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|Judgments - Earl Cadogan and others (Respondents) v 26 Cadogan Square Limited (Appellants)Howard de Walden Estates Limited (Respondents) v Aggio and others (Appellants)
HOUSE OF LORDS
 UKHL 44
on appeal from: EWCA Civ 499
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Earl Cadogan and others (Respondents) v 26 Cadogan Square Limited (Appellants)
Howard de Walden Estates Limited (Respondents) v Aggio and others (Appellants)
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Baroness Hale of Richmond
Lord Neuberger of Abbotsbury
Appellant in first appeal:
Edwin Johnson QC
(Instructed by Bircham Dyson Bell LLP )
Appellant in second appeal:
(Instructed by Forsters LLP)
Respondents in first appeal:
(Instructed by Pemberton Greenish )
Respondents in second appeal:
Judith Jackson QC
(Instructed by Speechly Bircham LLP )
12 AND 13 MAY 2008
WEDNESDAY 25 JUNE 2008
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Earl Cadogan and others (Respondents) v 26 Cadogan Square Limited (Appellants)
Howard de Walden Estates Limited (Respondents) v Aggio and others (Appellants)
 UKHL 44
1. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Neuberger of Abbotsbury. For the reasons he gives, with which I agree, I too would allow these appeals.
LORD SCOTT OF FOSCOTE
2. I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Neuberger of Abbotsbury and for the reasons he gives, with which I am in full agreement, I, too, would allow these appeals.
LORD WALKER OF GESTINGTHORPE
3. I am in full agreement with the opinion of my noble and learned friend Lord Neuberger of Abbotsbury, which I have had the advantage of reading in draft. I too would allow these appeals.
BARONESS HALE OF RICHMOND
4. For the reasons given in the opinion of my noble and learned friend, Lord Neuberger of Abbotsbury, with which I entirely agree, I too would allow these appeals and restore the decisions of the first instance judge in each case.
LORD NEUBERGER OF ABBOTSBURY
5. Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 confers a right on a qualifying tenant of a flat to acquire a new long lease of the flat from his landlord. The question raised on these two appeals is whether the lessee of premises (such as a block of flats), which includes property other than flats, can be a qualifying tenant of any of the flats comprised in those premises This issue turns upon the proper construction of the 1993 Act, which has been amended from time to time, most notably by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002.
The factual and procedural history
6. In each of these two cases, the whole (or most) of a self-contained building converted into a number of self-contained units, was let under a lease (the head lease) for some 60 years at a ground rent. In Cadogan, the building has six storeys, of which the lower three are used as offices, which are in part underlet, and the upper three consist of a maisonette, which had been subject to an assured shorthold tenancy, but is currently vacant. In Howard de Walden, the five storeys of a building have been converted into self-contained residential flats, of which the upper three are subject to long underleases, and the lower two are let by assured short-hold tenancies. Each building includes common parts (that is internal parts, such as entrance hall, landings and stairs, used by all or some occupiers) and external areas for parking. These common parts and parking areas are included in the respective head leases, but not in any of the underleases, although the underlessees have been granted rights over them in their respective underleases.
7. In each case, the head lessee served notice on the freeholder pursuant to Chapter II of Part I of the 1993 Act (Chapter II) to acquire, in Cadogan, a new lease of the maisonette consisting of the three upper floors (which is a flat for the purposes of the 1993 Act), and, in Howard de Walden, a new lease of the ground floor flat, and, subsequently, a new lease of the basement flat. In each case, the freeholder served a counter-notice denying the head lessees claimed right, contending that the head lessee was not a qualifying tenant of the flat concerned.
8. This led to proceedings in the County Court, in which the judge (Judge Crawford Lindsay QC in Cadogan, and Judge Paul Collins in Howard de Walden) held that the head lessee was a qualifying tenant of the relevant flat. These conclusions followed a decision of Mr David Donaldson QC, sitting as a deputy High Court judge in Maurice v Hollow-Ware Products Ltd  2 EGLR 71. The freeholders appeals were heard together by the Court of Appeal  EWCA Civ 499,  Ch 26, who allowed both appeals. The head lessee in each case now appeals to your Lordships House.
The 1993 Act
9. Chapter I of Part I, which extends from sections 1 to 38, of the 1993 Act (Chapter I) is entitled Collective enfranchisement in case of tenants of flats". It contains provisions to enable lessees in blocks of flats, who are able to satisfy certain conditions, to get together to enfranchise - viz to acquire the freehold interest in the block.
10. Chapter II is entitled Individual right of tenant of flat to acquire new lease". It begins with section 39 which is concerned with identifying the type of lessee who is entitled to have the right to a new long lease. In its current form, it provides as follows:
(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; . . .
(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 references in this Chapter to a qualifying tenant of a flat shall accordingly be construed by reference to those provisions.
(4) For the purposes of this Chapter a person can be 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.
(8) 'the relevant date means the date on which notice of the claim is given under section 42.
