LexisNexis PropertyA LexisNexis mini-mag helping property lawyers stay up to date

Autumn 2014

6 proposals which affect developers & LPAs: Technical consultation on Planning

Should SDLT rules for property investment funds be reviewed?

Cathryn Vanderspar Berwin Leighton Paisner LLP

Time to review land registration? Brie Stevens-Hoare QC

Hardwicke

One minute with... Edward Benzecry CMS Cameron McKenna

Chair of the British Property Federation Commercial Committee

Minimum energy efficiency standards in the private rented sector

Spotlight on Collective Enfranchisement Recent cases and procedure checklist

2

Welcome to LexisNexis Property. This mini-magazine gives you a taster of some of the products and services that make up LexisNexis Property. It contains recent articles, blog posts and interviews.

We cover the Department for Communities and Local Government’s consultation on a range of plans to streamline the planning system, the Government’s case for making changes to the stamp duty land tax (SDLT) rules for property authorised investment funds and reflections on the Law Commission’s twelfth programme of law reform, including some proposals for land registration. We highlight recent cases on collective enfranchisement and include a checklist for practitioners on collective enfranchisement procedure.

Summer saw the launch of the BPF sponsored Model Commercial Lease (MCL) website providing a suite of template commercial leases which are free to download. We interview Edward Benzecry, partner at CMS Cameron McKenna and Chair of the British Property Federation (BPF) Commercial Committee responsible for MCLs.

This last quarter also saw the long awaited consultation the implementation of the Energy Act 2011 provision for energy efficiency regulation in domestic and non-domestic premises. We include a handy practice note on Minimum energy efficiency standards in the private rented sector.

Our theme is change: the way in which property lawyers work is changing. In the face of pressure to work profitably in a competitive marketplace, there is a need to get ahead by working smarter and faster. LexisNexis Property is there to help with this by equipping you with the tools you need to work effectively.

Best wishes Nicola Johns Solicitor and Head of Lexis®PSL Built Environment

nicola.johns@lexisnexis.co.uk

From the Editor Contents

Lexis®PSL Property

3 News & Views: LexisNexis Free Content

4 Meet the team

5 Meet the team Consulting Editorial Board Contributing authors

Purpose Built Blog

6 6 proposals which affect developers & LPAs: Technical consultation on Planning Jen Hawkins

8 Should SDLT rules for property investment funds be reviewed? Cathryn Vanderspar

10 Time to review land registration? Brie Stevens-Hoare QC

Lexis®Library

11 Butterworths Property Law Service Bulletin

Lexis®PSL

16 One minute with Edward Benzecry On the Model Commercial Leases

18 Minimum energy efficiency standards in the private rented sector Simone Davidson

20 Spotlight on Collective Enfranchisement

21 Spotlight on Collective enfranchisement: Procedure Checklist

And there’s more...

23 LexisLibrary Property Menu Card

24 LexisNexis Webinars

Editorial

Editor: Nicola Johns Production Editor: Melissa Moore, Rachel Buchanan Design: LexisNexis Creative Solutions

Offices: Lexis House, 30 Farringdon Street, London, EC4A 4HH Tel: 020 7400 2500

Reproduction, copying or extracting by any means of the whole or part of this publication must not be undertaken without the written permission of the publishers.

This publication is intended to be a general guide and cannot be a substitute for professional advice. Neither the authors nor the publisher accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this publication.

3

Purpose Built Blog

News & Views: LexisNexis Free ContentThe Purpose Built blog is a space for news and views on the latest legal developments affecting the built environment. We include news and case analysis to keep our readers up to speed. We also post practical guidance and checklists and send our subscribers exclusive content.

Our blog includes planning, construction and environment content as well as all aspects of property law. We write in-house with comments and guest posts from leading practitioners.

For more information, please visit: lexisnexis.co.uk/PropertyMiniMag/Blog

And follow us on Twitter: @LexisUK_Propty

4

Lexi

sPSL

LexisPSL Property: Meet the teamLexisPSL Property brings all of the different sources you need together so you can find the answers you need, fast. Our succinct practice notes are designed to be read in six minutes or less. With direct links for deeper research, you can dive straight in to the relevant cases and consolidated legislation (including Butterworths Property Law Handbook, Ross Commercial Leases, Hill and Redman’s Law of Landlord and Tenant and everything in Lexis®Library).

In LexisPSL Property we have an in house team with extensive experience, dedicated to producing content specifically for Property lawyers. Their experience combined with hundreds of customer interviews has shaped this ultra-practical guidance on Property issues.

In building this product we also commissioned leading solicitors and barristers to write for us. Their extensive property knowledge brings both legal expertise and practical guidance to our content. Our recognised contributors and authors, and expert Consulting Editorial Boards is comprised of many of the top performers in the Property arena today.

Nicola JohnsNicola is the head of Built Environment. She is a commercial property lawyer who joined Lexis®PSL in September 2013. Nicola qualified as a solicitor in 2004 and trained and gained her post-qualification experience in the London office of US law firm Dorsey & Whitney before joining SJ Berwin LLP in July 2008.

Nicola has a range of commercial real estate experience in portfolio management, transactional work and development work. Nicola worked across a number of industry sectors including industrial, office and retail, undertaking secondments at Daimler and The Crown Estate.

Elinor ClarkElinor is a solicitor specialising in commercial property with wide-ranging experience of all non-contentious property transactions. On qualification in 1999, Elinor joined Pitmans where she worked in the residential development team and then the commercial property team. She moved to Charles Russell in 2001 where she spent over seven years as a member of the Real Estate

team focusing on large mixed-use development, investment and telecommunications work, including a secondment to Vodafone. Elinor has been part of the Lexis®PSL team since January 2009.

