The law relating to the enfranchisement of leaseholds (the name for the process by which tenants exercise the right to buy) is complex.
One of the rules is that a tenant who participates in an enfranchisement application in respect of a block of flats cannot be the tenant of more than two of the properties in the block.
The leaseholders of more than a thousand flats in a development wished to acquire the freehold of the property, but the leases on the flats were held by them indirectly through an intermediate landlord, so they were unable to attempt to exercise the right to buy directly. They therefore devised a plan for circumventing the rule.
The plan involved the creation of more than 600 Jersey companies, which then acquired the underleases of the flats. In 2007, the Jersey companies served the necessary notices on the owner of the freehold, proposing to pay more than £98 million for the freehold.
However, the owner opposed the application, denying that the Jersey companies were qualifying tenants as set out in the relevant legislation. By the time that question was due to be decided by the court, property values had fallen and so the action was withdrawn by the Jersey companies.
There the matter rested until 2010, when the Jersey companies once again sought to acquire the freehold and were again rebuffed by the freeholder. However, this time, the freeholder also employed a technical argument – that the court’s permission would be required for the claim to be recommenced, because the rules that govern the conduct of litigation require this where an action is introduced which ‘arises out of facts which are substantially the same’ as those which relate to a discontinued claim.
The court agreed that on this basis the application could not proceed.
The case illustrates the need for great care to be taken to ensure that issues that are brought before the court are decided, not abandoned, if the same issues will need to be decided in the future. In this instance, if the tenants’ right to bring the claim for enfranchisement had been established, the application could have been discontinued and recommenced later, with a different offer being made.
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Partner Note
Westbrook Dolphin Square Ltd. v Friends Provident Life and Pensions Ltd. [2011] EWHC 2302 (Ch).