11. Section 5, part of which is incorporated by reference into section 39 by subsection (3)(a), is in these terms so far as relevant:
(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; .
(3) No flat shall have more than one qualifying tenant at any one time.
(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 .. .".
By section 5(5), which applies to Chapter I but not to Chapter II, where a person would otherwise be a qualifying tenant of three or more flats in a building, those flats shall be regarded as having no qualifying tenant. Section 7, similarly incorporated into Part II by section 39(3)(b), defines a long lease as being, subject to certain immaterial exceptions, a lease granted for 21 years or more.
12. Section 40 identifies the landlord for the purposes of this Chapter". Section 42 provides for a claim under Chapter II to be initiated by a tenants notice which must contain sufficient particulars of [the] flat to identify the property to which the claim extends - see section 42(3)(b)(1). By subsection (3)(c), the tenants notice must also state the premium which the tenant proposes to pay, and, by subsection (3)(f), the date by which the landlord must give a counter-notice (which must be at least two months after the date of the notice). By section 45, the landlords counter-notice must be served by the specified date, and must either admit or not admit the tenants right. It must also state which of the terms proposed in the tenants notice are agreed or rejected, and, in relation to those which are rejected, it must state the landlords counterproposals.
13. The County Court is given powers to determine the validity of the tenants notice under section 46. By section 49(1), if the landlord fails to give a counter-notice, the County Court may, subject to certain exceptions, make an order determining, in accordance with the proposals contained in the tenants notice, the terms of acquisition".
14. Section 56 (1) provides that, where a qualifying tenant has a right to acquire a new lease and has given a notice in accordance with section 42, save where Chapter II otherwise provides:
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
a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease.
15. Section 57 is an important section for present purposes, and it includes the following:
(1) [T]he 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 the 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.
(2) Where during the continuance of the new lease the landlord will be under any obligation for the provision of services, or for repairs, maintenance or insurance
(a) the new lease may require payments to be made by the tenant (whether as rent or otherwise) in consideration of those matters or in respect of the cost thereof to the landlord; and
(b) (if the terms of the existing lease do not include any provision for the making of any such payments by the tenant or include provision only for the payment of a fixed amount) the terms of the new lease shall make, as from the term date of the existing lease, such provision as may be just
(i) for the making by the tenant of payments related to the cost from time to time to the landlord, . . .
(6) Subsections (1) to (5) shall have effect subject to any agreement between the landlord and tenant as to the terms of the new lease or an agreement collateral thereto; and either of them may require that for the purposes of the new lease any term of the existing lease shall be excluded or modified in so far as
(a) it is necessary to do so in order to remedy a defect in the existing lease; or
(b) it would be unreasonable in the circumstances to include, or include without modification, the term in question in view of changes occurring since the date of commencement of the existing lease which affect the suitability on the relevant date of the provisions of that lease . . .
16. Section 57(8A) says that a person entering into a covenant in the new lease as landlord shall be entitled to limit his personal liability to breaches of that covenant for which he is responsible". Section 57(9) provides, where there is a third party (eg a management company) to the existing lease, it is required to be party to the new lease, but only up to the term date of the existing lease". By section 57(10), where such a third party is required to carry out a function under the existing lease, then, under the new lease, from the date of expiry of the existing lease, provision should be made for that function to be carried out by the third party or by some other person".
17. Section 58 covers cases where an existing interest is subject to a mortgage. Section 58(4) states that where the existing lease is, immediately before its surrender on the grant of a lease under section 56, subject to any mortgage, the new lease shall take effect subject to the mortgage in substitution for the existing lease ".
18. Subsection (2) of section 62, the final section of Chapter II, is in these terms:
(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
19. Chapter VII of Part I of the 1993 Act has provisions which apply to all Chapters of Part I. It includes section 91, which is concerned with the jurisdiction of the Leasehold Valuation Tribunal (LVT). Section 91(2)(a) gives a LVT jurisdiction to determine the terms of acquisition [of] any new lease to be granted in pursuance of Chapter II", which include any matter which needs to be determined for the purposes of any provision of Schedule 13". Section 91(2)(e) empowers a LVT to determine the apportionment between two or more persons of any amount (whether of costs or otherwise) payable by virtue of any provision [of Chapter I or II]". Section 91(9) says that a LVT may specify in its determination property which is less extensive than that specified in [a tenants section 42 notice]".
20. Also in Chapter VII, section 101 contains provisions and definitions applicable to all Chapters of Part I. Section 101 (1) has the following relevant definitions:
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
By section 101(2), it is provided that the expression lease has the same meaning as tenancy and that it includes a sub-lease or sub-tenancy". Section 101(3) is in these terms:
(3) In this Part any reference (however expressed) to the lease held by a qualifying tenant of a flat is a reference to a lease held by him under which the demised premises consist of or include the flat (whether with or without one or more other flats).
