Landlord and tenant update - part II

Journal of Property Valuation and Investment

ISSN: 0960-2712

Article publication date: 1 August 1998



Smith, P.F. (1998), "Landlord and tenant update - part II", Journal of Property Valuation and Investment, Vol. 16 No. 3.



Emerald Group Publishing Limited

Copyright © 1998, MCB UP Limited

Landlord and tenant update - part II

Landlord and tenant update ­ part II

Keywords Agricultural tenancies, Building tenancy, Residential tenancies

In the following, we examine the principal cases decided under one of the various statutory codes since the last review, as well as the PACT scheme for business tenants.

Business tenancies

Section 25 notice

As is known, in order to be valid, a landlord's s 25 notice to terminate a business tenancy must be in the prescribed form. In addition, no s 25 notice may be served if it is given during the currency of proceedings by the tenant to enfranchise the lease (Landlord and Tenant Act, 1954, Part II, Sched 3, para 2(2)).

The Court of Appeal in Free Grammar School of John Lyon v. Mayhew [1997] 17 EG 163 held that a tenant whose enfranchisement notice had been held by the Court of Appeal not to be effective and whose petition to appeal to the House of Lords had been dismissed was somebody on whom the landlord could serve an s 25 notice.

It was also held on the facts of that case that although the landlord had served an invalid s 25 notice on the tenant, because it did not use form 13 of the 1983 regulations, the tenant was estopped by conduct from disputing the validity of this notice. The reasons were that the tenant had served a counter-notice under s 25 indicating that he was not willing to give up possession; and that the tenant had applied to court for a new tenancy. The landlord had suffered the required detriment by incurring surveyors' and legal fees. Therefore, the tenant could not pursue a claim to enfranchise after the failure of his 1991 notice by means of a further enfranchisement notice served once the rateable value limits for enfranchisement had been removed by the Leasehold Reform etc Act 1993.

As the Court of Appeal noted, it was unconscionable of the tenant to have dealt with the landlord on the basis that the s 25 notice was valid and then to have turned round at a later stage and disputed the validity of the notice, once the landlord had incurred expense and also, as noted, had refrained from serving a second and valid s 25 notice. Indeed and crucially it was found that the tenant knew at the very outset that the landlord had used form 1 when it ought to have used form 13. Thus the tenant's actions, as put by Henry LJ, would appear to a reasonable landlord, objectively viewed, to be an acceptance of the (invalid) s 25 notice he received. Henry LJ thought indeed that the tenant hoped to take advantage of the landlords' mistake and lulled them into a false sense of security by not taking the invalidity point at an early stage.

Legatt LJ, with whom the rest of the Court of Appeal agreed, noted that there was no provision in the 1954 Act Part II to prevent a tenant from accepting an invalid notice, in contrast to the position, for example, applicable to Rent Act statutory tenancies (1977 Act Sched 1 para 13(2)).

Section 34 ­ rent

Section 34 of the Landlord and Tenant Act 1954 requires the court to assess an open market rent payable for premises let by a willing lessor. Section 35 gives the court power to fix the terms of a new business tenancy. It cannot, the House of Lords has held, fix different terms to those of the contractual tenancy without the agreement of both parties or sufficient compensation to the party disadvantaged by a suggested new term: O'May v. City of London Real Property Co Ltd [1983] 2 AC 726.

It was held by the Court of Appeal in Northern Electricplc v. Addison [1997] 39 EG 175 that the court could not impose a relaxation of a user covenant in the lease. The lease in this case was to the tenant for the purpose of use as an electricity substation. No other use was allowed. It was held that the court was not required to consider the lessor as being unwilling to let the premises for the restricted use in this case, applying Charles Clements (London) Ltd v. Rank City Wall [1978] 1 EGLR 47. The court could not assume for the purposes of fixing a new rent that the landlord would relax the restrictions on use if the landlord's reason for so doing was merely for the purpose of increasing the rent of the premises.

The new rent was fixed by the judge, affirmed on appeal, at £40 a year, with no rent reviews. The current passing rent was £10 a year. The Court of Appeal held that the judge had been entitled to fix the new rent without any regard to the fact that the tenant might find it expensive to quit the premises if a new lease had not been granted (so, it appears, arguably making him more willing to pay a higher rent for his existing premises).

The term of the lease was 14 years certain, as allowed by the 1954 Act Part II, the original term having been for six years from 26 September 1969 and thereafter from year to year.

The landlord had proposed a rent of £1,000 a year with regular rent reviews and the tenant had offered £15 a year. There was held to be no real possibility of the rent rising to a level to justify the expense of inserting a rent review and the level of rent had been increased to reflect the absence of a rent review provision. In respect of the rent review issue, the judge was held to have exercised his discretion correctly. He was entitled to take a broad view.

The case demonstrates the well-established proposition about new terms already mentioned. As respects rent, if the landlords had wished to have a wider user clause in the case concerned, they could all too easily have negotiated such a clause at the date of the letting, giving the tenant the ability not to take the lease at what might well have been a much higher rent. It is difficult, having regard to the established principle applied in this case, to see why this case was fought at all, having regard to what Brooke LJ called the very limited nature of the task of the county court judge, once the landlords accepted that the terms other than as to rent could not be altered.

