Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch)

1.1              Dolphin Square has been a long-running saga, but an important decision for a number of reasons, notwithstanding is slightly unique circumstances.

1.2              The subject property contained 1,223 flats and is possibly one of the largest ‘blocks of flats’ in the world. Notwithstanding this, it was potentially enfranchiseable. However, to make it so, Westbrook and a group of others (the Claimants) had to create sufficient underleases to bring the property within the ambit of the 1993 Act. In doing so, they also had to take care to ensure that having put the building into a condition in which it qualified for enfranchisement, that that the leases were vested in sufficiently different legal entities, bearing in mind the anti-avoidance provisions within the 1993 Act which prevent 3 or more flats remaining within the same ownership.

1.3              The text of Section 5(5) and 5(6) of the 1993 Act appears below:

(5) Where apart from this subsection—

(a) a person would be regarded for the purposes of this Chapter as being (or as being among those constituting) the qualifying tenant of a flat contained in any particular premises consisting of the whole or part of a building, but

(b) that person would also be regarded for those purposes as being (or as being among those constituting) the qualifying tenant of each of two or more other flats contained in those premises,

then, whether that person is tenant of the flats referred to in paragraphs (a) and (b) under a single lease or otherwise, there shall be taken for those purposes to be no qualifying tenant of any of those flats.

(6) For the purposes of subsection (5) in its application to a body corporate any flat let to an associated company (whether alone or jointly with any other person or persons) shall be treated as if it were so let to that body; and for this purpose “associated company” means another body corporate which is (within the meaning of section 736 of the Companies Act 1985) that body’s holding company, a subsidiary of that body or another subsidiary of that body’s holding company.

1.4              As can be seen from the parties’ names in this case, they are both investment companies using the enfranchisement legislation in a way that it was not perhaps first intended by parliament to achieve a commercial objective. Not surprisingly, Friends Life objected to the claim that was made to the freehold on a number of grounds, which are discussed below.

1.5              Firstly, they challenged the structure of the identity of the qualifying tenants on the basis that the under leases that had been created (and took over 2 years to put in place) were held by a number of SPVs created for the purpose and that these were ‘associated companies’ and as such the claim would fail as it would fall foul of the provisions of section 5(5) of the 1993 Act. However, the structure that had been put in place by Westbrook was sufficiently disparate to avoid this problem. The SPVs in question had shares held by two companies, neither of which had overall control as they each held exactly 50% of the voting rights. Additionally, the shares in one of the companies were held by a discretionary trust and the trustees of that were completely independent.

1.6              Secondly, the High Court held that there was nothing in the scheme of the 1993 Act that would stop one investor enfranchising against another. Whilst the Act contained provisions to limit the right to enfranchise in certain cases involving investors the provisions of section 5(5) and (6) were quite narrow and it was irrelevant if these consequences were not something that parliament had specifically intended when passing this legislation.

1.7              Thirdly, a challenge was brought on the grounds that the property did not qualify  for enfranchisement under the 1993 Act on the basis that more than 25% was used for ‘non-residential’ purposes. The areas in question were short-term lets, but were self-contained units of accommodation, which were in fact flats (rather than hotel rooms) because of their self-contained nature.

1.8              Fourthly, Friends Life sought to challenge the price offered for the freehold (£111M) on the basis that the proposal was not a ‘reasonable’ offer following the line of authority in Cadogan v Morris (1999) 31 HLR 732 . However, on the facts the Court stated that the test to be applied was not an objective test to see whether the figure in fact fell within a certain factual bandwith, but rather that the tenant’s proposal needed to be a genuine bona fide offer that was intended to be taken seriously.

1.9              We can take away from this several important points. Firstly, it is not an abuse of process to initiate a claim and to discontinue it and then bring (after the appropriate period) a further claim on the same basis to enfranchise the same property. Secondly, provided that the scheme of ownership is properly devised, and the interests are genuinely diverse, it is possible to navigate the restrictions on multiple ownership in the 1993 Act. Finally, we have some further observations on the test to be applied to any ‘initial offer’ to be made by the tenant.

MARK CHICK

September 2014

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

This surely has to be the biggest piece of Leasehold Reform News this year.

As previously mentioned on this site and elsewhere this act makes a small but simple amendment to the 1993 Act that will make it easier to bring and claims as notices will not have to be signed personally by the flat owner to be valid.

I am pleased to have had some part to play in effecting this change to the legislation through the ALEP working party on legislative reform.

For further details see below:

The Leasehold Reform Amendment Act

On 14 May 2014 the Leasehold Reform Amendment Act will come into force in England.

The Act is the result of a private members’ bill that makes a very simple but effective amendment to one of the key provisions of the Leasehold Reform Housing and Urban Development Act 1993 – namely the requirement that the flat owner must personally sign a notice claiming a new lease or the right to buy the freehold.

In practice this requirement has caused hardship, particularly where a flat owner has for example been under a disability and been unable to sign.

As the law previously stood, someone holding a power of attorney for the flat owner, or even their duly authorised agent (such as a solicitor acting on their behalf) could not sign the notice.

