Case Law update: Kateb v Howard De Walden Estates Ltd [2016] EWCA Civ 1176

Summary

The recent decision of the Court of Appeal in Kateb v Howard De Walden Estates [2016] EWCA Civ 1176 confirms that the right to be separately represented in legal proceedings by virtue of paragraph 7 of Schedule 11 to the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) does not restrict the authority of a competent landlord to conduct all proceedings arising out of any notice of claim for a new lease.

Relevant facts

On 15 December 2012, Ms Ingram served a notice on Howard de Walden Estates Limited (“HdW”) seeking the grant of a new lease (s.42). HdW was, at all material times, the freehold proprietor of 123/125 Harley Street and the competent landlord as defined by s.40(1) of the 1993 Act.

Ms Ingram proposed the payment of a premium to HdW of £216,613 and a payment to her immediate landlord (Mrs Katab) of £2,061. On 18 February 2013, HdW served a counter notice proposing a premium of £298,000 and a payment to Mrs Kateb of £1,750. Following service of the counter notice, Mrs Kateb elected to give notice under paragraph 7(1) of her intention to be separately represented in any legal proceedings relating to the determination of the amount payable to her.

HdW applied to the Leasehold Valuation Tribunal (as it was then) for a determination of the issues relating to the terms of the new lease and the amount payable. A hearing was subsequently listed before the First-tier Tribunal (“FtT”). However, prior to the hearing, Accordway Limited (having recently acquired the leasehold interest) offered £269,000 to HdW of which £3,400 was payable to Mrs Kateb; this offer was accepted with both parties requesting that the hearing fixed before the Tribunal be vacated.

Mrs Kateb confirmed that she did not agree with the terms of the settlement. Consequently, the FtT refused to vacate and considered instead whether it retained jurisdiction to determine the dispute and, if so, decide upon the valuation of the Schedule 13 payment.

Legal framework

The 1993 Act provides individual qualifying tenants with the right to acquire a new lease at a peppercorn rent for a term expiring 90 years after the term date of the existing lease. A notice is served by a qualifying tenant claiming to exercise the right to acquire a new lease (s.42) which will include, inter alia, the premium which the tenant proposes to pay for the grant of the new lease and the amount of compensation (if any) to the intermediate landlord. Pursuant to Schedule 13, the tenant is required to pay the owner of any intermediate leasehold interest an amount which is the aggregate of the diminution in value of the reversion and the loss of ground rent.

The notice must be served on “the landlord” meaning the person with a sufficiently long interest in the property to be able to grant the 90 year extension; in most cases, this will be the freeholder. The competent landlord is required to give a counter notice and comply with one of the following requirements as prescribed by s.45(2):-

  • state that the landlord admits that the tenant had on the relevant date the right to acquire a new lease of his flat;
  • state that, for such reasons as are specified in the counter-notice, the landlord does not admit that the tenant had such a right on that date;
  • contain such a statement as is mentioned in paragraphs above but state that the landlord intends to make an application for an order under section 47(1) on the grounds that he intends to redevelop any premises in which the flat is contained.

Where the immediate landlord under the lease of a qualifying tenant of a flat is not the competent landlord, then the person who is the competent landlord shall be required to act on behalf of all the other landlords in respect of all proceedings arising out of any notice given by the tenant with respect to the flat (s.40(2)).

Should the competent landlord admit that the tenant has the right to acquire a new lease, he must specify whether the proposals contained in the tenant's notice are accepted and which (if any) of those proposals are not so accepted. Where proposals are not accepted, the competent landlord is obliged to provide a counter-proposal. Where a dispute has arisen as to the terms of the acquisition, then either the tenant or the landlord may apply to the FtT (s.48(1)) for a determination within 6 months from the date that the counter notice was served (s.48(2)).

Part II of Schedule 11 sets out the provisions relating to the conduct of proceedings by competent landlords on behalf of other landlords and supplements the statutory delegation of authority contained under s.40(2). Paragraph 5 provides that any counter-notice given to the tenant by the competent landlord must specify the other landlords on whose behalf he is acting.

Paragraph 6 makes is clear that: (i) any notice given by a competent landlord; (ii) any agreement between the competent landlord and a tenant and (iii) any determination by the court or tribunal shall be binding on the other landlords. However, where a dispute has arisen, the competent landlord or any of the other landlords may apply to the court for directions as to the manner in which the competent landlord should act in the dispute (para. 6(1)). At any time following the service of a counter notice, paragraph 7(1)(b) permits any other landlord to give a notice of his intention to be represented in any legal proceedings relating to the determination of any amount payable.

First-tier Tribunal decision

The FtT determined that the agreement reached between the competent landlord and the tenant did not bind Mrs Kateb and, therefore, it remained open for them to determine the amount of compensation payable to her. The Tribunal reasoned that the authority delegated to competent landlords under s.40(2) was not absolute; rather, it was curtailed by the provisions contained within paragraphs 6(1) & 7(1) of Schedule 11 to the 1993 Act.

Appeal to the Upper Tribunal

On appeal, Judge Gerald highlighted the statutory duty of care afforded to other landlords by virtue of paragraph 6(4) of Schedule 11; this important protection would guard against a competent landlord running “round-shod over any known observations of the intermediate landlord.”

The Upper Tribunal (“UT”) contrasted the tightly worded provision contained in paragraph 7(1) with paragraph 6(1). It was agreed that it was perfectly possible for an intermediate landlord to apply at any time to the County Court for a direction that the competent landlord not reach any agreement with the tenant without the prior consent of the intermediate landlord or the approval of the court (para 6(1)). However, the right to be separately represented did not extend so far as to give a right to an intermediate landlord to participate in any negotiations between the landlord and tenant; consequently, the UT allowed the appeal.

Court of Appeal

Mrs Kateb appealed the order of the UT to the Court of Appeal; here, the Court of Appeal identified that the policy objective behind s.40(2) was to enable a tenant to obtain a new lease without being burdened with having to resolve disputes between various landlords. Paragraphs 6 & 7 had been included“to preserve the measure of authority granted by s.40(2) but to build in protections designed to mitigate the possible adverse effects which this may have on other landlords.”

Lord Justice Patten refused to accept the appellant’s contention that paragraph 7 was intended to free intermediate landlords from the agency of the competent landlord; rather, the correct approach was to construe paragraph 7 narrowly. It simply gave other landlords “a right to be represented and heard in the FtT proceedings but nothing more.” The Court of Appeal dismissed the second appeal and, in so doing, rejected the alternative argument that the legislation should be construed to give effect to the appellant’s rights under Article 6 of the European Convention on Human Rights.

Article by Jeff Hardman, November 2016