The PACT scheme

A scheme was launched during 1997 by the Law Society and the RICS. Its aim is to offer a means of resolving business tenancy disputes without having to go to court. The parties may elect to have the rent and other terms of a new business tenancy determined by a surveyor or solicitor acting, at their choice, as an arbitrator or expert. The parallel with rent review disputes is immediate and the appointment of the adjudicator would presumably work in much the same way as in the case of rent review disputes. In an enthusiastic article entitled "A better way to settle" in the Estates Gazette (12 July 1997, p. 126ff), by Anstey and Gyngell, the following advantages are claimed for the scheme: choice, speed, lower costs, quality of decision and flexibility. Nothing in this world is ever ideal and the authors admit that "it may be appropriate for the courts to deal with complex legal issues" (p. 128), without specifying which issues: one which occurs is the extent to which arbitrators or experts might be invited to modernise the terms of new business leases. The scheme has many attractions, by making use of persons who are familiar with the questions at issue. As Anstey and Gyngell point out, the parties will still apply to court for a new tenancy and will have to observe the relevant statutory time-limits for so doing. The court deals with any landlord's opposition grounds. However, if they both so wish, the parties have the opportunity ­ it is voluntary and neither party can be forced into this step ­ to refer terms in dispute to an arbitrator or an expert. The new dispute resolution mechanism might thus deal with the rent, both interim and for the new tenancy, and the other terms of the lease. No doubt one of the reasons driving this scheme is the notion that litigation should be avoided if at all possible.

The scheme has been given the seal of approval by eminent commentators (in addition to the article of Anstey and Gyngell above, see also ProfessorJ.E. Adams, Commercial Leases, Vol. 11 No. 8, August 1997, pp.1-2, who advises those affected to send for their copy of the relevant documentation "now" from the RICS Dispute Resolution Service or the Arbitration Service of the Law Society). However, we live in litigious times. It may well happen, as with rent reviews, that the arbitrator or expert is only the first person to adjudicate or decide on a dispute. A party who has signed up to a PACT agreement who is, in less friendly mood, contemplating further disputation should remember that their only recourse against a decision of an arbitrator which they dislike is to ask the High Court to grant leave to appeal on the ground of an error of law in the decision. If, by contrast, the parties have elected to have any disputed terms resolved by an independent expert, an aggrieved party may only impugn that decision by proof that the expert had fallen short of the practice accepted by competent respected professional persons in the field and so was negligent ­ no easy task (see, for example, Zubaida v. Hargreaves [1993] 2 EGLR 170). It is accepted that specific arbitration in the field of agricultural holdings to which the Agricultural Holdings Act 1986 applies has worked ­ after years of practice ­ but this new scheme may take time to settle down. Its promotion is likely simply to channel disputes in another direction, with no certainty of finality at the first hurdle ­ as the number of reported cases in the last 20 years or so with rent reviews shows. The present writer believes that the main driving force behind the present fashion for alternative dispute resolution is simply the current general official obsession with cost-saving. Whether in this field this preoccupation leads to the good results hoped for it remains an open question but of course we hope that good will indeed follow to business landlords and tenants from the adoption of this new scheme.

Residential sub-tenancies

Section 137 of the Rent Act 1977 confers protection on sub-tenants of part of the premises let to a head lessee whose tenancy has come to an end, despite the common law rule that a sub-tenancy is destroyed with the termination of the head tenancy on which it depends. If the head lessee does not prohibit sub-lettings, a sub-tenant of part of the premises may now apparently remain in possession as against the head landlord even if the head lessee of the whole premises had held a business tenancy protected by Part II of the Landlord and Tenant Act 1954. This is the result of Church Comnrs for England v. Baines [1998] 02 EG 121. The Court of Appeal refused to follow its own previous decision in Pittalis v. Grant [1989] QB 605, in which the contrary result had been arrived at.

It was held that where sub-tenants (in three related appeals) had held sub-tenancies of residential parts of premises originally let to business head tenants, and where the head lessees had no prohibition on the granting of sub-leases of part, the sub-tenants held tenancies to which the Rent Act 1977 applied as against the head landlord. He could not recover possession against the sub-tenants on termination of head business tenancies (in one case by cesser of business use, and in the other cases by surrender of the head tenancy). Section 137(3) of the Act contemplated that where there was a flat over a shop, let together to a had tenant as a whole, and the flat was lawfully sublet for residential use, the sub-tenant enjoyed the same protection against the head landlord as he did against his immediate landlord, when the superior tenancy came to an end. The result of this case may be significant, because it is not known how many sub-tenancies of flats exist over or adjacent to shops, granted prior to 15 January 1989 by head tenants of the premises holding under Part II of the 1954 Act, under leases which did not prohibit the granting of sub-leases of the residential parts. Section 137(3) provides as follows:

Where a dwelling-house:

(a) forms part of premises which have been let as a whole on a superior tenancy but do not constitute a dwelling-house let on a statutorily protected tenancy; and

(b) is itself subject to a protected or statutory tenancy, then, as from the coming to an end of the superior tenancy, this Act shall apply in relation to the dwelling-house as if, in lieu of the superior tenancy, there had been separate tenancies of the dwelling-house and of the remainder of the premises...

