long lease « Painsmith Landlord and Tenant Blog

13 February, 2012 • 10:24 0

Can Freeholders charge for Consenting to Underletting?

Most long residential leases today contain some provision about underletting. Often the clause in the lease will require the Leaseholder to obtain the prior consent of the Freeholder or their managing agent. It is when this consent is sought that problems can arise.

As ever the starting point should be the lease. Many leases have a specific provision indicating something along the lines of ” not to underlet without the consent in writing of the Landlord such consent not to be unreasonably withheld”. In those circumstances an application should be made to the Landlord prior to each and every subletting. Recently the Lands Tribunal in the cases of Holding And Management (Solitaire) Ltd v Norton and Bradmoss Ltd, Re 10 Meadow Court considered whether Landlords were entitled to make a charge in such situations.

The LVT at first instance had determined that the Landlord could not recover costs. Consideration was given to Section 19(1) of the Landlord and Tenant Act 1927. The Lands Tribunal made clear that in their opinion Section 19(1) allowed a Landlord as a reasonable condition of granting Consent to require payment of their reasonable costs. Further the Lands Tribunal went on to confirm that in its opinion such a charge would then be a variable administration charge and the LVT had power under Schedule 11 of the Commonhold and Leasehold Reform Act 2002 to determine the reasonableness of the charge. The answer is therefore that the Landlord can recover these costs subject as ever to the lease terms.

At this stage the Lands Tribunal has requested submissions as to the reasonableness of the charges proposed in these various cases and we await further guidance. Clearly Freeholders will have to justify each and every charge they make and to be able to explain how the charge has been calculated both as to the particular development and their own organisation. Hopefully some further guidance will be offered as this is an area which many investor leaseholders often feel that Freeholders simply use as a mechanism to charge high fees to simply profit from the freehold rather than to cover any reasonable costs which they may have incurred. A case of watch this space ….

Filed under: England & Wales, FLW Article, comment, legislation, litigation, long lease, procedure

6 February, 2012 • 10:18 0

LEASE INTERPRETATION: WHAT DO COURTS AND TRIBUNALS LOOK AT?

We have over the past few months referred in our articles to the fact that the starting point for LVTs and Courts in leasehold disputes is the lease itself.

Often residential leases were drafted many years ago and are in a format which even to professionals can be difficult to assess but what are the steps that the Court and LVT go through to determine the terms?

Initially they will go through the document. For a long residential lease all of the terms must be in writing. Some terms will be very clear and easily interpreted. This will often be the case in respect of terms over payment of ground rent and insurance. Certainly for any lease which has changed hands over recent years it should be in a format covering all the major areas such as rent, insurance, service charge, repairs etc as conveyancing solicitors should be checking that the lease complies with Council of Mortgage Lenders (CML) requirements. These requirements require these fundamental terms to be covered in a clear and satisfactory manner.

What is often more complicated is the extent of a clause. This can be particularly true of service charge clauses. Many of these clauses are written in a very general manner with some kind of “sweeping up” clause whose function is meant to be to cover everything not expressly stated. Be warned they do not always work!

The general principle is that clauses are given a meaning which a reasonable person would understand and words are given there ordinary meaning. Courts will not tie themselves in knots in carrying out an interpretation even if the natural meaning gives a strange result. If this is the case other remedies may be open to the parties such as rectification if they can fulfil the grounds. The Courts and LVT will not imply terms into an agreement and will expect all the terms to be present in the document relied upon.

If then a clause is still unclear and or could be interpreted in a number of ways generally it will be decided in a way most beneficial to the person not seeking to rely upon that clause. This is due to the fact that the burden of proof will be upon the person relying upon the clause to prove that meaning. It is for this reason that “sweeping up” clauses often do not achieve the desired effect.

Usually the terms are clear but it is vital that proper consideration is given to the terms. Anyone buying a lease (or a freehold) should understand what the rights and responsibilities under the lease are. Certainly as can be seen in the published LVT decisions often in service charges Freeholders and their Agents try and argue that it would be perverse to not allow them to recover management fees, accountancy fees etc and whilst a Panel may have sympathy if the lease does not cover this the hands of the LVT are bound.

Again early consideration of the contractual terms can prevent disputes and if in doubt parties would be well advised to take specialist advice to avoid costly Court or LVT cases.

Filed under: England & Wales, FLW Article, comment, litigation, long lease, procedure

3 February, 2012 • 10:55 0

How to prepare for an LVT Hearing in respect of service charges

For many people having an LVT hearing can be a daunting prospect and there first experience of dealing with a Court or Tribunal particularly in an unrepresented capacity.

For the purpose of this blog post we are specifically referring to applications made under Section 27A of the Landlord and Tenant act 1985 although the principles apply to all LVT cases.

These applications can be made by either the Freeholder or a Leaseholder and the purpose is to determine whether a charge is payable and the reasonableness of the same. In making its determination the LVT will have regard to the terms of the lease and then whether the statutory processes have been complied with.

Whoever makes the application is required to complete an application form. Copies of the forms and guidance notes may be obtained from the Justice department website.

As part of the application you should specify exactly what it is you are seeking. It is important to make this clear so that the LVT is clear what is being sort. Often if the Freeholder this will be the whole of particular years and if the Leaseholder they may wish to object to specific charges. This should be set out clearly and specify which service charge years are being referred to.

The application should have attached to it a copy of any relevant lease and other relevant documents. If it is the Freeholder we would recommend this should include:

• Any and all service charge demands with summaries of tenants rights etc as appropriate
• Copy of relevant lease
• Copy of any Consultation documents etc

If it is the Leaseholder then they should attach:

• Copies of demands received
• Copy lease
• Copy of any consultation notices you have received
• Copies of any correspondence disputing the sums

Remember that the LVT when they first look at the application will want to understand what the claim is about. This will assist the LVT in issuing Directions or listing for a Pre Trial Review (PTR).

If there is an oral pre trial review the LVT will want to use this to identify the issues and then issue clear guidance as to what should happen. It is crucial that both sides consider the case from this point of view. The LVT will not be deciding the case then but making sure all is in order for a hearing.

It is vital that parties follow the Directions given. The time scales are there to help all parties. You should read the Directions carefully and make sure you understand what is required. In particular the fact that you need to supply copies of all documents you will look to rely upon for proving your case. Often the Directions are detailed and very specific for the matters in dispute particularly if there has been an oral PTR.

Generally the LVT cannot refuse to admit documents (even if late) but must give everyone ample opportunity to consider. This could result in a hearing being adjourned if there is a late submission and possibly an application being made that such behaviour should result in a costs penalty (the LVT can order costs of up to £500 a party). If a party attends at a hearing and tries to submit late documents the LVT will consider whether it can give a short adjournment for the other party to consider the documents but the hearing itself could be adjourned. The LVT will not be happy with submissions on the day unless there is a very good reason given the effect this can have on the LVT being able to decide the matter.

It is vital that when preparing for a hearing that a proper bundle is prepared. This should include an Index and the documents should all be paginated in order and placed in a folder. These bundles must be supplied in good time to the LVT office so that the Panel has a reasonable opportunity to consider before the hearing. This will assist the LVT in considering the matter and whilst the panel should not draw any adverse inferences from a late submission they are only human. Late submissions and badly prepared bundles will not assist your case! It is worth asking someone to consider your bundle and submissions to see if a person who knows nothing about your case can properly understand the points you are making and can follow clearly the documents and submissions you want the LVT to understand.

Remember that at the hearing often the LVT will raise there own questions and points and so even if the other side has not raised something the LVT may still do so itself. This is particularly true of making sure that demands comply with the various statutory requirements and or consultation when required.

The LVT panel will usually not have met until the day of the hearing but will have been sent out the bundles etc. If they have received these in good time they will be better prepared for dealing with the case. The LVT will normally be proactive in managing the case in front of them and this is assisted by timely receipt of documents in good order. The panel is there to decide the matter and a case is always helped by good preparation on the part of the parties.

If in doubt about anything then you should refer to the Clerk at the LVT dealing with your case. Whilst they cannot give you legal advice they can help with understanding what is required or that you need to do.

LVTs are used to having parties appear in front of them unrepresented and pride themselves on being user friendly. For both Freeholders and Leaseholders they can effectively deal with matters in a timely way particularly with a well presented case.

