The case of Lulham v Crown Estate Commissioners [2025] EWHC 1572 (Ch) relates to freehold land that ceases to exist all together!
Escheat in freehold land occurs when a freehold estate passes back to the Crown and then ceases to exist. When freehold escheats, existing interests in the land such as mortgages and leases remain but problems arise due to leasehold interests existing without corresponding freehold interests.
The background
In 2005, the Lulhams (the “Claimants”) bought the freehold of a residential property in Maidstone (the “Freehold”) for £60,000 (the “Property”) through their company (the “Company”). The Claimants took long leases of Flats 1 and 2 of the Property.
The Company instructed a firm of solicitors to deal with its secretarial matters. The firm failed to file annual returns and as a result, the Company was struck off in 2010. In accordance with section 1012 Companies Act 2006 (the “Act”), the Company’s assets, including the Freehold, became bona vacantia, automatically passing to the Crown.
In 2022, the Treasury Solicitor disclaimed the Freehold under section 1013 of the Act. Disclaiming the freehold of a property results in the owner losing all rights and responsibilities associated with owning a property and effectively ends the freehold. This left the Claimants with leasehold interests in the Property, but with no freehold interest. As a result of the Freehold no longer existing, the Crown refused to manage or regrant it.
The claim
In 2024, the Claimants applied to the Court for a vesting order (a court order that transfers the ownership or control of property from one party to another) relating to the Freehold, relying on the following two statutory grounds:
- Section 1017 of the Act gives the Court the power to vest disclaimed property in someone who has (a) an “interest” in the property or (b) who has liabilities in respect of the property.
- Section 181 Law of Property Act 1925 gives the Court the power to create and vest a legal estate where a company’s estate has ended due to its dissolution.
Section 1017 of the Act
The Claimants argued that as shareholders of the Company, they had an interest in the Freehold, having paid for it at the time of purchase through the Company.
The first part of this argument was dismissed on the basis the Claimants had no qualifying “interest” in the Freehold. Being directors and sole shareholders of the Company, and funding the purchase of the Freehold, was said to not be enough to give rise to any proprietary interest (a legal right or claim that an individual or entity has over a specific piece of property or asset, giving them the power to control and benefit from it) in the Freehold. The case of Salomon v A Salomon & Co Ltd [1896] was relied on in which the independence of the Company as a legal entity separate from its shareholders, officers and employers was established.
The Claimants could have argued that they had provided the funds for the Company to buy the Freehold and therefore the Company held the Freehold on trust for the Claimants.
The second part of this argument, that the Claimants were entitled to the Freehold as a form of compensation for their continued liabilities payable in relation to the leases of the Property, such as ground rent and service charge, was also dismissed. The Court acknowledged that the Claimants did remain subject to lease obligations but under the Act, a vesting order may only be made on this ground where it would be “just… for the purpose of compensating the person subject to the liability in respect of the disclaimer”.
The Court held that there had to be an appropriate relationship between the burden of the liabilities and the benefit of receiving the Freehold. The ground rents and service charges payable for the Property were low, whilst gaining the Freehold would have be significant value.
Section 181 Law of Property Act 1925
The Claimants argued that without a landlord to complete a landlord’s responsibilities, their leasehold interests in the Property would reduce in value due to legal uncertainty.
The Claimants applied under section 181 Law of Property Act 1925 for the Court to “recreate” a lost legal estate and vest it in someone “who would have been entitled to the estate which determined had it remained a subsisting estate”. The issue for the Claimants was that they, as leaseholders, had no right to the Freehold. The Claimants held an interest deriving only from their financial contribution for the leasehold of the Property. The leasehold interests remained to exist without the Freehold but did not give the Claimants a claim to the Freehold. As such, this argument was also dismissed.
Summary
The Court dismissed the Claimants’ application for a vesting order stating that the two statutory grounds relied on did not extend far enough to pass the Freehold to the Claimants. This decision highlights the complexity around the dissolution of companies and the implications for property interests held through such entities.
If you are facing similar issues one of the Tyr team would be happy to help.
Contact details
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