If the intermediate landlord is a protected or statutory Rent Act tenant, then s 137(3) has no application and section 137(1) and (2) apply. Because section 137(3) is only applicable if the sub-tenancy is "lawful", its operation may be excluded by an absolute prohibition on any sublettings in the head lease. Section 137(3) has been held to give protection to a sub-tenant who holds a tenancy of part of the relevant premises from a head tenant where the sub-tenant's lease is Rent Act protected or statutory as against his immediate landlord, but would not otherwise be protected against the head landlord, owing to the fact that the intermediate tenancy is not a regulated tenancy and so outside the Rent Act 1977. A commonly given example before the present case was where the head tenancy was of premises outside the Rent Act rateable or rental value limits. Since s 137(3) requires the reversion on the sub-tenancy to be split, so that the sub-tenancy is notionally held of part only of the reversion, if the part in our example fell within the rateable value limits, the sub-tenancy would be protected by s 137(3) as against the head landlord.

The Court of Appeal refused to hold that the protection of s 137(3) was confined to a case where the head tenancy was regulated and so was of premises which were a "dwelling-house" within the Rent Act 1977, as had been held in Pittalis v. Grant. They held that the definition of "premises" in s 137(3) was less narrow than it was there held to be. Head tenancies with a dual use, both business and residential, could be within s 137(3) if the sub-letting of the relevant part of the premises to the sub-tenant was residential in nature. The Court of Appeal derived this test from a number of earlier cases, some decided not long after the enactment of the original Rent Restriction legislation, which considered the scope of the term "let as a dwelling-house", and so under the protection of the Rent Acts. These cases arose under rent control provisions which were finally abolished by s 64 of the Housing Act 1980. The net result was that it is possible to have premises "let as a dwelling-house" within the Rent Acts, and so within s 137(3) of the 1977 Act, where the purpose of the head tenancy out of which the sub-lease of part is carved is dual purpose or even wholly business use, provided that the sub-tenant is using the sublet part residentially.

The Court of Appeal in the present case held that it was this interpretation of the words "let as a dwelling-house" which Lord Wilberforce had in mind in Maunsell v. Olins [1975] AC 373, when he referred to protection under the Rent Acts being given to a dwelling-house, part of which was being used for business purposes. The broader test to determine the meaning of the expression "let as a dwelling-house" survived the decontrol of rents as from 1957 and the refusal of Parliament, when reintroducing statutory protection in 1965, to re-introduce the protection of the Rent Acts to mixed-user premises (owing to the fact that, by 1965, such premises would be protected by Part II of the Landlord and Tenant Act 1954). This less narrow test than that favoured in Pittalis v. Grant applied to s 137(3) of the 1977 Act. It must be construed distributively, as seen by the application of the test to the facts. The fact that the test had been developed in relation to rent control provisions which have been made redundant for a long time made no difference.

The wording of s 137(3) is, however, open to a narrow construction, as put on it in Pittalis. This could be justified owing to the interference which the Rent Acts as a whole present with the landlord's common-law rights, which derogation should be limited to the unavoidably necessary (which is why the courts have consistently held the interest of a statutory tenant to be a purely personal, non-assignable right). The fact that the cases interpreting the meaning of "let as a dwelling-house" no longer directly apply in their original context, might indicate that the basis of the cases propounding a wider test than that favoured in Pittalis has been undermined. It seems odd to apply them to a different context to that in which they originally applied. There is no reason in principle why the House of Lords, if ever invited to do so, should not choose to adopt a narrow view of the scope of s 137(3), and also that the result in Pittalis v. Grant does not seem inherently wrong. Head landlords, who had granted pre- 15 January 1989 tenancies of mixed-user premises without taking an absolute prohibition against the subletting of any part of the premises for residential or perhaps even any purposes, now discover to their cost that the law as understood for ten years has been not very unexpectedly reinterpreted by the courts in a manner adverse to them.

Fair rents

Section 70 of the Rent Act 1977 requires the assessment of a fair rent for any premises held under a regulated tenancy. Rents for assured tenancies are market rents ­ and with the arrival, from 15 January 1989, of an increasing supply of assured tenancy rents, the basis of assessing fair rents has been adjusted, as the raw material for use by rent officers and rent assessment committees has been altered.

Following the Court of Appeal decision in Spath Holme Ltd v. Chairman of Greater Manchester and Lancashire Rent Assessment Committee [1996] 28 HLR 107, in which it was held that, in principle, rent officers and rent assessment committees ought to take as relevant comparables the rent from comparable assured tenancies, wherever available, there seem to have been a number of inconsistencies of approach as between different rent assessment committees. The Court of Appeal, with a view to putting an end to this state of affairs, has reaffirmed, in Curtis v. London Rent Assessment Committee [1997] 4 All ER 842, that the Spath Holme principles ought to be applied by rent officers and rent assessment committees alike.

