HT-2022-000311 & HT-2022-000254 - [2024] EWHC 3179 (TCC)

The Particulars of Claim advanced not only claims for the carrying out of remedial works to the fabric of the Property but also claims in respect of damages suffered by individual leaseholders.

As against Click St Andrews, and as I will come to, the leaseholders have potential causes of action under the leases, for negligence and in nuisance, and, as it was also argued, under section 2A of the Defective Premises Act 1972. However, the leaseholder claimants were not parties to the FPA and do not therefore have claims for breach of the FPA and thus under the guarantee against Click Group Holdings. Their claims were, therefore, pleaded only against Click St Andrews which is in liquidation but might have had the benefit of insurance taken out in respect of the Works or other liabilities.

However, the claimants also now contend that it is open to RTM to advance the leaseholders’ claims. In so far as those claims flow from the breach of the FPA, the leaseholders through RTM will then also have the benefit of the guarantee and thus indirectly a judgment against Click Group Holdings.

As set out in the Amended Particulars of Claim, RTM claimed as damages for breach of the FPA, the cost of remedial works to the Property (referred to as “the RTM Company Claims”). These sums were claimed both against Click St Andrews and against Click Group Holdings, in reliance on the guarantee contained in clause 17. The leaseholders’ losses (referred to as “the Leaseholder Claims”) were separately claimed against Click St Andrews as damages for breach of contract, negligence, nuisance and/or pursuant to statute. They included the cost of remedial works to the building and the individual flats and specific individual losses suffered by the leaseholders.

As pleaded therefore, it appeared (i) that RTM only claimed the cost of the remedial works and did so against both defendants but (ii) that the leaseholders claimed the cost of remedial works and individual losses and (iii) that the leaseholders advanced those claims only against Click St Andrews as the freeholder and the party that had undertaken the Works.

In the relief sought, the claimants’ claims were, however, pulled together and the claimants (without distinction) were said to claim the RTM Company Claims and the Leaseholder Claims. Shortly before trial, the claimants had permission to serve an updated Schedule of Loss. In that Schedule, the claimants said that although the losses were still split into RTM and Leaseholder losses:

“… all Claimant Leaseholders are members of RTM. RTM (through its status as the right to manage company on behalf of the Claimant Leaseholders and intended nominee purchaser of the freehold) and the Claimant Leaseholders have a common interest in repairing the Property (whether in terms of the overall structure, common areas or specific flats) and share the entitlement to recovery of the losses pleaded.”

In written Opening Submissions (paragraph 123), Mr Levenstein made the following submission:

“The above categorisation [of loss] is without prejudice to the legal reality that all the Claimant Leaseholders are members of RTM. RTM (although its status as the right to manage company on behalf of the Claimant Leaseholders and intended nominee purchaser of the freehold) and the Claimant Leaseholders share a common interest in repairing the Property (whether in terms of the overall structure, common areas or specific flats) and thus share the entitlement to recovery, between themselves, of all the losses pleaded.”

That was essentially the same argument that was advanced in the Schedule of Loss. It was followed by a footnote which submitted that: “Insofar as they do not relate to person-specific losses (eg. income, injury, distress, etc). The nominee purchaser’s rights may stand in for those of individual tenants.” The authority cited for that last proposition was Trinity Church Square v Trinity House of Deptford Strond [2016] UKUT 484 (LC) at [14].

The paragraphs that followed set out the value of the claims that were made and, in all cases, referred to the claimants’ claims without distinction. It, therefore, appeared that, with the exception of personal losses (income, injury and distress), it was the intention to advance a claim by RTM for losses that were incurred by the leaseholders. The obvious potential benefit to the claimants collectively would be that if RTM could advance this claim as one for damages for breach of the FPA it could be advanced against Click Group Holdings as well.

However, when Mr Levenstein opened the case orally, he said that the defendants were liable to the leaseholders under the FPA because the FPA was entered into by the RTM as nominee for the benefit of the leaseholders. When addressing the losses suffered, he submitted further that the leaseholder claimants were all beneficiaries of the FPA and had a common entitlement to recovery with RTM.

If the leaseholders were able to rely on the FPA that would have the benefit for them of a basis to claim damages directly from Click Group Holdings under the guarantee. I cannot see, however, that the fact that the RTM is acting as nominee for the leaseholders in respect of the carrying out of the works as well as the acquisition of the lease leads to the conclusion that the leaseholders can each claim as individuals under the FPA. The company is established to act on behalf of the leaseholders for the purposes of the Leasehold Reform, Housing and Urban Development Act 1993 but it is still a legal person which a distinct legal identity. It is, further, not an agent for individuals but acts as principal.

