74
[1980]
[HOUSE OF LORDS]
W E N T W O R T H SECURITffiS L T D .
AND A N O T H E R APPELLANTS
AND
JONES RESPONDENT fi
[ON APPEAL FROM JONES V. WROTHAM PARK SETTLED ESTATES]
1977 Dec.16, 19; Stephenson, Orr and Goff L.JJ.
1978 Jan. 26
1978 Oct. 30, 31; Lord Diplock, Lord Salmon, Lord Edmund-Davies,
Nov. 2, 6; Lord Fraser of Tullybelton and C
Dec. 13 Lord Russell of Killowen
. Landlord and Tenant—Leasehold enfranchisement—Price of free
hold—Long lease at low rent—Lease for 300 years subject to
existing lease—Provision for increase of rent on termination of
lease—Valuation of freehold depending on whether concurrent
lease to be considered in determining price—Applicability of ^
statute to concurrent lease-.—Whether concurrent lease modify-
, ing right to acquire freehold—Leasehold Reform Act 1967
(c. 88), ss. 9 (1), 23 ( 1 ) !
In 1962 the tenant who was the occupier of the house was
granted a lease of it from 1961 for 87 years at a yearly rent
of £15. By a leaseholder's notice dated October 5, 1973, and
served on October 8, the tenant gave notice to the freeholders
of her intention to acquire the freehold in accordance with her E
right under Part I of the Leasehold Reform Act 1967. Before
the notice was served, on October 6, the freeholders granted
a concurrent lease to a property company, the reversioner,
for 300 years, subject to the existing lease at a pepper
corn rent until the expiry of the tenant's lease and at a rack
rent thereafter. The reversioner was granted similar leases
in respect of other houses in the area. The concurrent
lease provided by paragraph (5) of schedule 4 that, if the **
reversioner should grant a sublease to the tenant, then the
annual rent payable should be equal to the best yearly rent
for which the premises could be let in the open market. On
the tenant's application to the Lands Tribunal to determine
the price of the freehold under section 9 (1) of the Act, two
alternative valuations were agreed between the parties. The
valuations were that £50 was payable to the freeholders and ^
£250 to the reversioner, when paragraph (5) of schedule 4 was
left out of account, whereas, if that paragraph was taken into
consideration, the sum of £4,000 was to be paid to the free
holders, no sum at all being then payable to the reversioner.
It was conceded for the tenant that the reversioner was deemed
to have granted a sublease of the premises to the tenant
within the meaning of paragraph (5) for the purposes of the
assumption to be made under section 9 (1) (a) in determining o
the price of the freehold. But the tenant contended that
1
Leasehold Reform Act 1967, s. 9 (1): see post, p. 108E-F.
S. 23 (1): see post, p. 111F-G.
75
A.C. Jones y. Wrotham Park Estates (C.A.)
paragraph (5) should not be taken into consideration since it
A was void by virtue of section 23 (1) of the Act as it purported
to modify the tenant's rights and provided for a penalty or dis
ability. After finding that the concurrent lease was a device
to increase the value of the freehold, the tribunal held that
section 23 (1) was not applicable to the concurrent agreement
as the tenant was not a party to it and that the agreement did
not modify the tenant's rights nor impose any penalty or
disability. Therefore, the tribunal determined that the tenant
" should pay £4,000 to the freeholders and need not pay any
sum to the reversioner on the basis that regard should be
had to paragraph (5) of schedule 4 to the concurrent lease in
assessing the sum payable. The Court of Appeal reversed.
the decision.
On appeal by the freeholders: —
Held, allowing the appeal, that the rights, admittedly
p genuine, granted to the freeholders by the intermediate lease
*~ could not be disregarded in assessing the price of the free
hold under section 9 (1) (a) but the modification which they
effected in the situation to which the statutory system of
calculating the price applied, substantially increasing, that price,
did not modify or purport to modify or exclude the right to
acquire the freehold under section. 23 (3) nor did it impose
any penalty or liability on the tenant within that subsection
^ so as to avoid it (post, pp. 104F-G, 106D, 107C-D, 113D, E - F ,
u
H—114c).
Decision of the Court of Appeal (post, p. 78); [1978] 3
W.L.R. 585; [1978] 3 All E.R. 527 reversed.
The following cases are referred to in their Lordships' opinions:
Brandling v. Barrington (1827) 6 B. & C. 467.
Gladstone v. Bower [1960] 2 Q.B. 384; [1960] 3 W.L.R. 575; [1960] 3 All
E
E.R. 353, C.A. >
Greenhalgh v. Arderne Cinemas Ltd. [1946] 1 All E.R.,512, C.A.
Johnson v. Moreton [1980] A.C. 37; [1978] 3 W.L.R. '538; [1978] 3 All
E.R. 37, H.L.(E.).
Joseph v. Joseph [1967] Ch. 78; [1966] 3 W.L.R. 631; [1966] 3 All E.R.
486, C.A.
Kammins Ballrooms Co: Ltd. v. Zenith Investments {Torquay) Ltd. [1971]
F A.C. 850; [1970] 3 W.L.R. 287; [1970] 2 All E.R. 871, H.L.(E.).
White v. Bristol Aeroplane Co. Ltd. [1953] Ch. 65; [1953] 2 W.L.R: 144;
[1953] 1 All E.R. 40, C.A. ' ' •"
The following additional cases were cited in argument in the House of
Lords: '
Clift v. Taylor [1948] 2 K.B. 394; [1948] 2 All E;R. 113, C.A.
G East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] A.C.
109; [1951] 2 All E.R. 587, H.L;(E.).
Elmdene Estates Ltd. v. White [I960]-A.C. 528;. [1960] 2 W.L.R. 359;
[1960] 1 All E.R. 306, H.L.(E.).
Hosier & Dickinson Ltd. v. P. & M. Kaye Ltd. [1972] 1 W.L.R. 146;
[1972] 1 All E.R. 121,,H.L.(E.)
Inland Revenue Commissioners \. Ayrshire Employers Mutual Insurance
H Association Ltd. (1946) 175 L.T. 22; 1946 S.C.(H.L.) 1; [1946] 1 All
E.R. 637, H.L.(Sc).
Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1,
H.L.(E.).
76
Jones v. Wrotham Park Estates (C.A.) [1980]
Jamieson v. Inland Revenue Commissioners [1964] A.C. 1445; [1963] 3
A
W.L.R. 156; [1963] 2 All E.R. 1030, H.L.(E.).
Methuen-Campbell v. Walters [1979] Q.B. 525; [1979] 2 W.L.R. 113;
[1979] 1 All E.R. 606, C.A.
Metropolitan Film Studios Ltd.'s Application, In re [1962] 1 W.L.R.
1315; [1962] 3 All E.R. 508.
North Staffordshire Railway Co. v. Edge [1920] A.C. 254, H.L.(E.).
Partington v. Attorney-General (1869) L.R. 4 H.L. 100, H.L.(E.).
Potts' Executors v. Inland Revenue Commissioners [1951] A.C. 443; B
[1951] 1 All E.R. 76, H.L.(E.).
Reg. v. Ottewell [1970] A.C. 642; [1968] 3 W.L.R. 621; [1968] 3 All E.R.
153, H.L.(E.).
Ross & Coulter v. Inland Revenue Commissioners, 1948 S.C.(H.L.) 1;
[1948] 1 All E.R. 616, H.L.(Sc).
South of Scotland Electricity Board v. British Oxygen Co. Ltd. [1956] 1
W.L.R. 1069; 1956 S.C.(H.L.) 112; [1956] 3 All E.R. 199, H.L.(Sc). C
Stonehaven Magistrates v. Kincardineshire County Council, 1940 S.C.
(H.L.) 56, H.L.(Sc).
Sutherland, deed., In re [1960] Ch. 611; [1960] 3 W.L.R. 491; [1960]
3 All E.R. 270, C.A.; [1963] A.C. 235; [1961] 3 W.L.R. 1062;
[1961] 3 All E.R. 855, H.L.(E.).
Tedman v. Whicker [1944] K.B. 112; [1944] 1 All E.R. 26, C.A.
Town Investments Ltd. Underlease, In re [1954] Ch. 301; [1954] 2 W.L.R. D
355; [1954] 1 All E.R. 585.
Wilkes v. Goodwin [1923] 2 K.B. 86, C.A.
" Wonderland," Cleethorpes Ltd., In re [1965] A.C. 58; [1963] 2 W.L.R.
1426; [1963] 2 All E.R. 775, H.L.(E.).
The following case is referred to in the judgments in the Court of Appeal:
E
Joseph v. Joseph [1967] Ch. 78; [1966] 3 W.L.R. 631; [1966] 3 All E.R.
486, C.A.
The following additional cases were cited in argument in the Court of
Appeal:
Elmdene Estates Ltd. v. White [1960] A.C. 528; [1960] 2 W.L.R. 359;
[1960] 1 All E.R. 306, H.L.(E.). F
Tedman v. Wicker [1944] K.B. 112; [1944] 1 All E.R. 26, C.A.
Wilkes v. Goodwin [1923] 2 K.B. 86, C.A.
CASE STATED by the Lands Tribunal.
This was a reference by the tenants, William Selwyn Jones (now
deceased) and Mrs. Lena Jones, in respect of the price payable for the
freehold interest of 45 Wellesley Crescent, Potters Bar, Hertfordshire, G
under section 9 of the Leasehold Reform Act 1967. At the hearing
before the Lands Tribunal (V. G. Wellings Q.C.) the proved facts formed
part of the case.
The tenants were granted a lease of the house, which they had
occupied since October 1962, by Dugdale Hill Estate Co. Ltd., pre
decessors in title of the freeholders, Wentworth Securities Co. Ltd. The pj
lease was for a term of 87 years at a yearly rent of £15 from December
1961. On October 6, 1973, the freeholders interposed between the
freehold and the lease a concurrent lease granting Wrotham Park
77
A.C. Jones v. Wrotham Park Estates (C.A.)
Settled Estates, the reversioner, a term of 300 years from December 25,
1970, subject to the tenant's existing lease. The rent payable under the
concurrent lease was a peppercorn until December 25, 2048, and there
after rack rents were payable until the end of the term, the rack rents
to vary from period to period. By paragraph 5 of schedule 4 to the
lease, it was provided that, if a sublease were granted by the reversioner,
then an amount equal to the best yearly rent for which the premises
B could be let in the open market would become payable.
The land certificates relating to the registered title showed that the
freeholders had granted identical leases to the reversioner in respect of
106 properties in the district. The tribunal found that the concurrent
lease was a device to increase the price of the freehold. The parties
agreed that, if the provisions of paragraph 5 of schedule 4 were not
taken into consideration, then the price payable would be £50 to the
c
freeholders and £250 to the reversioner, but that £4,000 should be paid
to the freeholders and nothing to the reversioner if that paragraph were
to be taken into consideration.
The tribunal was of the opinion that the reference in section 23 (1)
of the Act of 1967 to " an agreement relating to a tenancy " meant an
agreement to which the occupying tenant was a party to the exclusion
D of the concurrent lease. Further, the tribunal decided that, even if the
concurrent lease could be regarded as falling within the subsection, it
did not purport to exclude or modify the tenant's right to acquire the
freehold which remained unqualified and absolute, nor could it be
described as imposing a penalty or disability. The tribunal therefore
held that the tenant should pay £4,000 to the freeholders and no sum
at all to the reversioner. The question for the decision of the court was
E
whether the tribunal was correct in law in holding that section 23 of
the Leasehold Reform Act 1967 was not applicable.
The tenant appealed against the determination, seeking an order that
the price payable to the freeholders for the freehold was £50 and to
the reversioner for the leasehold was £250. The grounds of appeal
were that the tribunal were wrong: (1) in holding that the reference
F in section 23 (1) to " an agreement relating to a tenancy " was confined
to an agreement to which the tenant was a party; and that such
reference in fact included the concurrent lease made between the free
holders and the reversioner; (2) in holding that the lease did not modify
the tenant's right to acquire the freehold; and (3) in holding that the
concurrent lease did not impose a penalty or disability on the tenant
within section 23 (1); that the tribunal should have held that paragraph
G 5 of schedule 4 to the concurrent lease, rightly described as a device to
increase the value of the freehold, was rendered void by section 23 (1);
and that, having regard to the facts and the valuations, the tribunal's
decision was wrong.
N. T. Hague for the tenant.
H T. M. E. B. Etherton for the reversioner on the matter of costs only.
E. G. Nugee Q.C. for the freeholders.
Cur. adv. vult.
78
Jones v. Wrotham Park Estates (C.A.) [1980]
January 26,1978. The following judgments were read. .
O R R ' L J . This is an appeal by the tenant of a house, 45 Wellesley
Crescent, Potters Bar, against a decision of the Lands Tribunal (Mr.
V. G. Wellings Q.C.) on October 15, 1976, whereby it was determined, on a
reference to the tribunal under section 21 of the Leasehold Reform
Act 1967, that the price payable by the tenant on the exercise of her
rights under the Act to acquire the ownership of the premises is, in B
respect of the freehold estate in the premises, £4,000, but that in respect
of a superior lease of the premises, which I shall call " the concurrent
lease," no sum is payable.
The facts of the case can be shortly stated. On October 2, 1962, a
company named Dugdale Hill Estates Co. Ltd. leased the premises to
the tenant, Mrs. Jones, and her husband, who has since died, at a
yearly rent of £15 for a term of 87 years from December 25, 1961 (and
therefore expiring in December 2048). By a leaseholder's notice under
the Act, dated October 5, 1973, but not served until October 8, notice
was given in the names of the tenant and her husband, Mr. and Mrs.
