Cadogan& Anor v Strauss

LORD JUSTICE CHADWICK: This is an appeal from an order made on 22 May 2003 by HHJ Cotran, sitting at Shoreditch County Court, in proceedings brought under the Leasehold Reform Act 1967. The appeal raises the question whether a notice given by the leasehold owner of his desire to enfranchise is a valid notice having regard to the requirements in paragraph 6 of Schedule 3 to the 1967 Act.

The respondent to this appeal, Mr Dennis Strauss ("the tenant"), is the leasehold owner of a house and garden at 21 Cheyne Walk, London SW3. The house is held for a term of 65 years from 25 December 1982 under a lease dated 12 April 1983. The rent reserved under that lease is £1,000 per annum. The garden is held for the same term but under a separate lease also dated 12 April 1983. The rent reserved under the garden lease is £600 per annum. The two parts of the property -- the house and the garden -- are registered under separate leasehold titles at Her Majesty's Land Registry.

The appellants, Earl Cadogan and Cadogan Holdings Limited, are between them the freehold owners of the house and garden and the persons immediately entitled in reversion on determination of the leasehold interests vested in the tenant. For convenience I shall refer to the appellants together as "the landlord".

On 6 June 1996, solicitors instructed by the tenant served notice on his behalf of his desire to have the freehold house and garden comprised in the two leases of 12 April 1983. The landlord's response was to serve a notice in reply, dated 28 August 1996, refusing to admit the tenant's claim on the ground that the tenancy was not a tenancy at a low rent for the purposes of the Leasehold Reform Act 1967.

The basis upon which that notice was served is set out in a letter dated 29 August 1996 from the landlord's solicitors:

A word of explanation is required. Section 4(1) of the 1967 Act defines low rent in terms which excludes tenancies where the rent exceeded two thirds of the rateable value on 23 March 1965, and also tenancies where the yearly rent exceeded £1,000. Section 1A(2) of the 1967 Act was introduced by amendment in 1993. It provided an alternative to section 4(1) in cases where the tenant sought to acquire the freehold but not an extended lease. The alternative was available if the tenancy fell within section 4A(1). The requirement under that section was that the aggregate amount of rent payable under the tenancy during the initial year did not exceed two thirds of the rateable value of the property on the relevant date. The relevant date was the date of the commencement of the tenancy. The effect of that change in the law was to bring into the scope and ambit of the 1967 Act long leases in the more affluent parts of London which had previously been excluded by the rateable value limit.

The initial year was defined for the purposes of section 4A to mean the period of one year beginning with the date of the commencement of the tenancy. Each of the 1983 leases in this case required payment of rent in advance on the usual quarter days, but provided that a first payment of rent "in respect of the period from 25 December 1982 to the quarter day immediately following the date of the lease" was to be made on the date of the lease. That had the effect that two quarters' rents were payable on 12 April 1983 and a further four quarters' rents were payable on the four quarter days from 24 June 1983 to 25 March 1984, making the total amount of the rent payable during the year commencing 12 April 1983 equal to one and a half times the annual rent of £1,600 - that is to say, £2,400.

The response to that letter -- in a letter dated 17 September 1996 -- was to assert that, although the leases were dated 12 April 1983, the term had commenced on 25 December 1982. So, it was said, the year from 25 December 1982 to 24 December 1983 was the initial year for the purposes of Section 4A. It was the rent payable in the period of that initial year that was to be taken into account for determining whether the tenancy was a tenancy at a low rent. If that were right, then the rent actually payable before 25 December 1983, or £1,600, was a low rent on the alternative basis set out in Section 4A(1) of the Act.

That view of the position was rejected by the landlord's solicitors. But by a letter of 11 November 1996, the tenant's solicitors took a further point:

That gave rise to a letter from the landlord's solicitors dated 21 November 1996 in which what has come to be accepted as the factual position is set out:

The parties were unable to reach agreement as to the legal effect of the factual circumstances in which the two leases of 12 April 1983 were granted. But neither seem to have been in any hurry to resolve the position. It was not until 30 July 2002 that these proceedings were commenced by the issue of a claim form under CPR Part 8 in the West London County Court. By that claim the landlord sought a declaration that the tenant was not entitled to have the freehold of 21 Cheyne Walk under the 1967 Act.

