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Speaker's Notes from ALEP Conference 18th October 2011 at the IET Savoy Place
Following on from the ALEP Conference at the IET Savoy Place a copy of the speaker's notes has been posted to this site and appears below.
Mark Chick
20.10.2011
Speaker's Notes from ALEP Conference 18th October 2011 at the IET Savoy Place
‘Take No Notice !’
ALEP Conference 18th October 2011
Speaker’s Notes: Mark Chick
A. Do the Ground Work:
1. Premises to which the Act applies and Qualifying Tenants
1.1 The first considerations are whether the building is one to which the Act[1] applies and whether there are sufficient qualifying tenants to bring a claim to the freehold.
1.2 At least two thirds of the building must be let out on long leases (Section 3).
1.3 If any flat owners own three or more flats then they will be excluded from counting in the number of qualifying tenants (Section 5 (5)). Also be aware that if there are only two flats in the building then both must participate in order to be able to enfranchise the building.
1.4 If there is a “resident landlord” the building may well also be exempt from the provisions of the enfranchisement legislation.
1.5 Section 10 provides that where a building is not part of a purpose built block and the same person has owned the freehold since conversion into two or more flats and that they or an adult member of their family resided in these as their only or principal home in the period of 12 months leading to the tenant’s exercise of the right to enfranchise then this exemption will apply and the block will not be enfranchiseable[2].
1.6 Also consider whether the building itself has a “split reversion”. It is possible to enfranchise in such a situation, but this was not always the case. There are rules set out in Schedule 1 to the 1993 Act. See also the amendments to Section 9(2A) inserted by the Housing Act 1996.
2. What constitutes a ‘Building’?
2.1 A building must be a “self-contained building” or part of a building. The applicable test is set out in section 3(2).
2.2 A building is ‘self-contained’ if:-
2.2.1 It constitutes a vertical division of the building and the structure of the building is such that it could be redeveloped independently of the remainder of the building; and
2.2.2 The relevant services provided for occupiers of that part are provided independently of the relevant services provided to the occupiers of the remainder of the building, or could be so provided without involving the carrying out of any works likely to result in significant interruption in the provision of any such services for occupiers of the remainder of the building.
2.3 Consider also the situation where other premises sit underneath the building in question. In such a case, if there is a significant overlap then it is likely the premises will not be enfranchiseable. See in particular the case of Holding and Management Solitaire Limited -v- 16 Finland Street RTM & Co Limited [2007] PLSCS214.
2.4 This case considered the meaning of the words “vertical division of a building” as used in the 2002 Act. Any significant deviation from a vertical division of the building would stop it being the subject of a claim for the right to manage. A similar interpretation is likely to apply in relation to a 1993 Act enfranchisement claim.
2.5 In Holding and Management the Lands Tribunal held that in order to qualify for the right to manage there must be a clear vertical division of the building. A 2% variation in overlap with a neighbouring building meant that there was no vertical division and that the building did not qualify. The test under s.72 of the 2002 Act is identical to that under Section 3(2) of the 1993 Act and it is likely that similar considerations would apply.
2.6 The case of Oakwood Court (Holland Park) Limited v Daejan Properties Limited [2007] 1. EGLR also considered the provisions of Section 3(2). In this case HH Judge Marshall set out a useful five point test:-
2.6.1 Identify the services provided to the occupiers of the enfranchising part which are in issue because they are not independently provided;
2.6.2 Consider whether those services can be provided to the enfranchising part independently of the provision of the same services to the remainder of the building;
2.6.3 Ascertain the works required to separate the respective parts of the services supplying the enfranchising part and the remainder of the building, so that such services would thereafter be supplied to each such part independently of the other;
2.6.4 Assess the interruption to the latter services (i.e. those serving the neighbouring block) which carrying out those works would entail; and finally
2.6.5 Decide whether this is significant within the meaning of the sub-section.
2.7 It is also worth contrasting the question of what constitutes “the building” under the 1993 Act with the position under the 1987 Act. In particular the often criticised decision of Long Acre Securities v Karet [2004] EWHC 442 (Ch) 61, provides a slightly ‘artificial’ and expanded definition to include more than one structure within this ‘definition.’
