by Hardwick Legal | Jun 30, 2015 | Purpose Built (LexisNexis)
What have been the successes and failures of enfranchisement? Mark Loveday, barrister at Tanfield Chambers considers this issue, confirms the key enfranchisement cases (including Westbrook) and offers his insight concerning the future of enfranchisement.
Leasehold Enfranchisement
The term ‘leasehold enfranchisement’ includes rights to:
- extend a residential lease, and
- acquire the freehold
The purpose of those rights is to enable tenants to continue occupation of their residential property at a fair price and on fair terms. It also allows leaseholders to maintain capital value and the ability to mortgage.
Has enfranchisement been a blessing or a curse?
The Leasehold Reform Act 1967 (LRA 1967) is nearing its 50th birthday and the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993) is old enough to have left university and qualified as a lawyer. Like all grown-up children, they can be both a blessing and a curse.
From a social point of view, the blessing has been that enfranchisement has undoubtedly extended the ‘property owning democracy’ dreamt of by successive governments. Many tens of thousands of house owners have acquired their freeholds, lessees of flats have been able to acquire secure long lease terms and groups of lessees have been able to acquire the freeholds of blocks of flats.
The curse is that in many cases, the rules have been exploited by commercial and semi-commercial developers seeking to acquire properties—often at a perceived discount to the market price. Moreover, newly enfranchised freeholders of blocks of flats may not always make good landlords.
What have been the key challenges around enfranchisement since its introduction?
The main challenges are that the law is complex, frequently inaccessible, and the valuation principles opaque. When combined with high property values, these considerations mean that leasehold enfranchisement has generated significantly more work for the higher courts and tribunals than almost any other area of property litigation.
What have been the defining cases?
There is no room for anything other than the seven House of Lords and Supreme Court cases:
- Cadogan v Sportelli [2007] EWCA Civ 1042, [2008] 2 All ER 220—hope value
- Aggio v Howard de Walden Estates Ltd [2008] UKHL 44, [2008] 4 All ER 382—lease extensions for headleases
- Arbib v Earl Cadogan [2005] 3 EGLR 139—deferment rate
- Boss Holdings Ltd v Grosvenor West End Properties [2008] UKHL 5, [2008] 2 All ER 759—meaning of ‘house’
- Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49, [2003] 1 All ER 193—meaning of ‘house’
- Shalson v Keepers and Governors of the Free Grammar School of John Lyon [2003] UKHL 32, [2003] 3 All ER 975—improvements.
How will the settlement in the Westbrook case affect enfranchisement?
Westbrook involved what was once the largest block of flats in the world. Mann J held that the lessees of the flats could acquire the freehold under LRA 1967 and LRHUDA 1993. Mann J considered a number of important points, including:
- company ‘schemes’ in enfranchisement
- the meaning of ‘residential purposes’ in LRHUDA 1993
- the various tests for the validity of LRHUDA 1993, s 13 (s 13 notice); and
- transactions at an undervalue under the Insolvency Act 1986, s 423
The judge rejected all the freeholder’s objections to enfranchisement. Although an appeal was expected, the matter settled shortly afterwards.
There was a lot in the 455-paragraph judgment of Mann J in Westbrook—perhaps unsurprising, given that it involved the largest collective enfranchisement ever made. The subsequent settlement left some of Mann J’s conclusions unresolved by the Court of Appeal.
In my view, some of the most intractable issues concern the simple question whether an initial LRHUDA 1993, s 13notice claim is valid. In Cadogan Estates Ltd v Morris [1998] EWCA Civ 1671, [1999] 1 EGLR 59, the Court of Appeal held that initial notices which specified an ‘unrealistic’ purchase price was invalid, but effectively ducked the question as to what test should be applied. Mann J grappled with the issue, but rejected the various objective tests offered to him by counsel. He settled on a subjective test as to whether a proposal was realistic or not. That is not very helpful for most practitioners who need to advise fairly quickly whether a notice is valid or not, and it had been hoped the Court of Appeal might have reconsidered the test.
What are your predictions for the future of enfranchisement?
The latest reforms, namely the Leasehold Reform (Amendment) Act 2014, only tweaked the legislation. There is no obvious sign of further major legislative developments.
This area of work is market driven. As long as there are residential leaseholds with high values, there will always be a future for enfranchisement.
