Court of Appeal success for John de Waal KC and Gemma de Cordova in a case concerning a landlord’s compliance with the obligation to serve offer notices pursuant to section 5 of the Landlord and Tenant Act 1987 and the correct interpretation of section 5A where section 5(3) applies – FSV Freeholders Limited v SGL 1 Limited [2023] EWCA Civ 1318

FSV Freeholders Limited v SGL 1 Limited [2023] EWCA Civ 1318

John de Waal KC and Gemma de Cordova have obtained a favourable result in the Court of Appeal for their client (“the Respondent”), who acquired the freehold title from the original landlord, who had at first instance been found to have complied with the requirements of sections 5 and 5A of the Landlord and Tenant Act 1987 (“LTA 1987”).  This was the tenants’ second appeal.

John and Gemma will be discussing the case in a Brew at 2pm on Tuesday 21st November 2023. For a summary of the case in the meantime, please read on.

The case concerned the disposal of the freehold title of certain blocks of flats in Liverpool (Blocks A-E) and the tenants’ rights of first refusal in relation to the same.  The Court of Appeal was concerned with two forms of notice; one that had been served in relation to Block A and another that had been served in relation to Blocks B,C and E.

Given the nature of the transaction, section 5(3) of the LTA 1987 was engaged, which provides as follows:

“Where a landlord proposes to effect a transaction involving the disposal of an estate or interest in more than one building (whether or not involving the same estate or interest), he shall, for the purpose of complying with this section, sever the transaction so as to deal with each building separately.”

The tenants contested the validity of the section 5 notices, consequently, the Respondent brought a claim for a declaration that section 5 LTA 1987 had been complied with.  At first instance, the District Judge declared that there had been compliance and recorded that the tenants’ response to the claim was totally without merit.  Mr Justice Fancourt heard an appeal against that order and allowed the appeal in part; he restored the claim for the purposes of determining whether (i) Blocks A, B, C and E, form one, two, or more “buildings” within the meaning and for the purposes of Part I of the LTA 1987; and (ii) as a result of the answer to (i), whether the notices served on qualifying tenants by the then landlord pursuant to section 5 or 5A of the LTA 1987 were valid; and made directions for the hearing and an order as to costs.

For the purposes of the present appeal, it was assumed that it was correct to treat Block A as one building and Blocks B, C and E as another building.

Fancourt J had rejected the argument that the section 5 notices were invalid because they did not set out the terms of the transaction, or alternatively, that they were invalid in view of the terms of the section 5 notices, which severed the transaction. In  Fancourt J’s short ex tempore judgment ([2002] EWHC 3336 (Ch)), he concluded that this part of the tenants’ argument was based on an incorrect interpretation of the LTA 1987.

It was this aspect of Fancourt J’s  judgment that was the subject of the present appeal.  The Appellant contended that section 5 and 5A LTA 1987 had been interpreted incorrectly when Fancourt J held that the section 5 notices did not need to contain the terms that the proposed purchaser had agreed in relation to the purchase of the freehold of all of the Blocks (the entire property).

Lady Justice Asplin, with whom Lord Justice Peter Jackson and Lord Justice Arnold agreed, gave the leading judgment.  Asplin LJ emphasised the importance of reading section 5 LTA 1987 as a whole and in context and therefore the importance of interpreting section 5 in the light of the fact that “the section 5 offer notice must be capable of acceptance” (Para.37).  Asplin LJ held that the requirements of sections 5A-E must be read in the light of section 5(3) which is in mandatory terms and concluded: “Once one appreciates that the requirements in section 5A (and 5B-E) are incorporated into section 5, and must be read in the light of it, the interpretation of section 5A in the circumstances which have arisen becomes clear …” (Para.40).

Where, as in the present case, “…section 5(3) applies, it is necessary, therefore, 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 relates and the principal terms of that contract. That is the effect of the mandatory requirement in section 5(3) upon the requirements set out in section 5A(2)(a) and (b). In circumstances in which section 5(3) applies, references to the “disposal” by entering into a “contract” should be interpreted by reference to each separate building. The reference to “property” in section 5A(2)(a) should be construed to mean the building in question and the reference to the “contract” in section 5A(2)(b) must be interpreted to refer to the contract in relation to the building in question.” (Para.41).

The full judgment can be read here.

John de Waal KC and Gemma de Cordova were instructed by MSB Solicitors.