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|Judgments - Majorstake Limited (Respondents) v Curtis (Appellant)
HOUSE OF LORDS
 UKHL 10
on appeal from:  EWCA Civ 1171
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Majorstake Limited (Respondents) v Curtis (Appellant)
Lord Hope of Craighead
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Baroness Hale of Richmond
(Instructed by Freeman Box)
Derek Wood QC
(Instructed by S J Berwin LLP)
15 NOVEMBER 2007
WEDNESDAY 6 FEBRUARY 2008
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Majorstake Limited (Respondents) v Curtis (Appellant)
 UKHL 10
LORD HOPE OF CRAIGHEAD
1. I have had the advantage of reading in draft the speeches of my noble and learned friends, Lord Scott of Foscote and Baroness Hale of Richmond. I am grateful to Lord Scott for setting out the facts and the procedural history and to Baroness Hale for her explanation of the wider context in which the legislation that we are concerned with needs to be viewed. For the reasons Baroness Hale gives I would allow the appeal and make the order that she proposes.
2. The question is whether the phrase the whole or a substantial part of any premises in which the flat is contained in section 47(2)(b)(ii) of the Leasehold Reform, Housing and Urban Development Act 1993 enables the landlord, unconstrained by their existing state, to identify the premises by drawing his own line around the tenants flat in support of his counter-notice or whether it refers to the existing and objectively recognisable state of the premises. No direct assistance can be gained from the provisions in Chapter I of Part I of the Act, and the interpretation provisions in section 62 at the end of Chapter II, of which section 47 forms part, do not help either. The answer to the question must be found in the words used in section 47, read in the context in which they appear.
3. I think that the use of the present tense, indicated by the word is", provides the best guide to what the phrase means. It directs attention to what can be seen on the ground at the time when the tenant serves his notice. What can be seen on the ground is not what is to be found only in the mind of the landlord. Of course, it is for the landlord to decide the extent of the development which he wishes to carry out. As the statute recognises, it is his intention with regard to this part of the statutory test that needs to be demonstrated. So long as the intended development extends to the whole or a substantial part of the premises in which the flat is contained, this requirement for the making of an order under section 47(1) of the Act will be satisfied. But the extent of the intended development is not determinative of the extent of any premises in which the flat is contained". The context indicates that the extent of those premises does not depend on the intention of the landlord. On the contrary, it is something to be determined objectively by examining the existing state of the building within which the tenants flat is situated.
4. This interpretation has the merit of preserving an appropriate balance between the tenants interests as against those of the landlord. It gives due weight to the requirement that the redevelopment which the landlord wishes to carry out must extend, if not to the whole, at least to a substantial part of the premises. The right to acquire a new lease of a flat is given to the tenant by section 39 of the Act on payment of a premium. This right would be seriously undermined if all that the landlord needed to do to defeat the tenants right was to declare his intention to redevelop the flat. That is why an intention to redevelop something more than the flat itself is required. Section 62(3) also makes it clear that it will not be enough for the landlord to declare an intention to redevelop a garage or outhouse let with the flat. The argument that it is open to the landlord to determine the extent of the premises in which the tenants flat is contained by drawing an imaginary line around it of his own choosing and which suits his own interests is objectionable for an analogous reason. As May LJ said in the Court of Appeal, units of that kind would be artificial:  EWCA Civ 1171,  Ch 300, para 65. They would have been put together simply to achieve the statutory requirement. They could not, in the proper sense of the phrase, be said to be premises in which the flat is contained.
5. The tenants concession that one floor in a block of flats, and even adjoining flats on the same floor, could be regarded as premises within which his flat was contained seems to me to be open to question. But it does not help the landlord, as his intention to redevelop does not extend in that direction. His case is that the premises extend to the flat immediately below and contiguous to the flat which the tenant occupies. In agreement with May LJ, I would hold that it overstrains the statutory language to say that two flats on different floors, and those two flats only, are premises in which the tenants flat is situated. Unless there is some other obvious subdivision within Boydell Court, the premises in which the flat is situated would seem to me to mean the entire structure of Block B. But each case must, inevitably, depend on its own facts.
LORD SCOTT OF FOSCOTE
6. This appeal raises a short issue of construction of section 47(2)(b) of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). On this issue turns the question of whether the appellant, Monty Curtis, is entitled to acquire a new lease of his flat, Flat 77, on the seventh floor of Block B, Boydell Court, St Johns Wood Park, London NW8.