Jones, to the freeholders, the second respondents, Wentworth Securities
Co. Ltd., who had acquired the freehold title from Dugdale Hill Estates
Co. Ltd., of their desire to acquire the freehold. It is common ground D
that, had the matter rested on these facts, the sum payable for the
freehold would have been £300, but on October 6, 1973, between the
date of the tenant's notice and the date of its service, the freeholders,
Wentworth, interposed between their freehold and the lease to the
tenant and her husband the concurrent lease to which I have earlier
referred, being a lease of the premises to the reversioner Wrotham Park
Estate Co., since renamed Wrotham Park Settled Estates, the first E
respondents in this appeal, for a term of 300 years from December 25,
1970, subject to and with the benefit of the lease to the tenant and her
husband. We have been told, and it is not in dispute, that a large
number of similar leases were on or about the same date granted by
the freeholders to the reversioner in respect of some 100 other houses
in the same locality; that the tenants were informed of what was being p
done; and that the freeholders and the reversioner are connected com
panies having at least one common director. All these leases granted
to the reversioner a term of 300 years from December 25, 1970, subject
to and with the benefit of the pre-existing leases, the rents payable under
the concurrent leases being, by paragraph 1 of schedule 4 to each lease,
a peppercorn (if demanded) until December 25, 2048 (the date of expiry
of the tenant's lease and the other original leases), and thereafter, by G
paragraphs 2 and 3 of the same schedule, rack rents to be determined
by an arbitrator for the periods from December 25, 2048, to December
25, 2098, and from the latter date until the end of the term; such rack
rents to be based on values at the commencement of each period.
Paragraph 5, which is the crucial provision for the purpose of the
present appeal, and paragraph 6 of the same schedule provided as JT
follows:
" (5) If and so often as a sub-lease (not being a tenancy from year
to year or any lesser interest) is granted by the tenant of the whole
79
A.C. Jones v. Wrotham Park Estates (C.A.) Orr LJ.
of the premises the annual rent payable hereunder shall for the
period beginning with the commencement of the term granted by
the sub-lease and ending with the termination thereof (however the
same determines and if the term is extended by virtue of any
enactment then ending with the termination of the term so. extended)
be (in lieu of the foregoing rents) an amount equal to the best
yearly rent for which the premises could be let in the open market
B at the commencement of such terms with vacant possession free
from all incumbrances (including the existing lease) for a term
equal to the term granted by the sub-lease such amount to be ascer
tained (in default of agreement) by arbitration as aforesaid.
" (6) Provided always that if (whether by virtue of the provisions
of paragraph (5) of this schedule or otherwise) the yearly rent
which would (apart from this paragraph (6)) be for the time being
*-" payable hereunder shall be more than the yearly rent reserved by
any sub-lease granted by the tenant (whether in pursuance of the
provisions of the Leasehold Reform Act 1967 or any amendment
or re-enactment thereof or otherwise howsoever) then the yearly
rent payable hereunder under paragraphs (2) and (3) of this
schedule shall be reduced to a peppercorn during a period (here
in after called ' a rent free period') from the actual termination of
the term of such sub-lease (howsoever the same shall determine and
if the term shall be extended by statute then from the termination
of the term as so extended) on December 25, 2048, or the expiration
of any rent free period referably to any earlier sub-lease (whichever
shall be the later date) until the expiration of the term hereby
granted (whichever shall last occur)."
E
Before turning to the proceedings before the Lands Tribunal it
will be convenient to refer to the relevant provisions of the Leasehold
Reform Act 1967, which may be summarised as follows.
Section 1 (1) of the Act provides that Part I of the Act shall have
the effect to confer on a tenant of a leasehold house, occupying the
house as his residence, a right to acquire on fair terms the freehold or
extended lease of the house and premises where (a) his tenancy is a
long tenancy at a low rent and the rateable value of the house and
premises is, if outside London, not more than £200, and (b) he has, at
the time when he gives notice of his desire to assert this right, occupied
the house under a long tenancy, at a low rent, and as his residence, for
a specified time. It is not in dispute that all these conditions were
■ satisfied in the present case and it is unnecessary to make any further
reference to them.
Section 8 (1) provides:
"Where a tenant of a house has under this Part of this Act a
right to acquire the freehold, and gives to the landlord written
H notice of his desire to have the freehold, then except as provided
by this Part of this Act the landlord shall be bound to make to
the tenant, and the tenant to accept, (at the price and on the con
ditions so provided) a grant of the house and premises for an estate
80
Orr LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
in fee simple absolute, subject to the tenancy and to tenant's
incumbrances, but otherwise free of incumbrances."
Section 9 (1) provides:
" . . . the price payable for a house and premises on a conveyance
under section 8 above shall be the amount which at the relevant
time the house and premises, if sold in the open market by a willing
seller, might be expected to realise on the following assumptions:— B
(a) on the assumption that the vendor was selling for an estate in
fee simple, subject to the tenancy but on the assumption that this
Part of this Act conferred no right to acquire the freehold, and
if the tenancy has not been extended under this Part of this Act,
on the assumption that (subject to the landlord's rights under
section 17 below) it was to be so extended; . . . "
Section 14 (1) provides:
"Where a tenant of a house has under this Part of this Act a
right to an extended lease, and gives to the landlord written
notice of his desire to have it, then except as provided by this
Part of this Act the landlord shall be bound to grant to the
tenant, and the tenant to accept, in substitution for the existing D
tenancy a new tenancy of the house and premises for a term
expiring 50 years after the term date of the existing tenancy."
Section 15 (2) provides that the rent payable under such a new
tenancy is to be a ground rent in the sense that it shall be the letting
value of the site, without including anything for the value of buildings
on the site, for permitted uses to which the house and premises have E
been put during the existing tenancy, and that such rent may, if
the landlord so requires, be adjusted on the expiry of 25 of the 50
years to accord with letting values then current.
Section 23 (1) provides:
"Except as provided by this section, any agreement relating to a
tenancy (whether contained in the instrument creating the tenancy p
or not and whether made before the creation of the tenancy or
not) shall be void in so far as it purports to exclude or modify any
right to acquire the freehold or an extended lease or right to com
pensation under this Part of this Act, or provides for the termina
tion or surrender of the tenancy in the event of a tenant acquiring
or claiming any such right or for the imposition of any penalty or
disability on the tenant in that event." G
Schedule 1 to the Act, entitled "Enfranchisement or Extension by
Sub-Tenants " includes the following provisions relevant to the present
case:
" 1. (1) Where a person (in this Schedule referred to as ' the
claimant') gives notice of his desire to have the freehold or an JJ
extended lease of a house and premises under Part I of this Act,
and does so in respect of a sub-tenancy (in this Schedule referred
to as ' the tenancy in possession'), then except as otherwise
81
A.C. Jones v. Wrotham Park Estates (G.A.) Orr LJ.
provided, by this Schedule—(a) the rights and obligations of the
landlord under Part I of this Act shall, so far as their interests are
affected, be rights and obligations respectively of the estate owner
in respect of the fee simple and of each of the persons in whom
is vested a concurrent tenancy superior to the tenancy in possession
(and references to the landlord shall apply accordingly); and
(b) the proceedings arising out of the notice, whether for resisting
B or giving effect to the claim to acquire the freehold or extended
lease, shall be conducted, on behalf of all the persons referred to in
(a) above, by and through that one of them who is identified by
this Schedule as ' the reversioner.' (2) Where there is a tenancy
reversionary on a tenancy in respect of which a person gives notice
as aforesaid, then (except in so far as special provision is made for
such a reversionary tenancy) this Schedule shall apply as if the
reversionary tenancy were a concurrent tenancy intermediate
between the tenancy in possession and any interest superior to it.
(3) In the following provisions of this Schedule the persons for
whom the reversioner is by this paragraph authorised to act are
referred to as ' other landlords'; and in this Schedule references
to superior interests mean the estate in fee simple and any tenancy
D superior (or treated by sub-paragraph (2) above as superior) to
the inferior interest in question.
" 2. Subject to paragraph 3 below, ' the reversioner' shall be—
(a) if any person has a tenancy of the house carrying an expecta
tion of possession of 30 years or more, that person or, if there is
more than one, that one of them to whose tenancy the other
tenancies are superior; . . ."
It is common ground that, by virtue of paragraph 2 (a), the first
respondent is the reversioner for the purposes of Schedule 1 in the
present case.
Paragraph 4 provides:
" (1) Without prejudice to the generality of paragraph 1 above, the
F reversioner may on behalf and in the name of the other landlords—
(a) execute any conveyance to give effect to section 8 of this Act,
or any lease to give effect to section 14; and (b) take or defend
any legal proceedings under Part I of this Act in respect of matters
arising out of the claimant's notice. (2) Subject to paragraphs 5
and 6 below, in relation to all matters within the authority given
to him by this Schedule the reversioner's acts shall be binding on
" the other landlords and on their interests in the house and
premises or any other property; but in the event of dispute either
the reversioner or any of the other landlords may apply to the
court for directions as to the manner in which he should act on
the matter in dispute."
Paragraph 5 (1):
H
" Notwithstanding anything in paragraph 4 (2) above, any of the
other landlords shall be entitled, if he so desires, to be separately
represented in any legal proceedings in which his title to any
82
On LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
property comes in question, or in any legal proceedings relating to .
. •. the price payable for the house, and premises under section 9 of
this Act. (2) For the purpose of deducing, evidencing or verifying
his title to any property, any of the other landlords, on giving
written notice to the reversioner and to the claimant, may deal
directly with the claimant, if he objects to disclosing his title to
the reversioner, and he shall deal directly with the claimant if
the claimant by written notice given to him and to the reversioner B
so requires. (3) For the purpose of agreeing the price payable for
his interest under section 9 of this Act, any of the other landlords,
on giving written notice to the reversioner and to the claimant,
may deal directly with the claimant; and whether he does that
or not, he may require the reversioner to apply to the Lands
Tribunal for the price to be determined by the Lands Tribunal."
It is common ground that the freeholders' locus standi in the present
proceedings is derived from paragraph 4 (1) and that they had also,
by virtue of a notice to that effect, obtained a right to deal directly with
the tenant under paragraph 5 (3). Paragraph 7 (1) provides:
"Where a conveyance is executed to give effect to section 8 of
this Act—(a) section 10 shall have effect in relation to rights and D
restrictions arising by virtue of any tenancy superior to the tenancy
in possession (or by virtue of an agreement collateral to such a
tenancy), so far as they are directly or indirectly to the benefit
of or enforceable against the claimant during the tenancy in
possession, as if they arose by virtue of that tenancy; . . . "
Paragraph 10 (1) provides: E
"Where a lease is executed to give effect to section 14 of this
Act, then except as provided by paragraph 11 below the new
tenancy shall be granted by the landlord having an interest suf
ficient in point of duration which is not superior to another such
interest."
F
In consequence of the leaseholder's notice and in default of agree
ment between the parties, an application was made to the Lands
Tribunal under section 21 of the Act to determine the price payable
for the house and premises, 45 Wellesley Crescent, under section 9 of
the Act, and on the hearing the tenant, the reversioner and the free
holders were all represented by counsel, but Mr. Etherton for the
reversioner took no part in the argument. There were before the G
tribunal alternative agreed valuations, the first of which, relied on for
the tenant, was prepared on the basis that the valuers were required
to take account of the concurrent lease dated October 6, 1973, but to
ignore paragraph 5 of schedule 4 thereto, and on that basis produced
agreed figures of £50 payable to the freeholders in respect of the
freehold estate and £250 payable to the reversioner in respect of the JJ
concurrent lease, making a total of £300, and this basis of valuation
the tribunal referred to as assumption 1. The other valuation was
prepared on the basis, which the tribunal referred to as assumption 2,
83
A.C. Jones v. Wrotham Park Estates (C.A.) Orr LJ.
that all the provisions of the concurrent lease, including paragraph 5
of schedule 4, were to be taken into account, and produced an agreed
figure of £4,000 payable to the freeholders in respect of the freehold
estate but nothing payable to the reversioner in respect of the
concurrent lease.
On behalf of the freeholders it was argued before the tribunal that
the proper assumption to be applied in the valuation was assumption
B 2 because: (a) section 9 (1) of the Act required the price payable for
the freehold to be assessed on the double basis that the freehold was
subject to the tenant's lease of 1961 and that such lease was to be
extended for 50 years; (b) that for this reason, taken in conjunction
with paragraph 10 (1) of schedule 1 to the Act, a new lease under
section 14 must be deemed to be granted by the reversioner; and (c) that
„ in the circumstances the deemed new lease under section 14 was a sub
lease of the whole of the premises granted by the reversioner within
the meaning of paragraph 5 of Schedule 4 to the concurrent lease,
with the result that, for the purpose of assessing the compensation
payable to the freeholders in respect of the latter's freehold estate in
the premises, the rent must be taken to be the best yearly rent for
which the premises could be let in the open market as defined in
D paragraph 5.
On behalf of the tenant it was conceded by Mr. Hague that the
concurrent lease was a valid lease and not a sham and that the sub
missions made by Mr. Nugee for the freeholders were correct subject
only to arguments which Mr. Hague for the tenant proceeded to
develop, based on section 23 (1) of the Act, to the effect, first, that
r, paragraph 5 of schedule 4 to the concurrent lease was an agreement
relating to the tenant's tenancy within section 23 (1); that it purported
to modify the tenant's right to acquire the freehold by providing for a
greatly increased purchase price compared with the £300 which, but
for the execution- of the concurrent lease, would have been payable
under the Act; and that it also contravened section 23 (1) by providing
for the imposition of a penalty or disability on the tenant in the
F event of her claiming the right to acquire the freehold.
In its decision the Lands Tribunal observed that there could be no
doubt that the interposing of the concurrent lease between the freehold
and the occupying tenant's lease was intended as a device to increase the
value of the freehold under section 9 of the Act, and that the question
at issue was whether this device had succeeded. Having said this, and
G having referred to the concessions made by Mr. Hague for the tenant,
the tribunal proceeded to reject his submissions based on section 23 (1)
of the Act of 1967 holding, first, that the reference in that subsection to
"any agreement relating to a tenancy" applied only to an agreement
to which the tenant was a party and could not therefore apply to the
concurrent lease to which the tenant was not a party; and, secondly,
TT that the concurrent lease did not purport to modify the tenant's rights,
which remained intact and unqualified, nor did it provide for the imposi
tion of any penalty or disability on the tenant in the event of her
acquiring or claiming any right under the Act. Accordingly the tribunal
84
Orr LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
held that assumption 2, whereby regard was to be had to all the terms
of the concurrent lease, including paragraph 5 of schedule 4, was the
proper basis of valuation and determined that the price payable for the
freehold estate was £4,000 and that no sum was payable in respect of
the concurrent lease.