The best evidence, in principle, of a fair rent for 1977 Act purposes is now to be that of close market comparables ­ assuming these are available. Indeed, if there is a significant difference between registered fair rents and assured tenancy rents, the former should be disregarded ­ unless there are good grounds for taking fair rent comparables into account, in which case a reasoned case should be made for doing so by the rent assessment committee. Auld LJ said that earlier judicial observations as to the primacy of registered rent comparables had been superseded: the material to be used today was that supplied as the result of the 1988 Act ­ save in the case where there were no assured tenancy comparables. In the present case, however, these were to hand. The rent assessment committee in the present case had disregarded them and had preferred not to disturb the registrations of the rent officer of rents based on registered rent comparables. In this ruling the committee was held to have erred in law and the matter was remitted to a differently constituted committee for reconsideration in the light of the principles set out by the Court of Appeal.

Part I of Landlord and Tenant Act 1954

The Court of Appeal decision in St Ermins Property Co Ltd v. Patel [1997] 41 EG 156 is the first for some time on a substantive issue under the Landlord and Tenant Act 1954 Part I. The premises, at the date of service of the landlords' two notices of termination under s 4, consisted of two self-contained maisonettes, which were separately rated. The house in which these properties were contained had been let under a long lease at a low rent dated 24 September 1894, for 99 years, expiring in September 1993. After they had served the two s 4 notices of determination, the landlords sought to have the terms of the statutory tenancies determined. The county court judge held that the word "tenancy" in sections 1 and 4 referred to the original long lease. That could only have been terminated by a single notice. Thus the two notices served by the landlords were not valid.

Aldous LJ, with whom Butler-Sloss LJ agreed, having reviewed the relevant provisions of both Part I of the 1954 Act and of the Rent Act 1977, with which it is linked, said that the intention of Parliament had been to give to long residential tenants to which Part I of the 1954 Act applied similar rights to those enjoyed under the Rent Act. Adopting the principle stated by Lord Denning MR in Herbert v. Byrne [1964] 1 WLR 519, the court must "look at the position at the end of the lease" and ask itself "whether the leaseholder would have been protected if it had not been a long lease at a low rent, but a short lease at a rack-rent".

Aldous LJ held that the rights attached under the Rent Act were rights attaching to individuals. That was clear, he said, from sections 1 and 2 of the Rent Act 1977 and from Lloyd v. Sadler [1978] QB 774 at p. 790 (where one of two joint tenants who remained in personal occupation of a flat, the other having left to get married, was held entitled to succeed to the contractual joint tenancy which had expired). The tenant within s 3(4) of Part I of the 1954 Act was the person who, under the Rent Act, would be considered as the individual with appropriate rights. In this case the original contractual tenancy, the long lease, had been between the landlord and the persons in receipt of the s 4 notices as joint tenants. But s 3 looked at the position as at the date of termination of this contractual tenancy (September 1993). The court must, to decide the nature of the continuing tenancy under the Act, decide whether, if the property had been let at a rack-rent, any tenant would (under the Rent Acts) have been entitled to retain possession of any part or parts of the premises ­ since such protection would correspond, where appropriate, to the parts occupied by that tenant within the preconditions of section 1 of the Rent Act 1977. This issue had not been decided and, until it was resolved, the issue of the validity of the s 4 notices could not be decided.

The general point arising out of this case is that the Court of Appeal emphasised the personal nature of the right of any tenant who remains in occupation of the premises after the expiry of a long residential lease. A factual inquiry may be necessary in any such case to see what exact premises if any such tenant is occupying within the conditions of s 1 of the Rent Act 1977, which apply in such cases. The tenant may occupy only part of the premises personally, or the whole. If it is only part, then he can apparently claim Rent Act protection only for his continuing occupation of that part, and if he could have claimed such rights under a lease at a market rent. The case ­ although affirming established principles ­ does show the technical difficulties which may arise as when the validity of a landlord's notice of determination under the 1954 Act Part I arises, seeing the interrelationship between that Act and the Rent Act 1977. As from 15 January 1999, the rules of Part I of the 1954 Act will cease to apply to long residential tenancies still in being as at that date. From then on, a modified assured tenancy scheme will apply (Local Government and Housing Act 1989 Sched 10) as it already does to long residential tenancies at a low rent granted on or after 1 March 1990. There may, however, be some long residential tenancies which will have expired prior to 15 January 1999, notices under which would still be governed by the scheme under consideration in the present case.

Protection from Eviction Act 1977

It ought to cause very little surprise, given that the purpose of the enactment of the Protection from Eviction Act 1977, whose origins seem to lie in the Rent Act 1965 Part III, which it supposedly consolidates, was to have been to counter illegal evictions or harassment by residential landlords, that in National Trust for Places of Historic Interest or Natural Beauty v. Knipe [1997] 4 All ER 627, the Court of Appeal ruled that s 5 of that Act is inapplicable to the tenant of an agricultural holding within the Agricultural Holdings Act 1986. It was true that the subject matter of the letting in this case included a dwelling. Section 5 could not be read, as if the words "premises which include a dwelling" or "any dwelling house let as a part of premises" appeared. (In fact s 5 speaks of "any premises ... let as a dwelling".)