Interviewed by Susan Ghaiwal.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
When a proposed mixed use development includes a residential element, a degree of caution should be exercised. A number of potential risks/issues arise. A number of these can, however, be avoided/reduced by careful ownership structuring at the outset. This note details the most common pitfalls and risks and sets out (including detailed diagrams) the best structures to minimize risk and safeguard viability in the most common scenarios. CLICK HERE FOR YOUR FREE DOWNLOAD!
Keywords: mixed use developments; right to manage; right to buy; right to extended lease; service charge issues; ownership structures.
Source: LexisNexis Purpose Built
Leasehold Enfranchisement: Blessing or curse?
by Hardwick Legal | Jun 26, 2015 | Purpose Built (LexisNexis)
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Source: LexisNexis Purpose Built
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by Hardwick Legal | Jun 26, 2015 | Purpose Built (LexisNexis)
Almost one year after the Model Commercial Lease (MCL) suite of documents was launched, Tim Cooper, real estate counsel at Land Securities, examines how the documents have been received by the industry and reflects on his, mostly positive, experience with the MCL.
How has the MCL suite of documents been received by the property sector?
Generally it has been well received with support from various quarters, in particular many of the leading real estate law firms. It has been well publicised in the property press and one year after its official launch is being cited as a balanced lease. The launch itself was understated and to have got the traction and exposure it has received to date is testament to the quality of the product itself.
Feedback from landlord and tenant solicitors has been positive and where it has been used on transactions there is a noticeable drop in the number of amendments as against ‘traditional’ leases which tend to offer negotiation fall back positions.
What has been the degree of uptake?
Uptake among the wider commercial/institutional landlord community has taken time. From the outset it was acknowledged that the MCL was not going to be adopted unaltered by every landlord, and while it represents a fair position, it allows and accepts there needs to be flexibility to adopt it in whole or in part enabling landlords to keep their cherished positions wherever they want. Land Securities has adopted the MCL but there are certain areas where additional management or investment controls have been added to respond to the particular requirements of our portfolio. It is used not just on wholly owned assets, but also in joint ventures (JVs) without issue.
We have experienced in a number of instances when using a precedent other than the MCL, proposed amendments are lifted directly from the MCL. As a result it is being used as a touchstone where negotiating parties seek to agree a position, that view appears to be shared by other landlords and their advisors.
Since its launch the MCL committee has been expanded. The firms that are represented or were consulted during the drafting stage represent a large proportion of the landlords that grant the bulk of the commercial leases each year. Many of those firms have adopted the MCL as the basis for their precedent lease, or offer it as an alternative, with the result that a wide client base are, or will be, using the MCL. The MCL has also been used in educational and training environments, reaching a new audience. Tomorrow’s lawyers are becoming familiar with it even before they start at firms.
Has the MCL been effective in addressing the issues it sought to address?
The issues it set out to address were that both parties in a leasing transactions have different interests to uphold—landlords want to protect their assets, tenants need to carry out their business from the premises without undue interference. The two are not mutually exclusive. Agreeing a lease on terms both are happy with and in a timely manner is in both parties interests.
There were concerns from some quarters in the landlord community that it might be overly ‘tenant friendly’. It never set out to be that, but rather to achieve a position that all parties would be comfortable with, and recognised as a market-accepted position. This has reduced the number of points that are routinely settled, and allows parties to focus on the issues that are of genuine interest or concern.
The past year has seen a huge volume of property acquisitions and disposals. When Land Securities sold assets where the MCL or similar had been adopted there have been no issues arising from the form of lease—it does genuinely represent a commercially acceptable lease for the investment community.
Have there been any common issues with the MCL?
Feedback has been provided via the website and via those using the suite of documents. There are regular meetings of the committee to discuss points that have been raised and to decide on any actions. One year on, a round of updates are expected to be incorporated into the documents. These are as much to cover legislative changes (for example a change in the CDM regulations) as anything else. The committee has looked to simplify some of the provisions around alterations to try and simplify the definitions following user feedback. To call these ‘issues’ is perhaps misleading as any precedent will need to evolve. There are very few changes anticipated aside from those updates and immaterial linguistic amendments.
What’s next for the MCL?
The MCL will continue to be promoted and evolve. The committee has expanded and will continue to welcome feedback and give it due consideration. There are no immediate plans to expand the range of precedents available having already provided a broad suite of letting documents and additional clauses. An update for the underlying leases will be released imminently, but as mentioned this will be much more evolution than revolution.
There are other initiatives out there which are aimed at regularising interactions between landlords and tenants, for example the alienation protocol which Land Securities is looking at endorsing. Again, it should not be viewed as something ground-breaking, rather it sets out a clear and pragmatic approach to interacting with our customers.