The grounds on which that declaration was sought were those which had been advanced in the correspondence some five and a half years earlier, namely that the tenancy was not a tenancy at a low rent either under the primary test in section 4 of the 1967 Act or under the alternative test provided by Section 4A of that Act. The application was supported by a witness statement made by a solicitor for the landlord on 29 July 2002. I should, for completeness, read the final paragraph of that witness statement:

A defence and counterclaim were served on or about 18 September 2002. In that pleading the tenant took a point which had not been taken in the earlier correspondence. After referring to the 1972 lease of the house -- that is to say the lease granted for 50 and a quarter years from 29 September 1972 -- the pleading went on to assert in paragraphs 12 to 16:

The secondary case advanced in that defence and counterclaim was that which had been put forward earlier, in 1996; namely that the initial year for the purposes of the 1967 Act was the first year of the term granted by the 1983 leases, that is to say the year ending 24 December 1983.

The primary point now before this court was first taken by the landlord in its reply dated 29 October 2002 -- over six years since the notice was served on it. The point appears at paragraph 4 of the reply and defence to counterclaim served on behalf of the landlord:

At paragraph 8 of that pleading the landlord took a second point also not taken in the earlier correspondence:

The issues for decision at the hearing before HHJ Cotran are conveniently summarised at paragraph 4 of the case summary prepared for that hearing:

The judge decided each of those issues against the landlords. His conclusions are summarised at paragraph 39 of the judgment which he delivered on 22 May 2003:

The landlord appeals to this court with the permission granted by Arden LJ on 10 July 2003. The principal ground taken in the appellant's notice is that the judge ought to have held that the notice dated 6 June 1996 was invalid. In the alternative, the landlord takes the point that, if the notice was valid, then the judge should have found that the alternative low rent test under Section 4A(1) of the 1967 Act was not satisfied.

By a respondent's notice, the tenant seeks to uphold the judge's decision on the additional ground that the tenant was not required to refer to the 1972 lease in his notice of June 1996 under the Act because he did not then know about the 1972 lease.

I turn, therefore, to the relevant statutory provisions. The 1967 Act confers on the tenant of a leasehold house, occupying the house as his residence, the right to acquire on fair terms the freehold or an extended lease where two conditions are satisfied:

It is not in dispute in the present case that the tenancy under which the tenant is in occupation is a long tenancy and that he has been in occupation for the requisite period. Nevertheless, the provisions of section 3 of the Act -- which define long tenancy -- are material. By section 3(1) a long tenancy means a tenancy granted for a term of years certain exceeding 21 years, notwithstanding that it may be terminable by re-entry or forfeiture. Section 3(3) addresses the position where there have been successive tenancies. It is in these terms:

Section 3(6) is directed to the case where there is more than one concurrent tenancy of the premises which the tenant seeks to enfranchise. It is in these terms:

The two leases were co-terminus, each ending on 25 December 2047. Section 3(6) required that Part 1 of the Act be applied as if the house and garden were comprised in a single tenancy, which was itself a long tenancy; and required that the Act be applied as if the term of that single tenancy had commenced on 29 September 1972, that being both the earliest commencement date and the commencement date of the tenancy comprising the house (which, for the purposes of section 3(6), is treated as the dominant tenancy).

I return, therefore, to the further provisions of the 1967 Act. As I have said, Section 4A provides alternative rent limits for the purposes of section 1A(2); that is to say, alternative limits where the tenancy of the property is not a tenancy at a low rent in accordance with the test in section 4(1).

It is common ground that, if the relevant tenancy in the present case were the 1983 tenancy, then it would not fall within section 4(1). It is common ground also that, if the relevant tenancy is the 1972 single tenancy -- as it is -- it also will not fall within section 4(1). Section 4A(1) and (2) is in these terms:

Section 5 of the Act prescribes how the right to acquire the freehold, conferred by section 1 in conjunction with section 1A and section 4A if the conditions as to long tenancy and low rent are satisfied, is to be exercised and given effect:

That deemed contrast is commonly referred to as "the statutory contract". The obligations under the statutory contract (in a case where the tenant desires to have the freehold) are set out in section 8(1):

Section 9 of the 1967 Act provides for the determination of the price to be paid under the statutory contract. In the present context, it is necessary to note only that the price is fixed by reference to the open market at "the relevant time"; and that the relevant time for that purpose is the time when notice is given by the tenant of his desire to have the freehold: (section 37(1)(d)).

