed under section 56 or 93(4) or in pursuance of any order made under this Chapter, then (subject to sub-paragraph (3)) that instrument shall have effect for the creation of the tenant’s new lease of his flat, and for the operation of the rights and obligations conferred and imposed by it, as if there had been a surrender and re-grant of any subsisting lease intermediate between the interest of the competent landlord and the existing lease; and the covenants and other provisions of that instrument shall be framed and take effect accordingly. (2) Section 57(2) shall apply to the new lease on the basis that account is to be taken of obligations imposed on any of the other landlords by virtue of that or any superior lease, and section 59(3) shall apply on the basis that the reference there to the tenant’s landlord includes the immediate landlord from whom the new lease will be held and all superior landlords, including any superior to the competent landlord. (3) Where a lease of the tenant’s flat superior to the existing lease is vested in the tenant or a trustee for him, the new lease shall include an actual surrender of that superior lease without a re-grant, and it shall accordingly be disregarded for the purposes of the preceding provisions of this paragraph.” (2) Section 57(2) shall apply to the new lease on the basis that account is to be taken of obligations imposed on any of the other landlords by virtue of that or any superior lease, and section 59(3) shall apply on the basis that the reference there to the tenant’s landlord includes the immediate landlord from whom the new lease will be held and all superior landlords, including any superior to the competent landlord. (3) Where a lease of the tenant’s flat superior to the existing lease is vested in the tenant or a trustee for him, the new lease shall include an actual surrender of that superior lease without a re-grant, and it shall accordingly be disregarded for the purposes of the preceding provisions of this paragraph.”

Maurice v Hollow-Ware Products Ltd

[23]The point of law raised by the present appeals was considered by Mr Donaldson QC sitting as a deputy judge of the Chancery Division in Maurice v Hollow-Ware Products Ltd

[2005] 2 EGLR 71

, and the judges in the court below followed his decision.

[24]In Maurice, the landlord owned a block of flats. The head lessee held a lease of all the flats in the block and the common parts. It claimed to be entitled to exercise the right of individual lease extension separately in respect of each of the 28 flats comprised in the head lease, but excluding the common parts. The owner of the block disputed its claim.

[25]The judge found in favour of the head lessee. He placed reliance on s 56(1) of the 1993 Act. He rejected the argument that a head lessee could not exercise the right of individual lease extension, because the existing lease would be left in place in respect of the common parts (in contrast to the position under para. 11 of sch 10) and because (on the owner’s case) there was no provision for the covenants in the existing lease to be modified. It was obvious that, if the leases were separately extended, they would be sold off, and the owner was at risk that the common parts would be left in the hands of a worthless company, who would fail to perform the covenants for the maintenance of the common parts. The judge held that, if there were any difficulties with covenants, this could be avoided by negotiation. The judge held that the rent could be apportioned at common law. Such was the state of the law when these two cases came before the Central London County Court.

Judgments below

[26]In the Cadogan case, HHJ Crawford Lindsay QC, giving judgment on 19 July 2006, decided that as the Chancery Division of the High Court and the County Court were courts of co-ordinate jurisdiction when hearing applications under Part I of the 1993 Act, he was not bound by the Maurice case, but that he should, as a matter of judicial comity, follow the decision in that case, unless he was satisfied that it was wrong. He accordingly heard argument. Much of that argument has also been canvassed before this court. As the cases are now on appeal to this court, nothing turns on the approach of the judge to the doctrine of precedent. However, this court proposes to hand down a second judgment holding that that approach was wrong under the doctrine of precedent.

[27]Likewise, in the Howard deWalden case, HHJ Collins CBE on 14 December 1996 adopted the same approach as HHJ Crawford Lindsay QC, save that he did not hear oral argument. He too decided to follow the decision in the Maurice case. Discussion and conclusions on the question whether a head lessee can exercise the right of individual lease extension

[28]Before I set out the arguments and express my conclusions on them, it would be convenient to reflect on the type of problem that this case presents. It is not the usual case of statutory interpretation. In the normal situation, the court is given a factual paradigm and asked whether it falls within a particular identified statutory provision. This case is not of that sort, and it pushes at the boundaries of usual statutory interpretation. There is no express statutory reference to head leases in Chapter II of Part 1 of the 1993 Act. (There are references to intermediate leasehold interests and significantly this is in the context of the premium or compensation which the person exercising the right of individual lease extension has to pay: s 56 and sch 13, part II and III). I have referred to a large number of individual provisions in that Chapter or incorporated into it, which may or may not indicate that head lessees are treated like other tenants. (There are also references to sub leases and under leases (see ss 59, 61, sch 14, paras 3 and 6) but so far as I can see they do not assist in determining the issue before us.) Thus the court is faced with a very incomplete picture. It is like looking at the sky on a starry night, and trying to decide whether one is in fact looking at Orion's Belt, or some other constellation or indeed whether one of the stars is just a satellite. It is as if the court had been presented with a number of pieces of the jigsaw and was being asked to guess what picture the rest of the jigsaw would show if the other pieces were available, always remembering that there may not be any other picture at all in reality. The statute has simply given a number of unclear indications. The question is whether, like the ingredients in the alchemist’s brew, those indications are inert or whether they will combine so as, so far as head lessees are concerned, to turn everything to gold.

[29]The clues available in this exercise in statutory interpretation are opaque, sparse and somewhat distant. It is relevant in this situation to ask whether the court can pull back the veil and roll back the years to see what Parliament actually intended when it debated and passed this legislation. There are constitutional and other objections to using legislative history when determining questions of statutory interpretation, but it can be used in certain defined situations. We are invited to look at the legislative history in this case, and I will refer to the relevant passages below.

[30]In a case of statutory interpretation, where there is no precise phrase directly in point but simply a number of opaque, sparse and distant clues, it is in my judgment helpful and appropriate to take account of the genre of statute with which one is dealing. Some statutes are very precise, but expressed in abstract terms. This is often the case with taxing statutes. At the other end of the spectrum, some statutes are expressed in open textured terms, which call for consideration of the principles involved. An example of such a statute would be the Human Rights Act 1998. Some statutes are in general very prescriptive in their approach, such as the Companies Act 2006, which is said to be the longest Act ever passed by Parliament. There are many other different types of statute, but the 1993 Act is not like either of the two types of statute first mentioned. It is, for the large part, very precise and detailed: see, for example, ss 57(1), 58 and 58A set out above. There is a practical reason for this. Statutes in the field of landlord and tenant have to be used by landlords and tenants of different means. Some may have ready access to the best legal advice. But some, particularly tenants of residential property, may be unable to spend large sums on taking legal advice and will need to find the answers to the practical problems that arise in the statute itself. Because of the wide-ranging nature of property interests, a statute will inevitably be detailed. This argument is developed by the further arguments considered in para 37 below.

