So, there we have it – The Sunday Times indicating that the outcome of the ground rent consultation will be a £250 cap on all existing ground rents and a planned ‘phasing out’ of current ground rents.
Certainly, previous indications from the Sunday Times have been accurate in the past – and so we should probably consider this to be more than likely to be an ‘accurate’ picture of what government has planned.
The article says that ‘the government will now seek to phase out ground rents for current leaseholds over a period spanning at least 20 years…’ and that ‘during this period a £250 cap on ground rents will also be implemented.’
Taking these two points in turn – phasing out – does this mean that there will be a ‘sunset clause’ for all ground rents – meaning that all current ground rents will fall to zero in say 20 years’ time? And secondly during that period – i.e. from implementation, that all ground rents will be capped at £250.
If that is the case does the £250 cap apply everywhere? Or will there be a differential for say, Central London – mirroring the Housing Act 1988 provisions?
What does this mean in terms of ‘cheaper and easier’? – I have to say that the article is slightly misleading when it says: ‘But it would make extending the lease term or buying the freehold more expensive for the leaseholder, because they would have to compensate the freeholder for income lost.’
Clearly not implementing an immediate shift down to zero ground rent would make it more expensive to extend or buy the freehold, but we have to bear in mind that a complete ban is not the current position. Therefore even a shift down to £250 would provide a saving for all those whose rents are over that amount and in addition, the prospect of a sunset date (if this is correct) would also reduce the amount payable as the ground rent stream would only last for the next 20 years (or whatever the ‘phase out’ period might be).
This also ignores the fact that in the draft Leasehold and Freehold Reform Bill that the ground rent is assumed not to exceed 0.1% of the capital value of the property. Another factor which on its own would make it ‘cheaper’ to extend or buy the freehold.
Clearly some further clarification is needed, and we will hear this week, just as the Lords are debating the Bill and we can therefore no doubt expect an amendment dealing with these points. We look forward to the formal outcome of the Ground Rent Consultation and the rationale behind this thinking.
It will be interesting to see how this sits in comparison with the Human Rights points that have been discussed in relation to this matter. These considerations are after all as far as I can see, what has prevented a complete ban on existing ground rents being contemplated – because of the potential need to pay compensation in such a case and, I can only assume therefore that the view that is being taken is that the introduction of a fixed cap is more of a ‘control of use’ than a ‘deprivation’ under the ECHR and therefore not a breach of the convention rights of the freeholder. Presumably, any phasing out over time is intended to be seen in the same way.
I await the formal outcome of the DLUHC Consultation and the Lords debate on the Bill tomorrow with interest.
Many people will have seen the rumour/ announcement in yesterday‘s Sunday Times
The Times / Sunday Times do have a good record of being an unofficial / official source of these things – after all that is where details of the Leasehold and Freehold Reform BIll first appeared in November of last year.
If this is right then it may well be that the recommended outcome of the DLUHC consultation on ground rent may not be the banning of ground rent for all existing leases.
Stepping back from this, is this actually a surprise ? After all a total ban was only one of the options for reform that the consultation sought views on.
To many commentators this won’t be that much of a surprise given the noted potential issues with the possible need to pay compensation – highlighted by various human rights experts and also the question of interference in existing contracts.
Outside of some of the more political comments, there has been a ban on ground rent for all new leases following the Leasehold Reform (Ground Rent) Act 2022.
What the article does not make clear is which of the other options for reform are still on the table – don’t forget the consultation mentioned a 0.1 % (or higher cap) a freeze and also a cap at £250 for all current ground rent as an option. Mr Gove’s team are still lobbying for the £250 cap apparently.
This would be a significant step forward for all leaseholders – what I am not clear about is why one of the options for reform as not a more surgical strike on ‘bad’ ground rents (the high doubling rents, or the ones like the one the article mentions) – and these alone as a first step.
There are other possible options too – like a phased in ban or reduction – giving the market time to adjust. These were not mentioned in the Consultation but were among the suggestions made by respondents to it.
What the official outcome of the Consultation will be – we do not yet know – but it does seem that an outright ban may not be on the cards.