We are always happy to advise and if necessary represent Freeholders and Leaseholders with all such applications.

Filed under: England & Wales, FLW Article, comment, litigation, long lease, procedure

31 January, 2012 • 18:04 0

Getting it wrong can be expensive….

When a landlord wants to begin work on a building it is important to follow the full section 20 consultation process, as shown by a recent decision from the Upper Tribunal of the LVT; Stenau Properties Limited and Karin Leek, Klaus Reckling and others.

Stenau Properties Ltd had written to the leaseholders informing them of the consultation requirements and had subsequently held a meeting with the leaseholders. However, the impression formed by the leaseholders was that their views would not be considered in the selection process.

Stenau Properties argued that there had been very little if any prejudice to the leaseholders and therefore the fact that the consultation process had not been followed to the letter was not important. However, although the LVT found that the service charges were reasonable, it held that the leaseholders, being the people who would ultimately be paying, must have confidence that they had some influence in the decision making process. It also held where there is a significant breach of the consultation requirements, there is likely to have been genuine prejudice whether or not the final choice of contractor would have been the same.

The Lands Tribunal confirmed this view and went on to say that even if the failure to properly consult was due to a misunderstanding of the process or incompetence that could not excuse a breach of the requirements. As a result of this decision, Stenau Properties will only be able to recover £250 from each leaseholder.

Filed under: England & Wales, FLW Article, comment, long lease

17 January, 2012 • 19:23 0

Appointment of a Manager instead of RTM

The Commonhold and Leasehold Reform Act 2002 introduced the new none fault Right to Manage legislation.

The idea was that if you had not less than 50% of the Qualifying Tenants interested they could form an RTM company and then take over the day to day management. This was seen as an alternative to enfranchisement or even a stepping stone to the same.

However as with enfranchisement whilst at first this can seem a good idea it is worth thinking about what in practice this will mean. In particular since RTMs involve leaseholders working together this is not always appropriate for reasons similar to those given in our earlier blog post on the Cons attached to enfranchisement. In particular you may all need to work together and make difficult decisions about the management of the building.

Sometimes the leaseholders find themselves in a position where they all agree that the current management of the building is not working. Often this can be down to neglect or actual mismanagement. Whilst there may be differing opinions as to the way to move forward it may be possible to use the Landlord and Tenant Act 1987 (“The Act”) to impose some control.

The starting point is for one or more leaseholders to serve a Notice (section 22 of the Act) upon the Landlord and any Managing Agent appointed. This should set out the defaults complained of and invite them to set out how they intend to remedy the same. A reasonable period must be allowed.

Once that has expired the Leaseholders can then apply to the LVT under section 24 of the Act for the appointment of the manager. It will be for the Leaseholders to propose a professional managing agent who is prepared to accept an instruction. Generally the LVT will issue Directions and these will require the proposed agent to confirm that they agree to being appointed and ask them to confirm the terms upon which they would be appointed, provide a CV and other information. There will also be Directions requiring the Leaseholders to file evidence of the breaches complained of and for the Landlord/Current agent to reply. We pause at this point to highlight that this is a fault based procedure and the LVT must be satisfied that there are breaches and it is just and convenient to make an order.

There will then be a hearing (note generally the LVT has no powers to deal with matters summarailly) and the LVT will hear evidence. Usually they will require the proposed manager to attend and give evidence so that the LVT is satisfied that they are a proper person and able to adequately manage. The Manager is an appointee of the LVT and will operate pursuant to the terms of their Order.

Once appointed it will then be for the Manager to manage. They must ensure compliance with all terms of the lease and of course statute and will normally be expected to manage in accordance with one of the recommended codes of good practice for management.

The manager should act independently to pursue his or her duties. This often can be useful as the obligation to make decisions etc as to the management will be down to the manager and not the Leaseholders (or Freeholder). This means that sometimes difficulties can arise and the Manager is unsure what to do. If the terms of the appointment under the Order appointing do not make clear they are entitled to make application to the LVT to seek further Directions.

As can be seen whilst RTM provides a useful tool for leaseholders it is not suitable for all circumstances particularly today in some blocks which have many absentee leaseholders. Appointment of a manager can ensure that a building is properly managed particularly when the leaseholders (or some) are satisfied that it is not being done properly but they themselves do not want to become involved in the management or cannot agree on exactly how the building should be managed.

As with all things relating to residential Landlord and Tenant we at PainSmith are happy to advise Landlords or Tenants about such applications or the options open to them.

Filed under: England & Wales, FLW Article, comment, long lease, procedure

28 December, 2011 • 11:12 3

What should I think about before I buy my freehold? The Cons.

For many Leaseholders getting together with fellow Leaseholders to buy the freehold of the building they occupy is seen as the end of problems with freeholders and controlling their own destiny. Whilst this is of course true before going down this major step leaseholders should consider if and why this is the right route for them.

The motivation for many is to rid themselves of a freeholder who they perceive is not offering good value for money and service and often the fact that all the leaseholders need to act to extend their leases. Undertaking a collective enfranchisement can often be achieved at a similar cost to that of all extending their leases particularly when legal and valuation costs are thrown into the mix. All seems simple and many groups at this stage press on with the purchase.

The issues generally arise sometime down the line when the glow of having purchased has worn off. Simply because you have bought your freehold does not mean that all problems go away. In our experience freehold purchases tend to be driven by a small group of leaseholders who put in enormous amounts of time and effort. Sometimes after the initial euphoria they find that they do not wish to (or can’t) give as much time to the freehold as before. As a freeholder you remain bound by the terms of the leases particularly with regards to service charges and repairs. Whilst often on completion the leaseholders will all have extended their leases (typically to 999 years) the service charge and repairing covenants usually remain the same. The freeholder is still governed by the statutory rules governing residential leases and must comply with all of these obligations including in relation to consultation. This year we have seen a number of LVT decisions reiterating this and making clear that there will be no let off for leaseholder owned companies.

As a result some of the imagined costs savings cannot be achieved as often a managing agent for practicality will still be required as well as having to go through all the processes. Certainly we would always recommend to any group considering enfranchisement that they should look to appoint managing agents to ensure that the day to day running complies fully with all of the legal requirements. We have seen over the past decade the increase in rules and regulations to ensure that individual leaseholders are protected but this has driven up costs as the work involved has increased.

Increasingly we are also being asked to advise both individual leaseholders and freeholds where the parties find themselves in dispute. This can be as simple as someone not having the money to pay the service charge and fellow neighbours having to take Court action to recover monies. The other extreme is in small blocks where the freehold is owned by named individuals and one is looking to sell and one or more of the other Owners will not sign the necessary transfer paperwork causing a sale to fail. Consideration needs to be given as to how you feel you will get on as a collective group and not just with your current leaseholders but potentially with subsequent Owners.

We have seen instances where the repercussions are so great that fresh collective enfranchisement claims have been made. Now with the lower qualifying majority of 50% it is possible that buildings can enfranchise and re-enfranchise again and again. We have seen a situation where the leaseholders of a small block has enfranchised on 3 occasions! The fees spent on such an exercise must be immense for little real gain to the leaseholders individually.

Whilst none of the above should necessarily put anyone off buying their freehold it is important that everyone enters this with their eyes wide open. Under the legislation there are various other routes that can often be adopted such as Right to Manage and undertaking bulk lease extensions either by the statutory route or negotiation. Commercial freeholders are alive to these issues and many will negotiate over items. There can be a benefit in having a completely separate (and we deliberately do not say independent!) freeholder. Whilst for most groups who enfranchise the process is an unqualified success story with many real and perceived benefits as with most transactions there are risks and it is important that all participants understand these.

Filed under: England & Wales, FLW Article, comment, legislation, litigation, long lease

13 December, 2011 • 15:39 2

Can the freeholder recover costs incurred in pursuing me at the LVT as service charge?

The above question is one which frequently arises when a claim has been made by a freeholder to the LVT to determine the reasonableness of service charges.

Obviously it is always open to the tenant to request that the LVT in determining the application will exercise it’s discretion and make an order under Section 20c Landlord and Tenant Act 1985. If such an order is made the LVT can order that no costs will be added to the service charge accounts or limit the amount/proportion that may be recovered. If the freeholder is generally successful in their application often the LVT will not make such an order and so then the costs may be recoverable.