It was admitted that no easy explanation could be found for the enactment of s 3, excluding tenancies of an agricultural holding in terms, if s 5 did not apply in the circumstances, but that did not alter the view of the Court of Appeal of the construction of s 5.

The Court of Appeal was also unmoved by the fact that in Dallhold Estates (UK) Pty Ltd v. Lindsey Trading Properties Inc [1994] 1 EGLR 93, it was held that the term "premises" in s 46(1) of the Landlord and Tenant Act 1987 bore a wide meaning and encompassed an agricultural holding where a dwelling-house had been let as part of the premises. It was noted that the terms of s 48(1), to which s 46(1) applied, were different to those of s 5 of the 1977 Act.

There is no express exclusion, in s 5 of the 1977 Act, of tenancies of an agricultural holding which include a dwelling-house as part of the premises let. In the Court of Appeal's view, the matter was sufficiently clear for this not to have been needed. The 1977 Act was intended to protect only the occupiers of dwelling-houses ­ not, one would add, on this view, those who occupy an agricultural holding with a dwelling-house thrown in as an adjunct to the letting. It was forcefully pointed out that there would have been little sense in Parliament's having enacted specific legislation to deal with notices to quit an agricultural holding (Agricultural Holdings (Notice to Quit) Act 1977) if it had also intended the Protection From Eviction Act s 5 to apply to some of these tenancies. It is, we would add, a good principle of statutory construction which holds that if there is a specific provision or set governing a matter, then there is no requirement to subsume these in a more general provision, such as s 5. There would otherwise be an avoidable overlap between different parts of legislation, which is best avoided given the already complex state of the law applicable. Or, as Judge LJ put it, if the tenants were right, the comprehensive system of the specific legislation enacted with regard to agricultural holdings only four months before the enactment of the Protection from Eviction Act 1977 had failed to be what it purported to be. Moreover, said Judge LJ, the 1977 Act applying to agricultural holdings had been consolidated in 1986; and the opportunity had not been taken to make any amendments. The amendments to the Protection from Eviction Act 1977 by the Housing Act 1988 did not include any amendment to s 5 of the 1977 Act such as argued for by the tenants in the present case. Thus the omission of any mention of tenancies of agricultural holdings from s 5 of the latter Act was deliberate.

The result in this case was that the landlords of an agricultural tenant within the 1986 Act did not, in addition to any notice to quit complying with the provisions of that Act, have to serve a notice to quit which gave the tenant the minimum four-week period to quit and the prescribed information required by s 5 of the 1977 Act. This result seems fully correct. There seems no good reason why a tenant such as that in the present case should be entitled to a double and unnecessary protection, all the more so when his argument was a technicality. The fact that it required such contortions for the Court of Appeal to dispose of the tenant's argument shows that the two sets of legislation under consideration have become technical and unwieldy, at least at any possible points of overlap.

Landlord and Tenant Act 1987 Part I

A number of cases have been reported in relation to the rather arcane and certainly complex provisions of this Act, the principal decisions being as follows.

Construction of s 11 of Act

Section 11(1) of the Landlord and Tenant Act 1987 Part I in its original form provides that where a landlord has made a relevant disposal affecting the premises, the requisite majority of qualifying tenants may serve a notice under s 11. This notice requires the new landlord, or his solicitor, to furnish the tenants or their nominee with "the terms on which the original disposal was made", including those relating to the consideration payable. The Court of Appeal has held in Staszewski v. Maribella Ltd [1998] 04 EG 149, that where the landlords' solicitors informed the tenants in writing, in a letter of June 1994, of the terms of a contract of sale to a new landlord, with a stated purchase price of £10,000, they had not complied with the statutory requirement. This was because the agreed price was rather less than that stated in the letter. Therefore the tenants were entitled to have disclosed to them the terms of the contract as agreed and once that notice had been served they had three months in which to serve a purchase notice on the new landlord.

The Court of Appeal held that the material parts of section 11(1) required disclosure to the tenants of all terms which, whether contained in a contract prior to the conveyance or provided for collaterally and operating at the time of the conveyance, amounted to an agreement or arrangement between the parties as to the amount of moneys paid or payable or yet to be ascertained or payable, by the purchaser in connection with the acquisition of the interest disposed of. The landlords' solicitors in their letter to the tenants did not make it clear that the terms of the disposal were not the same as those provided in the contract which they had sent to the tenants.

The Court of Appeal had other grounds for refusing to hold that the letter of June 1994 was not a landlords' notice for the purposes of section 11. Notably, the letter was aimed to discourage the tenants from purchasing the freehold, and it denied that the landlords had to comply with section 11 of the 1987 Act. Owing to the complexity of the provisions of Part I of the 1987 Act ­ a statement about this measure that it seems impossible to quarrel with ­ the landlords had a clear duty to inform the tenants or their nominee in terms leaving no doubt that the notice was intended to operate within s 11. The present letter did not meet this requirement.

