York House (Chelsea) Ltd v Thompson & Anor

Factual and Procedural Background

York House is a purpose-built block of 42 flats constructed in the 1930s and located in The City. After a period of military use, it reverted to private residential flats. The first Defendant acquired the freehold in August 2010 and later transferred it into joint ownership with the second Defendant in June 2012, with registration completed in October 2012. Of the 42 flats, one is occupied by a caretaker and the remaining 41 are leased on long leases. In 2013 the Defendants sold one flat and purchased another within the building.

In 2017, concerned about potential freehold claims by other lessees under the Leasehold Reform, Housing and Urban Development Act 1993, the Defendants granted 14 leases ("the Leases") over parts of York House and its surrounding areas to themselves, including internal rooms, external areas such as courtyards, subsoil and airspace, and parts of corridors. These Leases carried no premium and reserved only peppercorn rents.

The Defendants did not serve notices pursuant to section 5 of the Landlord and Tenant Act 1987 before granting these Leases. Subsequently, on 12 July 2017, a notice under section 13 of the 1993 Act was served by qualifying tenants to claim the freehold, which did not include the newly granted Leases as they were unregistered and unknown to the tenants. The Defendants admitted the claim but disputed terms of acquisition. Notices under section 12B and default notices under section 19(2) of the 1987 Act were served on the Defendants requiring disposal of the interests to the claimant, who was nominated by the qualifying tenants. The Defendants failed to comply, leading to the claim issued on 25 April 2018 seeking an order under section 19 of the 1987 Act to compel transfer of the Leases to the claimant.

Legal Issues Presented

1. Whether the disposals effected by the Leases fall within the exclusions in section 4(2)(e) or (h) of the Landlord and Tenant Act 1987.
2. If not, whether each Lease constitutes a relevant disposal affecting premises to which Part 1 of the 1987 Act applies.

Arguments of the Parties

Claimant's Arguments

• The disposals by the Defendants are not gifts because the creation of the Leases involved consideration by way of tenant covenants, preventing them from being gifts under section 4(2)(e).
• A disposal by two joint owners to one of them is not a gift to a member of the landlord's family.
• The grant of a lease cannot constitute a gift as it involves mutual contractual obligations and consideration.
• The motivation of the Defendants to retain development value negates the existence of a gift.
• The parts of the building demised by the Leases, including common parts and appurtenances, are relevant disposals under the 1987 Act.
• Parts of the building such as corridors demised by Leases 9-14 are common parts, and the claimant disputes the Defendants' narrower interpretation of appurtenances and common parts.

