Michaels v Harley House (Marylebone) Ltd

A condition that merely requires a contracting party to perform an obligation within its control does not prevent a specifically enforceable contract from transferring an equitable interest. A registered shareholder who has contracted to sell unquoted shares is a fiduciary, although not a nominee. Its voting rights are therefore disregarded under section 736A(5) of the Companies Act 1985.

Particulars required by section 11 of the Landlord and Tenant Act 1987 include loan-note terms forming a pre-arranged part of the consideration. Nevertheless, relief under section 19 is discretionary. Substantial delay, coupled with irreversible expenditure and dealings by the landlord, may justify refusing relief. The court will not grant a declaration lacking practical utility.

The tenants of a flat in Harley House sought relief under Part I of the Landlord and Tenant Act 1987. The freehold had been transferred within the Taylor Woodrow group to a specially formed company. The shares and loan notes of that company were then sold to Frogmore. The transactions were structured to avoid creating a relevant disposal carrying the tenants’ right of first refusal.

Lloyd J dismissed the tenants’ claims. On appeal, five issues arose: whether the purchaser was an associated company; whether the tenants’ section 11 notice was valid; whether the purchaser adequately answered it; whether the tenants were estopped; and whether discretionary relief should be granted under section 19.

1. Appeal dismissed unanimously. Robert Walker LJ, with whom Ward LJ and Hirst LJ agreed, decided the principal statutory issues in the tenants’ favour but refused relief because of their delay. A declaration on the first issue would have provided no practical utility.

2. The share-sale agreement was not subject to a true condition precedent preventing equitable ownership from passing. Completion of the property transfer was within the seller’s control, and the seller had covenanted to procure it. The contract was specifically enforceable before completion.

3. The registered shareholder consequently held the shares and their voting rights in a fiduciary capacity. A vendor under an uncompleted contract occupies an intermediate position between an absolute beneficial owner and a nominee. Section 736A(5) of the Companies Act 1985 required those voting rights to be disregarded. The purchaser was therefore not an associated company for section 4(2)(l) of the Landlord and Tenant Act 1987, and the transfer of the freehold was a relevant disposal.

4. The contemporaneous documentary evidence established on the balance of probabilities that qualifying tenants held a majority of the flats when the section 11 notice was served. The notice was valid.

5. The company’s response did not provide all particulars required by section 11(3). The loan notes were a pre-arranged part of the composite transaction and formed part of the terms relating to the consideration. The tenants were entitled to information about their terms.

6. The tenants had served an effective default notice concerning the loan notes, but then allowed two years to pass before renewing their demand and almost another year before commencing proceedings. Meanwhile, the landlord spent substantial sums on refurbishment, promotion and reletting. Whether or not estoppel by acquiescence was established, the tenants had not acted sufficiently promptly to merit the discretionary relief available under section 19.

1. Court of Appeal: The tenants’ appeal was dismissed with costs. Leave to appeal to the House of Lords was refused.
2. High Court, Chancery Division: Lloyd J dismissed the tenants’ claims for relief under Part I of the Landlord and Tenant Act 1987 by an order dated 3 March 1997.