The question then is what recommendation(s) will the consultation make? Betting money might be on a cap at a fraction of capital value – especially given that the draft bill uses a 0.1% cap in its valuation model. However, we will have to wait and see …
A1 Properties (Sunderland) Limited v Tudor Studios RTM Ltd in the Supreme Court
ALEP in the Supreme Court
On 8th February 2024, Bishop & Sewell (‘B&S’) acted on behalf of ALEP, the Association of Leasehold Enfranchisement Practitioners on a pro bono basis as they intervened in the case of A1 Properties (Sunderland) Limited v Tudor Studios RTM Ltd in the Supreme Court. We were represented by Philip Rainey KC and Mark Loveday of Tanfield Chambers who also appeared on a pro bono basis. Our action was on the basis that we had sought (and obtained) permission to intervene in this case.
A1 Properties v Tudor is a leapfrog appeal from the Upper Tribunal (Lands Chamber) on the basis that the case was likely to raise matters of general and wider importance. One of the grounds of the appeal was the possibility of a re-examination of whether the decision of the Court of Appeal in Elim Court RTM Co Ltd v Avon Freeholders Ltd[2018] QB 571 was correct. This is only the second ever leapfrog appeal directly to the Supreme Court from the Upper Tribunal (Lands Chamber).
Why were ALEP allowed to intervene?
The legal reason behind ALEP’s intervention in the case is that ALEP as a public body, might have argument and assistance to give to the Court as an ‘amicus curiae’ (a friend of the court) in the development of what may well be a new strand of case law in this area. The purpose of our presence therefore was to advance and explore the available arguments as to the development of the law in this area, rather than to assist either of the parties in the case itself.
As a politically neutral body, ALEP does not take ‘sides,’ although there would clearly be wider public benefit in clarity on the law in this area, and as can be seen from some of the discussion below, the case itself has the potential to raise some wider issues relating to property notices and how these are treated.
The case of A1 Properties v Tudor
A1 Properties v Tudor is an Right to Manage (‘RTM’) case and concerns issues relating to the service of notices, and in particular the question of whether an intermediate landlord needs to be served with a copy of the RTM claim notice even if they have no management functions.
Following the decision of the Court of Appeal in the case of Elim Court (Elim Court RTM Co Ltd v Avon Freeholds Ltd (2017) [2017] EWCA Civ 89), it was held that the failure to serve a single intermediate landlord with an overriding lease and no management functions did not invalidate the notice of claim.
In Tudor matters went further as there were a significant number of intermediate landlords – 237 in total – all overriding leaseholders being individual investors in student accommodation in Leicester. Once again, they had no management function but were not served, potentially deliberately so, following the position in Elim.
Why the case is important
However, the decision in this case has the potential to go much wider than just the narrow field of RTM, and indeed enfranchisement where there is a ‘read across’ in the case law as many of the 1993 Act and 2002 Act provisions mirror each other.
From the legal point of view this case is interesting as it addresses the question, which has been addressed in many public and private law cases over the years, of what happens when parliament prescribes a specific procedure or step under a statute, and this is then not followed. When this happens what should the consequences be? is the whole procedure or step to be invalidated, or can the mistake or omission be forgiven?
The leading public law case on this isR v Soneji and another [2005] UKHL 49(Soneji) a criminal case from 2005 and a judgement of the House of Lords (as the Supreme Court then was).
The question for the Courts in these circumstances has always been to try to ascertain what parliament may have intended the consequences of the particular non-compliance to have been.
This raises a number of issues, including in the case of Tudor what should happen when the intermediate landlord is not served, and quite possibly when the decision not to serve may have been taken deliberately following the position in Elim.
Judge Elizabeth Cooke in the Upper Tribunal addressed some of the grounds put forward by the Appellant landlords, who had sought to argue that the failure to serve the intermediate landlords in Tudor was a deliberate omission, based on the case law established in Elim. This being a point of difference with Elim where the failure to serve a single intermediate landlord was accidental. Judge Cooke said that it was wrong to seek to differentiate the two positions, on the basis that the Court of Appeal in Elim had held that non-service of a party with no management functions could be ‘excused.’ Addressing the point made specifically by the landlords she said that it was wrong to impute that Parliament would automatically have objected to this ‘deliberate’ non-service:
52. “I fail to see that that is right, and indeed it feels like an illegitimate anthropomorphising of Parliament by attributing to it indignation at a deliberate default. “
The difficulty that the Courts then face in interpreting the law is that when a Court construe a mandatory provision in a statute as meaning something else there is always a further logical question, which is ‘how much further can this go?’ – e.g. in Elim the effect of the decision is to say that although the 2002 Act says that you must serve all intermediate landlords with an RTM notice of claim, in fact where the landlord in question does not have a management function that you do not need to do so. The question is therefore, ‘where does this end?’ – and hence the discussion in Tudor.
