Drowning in complexities

The lease was subject to a mortgage and the mortgagee granted a sub-charge to another bank who could appoint receivers with wide powers to give notices in the tenant’s name. Peter James was made bankrupt and a trustee in bankruptcy was appointed who was not registered as proprietor of the lease. The sub-mortgagee appointed receivers, following which the trustee in bankruptcy disclaimed the lease. The receivers then served a notice on the charity in Peter James’ name claiming the freehold of the property pursuant to the Leasehold Reform Act 1967.

The 1967 Act provides that the tenant of a long lease (one granted for a term in excess of 21 years) of a house is entitled to acquire the freehold, provided that the tenant has been the tenant of the house for the last two years. The lease of the house was granted for a term of 99 years and Peter James had been the tenant since 2002.

The charity’s challenge

The charity challenged the notice on the basis that, when Peter James was made bankrupt, the lease vested in his trustee and so, when the notice was served, Peter James, no longer being the tenant, did not satisfy the requirement under the 1967 Act to have been the tenant for the last two years.

The County Court rejected the charity’s case and held the notice to be valid so that the claimant, Sacha Helman, to whom the receivers had sold the lease and assigned the benefit of the notice, was entitled to acquire the freehold.

[extra:quotes:boxoutcopy=1]

The issues

The issues required consideration of not only the 1967 Act, but also the Insolvency Act 1986 and the Land Registration Act 2002.

It was not disputed that, apart from the effect of the bankruptcy and the disclaimer, the receivers had the right to sell the lease and give notice claiming the freehold. At first instance the judge concluded that the property vesting in the trustee did not include the right to give a notice under the 1967 Act on the trustee’s behalf nor was the trustee entitled to disclaim the tenancy to the effect that the receivers were unable to serve the notice. She accordingly held that the receivers’ right to serve a notice in Peter James’ name was unaffected by the bankruptcy and disclaimer.

The charity’s appeal

The decision was overturned on the charity’s appeal. The charity’s submission was that, by the time the notice was given, Peter James was no longer the tenant of the house as, upon the appointment of his trustee in bankruptcy, the tenancy had become vested in the trustee and so the trustee was in fact the tenant.

The trustee was not however yet qualified to give notice under the 1967 Act as he did not satisfy the requirement of having been the tenant of the house for the last two years. In any case, the receivers’ notice did not purport to be given on behalf of the trustee, but was given in the name of Peter James, who was neither the tenant nor had been for the last two years. The notice was accordingly declared to be a nullity.

The counsel for the tenant’s first submission was that, as Peter James was the registered proprietor of the lease, notwithstanding that the tenancy had vested in the trustee in bankruptcy, Peter James and the trustee could each be regarded as the tenant. That submission was rejected. The judge referred to the exceptional circumstances in the Land Registration Act 2002 where the person for the time being named as the registered proprietor will not be the legal owner. Those circumstances include where the registered proprietor becomes bankrupt.

Counsel’s second submission was that the wide powers conferred upon the receivers included express powers for the receivers to act as Peter James’ agents, including the power to give notice in Peter James’ name claiming the freehold. Counsel argued that that agency was irrevocable and so survived Peter James’ bankruptcy. The judge rejected that submission. As Peter James no longer satisfied the requirement to have owned the lease for the last two years, it was not open to the receivers to claim the freehold in his name.

The charity’s rejection of the claim was founded on one of the most simple requirements of the 1967 Act; the two year ownership requirement. The judge found the charity’s case to be obvious and compelling, and described the tenant as not having “come close to answering it”.

The leasehold reform legislation is complex and has generated much litigation. This case demonstrates that, where the issues provoke consideration of other equally complex legislation, even the most basic proposition can be drowned in those complexities and so give rise to judgments that are simply wrong in law and demand a fresh and uncluttered view on appeal.