Notices to quit: Beware the gap trap!
The recent High Court decision in Stodday Land Limited and Ripway Properties Ltd v William Marsland Pye  is a timely reminder that great care must be taken with both the statutory and common law requirements for notices to quit.
The Stodday Case
This case concerned an oral tenancy of some 18 acres in Lancashire tenanted by Mr Pye. Stodday Land Limited were the original landlords and conveyed a small part of the tenancy to Ripway Properties Ltd. This was done by way of severing the freehold reversion to allow Ripway Properties to serve a Case B Notice to Quit, so that the small area of land could be developed. The contract completed on 19 June 2013 and the Land Registry completed the registration of the property on 16 July 2013. The intervening 27 days is what is called the registration gap, which can in some cases take several months.
A Case B Notice to Quit was served by Ripway during the registration gap on 1 July 2013. On the same day, Stodday served a Case D Notice to Quit for non-payment of rent. The grounds for service of those notices were no longer open to challenge by the time the Court considered this, but the common law validity of the notices to quit themselves were questioned by Mr Pye.
Validity of Notices to Quit
To be valid at common law, the notice to quit must be given by the person entitled to the landlord’s reversionary estate and it must relate to the whole of the land comprised in the tenancy. The arguments for Mr Pye were that the Case B notice to quit had not been given by the legal owner of the reversionary estate (Stodday), but by Ripway, before it had become the registered proprietor. The secondary argument was that since no valid Case B notice had been given, the Case D Notice did not relate to the whole holding, because the Case D land remained in the legal ownership of Stodday.
Counsel for the landlord argued that under Section 96 of the 1986 Act, “Landlord” is defined as “any person for the time being entitled to receive the rents and profits of any land” unless the context otherwise requires. Since Ripway was, following completion of the transfer, entitled to receive the apportioned rent, it was the landlord for the purposes of serving the Notice to Quit. However, this argument was rejected by the Court, as part of the context within which Section 96 falls to be construed are the common law requirements for drafting and serving a notice to quit.
The second argument advanced on behalf of the landlord was under the authority provided by Scribes West Ltd v Relsa Anstalt. That case considered how the registration gap is handled in the context of forfeiture. The relevant legal provision is section 141(2) of the Law of Property Act 1925. That provides that the benefit of every covenant or provision in the lease and every condition of re-entry and other condition in the lease shall go with the reversionary estate in the land. This means that the purchaser of a reversionary estate will inherit all obligations and benefits contained in the lease.
Scribes West Case
In the Scribes West case, Scribes was the tenant and Relsa was the registered proprietor. Relsa transferred its reversionary interests to X by a transfer which expressly provided that all benefits of covenants were assigned to X. X immediately gave notice of the assignment to the tenant and registration of the transfer was completed some time later. The lease was then forfeited by X during the registration gap and the forfeiture was challenged by the tenant. The Court of Appeal accepted that a valid equitable assignment of the rent had taken place, so section 141(2) applied and X had the right to enforce the right of re-entry contained in the lease.
Application to Stodday
Counsel for the landlord in the Stodday case argued that Ripway was in a similar position to X in the Scribes West case, so Ripway could enforce and take advantage of provisions in the tenancy agreement. However, the Judge in Stodday found that, unlike the Scribes West case, this case did not concern the contractual arrangements made between landlord and tenant. The Notice to Quit was not served pursuant to any contractual provision in the tenancy agreement, but instead arose from the nature of the estate granted to Mr Pye; the relevant relationship was privity of estate, not privity of contract. Therefore the notice to quit could only be served by the legal owner of the reversion, which until registration was Stodday and not Ripway.
Bank of Scotland v King
The third and final argument which found the most favour with the Court was based on s24 of the Land Registration Act 2002. This provides that “a person is entitled to exercise owner’s powers in relation to a registered estate... if he is...entitled to be registered as the proprietor.” This section was considered in Bank of Scotland v King . In that case Mr King signed a charge in favour of the
Bank of Scotland, which was subsequently registered by the Bank against Mr King even though the transfer to Mr King was not registered because of a subsequent dispute. Counsel for the landlord in Stodday argued that as Mr King was able to effect a transaction at law, even though at the time he only had equitable title and never actually became proprietor of the land, so should Ripway be entitled to serve a notice to quit as the person entitled to be registered as proprietor, even though at the time it only had an equitable title.
However, the Judge rejected that argument finding that the giving of a notice to quit is one of the instances in which the ownership of an equitable title does not suffice for the service of an effective notice and where subsequent acquisition of the legal estate cannot retrospectively validate the giving of such a notice.
Counsel for the landlord argued that finding the notice to quit invalid would mean taking a overly formalistic approach, thereby magnifying the risk arising from the registration gap. That was also rejected by the Judge who argued that the same problem exists in unregistered conveyancing and is addressed. He commented that the time will come when every completion pack for the sale of a reversion will include a document appointing the transferee as agent of the transferor in respect of all matters concerning the estate pending registration. That would allow the transferee to serve a notice to quit as authorised agent for the transferor and would have dealt with the problem in this case.
Appointment as agent
Following the Stodday case, any purchaser of a reversionary interest would be well advised to require completion of an appointment document to deal with the registration gap, particularly at a time when the Land Registry is under-resourced and achieving formal registration of title can take a considerable period of time.