Cadogan & Ors v 26 Cadogan Square Ltd

The House of Lords held that, for the purposes of Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, a lessee under a lease whose demised premises include a flat can be "a tenant of a flat" and therefore (subject to other statutory requirements) a "qualifying tenant of the flat". The court relied on the language of section 39 read with section 101(3), and on section 57(1)(a) which empowers modification of the terms of the existing lease to exclude property included in the existing lease but not comprised in the flat. The court concluded that the Leasehold Valuation Tribunal has the statutory competence to determine the extent and terms of the new lease, to deal with apportionment issues (including rent), and that compensation for any diminution of the landlord's other interests is provided under Schedule 13.

Key statutory provisions considered were sections 39, 5, 56, 57, 58, 62 and 101 of the 1993 Act, section 91 as to LVT jurisdiction, and Schedule 13 (paras 2 and 5) on premium/compensation. Practical objections (identification of boundaries, apportionment of covenants and rent, rights over common parts, service charges and car parking) were rejected as insufficient to imply a statutory exclusion. The appeals were allowed and the first instance decisions restored.

Background and facts:

• Both appeals concerned long head leases of self-contained buildings containing flats and other property (offices, parking, common parts). In Cadogan the upper three floors formed a maisonette treated as a "flat"; in Howard de Walden the building contained flats and tenancies. Each head lessee served a Chapter II tenant's notice seeking new long leases of particular flats. Freeholders served counter-notices denying that the head lessees were "qualifying tenants" of the flats.

Procedural history: County Court judges held that the head lessees were qualifying tenants (following Maurice v Hollow-Ware Products Ltd). The Court of Appeal ([2007] EWCA Civ 499) allowed the freeholders' appeals. The head lessees appealed to the House of Lords.

Nature of the claim / relief sought: The head lessees sought declarations and orders under Chapter II of Part I of the 1993 Act that they were qualifying tenants entitled to acquire new long leases of the specified flats and related relief to give effect to those rights.

Issues framed:

• Whether a lessee under a lease of premises that include a flat (but also include other property or the whole building) can be a "tenant of a flat" and therefore a "qualifying tenant of a flat" under Chapter II; and
• Whether practical, operational or policy considerations arising from the scheme of Chapter II and other provisions of the Act require implying a restriction excluding head lessees of such premises from claiming the Chapter II right.

Reasoning and conclusions: The court adopted a two-stage approach: textual construction followed by consideration of operational consequences. It concluded that the statutory language (notably section 39(1) read with section 101(3) and section 57(1)(a)) naturally covers a lessee whose demised premises include a flat. The House rejected arguments that Chapter II lacks machinery to identify the precise extent of the flat, or that the Leasehold Valuation Tribunal lacks power to modify terms or apportion obligations and rent; it held that section 57 grants adequate powers and that the LVT has the expertise and jurisdiction (section 91) to determine such matters. The court accepted that apportionment of rent and covenants is required where part of a head lease is determined and that Schedule 13 provides compensation for diminution in the landlord's other interests. Policy objections and human rights arguments were rejected: the statutory scheme (including Schedule 13) provides adequate compensation and legal certainty.

Result: Both appeals were allowed; the House restored the orders of the County Court judges.

Appeal allowed. The House of Lords held that a lessee under a lease which includes a flat can be a "tenant of a flat" and therefore a "qualifying tenant" under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. The statutory language (section 39 read with section 101(3) and section 57) and the scheme of the Act support this construction; practical and policy objections were insufficient to justify implying an exclusion. The County Court orders in favour of the head lessees were restored.

County Court (Judge Crawford Lindsay QC in Cadogan; Judge Paul Collins in Howard de Walden) held head lessees were qualifying tenants. Court of Appeal allowed the freeholders' appeals ([2007] EWCA Civ 499). Appeal to the House of Lords allowed ([2008] UKHL 44), restoring the first instance decisions.