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 ((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). )).

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

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

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 Hosebay when 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

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