2.8 Both the test in Oakwood Court and the comparison with the 1987 Act were considered in the Albert Palace Mansions case - Albert Palace Mansions (Freehold) v Ltd v Craftrule Limited [2011] EWCA Civ 185.
2.9 Notwithstanding the difficulty of determining the extent of a ‘self-contained part of a building’ which may involve various structural considerations, it is no longer the case that the enfranchising tenants are obliged to enfranchise in respect of the smallest ‘enfranchiseable unit’ in the building.
2.10 In this case the tenants of part of a terrace known as Albert Hall Mansions were able to claim the freehold to the whole of the property on the basis of the number of qualifying tenants distributed throughout the building, even though the premises could be sub-divided into two smaller parts each of which would have satisfied the test of being a self-contained part of a building.
3. Excluded Premises
The 1993 Act will not apply if more than 25% of the internal parts for the area of the premises taken as a whole are used for purposes other than residential (Section 4).
3.1 In making this assessment, the applicable test is to consider the areas on a net internal floor area basis and to disregard any common parts.
3.2 The case of Marine Court (St Leonards-on-Sea) Freeholders Ltd v Rother District Investments Ltd [2008] 02EG148 is a good example of the practicalities of this.
3.3 This case dealt with two questions concerning whether a building qualifies for enfranchisement and the exemption in Section 4 concerning non-residential elements in the building.
3.4 The first question was whether the commercial element of any common parts should be considered when calculating the percentage of the premises to be considered for the purposes of Section 4 of the 1993 Act (in calculating whether the non-residential area premises exceeded 25% of the internal area of the premises taken as a whole).
3.5 In carrying out such a calculation it is normally necessary to consider the non-residential areas and in addition any parts of the building which are not common parts will also count against the enfranchising tenants in calculating the percentage.
3.6 In this case the building was divided into two elements, 14 floors with 168 flats on the upper floors and 20 shops at ground level.
3.7 Part of the building was a business complex and although the tenants had no access to the common parts of this part of the building these areas were to be excluded from the calculation of the “non-residential” part of the building. Accordingly, the building fell to be enfranchised.
3.8 A second and interesting point was that to achieve the relevant proportion from the residential perspective it was necessary to include certain balconies in the calculation. Demised balconies which were wholly enclosed could be included within the calculation of the internal floor area of the building.
B. Appurtenant Land
4 What is Included in the Claim?
4.1 It goes without saying that the footprint of the building itself will be included as the specified premises in accordance with the provisions of Section 1. The problems start when it becomes necessary to consider what other additional property is also capable of inclusion in the claim.
4.2 Appurtenant property breaks down into two categories, as identified under Section 1(2)(a) and (b). This is property which is demised under the Lease held by a qualifying tenant of a flat contained in the relevant premises[3], or it is property which the tenant is entitled to use under the terms of his Lease in common with the occupiers of other premises (whether those are contained in the relevant premises or not). [4]
4.3 Section 1(2)(b) has the effect (via Section 2) of including within the property which may be within the claim, areas inside the property falling within the common parts held on a superior or other Lease.
4.4 Difficulties arise in practice where the specified premises and the appurtenant property are not separately identified. Further scope for difficulty can arise where appurtenant property is erroneously included in the claim. For instance, consider a claim to the reversion of a Lease of a car parking space which is owned by someone who is not a long leasehold flat owner in the building.
4.5 Although, by way of contrast, the landlord can compel the nominee purchaser to take a transfer of any areas that would be of little use or benefit to him, or that would cease to be capable of being reasonably managed or maintained by him (See Section 21(4)).
4.6 The landlord is entitled to reserve back rights in favour of itself under Section 1(4) over any property that is used in common under the terms of the Leases. Consider common areas such as yards or gardens which are not exclusively demised to be capable of falling within this definition.
4.7 The landlord will satisfy the requirements of the Act if they grant permanent rights over these areas that will ensure the nominee purchaser has the same rights over these areas as the flat owners would do under the terms of their Leases. In particular see the case of Shortdean Place (Eastbourne) Residents Association v Lynari [2003] 3 EGLR 147.
