Collective enfranchisement begins with the tenants serving an initial notice. Service of a valid and timely counternotice is then crucial. If the landlord fails to serve a valid counternotice in time, the tenants can apply to the county court for an order confirming that they are entitled to acquire the freehold on the terms set out in their notice.
The county court decision in Renshaw v Magnet Properties South East LLP [2007] PLSCS 238 draws attention to an important practical point that is easily overlooked. Who is entitled to serve and receive collective enfranchisement notices if the freehold changes hands?
Collective enfranchisement begins with the tenants serving an initial notice. Service of a valid and timely counternotice is then crucial. If the landlord fails to serve a valid counternotice in time, the tenants can apply to the county court for an order confirming that they are entitled to acquire the freehold on the terms set out in their notice.
The county court decision in Renshaw v Magnet Properties South East LLP [2007] PLSCS 238 draws attention to an important practical point that is easily overlooked. Who is entitled to serve and receive collective enfranchisement notices if the freehold changes hands?
The tenants served an initial notice, on 19 September 2006, triggering the statutory procedure for collective enfranchisement. The notice indicated that the tenants were seeking to acquire the freehold for £27,799. The landlord sold the freehold soon afterwards. The incoming landlord served a counternotice on 26 November 2006, suggesting that the price should be £120,000, but did not register the transfer of ownership at the Land Registry until 12 January 2007.
The tenants claimed that the landlord’s counternotice was invalid. They relied upon section 27 of the Land Registration Act 2002, which provides that dispositions of registered land do not operate at law until they are registered. They argued that the counternotice was null and void because it had not been served by the registered proprietor at the time.
The philosophy that underpinned the tenants’ arguments was applied in Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [1997] 1 EGLR 39; [1997] 18 EG 123. The case, which made legal headlines at the time, confirmed that, under land registration rules, a transfer operates as an equitable assignment until registration renders it legal. This creates a “registration gap”, during which the transferor, as the legal owner, generally remains entitled/responsible at law.
The county court judge decided that these principles applied in this case. Tenants must know upon whom to serve notices, and who is serving notices upon them. The collective enfranchisement legislation could not operate sensibly if there was a distinction between cases where tenants know/do not know that the landlord has sold the reversion. Consequently, the counternotice should have been served by the registered proprietor, and the buyer’s notice was invalid because it was served before the buyer was registered with title to the property.
The judge rejected the landlord’s argument that its counternotice was valid because section 19 of the Leasehold Reform, Housing and Urban Development Act 1993 operates to place subsequent owners in the same position as their predecessors in title. The 1993 Act provides that the buyer inherits the seller’s position, but does not retrospectively validate actions that the buyer had no legal capacity to take.
Incoming landlords can avoid similar problems by registering changes of ownership at once, and by imposing contractual obligations requiring the seller to act in accordance with their directions until the registration gap is closed.
Allyson Colby is a property law consultant
