Howard De Walden Estates Ltd v Les Aggio & Ors

The Court of Appeal considered whether a head lessee (the tenant under a lease of an entire building that includes flats and common parts) can be a "qualifying tenant of a flat" for the purpose of exercising the statutory right to an individual lease extension under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). The court examined the statutory definitions and detailed scheme of Chapter II, including ss 39, 56 and 57, and related provisions such as s 62 and s 101, and concluded that the 1993 Act does not clearly confer the right of individual lease extension on head lessees.

The court emphasised that Part I of the 1993 Act is generally detailed and that the conspicuous absence of provisions dealing with the severance of covenants, apportionment of rent and the treatment of common parts if a head lease is fragmented pointed against the inclusion of head lessees as qualifying tenants. The decision overruled the earlier Maurice v Hollow-Ware Products Ltd decision at first instance and held that where a tenant seeks a new lease the statute contemplates a tenant of the flat alone (subject to the limited exceptions expressly provided in the Act, such as s 62(2) or s 39(7)).

The court also decided a subsidiary procedural issue (the deposit issue): a tenant whose entitlement to a new lease is disputed remains under the statutory scheme as the tenant who has given notice, and the court should normally order payment of the deposit required by the Leasehold (Collective Enfranchisement and Lease Renewal) Regulations 1993 as security for sums for which the tenant may be liable.

Background and parties: The appeals arose from two County Court decisions in which head lessees of buildings (Howard de Walden: head lessee of 19 Upper Wimpole Street; Cadogan: head lessee of 26 Cadogan Place) served tenant's notices claiming individual lease extensions in respect of flats contained within their head leases. The freehold owners disputed that the head lessees were "qualifying tenants" under Chapter II of Part I of the 1993 Act.

Procedural posture: The County Court judges followed a High Court first-instance decision in Maurice v Hollow-Ware Products Ltd where the head lessee had succeeded. Both cases were appealed to the Court of Appeal.

Nature of the claim / relief sought: The respondents (head lessees) sought to exercise the statutory right to acquire new long leases of flats under Chapter II of Part I of the 1993 Act. The appellants (freeholders) sought declarations and counter-notices denying that the head lessees were qualifying tenants. In the Howard de Walden appeal there was also an application that the court should order payment of a deposit under the 1993 Regulations while entitlement was disputed.

Issues framed:

• Whether the term "qualifying tenant of a flat" in Chapter II of Part I of the 1993 Act includes a head lessee whose existing lease comprises one or more flats together with common parts and other property.
• Whether the statutory scheme provides for the practical consequences if a head lessee could obtain separate lease extensions in respect of flats contained in the head lease (notably treatment of covenants, apportionment of rent, rights over common parts, perpetuities and curtilage definition).
• Whether a court should order payment of the deposit required by the Leasehold (Collective Enfranchisement and Lease Renewal) Regulations 1993 where entitlement to the new lease is disputed.

Reasoning and conclusions: The court undertook a detailed statutory interpretation of the 1993 Act. Although the Act contains provisions recognising that a lease might include property in addition to a flat (for example s 57(1)(a), s 62 and s 101(3)), the court held that these references do not mean Parliament intended head lessees to be qualifying tenants in circumstances where the head lease also includes common parts and other premises.

The court emphasised several practical and legal difficulties that would follow if head lessees were treated as qualifying tenants: the Act contains no clear mechanism for separating covenants in the headlease, no statutory machinery for apportioning rent when only part of the headlease is extended, no means of determining curtilage where boundaries have not previously been agreed, and little provision for preserving or re-making the covenant structure needed to manage common parts once some flats are held directly from the freeholder. Those omissions in otherwise detailed legislation indicate Parliament did not intend such an intrusive consequence without clear language. For those reasons the Court concluded that the qualifying tenant is the tenant of the flat alone (subject to the limited statutory exceptions) and that head lessees cannot claim individual lease extension under Chapter II.

On the deposit issue, the court held that the statutory scheme treats a tenant's notice as continuing in force while disputed and that, as a matter of discretionary relief under s 92 of the 1993 Act, the court should generally order payment of the deposit required by the 1993 Regulations to secure amounts for which the tenant may be liable, absent special mitigating circumstances.

Wider context: The court observed that the statutory scheme for collective enfranchisement is detailed by contrast and that the omission of detailed provisions in Chapter II for headlease situations reinforces the interpretative conclusion. The court considered, but found it unnecessary to decide finally, the Convention (A1P1) point because their statutory interpretation disposed of the appeals.

Appeal allowed. The Court of Appeal held that Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 does not, on its true interpretation, confer the right of individual lease extension on head lessees whose head leases include common parts and other property; the statutory scheme lacks the detailed provisions that would be required to deal with the severe practical and legal consequences of treating head lessees as qualifying tenants. On the deposit issue the court ordered that, absent special circumstances, a deposit required by the 1993 Regulations should be ordered while entitlement is disputed.

Appeals from Central London County Court (Howard de Walden: HHJ Collins CBE; Cadogan: HHJ Crawford Lindsay QC) to the Court of Appeal. The County Court judges had followed a first-instance High Court decision in Maurice v Hollow-Ware Products Ltd [2005] 2 EGLR 71; the Court of Appeal allowed the appeals and disapproved Maurice. Neutral citation of this judgment: [2007] EWCA Civ 499.