Defendants' Arguments

• The Leases fall within the exclusions of section 4(2)(e) and (h) as gifts or intra-family transfers.
• The creation of a lease can constitute a gift despite tenant covenants, as the covenants confer no monetary value or consideration to the landlord.
• The Defendants as joint owners transferring interests to one of them is a gift to a member of the landlord's family.
• The disposals did not affect premises to which the 1987 Act applies except for certain leases agreed to be subject.
• The scope of premises affected by the Act should be interpreted narrowly, applying only to common parts or premises subject to rights held by qualifying tenants.
• Some parts demised, such as certain corridors and external areas, are not common parts or appurtenances for the purposes of the Act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pollen Estate Trustee Co Ltd v Revenue & Customs Comrs [2013] 1 WLR 3785	Purposive statutory construction to avoid anomalous results	Guided the court to interpret "gift" and "disposal" in a way that accords with legislative purpose rather than literal meaning alone.
Luke v Inland Revenue Comrs [1963] AC 557	Limits of literal interpretation when it defeats legislative intent	Supported purposive interpretation of statutory language regarding gifts and disposals.
Potsos v Theodotou (1991) 23 HLR 356	Construction of statutory language to avoid unreasonable results in family contexts	Used to justify interpreting transfers between joint owners as intra-family gifts.
Greenweb Ltd v Wandsworth LBC [2009] 1 WLR 612	Limits of purposive construction when statutory language is clear and unambiguous	Distinguished as an example where literal meaning was upheld despite harsh results.
Denetower Ltd v Toop [1991] 1 WLR 945	Purpose of the 1987 Act to give leaseholders rights to control block management and right of first refusal	Clarified legislative intent underlying the Act and its exemptions.
Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858	Interpretation of premises and landlord's reversionary interest under the 1987 Act	Referenced regarding the scope of disposals triggering tenant rights under the Act.
Hood v Revenue and Customs Commissioners [2018] STC 2355	Grant of sub-lease as a gift including mutual covenants	Supported the proposition that a lease grant can be a gift despite mutual covenants.
Mansukhani v Sharkey (1992) 24 HLR 600	Definition of gift including transfers with covenants or obligations	Supported the view that gifts can include transfers with contractual obligations.
Panagopoulos v Earl Cadogan [2011] Ch 177	Definition of "common parts" in residential buildings	Applied to determine which parts of York House constitute common parts.
Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] L&TR 12	Scope of premises affected by disposals under the 1987 Act	Followed to conclude disposals of parts of a building are relevant disposals under the Act.
Gilchrist v HMRC [2015] Ch 183	When to follow precedent unless clearly wrong	Supported adherence to Dartmouth Court decision.
R v M Najib & Sons Ltd [2018] 1 WLR 5041	Strict construction of statutes imposing criminal sanctions	Considered but did not alter purposive construction of the 1987 Act provisions.
Edwards v Kumarasamy [2016] AC 1334	Definition of parts of a building and their status as appurtenances	Applied to reject that courtyard formed part of the building’s exterior common parts.
L.M. Homes Ltd v Queen Court Freehold Company Limited [2018] UKUT 367	Definition and extent of common parts and appurtenances	Distinguished on facts regarding basement areas and common parts.
Westbrook Dolphin Square Limited v Friends Life Limited [2014] L&TR 28	Common parts including corridors connecting common facilities	Referenced in assessing whether corridors and basement areas are common parts.

Court's Reasoning and Analysis

The court began by assessing whether the disposals effected by the Leases fell within the statutory exclusions under section 4(2)(e) and (h) of the Landlord and Tenant Act 1987. It interpreted "gift" broadly, including the grant of a lease, even where tenant covenants exist, provided no monetary value or consideration passed to the landlord. The court relied on established principles of purposive statutory construction to avoid absurd or unreasonable results, referencing authorities that support construing intra-family transfers, including those between joint owners, as gifts within the meaning of the Act.

The court rejected the claimant's argument that mutual covenants in a lease preclude the grant from being a gift, finding that the covenants are part of the property interest granted and do not amount to consideration of value to the landlord. It also held that the motivation of the Defendants to retain development value did not negate the gift characterization.

Regarding the "member of the landlord's family" requirement, the court accepted that a transfer by joint owners to one of them can be a gift to a family member, interpreting the language in a manner consistent with legislative purpose and rejecting the claimant's more literal and restrictive reading.

On the second issue, the court examined the scope of premises affected by disposals under the 1987 Act, following the precedent set by Dartmouth Court Blackheath Ltd v Berisworth Ltd. It concluded that disposals of any part of the building—including common parts and appurtenances—are relevant disposals. The court adopted a purposive approach to "appurtenances," including areas required for upkeep and maintenance, even if not demised to qualifying tenants, consistent with the Act’s objective to enable tenants better control over the entire block.

In applying these principles to the 14 Leases, the court found that many demised areas constituted common parts or appurtenances, but ultimately concluded that all the Leases fell within the statutory exclusions as gifts or intra-family transfers. Consequently, they were not relevant disposals triggering the Act’s protections.

The court declined to address arguments related to the Human Rights Act and criminal sanctions since the primary conclusions rendered those questions unnecessary.

Holding and Implications

The court's final ruling was to dismiss the claimant's claim, holding that none of the Leases constituted relevant disposals under the Landlord and Tenant Act 1987 because they fell within the statutory exclusions as gifts or intra-family transfers pursuant to sections 4(2)(e) and (h).

The direct consequence is that the Defendants were not required to serve notices under section 5 of the 1987 Act before granting the Leases, and the claimant’s application to compel transfer was rejected. The decision did not establish new precedent beyond confirming the proper interpretation of the statutory exclusions in this context and reaffirming existing case law regarding the scope of disposals and premises covered by the Act.