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[2007] EWCA Civ 245
In 1973, the defendant was granted a lease over a site for a term of 121 years. The defendant subsequently developed the site by building a block of flats and town houses. Underleases of the flats and houses were then granted to the tenants. The claimant was the person nominated by the overwhelming majority of the tenants of the flats to exercise their rights under the Landlord and Tenant Act 1987. The freehold of the property was held by K. In 2000, K and the defendant entered into an agreement whereby the defendant would surrender the 1973 lease, and then be granted a new lease of the same property, minus a narrow strip of land. The new lease was for a term of 125 years, ie a term of 32 years longer than the existing lease. Pursuant to the 2000 agreement, the lease was surrendered and the new lease granted (the 2000 lease). By virtue of the Act, the proposed disposal of the defendant’s interest in the property required the lessees of the flats to be offered the right of first refusal. However, no offer notices under s 5 of the Act had been served on the tenants prior to the 2000 agreement to surrender the 1973 lease. Accordingly, the tenants served a purchase notice under s 12B of the Act on K, stating, inter alia, that K had acquired an interest in the property from the defendant under the 2000 agreement; and the disposal to K was a relevant disposal, which had been made without the defendant having served notice under s 5 of the Act. By the notice, the tenants required K to dispose of the interest that was the subject-matter of the disposal to K on the terms on which it had been made, including the consideration, to the claimant. They also called upon K to forward the s 12B notice to the defendant under s 16 of the 1987 Act. They stated that the claimant would be seeking an order from the court under s 12B(5) that ‘the lease’ be transferred to the claimant free from any lease entered into subsequent to October 2000. Subsequently, the claimant commenced proceedings seeking an order that the defendant transfer to it the term created by the 2000 lease, rather than the 1973 lease. The judge ordered, inter alia, that the defendant should transfer to the claimant the 2000 lease, on consideration to be determined by the Leasehold Valuation Tribunal. The defendant appealed.
It submitted, inter alia, that s 12B did not apply where the disposal had been a surrender or agreement to surrender the lease. Moreover, it contended that s 12C applied to surrenders and agreements to surrender, so that the tenants should have served a s 12C notice instead, after which the claimant would have become entitled to a grant by K of a lease on the same terms and for the same term as that of the 1973 lease, and not the term created by the 2000 lease. Further, it contended that an order could not be made against it to grant the claimant a lease on the same terms as the 1973 lease, as s 16 did not apply to it, since it did not have the same estate or interest that had been the subject-matter of the original disposal.
Held – The appeal would be allowed. Although the opening words of s 12B(1)(a) were literally capable of applying to a contract to surrender, the context showed that they were not intended so to apply. The effect of s 4A(1) was that the expression ‘surrender’ included a contact to surrender. Section 12C applied where the original disposal consisted of the surrender by the landlord of a tenancy, and expression ‘surrender’ indicated a contract to surrender.
Section 12B would make no sense in the case of a surrender. The ‘purchaser’ (ie the superior landlord to whom the lease had been surrendered) could not be required to ‘dispose of the estate or interest that was the subject-matter of the original disposal’ to the qualifying tenants, because the subject-matter was the lease and, following the surrender, the lease no longer existed.
It followed that in the instant case s 12B did not apply. The purchaser’s notice had undeniably been made under s 12B. The claimant could have served a s 12C notice on K and become entitled to a grant by K of a lease on the same terms and for the same term as that of the 1973 lease. However, the court did not have the power to order the defendant to grant to the claimant a new lease in the same terms as the 1973 lease which had been extinguished by surrender. An order could be made against the defendant only if s 16 applied, but s 16 applied only if the estate or interest was the subject-matter of a later disposal by K to the defendant. The defendant did not, however, have the same estate or interest that had been surrendered to K; it had a different lease on terms different from the 1973 lease.
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