Is a Counter Notice binding?

This was a complex collective enfranchisement case. The freehold interest at 25 Hans Place was owned by the Cadogan Estate, subject to a head lease over the whole building. Qualifying leases were granted from this - four of these had been extended under the 1993 Act; the fifth remained extremely short. The leases demised the flats in the premises, save for the caretaker’s flat which, by default, was held under the head lease.

An Initial Notice was served by nominee purchaser to acquire the freehold and head leasehold interests. Immediately thereafter, the head leaseholder, relying on the House of Lords decision in Aggio, served a Notice of Claim for a new lease of the caretaker’s flat.

Despite this, the freeholder served a Counter Notice (as competent landlord) admitting the nominee purchaser’s right to acquire the premises, including the caretaker’s flat. However, the status of the caretaker’s flat remained problematic and in dispute, and so a Tribunal application was made by the freeholder at an early stage.

The Tribunal were asked to determine the issue of the caretaker’s flat as a preliminary point but declined and instead, a hearing was listed to deal with all points. In the meantime, the valuers were able to agree valuations in the alternative, and so unusually, the hearing dealt only with legal issues.

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Briefly, these were as follows:

Whether, following service of the Counter Notice admitting the nominee purchaser’s right to acquire the caretakers flat, the Tribunal had jurisdiction to determine their entitlement to acquire the caretaker’s flat.

If the Tribunal did have jurisdiction, whether the nominee purchaser had a right or obligation to acquire the caretaker’s flat on grounds that it was one of the common parts of the building, and its acquisition was reasonably necessary for the proper management/maintenance of the common parts. This was not clear cut - the basement flat was vacant, both at the date of the claim and the hearing. The ‘obligation test’ (rather than the ‘use test’) was therefore key.

Whether, if there was an enforceable covenant to supply a caretaker’s flat, that obligation had been waived by the leaseholders.

By the Tribunal’s own admission, there was no direct authority on the question of jurisdiction. They did however find in the nominee purchaser’s favour and determined that the Counter Notice was binding on the head leaseholder.

The Tribunal were also persuaded by the nominee purchaser’s arguments that the short lease imposed a covenant on the landlord to supply caretaking services/accommodation, and so found for the nominee purchaser also on the obligation test, rejecting the head leaseholder’s plea of waiver.

This was an enormous victory for the nominee purchaser. The case also provides authority that a Counter Notice served by a competent landlord is binding on all parties.