4.8 In the Shortdean Place (Eastbourne) Residents v Lvnari case four Initial Notices were served and these claimed a number of areas comprising the specified premises appurtenant land, effectively claiming everything within the boundaries of the site.
4.9 The landlord served a counter-notice under Section 21 admitting the right to enfranchise, but not in respect of the common areas which had formed part of the claim. Under the terms of their leases, the tenants had rights to use the garden areas in common along with the access road and footpaths which were part of the claim.
4.10 The LVT held initially that the whole site could be acquired and a dispute arose as to the interpretation of the test in Section 1(4)(a) of the 1993 Act.
4.11 It was held on Appeal that the right of acquisition of such property as mentioned in Section 1(3)(b) “appurtenant land used in common” shall be taken to be satisfied if there are granted by the freeholder over that property such permanent rights as will ensure that thereafter the flat owners as nearly as may be the same rights as those enjoyed in relation to the property on the relevant date under the terms of his lease. This being the test as set out in Section 1(4).
4.12 The wording ‘shall’ in Section 1(4) is mandatory and not optional. As such, the LVT could not order the landlord to transfer the common areas provided that Section 1(4)(a) was satisfied.[5]
5. Leasehold Interests
5.1 The case of Hemphurst Limited v Durrels House Limited [2011] UKUT 6 (LC) LRA/27/2009 provides some clarity regarding the acquisition of ‘common’ areas that are held under a lease and liable to acquisition under Section 2(3)(a) and (b). In this case the nominee purchaser sought to acquire part only of a lease that comprised amongst other things the roof area and which was demised on terms that would permit the landlord to carry out significant further development.
5.2 Section 2(2) permits the acquisition of leasehold interests that are either common parts, or appurtenant property where the interest in question needs to be acquired because it is reasonably necessary for the proper management or maintenance of those areas.
5.2 The Hemphurst case establishes the principle that the nominee purchaser can acquire part only of a lease of other parts of the building that demised common parts. The landlords having argued unsuccessfully that Section 2 would require the purchase of the whole of the landlord’s interest under that lease[6].
5.3 Section 2 also has interesting application in the case of say a porter’s flat which is often held ‘in hand’ by a head landlord who has a head lease of the whole of the building.
5.4 The case of Panagopolous (Earl Cadogan v Panagopoulos [2010] EWCA Civ 1259), deals with this question. In this case (where the building was structured in such a way), the tenants had the right to the services of a porter under the terms of their leases.
5.5 The question therefore arose as to whether the nominee purchaser had the right to acquire the porter’s flat under Section 2(3). The existence of the porter’s flat was taken to be a common facility and as such a ‘common part’ falling to be acquired. The reasoning being that the nominee purchaser would require ownership of this area in order to provide a caretaker – on the basis that this was reasonably necessary for the proper management of the property.
5.6 Another important point to bear in mind with such interests is that following on from the case of Aggio, such interests are – if they have an immediate occupational interest and comprise a ‘flat’ - also qualifying tenancies in themselves. As such they should be particularised as qualifying tenancies on the initial notice. As to whether they will be acquired will depend on a consideration of whether they constitute a ‘common part’ or some kind of appurtenant property as with the case mentioned above[7].
C. Plans and Preparation
6. The Initial Notice – signing
6.1 The case of City and Country Properties Limited v Plowden Investments Limited [2007] L&T R 15 first raised the question as to how a body corporate can sign an initial notice ‘personally.’ In this case it was held that the company must execute a notice as a deed in order to sign it.
6.2 Hilmi and Associates Limited v 20 Pembridge Villas Limited [2010] EWCA CIV 314 re-enforces the principle in Plowden. Where a company is a qualifying tenant it must the sign the initial notice by executing it in accordance with the requirements of the Companies Act (in the case in question, this was Section 36A of the Companies Act 1985 which was in force at the relevant date).
6.3 The execution of documents by a company is now governed by Section 44 of the Companies Act 2006. Valid execution will require affixing the company’s seal, the signature of two authorised signatories or the signature of a director in the presence of a witness. Care should be taken to ensure that corporate bodies correctly sign the documents.
6.4 Different considerations will apply to overseas companies. Overseas companies can generally execute by affixing their common seal or by executing the document in any manner permitted by the laws of the territory where the company is incorporated.