[31]When, in the case of a statute whose provisions are generally detailed, the court is looking at a particular statutory provision that is ambiguous, and especially when it is looking at a statute which provides an incomplete answer to the question whether it applies in a particular situation, the fact that the statute is generally detailed is a factor to be taken into account. In this case, the statute has provided a detailed solution to many other problems. In other words, the lack of a specific statutory solution in this sort of statute for the situation under consideration may be conspicuous, or noteworthy, by its absence. It may be one of the factors that lead the court to the conclusion that on its true interpretation it does not apply in that situation.

[32]I now turn to the arguments addressed and my conclusions. In short I have concluded for the reasons set out below that head lessees do not have the right of individual lease extension conferred by Chapter II of Part 1 of the 1993 Act.

[33]The principal argument advanced by the appellants (which I will call “the integrity of the covenants argument”) is that the Act makes no provision for the separation of the existing lease into several different parts. It would require to be substantially rewritten to create a new scheme of covenants for use of the common parts. This indicates that Parliament could not have intended that a head lessee should have the right of individual lease extension. Moreover, the extension is effected by a substitution (or, where there is an intermediate landlord, a surrender see s 56(1), and para. 10 of schedule 11 to the 1993 Act) of the old lease and the grant of the new lease. There are references to the inclusion of other property in the lease because the tenant exercising his right of individual lease extension may have another flat within the same lease which he cannot afford to extend.

[34]It is not necessary to the appellants’ case but they submit, in the alternative to their primary case, that this means full substitution and that the “rump” of any prior lease is extinguished (“the complete extinction argument”). If that is right, there is no question of covenants affecting the “rump” property being severed from those replaced by the new lease of the flat. The only jurisdiction given to the leasehold valuation tribunal is to determine the terms of the new lease (s 91(2)). S 56 provides that the new lease will be "in substitution for" the existing lease so the existing lease ceases to exist. I would observe that this interpretation of s56 was not accepted in Maurice. In that case, Mr Donaldson QC accepted that the substitution could be partial.

[35]The appellants further point to the fact that it is not clear on the authorities whether the rent would be apportioned or whether the tenant would, on the new lease being granted, become liable for all the rent payable under the prior lease, even though the premises demised by the new lease were less than those demise by the prior lease. I call this “the apportionment of rent argument". The appellants submit that the apportionment of rent may be possible at common law, but that should not disguise the fact that there is no machinery for effecting any such apportionment in the 1993 Act so that the parties would be left to litigate the issue by separate proceedings. Those proceedings would probably have to be heard in the High Court regardless of the value of the premises in question as they would involve the exercise of an ancient common law jurisdiction (as to which see Woodfall’sLaw ofLandlord and Tenant, para 7.119, which refers to cases from 1598 and 1607). On the appellants’ submission, there is a risk that the original tenant remains liable to pay the whole of the rent because the surrender of part of the premises under the prior lease would amount to apportionment in respect of the estate. Reference is made to Woodfall at 17.043 and 17.047 citing Baynton v Morgan

(1888) 22 QBD 74

affirming 21 QBD 101. On this scenario, there would be a risk that the original tenant would seek an indemnity from the current tenant. This would be inconsistent with s 56(1) which provides for the rent under the new lease to be at a peppercorn rent.

[36]On the appellants’ submissions, the provision for modification of the prior lease is wholly inadequate to deal with the problems that arise. I call this “the silence on rights over the common parts argument”. The argument is that it is significant in statutory interpretation terms that Parliament has not provided for the extensive modifications that may be required to the existing lease. Where (for example, and this is my example based on the appellants’ submissions) the head lease comprises one flat on each floor of a single building, and the right of individual lease extension is exercised by the head lessee in respect of a flat on the 20th floor, the only modifications permitted to the covenants in the head lease by s 57(1)(a) are those which are required or necessary because the property demised other than the flat on the 20th floor is being excluded. The obligations in the head lease may be inappropriate to a tenant of an individual flat (such as an obligation to carpet the common parts). Furthermore, the tenant under the new lease will not be the tenant of the common parts, and so he clearly needs the right to use (say) the staircase or lift up to the 20th floor, but there could be considerable argument about the terms on which he should be allowed to do. However, the term of the head lease is not automatically re-granted like the term of an intermediate lease when para. 10 of sch 11 applies. (I call this "the intermediate lease argument"). Accordingly, the owner of the freehold would have to grant rights over the common parts for the period after the head lease falls in. The tenant would also need rights against the head lessee with regard to the maintenance of the lifts and staircase. The 1993 Act makes no provision for this. The freehold owner of the building could not grant them for the residue of the term of the head lease because he has no right to enter the property for that purpose so long as the head lessee is complying with his covenants. The building is no longer the subject of a coherent leasehold position where the individual flats are all held on subleases from a head lessor, but a patchwork in which some are held directly from the owner of the freehold reversion while others are held on sub tenancies from the head lessee. I call this “the patchwork argument”.

[37]The appellants also submit that the 1993 Act should be interpreted as not conferring a right of individual lease extension on head lessees because that would interfere with the landlords’ rights under article 1 of the first protocol to the European Convention on Human Rights ("the Convention”). I will call this submission the appellants’ “article 1 of the first protocol argument”. Art I of the first protocol to the Convention provides:

“Article 1 -- Protection of property Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. ”

[38]The argument here can be put in several ways, but the essential point being made is that if a head lessee can exercise the right of individual lease renewal, the owner of the freehold will be seriously disadvantaged. This is because, once the new leases are sold, there will no longer be a head tenant between the owner and the tenant of the flat and the 1993 Act does not provide a system for setting up a scheme of covenants with respect to the common parts such as existed in the prior lease. The 1993 Act, it is said, is disproportionate in its effect on landlords. There is no legitimate aim. If the 1993 Act on its ordinary interpretation applies to head leases, the provisions regarding the terms of the new lease are so vague and unsatisfactory that they lack the quality of law for the purposes of the Convention. Therefore, the court should interpret the provisions of the 1993 Act so that a qualifying tenant does not include the head lessee.

