GODWILL JAGBA DIAMOND OKONEDO WINIFRED MAY KIRBY v MATTHEW JOHN AARON DAVIS LRX/15/2006

UPPER TRIBUNAL
LANDS CHAMBER
LRX/15/2006Case No LRX/15/2006
Between
GODWILL JAGBA DIAMOND OKONEDO WINIFRED MAY KIRBYApplicantMATTHEW JOHN AARON DAVISRespondent
Before
The President(in person) for AppellantMr Tony Rivers for Respondentsolicitor of Tanner for RespondentTaylor of Farnham for RespondentSurrey for RespondentVenue Procession House, 110 New Bridge Street, London EC4V 6JLHearing 8 May 2006Property: 3 Elliot Road, Thornton Heath, Surrey CR7 7QACatchwords: LANDLORD AND TENANT – tenants’ right of first refusal – purchase notice by tenants requiring transfer of freehold – original disposal by gift – whether price payable on transfer should be nil –Landlord and Tenant Act 1987 s 12B
[1]The appellant in this case appeals with permission of the Tribunal against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel. The appeal is by way of review. The case concerns a purchase notice served under section 12B of the Landlord and Tenant Act 1987 by qualifying tenants of flats at 3 Elliott Road, Thornton Heath, Surrey CR7 7QA on the appellant as landlord. The issue before the LVT was the price payable on the transfer of the freehold of the property to the nominee purchaser.[2]The facts as stated in the LVT’s decision are these. Around the autumn of 2004 the tenants commenced negotiations for the purchase of the freehold from the then freeholders, a Mr Oni and Mr Oyadare. On 10 January 2005, and without having served an offer notice on the tenants under section 5 of the Act, Mr Oni and Mr Oyadare transferred the freehold to the appellant as a gift. On 11 January 2005 the appellant’s solicitors wrote to the tenants’ representatives saying that the appellant had acquired the freehold interest and that he was willing to sell it for £6,000. On 22 March 2005 the tenants served notices under section 11A requesting information and a purchase notice under section 12B requiring the appellant to transfer the freehold interest on the same terms as those on which he had acquired it. On 21 April 2005 the appellant’s solicitors gave the requested information but refused to transfer the freehold for nil consideration. They reiterated the proposed price of £6,000 plus costs. They wrote again on 14 May 2005 asserting that there had been a change of circumstances as envisaged by section 12B(7) in that the then current market value was not the same as the consideration for which the property has been transferred. On 21 June 2005 the tenants applied to the LVT for a determination of the question of the purchase price.[3]Following a hearing, at which the appellant appeared in person, the LVT determined that the freehold interest was to be transferred for nil consideration. In its decision, the LVT recorded Mr Okonedo’s statement that the previous joint freeholders had been his cousin and a life-long friend and his submissions that it could not be right and was unfair that he should be required to give his land away, but it said that it was bound by the precise terms of Part I of the Act. The LVT went on to say that it did not accept Mr Okonedo’s interpretation of section 12B(7). It said that it was satisfied that the change of circumstances mentioned there did not refer to any possible increase in the market value of the property between the date it was acquired and the hearing date.[4]Section 12B confers on the requisite majority of qualifying tenants of the constituent flats the right to serve a purchase notice where(a) the original disposal consisted of entering into a contract and no notice has been served under section 12A or(b) the original disposal did not consist of entering into a contract. Under section 11(1) “original disposal” is a relevant disposal that affected premises to which at the time of the disposal Part I of the Act applied; and “relevant disposal” is defined by section 4(1) to mean a disposal by the landlord of any estate or interest in premises to which Part I applies. Excluded from the definition of relevant disposal is a disposal by way of gift to a member of the landlord’s family or to a charity (subsection (2)(l)), and subsections (5) and (6) define who is a member of the landlord’s family for the purpose of the section. Mr Okonedo did not suggest that the original disposal (the 2 transfer to him of 10 January 2005) was not a relevant disposal for the purpose of the purchase notice.[5]Under section 12B(2) the purchase notice requires the transferee under the original disposal to transfer to a nominee purchaser the estate or interest that was the subject-matter of the original disposal “on the terms on which it was made (including those relating to consideration payable)”. Subsection (7) provides:
“(7) Where the property which the purchaser is required to dispose of in pursuance of the purchase notice has since the original disposal increased in monetary value owing to any change in circumstances (other than a change in the value of money), the amount of the consideration payable to the purchaser for the disposal by him of the property in pursuance of the purchase notice shall be the amount that might reasonably have been obtained on a corresponding disposal made on the open market at the time of the original disposal if the change in circumstances had already taken place.”
