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.
‘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 ((References are to the Leasehold Reform Housing and Urban Development Act 1993 (as amended) unless otherwise stated.)) 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 ((On this point see the case of Slamon –v- Planchon (2004) )).
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] 02EG148is 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 ((Section 1(3) (a). )), 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) ((Section 1(3) (b). )).
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. ((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”.))
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.
5.3 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 ((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). )).
5.4 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.
5.5 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.
5.6 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.
5.7 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 ((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.)).
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.