7. Boydell Court consists, for relevant purposes, of two blocks of flats, Block A and Block B. Block A contains sixty flats on eleven floors; Block B contains fifty flats on nine floors. The ground floor of Block B includes a caretakers flat and storage and other communal facilities. Lifts and a stairway run from the ground floor to the upper floors. The eight upper floors contain six flats each and common parts such as corridors. Flat 77 contains two bedrooms, one reception room, a kitchen, bathroom and a second toilet. The demise includes one-half in depth of the joists between the floor of Flat 77 and the ceiling of the flat beneath and one-half in depth of the joists between the ceiling of Flat 77 and the floor of the flat above. Mention needs to be made not only of Flat 77 but also of two other flats in Block B. Flat 79 is a flat on the seventh floor adjoining Flat 77. Flat 74 is the flat on the sixth floor immediately below Flat 77.
8. Mr Curtis holds Flat 77 under an Underlease dated 22 July 1957 which demised the flat for a term of 51 years from 25 March 1957 reserving a ground rent of £440 per annum.
9. Chapter II of the 1993 Act gives a tenant of a flat who holds a lease granted for a term of more than 21 years the right to claim from the landlord a new lease of the flat for a term expiring 90 years after the expiry date of the current lease. The right is exercised by the service of a notice of claim under section 42 of the Act. The landlord must respond to the tenants notice by serving a counter-notice stating whether or not the tenants entitlement to a new lease is accepted (section 45). But, if the lease has less than five years to run when the tenants claim is made, the landlord may state in his counter-notice that he intends to apply to the court for an order under section 47(1) of the Act on the grounds that he intends to redevelop any premises in which the flat is contained (section 45(2)(c)). Where such a counter-notice has been served
the court may by order declare that the right to acquire a new lease shall not be exercisable by the tenant by reason of the landlords intention to redevelop any premises in which the tenants flat is contained (section 47(1)).
However, section 47(2) of the Act provides as follows :
(2) The court shall not make an order under subsection (1) unless it is satisfied -
(a) that the tenants lease of his flat is due to terminate within the period of five years beginning with the [date on which the section 42 notice of claim was given to the landlord]; and
(b) that for the purposes of redevelopment the landlord intends, once the lease has so terminated -
(i) to demolish or reconstruct, or
(ii) to carry out substantial works of construction on,
the whole or a substantial part of the premises in which the flat is contained; and
(c) that he could not reasonably do so without obtaining possession of the flat.
10. On 16 September 2003 Mr Curtis gave notice to the respondent, Majorstake Ltd, claiming to exercise his right to acquire a new lease of Flat 77. It is accepted that the notice was a valid one. Majorstake responded by serving on 21 November 2003 a section 45 counter-notice stating its intention to apply to the court for an order under section 47(1) that Mr Curtis right to acquire a new lease should not be exercisable on the ground that it, Majorstake, intended to redevelop premises in which Flat 77 was contained. It is accepted that the section 45 counter-notice was a valid one. Majorstake then duly commenced proceedings in the Central London County Court for a declaration that Mr Curtis right to a new lease was not exercisable. Attention must now shift to section 47(2) of the Act.
11. Majorstakes original redevelopment intention had been to combine Flat 77 and Flat 79 so as to create a single larger flat on the seventh floor. But by the time the case came to be heard in the Central London County Court the intention had changed to an intention to combine Flat 77 with Flat 74, the flat beneath Flat 77, so as to form a larger flat of the sort apparently known in the jargon of the trade as a duplex apartment. The intention was that the former Flat 74 would contain four bedrooms and three bathrooms and be connected by a stairway to the former Flat 77 which would contain a reception room, a kitchen and dining area, a conservatory and a bathroom. The entrance to the new apartment would be through the existing entrance to Flat 77. The existing entrance to Flat 74 would become a fire escape exit. A complete re-wiring of the new apartment and the construction of new internal walls as well as the installation of the stairway would be necessary. The question was, and is, whether these proposals satisfied the conditions required by section 47(2) of the Act. It is accepted that these proposed works could not be carried out by Majorstake without obtaining possession of Flat 77. So the section 47(2)(c) condition is satisfied. And it is accepted that the proposed works constitute substantial works of construction within the meaning of those words in section 47(2)(b)(ii). The only remaining question is whether the proposed works of construction will be works on the whole or a substantial part of any premises in which [Flat 77] is contained". The works will be works on Flat 74 and Flat 77. That much is clear. But what are the premises in which [Flat 77] is contained"? And, once the premises have been identified, are Flat 74 and Flat 77 a substantial part of those premises within the meaning of those words in section 47(2)(b)?
12. It is clear that the premises in which [Flat 77] is contained must be something more than Flat 77 itself. It is clear also that the premises in which Flat 77 is contained must be identified by reference to the state of affairs before the proposed works of development are carried out. If the proposed works were to be carried out, the new apartment would constitute, in the ordinary use of language, premises in which the former Flat 77 was contained. But section 47(2)(b) is looking for the pre-development premises in which [Flat 77] is contained". In the County Court Majorstake argued that Flat 74 and Flat 77 together constituted premises in which Flat 77 was contained. But His Honour Judge Cowell thought that for section 47(2) purposes the premises in which Flat 77 was contained must be Block B or at least some self-contained part of Block B. The question whether Flats 74 and 77 constituted, for section 47(2)(b) purposes, a substantial part of Block B was not addressed. Majorstakes application for an order under section 47(1) was dismissed, so it was presumably assumed that they did not.