[6]It was this provision that Mr Okonedo relied on in the LVT in support of his contention that he should not be required to transfer the freehold to the nominee purchaser for no consideration simply because it was transferred to him by way of gift. At the hearing before me he put the matter more fundamentally. He said that for him to be forced to make a free transfer of his valuable freehold was inequitable and contrary to Article 1 of the First Protocol to the European Convention on Human Rights. Taking property without payment was, he said, an unjustified interference with his fundamental property rights. There was no general interest that required that this should happen.[7]It is clear, in my judgment, that Mr Okonedo cannot bring his case within section 12B(7). On the basis of the contentions that have been advanced by him and on his behalf, his property has not increased in value since the original disposal. Ever since his solicitor’s letter the day after the original disposal the assertion has been that the freehold is worth £6,000. He acquired it for nothing not because it was worth nothing at the time but because it was transferred to him as a gift. The LVT said that the change of circumstances referred to in subsection (7) did not refer to an increase in market value. The only change in circumstances that is excluded, however, is a change in the value of money, and I can see no reason why an increase in market value should not be a change of circumstances to which the provision applies, except to the extent that the increase is due to a change in the value of money. But there was nothing before the LVT to suggest that the market value of the interest had increased. Mr Okonedo’s case was that he had been given a freehold that was as valuable at the date of the original disposal as at the time of the purchase notice and the LVT hearing.[8]Nor do I think that Article 1 of the First Protocol assists Mr Okonedo when the requirement of section 12(B) is seen in the context of Part I of the Act. Part I gives qualifying tenants the right of first refusal on disposals by the landlord of his interest. Under section 5, where the landlord proposes to make a relevant disposal he must serve an offer notice on the tenants. The offer notice must comply with the requirements of such of sections 5A to 5E as are applicable. If the disposal is to be under contract the offer notice must contain particulars of “the principal terms of the contract (including the deposit and consideration required)” 3 (section 5A); and sections 5B and 5C contain equivalent provisions where the disposal is to be by auction sale and where it consists of the grant of an option or the right of pre-emption. Section 5D applies where the disposal is not made in pursuance of a contract, option or right of pre-emption, and it requires particulars of the disposal to be included in the offer notice, including (subsection (2)(b)) “the consideration required by the landlord for making the disposal”. In each case the offer notice must state that it constitutes an offer by the landlord to dispose of the property to the tenants on the terms of the disposal.[9]Section 5E applies where the consideration required by the landlord does not consist, or does not wholly consist, of money. In such a case the notice must, in addition to complying with whichever is applicable of sections 5A to 5D must state that an election may be made under section 8C. The tenants may then make an election under section 8C; and section 8C(4) provides that so much of the consideration as did not consist of money “shall be treated as such amount in money as was equivalent to its value in the hands of the landlord”.[10]It will be observed that all the provisions appear to assume that the relevant disposal is one for consideration (see, for example, section 5D(2)(b): “the consideration required by the landlord for making the disposal”). However, section 5 requires an offer notice to be served in any instance where the landlord proposes to make a relevant disposal; and, as noted above, a gift is a relevant disposal unless it is to a member of the landlord’s family or to a charity. So, in my judgment, an offer notice must be served when the proposed disposal is to be by way of gift. There is no difficulty in applying the provisions in such a case. The offer notice will simply state that the consideration is nil.[11]In the present case, therefore, Mr Okonedo’s predecessors should have served an offer notice under section 5. Since they did not do so, sections 11 and 12B enabled the tenants to serve a purchase notice and to require a disposal to a nominee purchaser on the same terms as the original disposal. Had an offer notice been served and accepted, Mr Okonedo would have lost nothing to which he was entitled. At that stage he would have had no interest in the property of any sort, legal or equitable. The complaint that he now voices, that he has been deprived of his property without compensation, only comes to be made because he was the recipient of his interest after the wrongful failure to serve an offer notice prior to the transfer. Looked at in this way, it is, I believe, clear that there has been no interference with his property rights in a manner that would engage Article 1 of the First Protocol.[12]I would add that the operation of the provisions of Part I in the way that I have described has an obvious justification in ensuring that transfers, nominally made by way of gift but in reality forming part of a wider transaction known only to the parties, are not able to escape. I do not mean to imply that this was the position here. There is no evidence at all to suggest that it was. But the justification for the Act applying to gifts, other than those to the landlord’s family or a charity, and for the amount payable for the transfer in these circumstances to be nil is clearly not without justification. The appeal is dismissed. 4[14]Mr Rivers on behalf of the respondents applied for costs. Under section 175(6) the Tribunal is only empowered to award costs where it considers that party has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably. I do not think that Mr Okonedo’s conduct can be criticised in any of these ways. I make no order as to costs. 9 May 2006 George Bartlett QC, President 5