Against this determination the tenant now appeals and (the rever
sioner not being represented in this court) we have heard, on behalf of
the tenant and of the freeholders, argument limited to the issues arising B
in relation to section 23 of the Act. In the course of the argument,
however, questions were put by Goff L.J. to Mr. Hague for the tenant
as to the concession made by him before the Lands Tribunal that, for
the purpose of assessing the compensation payable to the freeholders,
it was to be assumed that a sub-lease had actually been granted by the
reversioner to the tenant within the meaning of paragraph 5 of schedule ^
4 to the concurrent lease. One of the points put was that the apparent
intention of section 9 is to secure to the tenant, when assessing the
sum payable by him for the freehold, the benefit of his right, although
not exercised, to have an extended lease at a ground rent and without
paying a premium, and that all that is required for this purpose is to
treat the tenancy as extended without postulating the grant of any
actual sub-tenancy. Another point was that the assumption required D
to be made by section 9 (1) (a) of the Act is that the tenancy " was
to be extended " which, as Mr. Nugee conceded for the freeholders,
appears to recognise that there was not in fact going to be any new
sub-tenancy. For these reasons Mr. Hague for the tenant was asked
whether he wished to reconsider his concession, but he decided not to do
so and in the result we heard no argument upon it. In these circum- p
stances I express no view on this matter save to say that it appears
to me to be a very arguable one.
I turn to the issues in relation to section 23, and first to the broad
arguments advanced on each side which may be summarised as follows.
Mr. Hague for the tenant argued that it was the intention of Par
liament that a qualified tenant should have the right given him by the
statute; that the object of what was done by the freeholders in the
present case was to defeat that right and that if in any doubt the court
should resolve the matter in favour of the tenant. Mr. Nugee for the
freeholders submitted two broad arguments. The first was that it was a
fallacy to suppose that there existed, independent of the provisions of
the Act, any set of fair terms on which Parliament intended that the
tenant should be entitled to obtain the freehold, the words " on fair
terms " in section 1 being merely an introductory reference to the terms
defined in subsequent sections of the Act, and it being common ground
that the sum produced by those sections in the circumstances of this
case is £4,000. In the second place Mr. Nugee for the freeholders
relied on the distinction drawn in decided cases in relation to the Rent
Acts between, on the one hand, attempted exclusion of those Acts and,
on the other, the parties' bona fide entering into a situation where those
Acts have no application; a distinction which is clearly stated in the
85
A.C. Jones v. Wrotham Park Estates (C.A.) Orr LJ.
following passages in Megarry, The Rent Acts, 10th ed. (1967), vol. 1,
A
pp. 19-20:
" (a) Genuine Transactions. There is nothing, however, to prevent
the parties from so arranging matters that there is nothing to which
the Acts can apply, provided the transaction in question is a
genuine transaction and not a mere sham, such as a tenancy dis
guised as a contract for sale; ' real and lawful intentions cannot
B be dismissed as shams merely because they are disliked.' The
difference is between on the one hand a provision attempting to
exclude the Acts from a transaction to which they apply, and on
the other hand entering into a bona fide transaction to which the
Acts have no application, (b) Evasion and avoidance. ' There is
every difference between evasion and avoidance.' ' You do not
Q evade an Act by doing something which is not forbidden by the Act,
but you do evade the Act by doing something which is prohibited
under the guise of doing something else.'"
In relation to these passages Mr. Nugee relied strongly on the
admission made by Mr. Hague for the tenant before the Lands Tribunal
that the concurrent lease was not a sham, but I do not pause upon these
j) passages because it is in my judgment clear that they cannot assist the
freeholders' case if the crucial provisions of the concurrent lease are
rendered void by section 23 nor, in my judgment, can they assist the
tenant if her case fails under that section.
The first issue under section 23 is whether the concurrent lease is
" an agreement relating to the tenancy." It is claimed by Mr. Nugee
for the freeholders that it is not, on the ground that the tenant is a
E necessary party to such an agreement and he sought to support this
argument by a passage from the judgment of Diplock L.J. in Joseph v.
Joseph [1967] Ch. 78, 89, a case involving section 38 (1) of the Land
lord and Tenant Act 1954, much of the language of which has been
adopted in drafting section 23 of the Leasehold Reform Act 1967. It
reads as follows:
F "Any agreement relating to a tenancy to which this Part of this
Act applies (whether contained in the instrument creating the
tenancy or not) shall be void in so far as it purports to preclude
the tenant from making an application or request under this Part
of this Act or provides for the termination or the surrender of
the tenancy in the event of his making such an application or
request or for the imposition of any penalty or disability on the
tenant in that event."
Joseph v. Joseph is authority for the proposition that in section 38
the words " in so far as it purports" denote " in so far as it has the
effect of" and on that authority I have no doubt that the same
meaning should be given to the same words in section 23 of the
w Leasehold Reform Act 1967. In addition, however, Diplock L.J. said
H
at p. 90:
" In my judgment this subsection does render void any provision
of an agreement between landlord and tenant whereby the tenant
86
Orr LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
undertakes to do in the future any act which will have the effect .
under the statute of disqualifying him from applying for a new
tenancy under sections 24 (1) and 29."
But the agreement in issue in that case was between landlords and
tenants and it is clear in my judgment that Diplock L.J. who, at p. 89,
had posed the question which he answered in the passage quoted above.
" Can he [the tenant] . . . agree . . . with the landlord?" was not, in the „
passage quoted, putting any general construction on the words " agree
ment relating to a tenancy." For my part I can see no good reason
in the context of section 23 of the Act of 1967 for adopting the narrow
construction that the words " any agreement relating to a tenancy,"
which are in my judgment very wide words, are restricted to agree
ments between landlord and tenant. I would find it very surprising if
they did not apply to an agreement between, for example, the landlord C
and a relative of the tenant, that on the tenant's obtaining enfranchise
ment the relative would pay to the landlord the amount by which the
enfranchisement price fell short of a specified sum, and I would find it
equally surprising if such an agreement fell outside the section because
the promise was made, not to the landlord, but to a company in which
he was interested. It was not necessary for Mr. Nugee for the free- _.
holders in the present case to argue that the landlords must be a party
to " an agreement relating to a tenancy" under section 23 since the
freeholders, the landlords in the present case, were a party to the
concurrent lease, and he was content to argue no more than that the
landlords were probably a necessary party, but if the words " agreement
relating to a tenancy " involve that the tenant must, but the landlord
need not, be a party I would have expected the section to say so in E
terms. For these reasons, with great respect, I consider that the Lands
Tribunal was wrong in the only reason which it gave for holding that
the agreement in, question was not " an agreement relating to the
tenancy." It remains, however, to consider whether the agreement in
question was an agreement " relating to " the tenancy. In my judgment
it was, because paragraph 5 in schedule 4 to the concurrent lease was _
capable of applying to the statutory right of enfranchisement and was
intended by both parties to do so, and such right, although not a term
of the tenancy, was a right annexed to the tenancy by statute and
therefore, in my judgment, an incident of the tenancy.
The next question is whether the agreement purports to " modify
any right to acquire the freehold or an extended lease or right to com
pensation " under Part I of the Act. The Lands Tribunal held that it G
does not, on the ground that, while the effect of paragraph 5 of schedule
4 is that the tenant has to pay £4,000 instead of £300 for enfranchise
ment, her right to obtain the freehold " remains absolute and unquali
fied "; in other words, although the value of the right has been
drastically reduced, the right itself has remained unaffected. In my
judgment, however, again with great respect to the Lands Tribunal, ■„
this reasoning ignores the fact that until the act of enfranchisement
£300 remained the proper price for the freehold, calculated in accord
ance with the Act and apart from paragraph 5 of schedule 4 the
87
A.C. Jones v. Wrotham Park Estates (C.A.) Orr L.J.
exercise of the right of enfranchisement could not increase the price,
but paragraph 5, coupled with the concession, makes it do so, and in that
respect, in my judgment, modifies the right.
Having reached these conclusions I do not need to decide whether
paragraph 5 of schedule 4 " provides for . . . the imposition of any
penalty or disability " on the tenant in the event of her acquiring or
claiming any right under Part I of the Act, but in my judgment this
B part of section 23 has no application in the present case since it is
prefaced by the words " provides for " and paragraph 5 does not provide
for the imposition of any penalty or disability.
For these reasons I would allow this appeal and, in lieu of the
Lands Tribunal's determination that the price payable for the house
and premises is £4,000, would substitute, subject to any observations
£, that counsel may wish to make, a determination that the price is £300,
being £50 payable to the freeholders and £250 payable to the reversioner.
GOFF L.J. The facts which give rise to the question we have to
determine are fully stated in the judgment of Orr L.J. and I need not
take up time by repeating them.
I desire to stress, however, that I am not at all satisfied that the
^ assumption which section 9 (1) (a) of the Leasehold Reform Act 1967
requires to be made for the purpose of ascertaining the price payable
for the premises requires the two elements of the reversion, namely the
concurrent lease to the reversioner and the ultimate estate in fee simple
remaining in the freeholders to be valued on the hypothesis that the
reversioner had actually granted a subtenancy to the tenant.
.E It is true that where the tenant claims an extended lease, and not the
freehold, the machinery provided by section 14 of the Act is to bind
the reversioner to grant a new lease, and the existing lease is merged
or surrendered by operation of law, but where the freehold is claimed,
although the valuation has, pursuant to section 9 (1) (a), to be made " if
the tenancy has not been extended under this Part of this Act, on the
p assumption that . . . it was to be so extended," I think that that must
be construed in the light of the context and clear intention of the
section. That intention was to secure to the tenant, when assessing
the price he has to pay for the freehold, the benefit of his right, albeit
not in fact exercised, to have an extended lease at a ground rent only
and without paying a premium. All that is required for that purpose
is to treat his tenancy as if it were what it would be if it had been
G extended. It is not I think necessary to postulate the grant of a new
tenancy. The words " was to be " are in my view significant, because as
Mr. Nugee conceded for the freeholders they recognise that there is not
going to be any actual new tenancy.
It was common ground, however, that section 9 on its true con
struction does require the valuation to be made on the footing that the
TT reversioner is to be deemed to have granted a sub-tenancy within the
meaning of, and so as to bring into operation, the provisions of
paragraph 5 of schedule 4 to the lease of October 6, 1973, which I will
call the concurrent lease, subject only to the effect, if: any, of section 23
88
Goff LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
(1) of the Act, and Mr. Hague for the tenant, although offered the .
opportunity to do so, refused to resile from that position.
We must therefore decide this case on that assumption, but without
deciding that it is correct, and should any case be brought upon any
of the other leases to which Orr L.J. has referred, the point as to the
true effect of section 9 will be open and, as I think, well arguable.
Having said this, I now turn to the argument on section 23 (1) on
which Mr. Hague for the tenant rested his case. B
That subsection is qualified by opening words " Except as provided
by this section," but there is nothing relevant for present purposes in
that qualification. The subsection continues as follows:
" . . . any agreement relating to a tenancy (whether contained in
the instrument creating the tenancy or not and whether made before
the creation of the tenancy or not) shall be void in so far as it Q
purports to exclude or modify any right to acquire the freehold or
an extended lease or right to compensation under this Part of this
Act, or provides for the termination or surrender of the tenancy in
the event of a tenant acquiring or claiming any such right or for
the imposition of any penalty or disability on the tenant in that
event."
D
Mr. Hague submits for the tenant that paragraph 5 of schedule 4
to the concurrent lease is an agreement relating to the tenancy which
purports to exclude or modify the tenant's right to acquire the freehold,
or provides for the imposition of a penalty or disability on her in that
event. This raises several questions of which the first is whether the agree
ment embodied in paragraph 5 relates to the tenancy, and in my
judgment it does. E
The Lands Tribunal held that it does not, because in their view
every such agreement must be one to which the tenant is a party. It
is unnecessary to consider the position with regard to the freeholders,
because, of course, they were a party to the concurrent lease, but in
my judgment it is not essential that the tenant should be a party. In
common with Orr L.J. I cannot doubt that an agreement by a close p
relative of the tenant, or anyone else for that matter, that if the tenant
should exercise his right to enfranchisement and, if the price payable
calculated in accordance with the Act should be less than £x, he would
pay the landlord the difference, would be an agreement relating to the
tenancy within the meaning of section 23 (1), notwithstanding that the
tenant was not a party to the agreement.
So in my judgment the agreement contained in paragraph 5 of ^
Schedule 4 may fall within section 23 (1) of the Act, notwithstanding
that the tenant was not a party, but the question remains whether it
related to her tenancy and I agree with Orr L.J. that it did.
On the construction of section 9 on which this case proceeds, one of
the events on which the operation of paragraph 5 is made to depend
is an assumed grant of a sub-tenancy by virtue of that section, and that JJ
is not even a casual or fortuitous result. It was intended that it should
be so, and the freeholders' whole case is that it is. Therefore, as it
seems to me, the agreement in paragraph 5 clearly relates to the statu-
89
A.C. Jones v. Wrotham Park Estates (C.A.) Goff L.J.
tory right of enfranchisement. Now that right, although not a term
of the tenancy, is an incident of it, and so the agreement in paragraph
5 relates also to the tenancy itself.
It is true that paragraph 5 would also have come into operation if the
tenant or her successors in title had forfeited her tenancy or allowed
it to expire, and the reversioner, thus being entitled to grant a sub
tenancy, had actually done so, or if indeed she or they had in fact
B taken a sub-lease from the reversioner, but that seems to me to be an
irrelevant consideration.
It was argued that the concurrent lease including, of course, para
graph 5 of Schedule 4, is a fair bargain between the reversioner and
the freeholder, and that if that clause were invalidated by section 23 of
the Act it would become unfair. But in my judgment that is not so,
£ because section 23 (1), if it applies, invalidates paragraph 5 only in so
far as it purports to exclude or modify the statutory right, and therefore
in any event leaves its operation untouched in the supposed case of an
actual, as distinct from an assumed, sub-tenancy.
But then does paragraph 5 purport to exclude or modify the right
of enfranchisement? Again in my view it does. In this context, of
course, " purport to " cannot bear the meaning it often has, which may
D very well be its primary meaning, that is to say " is expressed to but
not effectively." It means " has the effect of ": see per Lord Denning
M.R. and Diplock L.J. in Joseph v. Joseph [1967] Ch. 78, 87, 90. I
ask myself, therefore, " does it have that effect?" And it seems to me
that there can be only one answer: " Yes, it does."