7. Cascades & Quayside Ltd v Cascades Freehold Ltd [2007] EWCACIV1555
7.1 This is an important case for those acting for large numbers of tenants on a collective claim. It appears that a Section 13 Notice was circulated in many parts and only a blank signature page was sent to the tenants for signature and return. On further enquiry by those acting for the landlord, it was found that less than 50% of the tenants had actually seen the initial notice which was not in existence when the majority of them had signed the forms. Not all the participants were aware of the purchase price, or other key facts such as the deadline for the Respondent to serve the Counter Notice.
7.2 The Court of Appeal held that this was not a valid Notice. However, the court declined to provide explicit guidance as to what will suffice in these circumstances. However, it would appear that if composite signature pages are to be used on the notice the final form must be approved by those signing it, and they must have seen it in its final form before the notice is served.
We hope you have found these notes useful. However they are general in nature and for information purposes only. They are not a substitute for legal advice. Therefore neither the author, ALEP or Bishop & Sewell LLP can accept any responsibility whatsoever for any loss howsoever arising in connection with any use of the contents of these notes.
[1] References are to the Leasehold Reform Housing and Urban Development Act 1993 (as amended) unless otherwise stated.
[2] On this point see the case of Slamon –v- Planchon (2004)
[3] Section 1(3) (a)
[4] Section 1(3) (b)
[5] The case of Ulterra v Glenbarr (RTE) Company Ltd (13 November 2007) follows on from the Short Dean Place v Lynari case and deals with the extend to which the landlord can seek to reserve rights in his own favour in the transfer when using Section 1(4)(a) of the 1993 Act. The Landlord’s Section 21 Counter Notice looked to restrict the extent of the rights to be enjoyed by the tenants including the reservation of a right in favour of the Landlord to “build on or alter any buildings or land forming part of any of the retained land”. It was held that “a landlord cannot say that it is has satisfied the subsection if it proposes the grant rights with the one hand and take them back or modify them to an unacceptable extent with the other”.
[6] The case of Kintyre Limited v Romeoarch Property Management Limited [2006] 1 EGLR held that a lease of the surface of a flat roof and the airspace above it was property liable to acquisition under Section 2(1) (b).
[7] In Panagopolous the tenants had a legal right to porter services under the terms of their leases. What has not yet been addressed is whether for an area to constitute a common facility or common part the tenants need to have a legal right to use that part of the property or the service in question.
Acquiring part of a leasehold interest of a common area in enfranchisement - Hemphurst Limited v Durrels House Limited [2011] UKUT 6 (LC) LRA/27/2009
Acquiring part of a leasehold interest of a common area in enfranchisement - Hemphurst Limited v Durrels House Limited [2011] UKUT 6 (LC) LRA/27/2009
Until the early part of 2011 there was something of a debate as to whether the enfranchising tenants in a collective claim could seek to acquire part of a leasehold interest that might have comprised appurtenant property or a common part of their building.
Earlier authority on this point Kintyre Limited v Romeoarch Property Management Limited [2006] 1 EGL makes plain that where an area is necessary for the proper maintainance and repair of the property that this will be capable of acquisition in accordance with the test in the statute.
However the Hemphurst case confirms that it is possible for the enfranchising tenants to acquire part only of such a leasehold interest.
The case of Hemphurst Limited v Durrels House Limited [2011] UKUT 6 (LC) LRA/27/2009 provides some clarity regarding the acquisition of ‘common’ areas that are held under a lease and liable to acquisition under Section 2(3)(a) and (b).
In this case the nominee purchaser sought to acquire part only of a lease that comprised amongst other things the roof area and which was demised on terms that would permit the landlord to carry out significant further development.
Section 2(2) permits the acquisition of leasehold interests that are either common parts, or appurtenant property where the interest in question needs to be acquired because it is reasonably necessary for the proper management or maintenance of those areas.
The Hemphurst case establishes the principle that the nominee purchaser can acquire part only of a lease of other parts of the building that demised common parts. The landlords having argued unsuccessfully that Section 2 would require the purchase of the whole of the landlord’s interest under that lease[1].
