A s.42 notice given to a transferee after a failure to register their interest within the prescribed period is not effective, but is it validated upon subsequent registration?
Solomon and ors –v- Dawn Holdings, Jan 2017, before HHJ Gerald at Central London, unreported.
Toby Bishop, instructed by Kingsley Napley, appeared for the landlord in a novel and successful approach to avoid granting new leases at an undervalue after failing to give a counter-notice.
Following the dissolution of a company, the unregistered freehold interest in a residential block vested in the Crown as bona vacantia. In January 2013 the title was vested in the Defendant by order of Master Bowles. An obligation arose to register, pursuant to s.4(aa)(ii) of the Land Registration Act 2002. The prescribed period for registration is 2 months (s.6(1)&(4)). The Defendant did not apply to be registered within that period. S.7(1) prescribes a sanction for the default, the transfer becomes void and the title reverts to the transferor (s.7(2)(aa)), here the Crown. The Act permits a party to apply to extend the time for registration, either within or following the prescribed period (s.6(5)). If an application is made the sanction of reversion (s.7(1)) is treated as not having occurred (s.7(3)).
The claimants were 4 of the leasholders in the block and wished to extend their leases. On 29/06/2015 they gave notices pursuant to s.42 of the Leasehold Reform, Housing and Urban Development Act 1993. The Defendant’s agent acknowledged the notices, but did not give counter-notices. Therein lies the commercial reason for the litigation, the proposed premiums were considerably below the market price.
On 24/08/2015 the Defendant applied to be registered, without applying to extend time. The Registrar registered the title.
HHJ Gerald held that the notices were invalid when given, because the legal owner of the freehold interest was the Crown, he relied on s.40 of the 1993 Act and the effect of s.7(1) and (2)(cc) of the 2002 Act. This suggests, in line with most decisions on these notices, the reasoning would be applicable to enfranchisement notices.
The Claimants argued s.7(3) was a whitewashing provision by which the invalid notice was to be treated as valid following registration. HHJ Gerald decided it should not be, for 5 reasons:
- He distinguished the facts from those of a voluntary disposition or granting of an interest. The recipient of a s.42 notice is involuntarily served.
- 40 of the 1993 Act refers to the person who ‘is’ the legal owner, it is therefore a temporal factual question to be determined when the notice is served.
This conclusion was tested against the alternative, that those with a registerable beneficial interest may be the appropriate recipient of the notice. HHJ Gerald concluded that would intolerably unclear and uncertain.
- Service on the correct entity is fundamental to vesting jurisdiction in the Court, pursuant to s.49 of the 1993 Act.
- If history could be written in this way, problems would arise as to identifying the beneficial owners and following a change of ownership during the relevant period.
- HHJ Gerald applied Stodday Land Ltd and Another v Pye  EWHC 2454 (Ch), which related to the giving of a notice to quit by a transferee entitled to be registered and the principle that a notice given by the equitable owner is not validated retrospectively by the acquisition of the legal estate.
The Claimants did not plead or prove estoppel, but argued (following a suggestion from the Judge) that the Defendant should not be permitted to take advantage of its own wrongdoing, being the failure to register, relying on Alghussein Establishment v Eton College  1 All ER 267,  1 WLR 587 and Welwyn Hatfield v Sec of State for C & L Gov  2 AC 304.
HHJ Gerald concluded the principle did not apply as it was limited to cases of dishonesty or misconduct, concluding the failure to register arose through incompetence.
HHJ Gerald heard argument on, but did not decide, whether the Defendant should be treated as having made an application to extend time along with its application to be registered, by the presumption of regularity Calder Gravel Ltd v Kirklees Metropolitan Borough Council  2 PLR 26 to the Benedictus case Benedictus and ors v Jalaram Ltd  1 EGLR 251.
The case is of relevance to those who wish, or are instructed, to serve notices seeking enfranchisement, or a new lease, on the landlord of unregistered land. If, as here, there is more than one candidate for the landlord the leaseholder might be best protected by serving them all.
It also provides another solution for landlords who find themselves exposed to proposed premiums which represent an undervalue.