As various articles have said it is then important to look at the terms of the lease. Unless the lease allows recovery the freeholder will not be allowed to recover these costs.

Recently the Court of Appeal had to consider the interpretation of the lease in Freeholders of 69 Marina, St. Leonards-on-Sea –Robinson, Simpson and Palmer v John Oram and Mohammed Goorun [2011] EWCA Civ 1258 .

In this case the freeholder had brought proceedings in the LVT to determine the reasonableness of the service charge and subsequently looked to recover the costs. Proceedings were issued in the County Court who determined at first instance that the costs were recoverable under clause 3(12) of the lease which said:

“pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act…. and to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord of and incidental to the service of all notices and schedules relating to wants of repair of the premises…..”

The District Judges findings were upheld at first instance by the Circuit Judge but the leaseholders appealed to the Court of Appeal. The appeal was dismissed as the Court of Appeal determined that clearly the Landlord had incurred costs in undertaking repairs etc and under section 81 of the Housing Act 1996 an application to the LVT is a necessary pre condition of the forfeiture process.

An interesting decision making clear that the Court will give a broad interpretation to these clauses to allow Landlords to recover costs

Filed under: England & Wales, comment, legislation, litigation, long lease, procedure, service charges

25 November, 2011 • 10:19 0

Enfranchisement: can you bring multiple claims?

Recently the High Court has ruled on the case of Westbrook Dolphin Square Limited v. Friends Provident Life and Pensions Limited.

The Leasehold Reform Housing and Urban Development Act 1993 expressly considers the position which may arise when a Notice (whether for enfranchisement or a lease extension) has been validly served but is not proceeded with whether by way of an express withdrawal or a deemed withdrawal when a party does not comply with the time limits under the Act. In those circumstances the Leaseholders are then barred from issuing a fresh Notice for a period of 12 months from the date of withdrawal. The participants will also be liable to pay the Freeholders costs. Thus the Act envisages that multiple Notices may be served.

In The Westbrook case a Notice was originally served and a negative counter notice was served and proceedings issued which had reached the stage of being a couple of weeks form the date fixed for hearing when Westbrook withdrew the Notice and the claim supposedly due to the fall in property values. Westbrook made clear when serving Notice that they would take further steps to acquire the freehold on what they felt would be more advantageous terms. Friends Provident indicated at this stage that they felt if Westbrook did this under the Civil Procedure Rules they would need the Courts permission. Westbrook duly paid Friends Provident the costs of the Court proceedings.

A new Notice was duly served (after the 12 month moratorium period had expired). This Notice contained a different purchase price, date and manner of signature of the participating tenants. Friends Prov served a counter notice and proceedings were issued by Westbrook without permission of the Court being sought in advance. Five out of the six grounds raised by Friends were the same as the earlier proceedings. Friends submitted that the second claim was an abuse of process in that there was a public interest in the finality of litigation and that no party should be vexed by the same cause of action twice. Westbrook submitted that it did not require permission and if they did they should be granted permission as the possibility of successive claims was a feature of the Act.

Mr. Justice Arnold struck out the claim. He decided that the principle of finality of litigation and that a person should not be vexed twice should inform the courts approach. The claim amounted to an abuse of process. The facts were substantially the same. Whilst withdrawing the Notice was acceptable they should not have discontinued the claim and then looked to in effect bring a second claim on substantially the same facts. They should have pursued the Court claim and had that adjudicated upon and at that stage, if they had been successful, they could have withdrawn the Notice.

It seems that if you receive a negative Counter Notice before issuing proceedings you need to consider whether you wish to go through with them. Once proceedings are started if you then withdraw serving a Notice again on the same basis will be difficult without permission of the Court which it seems may not be given. If therefore you have a block where there may be issues over the right to enfranchise tenants need to be committed to going all the way through with proceedings and if in doubt need to be prepared to withdraw the Notice at an early stage. In practice this probably applies to a minority of claims and seems to be the Court expressing annoyance at corporate participating tenants looking to exploit the system as the judge saw it. Yet more case law deriving form LRHUDA 1993!

Filed under: England & Wales, FLW Article, comment, guidance, legislation, long lease, procedure, service charges

14 November, 2011 • 15:25 2

Is it reasonable to expect tenants to pay large service charges?

The Upper Chamber Lands Tribunal recently considered whether in determining if costs have been reasonably incurred account should be taken of the financial impact on tenants and whether major works should be phased (Garside and others v. RYFC Ltd and others [2011] UKUT 367). The case involved an estate of 5 blocks with 54 flats which as a result of historical neglect had a manager appointed by the LVT after an application by some of the leaseholders.

The Manager appointed set about arranging for outstanding works to be carried out. However a number of the leaseholders became concerned as to their ability to pay due to the significant increase in service charges these works would cause.

The leaseholders agreed that the scope of works was acceptable but queried whether it was necessary to carry out the bulk of the works at once. They suggested that the works should be phased to spread the costs over a longer period. The costs were likely to be in the year 2010 £7,600 or more and it was said that some Leaseholders would be forced to sell their flats.

The LVT rejected the argument that consideration should be given to the individual leaseholders ability to pay in determining the reasonableness of the costs. The LVT determined given there was no argument over the reasonableness of the costs, the specification or the ability of the Manager to recover the costs in advance and therefore in the LVTs opinion section 19 of the Landlord and Tenant Act 1985 only related to the reasonableness of the works and costs and not the ability of the leaseholders to pay.

The leaseholders appealed to the Upper Chamber Lands Tribunal. HHJ Robinson determined that the 1985 Act did not limit what is reasonable. In her opinion “reasonable” should be given a broad meaning in accordance with Ashworth Frazer v. Gloucester City Council [2001] 1 WLR 2180. Thus in her opinion the financial impact and whether works could and should be phased was a material consideration in determining whether costs have been reasonably incurred under section 19 of the 1985 Act.

The Judge said that a wide consideration had to be given of all the issues including the urgency of the works. These were all matters of fact and judgment for the LVT to determine. She did emphasis that the LVT could not alter a tenants contractual liability to pay whatever the hardship.

The lesson here is that if Leaseholders are faced with consultation over major works and they are concerned over the ability to pay they must raise this. This would be a legitimate matter to raise and for the person undertaking the works to have regard to and whether the works can be phased. Certainly something all property managers should be alive to particularly when drawing up specifications of works.

Filed under: England & Wales, FLW Article, comment, litigation, long lease, service charges

27 October, 2011 • 17:19 0

Right to Manage: Make sure you get the process right!

September saw 2 interesting decisions made by the Upper Chamber (Lands Tribunal) concerning Right to Manage (RTM) applications.

In the first case re 15 Yonge Park a claim notice under section 80 of the Commonhold and Leasehold Reform Act 2002 was served by the RTM company set up for the purpose of exercising the right to manage. Sadly on the Notice the wrong address was given for the Company in that it did not give the Registered Office address of the RTM Company but some other address. At first instance the LVT appears to have accepted that there was an error but that this was not fatal. Unfortunately the Upper Tribunal disagreed.

On appeal it was determined that the requirements set out in Section 80 of the 2002 Act are mandatory. The registered office should have been set out. If there had been some sort of minor error in this address such as a typo this could have been corrected under Section 81 of the 2002 Act but as complete failure to provide the registered office address (although some other address was provided) meant that the Notice as served was defective and invalid. Back to the drawing board for this RTM and almost inevitably a sizeable bill of costs.

The second case was re 6-10 Montrose Gardens. Reading between the lines of this decision it would appear that this was a hard fought RTM with this appeal not relating to the first notice served but the third! One can only guess why earlier notices had been withdrawn or deemed withdrawn.

On this occasion Notice was served which was disputed by the Landlord. The Landlord objected on the basis that an Invitation to Participate had not been given to those Qualifying Tenants who were not members of the RTM Company. Subsequently a couple of days before the 2 month time limit for applying to the LVT expired an application was faxed to the LVT but without any of the supporting documentation which was not received until after the 2 month period had expired.

The questions for the appeal were whether the application had been made properly and if so was the Landlord’s ground for refusal correct.

To deal with the second point it appears to have been agreed that no invitation to participate was served prior to the service of this notice but an invitation had been served prior to an earlier invalid notice. The terms in effect of this notice were the same as those following the Invitation to Participate. Also those persons who were originally served with the Invitation Notice had remained the same. The Tribunal found that there was no need to serve a further Invitation Notice simply because other RTM Notices had been withdrawn or deemed withdrawn. Care should be taken particuarly to make sure that those who should be served the invitation Notice have not changed and good practice must say that it would be better (and safer!) to reserve the Invitation Notice to prevent any argument on this point.