I also raised with Mr Levenstein the impact of clause 22 of the FPA which is headed “Exclusion of Contracts (Rights of Third Parties) Act 199 (sic)” and provides:

“Nothing in this Agreement is intended to confer on any person any right to enforce any term of this Agreement which that person would not have had but for the Contracts (Rights of Third Parties) Act 1999.”

Mr Levenstein submitted that the proper reading of this clause was that it meant that a third party would not have rights unless the 1999 Act applied – it did not exclude the application of the Act so that it did apply and the leaseholders acquired rights under the Act. This reads the clause as meaning that nothing in the Agreement is intended to confer rights on a third party that they might have had other than those that they may acquire under the Act. Even without any regard to the heading of the clause, that cannot, in my view, be right and the meaning of the clause is the precise opposite. The clause preserves any right that a third party might have had irrespective of the Act but does not confer any right that the person would not have had unless the Act conferred that right to enforce.

It seems to me, therefore, that the clause does not harm the leaseholders’ argument if – and it is a significant if – they have a right to enforce the FPA irrespective of the Contracts (Third Party Rights) Act 1999. As I have already said, I cannot see any basis on which they do have such a right.

The focus of the claimants’ submissions, however, shifted to the different issue, advertised in the written submissions, of whether RTM could recover the leaseholders’ losses. By the time of closing submissions, the leaseholder claimants’ claims were clearly identified as those against Click St Andrews for breach of the covenants in the lease, negligence and nuisance, those against Click Group Holdings that could be advanced under section 2A of the DPA and by way of a BLO. However, the claimants now contended that RTM could recover all of the leaseholders’ losses (without limitation to certain types of loss) – as it was put, RTM’s claims subsumed and included the leaseholders’ losses. Counsel helpfully provided a diagram which showed the “flow” of claims.

It is this matter which I turn to next but I have set out the background for two reasons. Firstly, it seems to me, with respect, that the issue of which claimant was claiming what and on what basis had not been adequately thought through in the pleadings or even by time of trial. It is a matter that requires careful consideration and identification of the approach that the parties and the court takes. Secondly, it could still appear that there is a gap in the pleaded case in terms of the scope of RTM’s claim. However, given the extent to which this issue was canvassed and clarified at trial, it would be wrong, in my view, to find that RTM could not advance the leaseholders’ claims as its own claims, if there is a proper basis for doing so.

As I have indicated above, the argument that there was such a proper basis was first advanced relying on a decision of the Upper Tribunal in the Trinity Church Square case. I addressthat first as it seems to me to have provided no assistance at all. The decision was concerned with the effect of section 1(4) of the Leasehold Reform, Housing and Urban Development Act 1993. Summarising the statutory provisions, where qualifying tenants exercise their rights to enfranchisement through a nominee, the situation may arise where there is property which is not demised to any tenant but over which the lease confers rights which are exercisable by a tenant in common with others. In such as case, section 1(4) provides that the right of acquisition is satisfied if the person who owns the freehold grants rights which ensure that the occupier has “as nearly as may be” the same rights as enjoyed on the relevant date by the qualifying tenant. In that case, the rights were a licence to use a garden square which would not be acquired as part of the freehold.

Against that background, the Upper Tribunal observed at [14] that there was no requirement that the rights (over freehold land not acquired as part of the enfranchisement) must be granted to the nominee purchaser and that the implication was that the grant would be to the qualifying tenant whose lease conferred rights over that land, rather than to the nominee purchaser, “although in this case the parties have agreed that rights granted to the nominee will suffice.” That was the product of a specific agreement against a particular statutory and factual background. It in no way supports a general proposition that the nominee stands or can at its option stand on the rights of the leaseholder and, in the present, case bring claims in respect of the losses of the leaseholder.

The far stronger argument on behalf of RTM which counsel then developed arises from the purpose of the FPA and the statutory background.

The statutory background is the right of long-leasehold tenants who are qualifying tenants within the meaning of the 1993 Act to enfranchise by acquiring the freehold. The process is started by the service of a notice under section 13 and, by section 13(3)(f) the notice must specify the person or persons appointed as the nominee purchaser for the purposes of section 15. Section 38 provides that “nominee purchaser” shall be construed in accordance with Section 15. Section 15 then provides:

“(1)

The nominee purchaser shall conduct on behalf of the participating tenants all proceedings arising out of the initial notice, with a view to the eventual acquisition by him, on their behalf, of such freehold and other interests as fall to be so acquired under a contract entered into in pursuance of that notice.

(2)

In relation to any claim to exercise the right to collective enfranchisement with respect to any premises, the nominee purchaser shall be such person or persons as may for the time being be appointed for the purposes of this section by the participating tenants; and in the first instance the nominee purchaser shall be the person or persons specified in the initial notice in pursuance of section 13(3)(f).”

There are further sub-sections, principally concerned with termination of the nominee purchaser to act as such, which are not material.

