The landlord of a block of flats disposed of the freehold in the property to the first defendant in breach of the obligation in the Landlord and Tenant Act 1987 to offer it first to the second to eight claimants, who were qualifying tenants for the purposes of the 1987 Act. Once they became aware of the disposal, the second to eighth claimants (2) obtained an order in the County Court pursuant to section 19 of the 1987 Act requiring the first defendant to transfer the freehold to the first claimant, their nominee company, and (2) commenced proceedings in the First-tier Tribunal for a determination of the consideration that the first claimant should pay the first defendant. Subsequently, the claimants also brought an action against the first defendant for an injunction to prevent him from selling two vacant flats in the block. The second defendant, having informed the claimants after the commencement of the injunction action that he had been granted equitable leases in the flats, was joined as a party to that action. The question arose whether the equitable leases were “incumbrances” for the purposes of section 12B(5)(b) of the 1987 Act, which the first claimant would take subject to when the section 19 order was complied with. The claimants contended that (1) the 1987 Act precluded the purchaser from granting any interest in the land after the making of the order, (2) the tenants’ nominee took free of any incumbrance not drawn to the attention of the County Court and the First-tier tribunal in the section 19 proceedings, and (3) “incumbrance” only included registered estates and interests.
On the claimants’ claim for injunctive relief and the second defendant’s counterclaim for a declaration that he had been granted equitable leases of the flats—
Held, the Landlord and Tenant Act 1987 did not preclude the purchaser from granting any interest in the land after the making of the section 19 order. Although section 12B(5)(a) provided for the tenants’ nominee to acquire the property free of relevant charges, section 12B(5)(b) emphasised the continuity of other aspects of land law by providing that other “incumbrances” that would otherwise pass with the land would continue to do so. Consistent with that interpretation, the concept of “incumbrances” in section 12B(5)(b) was not limited to “registered” incumbrances. The County Court and First-tier Tribunal were not required by the Act to determine all property interests that would bind the tenants’ nominee. Therefore interests overlooked in section 19 proceedings could, as consequence of ordinary land law principles, pass to the tenants’ nominee. In the present case the second defendant had been granted equitable leases of the two flats, albeit only after the section 19 order had been obtained. While the second defendant had failed to assert those incumbrances in the proceedings before the First-tier Tribunal, that failure did not, given the nature of those proceedings, mean that it was an abuse of process for him to assert now that he had an interest. Nonetheless, consequences might flow both from the creation of interests after the section 19 order, which in the circumstances was to be deprecated, and also the failure to raise the incumbrances in the section 19 proceedings (paras 20–23,76, 33, 79, 135, 139, 143).
Michael Walsh (instructed by Judge & Priestley LLP, Bromley) for the tenants.
The first defendant did not appear and was not represented.
Nathaniel Duckworth (instructed by Ashurst LLP) for the second defendant.