Gray’s Inn Investments Limited v Sally Claire Jolleys

This appeal raises a short point about the liability of a tenant for reasonable costs incurred by the landlord after a notice has been given under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993.

The appeal has been determined under the Tribunal’s written representations procedure. Grounds of appeal were prepared for the appellant landlord, Grays Inn Investments Limited, by Stevensons Solicitors. The lessee, Ms Sara Jolleys, provided written representations in response to the appellant’s application for permission to appeal, but has chosen not to participate in the appeal as respondent.

Chapter 2 of Part 1 of the 1993 Act gives certain qualifying tenants holding a long lease of a flat the right to acquire an extended lease. The process of acquisition is initiated by the lessee serving on the landlord a notice under section 42 of the 1993 Act.

On 18 June 2018 Mr Ian Warburton gave such a notice in respect of 168, Caldy Road, Handforth, Wilmslow SK93BS to the appellant. Mr Warburton did so as the executor of Mr K Warburton, who had been the tenant of 168 Caldy Road (a flat) under a 99-year lease dated 7 October 1965. The appellant gave a counter-notice on 28 August 2018; if I have understood correctly, only the premium payable was in dispute.

On 14 December 2018 Mr Ian Warburton sold 16B Caldy Road to Ms Jolleys. The 1993 Act makes express provision for the situation where the flat is sold or otherwise disposed of after a section 42 notice has been given. Section 43 provides as follows:

“(1)

Where a notice has been given under section 42 with respect to any flat, the rights and obligations of the landlord and the tenant arising from the notice shall enure for the benefit of and be enforceable against them, their personal representatives and assigns to the like extent (but no further) as rights and obligations arising under a contract for leasing freely entered into between the landlord and the tenant.

(2)

Accordingly, in relation to matters arising out of any such notice, references in this Chapter to the landlord and the tenant shall, in so far as the context permits, include their respective personal representatives and assigns.

(3)

Notwithstanding anything in subsection (1), the rights and obligations of the tenant shall be assignable with, but shall not be capable of subsisting apart from, the lease of the entire flat; and, if the tenant's lease is assigned without the benefit of the notice, the notice shall accordingly be deemed to have been withdrawn by the tenant as at the date of the assignment.

(4)

In the event of any default by the landlord or the tenant in carrying out the obligations arising from the tenant's notice, the other of them shall have the like rights and remedies as in the case of a contract freely entered into.”

On the same date as he transferred the flat to Ms Jolleys, 14 December 2018, Mr Ian Warburton assigned to her the benefit of the section 42 notice. Clause 2 of the deed of assignment said:

“The Buyer covenants with the Seller to reimburse to the Seller any statutory deposit paid to the Landlord and to perform and discharge all of the obligations arising from the Notice of Claim and to keep the Seller fully and effectually indemnified against all actions, proceedings, damages, costs, claims and expenses arising out of the giving of the Notice of Claim."

Accordingly, the tenant who has served a section 42 notice has to reimburse the landlord for any costs incurred as a result of the notice, but not for any costs incurred in the FTT. In the present case the section 42 notice was deemed withdrawn because Ms Jolleys did not continue with the procedure. It was the appellant’s case that she had stepped into the shoes of Mr Ian Warburton when the lease was assigned to her, in accordance with section 43, and that therefore she took on the liability, under section 60, of the tenant who gave the notice to pay the landlord’s costs up until the date when the notice was deemed withdrawn, excluding costs incurred in the FTT proceedings.

The FTT refused the application. In its decision of 26 September 2022 it set out the background and said:

“10.

… The Tribunal is satisfied that, as the Respondent is not "the tenant by whom [the Notice" is given, the Respondent is not liable to the Applicant for any costs under s6o of the Act.

11.

There is no evidence before the Tribunal of a stipulation (as envisaged by s6o (1) of the Act) entered into by the Respondent on the sale of the Property that imposed an obligation on her to the Applicant to meet its costs. …

12.

Further, the Tribunal notes that clause 2 of the Assignment contains an indemnity from the Respondent in favour of Mr. Ian Warburton as Seller " ... against all .... costs ... arising out of the giving of the [N]otice".

13.

The Tribunal considers that the effect of the Assignment is to entitle the Seller to seek reimbursement by way of indemnity from the Respondent for costs for which the Seller is liable to the Applicant under s6o of the Act.”

The appellant appeals with permission from this Tribunal.

As the appellant says, the FTT misconstrued section 60 of the 1993 Act. The effect of the section is, as the FTT said, that the “the tenant by whom the notice is given” is liable for the landlord’s costs. But the effect of section 43(1) is that when Ms Jolleys took the benefit of the section 42 notice she also took on the liabilities that went with it. Therefore section 43(2) provides that “references in this Chapter to … the tenant shall, in so far as the context permits, include their assigns”, and that means that the reference to the tenant in section 60(1) includes the tenant’s assignee.

The FTT was led astray by the closing words of section 60(1), which it appears to have thought meant that the assignee would take on this liability only if there was an express stipulation to that effect in the transfer of the flat to Ms Jolleys. That is not what it means; it is an exception to the provision that precedes it, and its effect is to except certain costs from the tenant’s liability. What those costs are is a bit obscure, but footnote 220 to paragraph 28-32 of Hague on Leasehold Enfranchisement expresses the view (about the same provision in the context of collective enfranchisement in section 33 of the 1993 Act) that the reference is to certain unusual costs which s.48 of the Law of Property Act 1925 provides that a purchaser cannot be required to pay to a vendor, for example the cost of a vesting deed under the Settled Land Act 1925. What the closing words clearly do not mean is that the section 60(1) liability arises, for an assignee, only where the transfer of the flat expressly requires it.

The provision in the deed of assignment, quoted at paragraph 6 above, is not relevant to the issue in the appeal since, as the FTT correctly observed, it created only a liability to Mr Warburton. Ms Jolley’s liability to the appellant is created by the combination of sections 60 and 43. As I said above she has chosen not to participate in the appeal; in the FTT she argued that she had not been informed that she would be liable for any costs, but that is not relevant (and in any event as the FTT observed she was informed of her liability by the terms of the deed of assignment).

For that reason the appeal is allowed and the FTT’s decision is set aside, and the Tribunal substitutes its own decision that Ms Jolleys is liable to pay the appellant’s costs under section 60 of the 1993 Act. The appellant has not provided details of its costs to the Tribunal and so the Tribunal cannot assess them, and the matter is remitted to the FTT for the costs claimed by the appellant to be assessed.