Joanna BhatiaJoanna is a commercial property specialist. Prior to joining the Lexis®PSL Property team, she was a transactional lawyer. She qualified in 1995 at Shoosmiths and subsequently worked at Nabarro, Charles Russell, Bircham Dyson Bell and Pemberton Greenish. She has wide-ranging experience of all non-contentious property transactions, with a particular emphasis on landlord and tenant work.

Melissa MooreMelissa Moore is a dual qualified in England and Wales and South African lawyer and has 14 years’ experience in property practice in England. She has worked in local government and been a partner at a regional law firm and most recently an associate director at Berwin Leighton Paisner which she joined in 2005.

She has worked on large scale strategic developments and government funding initiatives, town centre regeneration schemes and private mixed use developments both for public sector private developers and investment funds. In 2013 she was ranked by Legal 500 as recommended for local government work.

Richard HarknessRichard is a solicitor specialising in commercial property. Richard qualified at Dentons and then worked in the firm’s Real Estate Development team until joining the Lexis®PSL Property Team. He has experience of all aspects of non-contentious property transactions with a particular focus on residential, commercial and mixed use development and regeneration schemes, acting for

both public and private sector clients. He also has extensive experience in acting for insolvency practitioners, of real estate finance transactions and in landlord and tenant matters.

Jen HawkinsJen is a solicitor specialising in planning law. Jen has experience in relation to a range of planning topics, including environmental impact assessment, section 106 agreements, highways orders, compulsory purchase, freedom of information issues, inquiries, judicial review, the Localism Act 2011, National Planning Policy Framework and major infrastructure projects.

5

LexisPSL

Consulting Editorial BoardAddleshaw GoddardSerena GloverBerwin Leighton Paisner LLPBarry Gross Charles RussellSimon EwingClifford ChanceCatherine Cook

College Of LawShona PriceCripps LLPPaul ClarkDWFRichard QuenbyLand SecuritiesAlex Peeke

Mishcon De ReyaSimon HartNabarroJulie GattegnoJohn StaheliPemberton GreenishAbigail Mitchell

ShoosmithsCharlotte WalkerTaylor WessingPaul Lawrence

Contributing AuthorsDWFRichard Quenby

Freelance WritersCarly ArthurLisa FaulknerDeirdre LyonsCatherine Hooker

K&L GatesPaul BeausangStuart BorrieLexisNexisGeorge Hobson

Stephenson HarwoodAnita Kasseean

6

Purp

ose

Built

Blo

g

6 proposals which affect developers & LPAs: Technical consultation on PlanningBy Jen Hawkins. First published on the Purpose Built blog on 13 August 2014

The Department for Communities and Local Government has published a consultation on a range of plans to streamline the planning system. The consultation closed on 26 September 2014.

Proposals to streamline neighbourhood planning procedures, increase permitted development rights (PD rights) and introduce statutory measures for deeming the discharge of planning conditions should have a fairly significant effect on the plan-making and planning application procedures for both developers and LPAs.

The government advocates the measures as ‘practical improvements that build on earlier reforms, to help more people benefit and, overall, help us get the development and housing our future growth depends upon’, but there are fears local authorities could lose control over development in their areas and miss out on valuable funding

1. Neighbourhood planning• proposals to introduce a statutory time limit of 10 weeks within

which a local planning authority (LPA) must make a decision on whether to designate a neighbourhood area.

• amending the NDP and NDO consultation requirements

• requiring further documents to accompany an NDP/NDO when submitted to an LPA to comply with the Strategic Environmental Assessment Directive

By no longer prescribing a minimum period for pre-submission consultation and publicity, there may be concerns that developers with an interest in an NDP or NDO will not have an opportunity to engage in

the process. The government recognises this and advises that those with an interest in land allocated for development in the NDP should be directly consulted during the NDP’s preparation. Regulations already include a requirement to consult the owners and tenants of land proposed to be developed under an NDO proposal and the government proposes to introduce a similar requirement for NDPs.

2. Reducing planning regulations to support housing, high streets and growthThere are multiple proposals to create new PD rights. The keys ones propose to:

• allow light industrial buildings (B1(c)) and storage and distribution buildings (B8), which were in that use at the time of the 2014 Budget, to change use to residential (C3) use

• allow some sui generis uses to convert to residential (C3) use, namely launderettes, amusement arcades/centres, casinos and nightclubs

• replace the current PD right for change of use from office to residential from May 2016. Exemptions applying to the current PD right will not apply to the new PD right

• make permanent the existing PD right for a householder single storey rear extension or conservatory

7

Purpose Built Blog

• enable the change of use to the wider retail (A1) class from betting shops and pay day loan shops (A2), restaurants and cafés (A3), drinking establishments (A4), and hot food takeaways (A5)

office to residential conversions and PD rights have been controversial since their temporary introduction. The right is subject to a number of significant qualifications, eg excluding vacant new offices, listed buildings, scheduled ancient monuments and certain ‘exemption areas’.

Many LPAs expressed concern when the PD right was initially introduced, but experience to date reveals that these powers are now being used effectively by developers. An example of this is the approval by Birmingham City Council of the conversion of 10 floors of an office building into 120 flats in a conservation area.

LPAs can also consult with the community about whether PD rights could be withdrawn, using Article 4 directions. See Practice Note: Article 4 directions

Developers are likely to welcome the new rights, and potential increased viability of schemes as a result. However, it is likely that the absence of the need to pay contributions via planning obligations will affect infrastructure in LPA’s areas and could be challenged in future. LPAs may suffer from losing control over the location of housing developments in what they perceive to be the most appropriate places.

3. Deemed discharge of planning conditionsThe consultation proposes to introduce a ‘deemed discharge’ where an LPA has not responded within a reasonable time to an application to discharge certain types of planning condition.