With regards to the application to the LVT the Upper Tribunal was not so generous. Whilst the Upper Tribunal accepted that the LVT may have a discretion they must have received sufficient documents to allow them to deal with the claim and here they had only received an application form. As a result the Upper Tribunal determined that the right of discretion had not even arisen. As a result the application was said to be out of time and there was therefore a deemed withdrawal. It appears therefore they are now on to RTM Notice number 4!

In practice these cases provide a clear lesson that you must make sure you comply with the procedure as set out in the Act fully and you are unlikely to be able to correct mistakes. Further evidence of the need to take care in respect of all Notices but particularly leasehold reform matters as the decisions are clear that strict adherence to the statutory process is required.

Consider yourselves warned!

Filed under: England & Wales, FLW Article, comment, legislation, long lease

17 October, 2011 • 11:44 0

How long do I need to own my lease for to get an extension?

For a leaseholder to seek an extension under the Leasehold Reform Housing and Urban Development Act 1993 (“The 1993 Act”) it is still necessary to have owned the lease for a period of two years.

Whilst various amendments have been made to the 1993 Act (under the Commonhold and Leasehold Reform Act 2002) the requirement to have owned the lease for a continuous period of two years still remains. This is important particularly for people buying a lease where the term is getting close to only having 80 years remaining. You should remember that if the term falls to 80 years or less then the freeholder will be entitled to receive 50% of any marriage value which exists. In respect of many leases this means that the premium payable will be significantly higher than if a lease extension was obtained before the term fell to less than 80 years.

So the Leaseholder must have been a qualifying tenant for at least two years under section 39(2) of the 1993 Act. The period of ownership is calculated going backwards form the date of service of the Notice of Claim under section 42 of the 1993 Act. The period must be continuous but you can rely upon periods where the leaseholder has been a joint owner for calculating the 2 year period. Also it seems that provided you have owned the same flat it does not matter that you have been granted a new lease of that flat. It is the period of ownership of the premises which is crucial. This does mean that if a Leaseholder has acquired a new lease under the Act they would not need to wait a further 2 years before applying again for an extension (if you wanted to!).

It is however the case that the 2 year period will only start from the date of registration at the Land Registry as under section 22(1) of the Land Registration Act 1925 (and subsequent amendments) and various authorities it is believed that the Leaseholder only becomes the legal owner of the lease upon registration. Leaseholders and their conveyancers need to be aware of this point as sometimes registration can take some time and certainly should not be overlooked. In an unreported case in Central London County Court (Wellcome Trust Limited v. Baulackey 2009) the Court determined that the purchaser of a lease was not entitled to serve a Notice under section 42 of the 1993 Act until they had been registered as proprietor for at least 2 years.

As a result if you are looking at buying a lease with say only 83 years remaining consideration should be given to having the outgoing Leaseholder serve a Notice (assuming they have a 2 year qualification) which can then be assigned. Whilst incurring further costs at the time of purchase (which many Buyers wish to avoid) in the long run it can save substantial costs. It is also worth noting that some Freeholders will grant voluntary terms or agree an extension even if the criteria for qualification are not made out although often at a price!

Yet a further point which advisers serving Notices of Claim and those advising on receipt of the same need to be alive to. Yet a further example of the pitfalls within the 1993 Act!

Filed under: England & Wales, FLW Article, comment, guidance, legislation, long lease

14 October, 2011 • 09:11 0

What is a Flat?

This was the question which HHJ Cowell had to answer last week at Central London County Court in respect of a claim for Collective Enfranchisement made under the Leasehold Reform and Housing Development Act 1993 in the matter of Farndale Court Freehold Limited v. G & O Rents Limited.

The claim concerned a building which can best be described as akin to a student halls of residence. The building consisted of a terrace of 4 blocks. In one block was a management office which belonged to the freeholder and also a room used as a laundry. On either side of the stairwell on each floor was a Unit which typically consisted of 6 en suite bed sitting rooms, a corridor and a communal Kitchen/diner. There were 30 of these units and a Qualifying majority of tenants had given a Notice to Enfranchise under the 1993 Act. The Defendant freeholder had served a Notice alleging that the Units were not flats within the definition of the 1993 Act Section 101(1).

Further the Defendants also alleged that the Units were used as business premises. This was not raised in the Counter Notice.

As a result the Freeholder alleged that the Claimant nominee purchaser was not entitled to enfranchise.

The Claimant bought proceedings for a declaration under Section 22 of the Act that the participating tenants were entitled to enfranchise.

The Judge in deciding if the leases were of a flat took the view that each lease was for a separate set of premises and that each formed part of the building as a whole and had been constructed and adapted for use as a dwelling. The Judge did not feel that the cases relating to “houses” and enfranchisement under the Leasehold Reform Act 1967 assisted him but he did refer to Malekshad v. Howard de Walden Estates and the view of Scott LJ at paragraph 101 that a dwelling was either a house or a flat.

The Judge in this case found that the Units had been constructed for people to live in. Further he determined that whilst most units had 6 rooms, each room could not be said to be a separate dwelling since each was used with the kitchen. He went on to say that if each room could be said to be a flat that was in his view unrealistic and the alternative that there were no flats was equally unrealistic.

He held that each of the Units were a flat within the definition of Section 101(1).

The next point was whether the Defendant was entitled to rely upon the business user despite having failed to mention this in the Counter Notice.

The Judge relied upon a decision of HHJ Cooke at Central London County Court in the case of Bishopsgate Foundation v. Curtis [2004] and found that the argument over business user had not been thought about or hinted at in the counter notice and the Defendant could not rely upon this since there was no reference in the Counter Notice.

He did however go on to consider the business user point. The Judge did state that he could see that a layman looking at the letting arrangements and the units may well conclude that this was a business user but he was satisfied that this was not the correct test. The correct test was to have regard to Section 23 of the Landlord and Tenant Act 1954. The Judge was referred to Graysim Holdings v. P & O [1996] but determined that the current case was on all fours with this authority.

The Judge found that there was not a Business user (save for a short period in respect of two units only as a hotel).

As a result the Claimants were successful in their application although the Defendant may appeal.

It is believed that this is the first case on the point of what is a flat under the 1993 Act. It seems that if you have a dwelling then if it is not a house it will be a flat! Plainly the factual situation is going to be important and we still await the House of Lords decision in Hosebay which may or may not provide further assistance.

Further the Judge did make clear that in his opinion a Freeholder must set all arguments in the Counter Notice although he does not need to go into in detail. This is perhaps surprising but the Judge was clear that in effect the Counter Notice is akin to a pleading.

Perhaps not of huge interest save for those who practice in this field but an interesting decision none the less.

PainSmith were instructed on behalf of the Defendant Company and are happy to advise with regards to all residential long leasehold matters.

Filed under: England & Wales, comment, legislation, long lease

3 October, 2011 • 12:59 0

Look at the lease!

We have posted on this topic before but many questions we receive on the helpline come back to the same answer.

Whether you are dealing with an AST or long leasehold dispute the starting point must always be the agreement or lease. The Courts, adjudicators and LVTs will always look at the lease/agreement as the starting point. It is imperative that advisers check the document carefully to ensure that all terms have been complied with and/or the remedy sort is provided for. Generally Courts etc will not look to imply terms into such a written agreement and will expect parties to comply with the terms that are written. This is particularly true for the party seeking to rely on the same.

Service charge clauses in particular often contain detailed requirements. It is not sufficient to say a party is not prejudiced by a failure to comply strictly with the terms. A careful review should always be undertaken by all managers and owners whether or not it appears that everyone is happy. Parties can and often do raise disputes at a later stage.

The Courts, adjudicators and LVTs have issued a number of decisions over the past 12 months making this clear.

The moral is therefore, check the documents and check you comply!

Filed under: England & Wales, FLW Article, comment, long lease, tenancy agreements

3 October, 2011 • 09:01 1

Long Lease.

PainSmith are proud to be members of ALEP

PainSmith have recently been successful in their application to join the Association of Leasehold Enfranchisement Practitioners (ALEP).