The result in this case is justifiable having regard to the fact that the policy of Part I of the 1987 Act is to facilitate the acquisition by long residential tenants of the freehold interest if it is sold by the present landlord to a new lessor. The fact seems to be that some landlords are reluctant to recognise this fact ­ and the amendments to the legislation in Housing Act 1996 Sched 6 represent a further tightening of the legislative screw. Section 11A(1) of the 1987 Act (Sched 6 of the 1996 Act Part II) would seem to be subject to a similar interpretation as that given to s 11 in its original form by the Court of Appeal in the present case, although s 11A(1) requires, notably, as regards the price, particulars of the deposit and consideration required, rather than as under the original provision, merely the consideration payable.

Transfer without consideration

The obligation of the owner of the freehold of a block of flats within Part I of the 1987 Act to serve a notice under s 5 in its original form informing the qualifying tenants of an intended disposal appears to be more honoured in the breach than in the observance. Thus in Woodridge Ltd v. Downie [1997] 36 EG 165, the Lands Tribunal was confronted with a non-notified transfer of the freehold of a house containing two long leasehold flats. There was no written contract preceding the transfer. The consideration payable was nil. As agreed between the parties the appellant purchaser paid the conveyancing costs of the former freeholder, a sum of £2,261. The question arose in proceedings between a nominee purchaser for the tenants and the purchaser of the freehold, as to whether the consideration payable was to be nil, or whether it must include the £2,261 so paid. The Tribunal, not at all surprisingly, held that since the consideration originally agreed between the former and new freehold owners was nil, then that sum was the contract price and no more than that fell to be payable by the nominee purchaser. The arrangement for the payment by the purchaser of the original owner's conveyancing costs was not a term of the disposal within s 12 of the 1987 Act.

The Tribunal noted the Draconian effect of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989. At the date of the disposal of the freehold, 25 December 1994, the only executed element of the disposal was the consideration itself, which was stated as nil. Any oral arrangement for additional payments was outside the written terms of the disposal (as understood within s 12 of the 1987 Act as being written and enforceable terms) and was rendered unenforceable by s 2 of the 1989 Act.

This conclusion does no more than to enforce the requirements of s 2 of the 1989 Act and to decline to except the provisions of Part I of the 1987 Act from the extremely drastic operation of the 1989 Act, the aim of which was to make for certainty in matters of this kind. The purchaser in this case chose not to set out all the terms which she said had been agreed between the parties in an enforceable contract but presumably she could have done so had she so wished.

Successful avoidance of Part I

In Michaels v. Harley House (Marylebone) Ltd [1997] 37 EG 161, a scheme to evade the provisions of Part I of the Landlord and Tenant Act 1987 succeeded. D was incorporated as a subsidiary of TWD and the owner of the relevant flats, TWP. TWP agreed to sell the premises to TWD. TWD received an offer to buy the premises from F, for a much larger sum, some £15.75 million. In order to avoid the Act, taking advantage of the fact that a sale by a company to an associated or subsidiary company is exempt from the Act, certain steps were taken. The end result of them was that the purchaser obtained control of D and became the new owner of the premises. Because the learned judge, Lloyd J, held that the scheme succeeded in avoiding the 1987 Act Part I, a requisite majority of the qualifying tenants were not entitled to serve an information notice under s 11 on D.

The material statutory provisions were as follows. By s 4(2)(l) of the 1987 Act Part I, in its then applicable form, which applies where the landlord is a body corporate, a disposal to an associated company is not a "relevant disposal" and lies outside the statutory duty to notify any qualifying tenants of the disposal. These cannot, where this exception applies, make use of the buy-out provisions of the Act. The definition of "associated company" is defined by s 20(1) of the Act as "another body corporate which is ... that body's holding company, a subsidiary of that body or another subsidiary of that body's holding company". The definition of "subsidiary" of s 736 of the Companies Act 1985 is applicable.

Lloyd J held that the relevant disposal was the transfer of the premises from TWP, the main company, to its subsidiary D. The disposal for statutory purposes took place once the transfer had been executed unconditionally. The transfer in this sense, as a disposal, fell within the exemption of s 4(2)(l). This was despite the fact that Lloyd J admitted that the effect of this ruling was to turn this exception into a gaping loophole. He could not modify the interpretation of the technical definition provisions of the Companies Act 1985 in order to counteract the device used in this case. On the facts, at the time of the transfer of the building to D, TWD and the original owner TWD were associated companies and the disposal to D, the subsidiary of both, fell outside the 1987 Act Part I.

Space precludes coverage of the details of the rest of this case, the rulings of which were obiter in view of the main ruling. Of some interest perhaps is the fact that Lloyd J ruled that in any case the qualifying tenants could not assert any entitlement to join in a s 12 purchase notice, having failed to serve one in a timely manner, because they were estopped by conduct from doing so. The new owner had embarked on a major scheme of improvements, which it would not have done if it had thought that a buy-out under the Act was in the offing.

