This page contains short summaries of recent lease enfranchisement developments which are of practical interest. Please use our enquiry form if you require further information. March 2008February 2008December 2007
November 2007 |
Updated: March 20, 2008 |
17 March, 2008
Development plans thwarted by tenants
Under legislation, where certain conditions are met, landlords are only able to dispose of a legal or equitable interest in a property if they have served notice on the tenants giving them a right of first refusal. Failure to comply with the procedure can lead to the tenants having the right to acquire the interest disposed of from the purchaser.
A landlord who owned a property comprising a block of 72 flats and a garage block which included a terrace of garages which were let to some of the tenants of the main building, an electricity sub-station and a caretaker’s office. Three of the garages were transferred by the landlord as were the electricity sub-station and the caretaker’s office. A lease was granted of the roof of the main building and the airspace above it for development purposes. No notice was served on the tenants before these transactions were entered into.
The High Court decided that the garages, electricity sub-station and caretaker’s office were not appurtenant to the main building and as such could not fall within the Landlord and Tenant Act 1987. However the roof was part of the main building and the airspace above it was considered to be appurtenant to the building by the court. This meant that notice would have to be served in these circumstances effectively allowing the tenants to prevent any development from taking place extending the block upwards.
This shows that tenants have a ready weapon under the Landlord and Tenant Act 1987 to defeat proposed developments on the roof of an existing block. Landlords should also be aware that they may be liable to criminal prosecution when failing to serve notice.
10 March, 2008
When will a tribunal decide the price for enfranchisement?
Tenants of five blocks of flats gave notice to the freeholder of their intention to acquire the freehold. After an application to the Lands Valuation Tribunal (LVT) to decide the terms of the acquisition, the parties’ surveyors began to negotiate the price. An exchange of letters indicated a price of £117,000 would be paid.
However, when solicitors were subsequently negotiating the transfer, the freeholder wished to insert an additional clause into the contract. This clause provided that no rights would be acquired by the tenant so as to interfere with the freeholder’s rights over land it was retaining. This retained land included a forecourt area which the tenants had previously used to park their cars and to place their refuse bins. Such rights can pass when there is a transfer so long as no contrary intention is shown. The tenants suggested that this clause displayed a contrary intention so preventing them from retaining rights over the forecourt.
The freeholder claimed that the agreed price would only apply if the transfer excluded any rights over the retained land. The LVT decided that there would be no such exclusion and that it would determine the price payable has no agreement had been reached. The tenants appealed against this as they claimed there was an agreement for the price.
The High Court confirmed that the LVT had had jurisdiction to determine price as the letters sent merely stated what had been agreed at that time. The possibility that rights could be excluded had not been considered and this was capable of having an effect on the price. It was therefore up to the LVT to decide what this price should be. When negotiating a price, surveyors should ensure that all title information is obtained first to avoid considerable delay and expense in the procedure.
18 February, 2008
Landlords dealt blow by House of Lords decision
A tenant gave notice claiming a new lease of a flat but the landlord stated that he intended to apply for an order that the option could not be exercised. The reason for this was that the landlord planned to redevelop the premises in which the flat was contained. The flat was part of a block made up of nine floors and 50 flats. The works which the landlord claimed to be planning related to the tenant’s flat and the flat immediately beneath it.
The governing legislation requires that work must be planned on any premises in which the tenant’s flat is contained. The landlord claimed that this was satisfied by the tenant’s flat and the one below it. The tenant argued that the definition had to mean the whole building or a self-contained part of it.
The landlord was successful and the appeal went to the House of Lords which decided that the purpose of the legislation was to give leaseholders rights similar to those of freeholders. The landlord’s right to artificially assemble and define premises went against this intention. To define premises the court looked at what a visitor or reasonably literate non-lawyer would consider it to mean. It was decided that this would amount to similar definition to that for collective enfranchisement for which the premises must be self-contained. In this case the required premises to satisfy the definition would have to be the entire block.
13 December, 2007
Tenants must wait for SDLT relief on enfranchisement
The Commonhold and Leasehold Reform Act 2002 contains provisions that collective enfranchisement will have to take place through a right to enfranchise company (RTE company). However these provisions are not yet in force. When collective enfranchisement takes place through a RTE company, the Finance Act 2003 grants relief from Stamp Duty Land Tax (SDLT). The RTE company is defined in this Act by a provision which is also not yet in force.
