Cawthorne & Ors v Hamdan

For an optional leaseback under Chapter I of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, a reversioner must state the proposal in the counter-notice where, at that date, the flat is not held by a qualifying tenant. Failure to do so prevents a later leaseback notice.

The reference in Schedule 9 to the position immediately before acquisition does not extend the time for making the proposal. It operates as a condition subsequent: a reversioner who proposed a leaseback in the counter-notice cannot obtain it if the flat is then let to a qualifying tenant. This construction avoids delay, unfairness and manipulation of the valuation process.

Four qualifying tenants of a six-flat building served a collective-enfranchisement notice on the freeholder. Their counterparty admitted their right but stated in his counter-notice that he made no additional leaseback proposals.

The Leasehold Valuation Tribunal fixed the price for the freehold. Shortly before the tenants’ appeal against that valuation was to be heard by the Lands Tribunal, the freeholder served a notice requiring a 999-year leaseback of the top-floor flat. The Lands Tribunal held that the notice was invalid. The freeholder appealed.

The central issue was whether a freeholder who had not proposed a leaseback in the counter-notice could later require one under section 36 and paragraph 5 of Schedule 9 to the Leasehold Reform, Housing and Urban Development Act 1993.

1. Appeal dismissed unanimously. Lloyd LJ, with whom Rix and Mummery LJJ agreed, held that the Respondents’ statutory-construction point was decisive. The freeholder’s leaseback notice was invalid.

2. Section 21(3)(a)(ii) of the Leasehold Reform, Housing and Urban Development Act 1993 imposes a mandatory obligation on a reversioner who wishes to obtain an optional leaseback to specify the proposal in the counter-notice. In a case where the relevant flat was not then held by a qualifying tenant, omission of that proposal prevents the reversioner from seeking the leaseback later.

3. The reference in paragraph 5 of Schedule 9 to the position immediately before acquisition does not permit a leaseback notice at any time before completion. It fixes a condition subsequent to an entitlement properly asserted in the counter-notice. Thus, a reversioner who has proposed a leaseback obtains it only if, immediately before acquisition, the flat remains one to which paragraph 5 applies.

4. This reading gave coherent effect to the statutory scheme. A contrary construction could permit a late notice to reopen the agreed or determined price, postpone the valuation date, and enable manipulation by a reversioner in a rising market. A rare later change in qualifying-tenant status could instead be addressed through the adjustment machinery in section 24(4)(b)(i).

5. The court held that the observations concerning optional leasebacks in West Hampstead Management Co Ltd v Pearl Property Ltd [2002] EWCA Civ 1372 were not necessary to that earlier decision and did not decide the present issue. It was unnecessary to consider the Lands Tribunal’s alternative grounds.

• Court of Appeal (Civil Division) — dismissed the freeholder’s appeal in [2007] EWCA Civ 6, affirming that the late leaseback notice was invalid.

• Lands Tribunal — determined as a preliminary issue that the freeholder’s leaseback notice was invalid; the remaining valuation appeal was left pending.

• Leasehold Valuation Tribunal for the Southern Rent Assessment Panel — determined the terms of acquisition and fixed the price payable for the freehold at £182,190.