What happens when someone fails to fully follow a statutory procedure?’ – and what should the consequences of that failure be? Is the failure in question one that would invalidate the whole process?
When we look more widely to our common law cousins in Australia and New Zealand, they have also grappled with these questions but have resolved them, in general by applying the sort of test set out in Soneji, i.e. by looking at what the likely prejudice to either party would be as a result of the non-compliance in question; and going on to assess the question of validity in the light of this.
This is because our Parliament (and parliaments generally) are assumed to make laws that are ‘fair’ or intended to be so and that wherever possible, and also, that the requirements and burden for compliance with them in the exercise of intended rights should be ‘reasonable.’
Natt v Osman – the current test for property notices in enfranchisement
In this case as the interveners, we took neither party’s side although the Association’s position was to seek to promote clarity and as such, draw the Court’s attention to the possibility that the existing body of case law might need to be looked at again. This means not only the law as it stands after Elim, but also the body of existing case law for property notices that follows the decision in Natt v Osman [2014] EWCA Civ 1520.
Natt introduces what might be seen as an artificial distinction between two categories of errors in procedures and in the case of property rights particularly brings about a harsher distinction than might be seen in the context of a wider Soneji style test.
In Natt the court held that:
“…[A] distinction may be made between two broad categories: (1) those cases in which the decision of a public body is challenged, often involving administrative or public law and judicial review, or which concern procedural requirements for challenging a decision whether by litigation or some other process, and (2) those cases in which the statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question.”
Natt developed this line of argument so that in relation to property notices (which would fall under the second category referred to above) the applicable test would not be one reliant on ‘the particular circumstances of the actual parties, such as the state of mind or knowledge of the recipient or the actual prejudice caused by non-compliance on the particular facts of the case’
As interveners we drew the Court’s attention to this and suggested that the time might be ripe for a review of the case law in this area.
The Supreme Court’s position
The Supreme Court has a number of options at its disposal and the purpose of the intervention was not to tell the court what to think. However, one thing that it could consider would be overturning the Court of Appeal decision in Natt v Osman and to seek to move the case law in this area forward by adopting a test more akin to one of subjective prejudice.
If this were to be done, then it would provide a higher degree of certainty in many cases. It would also ensure that any Court looking to decide the consequences of any failures to comply with the provisions of a statutory procedure in the context of property notices could look at this in the widest possible way. This might mean a reduction in the scope for litigation around the validity of notices, and perhaps just as importantly, in cases where the Courts do have to decide this, the test that is to be applied is commensurate with that applied in both public and private law and is likely to be assessed in a fair way, from the point of view of the likely prejudice to either party.
As the Intervener, it is not a question of winning or losing– as we were not a party. However, hopefully, we were of assistance to the Court and some of the wider authority and arguments that we have put forward will be of use to the Supreme Court when making its decision.
We await the Supreme Court’s decision in a few months’ time.
Mark Chick
I would particularly like to thank Philp Rainey KC and Mark Loveday of Tanfield Chambers for their excellent pro bono work on the part of ALEP and other members of the team at B&S including Matthew Davies.
On Monday 15th I attended the all-party parliamentary group on leasehold reform to discuss the Leasehold Reform Bill currently making its way through Parliament. This was ably hosted as ever by the Leasehold Knowledge Partnership who run the secretariat to the APPG.
The Leasehold and Freehold Reform Bill is currently in its committee stage, and the select committee have been accepting written and oral submissions. I and others have made written submissions, to the select committee through ALEP. Two ALEP members, Angus Fanshawe and Philip Rainey KC gave their expert views on the Bill and its likely impacts to the committee last week, which was broadcast and some of it can be found here: https://parliamentlive.tv/event/index/5fbcfd1b-7d40-4636-aad9-625132a1c490
After this, the Bill makes its way to the Lords and we also await the outcomes of the Select Committees deliberations which we expect after 1st February 2024, and or possibly earlier if they decide to conclude their discussion earlier.
