Earl Cadogan and others (Respondents) v 26 Cadogan Square Limited (Appellants),Howard de Walden Estates Limited (Respondents) v Aggio and others (Appellants)

Under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, a long lessee may be a qualifying tenant of a flat whenever the demised premises include that flat. The lease may also comprise other flats, common parts, commercial premises or other property, and may be a head lease.

The Act’s operational provisions do not imply a narrower qualification. Section 57 permits the new lease to omit property outside the flat and permits substantial modification of the existing terms. A new lease granted in substitution for part of a head lease effects a surrender of that part, with rent apportioned under ordinary property law principles.

These conjoined appeals concerned head leases of self-contained buildings containing flats and other property. In each case the head lessee served notices under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, claiming new leases of individual flats. The freeholders denied that the head lessees were qualifying tenants.

The county court judges upheld the claims, following Maurice v Hollow-Ware Products Ltd [2005] 2 EGLR 71. The Court of Appeal allowed the freeholders’ appeals in [2007] EWCA Civ 499, [2008] Ch 26.

The common issue was whether a lessee of premises containing one or more flats, together with other property, could be a qualifying tenant of an individual flat for the purposes of Chapter II.

1. Both appeals allowed unanimously. Lord Neuberger delivered the leading speech. Lord Hoffmann, Lord Scott, Lord Walker and Baroness Hale agreed with his reasons. The county court orders were restored.

2. Per Lord Neuberger, sections 39 and 101(3) of the Leasehold Reform, Housing and Urban Development Act 1993 make clear that a lessee can be a qualifying tenant of a flat where the demised premises include that flat. The other demised property may comprise further flats, common parts, commercial premises or property of any other nature. The conclusion applies to head leases and derivative leases. A superior tenant is excluded only where another tenant of the flat has the statutory priority.

3. Operational provisions may justify an implied restriction on an apparently eligible class, but only where the restriction is plainly justified and its nature is clear. No such restriction arose here. The removal of the former residence requirement could produce extensive rights for investor lessees, but a possibly unintended consequence of an amendment does not alter the meaning of another provision unless that change was intended or necessary.

4. Section 57 supplied workable machinery. “The terms of the existing lease” included the extent of the demise, and the power to modify those terms was broad enough to identify the flat, exclude other property, and introduce materially altered covenants. The leasehold valuation tribunal could settle boundaries, access rights, parking rights, service charges and repairing obligations by applying its expertise to the circumstances of each case.

5. A new lease granted “in substitution for” an existing head lease under section 56(1)(a) entailed surrender of the head lease so far as it related to the relevant flat. Ordinary property law therefore required apportionment of the head rent. The resulting patchwork of interests or possible rump head lease was neither absurd nor sufficient to displace the statutory language.

6. Article 1 of the First Protocol was not infringed. Schedule 13 provided compensation for loss to the freeholder, including loss affecting property outside the tenant’s flat. Section 57 was sufficiently accessible and precise notwithstanding its general language, since flexibility was necessary to address varied circumstances and disputes could be determined by the tribunal.

• House of Lords: Allowed both head lessees’ appeals unanimously in [2008] UKHL 44 and restored the county court orders.
• Court of Appeal: Allowed the freeholders’ conjoined appeals in [2007] EWCA Civ 499, [2008] Ch 26.
• County Court: Judge Crawford Lindsay QC in the Cadogan proceedings and Judge Paul Collins in the Howard de Walden proceedings held that the respective head lessees were qualifying tenants of the flats claimed.