This is hoped to result in a more efficient process for handling conditions and more certainty on time frames for applicants. Applicants may also benefit from the reduced number of conditions, due to the greater focus on addressing issues before a decision is made. A reduced number of conditions could reduce fees and administrative costs applying for a condition to be removed, varied or discharged.

LPAs may benefit from fewer conditions being attached to planning permission, and therefore they will need to dedicate fewer resources to dealing with discharge. However, LPAs have warned that the increased time pressure may put a further strain on their already tight resources.

4. Planning application process improvementsThese include measures to:

• change the thresholds for statutory consultee involvement in planning applications ‘to achieve a more proportionate approach’ and change arrangements for notification and referral of applications to the Secretary of State on some heritage matters

• improve the process of notifying measures requiring that railway infrastructure managers are notified of planning applications for development near to railways

5. Environmental Impact Assessment thresholdsThere are proposals to raise some of the size thresholds for screening projects for the need for an environmental impact assessment. New thresholds have been proposed for industrial estate development and urban development projects including housing.

6. Improving the nationally significant infrastructure planning regimeChanges to development consent orders (DCOs) for nationally significant infrastructure projects include:

• simplifying the process for making changes to DCOs, reducing the number of consultees and giving the government discretion to dispense with the need to hold an examination

• shortening timescales for decision-making relating to changes to DCOs and giving developers the choice of whether non-planning consents are dealt with as part of the DCO application or obtained separately from relevant consenting bodies

For more information, please visit: lexisnexis.co.uk/PropertyMiniMag/Blog

8

Should SDLT rules for property investment funds be reviewed?

First published on Lexis®PSL Property on 6 August 2014 and published on Purpose Built Blog on3 September 2014

Cathryn Vanderspar , a tax partner at Berwin Leighton Paisner LLP, interviewed by Kate Beaumont, examines the government’s case for making changes to the stamp duty land tax (SDLT) rules for property authorised investment funds (PAIF’s) and co-ownership authorised contractual schemes (CoACS) and the potential design of those changes proposed in the consultation on SDLT rules for property investment funds (LBN News 21/07/2014).

What are the problems with how SDLT is applied to property investment funds?The design features, including anti-avoidance measures, are the focus of this consultation, with the deadline for responses having been 12 September 2014. The consultation addresses SDLT issues with two types of funds.

The problem identified with PAIFs is that the existing seeding relief revolves around the transferor vehicle being an authorised unit trust scheme. It does not apply to the seeding of PAIFs with assets from other structures, such as life insurance companies and pension funds, which managers would like to collectivise and modernise. Without an express relief, there could, therefore, on seeding, be a charge to SDLT in the fund on the value of the entire portfolio, even if there is no change of ultimate beneficial ownership. This means that seeding using the PAIF in these circumstances is economically unviable.

The issue with CoACSs is that the government has not previously expressed any opinion at all on how it should be treated for SDLT. This has created uncertainty, but as a form of co-ownership, strictly, there could be SDLT charges at investor level each time there is a change

of ownership in the fund. This is clearly commercially unattractive for investors compared to alternative structures.

For the funds industry, a further issue is, however, that the government has not yet decided whether a sufficient case has been made for introducing the further SDLT reliefs contemplated in the document. The consultation, therefore, sought more quantitative data on the need for change, as well as putting forward technical proposals for consultation. This continues uncertainty and timing issues.

How damaging to the uptake of PAIFs and CoACS are these problems?Many UK managers are keen to use the PAIF and CoACS as new UK property fund vehicles and we have now seen several well-known major players, as well as new players, enter the sector.

Managers are, however, effectively prevented from further seeding the new vehicles, due to these SDLT issues and have to continue to consider other fund alternatives. This is not helpful to the creation of a large and thriving PAIF sector, with the brand creation and market recognition that should come with it.

Purp

ose

Built

Blo

g

9

Seeding relief from SDLT for unit trusts led to certain tax planning structures, how would this be dealt with under the new proposed seeding relief for PAIFs?The previous seeding relief for unit trust schemes had very few restrictions. The current proposal is very different--even as a starting point the PAIF must be authorised by the Financial Conduct Authority (Fca) and be able to satisfy other tests, such as diversification and ‘genuine diversity of ownership’.

In addition, the government proposes:

• limiting the relief to the initial seeding of the PAIF

• requiring the only consideration to be the issue of new units

• introducing a ‘portfolio’ test with a minimum number of properties of a certain value--the current proposed minimum is 10 properties for commercial property and 100 for residential (there is no suggestion as yet what the individual value should be)

• having a minimal size for the seeded portfolio of £100m

• possibly introducing further restrictions if residential property is let to a connected person

• a general anti-avoidance test, and

• a clawback of the SDLT saved, taxable on the seller, if either PAIF status is lost and/or there are any disposals of the seller’s interest within three years

There is some debate that the portfolio threshold levels proposed are too high and as to precisely how the number of properties required would be arrived at in certain scenarios--for example, would a shopping centre be one property or be considered on a unit basis (as in a real estate investment trust (REIT)) or otherwise?

A more major practical issue is, however, likely to be around the operation of the clawback for certain types of sellers, such as life insurance companies or pension funds, who may need to make redemptions to meet obligations to policy holders. This could trigger the very SDLT charges that the seeding relief proposal is seeking to avoid. Helpfully, on the other hand, the clawback should not be triggered on dilution of interests when new investors enter the fund and, as the clawback would be on the seller, it should avoid issues (such as pricing) for investors generally. It is contemplated that the clawback could be proportional to the disposal and with a de minimis, and this point needs to be reinforced.