21. So far as the premium for the grant of the new lease is concerned, it is to be calculated in accordance with the provisions of Schedule 13. Para 2 of that Schedule provides that:
The premium payable by the tenant in respect of the grant of the new lease shall be the aggregate of
(a) the diminution in value of the landlords interest in the tenants flat as determined in accordance with paragraph 3,
(b) the landlords share of the marriage value as determined in accordance with paragraph 4, and
(c) any amount of compensation payable to the landlord under paragraph 5.
Para 5 is, so far as relevant, in the following terms:
(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 tenants flat which results from the grant to the tenant of the new lease; and
(b) any other loss or damage which results there from to the extent that it is referable to the landlords ownership of any such interest.
22. Finally, I must refer to Schedule 11, which deals with cases where a flat is subject to a hierarchy of leases. It identifies a competent landlord whose acts are binding on all the other landlords. Where an underlessee exercises a right under Chapter II, any new lease granted by the freeholder would, at least on the face of it, be reversionary on the head lease. This problem is solved by paragraph 10, which provides for a notional surrender of the head lease, before the grant of the new lease to the underlessee, which is followed by a notional re-grant of the head lease.
The issue between the parties
23. The case for the freeholders is that neither of the appellant head lessees is a qualifying tenant of a flat for the purposes of Chapter II. Miss Judith Jackson QC, for the freeholder in Howard de Walden, contends that a lessee cannot be a qualifying tenant of a flat if the premises demised by his lease consist of a building which includes a number of flats. Mr Philip Rainey, for the freeholder in Cadogan, contends that a lessee cannot be qualifying tenant of a flat if his lease includes property other than flats within the meaning of the 1993 Act. Although they formulate their respective cases slightly differently, the supporting arguments and reasons advanced on behalf of the respondents are not merely mutually consistent, but for all practical purposes identical.
24. The appellant head lessees, through Mr Anthony Radevsky in Howard de Walden, and Mr Edwin Johnson QC in Cadogan, contend that, provided, of course, the lease is a long lease, a lessee under a lease, whether it is a head lease or not, of any property (including a block of flats) which is or includes a flat can be a qualifying tenant of that flat, unless, of course, there is an under-lessee of that flat who is himself a qualifying tenant.
25. In the light of the way in which the Court of Appeal approached this matter, and of the arguments which have been advanced so well before your Lordships, it seems to me that a two stage approach to the issue is appropriate. The first stage involves considering the issue by reference to the statutory language. If, as I believe, this gives a tolerably clear answer, one must then consider whether the rights, obligations and procedures laid down in Chapter II require a different conclusion.
The statutory language
26. The first subsection of Chapter II, namely section 39(1), confers the relevant right on a tenant of a flat". That might be said to be a neutral expression in the present context, because it could be limited to the relatively narrow concept of a lessee of a flat and no other property, or the rather wide notion of a lessee of a flat together with other property. However, in the absence of any further indication either way, I would have thought that its natural meaning extended to the lessee of a property which included, but was not limited to, a flat.
27. Having said that, section 39(4), set out in para 10 above, makes it clear that, at the very least, the expression a tenant of a flat extends to the lessee of a flat together with another flat or other flats. It is said on behalf of the respondents that the inclusion of section 39(4) is an indication that the narrower meaning was right, because, if the expression had the wider meaning, it would have been unnecessary to include section 39(4). I do not agree. Section 39(4) is not concerned with the definition of a tenant of a flat but with who can be a qualifying tenant of a flat". In other words, it effectively takes it for granted that a tenant of a flat in section 39(1) extends to a lessee under a lease of more than one flat, and merely emphasises that such a person can be a qualifying tenant of any such flat.
28. Accordingly, if one confines oneself to section 39, it appears clear that the lessee of a number of flats can, in relation to each flat, be a tenant of a flat under section 39(1). In the absence of any clear indication, it is hard to see how it does not follow, as a matter of logic, that the lessee of any property which includes one or more flats is, in relation to each such flat, a tenant of a flat".
29. That view appears to me to be strongly reinforced by section 101(3), set out in para 20 above. Its effect is that where demised premises consist of or include the flat", the lessee can be a qualifying tenant of the flat. The expressions the demised premises and include are, importantly for present purposes, unqualified. It was suggested that the bracketed closing phrase of the subsection, (whether with or without one or more other flats) effectively amounted to a limitation, and indicated that the demised premises other than the relevant flat could only be one or more other flats", and not other property, such as common parts. As a matter of language, that argument simply does not run, in my judgment. The bracketed words merely emphasise that the fact that more than one flat is included in the demised premises would not prevent the lessee of those premises being a qualifying tenant of any of those flats.
30. The view that a lessee of premises whose lease includes a flat (irrespective of whether there are other flats or any other property included in the demise) can be a qualifying tenant of that flat is reinforced by the reference in section 57(1)(a) to property which is included in the existing lease but not comprised in the flat". If the only other premises which could be included in a lease to a qualifying tenant, in addition to the relevant flat, was another flat or other flats, one would have expected the reference to be to other flats rather than to property".