Right of first refusal – gifts – husband and wife

The facts

The Defendants, husband and wife, were freehold owners of a block of flats known as York House. They had found out that some of the leaseholders of the block were intending to claim the freehold under the Leasehold Reform, Housing and Urban Development Act 1993 (the “1993 Act”). They were concerned that the price payable under the 1993 Act would not properly reflect a number of development opportunities in relation to York House. Accordingly, in June 2017 they granted 14 leases of various parts of York House and its surrounding area to one or other of themselves (the “Leases”). There was no premium payable. The rent was a peppercorn. No notices under section 5 of the Landlord and Tenant Act 1987 (the “1987 Act”) were served on the qualifying tenants of York House prior to the granting of these Leases.

Following the granting of these Leases, the lessees obtained the freehold and sought an order that the Leases be transferred to the Claimant under section 19 of the 1987 Act. The question was whether the Leases were “relevant disposals” under the 1987 Act or whether they were excluded under section 4(2)(e) as a gift to a member of the landlord’s family, or under section 4(2)(h) as a disposal by way of transfer by two or more persons who were members of the same family to fewer of their number. The Claimant argued that it was conceptually impossible for the creation of a new tenancy to constitute “a gift” because the mutual covenants in it amounted to consideration.

The decision

Mr Justice Zacaroli dismissed the claim.

He held that the question in each case was one of construction of the phrases, respectively, “disposal by way of gift” and “to a member of the landlord’s family”. The purpose of the 1987 Act was to give leaseholders of residential flats in a block improved rights to control the upkeep and maintenance of the block. Where a landlord had chosen to dispose of its interest on commercial terms, it was unlikely to have any interest in the identity of the acquiring interest, but that was not so in the case of “intra-family” disposals. Further, the definition in section 4(3) of the word “disposal” as being “the creation or the transfer of an estate” provided a strong indication that “gift” was intended to encompass both a transaction by way of creation of an estate and a transaction by way of transfer of an estate. Accordingly, both the wording and the purpose of the provision indicate that it is broad enough to include the grant of a lease.

Although the grant of a lease involved entering into mutual covenants, it also resulted in the carving out, and vesting in the tenant, of a new estate in land. It was therefore conceptually possible to describe the grant of a tenancy as the making of “a gift”. Further, neither did the language require, nor was there any legislative purpose in excluding from its ambit a gift from a husband to wife, but not a gift from husband and wife to the wife or husband alone; when considering the purpose of these provisions it was clear that the landlord had the same continuing interest in the identity of the disponee in both situations.

Conclusion

It followed that none of the Leases were a relevant disposal as each of them fell within section 4(2)(e) or (h). No section 5 notices had therefore been necessary and the Claimant could not compel a transfer of the Leases under section 19 of the 1987 Act.