Robert Lulham & Anor v The Crown State Commissioners

A shareholder or director does not thereby acquire an interest in company property for the purposes of a vesting order after dissolution. A tenant’s contractual rights under landlord’s covenants are also insufficient where they do not make the tenant entitled to the disclaimed freehold.

For a vesting order based on liabilities, the liability must be in respect of the disclaimed property. The benefit of vesting must bear a reasonable and proportionate relationship to that liability. The value of the disclaimed property, rather than difficulties affecting related leasehold interests, is the relevant comparison.

Under section 181 of the Law of Property Act 1925, the applicant must have had a subsisting legal right to the estate at the date of escheat.

The claimants held long leases of flats in a property whose freehold had been acquired by a company they owned and controlled. The company was dissolved after failing to file annual returns. Its freehold consequently became bona vacantia, and the Crown’s disclaimer caused the freehold to determine and the property to vest in the Crown by escheat.

The claimants sought a vesting order under sections 1017 of the Companies Act 2006 and 181 of the Law of Property Act 1925. They relied on their shareholding, directorship, leasehold interests and liabilities under their leases. The issue was whether any statutory jurisdiction permitted the freehold to be vested in them.

1. Section 1017, limb 1. The claimants’ shareholding, directorship and alleged funding of the company’s purchase did not give them an interest in the company’s freehold. Treating the company’s property as theirs would unjustifiably pierce the corporate veil. The contractual benefit of landlord’s covenants under their leases likewise did not make them entitled to the freehold. The broader approach in In Re Vedmay Ltd, treating any financial interest adversely affected by disclaimer as sufficient, was rejected by the Court of Appeal and was unavailable on the proper construction of section 1017. The limb 1 application therefore failed.
2. Section 1017, limb 2. The claimants’ tenant covenants were liabilities under their leases, not liabilities in respect of the disclaimed freehold itself. In any event, section 1017(3) required a reasonable and proportionate relationship between the liability and the benefit of vesting. The freehold had more than nominal value, whereas the rents and other tenant liabilities were not of comparable magnitude. The absence of a landlord and resulting difficulties affecting the leases did not alter the statutory comparison. The limb 2 application therefore failed.
3. Section 181. The phrase requiring entitlement to the estate that determined refers to a subsisting legal right at the date of escheat, even if further steps are needed to enforce it. The claimants’ rights as shareholders and directors, including rights concerning winding up and surplus assets, did not amount to such a right in the freehold. A vesting order under section 181 was therefore unavailable.
4. The application was dismissed.