What are the proposals in relation to CoACSs?The proposals in relation to the CoACSs are different, due to the transparent nature of the vehicle. The government has decided that CoACSs should not be treated like a company for SDLT purposes. Accordingly, the suggestion is:

• to ensure that there is no SDLT on issue, redemption or transfer of units (which is excellent)

• to provide that the operator will be treated as the purchaser in relation to the fund

• to have a prima facie market value charge on transfer of property to the CoACS from connected persons or unit holders, unless the CoACS fulfils criteria similar to those for a PAIF for seeding relief, and

• to include any other express conditions, thought necessary, such as the inclusion of an express genuine diversity of ownership test

Sub-funds would be treated separately (and some clarity is needed around how the portfolio thresholds would operate in this case) and rules would be introduced around the identification of the seller, for the purposes of determining whether group relief or treatment as a linked transaction are relevant on disposals.

Would the proposals outlined in the consultation document remove the barriers to the use of CoACSs and PAIFs?The proposals should remove much of the current barrier to more widespread use of each of the PAIF and CoACS. Fund managers, however, also still want to resolve the streaming issue with the PAIF at the platform level, so that the PAIF can operate more efficiently generally, as originally intended.

Are there any unintended results of the proposals? The main issue is likely to be for the seller in needing to have sufficient compliance procedures in place to be able to monitor holding the property for the three-year period, to minimise clawbacks, and to meet any other ongoing (say certification) requirements. Given the benefits, however, subject to a satisfactory solution to the clawback mechanism, these aspects are likely to be manageable.

Do you expect the uptake of UK PAIFs and CoACSs to take off now? The funds industry is working with HMRC through the consultation process to ensure that the changes optimise the chances of these vehicles being used and that they are suitable for purpose for the main protagonists also on a practical level.

These vehicles offer up to date, UK tax efficient structures, open to a wide range of local and international investors, both retail and institutional. With umbrella structures being available, they also offer the benefit of cost efficiencies.

We know that clients are keen to use them.

How does this compare with the REIT regime?The government is not currently considering introducing a seeding relief for REITs or other structures. As a closed-ended structure, the solutions to the issues involved for REITs would be different.

Cathryn Vanderspar has over 20 years of tax experience. She specialises in real estate as an asset class and funds taxation. She is author of the chapter on REITs in Tolley’s Taxation of Collective Investment.

Interviewed by Kate Beaumont and first published on news analysis on 06/08/2014 and published on Purpose Built Blog on 3 September 2014.

Consultation on SDLT rules for property investment funds, LNB News 21/07/2014 131

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

For more information, please visit: lexisnexis.co.uk/PropertyMiniMag/Blog

Purpose Built Blog

10 For more information, please visit: lexisnexis.co.uk/PropertyMiniMag/Blog

Time to review land registration?First published on Lexis®PSL Property on 12 August 2014 and on the Purpose Built Blog on 4 September 2014.

Brie Stevens-Hoare QC of Hardwicke interviewed by Nicola Laver, considers the Law Commission’s proposals for avenues of reform.

The Law Commission has outlined its twelfth programme of law reform, (LNB News 23/07/2014 133). The programme follows extensive public consultation throughout England and Wales and involves nine new projects covering a range of areas including land registration.

What will be the key focus of the review of land registration?This project aims to review the effectiveness and practical implications of the Land Registration Act 2002 (LRA 2002). Now is the right time for that review. For the most part, the changes made by LRA 2002 have been in operation for nearly 11 years. The last of the transitional accommodations ceased to operate last year. So LRA 2002 is fully operative and for the most part we have experienced its practical effects for over a decade. In essence LRA 2002 increased the degree to which the registered title provides a state guaranteed definition of the interests in land.

The primary focus of the review will be on the rectification and alteration provisions in LRA 2002, Sch 4. These provisions and their implications for third party interests and innocent purchasers have been the focus of significant debate and much litigation. Unsurprisingly, the operation of the indemnity provisions will also be reviewed. Inevitably, with the extensions of the state guarantee as to title underlying LRA 2002, the risk of calls on that guarantee and the consequential liability of the state to those relying on the register has increased.

What are the key problems relating to LRA 2002?The key problems in this area are those identified by the Law Commission for consideration, namely:

• rectification and alteration of the register

• the operation of the indemnity provisions

• protecting legitimate land owners, mortgage companies and innocent purchasers against fraud, and

• the implementation of the long delayed e-conveyancing

In the context of litigation, the absence of evidence caused by the loss of original title deeds and the registration history appear not to be a feature of this proposed review.

What proportion of land is registered with the Land Registry?The majority of the land in England and Wales is registered. A significant proportion will be subject to more than one registered title. The latest information from the Land Registry suggests that as much as 20% remains unregistered. Most of the unregistered land will be land that has remained within a family for a number of generations passing on death so that no registrable transactions have yet occurred.

How are disputes dealt with in this area? Could reforms affect the process?Since the establishment of the Adjudicator to HM Land Registry (now part of the First-tier Tribunal, Property Chamber (Land Registration)), a huge proportion of the disputes related to registered land and entries on the register have been dealt with through that jurisdiction rather than the county court or Chancery Division. That has been a significant change. The Solicitor to the Land Registry--which was the nearest equivalent to the adjudicator/tribunal prior to LRA 2002--only dealt with a handful of cases a year. The tribunal dealt with between 1,500 and 2,000 disputes a year. The Law Commission’s project does not appear to focus on the jurisdictions and procedures currently being used to determine these disputes. So far there do not appear to be any significant calls for changes to the jurisdictions so it is not anticipated the project will produce any reforms that affect the process of dispute resolution in this area.

