Where you have a collective enfranchisement under Chapter I, Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), and a nominee purchaser, is to acquire the freehold under those collective enfranchisement provisions it may be that the Leasehold Valuation Tribunal (“LVT”) awards the freeholder the right to a leaseback of some of the flats.
What if the freeholder is dissatisfied with the leaseback terms and the price determined by the LVT? Can the freeholder grant third parties long leases of the flats concerned on terms more favourable to it than those which it had previously proposed, but which had already been rejected by the LVT in the alternative terms they awarded? Can a freeholder circumvent a determination by the LVT as to the terms of a leaseback in this way?
From the nominee purchaser’s perspective whatever the freeholder transacts, in exercising that freedom to deal with what temporarily remains it’s own property, will be mitigated by it’s being reflected in the price paid for the freehold by the nominee purchaser and if that necessitates an adjustment to the figure already quantified by the tribunal the price adjustment need not cause significant delay.
Any wasted expenditure, may be considerable but that may be a risk which the nominee purchaser and the participating tenants must take to obtain the freehold.
In the Upper Tribunal (Lands Chamber) case of Queensbridge Investment Ltd v 61 Queens Gate Freehold Ltd [2014] the Appellant freeholder said the effect of Section 36 and paragraph 5 of Schedule 9 to the 1993 Act was that it was under no obligation to enter into leasebacks on the terms the LVT had awarded.
The Appellant had been entitled to grant 3 new flat leases (“the New Leases”) to third parties on it’s own terms whilst the enfranchisement claim progressed.
Agreeing with the Appellant the Upper Tribunal said the only basis on which the Respondent nominee purchaser could insist on the grant of leasebacks would be either if there had been a contract between the parties for a grant of leasebacks on the terms determined by the LVT, or if the Appellant had been estopped from using the freedom allowed by the 1993 Act to grant New Leases until immediately before the Respondent acquired the freehold. That grant was not prohibited by the elaborate anti-avoidance provision designed for the protection of tenants exercising the enfranchisement rights in section 19 of the 1993 Act.
There was clearly no enforceable contract for the grant of leasebacks. There was no document satisfying section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
The counter-notice’s inclusion of a statement that the Appellant accepted the participating tenants’ proposals for mandatory leasebacks of flats A and 8 and additionally required a leaseback of flat 9 did not commit the Appellant to leasebacks on whatever terms were determined by the LVT and whether or not the conditions in paragraphs 2(1) and 5(1) of Schedule 9 were satisfied immediately before the freehold purchase was completed.
The 1993 Act did not create a statutory contract binding the parties to proceed on the terms agreed or determined by the relevant tribunal. The nominee purchaser could withdraw from the purchase at any time until it was completed.
The only time at which it could be known whether a leaseback was to be granted was “immediately before the appropriate time” i.e. immediately before the freehold is acquired by the nominee purchaser (see paragraphs 2(1) and 5(1) of Schedule 9 of the 1993 Act). In the meantime, the freeholder could continue to grant new leases while the enfranchisement claim progressed so long as the anti-avoidance provisions in section 19 of the 1993 Act were not infringed.
It was “immediately before the appropriate time” that the “condition subsequent” must exist which determined the freeholder’s entitlement to a leaseback.
If, at that time, a flat was let to a qualifying tenant, the freeholder had no obligation to take a leaseback under Part II of Schedule 9 and no entitlement to do so under Part III. Nor would there be any obligation on the nominee purchaser to grant such a leaseback.
Section 6(1), which imposed that obligation, applied only in respect of leases which are required to be granted by virtue of Parts II and III of Schedule 9.
As regards elective leasebacks under Part III of Schedule 9 of the 1993 Act, whether or not a flat was occupied by a qualifying tenant at the appropriate time, a freeholder retained the right to decline to accept a leaseback at all if it was unhappy with the terms offered by the tribunal.
The fact that registration of the New Leases at the Land Registry had not been completed did not mean that the New Leases were not tenancies for the purpose of the 1993 Act. In Part I of the 1993 Act “lease” and “tenancy” have the same meaning and include (where the context permits) an agreement for a lease (see section 101(2)). An executed lease, awaiting registration, is an agreement for a lease, and the lessee under that lease was not disqualified from being a qualifying tenant by section 27 of the Land Registration Act 2002.
It follows that any dispute over the terms of a leaseback is therefore conducted against the background that the freeholder may circumvent the dispute which may render the dispute redundant and the costs incurred wasted.
This blog has been posted as a matter of general interest. It does not replace the need to get bespoke legal advice in individual cases.
Original article: Enfranchising freeholder could circumvent dispute over leasebacks.