Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Ltd (2023) EWCA Civ 616

This was the Court of Appeal judgment on a an appeal related to (but not from) the Upper Tribunal decision in Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd & Anor (2020) UKUT 358 (LC) (Our note here). At issue – and it is nice to have a Court of Appeal matter that is simply on a single point of law – was whether shared ownership leases where the lessee has a less than 100% share were long leases, and so qualifying tenants for the purposes of section 76 Commonhold and Leasehold Reform Act 2002.

In the previous case, the Upper Tribunal had held that they were long leases, but the decision had also turned on whether all necessary parties had been served notices. In this appeal, effectively leapfrogged from the FTT, the only issue was the interpretation os section 76.

Section 76 provides, so far as relevant:

(2) Subject to section 77, a lease is a long lease if—

The question was whether s.76(2)(e) qualified (2)(a) such that a shared ownership lease of more than 21 years (as they all are) was not a long lease unless the tenant’s share was 100%.

The Court of Appeal’s answer was simple. No it didn’t. Despite the explanatory note to the Act (granted of no legislative weight) and despite the high likelihood of no shared ownership lease being of a term of less than 21 years, the Court of Appeal found that s.76(2) was to be read as a series of qualifying conditions, not as an initial condition – (a) – with qualifications and conditions and additions following.

As such, any shared ownership lease of more than 21 years term (as they all are) was a ‘long lease’ for the purposes of potentially being a qualifying tenant for the right to manage.

In short, I agree with the Judge that a tenant with a shared ownership lease “granted for a term of years certain exceeding 21 years” has a “long lease” within the meaning of section 76 of the 2002 Act regardless of whether the tenant has a 100% interest and, hence, that every shared ownership tenant in Block A is a “qualifying tenant” for the purposes of the 2002 Act. To adapt slightly what Stanley Burnton J said in Brick Farm, “Parliament cannot be taken to have intended to restrict the unqualified ambit of paragraph (a) of section [76(2) of the 2002 Act] by adding a paragraph purporting to widen rather than to narrow the definition of ‘long lease’”.

Comment

Absent a further appeal to the Supreme Court, that is this issue settled. Shared ownership leaseholders are – assuming all other the criteria are met – qualifying tenants for the purposes of the right to manage, and are entitled to seek the right to manage.

That is going to come as a painful surprise to a number of Housing Associations in respect of their owned blocks and developments, I suspect. There may well be an appetite amongst their leaseholders to take control of management of the building.

But it possibly doesn’t end there. The definition of ‘long lease’ at section 7(1) Leasehold Reform, Housing and Urban Development Act 1993, for the purposes of a right to a statutory lease extension, and a right to enfranchisement of the building is:

It is hard to see any significant difference in the structure and operation of that sub-section, as the Court of Appeal itself notes in its discussion of Brick Farm Management Ltd v Richmond Housing Partnership Ltd (2005) EWHC 1650. So, though not the decision in this appeal, it would appear that shared ownership leaserholders at less than 100% share would also be qualifying tenants for the purposes of statutory lease extensions and enfranchisement.

Now that raises a lot of questions…

On enfranchisement, I’d anticipate quite a lot of argument over whether the section 5(2)(b) exemption applies, where the landlord is of  “housing accommodation provided by (a charitable housing trust) in the pursuit of its charitable purposes” . I’m not sure that this is a straightforward argument for HAs any longer, particularly on wholly shared ownership blocks or mixed SO/full lease blocks.

But there is also a very significant question of valuation. It may well turn out that shared ownership enfranchisement would actually be very expensive.

Then there is related issue that may affect non-shared ownership leaseholders. Imagine a building (of which there are quite a lot) where the split is between direct leaseholders of the freeholder, and shared ownership leaseholders as sub-lessees of a housing association that itself has a lease of a number of flats. Common under s.106 agreements. The SO lessees would potentially be qualifying tenants for enfranchisement, but this may mean costs of ‘buying out’ the HA’s lease, as well as organisational issues in dealing with  all qualifying tenants.

On statutory lease extensions, there is the question of ‘a peppercorn rent’ under s.56 of the 1993 Act. Would that extend to the rent payable on the housing association’s ‘share’ of the property? If so, a statutory extension is going to be really quite expensive.

But these are questions and issues beyond my first quick thoughts. I suspect they will be preoccupying quite a few people for a while.

In the meantime, I anticipate that right to manage for shared ownership will be quite a popular idea.