Immediately before the concurrent lease, the price for the freehold
£ calculated in accordance with the Act was £300. Immediately after
the execution of that lease, right down at least until the tenant had
actually exercised the right of enfranchisement, that was still the proper
price, because the freeholders could not get more than a nominal rent
from any concurrent lessee during the subsistence of the tenancy.
Apart from paragraph 5 the exercise of the right of enfranchisement
obviously could not increase that price. However, on the construction
of section 9 adopted in this case, that exercise does have that result,
and it does so solely because of the impact of paragraph 5. Therefore,
that paragraph does " purport to " modify, that is, " has the effect of "
modifying, the statutory right.
In my judgment the freeholders' argument to the contrary on the
j, ground that the increase in price is simply the result of making the
valuation on the statutory hypothesis is unsound, since it assumes that
paragraph 5 of Schedule 4 to the concurrent lease stands unaffected
by section 23 (1) of the Act, and therefore begs the question. The
alternative way in which this argument was presented, namely that the
valuation pursuant to and as directed by the Act is £4,000 and there is
nothing on which section 23 can bite is in my judgment equally untenable
for the same reason.
For these reasons I would allow this appeal and it is unnecessary to
consider Mr. Hague's further argument on the tenant's behalf that
90
Goff LJ. Jones v. Wrotham Park Estates (C.A.) [1980]
paragraph 5 is invalidated in its application to the right of enfranchise-
ment as being an agreement which
" . . . provides for the termination or surrender of the tenancy in
the event of a tenant acquiring or claiming any such right or for the
imposition of any penalty or disability on the tenant in that event "
but were it necessary to decide this I would, I think, reject the sub
mission both because the verb governing this part of the section is g
" provides for " and not " purports to," and because it does not seem
to me that paragraph 5, or the effect of its coming into operation, can
properly be described as a penalty or disability.
STEPHENSON L.J. The question referred to the Lands Tribunal was
as to:
" the prices payable on the acquisition of the intermediate lease
hold and the freehold of the property described above under section
9 of the Act, . . ."
The member, giving the decision of the tribunal, said:
"There can be no doubt that the purpose of the interposition
between the freehold and the occupying tenant's lease in each case D
was intended as a device to increase the value of the freehold under
section 9 of the Act of 1967. The question in the present case is
whether it has succeeded."
He decided that it had succeeded on the ground that section 23 of the
Act had no application. The question on which our decision is desired
is stated in the case to be " whether the tribunal was correct in holding E
that section 23 of the Leasehold Reform Act 1967 had no application."
The notice of appeal asks us to set aside or vary that decision on
the ground that the tribunal misdirected itself in holding that on its
true construction section 23 had no application and did not render
paragraph 5 of Schedule 4 to the intermediate or concurrent lease void.
Mr. Hague for the tenant conceded that, for the purpose of the p
assumption in section 9 (1) (a) that the tenancy was to be extended
under Part I of the Act, it was a sub-lease granted by the reversioner
within the paragraph. That led Goff L.J. to question whether the
concession was rightly made.
If the tenant had given notice of his claim to acquire an extended
lease, not of his claim to acquire the freehold, the concurrent tenancy
and paragraph 5 would be relevant in deciding the terms of the new G
tenancy under section 15. But I cannot see why, in making an
assumption required by section 9 to be made to determine the amount
of the purchase price of the freehold, the tenancy should be treated as
notionally extended in the actual circumstances of a concurrent tenancy.
I would not feel compelled without further argument to make the
further assumption that the notional new tenancy is a sub-lease granted JJ
by the intermediate tenant. I share the doubts expressed by Goff L.J.
on the question whether' this concession was rightly made, but I must
accept it as right when I consider the question whether section 23
91
A.C. Jones v. Wrotham Park Estates (C.A.) Stephenson LJ.
applies to invalidate the concurrent lease or paragraph 5 of Schedule 4
A
to it.
The purpose of section 23 appears from its terms to be the preser
vation of the statutory rights, (1) to acquire the freehold or an extended
lease and (2) to compensation, from being taken away, or restricted, or
made more difficult for the tenant to acquire or claim, by agreement.
If a tenant qualifies under section 1 of the Act by the rent and the
B term of his tenancy, by the rateable value of the leasehold house and
premises and by his occupation of the house as his residence, he is not
to contract or be contracted out of the right to enfranchisement or
extension conferred on him by that section, either completely or partly,
or out of the right to compensation conferred on him by sections 17 (2)
and 18 (4). He is not to be deterred from acquiring or claiming any of
those rights by being required to terminate or surrender the tenancy,
^ or by being penalised or disqualified, in the event of his acquiring or
claiming the right.
The obvious method of contracting him out of that right or deterring
him from acquiring or claiming it is by agreement between him and his
landlord from whom he must acquire and claim the right to enfranchise
ment or extension, or by whom he must be paid compensation. So
D there can be little doubt that it is to agreements between landlord and
tenant that section 23 is primarily addressed. The agreements excepted
from subsection (1) by subsections (2) and (3) appear to be agreements
between landlord and tenant. An agreement which " provides for the
termination or surrender of the tenancy" within subsection (1) would
seem also to be such an agreement. So it is not to be wondered at that
Mr. Hague in his book on Leasehold Enfranchisement (1967), p. 199,
^ considers section 23 (1) as a subsection " which prevents the parties to a
lease contracting out of Part 1 of the Act" and that Diplock L.J.
considered the identical terms of section 38 (1) of the Landlord and
Tenant Act 1954 as concerned with agreements between landlord and
tenant: see Joseph v. Joseph [1967] Ch. 78, 90. But in neither Act
does the subsection say " any agreement between landlord and tenant"; nor
p does it say "any agreement" or "any agreement whatsoever." It says
"Any agreement relating to the tenancy." Those are wide words, and
the succeeding parenthesis indicates that they are wide and does not
necessarily limit them to " any agreement between landlord and tenant,"
because, as was pointed out in argument, a guarantee by a third party
might be " contained in the instrument creating the tenancy." I see
no reason to exclude from section 23 (1) an agreement made between
** one party to the lease and a third party if it relates to the tenancy
and either purports to exclude or modify the statutory rights or pro
vides for any of the matters specified in the subsection. I do not
regard Mr. Hague the advocate as hoist with the petard of Mr. Hague
the textbook writer. As the tenancy with which the whole Act,
including this section, is concerned is a long tenancy at a low rent
JJ from which a tenant with the other qualifications required by section 1
derives the rights conferred on him by the Act, any agreement which
affects or bears upon any of those statutory rights of a tenant in my
judgment relates to his tenancy.
92
Stephenson LJ. Jones v. Wrolham Park Estates (C.A.) [1980]
I am therefore of the opinion, respectfully dissenting from the .
decision of the Lands Tribunal and concurring with Orr and Goff L.J J.
on this point, that an agreement between the landlord and a third
party which grants that party a lease of the leasehold house of which
the qualified tenant has the necessary long tenancy at a low rent from
the landlord, and indeed turns that tenant into a sub-tenant of the third
party and his lease into a sub-lease, is an agreement relating to the
tenancy. Is it also an agreement which purports to do or provides for B
the things which section 23 (1) declares void?
I agree with the Lands Tribunal, for the reasons given by Orr and
Goff L.J J., that the concurrent lease does not provide ior the imposition
of any penalty or disability on the tenant in the event of his acquiring
or claiming his right to acquire the freehold. It would be straining
the language of the subsection to hold that paragraph 5 provides for a ~
penalty of £3,700. But I am of the opinion, reached with some hesita
tion after the excellent arguments addressed to us by both counsel, but
supported by both the judgments which have been delivered, that the
concurrent lease by paragraph 5 of schedule 4 " purports to modify " the
tenant's right to acquire the freehold. It is, of course, true that
section 1 confers on a qualified tenant a right to acquire on fair terms
the freehold or an extended lease of the house and premises and that D
those terms include the purchase price payable for the freehold of the
house and premises on the statutory assumptions, including the assump
tion under section 9 (1) (b) that the tenancy was to be extended under
Part 1 of the Act, and the terms of the extended tenancy set out in
section 15. There is therefore some force in Mr. Nugee's argument for
the freeholders that the tenant's right to acquire the freehold is a _
right to acquire it for the purchase price payable under section 9, and
that right is not modified by the interposition of the concurrent lease
and the consequent purchase price of £4,000, because £4,000 is the
purchase price payable by the tenant for the freehold at the time when
he gives the freeholders notice.
The opening words of sections 8 (1) and 14 (1), " Where a tenant of
a house has under this Part of this Act a right . . . and gives to the F
landlord written notice of his desire" (the emphasis is mine), may
suggest that the right accrues before notice is given. The reference in
section 5 (1) to " the rights and obligations of the landlord and tenant
arising from the notice" perhaps indicates the contrary. But Mr.
Nugee's argument for the freeholders appears to me to be met by the
point which has been so clearly stated in both judgments just delivered Q
that notwithstanding the execution of the concurrent lease the price
payable in accordance with section 9 was £300, at least until the tenant
exercised her right of enfranchisement.
We are bound by the decision of this court in Joseph v. Joseph
[1967] Ch. 78 to construe " purports to exclude or modify" as " has
the effect of excluding or modifying." There can be no doubt that „
paragraph 5 has the effect of increasing the price payable for the
freehold by the tenant from £300 to £4,000. Mr. Nugee indeed con
cedes that that is the purpose of the clause. When I suggested to him
93
A.C. Jones v. Wrotham Park Estates (C.A.) Stephenson LJ.
. that it was a barefaced attempt to increase the price, he admitted the
attempt but objected to the epithet. The attempt can only succeed if
the terms on which the freehold is acquired are not modified by increas
ing the purchase price from £300 to £4,000, because those terms and
the amount payable as the purchase price are to be considered at or
after the time when the right to acquire is exercised, and if the actual
exercise of the right has the effect of introducing the price payable in
B accordance with the Act without regard to the price payable, or likely
to be payable, until that time.
I cannot believe that the legislature intended to allow a landlord—I
must not say an unscrupulous landlord, because he may be a trustee
acting in the best interests of widowed or orphaned beneficiaries in need
of every penny he can get for them—to reduce the apparent value of
r the tenant's right by ingenious devices of this kind. It was to defeat such
devices or bargains that Parliament enacted section 23 in language wide
enough to hit them. The freeholders' device does, in my opinion, pur
port to modify the right to acquire the freehold conferred on the
tenant by section 1 by having the effect of increasing the purchase price.
I agree therefore that we should allow the appeal, set aside the
order of the Lands Tribunal and declare that section 23 of the Leasehold
D Reform Act 1967 does not apply to paragraph 5 of Schedule 4 to the
concurrent lease and that the prices payable under section 9 of the Act
are £50 and £250. That is subject to what counsel may have to say on.
the form of our order.
Appeal allowed.
F Appellant's costs in Court of Appeal
and half his costs below to be paid
by respondents jointly.
Leave to appeal on condition that
order as to costs be not disturbed
and no application for costs be
made in House of Lords.
F
Solicitors: Andrew Rowntree, Potters Bar; Farrer & Co.; Boodle,
Hatfield & Co.
[Reported by Miss HENRIETTA STEINBERG, Barrister-at-Law.]
Wentworth Securities Co. Ltd. appealed to the House of Lords.
E. G. Nugee Q.C. and Jules Sher for the appellant company. The
construction of section 23 (1) of the Leasehold Reform Act 1967 and the
question whether it applied constituted the only issue in the Court of
Appeal. It is still one of the principal issues. But the question now.
H arises whether the House of Lords has jurisdiction to amend the case
stated by the Lands Tribunal to enable a further point to be raised, namely,
whether section 9 (1) (a) requires the freeholders' estate to be valued on
the assumption that the extended lease has actually been granted. If the
94
Jones v. Wrotham Park Estates (H.L.(E.) ) [1980]
House is in the respondent's favour on that question, the third issue will .
be the point which would be raised if the case stated were amended as the
respondent seeks.
The main purpose of the Act is stated in its long title. It gives to
certain qualified tenants the right to acquire the interest in reversion of
their leases or else an extension of their leases. It enables them to purchase
the reversionary interest at less than the market value. Section 1 (1) sets
out what tenants are entitled to enfranchisement or extension. All the B
qualifications are satisfied in the case of the respondent. The Act contains
a complete set of provisions relating to the price.
Section 5 contains general provisions as to claims. Section 8 deals
with the obligation to enfranchise. Section 9 (1) deals with the purchase
price. (The " relevant time" referred to therein is defined in section
37 (1) (cl).) Section 9, (2), (3) and (4), deals with other matters relating Q
to the price and the costs to be borne by the tenant. Section 10 deals with
the landlord's obligation to grant easements so far as he is capable of
granting them. The Act does not give the tenant rights against anyone
but the landlord (e.g., the owner of the adjoining property.) The rights
of the tenant are not registrable as a land charge till the notice is given.
Section 14 deals with the obligation to grant an extended lease. Section
16 deals with the effect of exercising the right to an extended lease. D
Sections 17 and 18 preserve certain overriding rights of the landlord.
Section 20 deals with procedure. Section 21 deals with the jurisdiction of
the Lands Tribunal. Section 23 (1) contains provisions against contracting
■out, declaring void " any agreement relating to a tenancy " in so far as it
purports to exclude or modify any right to acquire the freehold. Section
23 (2) and (3) indicates the agreements which relate to a tenancy and „
throws light on section 23 (1). The words of section 23 (1) are not so
wide as to cover any rights which affect the rights of the tenant. The Act
is hitting at contracting out ab initio. (Compare section 38 (1) of the
Landlord and Tenant Act 1954.) See also paragraphs 4, 5 (1), (2) and (3).
7 (1) (b), 9 and 11 (2) of Schedule 1 to the Act.