13. The Court of Appeal, by a majority, disagreed with Judge Cowell on the premises point:  Ch 300. Counsel for Mr Curtis accepted that the expression the premises in which the flat is contained could not, in relation to Flat 77, be restricted to Block B as a whole but submitted that the expression referred to an existing recognisable unit", such as a whole floor of a building, within which the flat in question was contained. If that were right, works on Flat 77 and Flat 79, both on the seventh floor, might have constituted works of construction on a part of premises within which Flat 77 was contained, namely, the seventh floor of Block B, but the proposed works on Flat 77 and Flat 74, being works on flats on different floors, would not. However Moore-Bick LJ did not accept the legitimacy of the distinction between contiguous flats on the same floor and contiguous flats on different floors. He concluded that any part of Block B which comprised contiguous flats could constitute premises in which, for section 47(2) purposes, each of the flats was contained. Neuberger LJ agreed. He thought the word contained in the section 47(2)(b) expression could fairly be said to be capable of carrying with it the notion of the premises being a single piece of property which is greater than, and includes, the flat concerned": para 37.
14. Since neither of the learned Lord Justices accepted any necessary limitation on the size of the piece of property that, when added to the subject flat, could constitute the premises in which the flat was contained, both accepted that a landlord might satisfy the section 47(2)(b) condition, and thereby deprive a tenant of his right under the 1993 Act to a new lease, by establishing an intention to redevelop the tenants flat together with a wholly insignificant adjacent area such as a box-room or a broom cupboard. For my part I doubt very much whether their construction would ever lead to that apparently absurd conclusion. Section 47(2) prevents the court from making a section 47(1) declaration unless the conditions of section 47(2) are satisfied. Section 47(1) enables, but does not oblige, the court to make the requested declaration if the section 47(2) conditions are satisfied. Sub-section (1) says that the court may by order declare . It does not say must or shall". Counsel, when this point was put to them, told your Lordships that it had been held by the Court of Appeal in Willingale v Globalgrange Ltd  18 EG 152 that may in section 47(1) meant must". That case, in my opinion, is no authority for that broad proposition. The case was one in which a landlord had failed to serve any counternotice in response to a notice served by tenants under Chapter I of the 1993 Act to acquire the freehold of their leasehold premises. The issue was whether in those circumstances the landlord could challenge the terms of acquisition proposed by the tenants in their notice. The county court judge held that the landlord could not and a two-man Court of Appeal, giving extempore judgments, dismissed the appeal. It is true that May LJ, who gave the leading judgment, said that the statute does not work if there is a discretion but he was referring to the word may in section 25(1) of the Act in a case where the landlord had failed to comply with the statutory procedural requirements of section 21. The case is no guide to how section 47(1) should be applied to a case where a landlord is seeking to satisfy the section 47(2)(b) condition by claiming an intention to redevelop the tenants flat together with an insignificant additional part of the building in which the tenants flat is contained, an additional part added to the tenants flat for the proposed development simply in order to produce premises in which the flat is contained and thereby satisfy section 47(2)(b). The box-room objection to Moore-Bick LJs and Neuberger LJs construction of premises is an objection based on a premise that I am unable to accept. In the circumstances postulated the court would not, in my opinion, be obliged to make the section 47(1) declaration sought by the landlord.
15. Moore-Bick LJ and Neuberger LJ, having held that Flats 74 and 77 together constituted the premises in which [Flat 77] is contained, did not need to consider whether the proposed works of construction were works on the whole or a substantial part of those premises. They obviously were. May LJ dissented. He was prepared to accept that the expression any premises in which the [tenants] flat is contained might apply to premises consisting of less than a whole building or block and was prepared to suppose that the full seventh floor of this block of flats would qualify (para 64). But he did not accept at para 65 that some artificial unit which would not otherwise be recognised as an existing containing unit could qualify and he did not accept that Flat 77 on the seventh floor and Flat 74 on the sixth floor could be described, for section 47(2)(b) purposes, as premises in which [Flat 77] is contained". It was, of course, clear that Block B could constitute premises in which Flat 77 was contained, but May LJ did not go on to consider whether the proposed works to Flats 74 and 77 could be described as works to a substantial part of Block B.
