Judgment handed down in Prescott Place Freeholder Ltd v Batin
Richards J has given judgment in the case of Prescott Place Freeholder Ltd v Batin. As Nat Duckworth, who appeared for the Second Defendant, explains below, the case raises a number of previously unresolved questions of interpretation of the Landlord and Tenant Act 1987 and considers the application of abuse of process principles in the context of 1987 Act claims.
The Facts
In 2014, the freehold of the block of flats at 34/36 Prescott Place, London SW4 (“the Property”) was transferred by its then proprietor to the First Defendant in contravention of the ‘right of refusal’ conferred by the 1987 Act on the long leaseholders of the Property.
The transfer of the Property to the First Defendant contained conflicting statements about the consideration for the transfer: there was one statement that it was for nil consideration and another that it was in consideration of a release of a £125,000 debt.
When the tenants became aware that the freehold had been transferred, they served notice on the First Defendant under s.12B of the 1987 Act. When the First Defendant failed to comply with that notice, they issued proceedings in the County Court for an enforcement order under s.19 of the 1987 Act. The First Defendant did not participate in those proceedings. However, on the day of the trial, the Second Defendant appeared by counsel and applied to be joined to the proceedings for the purposes of arguing that the 2014 transfer was not a “relevant disposal” because the Property had at all material times been held on trust for him and the exclusion in s.4(2)(g) of the 1987 Act therefore applied. The County Court judge dismissed the Second Defendant’s application and proceeded to make a s.19 order requiring the First Defendant to transfer the freehold to the tenants’ nominated person.
The County Court judge left over the question of the purchase price to be determined in later proceedings before the First-tier Tribunal under s.13 of the 1987 Act which the tenant in due course issued against the First Defendant.
While the FTT proceedings were ongoing, the tenants launched a fresh set of proceedings in the High Court for injunctive relief, having by then noticed that preparations were being made for the sale of the two vacant flats in the Property. The Second Defendant was joined to the High Court Proceedings and in due course brought his own Counterclaim for declarations that the freehold of the Property was held on trust for him; that he held equitable leases in the two flats and that the tenants’ nominated person would take subject to those interests when the legal estate was transferred to it in satisfaction of the tenants’ rights under the s.12B notice.
The Second Defendant did not take steps to intervene in the FTT Proceedings. At the eventual trial, the FTT determined that the consideration for the 2014 transfer had been £125,000 and that the price payable by the tenants’ nominated person was therefore £125,000.
In the High Court proceedings, the Second Defendant adduced and relied upon two deeds of trust, expressed to have been entered into in 2004 and 2014 respectively, in support of his case that he was the beneficial owner of the Property. The Second Defendant further maintained that even if he could not rely on the express declarations of trust, he had acquired an interest under a constructive trust, in 2014, having procured the transfer of the freehold to the First Defendant on the strength their agreement that the latter would hold it on trust for the former.
The Second Defendant also relied on leases, expressed to have been granted in 2014, of the two vacant flats; he accepted that the leases had not been registered within the two-month period allowed under ss.4(2)(g) and 6(1) of the Land Registration Act 2002 and that they therefore took effect as equitable leases only under s.7(2)(b).
The Arguments
The tenants did not accept that any of the Second Defendant’s title documents were executed on the dates that they respectively bore. They contended that the documents had been produced recently, in response to the 1987 Act claim, and backdated to earlier dates to give them apparent legitimacy. They also did not accept that there had been any agreement in 2014 that the First Defendant would hold the Property on trust for the Second Defendant.
The tenants further maintained as follows:
(1) An order under s.19 of the 1987 Act was the equivalent to a contract for the sale of property, relying by analogy on the Court of Appeal’s decision in Jones v Mahmut [2018] 1 WLR 6051, and any interest granted after the making of the s.19 order in this case was simply void as a matter of statute.
(2) Even if the Second Defendant was the beneficial owner of the Property, the time for him to assert that interest was in the County Court proceedings for an order under s.19 of the 1987 Act; there could never be a “relevant disposal” of property held on trust because the ‘change of trustee’ exclusion in s.4(2)(g) would always apply in those circumstances and the Second Defendant’s case in the High Court proceedings was therefore a collateral attack on the earlier s.19 order and thus an abuse of process.
(3) It was also incumbent upon the Second Defendant to assert his equitable leases in the earlier County Court proceedings and that, having failed to do so, his attempt to vindicate those leases in the High Court proceedings was abusive in the Henderson v Henderson sense.
(4) Even if the Second Defendant held equitable leases and those leases were protected by means of a notice in the register or ‘actual occupation’ by the time of registration of the transfer of the freehold to their nominated person, the latter would still take free of them. The tenants argued that a s.19 order was an interest in land which, being first in time, would take priority over the Second Defendant’s equitable leases.
Responding to those contentions, the Second Defendant maintained as follows:
(1) Even if, contrary to his factual case, the 2004 and 2014 deeds of trust and the leases had been executed recently in response to the 1987 Act claim, they were nonetheless valid and took effect on the dates they were respectively executed.