Those provisions identify and emphasise the importance of giving a notice exercising the statutory right to acquire the freehold. The notice gives rise to the statutory contract, which imposes the obligations on the landlord to grant the freehold; and it defines the date by reference to which the valuation is to be made.

Part 2 of Schedule 3 to the 1967 Act -- which has effect by reason of section 23(1)(d) -- sets out the procedural provisions in relation to the content and service of notices. Paragraph 6(1) is in these terms, so far as material:

Paragraph 6(3) in Schedule 3 provides that a notice exercising the right to acquire the freehold shall not be invalidated by any inaccuracy in the particulars required:

I turn now to the notices given in the present case. They were in forms 1 and 2, respectively, annexed to the Leasehold Reform Notices (Amendment) Regulations 1993. It is not suggested that either notice was not in the prescribed form required. The criticism is of the particulars included in the notices.

The notice of 6 June 1996 begins, at paragraph 1, by requiring the landlord to take notice that the tenant, as tenant of the house and premises described in the schedule, desires to have the freehold of the said house and premises, and that the tenant is making the claim in exercise of his rights under the 1967 Act. Paragraph 1 contains the statements that the particulars on which he relies are set out in the schedule to the notice. Paragraph 2 requires the landlord to give the tenant, within two months of the service of the notice, a notice in the prescribed form stating whether or not the right to have the freehold is admitted, subject to any question as to the correctness of the particulars of the house and premises given in the notice; and if not admitted, stating the grounds on which it is not admitted.

In the schedule to the notice, the address of the house, 21 Cheyne Walk, London SW3, appears at paragraph 1. Paragraphs 2, 3 and 4 are in these terms:

The landlord's notice in response, dated 28 August 1996, acknowledged receipt of that notice of 6 June and stated:

The first issue raised on the appeal is whether the tenant's notice of 6 June 1996 was a valid notice, having regard to the requirements in paragraph 6 of Schedule 3 to the 1967 Act. As I have said, for the purposes of the application of Part 1 of the 1967 Act, the house and garden at 21 Cheyne Walk has to be treated as held under a single tenancy granted on 5 December 1972 for a term commencing on 29 September 1972. It is said, on behalf of the landlord, that the notice of 6 June 1996 does not identify the instrument creating that tenancy -- as it should, under paragraph 3 of the schedule to the notice -- and that it does not give sufficient particulars of the tenancy to show that the tenancy is and has at the material times been a tenancy at a low rent, or is to be treated as a tenancy at a low rent.

What is required under paragraph 3 of the schedule to the notice are "particulars sufficient to identify the instrument creating the tenancy". It is submitted on behalf of the landlord that, although two leases are identified under that paragraph -- being the two leases of the 12 April 1983 referred to in paragraph 2 of the schedule -- there is no reference to the lease of the 5 December 1972, which is one of the instruments creating the relevant tenancy. It is pointed out, correctly, that -- against paragraph 3 of the schedule -- there is a reference to note 7 of the prescribed form, which begins with this sentence:

Further it is said that paragraph 4, which contains the assertion (in support of the contention that the tenancy is a tenancy at a low rent) that the rent is £1,600 at a time when the rateable value of £2,472 is wholly wrong. Although there is a dispute as to what the initial rent under the single tenancy commencing in 1972 would be, it is said that the tenant, in order to state his case, should have claimed that the initial aggregate rent payable under the relevant leases was £250, which was less than two thirds of the rateable value of the property on 29 September 1972 or 5 December 1972, being £930.

The short question on this first issue is whether the defects in the notice to which I have just referred are properly to be regarded as "inaccuracies in the particulars" required by paragraph 6 in Part 2 of Schedule 3 to the 1967 Act, so as to be saved by paragraph 6(3). That paragraph, as I have indicated, provides that the notice shall not be invalidated by any inaccuracy in the particulars required by, inter alia, paragraph 6(1).