ALEP was formed to provide a body of professionals all involved in the field of leasehold enfranchisement who adhered to an agreed level of conduct and service. All members of ALEP to receive membership have to be able to demonstrate that they have sufficient expertise and experience in this complex area of law.

PainSmith Solicitors as a specialist firm of Landlord and Tenant solicitors is pleased to have been made a member of ALEP. PainSmith are able to offer specialist advice on all aspects of long leasehold property and regularly act for Freeholders and Leaseholders in a variety of matters including service charge disputes, lease extensions and collective enfranchisements.

For further information on ALEP please visit the website or for advice please contact us.

Filed under: England & Wales, FLW Article, comment, long lease

23 September, 2011 • 10:00 2

Collective enfranchisement: what is it?

Collective enfranchisement is the term given to Leaseholders acquiring the Freehold of the property they live in. For the purposes of this article we will be referring to the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”) as amended and the collective enfranchisement of flats. There is other legislation such as the Leasehold Reform Act 1967 which mainly relates to houses.

For many people owning a share of the freehold of the block of flats they occupy is seen as being vital as people often do not like the idea of simply being a tenant. In practice there are many different considerations which need to be weighed up before any application is made.

Firstly the Leaseholders need to act together (at least in part) since in simple terms 50% of the long leaseholders have to all come together to be able to purchase the freehold and if the building has any commercial parts these must not exceed 25% of the building. Assuming that these basic conditions are met the Leaseholders can then at least in principle consider whether they wish to pursue this route. Often there will be a vocal group who wish to “get on ” with the application. At this stage it is usual that people will then look to appoint a surveyor experienced in these matters to provide some guidance on the price payable. The methodology is set out in the Act and has been subject to numerous decisions of which the most famous is probably the decision in the case known simply as Sportelli. It is vital that a proper valuation is undertaken at an early stage to give all of the potential participants some idea as to what price may be paid.

Assuming that the numbers then match the Leaseholders pockets a detailed consideration should be given as to the right to qualify. Often a valuer experienced in this field will already have flagged if he foresees any particular issues. At this point it would always be advisable to instruct someone experienced in this field as the law, despite various amendments being made under the Commonhold and Leasehold Reform Act 2002, remains hugely technical with various pitfalls for the unwary. The adviser can then draw up the appropriate documentation and advise whether the Leaseholders will hold the freehold subject to any trust or company structure. It is worth pausing at this point to highlight that it is always open to Leaseholders to enter into informal negotiations with the Freeholder.

A Notice will then be served upon the Freeholder specifying a date by which they must reply. If there is no response then an application can be made to the County Court but usually (assuming a valid Notice has been served) the Freeholder will respond agreeing the right but disputing the price. There can however still be many technical reasons why a Notice may not be accepted by a Landlord and the Court of Appeal and the Supreme Court continue to hear a large number of appeals on very technical aspects although the bulk of these do relate to high value properties in what is known as Prime Central London however the outcomes tend to be binding on all.

The Act then allows for a period of negotiation after which if no agreement is reached an application can be made to the Leasehold Valuation Tribunal for a determination of the terms of the purchase. After this determination or agreement there will then be a transfer of the freehold and the Leaseholders will have acquired the freehold.

It is at this point that the hard work starts. Often Leaseholders will be advised to grant to themselves extended leases (typically 999 year terms) and possibly review any other perceived or actual failings in the lease. Certainly this should be looked at at this stage as there can be various issues if the Leaseholders only look to do this some way down the line, not least certain tax consequences which can arise.

It is important that all parties to the Collective Enfranchisement understand that there will still be a Leaseholder and Freeholder and whilst not impossible to own a freehold flat this is highly undesirable for reasons outside the scope of this article. The previous leasehold structure will then remain. For this reason before going down the route the Leaseholders must consider what Collective Enfranchisement will mean in practice.

The Freeholder will still be required to comply with both the terms of any leases (whether participants in the acquisition or not) and also the various statutory rules particularly governing recovery of service charges. The LVT in various recent decisions has made clear it has no jurisdiction to deal more leniently with Resident Owned freeholds than those owned by commercial investors. Given how complicated some of these rules are Leaseholders will always be well advised to consider appointing external managing agents to make sure these obligations are complied with. Owning the freehold brings both rights and obligations and this should not be forgotten. In particular awkward situations can arise where you have non paying tenants as the Freeholder and the Leaseholders who comprise the same will need to pursue action against these people.

As a result careful consideration needs to be given not just as to the acquisition but what this means for the future. It is also worth noting that simply because a building has undergone Collective Enfranchisement on one occasion does not mean this will not happen again and the writer has seen instances where one group have enfranchised but there has been a parting of the ways with some members of the freehold and so a second collective enfranchisement has taken place!

For some Leaseholders the costs of Collectively Enfranchisement mean that this is more economic than bulk lease extension applications but Leaseholders should proceed with their eyes fully open as to what is involved once you have been successful. Advice at an early stage of the process is vital so all are aware of the full implications of going down the route but if you decide this is the route for you it really can be a satisfying journey to have greater control of your destiny for what for many is their largest single asset

Filed under: England & Wales, FLW Article, comment, costs, legislation, long lease, procedure

5 September, 2011 • 10:37 2

Residential Property Tribunal Service: what is it?

The Residential Property Tribunal Service or RPTS as it is often known currently incorporates Rent Assessment Committees, Leasehold Valuation tribunals (LVTs) and Residential Property Tribunals. These are all quasi judicial bodies who have been given powers to determine various disputes relating to property under various legislation.

RPTS is the umbrella organization covering the 5 regional panels each of which has a President and a number of Vice Presidents who determine which members will hear disputes. Generally for each Tribunal or Committee a panel of 2 or 3 members are appointed to deal with each case. The panel will consist of a Chair (usually a lawyer or valuer) and 1 or 2 other members who may be lawyers, valuers or lay members. All members are specifically trained to deal with the range of disputes which RPTS deal with as in all functions RPTS is a specialist tribunal.

Rent Assessment Committees: generally these deal with disputes and issues arising from rent levels. They were set up under the Rent Act 1977 and now cover Rent Act tenancies, assured shorthold tenancies, assured tenancies and tenancies arising upon the end of a long residential lease. They have specific roles in relation to each of the different types of tenancy for becoming involved in the determination of rent payable.

Leasehold Valuation Tribunals: These deal with a variety of matters relating to long residential leases. Over the past decade the powers granted to them have increased although part of their jurisdiction runs in tandem with the Courts. Where this happens often today the Courts will refer matters to the LVT rather than adjudicating themselves.

In brief LVTs deal with all matters relating to the terms of an acquisition of a freehold or lease extension under the various statutes (e.g. Leasehold Reform and Urban Development Act 1993) including the price payable. They also deal with long residential leasehold disputes including in respect of service charges. This includes determining the reasonableness of service charges and whether appropriate statutory requirements have been complied with such as consultation and matters relating to appointment of managers and Right to Manage applications.

Residential Property Tribunals: these deal with matters relating to park homes and also various appeals and applications in relation to various actions which a local authority can take such as Empty Dwelling Management Orders, Improvement Notices etc.

The above gives only a brief introduction into the jurisdiction of RPTS which has been on the rise over the past 2 decades. This applies to England although Wales has a similar system. From July 2011 RPTS became part of HM Courts and Tribunals Service which is part of the Ministry of Justice. From Autumn 2012 RPTS and the various jurisdictions will then become part of the Property Land and Housing Chamber as a new part of the First Tier Tribunal which will incorporate RPTS, Agricultural Land Tribunals, The Adjudicator of the Land Registry and the Valuation Tribunal for England all within one body.

Many commentators believe that it is likely that greater jurisdiction will eventually be given to this Tribunal to cover more extensively matters relating to residential property.

A dry area but something everyone involved in residential property should know exists and have some knowledge as to what it does given the wide powers it now possesses.

Filed under: England & Wales, FLW Article, comment, long lease

26 August, 2011 • 11:56 0

More on service charges….

Peter recently asked what is the best way to recover Insurance Premiums having written to the Lender and not received any reply and should he go to the County Court or the LVT?

The situation is not clear cut. Both methods could be adopted and both have pluses and minuses.