(2) The making of a s.19 order does not prevent the landlord from granting or creating any new interest in the property. The tenants’ remedy in that event is to seek an adjustment of the price payable for the freehold under s.12B(5)(b).
(3) The Second Defendant’s reliance on the 2004 and 2014 trusts was not a collateral attack on the County Court’s s.19 order because the s.4(2)(g) exclusion only applies where there is a gratuitous transfer of property between trustees and does not apply where, as here, the legal estate is sold for value. There was therefore no inconsistency between the County Court judge’s determination that there had been a “relevant disposal” and the existence of the trust.
(4) The question of whether the freehold was subject to a beneficial interest and equitable leases was not a matter within the jurisdiction of the County Court and was instead within the jurisdiction of the FTT under s.13 of the 1987 Act. There was therefore nothing abusive, in the Henderson v Henderson sense, about the Second Defendant’s decision not to intervene in the County Court proceedings. Nor was it abusive for the Second Defendant to have abstained from seeking to intervene in the subsequent FTT proceedings. By the time those proceedings reached trial, the High Court proceedings were already on foot and the existence or otherwise of the Second Defendant’s interests in the Property was a matter of which the High Court was already seised.
(5) A s.19 order was not an interest in land. Accordingly, once the Second Defendant’s equitable leases were protected by means of a notice in the register or ‘actual occupation’, they would bind the tenants’ nominated person on registration of the transfer of the freehold.
The Judgment
The 2004 Deed of Trust
Richards J held that the 2004 deed of trust had been executed in 2004 and that the Property had been held on trust for the Second Defendant from that point on. However, having rejected the Second Defendant’s case that he had been in ‘actual occupation’ of the two flats when the freehold had been transferred to the First Defendant in 2014, he held that the Second Defendant’s beneficial interest under the 2004 deed of trust was lost at that stage.
The 2014 Deed of Trust
The Judge Second Defendant’s evidence that the 2014 deed of trust had been executed in 2014 and held that it had instead been executed in 2019, shortly before the s.19 order was made; but he held that it had nonetheless conferred a beneficial interest on the Second Defendant on that later date.
The Judge went on to find that the Second Defendant’s attempt to vindicate that interest in these proceedings was an abuse of process in the Henderson v Henderson sense. He said that the Second Defendant ought to have raised his beneficial interest in the County Court proceedings, so as to enable the County Court to decide whether or not to make an order, under s.12B(5)(b), that the tenants’ nominated person take free of it (see para 72). It did not matter whether the Second Defendant was correct in saying that the question of “incumbrances” was within the jurisdiction of the FTT, not the County Court, because the Second Defendant had not intervened in the FTT proceedings either (see paras 73 and 74). The Second Defendant had not been entitled to leave the determination of the existence or otherwise of his beneficial interest to the High Court because, under the statute, either the County Court or the FTT was the proper venue for that issue to be resolved (see para 75).
The 2014 Constructive Trust
The Judge did not accept the Second Defendant’s evidence that there had been an agreement, in 2014, that the First Defendant would hold the property on trust for the Second Defendant (see paras 113-114) and, accordingly, he rejected the Second Defendant’s case that he acquired a further beneficial interest under a constructive trust in 2014. The Judge also said that, even if the Second Defendant had held such an interest, his attempt to vindicate it in these proceedings was a collateral attack on the s.19 order made in the County Court proceedings and thus an abuse of process. That conclusion was predicated on the Judge’s conclusion that the tenants’ reading of s.4(2)(g) was correct. The Judge held that the decision in Artist Court Collective v Khan [2017] Ch 53 was not authority for the Second Defendant’s narrower reading of s.4(2)(g) and, at para 69, the Judge said this:
“…s4(2)(g) requires only that a transfer be “in connection with” the appointment of a new trustee or the discharge of an outgoing trustee. That indicates that a transfer can have some other feature and that the presence of such a feature, such as consideration payable, does not necessarily take a transfer outside the scope of s4(2)(g).”
The Equitable Leases
The Judge held that the leases of the flats had not been executed in 2014 and had instead been executed at some stage after the s.19 order had been made in the County Court proceedings (see para 136). However, he held that they nonetheless took effect as equitable leases on that later date.
Unlike the beneficial interest in respect of the freehold, there was nothing abusive about the Second Defendant asserting the leases in these proceedings; the mere fact that the Second Defendant could have raised them in the County Court or the FTT proceedings did not mean that he should have done so: see para 76.
Matters outstanding
The judgement did not resolve all issues between the parties and a further hearing will shortly take place at which the Court will hear further submissions on the following issues:
(1) Whether an injunction should be granted to prevent the Second Defendant from protecting his equitable leases by means of a notice in the register, and to prevent the First Defendant from granting the Second Defendant any fresh leases of the flats, ahead of the transfer to the freehold to the tenants’ nominated person.
(2) If no such injunction is granted, whether the s.19 order is an interest in land which has priority over the Second Defendant’s equitable leases.
The full judgment can be found here. A copy of the judgment resolving the outstanding matters will be posted once available.
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