In England, all land ultimately belongs to the Crown and whilst in most cases, a freehold estate (the highest form of private ownership of land in English law) is indistinguishable from absolute ownership, it is not the same as absolute ownership as can be seen in the case of Lulham and another v Crown Estate Commissioners [2025].
In 2005, Mr and Mrs Lulham acquired the freehold interest in a property at 40 Kingsley Road, Maidstone, Kent (the Property) through their company, Matchmount Limited (the Company). The Property was divided into two flats which are owned by the Claimants personally under long leases. The administrative affairs of the Company were not properly dealt with over a number of years resulting in its dissolution in 2009, which the Claimants were unaware of due to correspondence being directed to their previous solicitors, who had ceased practice. The Claimants subsequently missed the opportunity to restore the Company within the six-year statutory window under sections 1024(1) or 1029 of the Companies Act 2006 (the Act).
The Company had ceased to exist, and the freehold of the Property was therefore deemed to be "bona vacantia" (the name given to ownerless property) and vested in the Crown pursuant to section 1012(1) of the Act. However, there is also a power in section 1013 of the Act for the Crown to "disclaim" any property that has vested in it, and this is what happened in this case by notice from the Treasury Solicitor.
The disclaimer had the effect of terminating the freehold interest completely which meant that the Property then reverted in a boomerang fashion directly to the ultimate owner of all property in England (the Crown again) through the legal doctrine of escheat. The Property was now within the remit of the Crown Estate Commissioners who confirmed that the Crown would accept no responsibility for the Property or accept service of any applications for vesting orders or the like.
Nevertheless, the Claimants applied to the High Court for a vesting order to try and resolve this unsatisfactory state of affairs by restoring the freehold and getting this into their individual names.
Section 1017 of the Act gives the court power to make vesting orders for disclaimed property to a person who has an interest in it or a liability in respect of it that the disclaimer has not discharged. However, the court dismissed the Claimants' application under this section on the basis that (i) they had no qualifying interest in the freehold because they were merely directors and shareholders of the Company and had no legal or equitable interest in the freehold itself; and (ii) that whilst they did have a continuing liability to pay rent and service charge under their leases, those liabilities were in connection with their leases rather than the freehold and in any event the value of the freehold was likely to be significantly more than their modest liabilities under the leases.
The Claimants also relied on Section 181 of the Law of Property Act 1925 in the alternative, which gives the court the power to create a corresponding legal estate and vest it in the person who would have been entitled to the property if a company had not been dissolved. However, the court held that none of the Claimants' rights in their capacities as sole directors and shareholders of the Company constituted a 'subsisting legal right to the Company's interest in the Property'. The court also held in line with previous case law that attributing the Company's interest in the Property to the Claimants just because they were the Company's shareholders would constitute an unjustified piercing of the corporate veil reiterating the long-established principle that a company is a separate legal entity distinct from its members.
This was an unfortunate turn of events for the Claimants. It is interesting that they did not seek to argue that having provided the funds to the Company to purchase the freehold of the Property, the Company held it on trust for them. This is something that was noticed by the court which held that 'the Court's separate jurisdiction to make a vesting order in respect of trust property under s.44 of the Trustee Act 1925 is not engaged in this case'. In any event, this case serves as a stark reminder to business owners of the importance of actively managing their corporate affairs and assets and the general principles that apply where any kind of freehold property is disclaimed.
