Donath v Trustees of the 2nd Duke of Westminster Will Trust

Leasehold Reform Act 1967 — Scheme of management — Variation Section 19 of 1967 Act — Scheme of management in force in estate — Resident applying to vary scheme to require landlords to enforce it more rigorously — Whether section 19 permitting imposition of duties on landlords as opposed to enfranchising residents The applicant was a resident of the Grosvenor Belgravia Estate, of which the respondents were the landlords. The estate was subject to a scheme of management, under section 19 of the Leasehold Reform Act 1967, that conferred powers on the landlords in respect of the maintenance of the character and standards of the estate, including those properties that had been acquired by tenants under the leasehold enfranchisement provisions of the Act. The scheme had been adopted by the approval of the High Court in 1973, at which time only 14 properties had been enfranchised; that figure had subsequently risen to 100. The applicant complained that the respondents had failed to deal with breaches of the scheme by residents, which resulted in properties falling into disrepair or being converted to office use. He applied to the leasehold valuation tribunal (LVT), under section 19, to vary the scheme of management so as to require the respondents to enforce it with more vigour, by placing an express obligation on the respondents to use their best endeavours to maintain established standards in the area and to use all available powers to ensure that breaches were remedied. The respondents opposed the application on the grounds that: (i) an application to vary the scheme could be made only by the landlord under that scheme; (ii) the LVT did not have the power to impose amendments to which the landlord did not agree; and (iii) section 19 was intended to preserve the powers held by a common landlord and did not permit a property owner who had enfranchised to impose positive covenants on the landlord. Held: The application was dismissed. Section 19 of the 1967 Act does not confer jurisdiction on the LVT to impose duties on a landlord by varying a scheme of management. The section provides for landlords to retain powers as compensation for the loss of mutual leasehold covenants resulting from lessees’ acquisition of the freehold of their properties under the leasehold enfranchisement provisions of the Act. The obligations that it anticipates are those placed on enfranchising owners and future owners, not on the common landlord: see section 19(1) and (3). Section 19 is intended only to preserve the landlord’s position as it was before tenants acquired the right to enfranchise. It does not impose on the landlord any additional duty to preserve the nature and amenity of the estate. Accordingly, the type of variation that the applicant sought could be achieved only with the landlord’s consent. Since that was sufficient to dispose of the application, the question of whether an owner or group of owners within an estate could in any circumstances apply for a variation, and whether a landlord’s consent was required to any such variation, remained open. The following case is referred to in this report. Smiths Charity/Wellcome Trust: South Kensington Estate LON/EMS/201/97, LVT This was an application to the leasehold valuation tribunal by the applicant, George Donath, under section 19 of the Leasehold Reform Act 1967, to vary a scheme of management under that Act so as to impose obligations on the respondents, the Trustees of the 2nd Duke of Westminster Will Trust, as to the exercise of their management powers under the scheme. The applicant appeared in person; Anthony Radevsky (instructed by Boodle Hatfield) represented the respondents. Giving the tribunal’s decision, the chairman, Ms Siobhan McGrath, said: Background [1] This is an application by Mr George Donath for the amendment of the Grovesnor Belgravia Estate Management Scheme. In short, Mr Donath, who lives in Eaton Mews South, seeks to add words to the scheme that will require the trustees to enforce the scheme with more rigour. [2] The scheme was approved by the High Court in December 1973, under the provisions of section 19 of the Leasehold Reform Act 1967 (the 1967 Act). When the right to enfranchise was conferred by the Act, it was recognised that the mutual benefits of some leasehold covenants would be lost and, as a result, those covenants ensuring the maintenance of the character and standards of an estate as a whole could not be enforced. Provision was therefore made in section 19 for a landlord’s management powers to be retained in a scheme of management. [3] The scheme of management that was to be approved by the High Court following certification by a minister and by section 19(6) of the 1967 Act must have included provision for variation. By section 75 of the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 Act), section 19 was amended to give jurisdiction to approve such variations to the leasehold valuation tribunal (LVT) instead of the High Court. [4] The motivation for Mr Donath’s action is set out in his application. He asserts that the respondents have failed to deal with breaches of the scheme. As a result, he says, a number of properties are in need of repair and others have been converted to office use. In the vicinity of his home, he cited nine out of 24 properties in a state of disrepair. The respondents do not accept these assertions. [5] Following receipt of the application, the LVT arranged for a pre-trial review hearing to be convened on 7 May 2010. On 26 April 2010, Boodle Hatfield, the solicitor for the respondents, wrote to the LVT raising several jurisdictional issues and asking that they be dealt with as a preliminary issues. Mr Donath agreed. [6] The variation sought by Mr Donath is for the addition to the scheme of the following phrase (or such similar wording as the LVT may see fit): |page:90| The Landlords shall, in general, use their best endeavours to maintain established standards in the area and, in particular, advise owners of any breach under sections (5); (6); (7) and (8) of the Order as soon as such breach comes to their attention and after so doing not