[39]The parties have not sought to deploy any evidence as to any diminution in value as a result of the absence of appropriate covenants. The respondents for their part say that the individual lease renewal of flats within headleases has not hitherto caused any particular problem. But there is no evidence to support that assertion either. The respondents also say that, in fact, the owners could be compensated under para.5 of sch 13. Sch 13 deals primarily with the calculation of the premium payable on exercise of the right of individual lease renewal. It is not necessary to set out the complex provisions of sch 13 other than to note that they include provision for the owner to be compensated in damages for any damage to the reversion as a result of the exercise of the right of individual lease extension and this supports the respondents’ case in so far as the appellants’ case rests on the absence of appropriate compensation:

“5(1) Where the landlord will suffer any loss or damage to which this paragraph applies, there shall be payable to him such amount as is reasonable to compensate him for that loss or damage. (2) This paragraph applies to- (a) any diminution in value of any interest of the landlord in any property other than the tenant's flat, which results from the grant to the tenant of the new lease; and (b) any other loss or damage which results therefrom to the extent that it is preferable to the landlord's ownership of any such interest.”

[40]Miss Jackson also submits that the grant in favour of the tenant entitled under the new lease by the freehold owner of covenants to maintain the common parts to take effect on termination of the head lease, if that has more than twenty-one years to run, would be void, by virtue of the rule against perpetuities to be found in s149(3) of the Law of Property Act 1925. I will call this "the perpetuities argument". S 149(3) is in the following terms:

“(3) A term, at a rent or granted in consideration of a fine, limited after the commencement of this Act to take effect more than twenty-one years from the date of the instrument purporting to create it, shall be void, and any contract made after such commencement to create such a term shall likewise be void; but this subsection does not apply to any term taking effect in equity under a settlement, or created out of an equitable interest under a settlement, or under an equitable power for mortgage, indemnity or other like purposes.”

[41]The respondents’ response to this argument is that s149(3) does not present a problem provided that in the new lease the freehold owner creates rights which are immediately vested in interest in reversion, even though they cannot vest in possession until the termination of the head lease. Alternatively, the “wait and see” principle in ss3(4) of the Perpetuities and Accumulations Act 1964 would apply (as to this principle, see generally paras 4.37 to 4.46 of The Rule against Perpetuities and Excessive Accumulations, (1998) Law Com. No. 251). They submit that the lease would represent a concurrent lease, which would take effect immediately, subject only to the existing head lease. Miss Jackson submits that this is no answer as the freehold owner does not have title to grant any rights prior to termination of the head lease. She further submits that, since the new lease will be granted to the head lessee, he cannot grant rights in favour of himself: see Rye v Rye

[1962] AC 496

. In any event, the rights against the head lessee would terminate on the termination of the head lease. The freehold owner could only grant rights for an interest equivalent to a term of years absolute and this would offend s 149(3) of the Law of Property Act 1925 (set out above). Alternatively, the “wait and see” principle might be used but the rights would have to vest in possession within 21 years. Otherwise the perpetuity period would have to be specified but this could not be more than 80 years (the maximum permitted by Perpetuities and Accumulations Act 1964).

[42]The respondents’ further riposte is of course that there is not likely to be a problem in practice as the head lessee will not be able to market the new lease unless he provides adequate covenants to the purchaser to put him in the position of a conventional subtenant. I call this the "solution by negotiation argument”. In my judgment that riposte overlooks a problem of timing. How can the court or the leasehold valuation tribunal determine what covenants are necessary or appropriate in the new lease if the position as to the rights against the head lessee has not been settled?

[43]The principal argument advanced by the respondents is that it is quite clear that Parliament envisaged that a tenant could exercise the right of individual lease extension even though his lease included other property. I call this argument “the clear references to other property argument". This, they submit, permits and requires references to the tenant of a flat to include a head lessee. On the respondents’ approach, the difficulties of the separation of the flat from other premises contained in the head lease are overstated. The fact that the flat is defined by reference to physical features, and not by reference to the demise of a flat in a lease, provides some support for the decision in the Maurice case. Likewise, the respondents submit that there is no difficulty with rent apportionment. This must be one of the modifications required by s 57(1) (a).

[44]I now come to my conclusions. Although it was argued before HHJ Collins CBE that Parliament must have envisaged that nothing would be left in the lease when the right of individual lease extension was exercised, it is clear that this is contrary to what Parliament envisaged. As explained above, there are several indications in Chapter II of Part 1 of the 1993 Act that Parliament expressly contemplated that a tenant exercising the right of individual lease extension might have a lease which included some property other than the flat (or rights exercised in conjunction with it) in respect of which the right of individual lease extension was being exercised. One of the clearest is in section 57(1)(a) set out above.

[45]There has been argument as to whether s 101(3) provides to the contrary on the basis that the words in parenthesis (“whether with or without one or more other flats”) constitute words of limitation, which restrict all references in Part 1 to leases to leases which comprise only flats. In my judgment, this interpretation does not give any weight to the words in parenthesis. They qualify not only the previous words "consist", but also the words "or include". That means that the words in parenthesis cannot restrict leases in the way suggested. There is perhaps some doubt as to why the draftsman thought it necessary to include the words in parenthesis, but it may have been because of the limitation on the number of flats which a qualifying tenant could hold if he wished to join in collective enfranchisement. So I conclude that a lease under Chapter II can include property other than a flat. It would be wrong for the courts to ignore the language Parliament has used in that respect.

[46]In reaching that conclusion, I have not overlooked that the somewhat obscure provisions of s 62(3)(b) (set out above) appear to apply to section 101(3) but nothing turns on that point. If s 62(3)(b) applies, the appurtenances referred to in s62(2) are not included but s101(3) only requires the lease held by a qualifying tenant to “include” the flat, and that naturally permits a lease in which appurtenances are also included.

[47]So the position now arrived at is that the 1993 Act contemplates that the lease of the flat may include other property. In Maurice, Mr Donaldson QC took the view that that was enough for the head lessees to succeed provided that rent could as he held be apportioned and the covenants determined. But Mr Donaldson QC did not have to consider “the integrity of the covenants argument” or the related arguments discussed above in the detail to which they have been argued before us.