In the Court of Appeal the tenant contended: (1) that the tribunal mis
directed itself and erred in law in holding that the reference in section F
23 (1) of the Act to " an agreement relating to a tenancy " was confined
to an agreement to which the occupying tenant was a party; (2) that that
reference included the concurrent lease of October 6, 1973, made between
Wentworth and Wrotham; (3) that the tribunal misdirected itself and erred
in law in holding that the concurrent lease did not " modify " the right of
the tenant to acquire the freehold within section 21 (1); (4) that the Q
tribunal misdirected itself and erred in law in holding that the concurrent
lease did not impose a " penalty or disability " on the tenant in the event
of her acquiring the freehold within section 23 (1); (5) that paragraph (5)
of schedule 4 to the concurrent lease was rendered void by section 23 (1).
The tenant's application to amend the case stated is opposed. If leave
is given the appeal will proceed on an entirely new basis. „
Nigel Hague for the respondent Lena Jones. It is true that the case
stated does not raise the question this respondent now wishes to argue. In
the courts below the tenant conceded in argument that, apart from section
95
A.C. Jones v. Wrotham Park Estates (H.L.(E.))
23, by means of the effect of Wrotham's lease, the rent payable under it
must be assumed to be the best yearly rent at which the property could
be let in the open market with vacant possession. On that basis and under
the agreed valuations of the property the purchase price would be £4,000.
The respondent now seeks to withdraw that concession and argue that the
lease did not have the effect contended for by the appellants. Any
admission or concession by counsel in the course of proceedings can be
B withdrawn unless the circumstances give rise to an estoppel. There are
no such circumstances here. The respondent asks to amend the case stated
under the power confirmed by R.S.C., Ord. 61, r. 3 (4).
Before the Lands Tribunal the parties agreed certain values in accord
ance with the following assumptions: Assumption (1): that the statutory
basis of the valuation required the valuers to ignore the head lease dated
c October 6, 1973. Assumption (2): that it required the valuers to take
account of the head lease but to ignore paragraph (5) of schedule 4 to it.
Assumption (3): that it required the valuers to take account of all the
provisions of the head lease including that paragraph. The agreed values
were: Assumption (1): freehold interest, Wentworth £300. Assumption
(2): freehold interest, Wentworth £50; leasehold interest, Wrotham £250.
Assumption 3: freehold interest, Wentworth £4,000; leasehold interest,
D Wrotham, nil. There was before the Lands Tribunal no evidence on the
valuation, only the agreed values. The question was which of the assump
tions was right as a matter of law. The argument was between assumptions
(2) and (3). It should be determined in accordance with assumption (2).
The argument in the House of Lords is purely on law. All the facts
and documents are before it and the amendment can be made without any
£ injustice to anybody.
The effect of the amendments sought is to raise the questions: (1)
whether the Lands Tribunal was correct in holding that section 23 of the
Act of 1967 had no application. (2) Whether in ascertaining the purchase
prices of the interests of the freeholders (Wentworth) and the reversioners
(Wrotham) the assumption in section 9 (1) (a) of the Act that the tenant's
lease was to be extended under Part 1 of the Act made it necessary further
F to assume that a sublease of the property had been granted by the
reversioner, rendering the annual rent payable under the reversioner's lease
of October 6, 1973, to be increased to the best yearly rent in accordance
with paragraph (5) of schedule 4 to that lease. (The assumption did not
trigger off paragraph (5).) (3) Whether on the valuation evidence before
the Lands Tribunal (being the statement agreed between the parties) the
Q purchase prices ought to be determined in accordance with assumption
(2) in that statement or in accordance with assumption (3).
The Court of Appeal can make an order setting out what the case stated
should have stated (e.g., in revenue cases varying the assessment). The
Court of Appeal can look at the decision of the Lands Tribunal and make
a similar order. There is no need for the case to go back to the Lands
„ Tribunal.
The House of Lords would not let a new point be raised which
depended on new facts not before it. This is not such a case. The same
problem arises in the case Of a concession. A party can withdraw a
96
Jones v. Wrotham Park Estates (H.L.(E.) ) [1980]
concession unless it forms the basis of estoppel. The same principle applies .
to a case stated. If further questions of fact should arise the case must
at best be remitted, but otherwise the Court of Appeal can amend it.
The House of Lords here has a discretion. (1) Clearly no further
evidence is needed. In nearly all cases before the Lands Tribunal the
parties get together and agree what they can agree. (2) On the facts this
is a fundamental preliminary point. If the concession was wrongly made
the question under section 23 did not arise. It would be wrong for the B
House of Lords to decide the case on what it thought was a false hypothesis.
<3) This is not a new point raised by an appellant. It is raised by the
respondent. In all the reported cases the appellant has been trying to
raise a new point. This is not a case of an appellant being dragged to
the House of Lords on a new point. The appellants have come to the
House of Lords voluntarily. The respondent is only trying to support her _,
judgment on a new ground. (4) This is not an entirely fresh point. It
was at least discussed in the Court of Appeal. (5) There is no injustice
to the appellants if the point is allowed to be taken. It might be unjust
to the respondent if it were not: see section 5 (2) under which there would
be a disadvantage to her.
As to costs the present position is that even if the appellants succeed
wholly the respondent will only have to pay her own costs. If the D
respondent takes a new point and the appellants lose on it, it is hard to
see why they should be better off. The appellants knew that an attempt
would be made to argue this point. If the order as to costs were altered
the respondent, who is in humble circumstances, could not pursue the
point. Taking this point makes no difference basically, save as to the
respondent's own costs. P
Nugee Q.C. The respondent is asking not for leave to withdraw a
•concession but to amend the case stated by the Lands Tribunal. The
questions arise: (1) is there in the House of Lords such a jurisdiction? (2)
should it be exercised? (3) on what terms should it be exercised?
Section 3 (4) of the Lands Tribunal Act 1949 is the foundation of the
power of the Lands Tribunal to state a case. See also R.S.C., Ord. 61,
r. 1 (3) under which the case must be signed by the members of the tribunal.
Rule 3 (4) deals with the powers of the Court of Appeal to amend the
■case. It is assumed that this is intra vires. The Court of Appeal was
not asked to amend this case. Under the Appellate Jurisdiction Act 1876
the House of Lords has only an appellate jurisdiction. It has wide powers
but it cannot go outside the actual appeal: see sections 3, 4 and 11. If
the application to amend had been made to the Court of Appeal, an appeal
could have been brought against its decision. But, as it is, there is nothing
for the respondent to appeal against. The facts on this particular point
are not agreed. Withdrawing a concession is quite different from amending
a case stated. The House of Lords has no original jurisdiction to amend
a case stated. It is implicit in what Lord Thankerton said in Ross &
■Coulter v. Inland Revenue Commissioners, 1948 S.C.(H.L.) 1, 13-14;
[1948] 1 All E.R. 616, 628 that the House will not send a case stated
back. In deciding whether the House of Lords has this original jurisdiction
97
A.C. Jones v. Wrotham Park Estates (H.L.(E.))
. it makes no difference whether all the facts are stated or not. The respondent
could have applied to the Court of Appeal for leave to amend.
In any event the House of Lords should not exercise that jurisdiction
even if it possesses it, in the present case. (1) The House has not the
benefit of the Court of Appeal's view on the arguments. (2) The House
has not the factual basis to reach a conclusion in favour of amending. (3)
This is not a new point which it is sought to raise; it was conceded in the
B Lands Tribunal and the Court of Appeal and when the facts were agreed.
(4) It is probably a bad point. (5) It is not a point which could be res
judicata for other residents on the estate. Reliance is placed on North
Staffordshire Railway Co. v. Edge [1920] A.C. 254, 262-263, 265-266,
267-268 and Hosier & Dickinson Ltd. V. P. & M. Kaye Ltd. [1972] 1
W.L.R. 146,148,153, 156,162-163.
Q It is not accepted that all the facts relevant to this point were before
the Lands Tribunal. On such a valuation the possibility of a forfeiture
would have to be considered. It was alleged that the erection of a garage
without the landlords' consent was a breach of covenant for which for
feiture of the lease might have arisen. On the question sought to be raised
further evidence would have to be called. This does not fall within the
limited range of cases when the House of Lords allows a new point to be
D raised. In the Court of Appeal the respondent's counsel was offered time
to reconsider his concession and it was his deliberate decision not to
do so. The point now sought to be argued is not obviously a good one
and counsel for the respondent did not regard it as good in the lower
courts. East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952]
A.C. 109, 132 is relevant to the assessment of apparently good or bad
j , points. If decided this point would not be res judicata in the case of
other residents on the estate. Nobody else would be prejudiced by a
refusal of leave to amend. The respondent would not be irreparably
injured if the point was not taken and then lost on this appeal. She could
sell to a purchaser or get an extended lease.
As to costs, the terms imposed by the Court of Appeal do not preclude
the appellants from asking for the costs of this application. If the House
F of Lords grants this application the respondent should not be given costs
in the House of Lords in any event.
Hague in reply on the application. The respondent was not in breach
of covenant. The car port had been up for five years before the landlords
complained and brought an action for damages for breach of covenant.
The respondent paid £5 into court and this was accepted, thus putting an
Q end to the matter. There was no live right of forfeiture.
Even if there was a possibility of forfeiture, that has no bearing on
the present valuation since the valuers met and agreed and the appellants
did not take this point. It is unthinkable that a court would have forfeited
a lease of that length without giving relief. Forfeiture was one of the
most remote circumstances concerned.
Ti On the jurisdiction point the respondent rests on section 4 of the
Appellate Jurisdiction Act 1876 under which the House of Lords may
determine what, "according to the custom of the realm, ought to be
done." On this point there is no direct authority. The House of Lords
A.C. 1980-4
98
Jones v. Wrotham Park Estates (H.L.(E.)) [1980]
must do as section 4 directs. The words of the statute are very wide .
indeed. The House of Lords must review "the matter of the order or
judgment appealed against." The matter is not limited to what is in the
order, but includes also the facts, arguments and decision. Reliance is
planned on what Lord Atkinson said in the North Staffordshire case [1920]
A.C. 254, 269. It would be inconsistent with the wide words of the Act
if the House of Lords should be helpless when something had gone wrong
with a case stated. B
Remitting to a judge is different from remitting a case stated or
amending it: see South of Scotland Electricity Board v. British Oxygen
Co. Ltd. [1956] 1 W.L.R. 1069, 1073, where an appellant was trying to
raise a new point. See also Stonehaven Magistrates v. Kincardineshire
County Council, 1940 S.C.(H.L.) 56.
[LORD DIPLOCK intimated that their Lordships would give leave to p
amend. There would be no alteration of the Court of Appeal's terms
as to costs; but it might affect the respondent's costs.]
Nugee Q.C. on the appeal. If one is directed by section 9 (1) (a) to
assume that the lease was to be extended one must assume all the corol
laries. It makes no difference whether it was to be extended or had been
extended. If there is an extension it has consequences for both parties.
The respondent is seeking to make the House of Lords boggle at the D
consequences because they are not favourable to her. One must not
ignore the effect an extended tenancy would have on the valuation. What
is sauce for the goose is sauce for the gander.
As to section 23 of the Act of 1967, some classes of statute fall to be
strictly construed. See Halsbury's Laws of England, 3rd ed., vol. 36
(1961), pp. 441-413, paras. 624-627. Among the statutes to be strictly g
construed are those affecting vested private rights, e.g., in giving protection
in the case of compulsory purchase. See Halsbury's Laws of England,
4th ed., vol. 8 (1974), p. 35, para. 50. The Act of 1967 gives powers of
compulsory purchase and should be construed strictly. It is expropriatory
and confers a right of compulsory purchase on terms which are artificial
and economically disadvantageous to landlords and which do not reflect
the face value of their reversions. Reliance is placed on Methuen-Campbell F
v. Walters [1979] Q.B. 525, 529.A-B, F-G, 536F, 541G, 542F. See also
Clift v. Taylor [1948] 2 K.B. 394, 400; In re Metropolitan Film Studios
Ltd.'s Application [1962] 1 W.L.R'. 1315, 1323-1324 and In re " Wonder
land," Cleethorpes Ltd. [1965] A.C. 71-72. On the construction of the
Act the landlord's rights should not be cut down more than is necessary.
The approach to fiscal legislation was rightly expressed in Potts' Ex- Q
ecutors v. Inland Revenue Commissioners [1951] A.C. 443, 455-456. The
principles there stated are equally applicable to the construction of the
Act of 1967. The Act must be construed stricdy. In the case of a tax
Act no weight should be given to the argument that a particular con
struction provides a way of evading tax. The court cannot insert into
the Act words or phrases which might succeed in imposing a liability when „
the draftsmen have failed.
In the related field of the Rent Acts there is a distinction between cases
where the parties have tried to exclude the application of the Acts in
99
A.C. Jones v. Wrotham Park Estates (H.L.(E.))
. relation to transactions to which they clearly apply and cases where the
parties have so arranged their affairs that the Acts do not apply: see
Tedman v. Whicker [1944] K.B. 112, 117 and Wilkes v. Goodwin [1923]
2 K.B. 86, 92, 99.
The general principles of construction in the case of fiscal legislation
are derived from Potts' case [1951] A.C. 443; Inland Revenue Commis
sioners v. Duke of Westminster [1936] A.C. 1, 19; Partington v. Attorney-
B General (1869) L.R. 4 H.L. 100 and Inland Revenue Commissioners V.
Ayrshire Employers Mutual Insurance Association Ltd. (1946) 175 L.T.
22, 24 (per Lord Simonds). Words or phrases are not to be inserted into
the Act if the legislature has plainly misfired.
There are three issues: (1) Is paragraph 5 of schedule 4 to the inter
mediate lease an "agreement relating to the tenancy"? (2) Does it
Q " purport to modify the tenant's rights "? (3) Does it " provide for the
imposition of a penalty "?
(1) The language of section 23 (1) of the Act of 1967 should not be
strained to make it apply to situations clearly not contemplated when it
was framed and not covered by the natural meaning of the words. It is
aimed against contracting out of the Act and ought not to be construed
so as to produce the result that a lease to which the respondent was not a
D party and of which she knew nothing before it was made should be
rendered partly or wholly void. Section 23 applies to agreements with
which both parties to the lease have some connection and of which they
are both cognisant, e.g., an agreement entered into as a condition of the
lease being granted or in connection with it: or in consideration of some
other benefit conferred on the lessee. There is some support for the view
£ that section 23 only applies to agreements between the parties themselves.