What are your predictions for the future?The fact that it is the state that bears the cost of the indemnity provisions is significant. Fraud increases the cost of the indemnity and the width of the rectification and alteration provisions also impacts on it. I have no doubt the Law Commission will put forward proposals to address fraud and such proposals are very likely to be implemented. The implementation of any other proposals the Law Commission puts forward is likely to depend on the cost implications for the changes and the indemnity. While the Law Commission is likely to develop a package of proposals, the risk is the government will cherry-pick those to be implemented. With the likelihood of the privatisation of the Land Registry in the medium term removed, although the Law Commission is likely to provide a package of proposals that includes a workable blueprint for e-conveyancing, the decision to progress that project it is likely to be political. The advances in technology and the disastrous and successful experience of large public IT projects since 2002 means if the government presses the button on e-conveyancing there is a much better prospect of a transition to a workable, reasonably secure system.

I anticipate the Law Commission’s ultimate proposals will clarify and constrain the cost of the indemnity and as such they will have a good prospect of finding their way onto the statute book fairly quickly. Certainly, clarity about rectification/alteration and increased protections against fraud would be attractive to most stakeholders. The interesting question will be what happens with e-conveyancing, given the implications for increased fraud associated with it.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Purp

ose

Built

Blo

g

11

Butterworths Property Law Service BulletinButterworths Property Law Service Bulletins are provided as a supplement to Butterworths Property Law Service, the comprehensive source of reference on conveyancing, giving step-by-step guidance on each stage of a conveyancing transaction, stating the relevant law, supplying practical advice, relevant materials and documents, and all necessary precedents.

The bulletins, published 4 times per year ( Jan, Apr, Aug, Nov), provide information on the latest cases, discuss any recent legislation, and provide valuable notes on practice. They are designed to help the practitioner keep up-to-date with the latest legal information in the conveyancing field and can be downloaded free at lexisnexis.co.uk/BPLSB

As a taster of the content available in the Butterworths Property Law Service Bulletins we have included two extracts from the most recent bulletin which can be found over the next two pages.

To find out more about Butterworths Property Law Service Bulletin visit lexisnexis.co.uk/PropertyMag/BPLSB

LexisLibrary

12

Lexi

sLib

rary

Proposal to erect new flats over garage blocks – whether roofs of garages and airspace over the garages were included in the demises of the existing flats and garages – whether covenant against further development could be implied

Extract from Butterworths Property Law Service Bulletin, August 2014

At a time when ground landlords are keen to exploit opportunities to add new storeys to existing buildings, and to build, where possible, with the curtilage of developments, H Waites Ltd v Hambledon Court Ltd [2014] EWHC 651 (Ch) is a particularly interesting case. It involves a block of 12 flats in Ealing which were let on 999-year leases in the early 1960s. Each lease also included a garage in one of two garage blocks to the rear. In 2007, when the freehold had been owned by an ‘outside’ ground landlord, a lease of the airspace over the garage, with associated development rights, had been granted to an associated company of the ground landlord, so that a flat could be constructed over each of the garages. As some of the leaseholders did not consent to the rebuilding of their garages, each of the flats would have been structurally separate from the garages, supported by beams resting on external columns. Since the 2007 lease had been granted, some of the leaseholders had collectively acquired the freehold under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993), which was now owned by the first defendant.

Five issues arose in the proceedings: (1) whether the premises demised to the leaseholders included the roof of the garages; (2) whether the demised premises included the airspace over the garages; (3) whether the court should imply into the leases a covenant not to construct further flats on the Estate; (4) whether the claimant, the lessee under the 2007 lease is entitled to erect columns external to the garage blocks to support the proposed flats; and (5) whether the lessor had unreasonably withheld consent to the erection of staircases to serve the proposed flats.

The first issue – whether the roofs of the garages were demised to the leaseholders – turned, of course, on the wording of the leases, but the decision is of broader interest, as the wording of the demise followed a pattern which is commonly encountered: the demise of each flat excluded ‘the roof foundations and external and main structural parts of the said building’ but each garage was afterwards referred to simply as ‘the Garage shown coloured red … on the said plan’. Morgan J rejected the claimant’s argument that the words of exclusion applied

also to the garages. This conclusion is perhaps unsurprising, but the claimant did attempt to draw some support for its contention from the interrelationship of the parties’ respective repairing obligations. The judge did not feel that the fact that the roof covering each garage block formed a single structure prevented the conclusion that each leaseholder would therefore be bound to repair his own section of the roof.

Having decided that the roofs of the garage blocks belonged to the leaseholders, the question then arose as to whether the airspace would also be included in the demise. The judgment contains a useful review of the recent case law on this, from Kelsen v Imperial Tobacco Ltd [1957] 2 QB 334 onwards. Although the judge seems to have stopped short of saying that there was a presumption to be applied, he took the view that, where one is dealing with a demise of a building, and there is vertical, rather than horizontal division, it is natural not to apply a horizontal cut-off which excludes the airspace over the building (or the sub-soil below it) (see [50]).

On the third issue – the alleged implied covenant not to construct further flats – the claimant prayed in aid Hannon v 169 Queen’s Gate Ltd [2000] 1 EGLR 40 and the defendants relied on Devonshire Reid Properties Ltd v Trenaman [1997] 1 EGLR 45. The judge did not consider either decision was determinative of the position in the instant case, and went on to hold that the alleged covenant could not be implied here. If the development were to proceed then if necessary the court could (relying on Finchbourne Ltd v Rodrigues [1976] 3 All ER 581: see [69]) imply a term to the effect that the cost of services would be recoverable only to the extent that they are fair and reasonable, and it would clearly not be reasonable for the proportions paid by the leaseholders to ignore the existence of additional flats.

On the fourth issue Morgan J held that, on the wording of the 2007 Lease, the claimant would be entitled to erect columns external to the garage blocks to support the new flats, but that, having decided that the earlier leases included the airspace over the garages, this part of the decision was for the time being, academic as that lease could take effect only in reversion to the leases of the existing leaseholders.

