Free Grammar School of John Lyon v Helman

The Court of Appeal allowed the landlords' appeal and held that a notice purporting to exercise the right of enfranchisement under section 1(1)(b) of the Leasehold Reform Act 1967 was invalid where, at the time the notice was given, the leasehold interest had vested in a trustee in bankruptcy. The court held that the tenant could not be treated as satisfying the statutory "last two years" qualification once his legal interest had vested in the trustee by operation of law (Insolvency Act 1986 s.306 and Land Registration Act 2002 s.27(5)(a)).

The court rejected the submission that registration alone (Land Registration Act 2002 ss.24 and 58) meant the registered proprietor should be treated as the tenant for the purposes of the 1967 Act. It also rejected the argument that agency or irrevocable powers granted to receivers by the charge could confer on them an immutable right to give an enfranchisement notice in the name of the bankrupt tenant when the statutory qualification no longer existed.

The court did not decide the landlords' alternative argument about the effect of the trustee's disclaimer under Insolvency Act 1986 s.315 because the primary ground (vesting on bankruptcy) disposed of the appeal.

This is an appeal from the Central London County Court (Her Honour Judge Deborah Taylor) concerning the validity of a notice given under the Leasehold Reform Act 1967 claiming to enfranchise a house. The factual matrix was that a long lease had been charged, a sub-charge conferred wide powers on a sub-chargee and its receivers (including powers to act in the tenant's name), the tenant was adjudicated bankrupt and a trustee appointed, the trustee disclaimed the lease, and receivers acting in the tenant's name served an enfranchisement notice and sold the lease which was later assigned to the respondent.

Nature of the application: The landlords sought a declaration that the enfranchisement notice served on 7 December 2011 was invalid and of no effect.

Issues framed by the court:

• whether the receivers had the right to sell the lease and give a notice claiming the freehold absent the effects of bankruptcy and disclaimer;
• the legal effect of the bankruptcy on the right to give an enfranchisement notice (including the operation of Insolvency Act 1986 s.306 and Land Registration Act 2002 s.27(5)(a));
• whether the trustee's disclaimer under Insolvency Act 1986 s.315 precluded the giving of the notice.

Court's reasoning: The court accepted that the receivers had wide powers under the charge to sell the lease and to act as agents for the registered proprietor. However, those contractual or agency powers could not enable the receivers to exercise rights that in law did not exist for the person in whose name they purported to act. Upon the appointment of the trustee the leasehold estate vested in the trustee by operation of law so that the bankrupt was no longer the tenant for the purposes of the 1967 Act; registration of title did not override that vesting. Consequently the statutory two-year qualification in section 1(1)(b) of the 1967 Act was not satisfied by the bankrupt at the time the notice was served and the notice was therefore a nullity. The court did not decide in detail the separate submission based on disclaimer because the primary ground was dispositive.

Disposition: The Court of Appeal allowed the landlords' appeal and set aside the declaration made below that the notice was valid and that the respondent was entitled to acquire the freehold.

Appeal allowed. The Court held that on bankruptcy the tenant's legal interest vested in the trustee so the bankrupt was not a qualifying tenant for the "last two years" requirement in section 1(1)(b) of the Leasehold Reform Act 1967; registration as proprietor did not suffice to treat him as the tenant for that purpose and the receivers could not, by agency or charge powers, validly give an enfranchisement notice in his name once the statutory qualification had been lost. The alternative disclaimer argument need not be decided.

Appeal from the Central London County Court (Chancery List), Her Honour Judge Deborah Taylor (judgment 19 March 2013; order 11 April 2013). The county court had held the enfranchisement notice to be valid; permission to appeal was granted to the landlords.