Annington Property Limited & Ors, R (on the application of) v Secretary of State for Defence

This judgment determines whether the Secretary of State for Defence (the "SoS") validly served eight enfranchisement notices under the Leasehold Reform Act 1967 (the "1967 Act") and whether those decisions were unlawful on public law grounds. The court dealt with statutory questions arising under s.33 and s.1AA of the 1967 Act, the interaction of Part II of the Landlord and Tenant Act 1954 (the "1954 Act") (notably s.23 and s.56) with the SoS’s position as a tenant from the Crown, the relevance of the doctrine of Crown indivisibility, and the effect of the decision in Gratton‑Storey v Lewis.

• The headlease and underlease structure agreed in 1996, subsequent arbitration and the 2021 settlement, and the SoS’s establishment of a special purpose vehicle (DIHL) to hold certain freeholds were examined against the statutory tests for enfranchisement.
• The court held that, as a matter of statutory construction, where a Crown interest has ceased to exist the first limb of s.33(1) applies and a tenant (including the SoS) may exercise rights under the 1967 Act without requiring the consent of intermediate landlords; where the third limb (s.33(1)(b)) is invoked the subtenant likewise has a statutory enfranchisement right binding intermediate landlords once the appropriate authority concurs.
• The Ramsay line of authorities and Gratton‑Storey were considered: the court held that use of an SPV under the SoS’s control did not fall foul of Gratton‑Storey and did not convert DIHL into the Crown for the purposes of that decision.
• On Part II of the 1954 Act, the court applied the ordinary tests of occupation (Graysim and subsequent authorities) and concluded that (a) houses occupied by service personnel under occupation licences are occupied by the licensees for residential purposes (not by the SoS), and (b) void houses and garages at Cranwell were unoccupied; consequently s.56(3) and s.1(1B) do not exclude enfranchisement of the eight properties considered.
• The court rejected public law challenges: (i) the principle applicable to compulsory purchase (Prest) does not apply to a statutory private right to enfranchise; (ii) the SoS’s conduct in establishing DIHL, serving the test notices and pursuing the approach described in internal papers was not unlawful, was motivated by legitimate public‑interest aims (value for money in public expenditure and management of SFA) and was not tainted by improper purposes; (iii) no substantive legitimate expectation arose from the contractual framework or the Crown Estate guidance which would prevent lawful enfranchisement; and (iv) there was no breach of Article 1 of Protocol 1 ECHR.

The SoS purchased a large married quarters estate (MQE) arrangement in 1996 by means of sale and leaseback transactions. APL acquired long leases (999 years) and the SoS took long underleases (200 years). Following rent review disputes the parties entered arbitration and later a 2021 settlement. Immediately after that settlement the SoS formed a Crown‑controlled SPV (DIHL), transferred certain freeholds to it and served eight s.5 enfranchisement notices (two at Cranwell and six at Bristol) purporting to rely on s.1AA of the 1967 Act. APL and related companies mounted combined Chancery and judicial review proceedings challenging the validity of the notices and the lawfulness of the decisions to serve them.

Nature of the claims and relief sought

• The Chancery proceedings sought declarations that the notices were void and could not be given effect.
• The judicial review claims challenged the lawfulness of the SoS’s decisions on public law grounds (including improper motive, legitimate expectation and incompatibility with A1P1 ECHR) and sought relief accordingly.

Issues framed

• Whether s.33 of the 1967 Act and s.88 of the 1993 Act required APL’s consent to enfranchisement by the SoS.
• Whether Gratton‑Storey prevented enfranchisement where the enfranchising subtenant (or an entity it controlled) already owned the freehold.
• Whether the SoS’s underleases were "business tenancies" within Part II of the 1954 Act (which would trigger the residence test in s.1(1B) of the 1967 Act) — in particular whether parts of the Cranwell site (houses occupied by service personnel, garages, sublets, void units, contact houses and the common parts) were occupied for the purposes of a Government department under s.56(3) and (4).
• Whether the Cranwell properties fell within s.1AA(3)(b) (the adjoining land test) and were therefore excluded from the s.1AA additional right.
• Whether (public law) the SoS needed to show a "compelling public interest" or otherwise was limited in the exercise of enfranchisement; whether decisions were taken for improper motives; whether substantive legitimate expectations arose; and whether any interference breached A1P1.

Court’s reasoning and conclusions

• Statutory interpretation: the first limb of s.33(1) applies where the Crown interest has ceased; s.33(1)(b) likewise operates to bind intermediate landlords once the appropriate authority concurs. Section 88 of the 1993 Act does not require APL’s consent where a statutory right to enfranchise exists under s.33.
• Gratton‑Storey: the court held a SPV transfer by a public authority to create the legal structure enabling a subtenant to rely on the 1967 Act did not fall foul of Gratton‑Storey; DIHL was not to be treated as the Crown for that purpose.
• 1954 Act occupation and Crown issues: applying Graysim and related authorities, the licences occupied by service personnel are residential occupation by the licensees; DIHL’s limited activities and the contractual arrangements did not render the houses or garages occupied for Government purposes under s.56(3). The sub‑underlease of the Cranwell common parts to DIHL was effective to make the sub‑tenancy the business tenancy protected under Part II, not the SoS’s underlease; the single business tenancy principle remained applicable.
• Adjoining land test: Lovat and ordinary principles of proximity/neighbourhood were applied; the small wooded area beyond adopted road was not sufficiently adjacent and land immediately associated with the estate was properly regarded as occupied for residential purposes.
• Public law grounds: Prest and the compulsory‑purchase jurisprudence do not import a freestanding requirement for a "compelling public interest" before exercising a statutory private right of enfranchisement. The SoS’s aims (value for money, reducing public liabilities and securing better terms for provision of SFA) were legitimate; the court rejected allegations of improper motive, unlawful scheme or breach of substantive legitimate expectations.
• A1P1: the court held that (i) Parliament has enacted a general scheme that the ECtHR in James accepted as compatible with A1P1 and no case‑specific A1P1 assessment was required, and (ii) even on a case‑specific assessment the SoS’s aims were legitimate and the balance struck was not disproportionate.

Outcome: the Chancery declaration was made that each of the eight enfranchisement notices was valid; the judicial review claims were dismissed. The court therefore allowed the SoS to proceed to the statutory processes for determining price if he chooses to continue.

This is a first instance judgment. The court declared that each of the eight enfranchisement notices was valid and dismissed the judicial review challenges. The judge held that (i) the statutory tests in s.33 and s.1AA of the Leasehold Reform Act 1967 were satisfied as applied to the facts; (ii) Gratton‑Storey did not prevent the SoS’s route to enfranchisement by use of DIHL; (iii) Part II of the Landlord and Tenant Act 1954 did not exclude the SoS’s rights because the relevant occupation of houses, garages and other units was not for the purposes of a Government department; and (iv) public law challenges (including improper purpose, legitimate expectation and A1P1) failed because the SoS pursued legitimate public interests (notably value for money) and acted within lawful limits.