Supreme Courts rejects constitutional challenge on ground rents

Supreme Courts rejects constitutional challenge on ground rents

The Supreme Court recently rejected a constitutional challenge to the legislation on Ground Rents - Landlord and Tenant (Ground Rents) (no.2) Act 1978, (the "1978 Act"). Mr Justice Fennelly dismissed the appeal which had been made on the part of Landlord, JES Holdings Limited and its shareholders John E Shirley and Lucy Shirley, (the "Appellants") on the grounds that they had no standing to take the case. It was found that the Appellants were not disadvantaged by the correct interpretation of the disputed provisions of the 1978 Act and therefore had no standing to challenge its constitutionality. However, in delivering his judgment, Mr Justice Fennelly offered a wide interpretation of the disputed provision which is likely to be of persuasive influence in future Ground Rent cases. If this interpretation is readily adopted, it will allow owners of fee simple interests in property a greater opportunity to avoid the compulsory sale of such interests under the 1978 Act.

Facts of the Case

A. O'Gorman & Company Ltd (the "Respondents") had applied to acquire the fee simple interest of certain premises at Carrickmacross, County Monaghan (the "Premises"). They held the leasehold interest in the Premises pursuant to a lease dated the 11 October 1945 for a term of fifty six years, six years remaining under a 1919 lease and for a further fifty years from 1951 (the "Lease"). The Lease was assigned to the Respondents on 1 July 1974. Prior to the 1919 lease, the landlord, a predecessor in title to the Appellants, had on the expiry of certain earlier lease resumed possession of the Premises and held the fee simple interest of the Premises.

The landlord's interest in the Premises had been vested in the Appellants since 1984. Previous to this, the Premises had been part of the Shirley Estate whose title can be traced back to the early seventeenth century. It was found that the Premises had passed by inheritance to the ancestors of the Appellants and had remained in the ownership of that family in the broad sense ever since.

The Premises had formerly consisted of a substantial traditional residence known as Carrick House, which was built in or around the early 1800's. The Premises had been totally transformed in the 1970's and 1980's by the construction of extensive retail premises on the grounds surrounding the old house, including the construction of a supermarket. The area covered by buildings was enlarged from 283 square metres to 1,339 square metres and the re-development cost over IR£300,000 at the time.

These works were carried out in breach of covenant of the Lease and without the consent of the Appellants. However, the Appellants retrospectively gave its consent for all of the re-development works carried out up until 1991. The Appellants did not seek any adjustment in the rent as a condition of agreeing to these major alterations despite the fact that the changes had a material affect on the rateable valuation of the Premises, increasing same from £75 to £211.50.

The Legislation

It was held in the High Court that, by relying on Section 10(2) of the 1978 Act, the Respondents were entitled to buy out the fee simple interest of the Premises. To comply with Section 10(2) of the 1978 Act, it is necessary:

'that the lease is for a term of not less than fifty years and the yearly amount of the rent or the greatest rent reserved thereunder (whether redeemed at any time or not) is of an amount that is less than the amount of the rateable valuation of the property at the date of service under section 4 of the Act of 1967 of notice of intention to acquire the fee simple or the date of an application under Part III of this Act, as the case may be, and that the permanent buildings on the land demised by the lease were not erected by the lessor or any superior lessor or any of their predecessors in title:

Provided that it shall be presumed, until the contrary is proven that the buildings were not so erected;'

As the rent was much less than the rateable valuation at the date of serving the Notice of Intention to purchase the fee simple interest, the Respondents would have the right to acquire the fee simple provided the Appellants did not rebut the presumption that the permanent buildings on the land demised by the Lease were not erected by the Appellants or any superior lessor or any of their predecessors in title. The onus was to establish that none of the buildings were erected by the Appellants or its predecessors, not merely that not all of the buildings were erected by the Appellants or its predecessors.

A substantial amount of evidence was offered to the High Court tracing the history of the Premises back to the 1576, however there was no conclusive evidence as to who built the traditional residence. Accordingly, the High Court judge found in favour of the Respondents because the Appellants had failed to show 'conclusively, and certainly as a matter of almost inescapable probability, that the lessor or his predecessors in title erected the building'.

Decision in the Supreme Court Case

In the Supreme Court however Mr Justice Fennelly found that the High Court (and Circuit Court judge) did not consider or decide upon the question of the correct interpretation of Section 10.2 of the 1978 Act in light of the presumption of constitutionality and the double construction rule. This rule establishes that if legislation may be interpreted in two ways, one which is constitutional and the others are unconstitutional, it must be presumed that the Oireachtas intended only the constitutional construction. Mr Justice Fennelly stated that if Section 10.2 of the 1978 Act is reasonably open to an interpretation which is consistent with the Appellant's constitutionally protected property rights, the less unfair and burdensome interpretation should be applied.

Mr Justice Fennelly said that in the period from 1919 to some years after 1951, the Premises consisted of the old Carrick House, a substantial residence in a country town. At the time of the grant of the lease of 1919, the lessor was the owner of the fee simple interest in the property. Carrick House had been built many years before, on the evidence probably about the year 1800. Carrick House necessarily had to have been built by some predecessor in title of Evelyn Charles Shirley, the lessor who granted the 1919 lease. He held that the predecessors in title of Evelyn Charles Shirley must necessarily encompass all previous owners, whether lessors or lessees, since Evelyn Charles Shirley owned the fee simple interest in the property at that time. He held that although there is no direct proof, the logic seems to be "so compelling as to inescapable". [sic.]

It was held that Section 10.2, when interpreted in the light of the presumption of constitutionality and the double construction rule, enabled the Appellant to point to the fact that its predecessor in title had gathered into their ownership all prior rights, whether of lessor or lessee, by resuming possession and holding the fee simple interest of the Premises, prior to the 1919 lease. The Appellants therefore would have been able to rebut the presumption that the permanent buildings had not been erected by the lessor or its predecessor in title and thereby defeat the application of the Respondents to acquire the fee simple interest in the Premises.

However, Mr Justice Fennelly concluded that Section 10(2), properly construed, would not have disadvantaged the Appellants or their constitutionally protected property rights and because the Appellants were not so disadvantaged by the section, they had no standing to challenge its constitutionality. As such, the appeal was dismissed.

Mr Justice Fennelly's decision has provided an interpretation of Section 10(2) which is of persuasive influence and it is anticipated that it will be beneficial to owners of fee simple interests in future cases. In similar cases, where it is not possible to prove who built the relevant property, a landlord may be entitled to rely on the ownership rights of the previous lessee's in addition to the lessor's, where a lessor has enjoyed the full benefit of fee simple ownership and possession of the premises on the termination of previous leasehold interests. 

Contact

For any further information on this case please contact Michael Walsh, Head of Property.