Nessa v London Borough of Tower Hamlets [2010] EWCA Civ 559

This is an interesting appeal on the issue of the amendment or replacement of a S.125 Housing Act 1985 notice offering the right to buy at a specified price. The actual case itself is not particularly interesting as it turns out, but there are some comments by the Court of Appeal that open up a whole other can of worms.

Ms Nessa was the secure tenant of Tower Hamlets, jointly with Mr Uddin, since 1996. On 4 April 2006 they claimed the right to buy. The price was to be based on the open market value of the flat as at date of service of their notice. On 9 May 2006, the Council served s.125 notice (notice 1) giving the value at £175,000 and a discount of £16,000. This offer was accepted by Ms Nessa and Mr Uddin by notice dated 26 May 2006.

In December 2006, as part of what was described as a quality audit, the Council received a revised valuation as at 4 April 2006 from different valuers, this time valuing the flat at £225,000. On 5 January 2007 the Council served a ‘revised’ s.125 Notice (notice 2), giving a value of £225,000 and a discount of £16,000, and requiring the tenants to accept this revised offer if they wish to continue with the right to buy. The tenants were offered £100 and any reasonable costs incurred for the inconvenience. Ms Nessa and Mr Uddin accepted this offer and steps were taken towards completion in August 2007, which did not, however,take place.

In September 2007, Mr Uddin requested that his name be removed from the right to buy offer and that it go ahead in Ms Nessa’s name alone. An amended s.125 notice was requested and, on 13 December 2007 a further s.125 notice (notice 3) was served, giving the value, at 4 April 2006 at £175,000 and the discount at £16,000. Ms Nessa asserted that she had accepted this offer. The Council sent notice to complete within 2 months under s.140 on 4 January 2008. On 13 February 2008, the Council served a further ‘amended’ s.125 notice (notice 4), with the value at £225,000 and the discount at £16,000. Ms Nessa disputed this notice and began proceedings under s.138(3) Housing Act 1985 for an injunction to compel the Council to sell on the basis of notice 3.

At first instance, HHJ Dight held that 1) the Council had no power to withdraw or amend a notice under s.125; 2) that the value in notice 1 and 3 was so significantly understated that the Council had no power to sell at £159,000, so notices 1 and 3 were ultra vires and void. Claim dismissed. Ms Nessa appealed on the basis that the decision on ultra vires was wrong. The Council cross-appealed on the basis that there was a power to withdraw or amend s.125 notices. Ms Nessa only sought to rely on notice 1 on appeal, so only notices 1 & 2 were at issue.

On appeal, Ms Nessa argued that s.177 only permitted amendments to s.125 notices were the issue was correction of a mistake made ‘as a result of an error or omission’. The Council did not contend that the change of value was correcting such a mistake. The judge below was right to hold that:

For the reasons which I have already given, it seems to me that the legislation does not contain any provision entitling the landlord to amend or withdraw a S.125 notice. The Legislature did not intend it to be able to do so. Where the Act contains an express provision entitling amendment in certain limited circumstances it seems to me to be an inevitable conclusion that amendments in other circumstances not specified by the Act are intended to be excluded.

The scheme is a statutory scheme and I agree with the claimant that the absence of a power on the part of a landlord to amend the S.125 notice in circumstances other than those specified in S.177(2) means that it has no power to do so.

However, the Court of Appeal did not agree. It was noted by the Chancellor of the High Court that s.177 was only introduced in 1984, meaning that the first 4 years of existence of the right to buy, after Housing Act 1980, had no statutory provision enabling correction of mistakes. There would have to have been an implied power to do so. Further:

when s.32 [Housing and Building Control Act 1984, introducing s.177] was introduced it would only limit the implication of any other power to amend in the case of mistakes made by a landlord “as a result of an error or omission” of the secure tenant in his notice. Given the detailed information the landlord was required to give in his s.125 notice I would have little difficulty in implying a power to amend to correct clerical mistakes made by the landlord in his s.125 notice. The landlord would be bound to correct any such mistake coming to his attention by informing the secure tenant lest the latter was misled and acted to his detriment in the absence of any such correction. I can see no reason why he should not do so by serving a corrective s.125 notice. But there would be limits to such a power not least in terms of the time within which it could be exercised. Those limits will have to be explored in future cases in which the point arises. It is not necessary to do so in this appeal

It was not necessary to do so in this case because the acceptance of notice 2 on 22 May 2007 by Ms Nessa and Mr Uddin discharged by mutual agreement any rights and obligations arising from notice 1. A secure tenant could abandon or withdraw application for right to buy otherwise than by service of written notice under s.122(3) – Copping v Surrey County Council [2006] HLR 307 – or may “abandon or waive his right to buy under normal principles of common law and equity or may be estopped from continuing to exercise it”, Martin v Medina Housing Association Ltd [2006] HLR 763. The acceptance of notice 2 was freely given after making inquiries and in receipt of legal advice.

It was also unneccessary for this reason to deal with the issue of ultra vires, as notice 1 was superceded for the reasons above. Appeal dismissed, but for different reasons to the judge below.

Stanley Burnton LJ adds

It is clear that the price stated in a notice served under section 125 is not set in stone. It may, for example, be affected by the variation of terms of the proposed lease with the consent of the parties or as a result of the determination by the county court of a dispute between them as to those terms: see, for example, paragraph 14 of Schedule 6. I note, also that section 126, which identifies the price to be paid on a conveyance or grant of a lease, does not define it by reference to the price stated in a notice under section 125. However, I would prefer to leave open the question whether there is any and if so what limit on the power of a landlord to vary the price stated in its section 125 notice for decision in a case in which the tenant has not abandoned the purchase originally proposed or agreed to proceed on the basis of a subsequent section 125 notice.

So, while Ms Nessa’s appeal was doomed by her acceptance of notice 2, the issue of whether s.125 notices can be withdrawn, amended or superceded by a subsequent notice is opened up and left for another case. The Chancellor appears to suggest that a power to amend could be implied, but only discusses it in terms of ‘mistakes’ such as clerical errors, which are in any event covered by s.177. Burnton LJ observes that the price set in a s.125 notice is capable of subsequent variation under the statute – if the tenant requests a valuation by the District Valuer under s.128, for example, but then leaves open the broader issue of whether a Council can amend the price in the s.125 unilaterally and if so when.

This is a significant question. If the tenant has agreed an offer by s.125 Notice, can the Council unilaterally amend that offer? Or could the tenant enforce it via s.138(3), as s.138(1), the enforceable duty, states:

Where a secure tenant has claimed to exercise the right to buy and that right has been established, then, as soon as all matters relating to the grant . . . have been agreed or determined, the landlord shall make to the tenant—
(a) if the dwelling-house is a house and the landlord owns the freehold, a grant of the dwelling-house for an estate in fee simple absolute, or
(b) if the landlord does not own the freehold or if the dwelling-house is a flat (whether or not the landlord owns the freehold), a grant of a lease of the dwelling-house.

Once all relevant matters have been agreed, can the Council unilaterally un-agree them? One suspects the Court of Appeal may get the case they were apparently asking for before too long.