16. My Lords I find myself in complete agreement with May LJ that the combination of Flat 74 and Flat 77 cannot be described, for section 47(2)(b) purposes, as premises within which [Flat 77] is contained". A reasonably literate non-lawyer who read sections 45 and 47 of the 1993 Act would see the reference in sections 45(2)(c), 47(1) and 47(2)(b) to the landlords intention to redevelop any premises in which the flat is contained". If the reader knew about Block B and its constituent flats and were asked in what premises Flat 77 was contained, it would take the reader no time at all to answer with confidence that Flat 77 was contained in Block B. If the reader were then asked whether the premises in which Flat 77 was contained could be described as the seventh floor of Block B he would, I think, look puzzled and find the question surprising. He might answer that to call each floor of Block B the premises in which each flat on the floor was contained would be an unusual use of the word and would require a special definition of premises". But if he were asked whether a flat on one floor of Block B and the flat either immediately above or below that flat could be described as together constituting the premises in which each flat was contained he would, I suggest, doubt the familiarity of his questioner with the English language. Harry Potter, we are told, received letters addressed to him at The Cupboard under the Stairs, 4 Privet Drive, Little Winging". The Cupboard under the Stairs might have constituted premises for the purpose of letters from Hogwarts but for the purposes of construction of the 1993 Act a normal use of the English language must be assumed. I do not accept that it could possibly have been the Parliamentary intention that the premises in which [Flat 77] is contained could consist of Flat 77 and a contiguous flat, whether contiguous vertically or horizontally. The meaning of the word premises in section 45 and 47 of the 1993 Act is, of course, dependent on the context, but I can, for my part, find nothing in the statutory context that justifies attributing to the word a meaning that it would not ordinarily bear. In the context of Chapter II of the Act premises refers, in my opinion, to a self-contained unit of which the subject flat forms part. Thus adjoining houses in a row of terraced houses could be described as premises in which each house was contained. And a house in which one or more flats was contained could be described as the premises in which each flat was contained. But a floor of Block B could not, in my opinion, be described, for sections 45 or 47 purposes, as the premises in which each flat on the floor was contained.
17. The construction favoured by the majority in the Court of Appeal appears to me to have been over-influenced by the references in sections 45(2)(c), 47(1) and 47(2) to any premises". The use of the word any indicates, it is suggested, that it was not simply the obvious premises, e.g. the block containing a number of flats, that Parliament had in mind. In my respectful opinion this is much too slender a reed to bear the weight of what I regard as an unnatural construction of premises".
18. In my opinion, in respectful agreement with Judge Cowell, the premises in which, for sections 45 or 47 purposes, Flat 77 is contained is Block B. The question does, therefore, arise whether the proposed works of construction on Flat 74 and Flat 77 are works on a substantial part of of Block B. This is not a question which was addressed either in the county court or in the Court of Appeal. Nor was it addressed in the printed Cases of either Mr Curtis or Majorstake. It is accepted, however, that the proposed works of construction are substantial works for the purposes of section 47(2)(b). In the expression substantial works the adjective substantial denotes, in my opinion, works that are not trivial or, as one might say, insubstantial. There is no other yardstick than impression. The issue is one of fact and degree. The same approach should, in my opinion, be taken to the question whether Flats 74 and 77 constitute a substantial part of Block B. They are two of the fifty flats in the Block. In percentage terms two out of fifty, four per cent, does not sound substantial. I doubt, however, whether that is the right approach. Each flat is a substantial item of property, an item of considerable value. Each flat, as part of the Block, could not, in my opinion, be regarded as a trivial or insignificant part. If this point had been the subject of proper examination and argument I would have taken a great deal of persuading that the proposed works of construction on Flats 74 and 77 were not works on a substantial part of Block B for the purposes of section 47(2)(b). As it is, however, in the absence of proper argument on the point, I will with some reluctance set aside my doubts and concur with my colleagues in allowing this appeal.
LORD WALKER OF GESTINGTHORPE
19. I am in complete agreement with the opinion of my noble and learned friend Baroness Hale of Richmond, which I have had the privilege of reading in draft. For the reasons given by Baroness Hale I would allow this appeal and make the order which she proposes.
BARONESS HALE OF RICHMOND
20. Part I of the Leasehold Reform, Housing and Urban Development Act 1993 conferred two important new rights upon the long leaseholders of flats. Chapter I gave qualifying tenants of flats contained in premises to which this Chapter applies the right collectively to acquire the freehold of those premises. This extended to leasehold flats the right of enfranchisement provided for leasehold houses by the Leasehold Reform Act 1967. Chapter II gave individual tenants the right to acquire a new lease which would last for 90 years from the date when their present lease would come to an end. In each case, a price must be paid in accordance with the valuation principles laid down in Schedules 6 and 13 respectively. In summary this is the sum of the landlords present interest in the premises to be acquired, any diminution in value of other premises owned by the landlord, and half the so-called marriage value", in essence the extent to which the value of the whole is greater than the sum of the separate parts.