The types of agreement referred to in section 23 (2) and (3) are all agree
ments between the landlord and the tenant. Here it is not submitted that
only agreements to which the parties to a lease are themselves parties come
within section 23, but its scope is not unlimited. The words " agreement
relating to a tenancy " import a limitation by reference to the participation,
involvement or cognisance of the parties to the lease to which the agree
ment is said to relate. Section 23 (1) may be construed as applying to
agreements of the kind referred to by Orr and Goff L.JJ., such as
an agreement between the landlord and a relative of the tenant that, on
the tenant obtaining enfranchisement, the relative would pay the landlord
(or a company in which he was interested) the amount by which the
_ enfranchisement price fell short of a specified sum. Or it might apply to
a guarantee by a third party, whether or not contained in the tenancy
agreement. It is implicit in those examples that the tenant is cognisant
of the agreement and that it relates to the tenancy in the sense that the
tenancy would not be granted but for the willingness of the relative or
guarantor to enter into the agreement. An agreement of which the tenant
„ is wholly unaware and which is in no sense required by the landlord as
the condition of a grant of a tenancy stands on a different footing. Section
23 (1) does not contemplate such an agreement and it is not an agreement
" relating to " the tenancy.
100
Jones v. Wrotham Park Estates (H.L.(E.) ) [1980]
The terms of the Act must be applied to the situation at the date when
the notice is served.
Unlimited scope should not be given to section 23 by making it apply
to any agreement affecting or bearing on any of the tenant's statutory rights
whether or not the landlord or tenant has any knowledge of the making
of it. On such a view if the landlord contracted to sell adjoining land to
a company which required land to develop housing for its employees,
that contract and the consequent rise in the value of the tenant's house B
would have to be disregarded in assessing the prices to be paid by the
tenant on enfranchisement. So too every grant by the landlord of a lease
of the reversion, no matter what its terms, would be affected by section
23 since it would enable the lessee of the reversion to be separately
represented under paragraph 5 of Schedule 1 to the Act, thus increasing
the burden on the tenant. Again, if the reversion of the house stayed with ~
the landlord, while that in the garden was granted away, that too would
increase the burden on the tenant and the grant would to some extent be
rendered void. Such a wide interpretation would deprive the words
" relating to a tenancy " of all content.
Any concurrent lease is going to modify the tenant's rights because he
will henceforth have two landlords to deal with and there will be imposed
on him burdens which would not otherwise have been imposed on him. D
The tenant's rights under the Act are to acquire the freehold. When
the statutory rules are applied the grant of the intermediate lease makes
it more expensive than if it had not been granted. It is common ground
that nothing which happens after the tenant's notice can affect the price.
This particular precedent would not readily be followed by other
landlords because of the consequences which might follow from it. There E
are many situations in which it would be absurd to treat the interposition
of a concurrent lease between the freehold and the occupation leasehold
interests as attracting the nullifying blow of section 23. A charity, pension
fund or similar freeholder might for reasons of good investment, tax plan
ning or conveyancing, grant a concurrent tenancy at an immediate rack
rent, paying a reverse premium to the concurrent lessee. Such a lease
would have nothing to do with the occupation lease. Yet if the figures
were comparable to those in the present case the effect of the grant would
be to increase the value of the freehold from £300 to £4,000. Suppose
the rack rental head lease was granted first. It could not be said that the
freeholder could not be entitled on enfranchisement to the value of the
freehold as determined by the Act, viz. £4,000. The example would be
even more extreme in the case of the original grant of a rack rent head G
lease many years before the passing of the Act.
The price to be paid to the freeholder would have to be assessed on
the basis of the freeholder receiving a rack rent. If the intermediate lease
had been granted before the Act was passed it could not be affected by
section 23. The position is no different if it was granted after the Act
came into force. In re Town Investments Ltd. Underlease [1954] Ch. j^
304 provides an example of the sort of transactions into which landlords
and tenants enter. A tenant holding at a rack rent might sublet at a
ground rent and a premium.
101
A.C. Jones v. Wrotham Park Estates (H.L.(E.) )
All this is inherent in the scheme which the legislature has chosen
of valuing each interest separately. Under Schedule 1 one cannot value
all the interests in reversion as a whole and apportion the price between
them, which is what the respondent wishes.
(2) The intermediate lease does not purport to modify the right to
acquire the freehold within section 23 (1). An agreement purporting
to do so cannot be sometiiing which has merely economic effects for
B the tenant. The word " purports " does not mean " has the effect of"
as was held in Joseph v. Joseph [1967] Ch. 78, 87, 89-90, 92-93. To
" purport" means " to profess or claim by its tenor" (Oxford English
Dictionary (1909), vol. 7, p. 1627). Therefore there must be something in
the agreement which professes to modify the rights in question. Those
statutory rights can only be modified if the tenant agrees to it. In the
dictionary there is no hint of the meaning attributed to " purports" in
that case. It has not an ambiguous meaning in the English language.
The word would not cover something having the effect of modifying,
though here the tenant's right was in no way modified by the grant of the
intermediate lease; it remained absolute and unqualified. " Purport " comes
from the Latin proportare, whereas " purpose " comes from propositum.
There is no connection between them, as was suggested in argument in the
D Court of Appeal.
There never was a right to acquire the freehold otherwise than on
terms of the Act. It was a right to acquire all the reversionary interests
at a total of the market prices appropriate to them in the circumstances
affecting them at the time of the notice. One must distinguish between
modifying the rights of the tenant and modifying the economic conse-
F quences to the tenant of exercising that right. There was no modification
of the tenant's right to enfranchise: see Greenhalgh v. Arderne Cinemas
Ltd. [1946] 1 All E.R. 512, 516 and White v. British Aeroplane Co. Ltd.
[1953] Ch. 65, 73-74, 78. The right to acquire the freehold was not
affected but all sorts of things may affect the price at which it is acquired:
see Stephenson L.J. in the Court of Appeal, ante, p. 92E.
(3) The intermediate lease does not provide for the imposition of a
F penalty. A penalty is something over and above the amount payable on
the true construction of the Act. If on that construction the price is
£4,000 there is no penalty. If it is £50 cadit quaestio.
Sher following. The lease to Wrotham must be taken to be a genuine
transaction. There may be a legitimate justification for a lease on such
terms. There is no reason why the freeholders should not seek to increase
G the price payable on enfranchisement.
The provisions of section 23 of the Act were intended to protect the
tenant against himself by preventing contracting out of his rights. It is
true that the agreements referred to cannot be restricted to agreements
between the landlord and the tenant and must cover agreements between
the landlord and a relative of the tenant or between such a relative and
JJ an associated company of the landlord company, i.e., agreements between
the opposing camps of landlord and tenant. What it does not cover is an
agreement between persons in the same camp or agreements with third
parties unconnected with someone in the opposing camp. So, if a tenant
102
Jones v. Wrotham Park Estates (H.L.(E.) ) [1980]
granted an option to a third party unconnected with the landlord to acquire
his tenancy it might be stipulated that he would not make a claim under
the Act without reference to the option holder. That stipulation would
not be affected by section 23.
For the same reason the concurrent lease did not fall within section 23
because it would not relate to the tenancy within the meaning of the section.
Hague for the respondent. Paragraph 11 (2) of Schedule 1 to the
B
Act of 1967 gives an intermediate tenant a right to surrender his tenancy
to the freeholder where after the grant to the occupying tenant of an
extended lease the rent of the intermediate tenant would be greater than
that for the occupational tenancy. This provision might affect an
intermediate tenant and freeholder in the relationship of Wrotham and
Wentworth.
The valuation under section 9 (1) (a) is designed for the tenant's c
benefit and in making the statutory valuation the assumption intended to
benefit that party needs be applied only so far as it is necessary to confer
that benefit. It was intended that, in assessing the price which the tenant
should pay for the freehold, the benefit of the right to an extended lease
at a ground rent only, without paying a premium, although not actually
exercised, should be secured to him. So his tenancy is to be treated as if
it were what it would have been if it had been extended. One need not ^
postulate the grant of a new tenancy. The valuation can be on a
hypothetical basis: see In re Sutherland, deed. [1960] Ch. 611, 624;
[1963] A.C. 235, 251-252, 256-257. In valuation cases it does not follow
that, if the valuation is on a certain basis, one has to follow through all
the consequences. Here one follows through the assumption in favour
of the tenant but one goes no further. One does not postulate an actual g
grant to the tenant of an extended lease. In making the assumption one
need only consider the benefit of the tenant and one need go no further.
As to the East End Dwellings case [1952] A.C. 109, the assumption
to be made was confined to the legal consequences under the general law
and did not extend to the consequences which might follow under con
tractual arrangements. The differences between that case and the present
case are in the tenant's favour. There is less force in that decision when a ^
tenant is seeking to acquire the freehold. One does not here follow
through the consequences to the extent of operating paragraph 5 of
schedule 4 of Wrotham's lease. So the assumption required to be made
by section 9 (1) (a) in ascertaining the price payable (i.e., that " if the
tenancy has not been extended under this Part of this Act, on the
assumption that . . . it was to be so extended ") recognises the fact that G
there will be no actual extended tenancy.
Wrotham's lease is within the phrase "any agreement relating to a
tenancy" in section 23 of the Act. The correct approach to the con
struction of section 23 is as follows: (1) The strict construction rule is
only a secondary construction. (2) It does not apply to section 23
because it is an anti-avoidance section. (3) Section 23 should be construed u
broadly so as to cover arrangements intended to defeat the intention of
Parliament, unless those arrangements are clearly outside the wording of
the section.
103
A.C. Jones v. Wrotham Park Estates (H.L.(E.))
Section 23 should be construed in the interests of the tenant. As to
the passage from Halsbury's Laws of England cited for the appellants,
see Reg. v. Ottewell [1970] A.C. 642| 649D. Strict construction is
a matter of last resort. The ratio of strict construction in the case of
compulsory purchase is that it is assumed that Parliament does not intend
to interfere with proprietary rights unless it clearly says so. But in the
case of an anti-avoidance section there is no room for that principle. The
B whole purpose is to ensure that the rights conferred on the tenant prevail.
The very existence of section 23 shows that the intention of Parliament is
contrary to strict construction. Reliance is placed on Viscount Simonds
in Elmdene Estates Ltd. v. White [1960] A.C. 528, 539. The section
is not ambiguous. Parliament cannot have intended it to catch only the
straightforward and naive and not the sophisticated. It should not be read
in little compartments. Wrotham's lease was an agreement " relating to a
*" tenancy " within section 23 because it affected the rights of the tenant
conferred by the Act.
Joseph v. Joseph [1967] Ch. 78 was correctly decided in the interpreta
tion of " purports." It would lead to absurd consequences not to give the
word its wider meaning.
The right conferred by the Act is not just the right to acquire the
D freehold; it is the right to acquire it on the assumptions as to valuation
set out in section 9. Sections 1, 9 and 15 and paragraph 10 of Schedule 1
were all aiming at that. On October 5, 1973, the respondent, had the
notice been served, would have had the right to acquire the freehold
on the terms of assumption 1 but the Wrotham lease intervened. Any
thing modifying the value of the reversion to the tenant is a modification
p of the tenant's rights. By reason of section 23 the tenant's right is not
affected by the intermediate lease.
On modification, there are in any valuation two factors which deter
mine the price, (1) the formula laid down by the Act, here section 9 (1) (a)
and paragraph 7 of Schedule 1, and (2) the basic data arising from the
case to which the formula must be applied. Variation of either factor
will affect the resulting price. If there was a 999 years lease at a
F ground rent of £20 a year and a private agreement provided that the
purchase price by the tenant should be five times the amount reached
by the formula, that, on any view of the matter, would modify the tenant's
rights because one would be altering the formula. If an agreement said
that should the tenant serve a notice of claim, the rent payable under
the existing lease would go up fivefold, that increase of rent would
Q be an alteration of the basic data going into the formula. It would be
just as capable of being a modification of the tenant's right as an alteration
of the formula itself.
Under paragraph (5) of schedule 4 to Wrotham's lease the alteration of
the basic data occurs in the circumstances of the enfranchisement, and
that is a modification of the tenant's rights.
TT The introduction of the intermediate lease is part of the basic data
and therefore is a modification of the tenant's right. The modification
arises through paragraph (5) of schedule 1. When the intermediate lease
was executed it modified the right. The very introduction of that para-
104
Jones v. Wrotham Park Estates (H.L.(E.)) [1980]
graph was a modification of the data to which the formula would have .
been applied. It is the fact of paragraph (5) which modifies the right to
acquire the freehold at a certain price. One can modify a right equally
by altering the information which goes into the formula and by altering
the formula. Putting in the value of the intermediate tenancy creates a
distortion of the value of the freehold. The Court of Appeal approached
the matter in a common sense way.
Further, Wrotham's lease "provides . . . for the imposition of a B
penalty " within the meaning of section 23 (1) in the event of the respondent
claiming a right to acquire the freehold. "Penalty" in the context of
the subsection means an additional payment beyond the sum which would
ordinarily be payable. The word penalty has usually two possible mean
ings: punishment or a fine, and that is not the meaning here, or a
remedy for breach of contract contrasted with a genuine pre-estimate
of damage, and that too is not the meaning here. In the context of this ^
Act it means the effect of providing for the extra payment. As to the
meaning of the word " provides," see Jamieson v. Inland Revenue Com
missioners [1964] A.C. 1445, 1462, 1463. Here "provides" means
" effectively provides for " and paragraph (5) of Schedule 4 to Wrotham's
lease can properly be said to " provide " for a penalty.
[LORD DIPLOCK intimated that their Lordships wished to hear argument D
for the appellants on the respondent's argument as to modification of the
tenant's right by altering the data to which the formula was applied.]
Nugee Q.C. in reply. Altering the facts is not the same thing as
modifying the rights. The respondent is misconstruing the Act. The
execution of the intermediate lease did not modify the rights given by
Parliament to the tenant. The formula must be applied to the facts as
they are at the date the notice is served. The modification of rights
with which section 23 of the Act is concerned relates to such matters as
not allowing the tenant a right of light so as to prevent the landlord from
building in such a way as to obstruct it, or ensuring that the tenant shall
not acquire a certain part of the garden of the house.
The respondent company was not represented.
F
Their Lordships took time for consideration.