Mark Chick
7 October 2011
This note (being very general in its nature) is not a complete statement of the law in this area. It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.
If you require legal advice please visit www.bishopandsewell.co.uk
[1] The case of Kintyre Limited v Romeoarch Property Management Limited [2006] 1 EGLR held that a lease of the surface of a flat roof and the airspace above it was property liable to acquisition under Section 2(1) (b).
Lexgorge/ Hosebay Appeals -update - Supreme Court Hearing date
The Supreme Court has listed the combined appeals in the cases of Lexgorge and Hosebay for hearing on 22 May 2012. For those of us eagerly awaiting the next instalment in developments in this area, we had better be patient.
Mark Chick
Lexgorge/ Hosebay Appeals
The Supreme Court has granted leave to appeal the decision of the Court of Appeal in Lexgorge. It appears that the deWalden Estate has certainly not given up the fight. The Grosvenor Estate has also intervened as an interested party. So, the argument continues to run about what constitutes a house for the purposes of the 1967 Act. Subsequent reforms to the legislation have meant that property originally designed for residential purposes (and indeed possibly adapted to another use) will qualify for the right to purchase the freehold even if not all of the property is being used for residential purposes at the date of the claim. This may be in part regardless of whether some or all of the terms of the lease restrict the use of part of the property away from residential use. Provided that the property fits the basic criteria - namely that the lease in question was for 21 years or more at grant and that the property comprises the whole of the 'house' in question with no 'material' degree of overlap. The tenant needs to have the majority of the occupational interest - although a lease subject to a lease of a flat forming part of the whole will qualify provided that a residence test can be satisfied. Apart from that there are few restrictions in terms of the identity of the tenant, which generally does not need not be in 'residence' and need need not be an individual. If there is a business tenancy then it must be for at least 35 years. If the tenancy is one with 1954 Act protection it will not qualify, however, this requirement can often be subverted by the tenant going out of occupation and sub-letting to a related entity.The position for mixed use property is likewise not good from the landlord's perspective as the law currently stands. For instance a shop with a flat above, held on a single lease, where the tenant is not in occupation for business purposes will qualify. The leading case being Tandon from 1982.The law on this point was developed when there was a residence test and the removal of this following the 2002 Act reforms has not impacted on the enfranchiseability of this sort of building - despite the best efforts of landlords to attempt to suggest otherwise (see the Hareford decision). The law in this area is ripe for re-examination and Lord Neuberger almost hinted as much in the Court of Appeal decision in Hosebaywhen he mentioned the law of 'unintended consequences'. It will be interesting to see whether the Supreme Court will take this opportunity to provide a greater degree of clarity in this area.
Mark Chick
Kelton Court - One Year On - Is the deferment rate outside PCL now 6%?
Kelton Court - One Year On – Is the deferment rate outside PCL now 6%? As I commented previously in Leasehold Reform News (see the article mentioned elsewhere on this site) the decision in Kelton Court is of interest to any long leasehold flat owners with property outside of Prime Central London (PCL) who are looking to either purchase their freehold or extend their lease. Why? Essentially, because a 6 percent deferment rate was decided upon in a departure from the standard 5% rate in Sportelli. The Lands Tribunal came to this decision for three reasons; the enhanced risk of obsolescence, the percieved lesser rate of growth outside PCL and the enhanced 'management risk' associated with flats. A higher deferment rate, of course reduces the amount that the flat owners will have to pay as part of the calculation. Does this affect all property outside PCL? Not necessarily. Whilst two of the factors, (obselescence and growth rate) are features of any property outside PCL the combined effect of which is to take the deferment rate 5.25%, the enhanced management risk will only be a feature of properties where the landlord is directly responsible for the management. Where there is a head lease, or the leases are fully repairing the 'management issue' does not arise and the most the flat owners can argue for is therefore likely to be 5.25%. Management issues The focus on management as an issue is interesting as in reaching this decision the Lands Tribunal looked at evidence of the increased use of the LVT's service charge jurisdiciton (411 cases in 2007 compared to 232 in 2005 and 27 in 2004). The interesting point is that is that the numbers mentioned relate to applications to the London LVT. Perhaps a better comparable might have been the regional LVT ? Developments since Kelton Court Since Kelton Court, we have the decision in Ashdown Hove, (Ashdown Hove Limited v Remstar Properties Limited [2010] 37 EG 138) in which 6% was achieved for a block in Hove, the enhanced risk of management being argued for successfully despite their being a management company that was a party to the leases. The point being made (successfully) that where the lease contains an obligation on the landlord to take on the management company's obligations in the event of its failure, there is still a risk to the landlord that it may have to be involved in the 'day to day' management of the property and that this will therefore 'taint' the amount that an investor would pay for the landlord's interest. Conclusions We are now at the point where outside PCL valuers will normally be arguing for 5.25% and if possible, more based on the arguments concerning management. The decision in Ashdown Hove is an LVT decision and arguably slightly unique for a number of reasons. Therefore it may be that Lands Tribunal will need to comment further before there is any greater certainty in this area. Mark Chick 17.11.2010
This note (being very general in its nature) is not a complete statement of the law in this area. It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.