Now any duly authorised person can sign the notice.

Whilst the person signing will still need to show that they are duly authorised, the main practical benefit is likely to be that more people will be able to initiate or participate in claims, particularly in circumstances where signature may be difficult (for instance where they are abroad, or not readily available and able to sign).

This change will also make it easier to bring collective claims to buy the freehold to a building – particularly in a large block as the solicitor will be able to sign parts of the notice on behalf of the flat owners (provided that they have the requisite authority). What will be seen as constituting that authority remains to be seen.

Many of the other technical challenges to getting the notice right will still remain (meaning that expert assistance will very much still be required) – however, this amendment will speed up one element of the process and make claims easier in practice.

MARK CHICK

13th May 2014

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

No easy answers as to this one I’m afraid – the answer is, as always ‘it depends’ and ‘advice follows the facts…’

I gave a talk with Mark Wilson of Myleasehold recently at the ALEP conference on 20th March 2014 discussing the difference between formal and informal deals (particularly for lease extension).

I also prepared a list setting out a summary of the key differences. This was not distributed at the conference but readers may may find it useful, in which case here it is:-

1. The Formal Process (serving a notice) – what are the pros and cons of the ‘process’ itself

• 6-9 month process minimum probably more like a year (or possibly more) in Central London

• advantage Tenant – can take time to find funds

• disadvantage Landlord – has to wait for money and has to put up with valuation date from some months previous – in a rising market you are receiving ‘yesterday’s prices’ when funds are received

• both parties ‘locked in’ from service of notice – provided steps followed a result is guaranteed – although no certainty over the price at outset

• One size fits all solution for lease extension under the 1993 Act – plus 90 years and no ground rent – ‘universally understood’

• Statutory control over lease terms – less scope for ‘weird and wonderful’ terms to be introduced

2. Timing – issues for and against informal deals – informal will be quicker but no ‘lock in’

• No control over timing – but, could be instant

• Can do a deal with a third party landlord as part of sale and purchase – pay out of the proceeds of sale – ‘no cost’ – no need to find funds – provided this can be agreed

• Advantage landlord – instant payment

• No definite deal until either completion or contracts exchanged – plenty of scope to renegotiate the terms or walk away

3. Technical – does the formal process solve technical problems more easily?

• Deals with intermediate leases – on a lease extension there is a statutory surrender and re-grant

• Section 58(4) will automatically transfer the charge in a lease extension from old lease to new

• A statutory approach to valuation – and there is the tribunal if agreement is not reached

• Landlord’s costs covered under statute – s.33/ s.60 – and also controlled under statute

• An informal lease granted over the top of an existing lease (as a concurrent lease) can be messy – particularly consider co-terminous leases where there is an intermediate with a short reversion who is not a party (lease extension) the flat owner then has a discontinuous right of occupation when the under lease expires until the (normally very short) period of time until the head lease expires and the overriding lease kicks in.

• There is the risk that any superior interest to the flat that is not part of the lease of the flat may be enfranchised in a future freehold claim

•  With an agreed deal there is no compulsion or fixed methodology to agree pricing – open market negotiation

4. What are the alternatives ? – if you have a choice…

• If a deal is done for sale of a freehold then section 5 Notices can be served under the 1987 Act – a lot easier to accept than dealing with s.13 and the 1993 Act

•In an informal situation the Landlord is at risk on costs without undertaking but can seek to recover such costs / costs contribution as it can negotiate for or can ask for these in a 1987 Act notice

• With an informal deal the parties are free to agree whatever length of extension they want – advantage tenant – can purchase a ‘top-up’ lease extension of less than 90 years

• This may be an advantage landlord who can then keep ground rent – However, if the deal is too good the tenant may ‘pay twice’ if the balance of premium and ground rent is skewed in their favour – higher ground rents might also deter future freehold claims

• In an informal deal there is no external control over new lease terms – either side can negotiate to their favour

5. Why also might the landlord insist on a statutory deal ?

Landlord can claim roll-over relief on funds received through ‘compulsory’ acquisition under enfranchisement legislation provided that he re-invests in a qualifying asset class (property). For an ongoing portfolio owner this has attractions.

It is important to understand that the landlord (and the transaction) has to ‘qualify’ for this roll-over relief – it is not ‘automatic’ but the detail is beyond the scope of this note.

Query from a tax point of view whether an agreed form notice and procedure resolves this issue – does this really work?

If the landlord’s assets are held in trust it is likely that the only approach will be under the legislation – the landlord will insist on this as there is a fully defined process under which it is compelled to act – and there is professional valuation advice – in part funded by the tenant as to the ‘correct’ amount to do the deal for

If the landlord has / is represented by professional trustees they may well be very reluctant to deal on this basis as there is no evidence that the asset either should be sold or that the price that is proposed/ has been agreed is ‘right’

Mark Chick

10 April 2014

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

I am delighted to report that the Leasehold Reform Amendment Bill has been making its way through the House of Lords and has now received the Royal Assent.