Category Archives: Leasehold reform

Leasehold reform news

White paper on housing

The governent has just published its Housing white paper.

There current press and parliamentary interest in leasehold has brought leasehold issues into the spotlight and the recent stories about escalating ground rents and also leasehold houses in particular are an area where government is going to look to intervene 

In particular see the paragraphs below:

Leaseholders

4.36 The Government will act to promote fairness and transparency for the growing number of leaseholders. Leasehold has been a traditional part of the housing market in this country but there are areas where urgent reform may be needed, particularly when buying a house on a leasehold basis. New leasehold houses can be marketed at a reduced price compared to freehold. But some purchasers are not aware at the point of sale that the associated costs of buying a new leasehold house can make it more expensive in the long run. Some freeholds and ground rents of leasehold houses are sold on and traded, with leaseholders left in the dark, and facing increasing and onerous payments. This is not in consumers’ best interests.


4.37 In particular, ground rents with short review periods and the potential to increase significantly throughout the lease period may not be offering a fair deal. We are absolutely determined to address this. We will therefore consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold.


4.38 We will consider further reforms through the consultation to improve consumer choice and fairness in leasehold, and whether and how to reinvigorate Commonhold. We will also work with the Law Commission to identify opportunities to incorporate additional leasehold reforms as part of their 13th Programme of Law Reform, and will take account of the work of the All-Party Parliamentary Group on Leasehold and Commonhold.

There is quite a lot of food for thought here and is good to see that government are prepared to intevene to stamp out abuses. 

In addition to regulation and legislation as I and several of my ALEP colleagues have been saying for a number of years, part of the solution is also better education for professionals and leaseholders so that consumers are better informed.

It will be interesting to see how the debate develops and how much parliamentary time will be available to devote to these issues given other pressures such as the Brexit negotiations.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. 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 

The Trustees of The Sloane Stanley Estate v Adrian Howard Mundy (Flat 3, 36 Elm Park Road, London, SW3 6AX)[2016] UKUT 0223 (LC)

The Mundy decision what does it mean?
The decision in Mundy deals with the question of relativity. This begs the question as to what relativity means in the context of a lease extension or buying your freehold.

The first thing to say in answer to this question is that it is only relevant in practical terms if your lease has less than 80 years to run on it.
This is because it will only be needed if marriage value is payable as part of the compensation payable to the landlord and this only applies if the lease has less than 80 years to run at the ‘valuation date’ (the date of the notice of claim).
So what is it? Well, as you might expect it is a ‘relative’ measure – effectively the ‘gap’ between the short lease and long lease value.
Why is it important?
In working out what needs to be paid to the landlord the valuer needs to assess two things – firstly the value of the tenant’s interests and secondly the value of the landlord’s interests both before and after the transaction has taken place.
Obviously you can’t know both of these things at the same time and hence, over time valuers have developed a way of working out from any given lease length and stated flat value a percentage of the ‘freehold value’ of the flat that the current lease value represents.
There is a certain circularity in this approach as ultimately the percentage adopted needs to refer back to something as an opinion of the freehold value.
Over time, this has been assessed by various graphs of relativity and these have been hotly contested because a few points up or down the scale makes a big difference to the amount that the tenant pays.
In Munday a new approach was tried to calculating relativity which ultimately failed – however it did raise some very interesting questions – not least of which was a criticism of the underlying accuracy of many of the graphs.
Some of The graphs have been effectively statements of opinion based on ‘sampling’ of the value of a notional ‘basket’ of properties by estate agents – not completed transactions.
In Munday, Parthenia research for the tenant sought to argue that a more appropriate and statistically robust way of dealing with the matter would be to use what is known as ‘hedonic regression’ to effectively determine the impact of lease length on value for a sample of pre- act 1993 Act properties, based on data obtained from one Prime Central London estate agent, John D Wood and Company.
The ‘hedonic regression’ model is a statistical analytical tool that is used in economics and market analysis to enable a reasearcher to ‘strip out’ the impact of a particular variable on the price of an item. A suitable example might be in a market for cars, where it should be possible by analysing sufficient transactions to determine the impact that say, colour has on price (for instance, it might be said that red cars sell at a premium, when all other factors are the same). The approach that was tried here was to look at the impact of lease length as a variable when considering the relative impact on pricing of short lease property, and by doing so to arrive at a ‘new’ way of calculating relativity.
So why didn’t this work?
The Upper Tribunal was not persuaded by the fact that the data set related to only pre-act transactions. Whilst the 1993 Act requires analysis in a ‘no-act world’ it was held that this is not the same thing as a pre-act world and in fact, the correct treatment in the valuation schedules is to assume that the tenant has ‘no right’ to extend or buy the freehold under the statute, thereby increasing the amount due to the freeholder.
In other words, one of the problems, was not with hedonic regression itself but also with the data set that was analysed to try to produce the results.
It could also be said that the outcome was too radical a departure from the accepted ‘norms’ of relativity (althought this was not a reason given).
The result – a victory for landlords and a windfall for many owners of reversions outside of Central London.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. 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 