[48]In my judgment, the "other property" argument is compelling but not conclusive. It does not necessarily mean that the right of individual lease extension is conferred on the head lessees. There are other situations for which some provision dealing with property which does not constitute part of the flat may be needed. In particular, the tenant exercising his right may have more than one flat and may wish to exercise a right in respect of one flat only. He may not be able to afford to extend the lease of the other flat. Moreover, as Mr Philip Rainey, for the appellants in the Cadogan case pointed out, the property in the parcels clause of the tenant’s lease may include property which was originally in the lease but has since been excluded, for example as a result of assignment of part. Likewise, s 39(7) provides that the landlord can require the exception of minerals. This too is another reason for the inclusion in the lease of a flat of property which does not form part of the property in the new lease.

[49]In my judgment, the more compelling point is that if Parliament had considered that head lessees could exercise the right of individual lease extension it would surely have made provision for the tenant under the new lease to be in the same position, as respects the head lessee, as he would have been if the lease to the flat had been in separate ownership before the exercise of the right. Consequent on the exercise of the right, a new lease will be executed. But, as to the covenants respecting the common parts, the holder of the new lease will be expected to negotiate with the holder of the head lease for rights to use those common parts. In my judgment that is not a solution at all. The respondents assert that negotiations have been successfully concluded in many cases. There is simply no evidence of that, but even if there were it would not alter the point that it is not usual to have a complex legislative scheme dealing with real property where essential elements in a transaction required to be carried out have to be left to negotiation. Furthermore, if Parliament had intended such a radical alterations to the covenants in the head lease, it would surely have given some indication of that in s 57(1) and would not have used a word such as "modifications". Modifications is not a word which envisages the type of remodelling and supplementing of covenants involved here.

[50]Mr Donaldson QC held that, if the head lessees failed to comply with its covenants, the freehold owner could always forfeit the lease of the common parts. But this is the owner’s “nuclear option”. Parliament could hardly have expected the owner to go into the new lease with that in mind. Furthermore, once the head lease has fallen in, the landlord will be in the position of the head lessee and will have to give covenants over the common parts to the holder of the lease granted on exercise of the right of individual lease extension. That puts him in a completely different position vis-a-vis tenants of flats from that in which he would have been immediately before the exercise of the right of individual lease extension. The owner would end up with a patchwork of relationships: some relationships with the tenants of flats would be indirect through the head lessee and some would be direct as a result of the exercise by the head lessee of the right of individual lease to extension respect of flats within the head lease.

[51]An owner of property who receives a notice from a tenant of exercise of his right of individual lease extension may well ask how the exercise of the right will affect him. The 1993 Act provides the answer to this question in s 57(1): the new lease will in principle be on the same terms as the existing lease. Specific provision is made for modifications if the new lease is to exclude any property or if the new lease has to be amended to take account of alterations since the lease was executed or if the lease is to combine several existing leases. S 57(6) (not set out above) provides for further modifications by agreement. It also provides that terms can be “excluded or modified” where it is necessary to remedy a defect in the existing lease or where it would be unreasonable to include the term in the existing lease in view of changes which have occurred since the date of the lease. S 57 continues by making specific provision (not set out above) for the payment of service charges to the landlord, the continuance of collateral agreements and the exclusion of rights of renewal. Nothing is said about the payment of service charges to anyone else and the changes envisaged by s 57 are quite specific and fall within particular descriptions. The owner who asks what changes will occur to the existing lease will not find any suggestion in the 1993 Act that they need to be as radical and far-reaching as they would need to be if the respondents are right.

[52]Another factor is the absence of any mechanism for determining the curtilage of a flat. Miss Jackson submits that a flat must be capable of definition "within the four corners of the lease" (“the flat curtilage argument”). On this basis the head lessee could not serve a notice in respect of a set of premises which was not defined as a flat in the head lease and whose boundaries he had himself carved out of the premises within the head lease. I agree that the 1993 Act proceeds on the basis that the curtilage of the flat is known. But, where the flat has not previously been the subject of a lease entered into between the freehold owner and the head lessee, those parties may not previously have agreed on the curtilage of the flat. The fact is that the freehold owner may not have had to agree the boundaries of the flat before. They may differ as to where the boundaries should lie. In argument, we were told that the landlords in these cases have a policy of defining flats by reference to the outer surface of the walls of the flat. The head lessee may have a different policy. There may also be a disagreement as to precisely what part of the premises demised by the head lease should be included in the tenancy of the flat. But the 1993 Act provides no system for resolving this difference between them. Accordingly it does not indicate how the curtilage of the flat is to be ascertained or what criteria are to be applied. This is another potential indication that head lessees are not entitled to exercise the right of individual lease extension in the circumstances in this case.

[53]In the course of argument on these appeals, counsel took the case of a head lease of a large property, such as a factory, which happens to have a caretaker's flat within it. If the respondents on these appeals are right, the owner might be surprised to find that he can be compelled to grant a extension of the lease of the flat even though the flat has not previously been the subject of a separate lease between the parties at all. That example highlights another oddity brought to light by the apportionment of rent argument. S 57 provides for property included in the existing lease to be omitted from the new lease but makes no provision for the rent payable under the existing lease to be apportioned as between the residual lease and the new lease. One response to this is the appellants’ complete extinction argument. As to that argument, in my judgment, the expression on which this argument is largely founded, namely the expression "in substitution for" in s 56 is capable in this context of meaning wholly or partly in substitution for. Since the 1993 Act specifically envisages that a tenant of a flat may have other property within the same lease which has to be omitted under section 57, and because there would be no justification for the tenant losing his rights in respect of the property, my view is that the words "in substitution for" must, as Mr Donaldson QC held, mean partial substitution where property is to be omitted. But that interpretation makes it necessary for the tenant exercising his right of individual lease renewal and the landlord to agree how the rent reserved by the existing lease is to be apportioned. It is curious that the 1993 Act makes no provision for apportionment (although it may be that section 56(3)(c) assumes that it will take place by agreement). This is all the more curious when one sees that in s 57(5) provision is made for apportionment where the tenant continues in occupation under the existing lease before the new lease is granted. There is, moreover, a statutory precedent for the apportionment in s 3 of the Landlord and Tenant Act 1954. This provides that, if the premises qualifying for protection are not all the property comprised in a tenancy, the tenancy has effect in relation to the protected premises only and "at a rent to be ascertained by apportioning the rent payable before the term date as between those premises and the remainder of the property”.