What amounts to an "inaccuracy" in this context has been considered by this Court on two occasions within the past 20 years. First in Cresswell v Duke of Westminster and Others [1985] 2 EGLR 151; and secondly, and more recently, in Speedwell Estates Limited and Another v Dalziel and Others [2002] 1 EGLR 55. The common thread in those decisions is that whether or not a defect in a Leasehold Reform Act Notice is to be regarded as an inaccuracy is essentially a matter to be decided on the facts of each case. In the former case, Cresswell, Sir John Donaldson MR said this at page 152 between D and F:

It is perhaps pertinent to note that the dichotomy in paragraph 6(3) in the schedule to the 1967 Act is between "any inaccuracy in the particulars required by this paragraph" and "any misdescription of the property to which the claim extends". Paragraph 6(3) goes on to provide that, in relation to misdescription of the property, the notice can be amended with the leave of the court so as to include or exclude property which should or should not have been the subject of the claim. The legislature has not thought it necessary to provide for an amendment to the notice to correct "inaccuracy in particulars" as distinct from "misdescription of the property". The reason is obvious. The notice gives rise to the formation of a statutory contract. It is obviously essential that the property which is the subject of that contract should be defined with sufficient precision to enable it to be the subject of a grant under section 8 of the Act. So if the contract is to be carried into effect, it is necessary that the notice should be amended so as to describe the property accurately. But, in relation to the particulars required by paragraph 6 other than the identity of the property, the position is different. Whether the notice has effect to create a statutory contract depends not on what is in the notice, but on whether the statutory conditions which confer on the tenant the right to acquire the freehold on fair terms have been met; and if that is a matter of dispute following the service by the landlord of a notice not admitting the claim, that dispute may be expected to be resolved by the court. Once the court has decided whether there is or is not a right to acquire the freehold, the particulars in the notice cease to be of importance.

The purpose -- and, if I may say so, the obvious purpose -- of the particulars set out in paragraph 6(1) of Schedule 3 to the Act, is to enable the landlord to decide whether or not to admit the claim. But, as paragraph 7(1) of the Schedule itself makes clear (and is reflected in the prescribed form of the landlord's notice), any admission of the claim is subject to the correctness of the particulars. So a landlord who admits a claim on the basis of particulars which are subsequently shown to be incorrect is not bound to a statutory contract. A landlord who does not admit the claim will be inviting the tenant, in effect, to proceed to establish the claim in proceedings in court. In those proceedings there is, as it seems to me, no reason in principle why the tenant should be bound by the matters set out in the notice. If those matters are inaccurate there is no reason why he should not rely on the true facts.

In Speedwell Estates v Dalziel, Rimer J, giving the main judgment, made the point that a notice of this kind has to be construed against the background and purpose for which it is given. He identified the possibility, inherent in the judgments in Cresswell, that there might be a degree of inaccuracy so fundamental as to lead to the conclusion that the particulars did not fairly reflect the true facts at all. In such a case, paragraph 6(3) of Schedule 3 would be of no assistance. But subject to that, if the matter was properly regarded as inaccuracy rather than failure to comply with the requirements at all, then the notice could be saved.

The judgment in Dalziel is illuminating. Rimer J went through the many and varied criticisms of the notices given in that case. He took the view, with which the other members of the court agreed, that there was really only one defect which could be regarded as going beyond mere inaccuracy. That was the tenants' failure to give any information as to their occupancy and residence -- a matter which paragraph 6(1)(b) requires. In the Dalziel case, the tenants had written against box 6, either "not applicable", or "N/A". Rimer J commented in these terms at paragraph 39 of his judgment:

That purpose was frustrated by the answers which the appellants had given to the information sought under box 6 in the notices under consideration in Dalziel. In those circumstances, it is not at all surprising that the court came to the conclusion that the failure was not merely an inaccuracy; it was a failure to provide or attempt to provide the information which the statute required. The notices were not notices under the statute which contained inaccuracies in the particulars; they were not notices under the statute at all because they made no attempt to provide particulars in respect of an essential matter of fact.

