Intermediate leaseholder rights considered by the Court Of Appeal

In a notable case, the Court of Appeal has upheld a decision by the Upper Tribunal (Lands Chamber) that service by an intermediate landlord of a notice of intention to be separately represented under the Leasehold Reform, Housing and Urban Development Act 1993 Sch.11 Pt II para.7(1) did not restrict the absolute authority of the competent landlord to reach agreement with the tenant under s.42 of the Act.

STELLA KATEB v (1) HOWARD DE WALDEN ESTATES LTD (2) ACCORDWAY LTD

[2016] EWCA Civ 1176

The competent landlord held the freehold to a building in which the tenant held a long lease of a flat and the intermediate landlord held a long lease of the immediate reversion. The tenant served a notice claiming a new lease on the competent landlord under the Leasehold Reform, Housing and Urban Development Act 1993 s.42.

The intermediate landlord served a notice of her intention to be separately represented in any legal proceedings pursuant to Sch.11 para.7(1) of the Act. While proceedings were pending before the tribunal to determine the premium payable for the grant of the new lease, the competent landlord accepted the tenant's offer of a total premium of £269,000, and apportioned £265,600 to itself and £3,400 to the intermediate landlord.

The competent landlord granted a new lease to the tenant. It informed the tribunal that the terms of the acquisition had been agreed and requested vacation of the hearing. However, the intermediate landlord disagreed with the apportionment and the tribunal held that it retained jurisdiction to determine the value of the intermediate lease. The Upper Tribunal reversed the tribunal and held that the service by an intermediate landlord of a notice of intention to be separately represented did not qualify the absolute authority of the competent landlord to reach agreement with the tenant which would bind all intermediate landlords.

The Court of Appeal dismissed the second appeal. Remedies for the intermediate landlord include application to the county court for an order directing the competent landlord to take specified steps in relation to the action (Sch. 11, Pt.2, para. 6), but the intermediate landlord had not taken this step. The competent landlord therefore had the authority to negotiate the terms of the lease, which would be binding on the intermediate landlord, unless it could be proved that the agreement was reached in bad faith or without reasonable care or diligence, in which case the competent landlord would be liable in damages (Sch. 11, Pt.2, para.6(4)).

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