[54]A problem of apportionment may arise whether the lease in respect of which the right of individual lease extension is exercised is a head lease or not. But it is likely to be greater in relation to a head lease since that is likely to cover extensive other property. The common law may make adequate provision for apportionment (though the draftsman of the Landlord and Tenant Act 1954 seems to have taken a cautious approach if that is so). In that event, a provision for apportionment of the rent payable under the new lease would be a modification within s 57(1). But the power of modification is restricted to the terms to be inserted in the new lease. No provision is made for relieving the tenant of rent under the “rump” lease.

[55]Other examples can be given of where the 1993 Act simply does not sit easily with the concept of the exercise of the right of individual lease extension by a head lessee. S 5(3) and (4) provide for the qualifying tenant to be the lowest in the chain. This points away from the head lessee although he could qualify if no sublease had been granted. S 7(6) (not set out above) makes specific provision for the case where the tenant of a single flat holds his flat and/or appurtenant property by virtue of more than one lease. S 39(4) makes specific provision for the tenant who has more than one flat. The provisions of ss 7(6) and 39(4) are curious if head lessees are automatically included as qualifying tenants in any event. S 57(4) provides that a right of renewal in the existing lease will be excluded from the new lease but it does not say whether it will continue to attach to the rump lease and it is difficult to see how it can be exercised without modification of the terms of the existing lease, for which there is also no provision. There is apparently no provision for the continuance of a guarantee of the covenants in the existing lease, which may under the general law be discharged by the grant of the new lease (see, for example, Holme v Brunskill

(1877) 3 QBD 495

). Where the property was mortgaged, s 58(4) provides for the substitution as security of the new lease. This suggests that any security over the existing lease will fall away. Parliament therefore gave little consideration to the problem of substantial property remaining within the existing lease. This is in contrast to the detailed protection given to mortgagees of the landlord’s interest in sch 2 (not set out above) when the mortgage has become enforceable. Accordingly, Parliament clearly had in mind the interests of mortgagees in that context.

[56]As to the perpetuities argument, I am prepared to assume, in favour of the respondents that they are correct in saying that the freehold owner could grant a concurrent lease of rights over the common parts in the new lease granted on exercise of the right of individual lease extension. However, this answer does not enhance the respondents’ case. On the contrary, the solution is artificial and cumbrous. It is also uncertain and potentially imposes an unfair burden on the owner. Firstly, there may be no model of the appropriate covenants since, if the head lessee can exercise the right of individual lease renewal, there may be no pre-existing lease of any flat in the building, because there was no separate flat prior to that exercise. If there were pre-existing leases of flats which can be used as model leases containing model covenants over the common parts, those provisions were arrived at in agreements to which the freehold owner has never been a party and has therefore never been free to say whether he accepts them or not. On that basis, the legislation would be potentially unfair. Accordingly, it by no means follows that simply because the freehold owner could grant certain rights over the common parts by replicating the rights in some other document that the respondents have really provided an answer which is persuasive on the issue in this case. On the contrary, their response to the perpetuities argument, in my judgment, serves to underscore the point that the 1993 Act does not have the appearance of legislation conferring rights of individual lease renewal on head lessees.

[57]Both parties have relied on legislative history. We have been asked to admit a passage from the speech of the Minister (Sir George Young) reported in Hansard when the bill which led to the 1993 Act was being debated in Parliament. The passage in question is said to make it clear that a qualifying tenant need not hold the lease of simply one flat. In my judgment, the extract is not admissible, because the statement was made when the House of Commons was considering provisions of the bill dealing with enfranchisement. The statement was in any event made before the residence condition was removed. The statement was made by the Minister when accepting a private member's amendment. While the point does not now arise, I do not consider that the fact that the statement was not made on a government amendment would of itself have affected its admissibility.

[58]The second passage from Hansard which was relied on was a statement made by the Lord Chancellor, Lord Falconer of Thoroton, when the House of Lords was considering the bill which subsequently became the Commonhold and Leasehold Reform Act 2002. The significance of the statement is that it states that a head lessees cannot enfranchise under the 1993 Act. In my judgment, this statement is also inadmissible because the statement was again made with reference to the right of enfranchisement and not the right of individual lease extension.

[59]The parties cited a number of cases, with which I can deal shortly, because none of them is directly on point. In Ruddy v Oakfern Properties Ltd

[2007] 1 All ER 337

, this court held that an intermediate lessee who was a tenant of the building comprising a number of dwellings and the common parts fell within the definition of “tenant of a dwelling” in s 18(1) of the Landlord and Tenant Act 1985. The legislation in question concerned service charges and the issue was whether the lessee was outside the statutory definition because he was not only a tenant of a dwelling of other property too. Jonathan Parker LJ with whom Pill and Moses LJJ agreed rejected that contention. As I have explained, the question whether a qualifying tenant under the 1993 Act can be the tenant of a flat and other property is an issue in this case, but it turns on the provisions of the 1993 Act and is not in any event the determinative issue in this case. The next case is Heron Maple House Ltd v Central Estates Ltd

[2002] 1 EGLR 35

, a decision of HHJ Cooke. The judge came to the same conclusion on the definition of "tenant of dwelling" in the same Act, and his conclusion was cited with approval by this court in the Oakfern case. We were referred to two further cases, namely Crean Davidson Investments Ltd v Cadogan

[1998] 2 EGLR 96

and Cadogan v Search Guarantees plc

[2004] 1 WLR 2768

. In the former case, it was conceded that a head lessee could be a qualifying tenant. In the latter case, it was conceded that a lessee was a qualifying tenant for the purpose of the Leasehold Reform Act 1967. As both cases turn on concessions, they are not of assistance.

[60]So this case largely moves in uncharted territory. The conclusion to which I have come is that the expression "qualifying tenant of a flat" appearing in Chapter II of Part 1 of the 1993 Act refers to a tenant of the flat who at the time of exercising the right of individual lease extension is a tenant of that flat and that flat alone (whether under one or more leases), unless section 62(2) applies or the other property comprises another flat in respect of which the right is not then being exercised or constitutes property for which specific provision for its exception is made, as in s 39(7). In my judgment, this conclusion is not inconsistent with s 101(3). The expression “flat” in that provision does not include appurtenances because of the provisions of s 62(3)(b). The draftsman was therefore correct to refer in s 101(3) to demised premises which “consist of or include the flat”.