When a group of 117 flat owners decided to exercise their right to acquire the freehold and headlease of their block they claimed that they should be entitled to relief from SDLT. They had set up a company using memorandum and articles of association based on the drafts in the consultation paper on RTM companies. They therefore argued that they fell within the relief granted in the Finance Act 2003.
Their claim was rejected as although the provisions of the Finance Act 2003 are in force, they cannot have effect until the relevant sections of the Commonhold and Leasehold Reform Act 2002 come into force.
This means that although tenants can set up a company meeting the requirements of a RTE company, it can only act as a nominee purchaser. No SDLT relief will be available until the relevant provisions are implemented.
3 December, 2007
Court defines extent of manager’s responsibilities
A fort had been converted into 30 residential units of which 11 were freehold and 19 leasehold. Agreements were entered into between the freeholders, leaseholders and Management Company dealing with rights of entry and recreational use of amenity land.
When the tenants became dissatisfied with the manner in which the fort was being managed they brought an action to enforce their rights of first refusal under the Landlord and Tenant Act 1987. The Lands Valuation Tribunal decided during this action that the premises to which the LTA 1987 applied were the premises within the buildings.
The tenants then successfully applied under Part 2 of the Act that a manager would be appointed to take over the running of the estate. The manager was appointed and the work he was to carry out included work on land outside of the buildings. The company appealed on the grounds that the LVT had exceeded its authority under LTA 1987 by appointing a manager authorised to deal with land outside the buildings.
The Court of Appeal has held that the aim of Part 2 of the Act is to provide protection for tenants and to ensure that management functions which they are entitled to enjoy “in relation to” their flats are properly carried out. The functions are therefore legitimate if they are “in relation to the premises to which the LTA 1987 applies”.
19 November, 2007
“Vertical division” in Right to Manage defined
The right to manage which can be available to holders of long leases in blocks of flats can only be exercised if the premises consist of a self-contained building. In establishing whether the building is self-contained only a vertical division with other property is allowed.
A block of 16 flats were located at the end of a long four storey building that included two storey town houses with parking spaces and service areas below. A company had been set up to acquire the right to manage these flats but it was suggested that they did not have the right to do so as part of the premises (the underground car park) was underneath the house next door. This meant that there was some horizontal division with other property. The Lands Tribunal concluded that it did not matter that the horizontal division was only a small proportion of the total area. The only question to ask is whether all of the relevant part of the building was, physically, a vertical division. On the facts of this case, it could not be said that the flats were a self contained building.
This could have far reaching effects for tenants with long leases as it is not uncommon for a range of property types to be interspersed within a single building. Some of these parts may need to be located over or under different premises.
5 November, 2007
Court seeks to clarify tenants’ costs for enfranchisement
When tenants of flats group together to purchase the freehold interest of their block, several factors are taken into consideration to determine the price payable. The Court of Appeal has given its decision on how these factors should be calculated in a group of appeals known collectively as the Sportelli appeals.
One such factor is the deferment rate. This is a percentage discount of the landlord’s reversionary interest applied to each year until the end of the term of the lease, which represents the fact that vacant possession would not be available until the end of the lease. The higher the deferment rate, the less paid overall by the tenant. Previously, a deferment rate of 6% was commonly applied by Leasehold Valuation Tribunals. However recent cases had seen this drop down to as low as 3% causing higher expense to tenants. The Court has now stated that the rates to be applied in relation to prime central London properties will be fixed at 4.75% for houses and 5% for flats. Outside this area, these rates will be the starting point for valuations with evidence in each case to be taken into consideration.
Another factor is ‘marriage value’, which represents the additional value to the tenant of acquiring the freehold interest. It has been unclear whether an additional concept of ‘hope value’ should be added to the marriage value. This represents the value to the freeholder of being able to sell his interest or grant a longer lease to the tenant in the future. The Court of Appeal held that there was no reason for the landlord to be paid hope value. If they were, the Court felt this would amount to the tenant paying twice as they must already pay the landlord a fixed share of the marriage value.
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