FSV Freeholders Ltd v SGL1 Ltd

Landlord and tenant – Relevant disposal – Section 5 of Landlord and Tenant Act 1987 – Freeholder wishing to make relevant disposal of property purporting to serve notice on qualifying tenants – District judge declaring requirements of section 5 and 5A of 1987 Act complied with – High Court allowing appeal in part – Appellant appealing – Whether judge interpreting section 5 and 5A incorrectly – Appeal dismissed A company in administration owned premises at 30 Fox Street, Liverpool, comprising blocks A-E (the entire property). Its administrators wished to dispose of the freehold. Section 5 of the Landlord and Tenant Act 1987 Act gave qualifying tenants the right of first refusal and required the landlord to serve notices on relevant tenants. Under section 5(3), if the proposed disposal involved more than one building, the landlord had to deal with each building separately. Block D, which was empty, did not fall within the pre-emption rights and the other blocks formed two buildings. Accordingly, two sets of notices were served – one in respect of Block A (offered for sale for £350,000) and the other for Blocks B, C and E together (offered for sale for £1,050,000). No acceptance notices were served and the entire property was sold to the respondent for £1.6m. The qualifying tenants said they were unaware of the sale and the appellant was incorporated for the purposes of acquiring the freehold. On the respondent’s application, a district judge declared that section 5 of the 1987 Act had been complied with. The High Court allowed an appeal against that decision in part: [2022] EWHC 3336. The appellant appealed contending that the judge interpreted section 5 and 5A of the 1987 Act incorrectly when he held that the notices need not contain the terms agreed on the purchase of the entire property. Accordingly, he was wrong to decide that the notices were not invalid for that reason. Held: The appeal was dismissed. (1) Section 5 had to be read as a whole and in context. Section 5(1) provided that where the landlord proposed to make a “relevant disposal affecting premises” he should serve an offer notice on the qualifying tenants of the flats contained in the premises. It was that offer notice which was capable of being accepted by the service of an “acceptance notice” by the requisite majority of qualifying tenants of the constituent flats (section 6(1)-(3)). It was important, therefore, to interpret section 5 in the light of the fact that the offer notice had to be capable of acceptance. Section 5(2) provided that the offer notice had to comply with the requirements of, in this case, section 5A which required the terms of the proposed disposal to be summarised. Section 5(3) applied where the proposed transaction involved “the disposal of an estate or interest in more than one building…”. If that circumstance applied, “for the purposes of complying with this section”, the landlord “shall… sever the transaction so as to deal with each building separately”. (2) The requirement to deal with each building separately arose for the purposes of complying with “this” section, being section 5 as a whole. Further, section 5 was concerned with the need to serve an offer notice and its requirements. It followed that where the circumstances in section 5(3) applied, to comply with section 5, an offer notice had to be served in relation to each building. In such circumstances, the requirements in section 5A which were made mandatory by section 5(2) had to relate to the building in question. The requirements of sections 5A had to be read in the light of section 5(3) which was in mandatory terms. Therefore, where section 5(3) applied, it was necessary to serve a notice containing particulars of the property in the sense of the separate building, and the estate or interest in that separate building to which the contract related, and the principal terms of that contract. References to the “disposal” by entering into a “contract” had to be interpreted by reference to each separate building. The reference to “property” in section 5A(2)(a) meant the building in question and the reference to the “contract” in section 5A(2)(b) referred to the contract in relation to the building in question. (3) As the qualifying tenants only had a right of first refusal in relation to the estate or interest in the building which was the subject of the disposal of which their flat formed part, it was natural that the terms in the offer notice should relate to that building. Conversely, in a case in which there were separate buildings, if a landlord were only required to give details of the principal terms of the contract in relation to the disposal of the entire site, the qualifying tenants would not know what terms they were being offered which they could accept. They would be provided with a headline purchase price which would be of no assistance to them. The contract would not necessarily contain an apportionment of the purchase price (although it did in this case) and therefore, there was no scope for concluding that such an apportionment would be one of the “principal terms” for the purposes of section 5A(2)(b). Accordingly, if section 5A required a notice to refer only to the principal terms of the overall contract, the tenants would be provided with the headline price (in this case, £1.6m) which would not assist them. In a situation in which section 5(3) applied, the section 5 offer notice had to contain the terms relating only to the particular building. (4) Once section 5A was read in the light of section 5(3), it became clear that the disposal and the contract relating to it referred to the disposal and contract in relation to the separate building. In that context, the natural and ordinary meaning of “the property” was to the building in question. The additional requirement to provide details of the “estate or interest in that property” was to the nature of the interest in the building, whether legal or equitable which the landlord proposed to dispose of. That was consistent with the way in which “estate or interest” was used in section 5(3). Once section 5 was read as a whole and section 5A was construed in context, there was no room for an interpretation which required the section 5 notice to contain details of both the contract in relation to the site as a whole and the individual building. Farhan Asghar (instructed by Direct Access) appeared for the appellant; John de Waal KC and Gemma de Cordova (instructed by MSB Solicitors, of Liverpool) for the respondent. Eileen O’Grady, barrister Click here to read a transcript of FSV Freeholders Ltd v SGL1 Ltd