Secretary of state for defence was entitled to enfranchise ex-MoD houses

The secretary of state for defence was entitled under the Leasehold Reform Act 1967 to serve notices to enfranchise eight houses that the Ministry of Defence had sold in a sale-and-leaseback agreement. In R (on the application of Annington Properties Ltd and others) v Secretary of State for Defence [2023] EWHC 1154 (Admin); [2023] EWHC 1155 (Ch), the MoD sold a majority of its residential married quarters estate to Annington Property Ltd in 1996. The properties were sold subject to a 999-year headlease, with underleases granted back to the MoD at a discounted rent for a term of 200 years. APL was entitled to the rents and, after a 15-year period, the totality of any increase in the value of the properties. By 2018, the secretary of state recognised that the arrangement no longer represented value for money for taxpayers. The MoD sought to extricate itself from the arrangement by exercising its right to enfranchise. The rationale was that the price payable to APL for its interests would be less than the secretary of state’s liabilities for renting the properties. In Gratton-Storey v Lewis [1987] 19 HLR 546, it was held that where a subtenant owns the freehold, he is precluded under the 1967 Act from enfranchising simply to buy an intermediate interest. To overcome this hurdle, in 2020 the secretary of state created a special purpose vehicle to hold the properties to be enfranchised. In 2021, the secretary of state served notices to enfranchise on APL in respect of eight houses. The validity of those notices was challenged by APL. A summary of the arguments and findings relating to whether the notices were invalid because the underleases held by the secretary of state were business tenancies to which Part II of the Landlord and Tenant Act 1954 applied can be found here. In addition to public law challenges, the focus of the remaining grounds was in respect of whether the secretary of state satisfied the requirements to enfranchise under the 1967 Act. The High Court found in favour of the secretary of state on all grounds. APL argued that the Crown provisions in section 33 of the 1967 Act and section 88 of the Leasehold Reform, Housing and Urban Development Act 1993 required the secretary of state to obtain the consent of APL to enfranchise pursuant to the Crown’s undertaking. The High Court disagreed. It found that, pursuant to section 33(1) of the 1967 Act, once there ceased to be a Crown interest in the land, a tenant or subtenant who met all other conditions for enfranchisement could exercise the right to enfranchise. In the present case, in respect of seven of the properties, the transfer of the freehold to the SPV severed any Crown interest in those properties that were superior to the secretary of state’s underleases. In respect of the eighth property, the secretary of state was entitled to rely on the notice it served pursuant to section 33(1)(b). The High Court also agreed with the secretary of state that the 1967 Act did not alter the manner in which the general principles on Crown indivisibility applied. There was nothing to indicate that a transfer by a government minister to an SPV for the purpose of overcoming the rule in Gratton-Storey must be treated as a transfer to an entity of the Crown rather than a separate entity. Elizabeth Dwomoh is a barrister at Lamb Chambers