fail to use all powers granted them by the Order to maintain such standards and in remedy of any breach. In so doing, and in every other respect terms of and actions under the Scheme must be fair and equitable. [7] On behalf of the respondents, it is contended that the application is misconceived on the following grounds: (a) any application to vary the scheme may be made only by the landlord under the scheme; (b) the LVT lacks the power to impose amendments on the landlord that are not agreed by that landlord; and (c) in seeking to impose obligations on the landlord, rather than on the enfranchising freeholders, Mr Donath’s application seeks to go beyond that for which the legislation provides. Submissions [8] At the hearing, the applicant appeared in person and the respondents were represented by Mr Anthony Radevsky of counsel. It was agreed that for convenience, the respondents would be referred to as the “landlords” under the scheme. Landlords’ submissions [9] Mr Radevsky submitted that the clear purpose of estate management schemes is to be found in section 19, which requires the minister certifying a scheme to be satisfied that it is in the general interest for the landlord to “retain powers of management in respect of the house and premises or have rights against the house and premises”. He pointed out that there is no provision for the landlord to have a duty or obligation to enforce such powers as it retains. By section 19(10)(a), the powers are to be enforceable as though each lessee had covenanted with the landlord. An estate management scheme is there, he said, to preserve powers held by a common landlord, not to impose obligations on that landlord. Nothing in the 1967 Act allows a property owner that has enfranchised to impose positive covenants on the landlord. [10] Additionally, he argued that there is good reason why management schemes do not provide for obligations to be imposed in this way. First, there would need to be detailed statutory provisions for the imposition of such an obligation, including dealing with how the obligation were to be enforced, who could enforce it and who would decide a dispute as to whether the obligation ought to be enforced. Second, if an obligation were to be imposed of the type sought here, it would be much more expensive to administer the scheme. The management charge under clause 29 of the scheme, as currently framed, is £10 plus an RPI increase. The landlord would have to apply to vary the scheme to increase this sum. Third, the landlords reject the allegation that they had wrongfully neglected to enforce the scheme where appropriate. [11] Mr Radevsky’s second submission was that it is only if the landlord applies for a variation, or consents to a variation proposed by someone else in the course of its application, that the scheme may be varied. Here, the landlords had not applied to vary the scheme nor did they consent to the application. [12] Mr Radevsky pointed out that under section 19(5) of the 1967 Act, the High Court could approve the scheme as originally submitted by the applicant or with any modifications proposed or agreed to by the applicant. The High Court could refuse to give its approval to the proposed scheme (or to the scheme as amended by agreement), but that was the limit of its power. [13] He submitted that in deciding whether to grant a variation based on a change of circumstances, the same criteria apply as in deciding the terms of an original scheme. [14] The point had been considered by an LVT in respect of the Smiths Charity/Wellcome Trust: South Kensington Estate LON/EMS/201/97. That scheme had originally been approved under the 1993 Act, and similar provision was made in the legislation for variation. There, the LVT concluded, in para 20(1), that “in respect of the subsisting application to amend, of which it was seized, the Tribunal had no power to impose modifications upon the proposed amended Scheme which were not proposed or agreed to by the Applicants…”. [15] Mr Radevsky also drew the LVT’s attention to section 159 of the Commonhold and Leasehold Reform Act 2002. This makes provision for individual owners to seek a determination on the payability of estate management charges and, where appropriate, to seek a variation of that part of a scheme dealing with the payment of those charges. He submitted that if there was a general power for an individual to apply under section 75 of the 1993 Act, there would have been no need for such a provision. Mr Donath’s submissions [16] Mr Donath made two written submissions and helpfully elaborated on these at the hearing. He contended that the 1967 Act does not state who may apply to the minister for a certificate and that there is no stated limitation in the Act as to who may or may not apply for termination or variation. He cited an e-mail memorandum from the chairman of the Belgravia Residents Association in support of his application. [17] Mr Donath also submitted that the 1967 Act does not require the landlord’s agreement to any amendment. He sought to distinguish Wellcome Trust on the basis that it was concerned with the provisions of the 1993 Act and not those of the 1967 Act. He pointed out that there is nothing in the legislation that suggests that any part of the 1993 Act, other than section 75 conferring jurisdiction on the LVT, is applicable to the provisions of section 19. [18] He argued that the clear purpose for which estate management schemes are to be created is for the maintenance of adequate standards. He said that the legislature did not consider it necessary expressly to impose such terms on the landlord for obvious reasons, but it most certainly did not exclude imposing such obligations where a variation was sought. The legislation, he said, expected a landlord to use the powers acquired under a scheme to maintain previously accepted standards. [19] He pointed out that when the scheme was first crafted, only 14 owners had enfranchised their properties. There are now some 1,000 properties on the estate that have been enfranchised and he surmised that this might explain the diminishing interest of the landlord in maintaining standards. [20] Mr Donath also contended