In an unusual case highlighting the intricacies of English land law, the High Court was asked to rule on a vesting order.
Background:
Robert and Nichola Lulham, husband and wife, and their company, Matchmount Ltd., engaged in a series of transactions to acquire interests in a property. On the 7th of January 2005, the company purchased the freehold interest in the property for £60,000 and was registered as the freehold proprietor on 6 May 2005.
The property is divided into flats. Flat 2 was leased for £60,000 from the company to Mrs. Lulham for a term of 63 years from the 29th September 2004. Flat 1 was subject to a lease dated 17 December 1993, for a term of 99 years from 1 January 1993. The claimants jointly purchased this lease on June 19, 2014, for £120,500.
However, the company, which held the freehold, failed to file annual returns. This led to a First Gazette notice for compulsory striking-off on 20 October 2009, with a final notice for dissolution published in February 2010. The claimants only discovered the dissolution after the 6-year statutory period (Companies Act 2006, s.1024(1) or s.1029) for restoring the company to the Register had passed, making the dissolution irrevocable. As a result of the dissolution, the company's freehold interest became bona vacantia and vested in the Crown, as per Section 1012(1) of the Companies Act.
On 10 March 2022, the Treasury Solicitor issued a notice of disclaimer of the Crown's interest in the property. This disclaimer terminated the freehold interest, causing the property to revert to the Crown directly by escheat, a legal doctrine meaning that land without a clear owner returns to the ultimate feudal lord. The Crown's disclaimer, however, did not affect the claimants' rights or liabilities under their existing leases for Flats 1 and 2, per Section 1015(2) of the Companies Act.
Facing these "difficult circumstances," the claimants applied to the High Court in November 2024 for a vesting order in respect of the property.
Decision:
The High Court dismissed the application. The Deputy Master Holden meticulously reviewed the claimants' application for a vesting order under both Section 1017 of the Companies Act 2006 and Section 181 of the Law of Property Act (LPA) 1925.
The Court, citing the principle of corporate veil (Prest v Prest), reiterated that shareholders do not have a direct interest in the company's property. The claimants' argument that their contractual entitlement to the landlord's covenants gave them an "interest" in the freehold was also dismissed. The Court affirmed that merely having the benefit of covenants does not equate to being "entitled to" the freehold interest.
The Deputy Master did not consider the claimants' tenant liabilities to be "in respect of" the disclaimed freehold per se. Furthermore, the application failed the crucial test under Section 1017(3) regarding whether the order would be "just for the purpose of compensating" them.
Regarding Section 181 of the LPA 1925, the Court affirmed that this provision requires a "subsisting legal right" to the property at the date of escheat. The claimants' rights as directors or shareholders did not constitute such a direct, subsisting legal right to the freehold itself. Again, this would improperly involve piercing the corporate veil.
Implications:
Under the Companies Act 2006, the Court can vest disclaimed property in a person who "claims an interest" in it. This decision crucially clarifies that simply owning all the shares in a company that owns land does not mean you "have an interest in the disclaimed property" for the purposes of a vesting order under the Companies Act s.1017(1)(a). This section is, however, interpreted narrowly. There must be more than a mere financial stake or the benefit of contractual covenants to demonstrate an interest in the disclaimed property. The interest must be akin to an actual entitlement to the property itself.
This case serves as a stark warning about the critical importance of proper company administration, particularly concerning the filing of annual returns. Failure to do so can lead to irreversible dissolution and the loss of significant assets. Once a land is returned to the Crown, there is not much a court can do. It is, therefore, of paramount importance to maintain meticulous company records to avoid losing the freehold in a property.