December 13. LORD DIPLOCK. My Lords, I have read in advance the
speech of my noble and learned friend, Lord Russell of Killowen, and for
the reasons which he gives, which I too find compelling, I would allow
this appeal. G
One must start with the assumption that the intermediate lease between
Wentworth Securities Ltd. (" Wentworth ") as landlord and Wrotham Park
Settled Estates (" Wrotham ") as tenant is not a sham; that is to say, that
however disadvantageous it may appear to be financially to Wrotham (an
unlimited company), if at any time a tenant occupying the demised premises
as his residence exercises his right under the Leasehold Reform Act 1967 j_[
to acquire the freehold or an extended lease, Wentworth will nevertheless
enforce and Wrotham will comply with the covenants of the lease relating
to the rent that will become payable by Wrotham to Wentworth in that
105
A.C. Jones v. Wrotham Park Estates (H.L.(E.)) Lord Diplock
event. The effect of those covenants, as my noble and learned friend
points out, is to increase the price at which the freehold can be acquired
by the resident tenant under the relevant provisions of the Act to a figure
substantially greater than that at which it could have been acquired by
him if the intermediate lease had not been made; though they make no
difference to the terms on which the resident tenant could acquire an
extended lease. The existence of the covenants, if they are to be treated
B as valid and effective for the purpose of assessing the price payable by
the resident tenant for acquiring the freehold under the Act, will act as
a financial deterrent to him from acquiring the freehold instead of exer
cising his alternative right under the Act to acquire an extended lease.
It is not for your Lordships to speculate what fiscal or other advantages
Wentworth and Wrotham hope to derive from the course they have
chosen to adopt. It is evident from the care and ingenuity with which
the scheme has been devised that the two companies entered into it with
their eyes open to what its financial consequences to them will be if it
is held to be valid.
My Lords, it would seem most unlikely that either the draftsman of
the Leasehold Reform Act 1967, or those members of either House of
Parliament by whose votes it was passed, had envisaged the possibility
D that any ground landlord would enter into an intermediate lease in the
precise terms adopted by Wentworth and Wrotham or in any other terms
which would have the same economic consequences as between ground
landlord and intermediate tenant. If it had been envisaged it seems
likely that the draftsman would have done something about it to prevent
its having the effect of enhancing the price payable by the resident tenant
„ for the freehold; but how he would set about achieving this and what
words he would have used to do so is a matter of pure speculation.
My Lords, I am not reluctant to adopt a purposive construction where
to apply the literal meaning of the legislative language used would lead to
results which would clearly defeat the purposes of the Act. But in doing
so the task on which a court of justice is engaged remains one of con
struction; even where this involves reading into the Act words which are
F not expressly included in it. Kammins Ballrooms Co. Ltd. v. Zenith
Investments {Torquay) Ltd. [1971] A.C. 850 provides an instance of this;
but in that case the three conditions that must be fulfilled in order to
justify this course were satisfied. First, it was possible to determine
from a consideration of the provisions of the Act read as a whole precisely
what the mischief was that it was the purpose of the Act to remedy;
G secondly, it was apparent that the draftsman and Parliament had by
inadvertence overlooked, and so omitted to deal with, an eventuality that
required to be dealt with if the purpose of the Act was to be achieved;
and thirdly, it was possible to state with certainty what were the additional
words that would have been inserted by the draftsman and approved by
Parliament had their attention been drawn to the omission before the Bill
TT passed into law. Unless this third condition is fulfilled any attempt by
a court of justice to repair the omission in the Act cannot be justified as
an exercise of its jurisdiction to determine what is the meaning of a written
law which Parliament has passed. Such an attempt crosses the boundary
106
Lord Diplock Jones v. Wrotham Park Estates (H.L.(E.)) [1980]
between construction and legislation. It becomes a usurpation of a
function which under the constitution of this country is vested in the
legislature to the exclusion of the courts.
My Lords, in the instant case I do not find it possible to state with
any certainty what words would have been inserted in the Act to fill
the gap that has now been revealed by the intermediate lease granted by
Wentworth to Wrotham. Any suggestion that the parliamentary intention
was that, notwithstanding the existence and terms of any intermediate B
lease, the price to be paid by the resident tenant for the freehold was to
be the investment value of the reversion subject only to his own lease (as
extended) must be discarded for the reasons given by my noble and
learned friend. The notion that Parliament would have inserted in the
Act a clause limited to requiring that covenants in an intermediate lease
in the precise terms of those in the lease by Wentworth to Wrotham p
should alone be ignored in assessing the price of the freehold is fanciful;
and might indeed have converted the Bill into a hybrid Bill for which a
special procedure must be followed in Parliament. But what Parliament
would have done somewhere between those two extremes is, as I have
said, a matter of pure speculation.
LORD SALMON. My Lords, with some reluctance I agree that, for the D
cogent reasons stated by my noble and learned friend, Lord Russell of
Killowen, this appeal must be allowed: and I add only a few observations
of my own.
On October 6, 1973, Wentworth Securities Ltd. were, amongst other
things, the freeholders of an estate at Potters Bar, Hertfordshire, on which
stood about 100 houses, all of which had been let to their tenant occupiers g
from 1961 for 87 years at a yearly rental of £15; the tenant occupiers
having paid for the building of their homes. On October 6, 1973, the
freeholders granted concurrent leases to a company called Wrotham Park
Settled Estates (with which it had connections) of all the houses on the
Potters Bar estate (including the respondent's house) for 300 years, subject
to the existing leases and at a peppercorn rent until the expiry of the
tenants' leases, and at a rack rent thereafter. F
This somewhat odd, possibly unique and certainly ingenious transaction
was not a sham: it was a reality. It was, however, admittedly a device
to discourage the tenants from acquiring the freehold of their homes by
exercising their rights under the Leasehold Reform Act 1967.
A few days after the transaction to which I have referred was entered
into, the respondent served the statutory notice calling for the freehold G
of her home. But for the transaction into which the companies had
entered, the respondent could have acquired the freehold of her home for
£300. As it was, the transaction, which was completed two days before
the tenant's notice was served, sent the market price for the freehold of
the tenant's home up from £300 to £4,000.
In my opinion, it was clearly the policy of the legislature under the JJ
Act of 1967 that the tenant should obtain the freehold of his home at the
ordinary market price and not at a price which had been inflated by a
transaction such as the present. I have no doubt that if it had ever occurred
107
A.C. Jones v. Wrotham Park Estates (H.L.(E.)) Lord Salmon
to the legislature that a transaction such as the present might have been
devised and put into operation, clear words would have been introduced
into the Act, which would preclude such a transaction from affecting the
market price which the tenant would have to pay for the freehold of his
home. As it is, no such words appear in the Act; and accordingly it
contains a gap. It is well settled, however, that the courts have no power
to fill in any gap in an Act, even if satisfied that, had the legislature been
B aware of the gap, it would have filled it in: Johnson v. Moreton [1980]
A.C. 37; Gladstone v. Bower [1960] 2 Q.B. 384 and Brandling v.
Barrington (1827) 6 B. & C. 467, 475 per Lord Tenterden C.J. Accord
ingly, there is nothing to be done by this House, sitting in its judicial
capacity, other than to allow the appeal. It may, however, perhaps be
worth consideration in other quarters whether the Act should be amended.
LORD EDMUND-DAVIES. My Lords, for the reasons developed in the
speech of my noble and learned friend, Lord Russell of Killowen, with
which I am in complete agreement, I concur in holding that this appeal
should be allowed and in the order proposed by him.
LORD FRASER OF TULLYBELTON. My Lords, I have had the advantage
D of reading in advance the speech prepared by my noble and learned
friend, Lord Russell of Killowen. I entirely agree with his reasoning and
his conclusion, and I cannot usefully add anything. I would allow the
appeal and make an order in the terms proposed by my noble and learned
friend.
LORD RUSSELL OF KILLOWEN. My Lords, the respondent Mrs. Jones
E (together with her late husband) became in 1962 lessees from the free
holder (now the appellant Weritworth Securities Ltd.) of a semi-detached
house no. 45, Wellesley Crescent, Potters Bar, for a term of years expiring
in December 2048 at a yearly rent of £15. They at the same time paid to
the builder some £3,700 for building the house. They and subsequently
she remained in the house as a residence. In 1967 the Leasehold Reform
p Act 1967 became law. Thereunder a resident tenant suitably qualified was
enabled on giving a suitable notice or notices before the expiration of the
original term to those entitled to reversionary interests in the land to
demand an extension of his term by 50 years, or a conveyance to him of
the freehold, or (in that order, of course) both. The qualifications need not
be exactly rehearsed: the term had to be sufficiently long, the rent suffi
ciently low, and the rateable value sufficiently low, and the tenant had to
G fulfil a time qualification of residence in the premises as his only or main
residence. It suffices to say that Mrs. Jones was a qualified tenant when
on October 8, 1973, she served notice calling for the freehold.
Had the facts been as thus far stated it is clear from the agreement
between the valuers that the price payable for the freehold to the free
holder under the statutory provisions for its calculation would have been
H about £300. However, shortly before service of the tenant's notice the
freeholder granted a lease to Wrotham Park Settled Estates, an unlimited
company with extensive property and property management interests
("Wrotham"), which the freeholder contends results in the tenant having
108
Lord Russell jones v. Wrotham Park Estates (H.L.(E.)) [1980]
of Kiilowen
to pay to the freeholder a sum of £4,000, a figure agreed by the valuers
on the assumptions for which the freeholder contends, unless the tenant
resiles, as she is entitled by the Act to do, from her wish to acquire the
freehold.
Before looking at the terms of the Wrotham lease, which to say the
least are as between the freeholder and Wrotham unusual, one or two
facts must be noticed. The house now in question is one of about 100
similar houses on this laid-out estate: the lease of each is of the same B
length at the same rent, and no doubt in most if not all cases there is a
tenant qualified to serve a notice under the Act: so that this case is of
wide import. An estate of this size benefits from well qualified manage
ment. The freeholder is trustee of a family trust, and I can have no
doubt that the same family is beneficially interested in some degree in
Wrotham, though I do not of course suggest identity of beneficial interests.
Finally, any suggestion that the Wrotham lease was in any part a sham
was absolutely disclaimed on behalf of the tenant, and vigorously denied
on behalf of the freeholder, for whom it was (correctly) pointed out that
legitimate avoidance of fiscal burdens is sometimes apt to lead to odd-
looking transactions between taxpayers.
But first I must advert to the statutory provisions for payment by the
tenant in the event of his serving a relevant notice. If he requires a 50 D
year extension (which in the instant case would extend the lease to
December 2098) the provisions are simple: starting in 2048 he pays during
the rest of the lease what was described as a "modern ground rent," with
a provision for reassessment thereof half way through the extension. In
the case of service of a notice calling for the freehold the price is to be
ascertained according to section 9 (1) (a):
E
" the price payable . . . on a conveyance . . . shall be the amount
which at the relevant time the house and premises, if sold in the open
market by a willing seller, might be expected to realise on the follow
ing assumptions: —(a) on the assumption that the vendor was selling
for an estate in fee simple, subject to the tenancy but on the assump
tion that this Part of this Act conferred no right to acquire the
freehold, and if the tenancy has not been extended under this Part F
of this Act, on the assumption that . . . it was to be so extended."
(I quote in its original form: it has been amended but not in a respect now
relevant.)
I remark at this point that the second of those assumptions is designed
in favour of the reversioner, while the third of those assumptions is
designed in favour of the tenant (by postponing the reversion by 50 G
years) so as to put a tenant who had not previously claimed an extension
on a par with one who had. All this is simple if there is but one rever
sioner to the tenancy—the freeholder. But problems arise when, as here,
there is more than one person interested in the reversion to the tenancy.
It might have been thought a reasonable system to adopt in such case to
ascertain the price appropriate to the simple case that I have mentioned, j_[
and divide among the reversionary interests in appropriate proportions.
But Parliament decided on something different. In such a case Schedule 1,
paragraph 7 (1) (b) requires:
109
A.C. Jones v. Wrotham Park Estates (H.L.(E.)) Lord.Rus«eii
• of Killowen
. "a separate price shall be payable in accordance with section 9 for
each of the interests superior to the tenancy in possession, and . . .
section 9 shall apply to the computation of that price with such
modifications as are appropriate to relate it to a sale of the interest in
question subject to any tenancies intermediate between that interest
and the tenancy in possession, . . ."
„ I turn to the Wrotham lease, saying at the outset that the critical aspect
of it is that if and when Wrotham grants a tenancy of the house, which is
involved in the third assumption in section 9 (1) (a), the freeholder becomes
entitled to a vacant possession rack rent from Wrotham, which it is claimed
has the effect on the valuers' agreed figures of throwing up a price of
£4,000 for the freehold.
The Wrotham lease was dated October 6, 1973 (after the date of the
C preparation of the tenant's notice but before its service). It demised no.
45 for a term of 300 years from December 25, 1970, subject to and with
the benefit of the tenant's lease. Wrotham thus became the owner of the
immediate reversion to the tenant's lease, and entitled to receive the £15
per annum. The provisions for rent payable by Wrotham, set out in the
fourth schedule to the lease, may be summarised as follows:
D (1) Until December 25, 2048—the term date of the tenant's lease—a
peppercorn.
(2) From December 25, 2048, to December 25, 2098—the " extended "
term date of the tenant's lease—a rack rent as at December 25, 2048, to be
determined as there provided.
(3) From December 25, 2098, for the rest of the term a rack rent as
at that date.
E (4) Rack rent in paragraphs (2) and (3) was defined as the best yearly
rent for which the premises could be let in the open market for a term
equal to the unexpired residue of the term of the lease at the date of
ascertainment.
(5) —the crucial paragraph—is in these terms:
"If and so often as a sub-lease (not being a tenancy from year to
F year or any lesser interest) is granted by the tenant of the whole of
the premises the annual rent payable hereunder shall for the period
beginning with the commencement of the term granted by the sub
lease and ending with the termination thereof (however the same
determines and if the term is extended by virtue of any enactment
then ending with the termination of the term so extended) be (in lieu
r of the foregoing rents) an amount equal to the best yearly rent for
which the premises could be let in the open market at the commence
ment of such term with vacant possession free from all incumbrances
(including the existing lease) for a term equal to the term granted by
the sub-lease such amount to be ascertained (in default of agreement)
by arbitration as aforesaid."