 

Tibber v Buckley [2015] EWCA Civ 1294

Tibber v Buckley [2015] EWCA Civ 1294

The importance of asking for leasebacks in the counter notice – and the extent to which the premises need to be defined when doing so

In this case the landlord invoked the leaseback provisions under the 1993 Act in respect of the top floor flat at the property. The flat was one that qualified for the leaseback provisions in the 1993 Act as it was not held on a long lease.

A question arose as to how detailed the landlord’s proposals for leaseback should be in the counter notice. Section 36 confers the right of leaseback.

In Tibber the freeholder had sought in her counter notice to reserve the whole top two floors of the building including the roof and windows and a staircase.

The matter then went to the first Tier Tribunal. Before the tribunal the landlord then argued that other areas should be included in the leaseback (that were not referred to in the counter notice). These included a mezzanine landing, the airspace and the front garden.

The tribunal ruled that the leaseback in question should be on the statutory terms set out in Schedule 9 to the 1993 Act. The terms of this lease were more restrictive and much less extensive in terms of the extent of demise than that claimed for by the landlord.

The landlord appealed. The Court of Appeal agreed with the decision of the tribunal. If the landlord wants to seek to argue for a leaseback that is more extensive than that set out in the statutory leaseback provisions, (as per Schedule 9, Part IV) then this needs to be explicitly stated in its counter notice. The landlord cannot argue after the event for more extensive terms.

However, it is also important to realise that the right to a leaseback under Section 36 is generally to a leaseback of the flat or unit in question. The extent of this is normally expected to be similar to the terms of any letting of that area.

Therefore, seeking a more extensive demise than that held by any occupational tenant or in the inclusion of any property that such a tenant does not have access to under the terms of his/ her lease is likely to meet with short shrift.

This case is an important lesson that the standard right of leaseback is just that – generally a right of a leaseback in respect of the whole or a flat or unit.

If the landlord wants to ask for the reservation of a more extensive area then this needs to be considered very carefully. It also needs to be remembered that if the landlord does not ask for a right of leaseback in his counter notice that he cannot then subsequently do so (see Cawthorn v Hamdan [2007] EWCA Civ 6.)

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. 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 or email leasehold@bishopandsewell.co.uk

Further Leasehold Reform – Radical thinking?

That is the title of Philip Rainey QC’s paper – Further Leasehold Reform – Radical Thinking?

This will be will be debated by a panel at the ALEP Conference today. A link to the full text of Philip’s paper can be found at:

Further Leasehold Reform – Radical thinking?

It will be interesting to see how delegates respond to the debate, which will be chaired by Joshua Rozenberg. If there were to be some alternatives to leasehold for the residential sector, what could these be? and, if we were to introduce some radical changes, such as perhaps a ‘sunset’ clause on ground rents, or lease extensions of say less than 999 years, how would the market respond?

One of the most interesting questions I think would be to consider what would happen to the remaining housing stock subject to leasehold if such a change were introduced, but I am sure that there will be lots of others. I look forward to the debate and to lots of interesting commentary in this debate which will be a blue-sky academic discussion of the possibilities, (and which will be free of any political considerations) which may look at some very viable alternatives.

Mark Chick 

Mark Chick is a solicitor dealing with leasehold issues. For further information please visit www.bishopandsewell.co.uk or email news@leaseholdreformnews.com