[61]This approach avoids the difficulties to which exercise of the right of individual lease extension by a head lessee gives rise as explained above. Those difficulties are so extensive, and the failure in this otherwise very detailed legislation to address those difficulties is so remarkable, that the proper inference is that the 1993 Act does not apply in that case. This approach also provides a further reason why Parliament found it necessary to provide in s 39(4) for the situation where a person has more than one flat. My interpretation does not involve disregarding any provision in the 1993 Act; it merely involves a practical interpretation of the provisions and a refusal to apply a generous interpretation which might well have been appropriate if it had been demonstrated that this was the clear purpose of the legislature. It takes account of the fact that Part 1 of the 1993 Act is a set of statutory provisions which approach the matters with which it deals with considerable specificity, (and this ties in with the point which I made at para 32 above). Following from my interpretation of the phrase “qualifying tenant of a flat”, cognate expressions such as “lease of a flat”, should be similarly interpreted.

[62]In light of the conclusion reached above on statutory interpretation, it is unnecessary to decide the article 1 of the first protocol argument. In the light of the decision of the European Court of Human Rights in James v the United Kingdom

[1986] 8 EHRR 123

, it would be difficult to argue that the principle of individual lease renewal violates the rights conferred by article 1. However, my provisional view is that, had I come to a different view on statutory interpretation, careful consideration would have to have been given to Miss Jackson's argument that the provisions regarding the terms on which the new lease was to be granted by the freehold owner in respect of a flat forming part of the property within the head lease did not satisfy Convention requirements as to the quality of law. As Lord Hope held in R (Gillan) v Commissioner of Police for the Metropolis

[2006] 2 AC 307

at [52]: “These requirements [requirements of the Convention as to the quality of the law in question] are based on the principle that any restrictions on the rights and freedoms of the individual must be prescribed by law in a way that is sufficiently accessible and sufficiently precise to enable the individual to foresee the consequences."

[63]The 1993 Act would have failed to set out with any degree of precision important terms of that lease as against the owner, or provide any mechanism for determining them in default of agreement. It would also have failed to make essential provision for the rights of the tenant against the owner for such matters as use of the common parts. The provisions dealing with individual lease renewal if the respondents were right were in sharp contrast to the very specific provisions applying on collective enfranchisement (see for example ss 34 and 36 of the 1993 Act) (not set out above).

[64]At the end of the day, the argument is not a teleological one that the provisions of the 1993 Act demonstrate that Parliament must have intended that the Act should or should not benefit head lessees. Rather, this is a case where the provisions are opaque. The argument against my conclusion is essentially that it is not enough to conclude that the 1993 Act shows that Parliament did not intend that head lessees should be covered. If the provisions are sufficiently wide to include head lessees, then it is no answer to say that Parliament did not expressly intend this. But the provisions (especially in relation to the other property within the lease in respect of which the right of individual lease extension is exercised) are, as I have explained above, not necessarily that wide and the results of the 1993 Act, if the head lessees can benefit from the right of individual lease extension, are so striking in the burdens they impose on owners, as to call for a different approach. In my judgment, the more intrusive the statute is on the rights of the citizen, the clearer the wording of the statute has to be to authorise that intrusion. In this case, the language is ambiguous and the effect on the rights of the freehold owners is considerable. There is no specific indication in the 1993 Act as to whether or not the right of individual lease extension is to be available to head lessees. In my judgment, in that situation, it is consistent with our constitutional traditions and also with section 3 of the HRA that the statute should not be given the interpretation that the head lessees seek unless that is the clearly expressed intention of Parliament. I would emphasise that in terms of statutory interpretation, the type of issue raised by these appeals is likely only rarely to occur. I recognize of course, that not only the owners but also the head lessees have property rights. But the head lessees have no right to individual lease extension, unless that is given by this very Act. That right therefore cannot be asserted as a property right, demanding the same respect as the pre-existing property rights of the owners. In my judgment, for all the reasons given above, the 1993 Act does not clearly confer on head lessees the right of individual lease extension. The provisions are readily capable of another interpretation. In those circumstances, I conclude that the 1993 Act does not, on its true interpretation, provide the head lessees with the right of individual lease extension.

[65]I would summarise the headline points on the various arguments addressed to us as follows:(1) the clear references to other property argument. This is the argument that there is clear statutory recognition that the lease held by tenant exercising the right of individual lease extension may include property other than a flat. I agree with this point, so far as it goes, but I do not accept that the other property includes the common parts held by the head lessee. It is capable of referring to other property held by the tenant of a flat in the sense I have interpreted that term, for example a second flat owned by him in the same block of flats.

(2) the complete extinction argument (the argument that the statutory substitution of the new lease on the existing lease in s 56 results in the extinction of the old lease) I agree with the respondents’ response that there is no justification for treating the “rump” lease as extinguished when the new lease is granted on exercise of the right of individual lease extension.

(3) the apportionment of rent argument (the argument that it is significant that the statute makes no provision for the apportionment of rent for the residual lease remaining after the grant of the new lease) I agree that it may be possible for rent to be apportioned at common law but find the omission of a provision for apportionment curious if head lessees were likely to be qualifying tenants.

(4) the integrity of covenants argument (the argument that the 1993 Act makes no provision for the separation of the existing lease into several parts) I consider that the appellants’ argument on this and (5), (6) and (7) below (which are connected and to some extent overlap) mean that the court has to find clear indications in the 1993 Act if the head lessees are to be qualifying tenants entitled to exercise the right of individual lease extension. The absence of the detailed provisions found elsewhere in Chapter II is significant.

(5) the silence on rights over the common parts argument (the argument that it is significant that Parliament has not provided for the extensive modifications that may be required to the existing lease) See under (4) above.

(6) the intermediate lease argument (the absence of any comparable statutory extension of the intermediate lease with the result that the owner has to grant rights for the period commencing with the determination of the intermediate lease) See under (4) above.

(7) the patchwork argument (the effect of individual lease extension in the case of individual flats in a block of flats is to create an onerous management structure, which so far as the owner is concerned is sometimes through the head lessee and sometimes direct with the tenant of flat) See under (4) above.