As the fifth issue had not been fully argued, no decision was reached on this point.

Although any such decisions must always rely on the wording of the leases in question, the approach of Morgan J will no doubt be welcomed by leaseholders who are concerned that developers may wish to intrude further flats into existing leasehold schemes.

13

LexisLibrary

Interpretation of leases – whether demise included space between ceiling and floor of flat above – whether another clause gave right to reposition gas pipes

Extract from Butterworths Property Law Service Bulletin, August 2014

Yeung v Potel [2014] EWCA Civ 481 raises some minor though interesting points on the interpretation of leases. It is perhaps surprising that there are not more reported cases involving scenarios such as this, given the tendency of some long leaseholders of flats to proceed as if their ownership was entirely unfettered. The property in this case was a 19th century building which had been divided into four flats, one on each floor. Y, the defendant and appellant, held Flat 3 under a 999-year lease. Without obtaining the consent of the ground landlord (a company owned by the four leasehold owners) or consulting with his neighbours he had proceeded to carry out extensive internal alterations to his flat, including the removal of internal walls, the insertion of a steel beam, and the raising of the ceilings in the flat. He could do the latter because, somewhat unusually, the ceilings of his flat (on the first floor) were attached to one set of joists, and the floorboards of the flat above rested upon and were attached to a separate set of joists. He had therefore removed the lower set of joists, and intended to affix a new ceiling to a metal framework attached to the existing upper joists. The claimants (the respondents to the present appeal) succeeded in a claim for substantial damages in trespass and nuisance. Although leave was given to appeal on the quantum of damages, the Court of Appeal (Arden, Jackson and Sharp LJJ) were satisfied that in this respect the District Judge’s long and careful judgment could not be challenged. Y also appealed on the basis that his works did not trespass on the property of P, the claimants. Jackson LJ, giving the only judgment, was satisfied that the DJ had been correct in finding there had been a trespass. A slightly tricky issue here was rather glossed over: the Court of Appeal held that the DJ was right on this point, or alternatively it might have been the case that the gap between the two sets of joists was retained by the freeholder ([54]). The wording of the leases would seem

to point ineluctably towards the latter conclusion; but the DJ’s judgment is nonetheless unimpeachable if she was intending to say no more than that for Y to affix a ceiling onto floor joists which were demised to P would be a trespass.

The issue which the CA had to consider most closely was whether Y under his lease had a right to relay the gas supply pipe and his gas meter in a position which was more convenient, given the raising of the ceiling. He relied on the fact that the High Court in Trailfinders v Razuki [1998] 2 EGLR 46 distinguished the CA authority in Taylor v British Legal Life Assurance Co (1925) 94 LJ Ch 284 on the basis that in the former case a reservation clause in a lease expressly referred to drains, pipes and wires which ‘may hereafter during the term granted be in under or over the said premises’. Similar wording was used in the leases in the present case, but only in the words of grant, not in the words of reservation. The CA declined to read the necessary words of reservation into the lease of the upper flat. It held that the wording of the leases might be viewed as giving rise to an anomaly, and it might be desirable to improve it, but it could not be seen as raising an issue of necessity, and the courts were traditionally reluctant to imply words of reservation into leases where there were none ([46]–[48]). The court therefore declined to order P as the lessees of Flat 4 to allow Y access to their flat for the purpose of temporarily turning off the gas supply to that flat, so that the pipes serving Flat 3 could be relaid. It was also made clear in the judgment that Y could not relay the pipes either within the floor joists under Flat 4 (ie above any new ceiling to Flat 3) or within the area which formerly lay between the floor of Flat 4 and the old ceiling of Flat 3 (see [58]).

The Court observed that the upshot of the case was somewhat curious ([56]), in that, although the DJ had held that Y was trespassing in maintaining his ceiling at a higher level, Y had not been required to reinstate the former ceiling, so Y was, in effect, in de facto occupation of an area which was not demised to him: but he was not, apparently, entitled to run gas pipes in it.

(case noted at: SJ 2014, 158(25), 32–33; and JHL 2014, 17(4), D81–D82)

To find out more about Butterworths Property Law Service Bulletin visit lexisnexis.co.uk/PropertyMag/BPLSB

14

Proofreading – what are your lawyers risking?180 lawyers told us about their proofreading and reviewing habits. See the alarming truth – and what you can do to help.

Lawyers are making mistakes. Despite all that effort, we found that

of ‘proofread’ legal documents still contain errors

90%

33%

It’s time for technology to come to the rescue.

90% of laywers won’t spot the mistake.

Lawyers are under pressure.Proofreading consumes a huge amount of time and effort:

90% of lawyers draft and review documents daily

Over half spend two or more hours each day on drafting

66% feel they’re under too much time pressure

Lawyers are taking risks.Worse still, our survey reveals:

of lawyers admit to skipping proofreading tasks

Lexi

sDra

ft

15

More billable hours…60% of lawyers say that such a tool would increase their billable hours.

ProofreadingDraft Review

But what if there was a dedicated tool for legal proofreading and reviewing… a toolbar that worked within Word, your lawyers’ main drafting application?

66% …You’d see a happier workplace…66% of lawyers say they would enjoy their jobs more if they could do more accurate – and faster – proofreading and reviewing.

…And less risk.Help your lawyers to execute error-free drafts in less time. And enhance your firm’s quality of service.

Want to try that legal proofreading and reviewing toolbar now?

Contact your account manager today or call us on 0845 520 1166

Find out more about our essential efficiency tool at www.lexisnexis.co.uk/LexisDraft

LexisDraft

16

Lexi

sPSL

First published on LexisPSL Property on 26 August 2014 and on the Purpose Built blog on 28 August 2014

Edward Benzecry is a partner at CMS Cameron McKenna and chair of the British Property Federation (BPF) Commercial Committee

In July the Model Commercial Lease (MCL) website was launched providing a suite of template commercial leases and some property management docs which are free to download. MCL is the culmination of three year’s work by the BPF and is a welcome leap towards achieving an industry standard suite of commercial lease documents.

