Cadogan Estates Ltd v Morris

A tenant exercising the statutory right to a new lease must specify the premium which the tenant genuinely proposes to pay. An opening bid need not be the tenant’s final figure, but it must be realistic. A merely nominal or wholly unrealistic figure does not comply with section 42(3)(c) of the Leasehold Reform, Housing and Urban Development Act 1993.

The court should allow a fairly wide margin when assessing realism. Any necessary inquiry should be brief and robust. The protection for inaccuracies in Schedule 12 paragraph 9(1) applies only to the particulars required by section 42(3)(b); it does not cure a failure to specify a compliant premium.

The tenant claimed a new 90-year lease at a peppercorn rent under the Leasehold Reform, Housing and Urban Development Act 1993. His section 42 notice proposed a premium of £100, although he knew that this was a formal nominal figure and that a realistic premium was likely to be between £100,000 and £300,000.

The West London County Court upheld the notice. The landlords appealed, contending that section 42(3)(c) required a genuine and realistic proposal. The central issues were whether the nominal figure satisfied that provision and, alternatively, whether Schedule 12 paragraph 9(1) preserved the notice despite the defect.

1. Appeal allowed unanimously. Stuart-Smith LJ delivered the leading judgment. Otton and Tuckey LJJ agreed. The tenant’s notice was invalid, and the landlords were awarded their costs in the Court of Appeal and below.

2. Section 42(3)(c) of the Leasehold Reform, Housing and Urban Development Act 1993 requires the tenant to specify the premium which the tenant proposes to pay. No additional words need to be read into the provision. A tenant fails to comply where the stated figure is deliberately nominal and is not a figure which the tenant proposes to pay.

3. The proposed premium need not be the tenant’s final or maximum offer. It must nevertheless be a realistic opening bid. This construction supports the statutory process of negotiation and agreement, the landlord’s right to a deposit calculated by reference to the proposed premium, and the consequences which may follow from failure to serve a valid counter-notice.

4. Courts should allow tenants a fairly wide margin. A landlord challenging a substantial offer must have firm grounds, and an unsuccessful challenge may carry costs consequences. No precise monetary boundary should be prescribed. Following Cresswell v Duke of Westminster [1985] 2 EGLR 151, most cases can be resolved robustly on their own facts, with only a brief inquiry and limited evidence where necessary.

5. Schedule 12 paragraph 9(1), which prevents inaccuracies in required particulars from invalidating a notice, applies only to the matters expressly described as particulars in section 42(3)(b). It does not apply to the requirements to specify or state matters under section 42(3)(c)–(f). It therefore could not cure the defective premium proposal.

6. Stuart-Smith LJ added that a landlord’s counter-proposal under section 45(3)(b) should likewise be realistic rather than absurdly high or calculated to intimidate. The landlord may state the highest figure which it realistically hopes to obtain.

1. Court of Appeal (Civil Division): By [1998] EWCA Civ 1671, unanimously allowed the landlords’ appeal, held the tenant’s notice invalid and awarded the landlords costs here and below.

2. West London County Court: Mr Recorder Kallipetis QC upheld the validity of the tenant’s notice. He also held that the court had jurisdiction to determine its validity; there was no cross-appeal on jurisdiction.