Leasehold Valuation Tribunal (LVT)

You could apply to the LVT for a determination of the reasonableness of the charge. The LVT will normally issue Directions and there will be a hearing. At the hearing the panel will review and use their own expert knowledge to assess the reasonableness whether the Tenant attends and disputes or not. There is no procedure for a default ruling if the tenant does not take part and thus the process can take longer than obtaining a Judgment. The benefit is that if you fear a defence or problems there are no real costs sanctions and if you wish to deal with the matter yourself some people find the process easier than the Courts

County Court

You are entitled to apply for a monetary Judgment. You can today do this on line via the Money Claims website https://www.moneyclaim.gov.uk/web/mcol/welcome. The Court will then issue the claim and serve this upon the Defendant. They will then have 14 days to indicate if they wish to defend. If no defence you can seek a Judgment in default but if defended you will then have to deal with the tenants defence and if it relates to the reasonableness of the charge the matter is likely to be transferred to the LVT to rule upon. Assuming the amount claimed is less than £5000 this matter will be dealt with as a small claim and generally no legal costs (or just a very small amount ) are recoverable save where the tenant has lodged some form of counter claim for more than £5000.

Once you have a Judgment from the Court or a determination from the LVT the mortgage lender should then pay or you can take steps to forfeit the lease.

Please remember which ever route you follow ( and my personal preference would be the Court since you can obtain a default Order) you must ensure you have strictly complied with the terms of the lease and statute governing service charges. If in doubt it is always best to check as otherwise you could find that the sums are not payable. In particular I would highlight that the LVT may say that the sums are reasonable but may not be payable yet if the Landlord has not complied with the Lease terms etc. Generally the Courts will expect freeholders to fully understand the lease and the law governing these matters!

This blog has been submitted in response to a comment from a reader. Thank you for your continued support Peter.

Filed under: England & Wales, FLW Article, comment, legislation, litigation, long lease

23 August, 2011 • 12:34 0

Service charges: what do you need to know?

Over the past two decades the rules dealing with service charges have changed completely and there now exists a fairly comprehensive set of rules which as can be seen in cases reported from the Leasehold Valuation Tribunal (LVT) can catch out the unwary.

The starting point for all Property Managers and Leaseholders must be the actual Lease itself. It is no good to say “Well good practice is this…” if the lease does not allow or includes a particular mechanism this must be followed. One of the things which many leases contain is some sort of Certification mechanism. If this is included In the lease unless and until this process is followed in full the service charge will not be payable and unless done in a reasonable period of time may not be payable at all! As to what is reasonable this will always depend upon the actual circumstances but usually a common sense interpretation will be given.

Next are the various statutory rules governing service charges and the collection of these. Some of the main items can be summarized as:

1. All demands must contain a Summary of the Leaseholders rights. Without this no valid claim has been made.
2. Leaseholders are entitled to inspect accounts and all receipts and invoices.
3. Leaseholders are entitled annually to a copy of the insurance policy.
4. Any works which will cost any one leaseholder more than £250 must be subject to a detailed consultation following a set formula
5. If there are any costs associated with works and if for any reason the sum cannot be demanded within 18 months details of the amount etc and the fact it will be claimed must be notified to the leaseholder.

The above gives a brief synopsis of some of the major pitfalls that lie in service charges and the recovery.

Today most disputes about residential service charges even if begun via the Court will normally be actually adjudicated on by the LVT. This is a specialist property Tribunal. The LVT has jurisdiction to deal with most disputes as to the reasonableness of service charges and can make set offs although it does not have jurisdiction to deal with breach of covenant claims. Generally the process before the LVT is similar to the County Court although not always as formulaic. The LVT will issue Directions and then list a matter for hearing. At the hearing there will usually be a panel of a Chairman (usually a lawyer), a Surveyor and sometimes a third lay member. The panel will often inspect the property before the hearing and then go on to hear evidence before usually retiring to then give a written decision within about 6 weeks of the hearing.

Parties should be aware that on occasion even if issues are not raised by a party the Tribunal may raise them such as the service of appropriate consultation notices and Summary of Rights and Obligations. Property Managers should always have available these documents when they attend an LVT and be able to show that they have complied. Without it the consequences can be significant as the LVT seems to be taking a tough line on compliance. What is often said to be the real benefit of the LVT is that generally it has no powers to award costs. In certain circumstances it can award a party its costs up to a maximum of £500. It is also able to order that a particular party should pay to the other side any fees paid to the LVT and also to adjudicate on whether the costs may be included as a future service charge expense. It is worth noting that many commentators believe it is likely that the jurisdiction of the LVT will be increased and the rules on costs will be changed probably giving the LVT powers to award up to £5000 per party.

It is vital that all Leaseholders and Property Managers give careful consideration as to the lease and the rules. In particular Owner Managed blocks (e.g. where the Leaseholders have purchased their own freehold) do need to be aware that these rules apply equally to them and there is no opt out simply because in effect the freeholders and leaseholders are one in the same. If in doubt you should look to take advice at an early stage to prevent problems later!

Filed under: England & Wales, FLW Article, comment, litigation, long lease, regulations

12 August, 2011 • 08:38 0

Why is 80 years so important with a Long Residential Lease?

Many people today are finding when they come to sell (or buy) a long residential lease of a flat that questions are raised over the length of the lease. Many mortgage lenders are now demanding longer terms of lease before they will consider a property to offer good security and many more conveyancing solicitors are now alive to the issues and costs which can be incurred when a lease becomes short.

Generally most residential leases can be extended under the Leasehold Reform and Urban Development Act 1993 provided the Lease has been owned for 2 years. The procedure is however complicated and full of pitfalls for the unwary. In particular there is an issue if the length of term falls below 80 years in that the Leaseholder will then need to pay to the Freeholder one half of any marriage value (this is of itself a topic for another blog!). This can hugely affect the price payable for the extension since if more than 80 years is left on the lease then the price is basically calculated having regard to the Ground Rent payable ( apologies to all you valuers out there for over simplifying this). It is vital that all Leaseholders keep this in mind and should always take advice about extending a lease well in advance of 80 years and if you are looking to buy a lease getting close to this deadline that you factor these costs into your purchase considerations.

The moral is take care and know what length of lease you may have and act before it reaches 80 years!

Filed under: England & Wales, FLW Article, comment, legislation, long lease

15 July, 2011 • 12:24 0

Read the Lease!

In Akorita v Marina Heights (St. Leonards) Limited a long leaseholder refused to settle service charge demands because the freeholder failed to comply with a term of the lease when submitting the demand.

Akorita’s main argument was that service charges are only payable when the amount to be paid has been properly certified by the freeholders surveyor, in this case no such certificate had been provided.

The clause in question read:

“To reimburse to the Lessor a sum (hereinafter referred to as “the Service Charge”) equal to one seventh (or such other proportion as may be determined by the Lessor’s Surveyor depending upon the number of Units eventually using the access drains or other communal parts) of the costs expenses outgoings and matters mentioned in the First Schedule hereto the Service Charge to be due and payable on demand and the amount of the Service Charge to be ascertained and certified by the Lessor’s Surveyor acting as an expert and not as an arbitrator once a year up to the Thirtieth day of June in each year (or if such ascertainment shall not take place on the Thirtieth day of June then the said sum shall be ascertained as soon thereafter as may be possible as if such sum has been ascertained up to the Thirtieth day of June aforesaid) commencing on the Thirtieth day of June”.

The Upper Tribunal held that on the proper construction of the above clause it is a condition precedent to any liability of Akorita to make payment either on account of service charge or by way of a final balancing service charge payment once Marina Heights has obtained a certificate. Therefore in the absence of a certificate Akorita had no service charges to pay and until the certificates are obtained the liability will remain nil.

Given that Marina Heights had lost the appeal the Tribunal also made an order preventing them from recovering any costs through any future service charge demands pursuant to a clause in the lease. This decision was also no doubt based on the fact that Marina Heights had insurance cover for the costs.

I think the title says it all and its Friday so no sermons.

Filed under: England & Wales, FLW Article, litigation, long lease

28 June, 2011 • 21:20 0

Consultation process…

The Leasehold Valuation Tribunal (the LVT) in Southall Court v Tiwari reduced a landlord’s claim for service charge contributions from 48 leaseholders from £2,053.42 to £482.50 per flat. The Landlord was granted permission to appeal to the Upper Tribunal.