that the requirement for a change of circumstances to trigger variation applies only where there is a change in the area covered by the scheme. Accordingly, there was, he said, no limitation in the LVT’s power to vary in this case. [21] He argued that the scheme had been established to maintain standards for the entire neighbourhood. He said that if the provisions of the scheme were ignored, damage would be done to the quality of the neighbourhood that would inevitably result in an impairment of property values. He emphasised that the application was not designed to claim damages or compensation or, indeed, to change any of its provisions, rather it was intended to ensure that the provisions of the scheme were followed. [22] Mr Donath rejected the proposition that practical difficulties would ensue from enforcement of any landlord’s obligations. He suggested that there are already schemes containing such clauses, such as the scheme governing the Alexander Estate in South Kensington, and that no additional provisions would be required. So far as additional costs are concerned, Mr Donath pointed out that the scheme is self-financing and that the respondents’ expenses would be met by delinquent owners. [23] Mr Donath made it clear to the LVT that this application had been made only after lengthy discussions and meetings with the respondents had not resulted in an improvement in the situation. He was certain that the LVT has jurisdiction and that the purpose of section 19 could be met only if the respondents were under a duty to enforce the provisions of the scheme. Decision For the reasons set out below, the LVT considers that it lacks jurisdiction to vary the estate management scheme for the Grosvenor Belgravia |page:91| Estate by imposing a duty on the respondents to enforce the terms of that scheme against owners acting in breach thereof. Reasons [24] The LVT had sympathy with Mr Donath’s submissions and, in particular, his argument that, in a broad sense, it should be possible for an owner to ensure that the provisions of the scheme were being properly enforced. However, it considered that the provisions of section 19 of the 1967 Act do not give it jurisdiction to impose duties on a landlord in the manner suggested. [25] In reaching this conclusion, the LVT accepted Mr Radevsky’s submission that the purpose of section 19 was to preserve management powers rather than to impose management duties or to regulate the manner in which management powers ought to be exercised. [26] In this respect, it had had careful regard to the statutory provisions. Section 19(1) sets out the consideration for the minister’s opinion that it is “likely to be in the general interest that the landlord should retain powers of management in respect of the house and premises or have rights against the house and premises in respect of the benefits arising from the exercise elsewhere of his power of management…”. This clear language does not refer to a landlord’s duties or obligations. [27] In section 19(3), both the minister and the High Court were to “have regard primarily to the benefit likely to result from the scheme to the area as a whole (including houses likely to be acquired from the landlord under this Part of the Act), and the extent to which it is reasonable to impose, for the benefit of the area, obligations on tenants so acquiring their freeholds;…”. The obligations anticipated here are obligations on owners and future owners and not on the common landlord. [28] In section 19(5), the court was to approve the scheme “either as originally submitted or with any modifications proposed or agreed to by the applicant for the scheme, if the scheme… appears to the court to be fair and practicable and not to give the landlord a degree of control out of proportion to that previously exercised by him or to that required for the purposes of the scheme”. Here, there is a clear indication that the level of control a landlord ought to be given is to be restricted. [29] Taking those provisions together, it seemed clear to the LVT that section 19 was intended only to preserve the landlord’s position as it had pertained before the right to enfranchise was conferred by the Act, not to impose on the landlord any additional duty to preserve the nature and amenity of the estate. On that basis, the LVT considered that this type of variation could be achieved only with the landlord’s consent. [30] Since the LVT considers that it lacks jurisdiction to vary the scheme to extend the duties of the landlord as requested, it was not necessary for it to deal with the other grounds for dismissal raised by the respondents. However, for the sake of completeness, it makes some further observations. [31] First, the LVT noted that section 19(11) provides that “Subject to subsections (12) and (13) below, a certificate shall not be given nor a scheme approved under the section for any area except on the application of the landlord”. Subsection (12) makes provision for applications by two or more persons as landlords of neighbouring areas and subsection (13) makes provision for applications to be made by “any body of persons… capable of representing for the purposes of this section the persons occupying or interested in property in the area” with a view to a scheme being made in accordance with section 13(b)(i) and (ii). [32] During the course of the hearing, Mr Radevsky reserved his position on the ability of a group of owners applying for a variation or termination of the scheme on grounds other than those put forward by Mr Donath. In the LVT’s view, the issue of whether an owner or a group of owners may in any circumstances apply for a variation properly remains open, as does the issue of whether or not a landlord’s consent is required to variations sought. The LVT noted the comments of the LVT in Wellcome Trust but found them to be of limited assistance in this matter, not only because that case dealt with a 1993 Act scheme but also because the terms of that scheme were significantly different from those in this application. 33. In this case, however, the LVT considered that the application was misconceived and must be dismissed. Application dismissed.