Is the new form of Model Commercial Lease (MCL) being welcomed by the

commercial property sector? Edward Benzecry, partner at CMS Cameron

McKenna and member of the British Property Federation (BPF) Commercial

Committee, says while not obliged to do so, a number of law firms are looking to

adopt the MCL.

The MCL was originally commissioned by the British Property Federation and a large number of well-known law firms, clients and trade organizations have been represented on the working group that produced the documents, or taken part in extensive informal consultations.

The MCL is intended to avoid the unnecessary negotiation on routine lettings by representing a fair starting point for both parties. They have

been drafted for use by landlords not tenants but if adopted as an industry standard will potentially benefit both landlords and tenants by providing a faster and cheaper method of agreeing commercial lease documents providing a useful starting point for negotiations.

How did you become involved with the MCL?The MCL Initiative originated from the BPF. I was asked to chair the Committee as a result of a paper I presented to the BPF Commercial Committee some three years ago. The paper was headed ‘Lease negotiations are torture’.

One minute with Edward Benzecry On the Model Commercial Leases

17

LexisPSL

Why do we need the MCL?At the moment we have a situation where, on investment-grade property, almost every firm of lawyers has its own standard form of lease, as do many of the large landlord institutions and property companies. They all do exactly the same thing, it is just that they each use different wording and with clauses and schedules in a different order. This means that each lease needs to be negotiated from scratch, leading to unnecessary delay and extra cost.

The current system does not benefit anyone:

• landlords have to wait for their void units to become income producing

• tenants have to wait to use premises for the benefit of their businesses

• lawyers are often losing money as a result of low fixed fees

What were the key issues you felt needed to be tackled and standardised within the MCL?Our main aim was to create a suite of documents which was widely adopted by the landlord community. We thought that it would be foolish to aim for documentation which would be acceptable to both landlord and tenants in first draft—that is a holy grail which is frankly out of reach in the foreseeable future. Our view was that, if we could have the landlord industry adopt standard lease documents, then both landlords and tenants would become familiar with the starting point. That in itself would drive out a huge amount of time and cost.

We also anticipate that this standardisation will quickly bring the realisation with it that a huge amount of any lease is actually boilerplate and uncontroversial. Standardisation of that boilerplate alone would be enormously helpful.

Having said that, we were aiming for a product that would be adopted by landlords. We were also keenly aware that we should not undertake this initiative in a vacuum—we should be aware of the regular concerns of, and amendments made by, the tenant community. We took the view that, where there are tenant amendments which are regularly accepted by landlords without question, we should draft the standards to include those amendments from the start. Thus we have allowed for things like:

• landlord costs to be reimbursed by the tenant to be reasonable

• detailed safeguards protecting the tenant where a landlord enters the premises

• lease Code compliance in areas such as: 

- assignment (where the landlord can only require an authorised guarantee agreement (AGA) if reasonable)

- alterations (where the landlord can only require reinstatement if reasonable), and

- break clauses (where the only conditions are payment of the principal rent and the tenant giving back the premises free of all subleases)

Why do you think previous attempts to standardise the commercial lease have failed and why is MCL different?Many of the previous attempts have been aimed more at smaller premises (eg BPF standard lease, Law Society standard lease). They have not failed as such, but these documents are rarely used for investment-grade lettings. The last time I think anyone attempted standardisation of investment-grade leases was the DJ Freeman Leasebook. That was a good product, but was probably ahead of its time in terms of the industry’s willingness to pursue standardisation. I suspect also that the fact it was being sponsored by an individual firm did not help.

The MCL is different because it is an industry-led initiative originating from the client-side, rather than from lawyers. No individual firm or organisation which has been involved in the initiative is looking to take any individual credit and that should help people overcome their prejudices.

We are also in an information age, where knowledge is shared freely and instantaneously. There is very little advantage left available with something like an individual form of lease.

The construction industry and the banking industry have both managed to embrace standardisation. Surely it is only a matter of time before the real estate industry does so as well with leases (a fundamental plank on which the real estate industry relies). We are optimistic that that time has come.

Have clients welcomed this approach?We consulted widely through the industry, both with the client community and with other lawyers. In general, the approach was warmly welcomed by almost everyone. Interestingly, tenants have been just as interested and welcoming as landlords.

Have you been able to gauge uptake in the MCL since its release in July?It is still early days. I know that the MCL has been used in a number of one-off pilot schemes and I believe has been well received. There has been even greater incidence of people using individual clauses or concepts from the MCL.

I am aware that a number of law firms are looking to adopt the MCL and are currently going through the process of taking the suite of documents into their own systems, consulting with clients, and amending as appropriate to cover any individual demands or particular policy approaches.

It is important to note here that we have stressed that people are not obliged to adopt the MCL verbatim. People are at liberty to make whatever changes they wish in order to suit their own needs. We felt certain the project would fail if we were prescriptive. In practice, we do not anticipate wholesale amendments as people come to appreciate the quality of the product.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor. Interviewed by Nicola Laver.

To find out more about LexisPSL Property, or to have a free trial, visit lexisnexis.co.uk/PropertyMag/PSL

18

Lexi

sPSL

Minimum energy efficiency standards in the private rented sectorBy Simone Davidson, Solicitor, LexisPSL Environment

By 1 April 2018 eligible domestic and non-domestic properties have to be improved to a specified minimum energy efficiency standard (EPC rating E) before being let to tenants. Landlords will need to start making energy efficiency improvements or disposing of very energy inefficient properties.