The landlord had fulfilled its obligations under Section 20 of the Landlord and Tenant Act 1985, the leaseholders’ however failed to comment in response to the consultation process for substantial works to the roof. The leaseholders’ claimed that the reason for failing to reply was because it was obvious that the matter would be referred to the LVT. The reason for this we assume is because in the report it is stated that “Southall Court has probably been the subject of more applications to the Tribunal than any other property in the country”. On appeal the Upper Tribunal held that where the leaseholders have failed to comment then the landlord is entitled to assume that there are no objections to the works. This is the case even where it is obvious that the matter would be referred to the LVT. The Upper Tribunal held that it was the duty of the leaseholders’ to respond during the consultation process and that in this case where no comments were made the landlord had acted reasonably throughout.

At the LVT the landlord’s expert gave evidence and confirmed that there were no current leaks in the roof and that it could have staggered on for a few more years. The LVT inspected the property and agreed with the expert’s oral evidence. However the Upper Tribunal held that the landlord had a wide discretion as to the programme of works it adopted and applying that principal to this case came to the conclusion that the LVT was not entitled to find that the landlord’s works were unreasonable. This was especially so given the expert findings that the roof had only a further 12-18 months useful life.

The leaseholders’ attempted to argue that the existence of a sinking fund was irrelevant in this matter. However, the Upper Tribunal disagreed with this and dismissed the leaseholders’ attempt to argue that given the small sinking fund it was unreasonable to carry out the works. The Upper Tribunal found instead that the fund made very little difference between the reasonableness of a decision to re-cover the roof now or in 12-18 months time.

The landlords appeal was accordingly allowed and the leaseholders’ were ordered to pay £2,053.42 each.

We have had many agents undertaking block management contact us about the consultation process and we hope that this blog emphasises how important it is for agents to advise leaseholders’ to take part and comment in time.

Filed under: England & Wales, England only, consultations, Landlord & Tenant Act 1985, long lease

22 June, 2011 • 09:14 0

Trespasser

In Eaton Mansions v Stinger, Stinger appealed against a High Court decision that he had trespassed on the roof of a building when he installed some air conditioning units.

Eaton Mansions is the long leaseholder and Stinger was the sub lessee (it has now sold its interest). In 1980 Stinger had been granted permission to install air conditioning units. In 2007 and 2008 Stinger then installed further air conditioning units without obtaining the consent of Eaton or the head landlord Grosvenor Estates.

Numerous meetings were held by all three parties and their representatives about the consent for the new units, correspondence also went back and forth but Stinger still proceeded to install the units and claimed that Eaton had unreasonably withheld consent. Eaton argued that it had not unreasonably withheld consent because it was likely that Grosvenor would have refused consent and that would have then put Eaton in breach of their lease with Grosvenor.

When looking at the facts and the terms of the lease itself the Court of Appeal held that Stinger had in fact no right to install anything on the roof with or without the consent of Eaton because there was no provision in the lease for such an installation. The court also held that it would have been unreasonable for Eaton to refuse consent if Eaton was aware that Grosvenor would have consented to the units. But here Stinger knew that consent from the freeholder had not been obtained and yet Stinger still demanded consent from Eaton and then went ahead and installed the units in any event.

Grosvenor had indeed entertained Stingers proposals for the units but at best they were only prepared to offer an irrevocable licence for the units. They did not in their conduct indicate that a licence would be forthcoming and as such Eaton were entitled to be cautious when dealing with the matter.

It was therefore held that Stinger had not shown that Eaton had unreasonably refused consent for the new units and as such the appeal was dismissed.

Many agents are now managing blocks of flats such as this and are not familiarising themselves with the lease when making a decision on the running of the building. The lease is the contract between any freeholder and leaseholder and it must be referred to prior to any decisions being made to avoid expensive litigation such as this. It was due to the fact that Stinger obtained consent in 1980 that it automatically assumed that it was entitled to consent in 2007 when the lease made no provisions for such units.

Filed under: England & Wales, FLW Article, comment, licensing, litigation, long lease

6 June, 2011 • 21:35 2

Does it form part of the structure or not?

In Grand v Gill, the landlord had a damages and costs award made against him for disrepair.

Grand entered into an assured shorthold tenancy on the 21 November 2004. The tenancy continued thereafter on a statutory periodic tenancy. Grand occupied the property with her daughter who is now over the age of 18.

Grand made a claim against her landlord, Gill, who had a long lease interest in the property, for harassment, personal injury, breach of the quiet enjoyment covenant and disrepair.

The main concern here was the disrepair. Grand’s daughter began sleeping in the lounge due to the damp and mould in her room. There was a problem with water ingress due to a damaged roof and poor guttering. However these issues did not form part of the landlord’s demise. Finally the gas-fired boiler broke down frequently and worked inefficiently. Damages for the disrepair amounted to £5,250 with damages for the breach of quiet enjoyment standing at £350.

Grand appealed. Grand’s legal representative argued that the award for the damp failed to take into account the fact that Gill was not just in breach of his obligations in relation to the heating problems which contributed to the damp, but also the omission to repair damaged plaster.

Expert reports had been obtained and they concluded that there was damaged plasterwork in the lounge due to penetrating dampness. The report suggested that Gill needed to hack off the damaged plaster and replace. Gill did not undertake these works. If this plaster formed part of the structure of the property Gill was indeed liable for this both pursuant to the terms of the agreement and Section 11 of the Landlord and Tenant Act 1985.

The Court of Appeal held that plaster is an essential part of the creation and shaping of the ceiling or partition wall, which give a dwellinghouse it’s appearance and shape. Plaster is a constructional finish to Walls and ceilings, to which the decoration is applied. Plaster is not a decorative finish and Gill is accordingly liable.

The damages were not referred back to the lower court because they were minor in the grand scheme of things. Therefore the court assessed damages in a summary manner at £750 to replace the £600 that was awarded for the damp.

The issue of whether plaster is structural, and therefore part of the section 11 obligations, or decorative and not has been floating back and forth in the higher courts for some time without a clear answer. In the judgement itself many cases are considered but this is the first case where the issue seems to be clarified and landlords are now held accountable for damaged plaster. In many cases this is irrelevant because the landlord assumes an obligation in the lease for plaster work among other things. However, this is not always the case.

While the damages were not increased by much it is the general principle that matters. The concept that anything which is to act as a support for paint or other decorative material is structural could be applied to a number of other areas and could have far reaching effects.

Filed under: England & Wales, FLW Article, disrepair, litigation, long lease

16 February, 2011 • 13:49 0

Consultation Works

Where landlords of long leases (more than 21 years) wish to carry out works they must consult the leaseholders before they are entitled to a contribution towards these works. If the consultation process is not followed pursuant to s.20 Landlord and Tenant Act 1985 the landlord’s ability to recover monies is capped at £250 per leaseholder. The landlords can apply for a dispensation from these consultation requirements however this is subject to the LVT’s approval.

In Daejan Investments Ltd v Benson and others, Daejan sought to recover some £270,000 of service charges from five leaseholders in respect of the works to the common parts of the building containing their flats. However, unfortunately for Daejan, the LVT found that that it had failed to comply with the consultation requirements.

Specifically the LVT held that Daejan failed to:

1. set out a summary of the observations received and the landlord’s response to the initial notice;

2. ensure that the estimates were available for inspection at a place for the period specified in the notice;

3. give 30 days to enable leaseholders to make observations on the estimates.

The LVT held that it would be wrong to grant the landlord dispensation from the consultation requirements because it considered that the leaseholders had been prejudiced by not seeing the full estimates and having a shortened opportunity to make observations. This is despite the fact that the leaseholders had not identified what comments they would make, if any, if given the opportunity. Daejan appealed to the Upper Tribunal (Lands Chamber).

The Upper Tribunal dismissed the appeal and held that the LVT had to focus on the scheme and the purpose of the consultation requirements and any financial prejudice to the Landlord was irrelevant. However, the Tribunal confirmed that the extent to which the leaseholders were prejudiced or disadvantaged was relevant and a common sense approach should be applied when making any findings.

Daejan appealed unsuccessfully to the Court of Appeal. The Court of Appeal reiterated most of what was said by the LVT and emphasised that following the consultation process in the proper manner was the essence of the statutory scheme and curtailing consultation was a serious failing that could cause significant prejudice.