By contrast, in the present case, there is no failure to provide information. The failure is to appreciate that the information provided is not complete; and, because not complete, not accurate. The information is incomplete because the tenant, or his adviser, when completing the schedule to the notice, did not appreciate that there had been a lease granted in 1972. If he had appreciated that, it should have been included under paragraph 3 of the schedule to the notice and the appropriate figures as to rent and rateable value should have been included under paragraph 4 of the schedule. But what is intended represents a proper attempt -- albeit an inaccurate attempt -- to meet the requirements of the Schedule to the Act. In my view, that defect is properly to be regarded as an inaccuracy within paragraph 6(3) of Schedule 3 to the 1967 Act. Because the defect is within paragraph 6(3) of the Schedule, the notice is saved from invalidity.

I should add two further points. First, that the information which has not been provided -- but should have been provided -- is information which would be known to the landlord if the landlord had investigated its own register of leases. The existence of the 1972 lease could come as no surprise to this landlord, who was the grantor. Second, that when the 1972 lease was brought to the landlord's attention on 11 November 1996, that is to say some five months after the notice, the landlord's reaction was not to assert that the notice was invalid; the landlord's reaction was to provide a comprehensive statement of what the information should have been. In those circumstances, it does not lie in the mouth of this landlord to assert that the failure to include in the notice information which should have been there has led to any prejudice in its consideration whether to admit or reject the claim for enfranchisement.

I would reject the landlord's contention that the notice of 6 June 1996 was not a valid notice under the 1967 Act.

That leads to the second issue. If this is a valid notice, then is the tenancy in respect of which the tenant relies -- and is bound to rely -- a tenancy at a low rent for the purposes of section 4A(1)? The relevant tenancy, for the reasons which I have set out, is the hypothetical single tenancy granted on 5 December 1972 for a term commencing on 29 September 1972. That is what section 3(3) and (6) of the 1967 Act requires. The single tenancy must be treated as having a commencement date in 1972 for, amongst other purposes, the application of section 4A(1) and (2).

In relation to this single tenancy, "the relevant date" means either 29 September 1972 or 5 December 1972; and "the initial year" means the period of one year beginning with that date. It is not necessary to decide whether the date of commencement of that tenancy is, as the tenant would assert, 29 September 1972 (that is to say the date from which the term commences); or the date of the grant of the lease, 5 December 1972, for which the landlord would contend. It is not necessary to determine that question because, whichever date is taken, the rent payable under that tenancy in respect of the property was less than two thirds of the rateable value at the relevant date.

It was submitted on behalf of the landlord that in some way there was to be added to the rent payable in 1972 rent which first became payable under the garden lease in 1983. In my view, the statute does not permit that. The relevant inquiry is: what rent was payable in respect of the property during the initial year? The answer to that is the rent payable under the 1972 lease in the year 1972/1973. Applying that test, the relevant tenancy is a tenancy at a low rent for the purposes of section 4A(1).

For those reasons, I would dismiss this appeal.

LORD JUSTICE SCOTT BAKER: I agree.

LORD JUSTICE BROOKE: I also agree, and I wish only to add a few words in relation to Mr Radevsky's alternative ground of appeal. Section 3(6) of the 1967 Act provides tidy arrangements whereby if there are at any time separate long tenancies with the same landlord and the same tenant of a house and of land occupied therewith, then Part 1 of the Act is to apply as it would if at that time there was a single long tenancy with the same commencement and term date of a tenancy comprising the house.

Parliament did not, however, provide any legislative formula by which one could identify the rent payable under this hypothetical single long tenancy for the purposes of the calculations as required by the Act. In this case the relevant long tenancy of a house commenced in 1972 and the relevant long tenancy of the garden commenced in 1983. It is well-known that the value of money changed significantly between those two years.

In the absence of any Parliamentary guidance, I do not consider that we should invent a rent attributable to the garden in 1972 to be added to the known rent attributable to the house. Still less do I consider that we should follow the demonstrably unreasonable course suggested by Mr Radevsky of treating the 1983 rent of the garden as if it was the 1972 rent. If there is a lacuna in the Parliamentary scheme which needs to be filled somehow or other, I do not consider that the court is at all well qualified to give it. This must be a matter for Parliament, which will no doubt wish to consider the likely number of cases in which a new formula will make a significant result to the outcome before deciding whether the game of taking up Parliamentary time for this purpose is worth the gamble.