If you require legal advice please visit www.bishopandsewell.co.uk
Bonfire of the Quangos - Will Leasehold Reform Get Singed?
As reported today on the BBC News Website (and elsewhere) it appears that the heady world of Leasehold Reform has not entirely escaped the government's attention in the current spending review.
There are two announcements relevant to those interested in this sector. Firstly, it seems that the Residential Property Tribunal Service (RPTS) is to be amalgamated into the Ministry of Justice (MoJ). Whilst this might ultimately be part of the wider legislative scheme envisaged by the Tribunal Courts and Enforcement Act 2007 of harmonising all tribunals eventually into one 'unified' service, this change is probably quicker than the LVT itself would have liked. On the table for discussion must surely be the question of hearing fees, a unified set of procedural rules and closer harmony with the other "Lower Tier" Tribunals. Whether this is in the long term interests of 'consumers' of these services remains to be seen. Any enhanced procedural rules are only likely to drive up costs for those subject to them and hopefully common sense will prevail so that any changes are not too significant. As to hearing fees, whilst perhaps these are an inevitability, I for one would like to see these introduced on a tiered basis related to value so that there is no effective deterrent to access to justice for lower value cases which are either of general importance, or which genuinely merit a hearing because of the obstinance of one of the parties. Perhaps the controversial question of whether the LVT should have a more significant costs jurisdiction, (including perhaps the power to decide that one of the parties should pay any hearing fee) will also have to be considered. As to the second annoncement, it seems that LEASE, the non-governmental organistion set up to advise on the Leasehold Reform legislation and which provides a free advice service is to be amalgamated into another government body. More precise details are awaited in the formal announcements. Whilst consumer awareness in this sector has improved (as has the quality of service provision itself), there is still a need for the promotion of access to information and education concerning this sector. Mark ChickCraftrule Considered - Craftrule Limited v 41-60 Albert Palace Mansions (Freehold) Limited
What is the smallest enfranchiseable part of a building ? – Craftrule Considered – Craftrule Limited v 41-60 Albert Palace Mansions (Freehold) Limited [2010] EWHC 1230 (Ch)
The Leasehold Reform Housing and Urban Development Act 1993 (as amended) (‘the 1993 Act’) gives long leasehold flat owners the right to purchase the freehold to their building, provided that they act collectively and in accordance with the procedures set down in the 1993 Act.
In order to exercise the right 50% or more of the qualifying tenants in that part of a property to which the claim is made must act collectively. A question therefore arises on the investigation (or instigation) of a claim as to how many of the flat owners in a particular part of the property are taking part in the claim and whether their number is sufficient.
Section 3 of the 1993 Act provides that the right to claim the freehold applies to any premises that are a ‘self-contained part of a building’ and contain at least two flats held by qualifying tenants. [1] Of the flats in that part of the building at least 2/3 must be qualifying tenants.
In assessing whether premises form a ‘self-contained part of a building’ the test is that this part must be a vertical division of the building and structure such that the relevant part could be developed independently of the remainder of the building and the ‘relevant services’[2] required for that part of the building are provided independently or could be provided without significant interruption in the provision of such services to occupiers of the remainder of the building.