Whether or not and in what circumstances the LVT will grant dispensation, retrospectively or otherwise, is not clear following this judgment. However, where there has been no prejudice to the leaseholder due to a minor breach or where works have been carried out in a genuine emergency dispensation may be possible.

Filed under: England & Wales, FLW Article, legislation, litigation, long lease, procedure

13 April, 2010 • 19:18 0

Long Leases in Scotland

Those who know about Scottish law will be aware that it is not now practically possible to create a lease in excess of 20 years in Scotland. Additionally, feus were prohibited in 2000 and most were converted into an ownership for the vassal. A similar arrangement is now being proposed for certain long leases which have survived previous reforms.

The Land Tenure (Reform) Act 1974 acted to prevent longer leases occurring because it allowed landlords to terminate the lease at any point after 20 years. This meant that no tenant would normally be prepared to enter into any such arrangement and longer leases accordingly dropped away. However, some leases, created prior to that Act, are still in existence and were not removed by the various legislation in 2000 and 2003 which aimed at removing feudal tenures. Some of these leases are ludicrously long (one million years in the case of several in Paisley). In 2006 the Scottish Law Commission produced a report suggesting a further ‘clean up’ of these anomalous leases by converting what it called ‘ultra-long’ leases into a right of ownership.

The Scottish Executive has responded to this report by producing a consultation supplemented by a draft bill in which it proposes converting any lease for more than 175 years which has more than 100 years left to run into a right of ownership for the tenant.

The proposed bill contains mechanisms for sporting rights to be preserved for landlords. This is unsurprising as one of the reasons for the creation of such leases was to preserve these rights for landlords whose primary interest in the land was for its leisure facilities. They are also of substantial value in some cases and there would be difficulty in compensating landlords for their loss. The bill also proposes to compensate landlords for the loss of their title in the land to be based on the rent level and calculated in a similar manner as was carried out during the abolition of feus. There are also provisions for higher levels of compensation to be payable in certain limited circumstances if the landlord serves an appropriate notice on the tenant. It is intended that higher levels of compensation will be payable by way of instalments.

The consultation continues until 30 June 2010.

Filed under: Scotland, consultations, long lease

12 April, 2010 • 09:19 0

New Right to Enfranchise

In May 2009 a consultation on new provisions on the right to enfranchise (RTE) were published. A summary of responses to this consultation has just been published.

The RTE provisions in the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) set out to provide long leaseholders (qualifying tenants) of flats with a right to participate in an action by other qualifying tenants in the same building to exercise rights to collectively purchase their freehold (known as collective enfranchisement).

The collective enfranchisements rights under the Leasehold Reform Housing and Urban Development Act 1993 (1993 Act) were conditional upon minimum qualifications being met such as proportions of residential use and numbers of flats owned by tenants in the building and participation.

However, amendments were made by the 2002 Act and the restrictions were relaxed so that eligibility depended upon a building having no more than 25% non-residential use, provided at least two-thirds of those flats were held by qualifying tenants and that at least half of the tenants in the building were willing to participate.

The RTE provisions were geared towards ensuring that all qualifying tenants could take part in the enfranchisement process for their building. However, under the RTE provisions in order to enfranchise a RTE company had to be created and the qualifying tenants then had a defined period by which to join the company. The implementation of these provisions has been delayed and it was this issue that has led to the consultation.

Whilst the whole process and even the creation of the company is in itself quite a simple and straightforward process, there are some concerns related to the costs and expenses of the process. Without clear guidance on how the costs and expenses are to be apportioned there is very little preventing unfairness in their allocation.

There were further problems identified with qualifying tenants waiting until the very last minute to decide whether they wanted to join the RTE company. The number of participants obviously has a bearing on the costs of the process for each individual tenant therefore if some tenants decide that they do or do not wish to take part this may have an adverse effect on the process as a whole with some tenants possibly being unable to afford to continue without other participants.

The consultation in May 2009 therefore had a total of eleven questions which set out the concerns with the RTE provisions and sought views on whether they needed to be addressed prior to the implementation. The upshot is that further amendments are felt to be necessary before the full provisions regarding collective enfranchisement in the 2002 Act are brought into force. No timetable has been proposed for this and so this matter will remain in abeyance.

Filed under: England & Wales, enfranchisement, long lease

3 December, 2009 • 17:40 1

Service Charges….or not

The Court of Appeal in Morshead Mansions Ltd v Di Marco distinguished between service charges payable under a long lease and the liability of a member of a company to pay that company under its Articles of Association.

The claimant company owned the freehold and undertook the management and administration of the block of 104 flats. All the flats were under long leases, with each lease containing provision for the payment of service charges. The leaseholders also owned a share in the company.

Under the company’s Articles of Association, the company was permitted to establish and maintain capital reserve, management funds and sinking funds to pay or contribute to fees costs and other expenses for such things as maintenance of the block and the provision of services. The Articles allowed the company to require the shareholders to contribute to such reserves or funds in a manner approved by the shareholders at a general meeting.

At the general meeting, the shareholders approved the establishment of a recovery fund for the purpose of raising some £400,000 to redecorate the exterior of the block and to finance the provision of services. It was resolved that each leaseholder would contribute £4,000.

The defendant was a leaseholder and a shareholder in the company and refused to contribute to the recovery fund. The company issued proceedings to recover the funds and the defendant contended that such funds were service charges as defined by s.18 of the Landlord and Tenant Act 1985, and that the company was not entitled to summarily decide to collect service charges which could be recovered under the terms of the lease.

The Court held that there was a distinction between the liability of a tenant to his landlord to pay a service charge, to which s.18 of the Landlord and Tenant Act 1985, applied, and the liability of a member of a company to pay similar sums under the Articles; the claim bought by the company related to the company’s right to recover money owed by the defendant as a member of the company and had no bearing on his position as a leaseholder, s.18 of the 1985 Act was irrelevant.

The key point to note here is that it is important for companies to be clear as to which of the two positions they are seeking to recover monies under and equally, leaseholders need to make sure they are not shareholders of the company if they plan to contest such payments.

The Government has recently consulted on default Articles for Right to Manage companies such as that in the Morshead case and we have previously posted on this issue.

Filed under: Uncategorized, long lease, service charges

9 August, 2009 • 21:14 0

RTM Company Articles

The government is consulting on new default articles for Right To Manage (RTM) companies formed under the Commonhold and Leasehold Reform Act 2002.

It is debateable whether such changes are really necessary. All companies can choose to set up their own articles when they are created. However, many RTM companies are created on the fly by inexperienced individuals and so the creation of some form of pre-defined articles for these companies might be advantageous. It is also worth pointing out the low take-up of the powers offered by the Act and the arguable pointlessness of legislating where the advantage is so limited.

The model articles aim to provide a degree of balance between the rights of tenants and the needs of landlords who have a greater investment in the structure of the property and the common parts. How well that balance is struck probably depends on the side from which you approach the issue. It is difficult though to see how a pre-defined set of articles can properly take account of the large number of different RTM situations and whether there should be a greater emphasis on each RTM company choosing articles to fit its own situation.

The consultation is open until 16 August.

Filed under: Uncategorized, consultations, long lease, right to manage

29 December, 2008 • 20:37 2

Shareholders and Leaseholders- Different Obligations

In Morehead Mansions Ltd v Di Marco the Court of Appeal has held that there is a difference between a tenants obligation to pay service charges and an arrangment made by a shareholder to pay into a company fund by seperate agreement.

The Defendant in the case was a shareholder in a company which owned the lease of a series of flats. Simultaneously, the Defendant held one of those leases. The shareholders had agreed to pay into a new ‘recovery fund’ in two tranches in a sum which varied according to their respective shareholdings.

The Court held that the payment was not related to the Defendants role as a tenant and so was not governed by the limitations imposed by the Landlord & Tenant Act 1985. Equally, failure to make such a payment, as it was not a lease-related matter, was enforceable as a normal breach of contract and did not give rise to the normal forms of enforcement and recovery used by a landlord against a tenant such as forfeiture of the lease.

It is important therefore where a company is set up to run a block and is, in effect, owned by the block residents whether payments into that company are being levied by way of service charges, in which case all the normal requirements of consultation and the like must be carried through, or whether they are to be levied by way of contractual agreement with shareholders, avoiding consultation but giving up the more powerful enforcement options.

Filed under: Uncategorized, Landlord & Tenant Act 1985, litigation, long lease

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