„ (6) Paragraph (6) was in these terms:
" Provided always that if (whether by virtue of the provisions of
paragraph (5) of this schedule or otherwise) the yearly rent which
would (apart from this paragraph (6)) be for the time being payable
110
Lord Russell . Jones v. Wrotham Park Estates (H.L.(E.) ) [1980]
of Killowen
hereunder shall be more than the yearly rent reserved by any sub-
lease granted by the tenant (whether in pursuance of the provisions of
the Leasehold Reform Act 1967 or any amendment or re-enactment
therefor or otherwise howsoever) then the yearly rent payable here
under under paragraphs (2) and (3) of this schedule shall be reduced to
a peppercorn during a period (hereafter called ' a rent free period')
from the actual termination of the term of such sub-lease (howsoever
the same shall determine and if the term shall be extended by statute B
then from the termination of the term as so extended) on December
25, 2048, or the expiration of any rent free period referable to any
earlier sub-lease (whichever shall be the later date) until the expiration
of a period equal to twice the actual duration of such sub-lease or the
expiration of the term hereby granted (whichever shall last occur)."
It will thus be seen that if the price ascertained under section 9 for the C
freehold is to be based upon an assumption of an extended lease, that
assumption triggers off the operation of paragraph (5) of the Wrotham
schedule, and the freeholder can say that his freehold is entitled to the
rent exigible under that paragraph and to a value inflated accordingly.
And this was indeed the design.
One other point is to be mentioned on the Wrotham lease. In the p
given circumstances under paragraph (5) of the fourth schedule where-
under Wrotham on an extension of the tenant's term has to pay a vacant
possession rack rent while receiving only the £15 per annum until 2048
and a modern ground rent until 2098, Wrotham would be entitled under
Schedule 1, paragraph 11, to the Act to surrender the Wrotham lease and
the freeholder could not rely upon that paragraph (5). But clause 6 of
the Wrotham lease stopped that gap. It reads: E
" It is hereby agreed and declared that the provisions for the reduc
tion of rent contained in paragraph (6) of the fourth schedule hereto
are in substitution for and not in addition to the right of surrender
conferred on the tenant by paragraph 11 of the Schedule 1 of the
Leasehold Reform Act 1967 and the tenant hereby covenants with
the landlord that in consideration of the premises it will not exercise F
the right of surrender conferred by the said paragraph 11 on any
occasion when the same might otherwise become exercisable."
Before the Lands Tribunal and the Court of Appeal counsel for the
tenant accepted that this would be so, and relied only upon the provisions
of section 23, to which I will come. In the Court of Appeal it was
suggested that in fact it was well arguable that the section 9 assumption G
did not have that effect. But counsel for the tenant did not accept
that suggestion. The judgments of the Court of Appeal, ante, p. 78
returned to that suggestion with some favour, and very understandably
counsel sought leave to raise and argue it, notwithstanding that he had
not accepted it below. Had leave been refused the tenants' association,
(backing the tenant) might well have felt that they might have been let u
down by counsel in the light of the comments by the Court of Appeal.
To raise the point, amendment of the case stated as to the questions posed
was necessary. A question was raised whether this House had power to
Ill
A.C. Jones v. Wrotham Park Estates (H.L.(E.)) Lord RUSS.II
of Kjltowen
amend a case stated. I am of opinion that in a proper case it has. A
further suggestion was made that if this point were now taken it would
impinge on an area where evidence might have been called at the Lands
Tribunal: but the only suggestion of such an area was that the tenant's
lease might have become forfeit. This appears to me quite artificial: it is
really inconceivable that evidence could have been led to suggest even
the possibility of a lease of that length at that rent ever being effectually
B forfeited. Accordingly leave was given and the case stated amended to
include the point.
However, in my opinion counsel for the tenant was right to think that
the point was not sound. He argued valiantly to the contrary, on the lines
that the assumption need not and should not be followed through to trigger
off paragraph (5) in the Wrotham lease schedule. But I take it to be
clear that the intention in section 9 (1) (a) was to arrive at the same result
whether the tenant claiming the freehold had or had not previously
obtained the extension. In this case if the tenant had obtained the exten
sion before seeking to acquire the freehold there would be no question on
that later attempt of making any assumption: paragraph (5) would neces
sarily have been already triggered off with the freeholder entitled to die
vacant possession rack rent from Wrotham from the time of the extension
D notice.
Counsel for the tenant sought to. put a rather different point on section
9, on the lines that it was designed or should be construed as designed to
fix the price only at the investment value of the reversion subject to the
tenant's lease (extended). But this suggestion appears to me to involve
that it should be apportioned between reversionary interests, and this, as
I have remarked, is not permitted by Schedule 1, paragraph 7, to the Act.
Before turning then to section 23 I observe that if the tenant is unwilling
in the end to accept the freehold but later contents herself with an exten
sion, Wrotiiam will be at once saddled with vacant possession rack rent
for this house until 2098 while receiving only the ground rent. And this
may be multiplied a hundred times. It would seem an unhappy situation
for Wrotham, but for all I know may suit both the freeholder trustee and
F Wrotham.
Section 23 (1) is in the following terms:
"Except as provided by this section, any agreement relating to a
tenancy (whether contained in the instrument creating the tenancy or
not and whether made before the creation of die tenancy or not)
shall be void in so far as it purports to exclude or modify any right
Q to acquire the freehold or an extended lease or right to compensation
under this Part of this Act, or provides for the termination or surrender
of the tenancy in the event of a tenant acquiring or claiming any
such right or for the imposition of any penalty or disability on die
tenant in that event."
Four questions on these provisions were raised in argument. (1) Was
JJ the Wrotham lease an agreement relating to the respondent's tenancy? (2)
If so, did it modify the tenant's right to acquire the freehold by virtue of
the operation of paragraph (5) ofjts fourth schedule and clause 6? (3)
In any event did it "purport" so to do? (4) Alternatively did those
112
Lord Russell Jones v. Wrotham Park Estates (H.L.(E.)) [1980]
of Killowen
provisions of the Wrotham lease provide for the imposition of any penalty .
or disability on the respondent tenant in the event of her claiming the
right to acquire the freehold? For the appellant freeholder it was con
tended that each of those questions should be answered in the negative.
My Lords, I propose in the first instance to address myself to questions
(2) and (4): for if the freeholder be right on those questions the other two
do not call for an answer.
The Lands Tribunal member on question (2) considered that there was B
no modification of the tenant's right to acquire the freehold. He said:
" . . . paragraph (5) of schedule 4 . . . does not . . . modify the
tenant's right to acquire the freehold. That right remains absolute
and unqualified."
In the Court of Appeal the contrary view was taken on question (2). C
The valuers on the basis that paragraph (5), schedule 4 and clause 6 of the
Wrotham lease were to be ignored in assessing the price to be paid for the
two reversionary interests valued that of Wrotham at £250 and the freehold
at £50, a total of prices to be paid of £300. And as I have indicated, had
the Wrotham lease not been executed, the price for the freehold would
have been approximately £300. But, with the benefit of Wrotham's onerous _
liability for vacant possession rack rent, the price to be paid for the freehold
was agreed at £4,000, Wrotham's lease having for Wrotham a substantial
negative value. Wrotham took no part in the Court of Appeal or before
your Lordships' House. Orr L.J. criticised the Lands Tribunal on this
point, ante, pp. 86H—87A, as ignoring the fact.
" that until the act of enfranchisement £300 remained the proper price
for the freehold, calculated in accordance with the Act and apart ^
from paragraph 5 of schedule 4 the exercise of the right of enfran
chisement could not increase the price, but paragraph 5 . . . makes it
do so, and in that respect... modifies the right."
Goff L.J. approached this question in a similar way, stressing that
immediately before the Wrotham lease the price for the freehold calculated „
in accordance with the Act was £300; he said that immediately after the
execution of the Wrotham lease, right down at least until the tenant had
actually exercised the right of enfranchisement, that was still the proper
price, because the freeholder could not get more than a nominal rent from
any concurrent lessee during the subsistence of the tenancy. Apart from
paragraph (5) the exercise of the right of enfranchisement could not
increase that price: therefore the operation of paragraph (5), throwing up G
a price of £4,000, did modify that right.
Stephenson L. J., ante, p. 92G, agreed that notwithstanding the Wrotham
lease the price payable in accordance with section 9 was £300, " at least
until the tenant exercised her right of enfranchisement." He took a broad
line against an "ingenious device" to reduce the apparent value of the
tenant's right, which he could not believe the legislature intended to permit, JJ
Counsel for the appellant freeholder criticised these approaches of the
Court of Appeal as unsound. He said that it was fallacious to say that
there was a right to acquire the freehold for £300 which was modified by
113
L
A.C. Jones v. Wrotham Park Estates (H.L.(E.) ) of Kiiiowe"
the operation of paragraph (5) of the Wrotham lease. The statutory right
to acquire the freehold was a right to acquire all the reversionary interests
at a total of the market prices appropriate to the various reversionary
interests in whatever circumstances might affect those reversionary interests
at the time of notice of enfranchisement. Suppose the Wrotham lease to
antedate by a considerable time any action by the tenant: suppose the
tenant to give first notice requiring extension of the lease: assume (as one
B must) the Wrotham lease to be a genuine transaction between freeholder
and Wrotham. There could be no doubt that after the extension the free
holder would be entitled to the vacant possession rack rent from the time
of notice of extension. Could paragraph (5) then be said, on the occasion
of a later notice of enfranchisement, to modify the right to enfranchise?
Suppose alternatively that the Wrotham lease had been created before the
passing of the Act of 1967, though with the terms of the Bill in mind?
It must be borne in mind that there may be many legitimate justifications
for an otherwise puzzling form of concurrent lease, such as a lease at a
reverse premium, which may affect the calculation of prices under section
9 (1) (a) of the Act, and these should not be held to be void modifications
of the right of enfranchisement. In truth the effect of paragraph (5) of
the fourth schedule to the Wrotham lease may modify the terms upon
D which the tenant may acquire the freehold, but does not modify the right
itself. Further, to describe what was done as an ingenious device is
irrelevantly pejorative: a man is entitled to avoid a claim against his prima
facie legal rights by adoption of a genuine disposition of those rights. For
the appellant it was additionally argued that the Act is expropriatory of
the freeholder (which it is) and this should affect the construction to be
1
attributed to the statutory language: I attribute minimal if any force to
this point, and regard only the statutory provisions. It was accordingly
contended for the freeholder that the price for the freehold under section
9 must be properly fixed upon the basis of the rent to which the freeholder
was entitled under the Wrotham lease, viz., £4,000; that is how the
machinery of the Act operates on the circumstances as they exist. By
analogy with company cases such as Greenhalgh v. Arderne Cinemas Ltd.
F [1946] 1 All E.R. 512 and White v. Bristol Aeroplane Co. Ltd. [1953]
Ch. 65 the Wrotham lease did not affect or modify the right to enfranchise
but only the terms upon which that right might be exercised or enjoyed.
Counsel for the respondent tenant sought to support the decision of
the Court of Appeal on this question not only on their grounds but also a
further ground. It was argued that in any valuation to ascertain the price
_, or prices under section 9 there are two determining factors. One is the
formula laid down by section 9 in combination with Schedule I, paragraph
7, to the Act. The other consists in the data to which that formula is to
be applied. If (it was argued) a provision altered either formula or data
it would (if adverse to the tenant) modify the right to enfranchisement. In
particular it was said that this would be so if the alteration of data was
w " artificial" and one to take place on the very event of an enfranchisement
notice.
My Lords, I am unable to accept on this question the views of the
Court of Appeal or the contentions in support of them by counsel in this
114
Lord Russell j o n e S v. Wrotham Park Estates (H.L.(E.)) [1980]
of Killowcn
House. I find the contentions for the appellant freeholder to the contrary
compelling. Granted that the rights of the freeholder under the Wrotham
lease are genuine I cannot accept that they can be disregarded in assessing
the price of the freehold under section 9. Nor do I accept that a genuine
modification of the situation to which the statutory system of calculation
of the price applies is a modification of the right of enfranchisement, which
remains untouched save as to the cost of enforcement of the right. There
is ample scope for the operation of section 23 (1) without embracing this B
case: I need only give the example of a provision postponing the right of
enfranchisement until near the end of the tenancy term.
I turn next to the question whether the operation of the Wrotham lease
was such that it by paragraph (5) of schedule 4 and clause 6 provides for
the imposition of any penalty or disability on the tenant in the event of the
tenant acquiring or claiming a right to enfranchisement. The Lands Q
Tribunal and all members of the Court of Appeal were of opinion that this
could not be said, and I, my Lords, am content to agree with them.
In those circumstances, if I am right on questions (2) and (4) it is not
necessary to decide questions (1) and (3) and I prefer to leave them to a
case in which they are essential. I would only comment on question (1)
that counsel for the appellant was not minded to adopt the narrow view
of the Lands Tribunal that an agreement " relating to the tenancy " must D
be one to which the tenant must be a party: he would go somewhat wider.
He also contended on question (3) that "purports" is confined to an
express provision, relying on the Oxford English Dictionary and challeng
ing the view of the Court of Appeal in Joseph v. Joseph [1967] Ch. 78.
I refer to these contentions without further comment.
Accordingly I would allow this appeal, which will reinstate the opinion E
of the Lands Tribunal that the price to be paid by the tenant if she wishes
to pursue her claim to enfranchisement will be £4,000 to the freeholder and
nil to Wrotham. As a technical matter question (2) in the amended case
stated should be answered in the affirmative. As a result of the terms
upon which the Court of Appeal gave leave to appeal to this House, and
upon which your Lordships gave leave to raise the point under section 9,
the orders for costs below should remain undisturbed and there should "
be no order for costs in this House.
I cannot, my Lords, leave this case without referring once more to the
curious situation that if all the 100 odd tenants seek 50 year extensions,
Wrotham will be (apparently) in a very unhappy position. Whether this
offers an opportunity for some adjustment on enfranchisements I know not.
G
Appeal allowed.
Solicitors: Boodle, Hatfield & Co.; Sherwood & Co. for Andrew
Rowntree, Potters Bar.
. F.C.
H