The ruling in this case drives a coach and horses through Part I of the 1987 Act, which seems easy enough for corporate landlords and corporate purchasers to evade. The exemption under consideration in this case was amended by s 90(1) of the Housing Act 1996 so that the associated company in question must have been an associated company of the disponer body corporate for at least two years. This was of no use to the tenants in the present case since the disposal created an obligation arising before the commencement of the new rule on 1 October 1996. Presumably the reason for so imposing a minimum period of association was to discourage the formation of off-the-shelf companies solely with a view to evading the provisions of Part I of the 1987 Act.

Purchase notices

Section 12(6) of the Landlord and Tenant Act 1987 provides as follows:

Where the property ... has at any time since the original disposal increased in monetary value owing to any charge in circumstances ... the amount of the consideration payable to the new landlord 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 in the open market at the time of the original disposal if the change in circumstances had already taken place.

This provision was considered in Kay-Green v. Twinsectra Ltd [1997] 23 EG 146 by the Leasehold Valuation Tribunal for London. The Tribunal held that, applying s 12(6) of the 1987 Act, the price of the freehold concerned must be increased owing to the supervening death of the regulated tenant of one of the flats concerned. The tenants concerned had served a purchase notice under s 12 of the Act as long ago as 20 July 1992. The tenant concerned had died in April 1996. The proceedings between the freehold purchaser, who bought in in 1992 and in contravention of the 1987 Act, failed to notify the tenants of the purchase, had not by then been concluded.

The Tribunal refused to confine the operation of s 12(6) to any time before the service of a purchase notice by the tenants. It held that the words "at any time" in the originally enacted version of s 12(6) meant just that. The effect on the value of the freehold concerned must therefore reflect the fact that the regulated tenant had died in April 1996. However, the Tribunal was required by the Act to value the change in circumstances as if it had taken place on February 1992, the date of the purchase by the new landlords. The Tribunal admitted that this result might cause some injustice to the tenants. It is also to be noted that in the new provisions in the Housing Act 1996 Sched 6 Part II, s 12B(7) omits the words "at any time", leaving it open to tenants in proceedings after the commencement of the new rules to argue that only increases in value prior to the service of a purchase notice should be taken into account.

The Tribunal also held that the 1987 Act could apply to premises which consisted of the whole of a building consisting partly of flats and partly of houses. Thus the tenant could include in their purchase notice not only the flats in the premises but also the houses which formed an integral part of the whole building.

The Tribunal concluded that s 13(1) in its original form was wide enough to allow the transfer to the tenants of the rights in their leases to pass and repass over the common parts of the premises ­ in this case the gardens and amenity land. If the original landlords had complied with their statutory duty, they would have been offered the appurtenant right to use the gardens and amenity land in accordance with their leases.

Succession to Rent Act Statutory Tenancy

The Court of Appeal, by a majority, in Fitzpatrick v. Sterling Housing Association Ltd [1997] EGCS 122, has refused to extend the concepts of "surviving spouse" and "family" as used for the purposes of succession to a statutory tenancy in the Rent Act 1977 Sched 1 paras 2 and 3, so as to include a homosexual partner with whom the statutory tenant lived prior to his death.

The Court of Appeal had refused in Harrogate Borough Council v. Simpson (1984) 17 HLR 205 to regard a lesbian relationship as giving rise to a claim to a succession to a secure tenancy on the death of the tenant partner in the relationship. Thus, not wishing to have different interpretations of almost identical residential tenancy provisions, it refused to adopt a different interpretation for the purpose of a succession by a homosexual male partner to a statutory tenancy under the Rent Act 1977.

The Court of Appeal by a majority saw no good ground for extending the meaning of the word "family" to cover a homosexual partner, and it made no difference that he had cared for the tenant for some time before the latter's death.

The conservative approach of the Court of Appeal majority is consistent with the general reluctance of the courts in this field to adopt what the Americans would term a purposive approach to social legislation. They tend to take the view that if Parliament has legislated in specific terms, these will not be extended unless Parliament itself legislates further.

Assured shorthold tenancies

Section 14 of 1988 Act

The High Court, in R v. London Rent Assessment Panel ex parte Cadogan Estates Ltd [1997] 34 EG 88, has held that a rent assessment panel has jurisdiction under s 14 of the Housing Act 1988 to determine a rent without reference to and thus in an appropriate case in excess of £25,000 a year, notwithstanding the fact that once the rent exceeds that level, the tenancy ceases to be an assured tenancy (1988 Act Sched 1 para 2 as amended). The rent cap was not intended to make a difference to the fundamental nature of assured tenancies.

