York House (Chelsea) Ltd v Thompson & Anor

For the purposes of Part 1 of the Landlord and Tenant Act 1987, a disposal may be a gift even though it creates a lease containing mutual covenants. The relevant question is whether the tenant receives a valuable estate without giving anything of value in return. The donor’s motive is not determinative.

A gift by joint landlords to one of them may fall within the family-gift exception. Alternatively, a grant by family members to fewer of their number may fall within the intra-family transfer exception. The statutory definition of disposal can include the creation, as well as the transfer, of an estate.

The claimant was nominated by qualifying tenants of York House, a block of flats. The defendants, its joint freeholders, granted 14 leases of parts of the building, surrounding land, airspace and internal corridors to themselves shortly before the tenants served notice seeking the freehold under the Leasehold Reform, Housing and Urban Development Act 1993.

The defendants had not served notices under section 5 of the Landlord and Tenant Act 1987. The claimant sought orders under section 19 requiring transfer of the leases. The principal issue was whether the leases were excluded from the statutory right of first refusal as gifts to family members or transfers between family members.

1. The claim was dismissed. Each lease was a disposal falling within section 4(2)(e), alternatively section 4(2)(h), of the Landlord and Tenant Act 1987, and was therefore not a relevant disposal.

2. The statutory definition of disposal includes the creation of an estate. The expression “by way of gift” is therefore capable of including the grant of a lease. A lease may confer a valuable legal estate on the tenant without the landlord receiving anything of value.

3. The covenants contained in a lease are part of the estate created by the lease. They do not necessarily constitute consideration preventing the grant from being a gift. The absence of a premium and rent, and the absence of monetary value in the tenants’ covenants, supported that conclusion.

4. The defendants’ motive of retaining development value did not prevent the leases from being gifts. Motive may be relevant in deciding whether a transaction is truly a gift rather than a sale or loan, but it was not determinative here.

5. A disposal by joint landlords to one of them may be a gift to a member of the landlord’s family. Section 4(2)(h) could also apply to a grant by two family members to fewer of their number. The use of “transfer” in that provision did not exclude the creation of an estate where the defined term “disposal” included creation as well as transfer.

6. The judge also considered the alternative issue concerning the scope of premises to which Part 1 applied. Following Dartmouth Court Blackheath Ltd v Berisworth Ltd, a disposal of any part of a building satisfying section 1(2) may be caught, even where the part is not itself let to qualifying tenants. Appurtenances included areas used with the building or required for its repair and maintenance, including relevant airspace, subsoil and courtyard areas. Common parts included facilities serving residents in common, including relevant corridors and service areas.

7. Those alternative conclusions did not affect the result. The claimant’s claim for transfer of the leases under section 19 was dismissed.