(8) the solution by negotiation argument (the argument that in practice, the owner and head lessee will get together to fill the gaps left by Parliament) While it may be possible for there to be successful negotiations in practice about the covenants in the new lease over the common parts for the remainder of the head lessee’s term, this is not a basis on which it can be assumed that Parliament would have legislated.

(9) The article 1 of the first protocol argument, that is, the appellants’ argument that the 1993 Act should be interpreted as not conferring a right of individual lease extension on head lessees because that would interfere with the landlords’ rights under article 1 of the first protocol to the Convention . It is unnecessary to decide this issue but I express reservations about whether Chapter II satisfied the requirements of the Convention as to the quality of law so far as the freehold owners of property are concerned.

(10) The perpetuities argument, that is, the appellant's argument that the freehold owner could not grant rights over the common parts to protect the tenant under the new lease, because that grant would be void by reason of s149(3) of the Law of Property Act 1925. I have proceeded on the basis that the respondents’ argument is correct but have found their solution to this problem (which arises in relation to the freehold owner’s covenants to take effect on the termination of the head lease) to be artificial and cumbrous.

(11) the flat curtilage argument: that is, the 1993 Act provides no means for the determination of where the boundaries of the flat should lie as between head lessee and owner. I consider that weight should be given to this point as Chapter II provides no solution to the problem how the curtilage of the flat is to be defined if it has not previously been agreed between the parties, but this problem will not arise in every case.

[66]It follows from my conclusion as to the interpretation of the expression “qualifying tenant of a flat” that, in my judgment, Maurice, where the judge no doubt had less argument than we have had in this case, was wrongly decided and should be overruled by this court. (Howard de Walden appeal only) The deposit issue

[67]The issue here is whether a lessee is to be excused from paying a deposit under paras 2 and 3 of sch 3 to the Leasehold (Collective Enfranchisement and Lease Renewal) Regulations 1993 ("the 1993 regulations") in circumstances where the entitlement to a new lease is disputed.

[68]As already explained the respondents have served notices exercising their asserted right of individual lease extension in respect of the raised ground floor flat and basement flat forming part of the premises to which their head lease relates. The effect of their notices is governed by s42 of the 1993 Act, which so far as material provides: “(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 by a tenant under this section ("the tenants notice") must be given-(a) to the landlord… (8) Where a notice is given in accordance with this section, then for the purposes of this Chapter the notice continues in force from the relevant date- (a) to the landlord… (8) Where a notice is given in accordance with this section, then for the purposes of this Chapter the notice continues in force 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.”.

[69]Thus the notices continued in force notwithstanding that the landlord served counter-notices. However, before serving counter-notices, the landlord required the respondents to pay deposits of £33,700 and £40,000 on account of the premiums payable for the new leases claimed in respect of the raised ground floor flat and basement flat respectively. The landlord’s request was made under the 1993 regulations which provide for the payment of a deposit and its return if the grant of new lease does not go ahead:

“Payment of deposit 2 (1) The landlord may give to the tenant a notice requiring him to pay a deposit on account of the premium payable for the lease at any time when the tenants notice continues in force under section 42(8)… (3) The tenant shall pay the deposit so required to the landlord’s solicitor or licensed conveyancer as stakeholder within the period of fourteen days, beginning with the date the notice is given. Return of Deposit 3 (1) Subject to subparagraph (3), the tenant may give to the landlord a notice requiring him to procure the return of the deposit to the tenant at any time after the tenant’s notice is withdrawn, deemed to have been withdrawn or otherwise ceases to have effect. (2) The landlord shall comply with any such requirement within the period of fourteen days, beginning with the date the notice is given. (3) The landlord shall be entitled to have deducted from the deposit any amount due to him from the tenant in accordance with section 60 (tenant's liability for costs).”

Return of Deposit

[70]The respondents, however, refused to pay the deposits. The appellants applied to the judge for an order that the respondents should pay the deposit pursuant to s 92 of the 1993 Act, which provides as follows:

“(1) The court may, on the application of any person interested, make an order requiring any person who has failed to comply with any requirement imposed on him under or by virtue of any provision of Chapter II to make good the default within such time as is specified in the order…. ”

[71]The judge declined to make an order that the respondents should pay the deposit, whilst the entitlement to the new leases was disputed. He noted that there was no provision in the 1993 Act or the 1993 regulations for the obligation to pay the deposit to be suspended pending determination of the dispute as to the validity of the tenants’ notice. He further noted that the tenants had before him succeeded in establishing the validity of the notice and that it was consistent with their case that they should pay a deposit. However, he held that it would be unfair for him to insist on the tenants paying a deposit when, if the landlord were to succeed on their appeal, there would be no such obligation. Accordingly, the judge declined to make an order under s 92.

[72]Miss Jackson submits that the judge erred in principle in the exercise of his discretion under s 92. It is inherent in this 1993 Act and the 1993 regulations that the deposit is payable, even when the entitlement to a new lease is disputed. The deposit provided the landlord with security against the costs for which the tenant was liable under s 60(1) of the 1993 Act. These would include the costs of the grant of the new lease. The judge should have exercised his discretion consistently with the legislative scheme as there were no mitigating circumstances which might have permitted him to make an order deferring the payment of the deposit until a later date. Under rule 24 of the Solicitors’ Accounts Rules 1998, the interest would be paid to whomever the deposit was paid in due course.

[73]Mr Radevsky, for the respondents in the Howard de Walden appeal, seeks to uphold the judgment of the judge and submits that in principle the court should decline to order payment of the deposit where the landlord disputes the validity of the tenant’s notice. Moreover he submits that this would motivate landlords not to take unnecessary objections and thus support the aims of the legislature. No point is taken on the amount of the deposit which the landlord requested.

[74]In my judgment, Miss Jackson is right. The court should exercise its discretion to order payment of the deposit in support of the legislative scheme. This clearly provides for the tenant's notice to remain valid until the court has ruled otherwise. The court should therefore proceed on the basis of the notice is a valid notice until the court otherwise orders. Moreover, the purpose of the deposit is to provide the landlord with some assurance that if his challenge fails the grant will proceed and that if he incurs costs for which the tenant is liable, there is a fund for the payment. I accept that there may be some mitigating circumstances which would justify the court in making some different order, but there was no evidence in this case that the respondents would not be able to pay the deposit.

