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A Novel Decision? Parkes v Wilkes [2017] EWHC 156 (Ch); [2017] All ER (D) 33

Fri 11th Aug 2017

A study of the Court’s powers under Trusts of Land and Appointment of Trustees Act 1996

Summary of Facts

  1. In April 2007, Nicola Parkes (“NP”) and James Wilkes (“JW”), leaseholders of 2 flats within 64 Park Road, Westcliffe-on-Sea, Essex (“64 Park Rd”),purchased the freehold to 64 Park Rd from Regis Group Ltd (“Regis”), as a collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”)
  2. The price paid reflected the “marriage value” of the freehold. In other words, it reflected that the value of the freehold was greater in the leaseholders’ hands as once acquired by the leaseholders they could grant new leases to themselves for no premium and for very long terms.
  3. At the point of purchase, the parties signed a deed of trust holding the beneficial interest in equal shares despite the fact NP contributed 60% of the purchase price in order to reflect she was the owner of the larger of the 2 flats.
  4. Later, in 2013, NP asked JW to agree a 999-year extension of her lease at a peppercorn rent. As JW refused, NP issued Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”) proceedings.

 

At First Instance

  1. NP argued that as the intention behind purchase of the freehold was to enable her and JW to extend their leases without premium, the court should give effect to their common intention and grant an extension of her lease under s 14 TOLATA.
  2. JW denied that was the purpose of the acquisition and argued the court had no power under s 14 TOLATA to make the order sought because it would radically diminish the value of the trust property.
  3. At first instance, HHJ Vavrecka, whilst accepting the court had the power to extend the lease under s 14 TOLATA, rejected NP’s case regarding the parties’ “common intention” and dismissed the claim.

 

Grounds of Appeal

  1. NP appealed on a number of grounds:
  2. HHJ Vavrecka failed to consider, in determining the parties’ common intention, either that the purchase was a collective enfranchisement under the 1993 Act or that the price paid by the parties reflected the “marriage value”. NP argued that as HHJ Vavrecka failed to refer to these points within the judgment there would have to be a retrial, as per Bond v Dunster Properties [2011] EWCA Civ 455 and Langsam v Beachcroft [2012] EWCA Civ 1230, as the appellate court could not be satisfied that had HHJ Vavrecka considered it he would not have reached a different conclusion;
  3. If HHJ Vavrecka was correct in holding that the parties did not purchase the freehold with the intention of extending their leases without premium, as argued by NP, the fact the property was purchased under a collective enfranchisement and purchased for a sum that reflected the “marriage value” of the freehold was a relevant factor for the court to consider in the overall exercise of its discretion and HHJ Vavrecka had failed to consider it;
  4. HHJ Vavrecka was wrong to consider the existence of an alternative remedy under the 1993 Act as a factor in JW’s favour;
  5. JW argued the court had no power under TOLATA to make the order sought and, at the hearing, made submissions in support of HHJ Vavrecka’s findings.

 

Jurisdiction

  1. Birss J began by analysing the court’s jurisdiction to grant an extension of NP’s lease under s14 TOLATA.
  2. In doing so, he highlighted that under s 6 TOLATA a trustee has the power “…of an absolute owner…”, subject to any other enactment “…or rule of equity…”. Therefore, both NP and JW, in their capacity as trustees, had the ability to grant an extension of their respective leases themselves.
  3. Birss J then noted that the court’s wide powers, as per Kyaw v Claasen [2015] EWHC 3337 (Ch), under s 14(2) TOLATA, were unaffected by the rules of equity and enabled the court “…to make any order as it thinks fit which relates to the exercise by the trustees of their functions…”.
  4. He therefore concluded that as both NP and JW, in their capacity as trustees of the freehold, were able to extend their leases without premium the court could make an order to the same effect as it was an order that fell within “…the exercise by the trustees of their functions…”.
  5. However, when considering whether to exercise its discretion, the court must have regard to the factors set out in s 15 TOLATA and must, as per Bagum v Hafiz [2015] EWCA Civ 801, consider “…whether, in the proper exercise of the relevant discretion…” it should make the order sought.

 

Grounds

  1. Birss J made clear HHJ Vavrecka was correct to hold that the intention of the parties had to be a “common intention”, as per White v White [2003] EWCA Civ 924, and the question of whether there was a “common intention” was a question of fact for the Judge. In that regard, he found that HHJ Vavrecka, having considered all the evidence, including a “large number of emails that passed between the parties…”, was entitled to find there was no “common intention” as alleged by NP but rather, the purpose of acquiring the freehold was “…to manage the property without the involvement of Regis and in relation to savings on ground rent or insurance…”.
  2. Although Birss J accepted NP’s argument that HHJ Vavrecka had failed to specifically address the 1993 Act collective enfranchisement or the fact the parties had bought the freehold at a price that reflected the “marriage value”, within his judgment he found no basis for NP’s submission that it indicated that the judge’s recollection of the evidence had been wrong in any material point requiring a retrial.
  3. Furthermore, Birss J also rejected NP’s argument that the ‘purpose’ of the trust could and should have been read into the terms of the declaration of trust by implication.
  4. However, Birss J accepted the argument that HHJ Vavrecka had failed to consider the fact the parties paid for the freehold at a price that reflected the “marriage value” and the fact NP had contributed 60% towards the purchase of the freehold on the basis of that valuation when considering exercising his discretion under s 15 TOLATA. However, he again found against NP noting that while the judgment did not spell out the basis on which the valuation had been reached, HHJ Vavrecka had clearly recognised the purchase had been a collective enfranchisement under the 1993 Act. More importantly, with regards to the exercise of the court’s discretion, Birss J agreed with JW’s argument that if a lease extension of 999 years was granted without a premium in circumstances where the parties had not bought the freehold with that express intention its value would be significantly diminished and found that was “…a strong reason on the facts not to exercise the discretion in favour of NP …”.
  5. As to NP’s argument that HHJ Vavrecka was wrong to consider an alternative remedy, Birss J held that HHJ Vavrecka’s comments regarding the parties’ capacity to extend the lease by up to 90 years pursuant to the 1993 Act, as opposed to granting a lease of 999 years in their capacity as trustees, did not form part of his reasoning against the exercise of his discretion. Instead, Birss J held HHJ Vavrecka had “…simply recorded an alternative route to a 90 year extension [that] was available and it would not be unreasonable for her to use that procedure…”.
  6. Finally, in looking at NP’s points as a whole, Birss J made clear he was not persuaded they amounted to anything material in the exercise of HHJ Vavrecka’s discretion on the facts as he had found them to be and therefore, there was no proper basis to challenge the exercise of the judge’s discretion on appeal.

 

Conclusion

  1. Importantly, this case affirms the court’s wide reaching powers and underscores the court’s capacity to make an order in terms that reflect an act or decision that can be made by a trustee in the exercise of his/her duties.
  2. However, it is worth noting that the court must temper the use of its discretion by exercising its discretion in accordance with s 15 TOLATA but also, as highlighted by Birss J, considering whether “…in the proper exercise of the relevant discretion…” it should make the order sought, as per Bagum v Hafiz [2015] EWCA Civ 801. As in this case, the court found a strong reason against exercising its discretion, namely that the value of the freehold would fall significantly if it granted a lease extension of 999 years without a premium where this was not the parties express intention.
  3. Accordingly, this is an important precedent with potentially far reaching consequences going forward and may result in novel results and even more novel arguments.

 

JAKE ELLIS

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