Whilst there have been previous decisions on what constitutes a self-contained part of a building[3] the point arising in Craftrule has not been considered before. Craftrule is an important decision as it shows that a wider interpretation will apply when assessing the ‘part of a building’ and counting the number of qualifying tenants within it.
In Craftrule the participating tenants chose to serve a notice in respect of a building divided in two halves, both of which it was accepted on the facts were capable of independent redevelopment. The distribution of qualifying tenants between both halves was uneven, such that one half of the building would not have qualified in its own right if the tenants there had served a notice in respect of that part. However a combined claim was made counting the total number of participating flats in each of the two halves of the whole building to reach the qualifying number.
The tenants’ initial notice was challenged by the landlords at first instance and the tenants then appealed to the High Court.
The High Court found in favour of the tenants, accepting an argument advanced by their counsel that the provisions of section 3(1) relating to the building does not require those seeking to exercise their rights under Chapter I of the 1993 Act to select the smallest ‘enfranchiseable unit’ when formulating their claim. Rather, where there are various sections in a building it is open to those initiating the claim to select the division of the property that they are seeking to enfranchise and to then establish a qualifying number in that part.
Comment
The decision in Craftrule is important as it means when assessing how many flats are in a particular part of a block to count in a qualifying number for the purposes of a claim to the freehold the flat owners no longer have to serve a notice in respect of each of the smallest ‘enfranchiseable’ units in the building. Rather, if the structure of the building is similar to that in Craftrule two adjacent units may be counted together provided that this united structure is a self-contained building.
Another intriguing possibility (as mentioned by James Driscoll in his recent article in the Estates Gazette) is the possibility that if a building is enfranchised in a condition where there are separate sub-units which are enfranchiseable in their own right, is that there is nothing to stop the flat owners in these smaller units bringing a further claim to the freehold in respect of their ‘part’ of the building at a later date. Although in practice whether such subdivision would be practical or desireable remains to be seen.
There is also the possibility of a further appeal by the landlords in this case. So as ever, it is a case of ‘watch this space.’
Mark Chick
5th October 2010
This note (being very general in its nature) is not a complete statement of the law in this area. It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.
If you require legal advice please visit www.bishopandsewell.co.uk
[1] A qualifying tenant is a flat owner who owns a lease that was originally granted for a term of at least 21 years.
[2] services provided by means of pipes cables or other fixed installations
[3] See in particular the case of Oakdwood Court (Holland Park) Limited v Daejan Properties Limited [2007] 1 EGLR 121.
Deferment rates and RTM - Southern Valuers' Forum 17.06.2010
For those of us that attended the Reigate valuers' forum on Thursday 17th June there was an interesting dialogue concerning the impact of the service charge legislation on valuation for leasehold reform purposes in the post Kelton Court environment.
Whilst it appears that the principle of an enhanced 'management risk' associated with flats could give rise to an increase in the appropiate risk premium and hence the deferment rate, those circumstances where this would not be appropriate were also discussed. The presence of headlease clearly negates some of the 'management headache' assciated with this asset class, but what about the situation where the Right to Manage (RTM) has been exercised ? In this situation the landlord (arguably) has a reduced management burden - although this of course assumes a well-run RTM company. If the landlord has to exercise his powers to compel the company to comply with its obligations this will not be the case. Similarly, if the RTM company has the right to place the insurance then arguably one of the motivating factors associated with owning a ground rent is also diminished. So the question then arises as to whether the one cancels the other out. I expect that in practice the particular property will need to be examined to see which of the following factors are present and are likely to be of significance in arguing for a departure from the Sportelli deferment rate of 5% for flats. Briefly, these seem to be:- 1. Whether there is a headlesse in place (with management responsibility). 2. Whether there is a 'third party' management company (a party to the leases and with all the flat owners as members) and with the power to set the service charge. 3. Whether the Right to Manage has been exercised. 4. In the case of a small block (usually two flats) whether the leases impose a full repairing obligation on the flat owners (I.e. Where there is no service charge). I would be interested to know what other practitioners think.Mark Chick
22.06.2010
Mark Chick
Mark Chick is a solicitor specialising in Leasehold Reform. Mark is a committee member of ALEP (an organisation for professionals working in this area) and regularly writes and lectures in this area.