It is plain from this background that the role of the nominee purchaser is to act in the enfranchisement on behalf of the tenants with a view to the acquisition of the freehold and any other interests that fall to be acquired “under a contract entered into in pursuance of that notice.” In the present case, the express purpose of the FPA went further than the simple acquisition of the existing freehold premises and extended to having works carried out to extend the Property before the freehold was acquired. Provision was also made for a leaseback of the additional flats to Click St Andrews by means of 999 year leases. As set out expressly in the FPA, this was the contract which was entered into in pursuance of the notice given under section 13. In pursuance of that contractual arrangement, RTM would acquire the freehold and step into the shoes of Click St Andrews as freeholder.

Mr Levenstein referred the court to a passage in Hague on Leasehold Enfranchisement, 7^th edition, that suggests that in the acquisition of the freehold the nominee company acts as trustee for the leaseholders as beneficiaries. Although, if right, that may provide a route to recovery by RTM of the beneficiaries’ losses which would then be held on trust, it was not a submission that was developed further.

The argument that was developed was that on acquisition of the freehold, RTM would become liable under the leases on the same basis as the former freeholder. Mr Levensteinsubmitted thatsuch losses were within the contemplation of the parties when the FPA was entered into and I agree with that submission. It seems to me that it is, in a sense, helpful to look at this from the perspective of the FPA having become unconditional – in other words, the Works would have been completed, the Completion Notice served, and the freehold transferred. If there had then transpired to be defects in the Works, the RTM would have had a claim against Click St Andrews and Click Group Holdings (under the guarantee) for damages for breach. The damages which the parties would have contemplated the RTM would have suffered would include any losses for which the RTM was liable to the leaseholders.

If that needs more support, Mr Levenstein also placed reliance on the Commonhold and Leasehold Reform Act 2022 at section 96(2) which provides that: “Management functions which a person who is landlord under a lease of the whole or any part of the premises has under the lease are instead functions of the RTM company.” Section 96(5) provides that “Management functions” are functions with respect to services, repairs, maintenance, improvements, insurance and management.” The existing leases (under which RTM would acquire, and now has acquired, these function) include the covenant of quiet enjoyment.

In the present case the freehold would not be and was not acquired by means of the FPA but, if the same losses could not be recovered by the RTM, at least when it acquired the freehold, it would create a perverse situation. The qualifying tenants and their nominee could not acquire the freehold, in exercise of their statutory rights, without taking on the burden of the leases and any liabilities under the leases. As Mr Levenstein put it, there was an injury to the freehold which the tenants and the nominee were entitled to acquire. The RTM could not, therefore, be put into the position it ought to have been in if the FPA had been properly performed unless it was entitled to recover in respect of that injury which would necessarily include the recovery of any sums for which it was liable under the leases. If the position were otherwise, there would be a serious impediment to the exercise of the statutory rights to enfranchise.

I am inclined to the view that that would have been the position, even if the RTM had not, since trial, acquired the freehold unless there was evidence before the court that the freeholder had itself remedied any breach and paid any relevant damages so that the “uninjured” freehold could be acquired by the RTM. But it not necessary for me to decide that issue since RTM is now the freehold owner.

That leaves the issue which was addressed in submissions as to whether the RTM can recover in respect of all the leaseholders’ damages suffered as a result of breaches of the leases or only those that have accrued since the RTM became the freeholder. At one point in the argument, it was suggested that there might be such a distinction. Mr Levenstein, however, relied on section 3 of the Landlord and Tenants (Covenants) Act 1995 which provides:

“(1)

The benefit and burden of all landlord and tenant covenants of a tenancy—

(a)

shall be annexed and incident to the whole, and to each and every part, of the premises demised by the tenancy and of the reversion in them, and

(b)

shall in accordance with this section pass on an assignment of the whole or any part of those premises or of the reversion in them.

…..

(3)

Where the assignment is by the landlord under the tenancy, then as from the assignment the assignee—

(a)

becomes bound by the landlord covenants of the tenancy except to the extent that—

(i)

immediately before the assignment they did not bind the assignor, or

(ii)

they fall to be complied with in relation to any demised premises not comprised in the assignment; and

…”

In light of this provision, there would seem to be no question that the burden of all Click St Andrews’ covenants was contemplated to pass, and did pass, to RTM on the acquisition of the freehold and that that burden includes the liability to the leaseholders whether before or after that acquisition.

Subject to any further submissions, I will, therefore, where I find a relevant breach of both the lease and the FPA, give judgment for RTM in respect of the leaseholders’ losses. That does not affect the leaseholders’ own claims against Click St Andrews but, for the avoidance of doubt, there can be no double recovery.

Each of the claimant leaseholders has or had a lease of a flat from Click St Andrews as landlord.