Section 20 of 1988 Act

It is now the case, seemingly, that an oral agreement for an assured shorthold tenancy is enough to enable the landlord to serve a notice under s 20 of the Housing Act 1988 on the tenant, stating the length of the term, and followed by a written agreement: Mundy v. Hook [1997] EGCS 119. This principle, arising in relation to a tenancy granted in early 1994, may depend on the fact that in this case the tenant entered possession of the maisonette concerned with the landlord's consent and had paid rent. However this may be, in relation to any assured shorthold tenancy granted on or after 28 February 1997, no preliminary notice needs, at least in principle, to be served on the tenant as a condition precedent to the tenancy being an assured shorthold tenancy.

Agricultural Holdings Act 1986

Breach of covenant against assignment or parting with possession

The question arose in Wallace v. C Brian Barratt & Son Ltd [1997] 31 EG 97, as to whether a partnership which farmed an agricultural holding let to a tenant company (granted from year to year from 28 September, 1988) was sharing the occupation of the holding in contravention of a prohibition against the tenant assigning, underletting, parting with or sharing possession in the tenancy agreement, as alleged in the landlord's notice to quit. The dispute arose therefore in relation to a tenancy to which the arbitration provisions of the Agricultural Holdings Act 1986 and delegated legislation made under it applied. The landlord had served a notice to quit and the tenant had invoked its right to arbitration on this notice.

The tenancy was of 299 acres of land with no buildings. The relationship between the tenant company and the partnership was governed by an agreement. This provided, for example, for general management and supervision of all farming works as necessary by the partnership. The partnership was to purchase and supply all seeds, fertilizers and sprays. It was to carry out all cultivation and harvesting as required. All of its activities were described as "contract works on behalf of this company", that is, the tenant company. It appears that the partnership provided all finance to the tenant.

On the facts, the arbitrator's decision, upheld as being the only proper conclusion in law, and so unimpeachable, was that this partnership was farming the holding solely as the agent of the tenant. The landlord's appeal against the arbitrator's decision that the notice to quit was of no effect was dismissed.

Morritt LJ (p. 100) noted that in this case the individual members of the partnership or its employees only went on to and remained on the holding for the purpose of carrying out the farming operations authorised by the tenant and only for so long as those operations required. Morritt LJ also indicated, that the fact that the partnership provided finance to the tenant company, and reaped a profit from its management charges, had no effect on the physical relationship of the tenant and the partnership with the holding. There was no shared occupation.

Reference was made in the course of Morritt LJ's judgment, with which Sir Richard Scott VC agreed, to certain authorities on "occupation" from the realm of business tenancies. Neither of those we here mention were in point on the facts. In Pegler v. Craven [1952] 2 QB 69, where the business carried on in the premises was that of a company, the company and not the director tenant was held to be in occupation. However, Jenkins LJ thought that in some cases a tenant could remain in "vicarious occupation" if, for example, the premises were occupied by his employee or agent. Similarly, in Hills (Patents) Ltd v. University College Hospital Board of Governors [1956] 1 QB 90, it was held by the Court of Appeal that a hospital board of governors was capable for statutory purposes of being in occupation of certain premises. Denning LJ saw a difference between the position of the board of governors and that of the agent for a limited company, owing to the quite special facts of the case at issue, where the governors, under the legislation to set up the National Health Service, managed and controlled the hospital, appointing officers and servants. As Morritt LJ said at p. 99, both of these cases confirm that ordinarily the occupation of an agent is that of his principal. Once the partnership in the present case was, on the facts, treated as a mere agent of the tenant company, with no shared occupation, there was no breach of the covenant not to part with or share possession in the tenancy agreement.

Sir Richard Scott VC found the concept of occupation of bare fields elusive. He also indicated (p. 101) that the fact that the farming operations had been carried out by an independent contractor would not suffice to establish a breach of the covenant at issue.

The case deserves mention if only because it is understood that arrangements of the type in issue in this case are not uncommonly entered into. The Court of Appeal was construing only a particular agreement between the tenant and a partnership. Too much should not be read into this case in relation to different types of agreement. The agreement in this case avoided any suggestion of joint occupation and firmly subordinated all the activities of the partnership to its role as agent of the tenant.

Contracting out of the Act

Section 5 of the Agricultural Holdings Act 1986 allows the parties to make a joint application to the appropriate minister for approval of a tenancy agreement granted for a term of between two and five years, which lies outside the security of tenure provisions of the Act. The construction of the terms of a letter of ministerial consent is one of fact. If the letter is written in flexible language, there is no reason to construe it narrowly. Hence, in Jones v. Owen [1997] 32 EG 85, it was held that a letter of consent to the grant of a tenancy of certain farm land to a tenant "for a term of not less than two and not more than five years, commencing on ... 13 November 1991" did not impose a condition precedent that the tenancy had to be executed before that date. (In fact the tenancy was only executed on 11 February 1992.) Judge Weeks QC regarded the consent in this case as on all fours with that given in Pahl v. Trevor [1992] 1 EGLR 22. He cited from a passage in the judgment of Stuart-Smith LJ: "... if the minister had wished that the grant of the lease should be made from October 1 and no other date, he could easily have said so." The language of the consent in the present case allowed the parties to agree on the grant of a tenancy at any time within the period of two to five years ending by 13 November 1996.

P.F. Smith