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The Court of Appeal has handed down judgment in Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Ltd [2023] EWCA Civ 616, in which the issue was whether a shared ownership lease where the tenant has not “staircased” to 100% interest but is granted for a term more than 21 years was a “long lease” for the purpose of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”).
The issue raised in the appeal is one of general public importance with broad implications for the Right to Manage, enfranchisement and lease extensions under the Leaseholder Reform, Housing and Urban Development Act 1993 and possession proceedings concerning shared ownership leases.
Facts leading to the appeal:
The issue on appeal arose in a slightly unusual way, as these proceedings were the second set of appellate proceedings involving these parties and the development.
In order to understand the long-running litigation, one, therefore, needs to start with the Upper Tribunal (Lands Chamber) (“UT”) decision of 16 December 2020 Avon v Canary Gateway (Block A) RTM Ltd and others [2020] UKUT 358 (LC) (“Canary Gateway No1”). In that case, the UT held that the shared ownership leaseholders had “long leases” for the purpose of s.76 of the 2002 Act but dismissed the claim to acquire the Right to Manage on other grounds so that the Respondent ultimately did not acquire the Right to Manage.
Following the decision in Canary Gateway No.1, the Respondent tried again to take over management of Block A from the Appellant. The Appellant opposed the claim to acquire the Right to Manage.
On appeal, the Appellant argued that Canary Gateway No.1 was wrong on the construction of s.76 of the 2002 Act.
The Court of Appeal’s judgment:
There was one issue on the appeal, namely, whether or not a shared ownership lease where the leaseholder has not “staircased” to a 100% interest is a “long lease” for the purpose of s.76 of the 2002 Act.
Section 76(2) provides as follows
Subject to section 77, a lease is a long lease if—
(a) it is granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant, by re-entry or forfeiture or otherwise,
(b) it is for a term fixed by law under a grant with a covenant or obligation for perpetual renewal (but is not a lease by sub-demise from one which is not a long lease),
(c) it takes effect under section 149(6) of the Law of Property Act 1925 (c. 20) (leases terminable after a death or marriage or the formation of a civil partnership),
(d) it was granted in pursuance of the right to buy conferred by Part 5 of the Housing Act 1985 (c. 68) or in pursuance of the right to acquire on rent to mortgage terms conferred by that Part of that Act,
(e) it is a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant’s total share is 100 per cent., or(f) it was granted in pursuance of that Part of that Act as it has effect by virtue of section 17 of the Housing Act 1996 (c. 52) (the right to acquire).
The Appellant argued that the correct way of reading s.76(2) was as a “stack of sieves”, meaning that a lease can fall through s.76(2)(a) but then be caught by a specific mesh of s.76(2)(e). Thus, suggesting that a leaseholder who has not “staircased” to 100% ownership is not a “long lease” for the purpose of the 2002 Act. On the facts of this case, the Appellant argued that the Respondent failed to satisfy the requirements of s.76(2), in particular, s.76(2)(e).
The Respondent argued that s.76(2) created six separate “gateways” so that it was enough to pass through any one of them and contended that the leaseholders had leases “for a term of year certain exceeding 21 years” under s.76(2)(a) of the 2002 Act. On the facts, the Respondent contended that the leaseholders satisfied the requirements of s.76(2)(a) of the 2002 Act.
On the key issue, Lord Justice Newey (with whom Lady Justice King and Laing agreed) rejected the Appellant’s arguments and concluded that:
“[27] 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’”.
The appeal was dismissed.
Implications:
As the Court of Appeal noted, s76 is materially the same as s5, Leasehold Reform, Housing and Urban Development Act 1993. So, does it now follow that shared owners who have not staircased to 100% can now obtain lease extensions? But how would those be valued?
Moreover, does this mean that shared owners now have the benefit of ss.166-168, CLRA 2002? Is forfeiture, rather than s.8, Housing Act 1988 now the correct route for seeking possession?
The Appellant intends to seek permission to appeal from the Supreme Court, as the proposed appeal is one of general public importance.
Justin Bates and Katherine Traynor appeared for the Appellant, Avon Ground Rents Limited, instructed by Lorraine Scott of Scott Cohen Solicitors Limited.