[75]Accordingly, in my judgment, the appeal of the appellants in the Howard de Walden case also succeeds on the deposit issue. In the light of my conclusion on the main issue, it may be that the only consequence will be in costs.

Disposition of these appeals

[76]For the reasons given above, I would allow both appeals on the main point. I would also grant permission to appeal and allow the Howard de Walden appeal on the deposit issue.

Lord Justice Mummery :

[77]I gratefully adopt Arden LJ’s helpful summary of the facts and issues on the two appeals and her citation of the relevant statutory provisions and authorities.

[78]On the main issue the appeals should be allowed. I shall briefly state the legal position in my own words.

[79]The interpretation of this complex legislation is far from straightforward. I am persuaded to the same conclusion as Arden LJ, principally by a comparison of the consequentialist arguments of the rival interpretations of the 1993 Act, as amended, (in particular sections 5, 7, 39, 56, 57 and 101).

[80]The exercise of a statutory right to the grant of a new long lease of a flat to the lessee under a long lease of the building, which includes the relevant flat, other flats and common parts, has practical complications discussed in depth in Arden LJ’s judgment. There is absent from the legislative scheme in the 1993 Act any clear and detailed provision or conveyancing mechanism, which one would reasonably expect to be supplied to cover the case of the grant of a new long lease of a flat to the long lessee of a building, which includes both flats and common parts, and the knock-on effect of such a grant on the existing lease of and rights over the common parts in the leased building, the apportionment of the rent under the headlease and the modification of the applicable scheme of covenants.

[81]In my judgment, these practical considerations lend considerable support to the sensible conclusion that it cannot have been within the contemplation of the legislation that the respondent lessee of a long lease of a building, which includes multiple flats and common parts, would fall within the expression “a qualifying tenant of a flat” (my emphasis) for the purposes of acquiring a new long lease of a flat in the leased building under Chapter II of Part 1 of the 1993 Act.

[82]It follows that the respondent lessees were not entitled to exercise a statutory right to acquire a new long lease of the relevant flat in the leased building and that the appellant landlords were not bound to grant a new long lease of the relevant flat in that building.

[83]On the issue relating to the payment of a deposit, which only arises in the Howard de Walden case, permission to appeal should be given and the appeal should be allowed for the reasons given by Arden LJ in paragraphs 70 to 75 of her judgment.

[84]On the application of the doctrine of precedent in the County Court to the decision in Maurice v. Hollow-Ware Products Ltd

[2005] 2 EGLR 71

by a deputy judge of the Chancery Division (Mr David Donaldson QC) in favour of a head lessee exercising the right to acquire a new lease of a flat, the court has agreed upon a separate judgment prepared by me and appended below as a note to the substantive judgments on the appeals. Lord Justice Jacob:

[85]I also agree. NOTE Judgment of the Court on Precedent

[86]On these appeals the court received submissions on a question of stare decisis that needs to be settled by a ruling from this court.

[87]The question is whether a judge sitting at first instance in the County Court is bound by a decision of a judge sitting in the High Court, when that decision has been given not on an appeal to the High Court, but by a High Court judge exercising a first instance jurisdiction that has been conferred by statute on both the High Court and the County Court (in this case by the Leasehold Reform Acts).

[88]In this case the decision of Mr David Donaldson QC sitting as a Deputy Judge in the High Court in Maurice v. Hollow-Ware Products

[2005] 2 EGLR 71

was treated by HHJ Crawford Lindsay QC, sitting in the Central London Civil Justice Centre, hearing of the case of Earl Cadogan and by HHJ Collins sitting in the same Civil Justice Centre hearing the case of Howard de Walden, as the decision of a court of co-ordinate jurisdiction which was not binding on the County Court, although it would, as a matter of judicial comity, usually be followed by a judge in the County Court, unless convinced that the decision was wrong.

[89]In this context we do not think that there is any relevant difference between the decision of a High Court Judge and the decision of a Deputy High Court Judge.

[90]Although both HHJ Crawford Lindsay QC and HHJ Collins correctly stated the principle of stare decisis applicable to decisions of co-ordinate courts of first instance (see Huddersfield Police Authority v. Watson

[1947] 1 KB 842

at 847; Colchester Estates (Cardiff) v. Carlton Industries plc

[1986] Ch 80

), this principle does not, in our judgment, apply as between decisions of the High Court and the County Court, even when each court is exercising the same first instance jurisdiction. The relationship between the High Court and the County Court is that of superior court and inferior court and the decisions of the former, whether made on appeal or at first instance, are binding on the latter.

[91]With the benefit of the research conducted by counsel and by the judicial assistants in the Court of Appeal, we state the position as follows.

[92]In accordance with the well established principles of stare decisis the decisions of a higher court are binding on judges sitting in a lower court. This principle serves the interests of legal certainty: see Broome v. Cassell & Co

[1972] AC 1027

at 1054. The needs of litigants and their advisers to know where they stand is not served if a lower court is free to create a conflict of authority by declining to follow the relevant decision of a higher court.

[93]The County Court is a lower court than the High Court in the hierarchy of the legal system of England and Wales and is bound by the decisions of the High Court, as well as those of courts above; see Cross on Precedent in English Law at page 123 which refers to an almost invariable assumption to this effect.

[94]The Chancery Division of the High Court does not cease to be a higher court than the County Court when it exercises the same first instance jurisdiction as has been conferred on the County Court by the Leasehold Reform Acts. The fact that both the High Court and the County Court are courts of first instance exercising the same statutory jurisdiction does not justify the creation of an exception to the general rule of stare decisis stated in paragraph 92 above.

[95]We do not accept the tentative suggestion that it is arguable that a County Court judge is not bound by the decision of a judge of the High Court because appeals from the County Court can go to the Court of Appeal: see Salmond’s Jurisprudence (12th edn) 163n(w). The fact that both the High Court and the County Courts are lower than the Court of Appeal, to which appeals lie, does not mean that the High Court and the County Court are courts of co-ordinate jurisdiction for the purposes of the doctrine of stare decisis.

Howard De Walden Estates Ltd v Les Aggio & Ors [2007] EWCA Civ 499

The system for individual lease renewal

Background to these appeals

Relevant provisions of the 1993 Act

Maurice v Hollow-Ware Products Ltd

Judgments below

Return of Deposit

Disposition of these appeals

Lord Justice Mummery :

Cited in 6 later judgments