Interviewed by Diana Bentley.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
Model Commercial Leases: A property success story?
by Hardwick Legal | Jun 26, 2015 | Hardwick Legal News
Hardwick Legal Solicitors are delighted to announce that our new website goes live today. It provides information about our company and our full range of bespoke property law services which ensures that the client is put first.
We have specifically created some excellent photography from around the local area, which has complemented our new brand identity perfectly. The website also features a “News” section so stay tuned for regular news articles including development land, agricultural property, commercial property, telecommunications and infrastructure expertise areas.
Geoff Gilbert (Principal Solicitor) stated “I am so pleased with the final result. My re-brand experience has been fantastic and the website truly demonstrates my particular, bespoke style. The Amber Valley Media team have created something beyond my wildest expectations and I am truly excited about my website going out for everyone to see!”.
We plan to keep developing our website with new additions, so please do stay tuned but for now, we really do hope you enjoy the website as much as we do!
by Hardwick Legal | Jun 15, 2015 | Purpose Built (LexisNexis)
How transparent should letting agents be about income derived from their agency relationship with a landlord? Chris Haan, senior solicitor in the international and group claims department at Leigh Day, discusses his firm’s planned group action against Foxtons over hidden fees and charges.
What is the basis of this potential class action?
Leigh Day is looking to bring a group court case against Foxtons for landlords who have used Foxtons either just to let, or to both let and manage, their property. The aim of the case is to get a refund for what we claim are hidden fees and charges and for alleged overcharging for work done by contractors.
Letting agents owe landlords fiduciary duties that include:
- a duty not to make any profit or income from the agency relationship without the landlord’s fully informed consent; and
- a duty of loyalty, such that the letting agent must not let their interests conflict with the interests of the landlord without the landlord’s fully informed consent.
The claim involves allegations that:
- Foxtons takes commissions and fees from contractors (such as for repairs, cleaning and inventory and gas safety checks) without landlords’ informed consent—we have seen evidence that Foxtons takes a 25-33% mark-up on contractors’ fees;
- Foxtons took various fees from tenants without the landlord’s informed consent—for example, it appears that Foxtons charges both landlords and tenants a fee of £420 including VAT for arranging a new tenancy agreement to be printed and signed (a total of £840 inc VAT);
- Foxtons uses contractors who charge much more than the market rates, in breach of their duty to try to get a good deal for landlords; and
- Foxtons’ above breaches of duty are of such seriousness that it should have to repay not just the fees it did not disclose, but also its primary agreed fees/commissions for letting and managing the landlord’s property.
We believe that most landlords who use Foxtons would have a good claim if they did not know about the hidden fees and commissions.
Although Foxtons’ standard contracts contain a provision that says they may retain any commissions paid by third parties, that clause does not appear to be drawn to the attention of landlords and it doesn’t say how often they are received or how large those commissions can be. We will argue that this is not sufficient disclosure of the commission charged on contractor’s work to enable a non-professional landlord to give fully informed consent. To comply with its duties Foxtons should have followed the guidance in industry codes of practice, such as the ‘Private Rented Sector Code’, which was drafted by the Royal Institute of Chartered Surveyors and is supported by the main industry players. That code states that an agent should disclose any commission they might receive at the time that estimates are provided to the landlord.
What leeway do estate agents have when charging for repairs to managed properties? Can agents profit from repairs?
There is nothing wrong with taking commissions from third-party contractors so long as the agent gets the landlord’s fully informed consent.
Is there any statutory guidance for such arrangements or is it simply down to contracts?
The dispute is mainly about principles of common law and equity. Are the terms of Foxtons’ standard contracts sufficient for it to establish that landlords have given fully-informed consent to the contractor commissions and the potential conflict of interest that arises? There is limited statutory guidance. The recently enacted Consumer Rights Act 2015 contains provisions requiring letting agents to be more transparent about their fees and to publish a list of their fees on their websites and at their premises. There is a fine for failing to do so.
What would it mean if Foxtons were found to have breached their legal duties in their practices?
Foxtons may be ordered to:
- repay any commissions and fees taken without the landlords’ consent;
- repay the difference between the inflated price charged for work and the market price;
- forfeit some or all of their agreed fees and commissions that were taken with consent, if the breaches are considered to be sufficiently serious;
- pay interest on the above amounts.
Interviewed by Diana Bentley.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
The letting agent-landlord relationship – a dangerous liaison?