To help achieve the UK’s legislative targets, such as the section 1, Climate Change Act 2008 requirement that carbon levels are reduced by at least 80% in 2050 from 1990 levels, greenhouse gas emissions from all buildings must be ‘close to zero’ by 2050. As around 60% of today’s building stock will still be standing in 2050, UK buildings need to become more energy efficient and reach energy efficiency standards of as close to an ‘A’ Energy Performance Certificate (EPC) rating as possible. Whilst standards are in place to tackle the performance of new buildings and buildings are also covered to some degree by the CRC Energy Efficiency Scheme and Climate Change Agreements, improving the performance of the existing stock through energy efficiency upgrades is key to tackling energy used across the existing stock.

One of the barriers to improving the energy efficiency of rented property comes down to the fact that landlords have been reluctant to pay the costs of making energy efficiency improvements to buildings, when it is their tenants that sees the benefit of these improvements through lower energy bills. The Green Deal is one of the ways that government is tackling this split incentive, as under this scheme it is the energy bill payer that pays the costs of energy efficiency improvements through the energy bill and also benefits from lower energy bills as a result of the energy efficiency improvements. Additionally, the bill payer is protected by the Golden Rule which says that repayments must not be any larger than the expected energy bill savings. However, the Green Deal (and the associated Energy Company Obligation) aren’t enough to encourage the necessary levels of energy efficiency improvements to take place and so a regulatory impetus is also crucial.1

As around 18% of non-domestic properties, and one in ten domestic properties, are in the very lowest EPC bands (F or G), the government created provisions, at sections 42–51 in the Energy Act 2011 (EnA2011), to ensure energy efficiency standards for domestic and non-domestic buildings are of a certain level, and to reduce the number of domestic properties in fuel poverty. The Energy Act 2011 also contains provisions, which oblige the Secretary of State to bring in regulations, which support these measures. The government has produced draft regulations in this area and is also consulting on the regulations’ requirements.

Non-domestic propertyEnA 2011, s 49 The private rented sector minimum energy efficiency (non-domestic) regulations for England and Wales will mean that by 1 April 2018, all eligible properties will have to be improved to a specified minimum energy efficiency standard (EPC rating E) before being let to tenants, except where certain exemptions apply.

Some of the key proposals in the regulations include:

• that they will apply to leased non-domestic buildings within scope of the Energy Performance of Buildings (England and Wales) Regulations 2012, SI 2012/3118 (EPC Regulations).2

• mirroring the trigger point in the EPC regulations for providing an EPC upon let (although the regulations don’t apply to sales)

• a phased introduction, whereby the regulations apply to new leases from 1 April 2018, but with a hard ‘backstop’ from 2023, which means it will apply to all leases in scope from 2023

• not imposing disproportionate burdens on business and so there are no up-front costs involved and landlords won’t be obliged to undertake improvements where there is not the finance to pay for them. The regulations will not affect over 80% of non-domestic properties that are already rated A-E on their EPC, and will not apply to owner occupied non-domestic property

• allowing landlords to have fulfilled the minimum energy efficiency requirements if they have carried out the maximum package of measures taking account of the Golden Rule under the Green Deal, even where the property is still below an ‘E’ rating

• providing an exemption (for a specified period of time) and evidence of such exemption, where a landlord has been denied consent (where necessary) to undertake works, or where unreasonable conditions have been imposed on the landlord as part of any consent, allowing them to let the property below an ‘E’ EPC rating

• that the local weights and measures authorities ie Trading Standards Officers will be the enforcement body for the regulations

Government announced in 2013 details about a new scheme to support private landlords in improving the energy efficiency of their properties, which will improve around 15,000 of the least energy efficient rental properties each year for three years. 

ConsultationThe consultation on these regulations, opened on the 22 July 2014 and closed on 2 September 2014, with a response expected in early 2015.

Some of the key areas that DECC is seeking views on, include:

• whether landlords could be permitted to demonstrate compliance with the regulations by undertaking all improvements that pay for themselves in energy bill savings within a prescribed period

• whether an exemption from undertaking improvements to reach the minimum standard should be provided where an independent property valuation demonstrates that required improvement works would result in a net material reduction in a property’s value

• whether the regulations should only bite if the lease if more than 6 months long and less than 99 years long

• the sorts of improvements that are required

• when such improvements are required including the dates that the regulations come into force and the point in a lease cycle the regulations bite

• where exemptions do apply, the proposed scope of these exemptions

• the proposed approach to enforcement, penalties, appeals undertaken by Trading Standards Officers

19

LexisPSL

Practical considerationsLandlords will need to start making energy efficiency improvements or disposing of very energy inefficient properties in the lead up to 2018, in order to be in compliance with the regulations when they come into force. Additionally, rent review provisions and the marketability of the property are likely to be affected by the property’s energy efficiency.

Tenants should be aware that if their property is rated as being below the required energy efficiency level by 2018, then it’s likely that they won’t be able to assign or sublet their leases, so they will need to make sure their property conforms to the minimum energy efficiency requirements (subject to superior landlord consent).

Landlords may also wish to consider lease provisions that oblige tenants to ensure the energy efficiency of the property doesn’t drop below a certain level, given the impending minimum energy efficiency requirement.

Domestic propertyThe energy efficiency regulations for privately rented homes in England and Wales have two distinct elements:

• EnA 2011, s 43

- by 1 April 2018, all eligible properties will have to be improved to a minimum energy efficiency standard (EPC rating E) before being let to tenants, except where certain exemptions apply (minimum standard regulations)

• EnA 2011, s 46

- by 1 April 2016, tenants will have a right to request consent for energy efficiency improvement measures that may not be unreasonably refused by the landlord where financial support is available through the Green Deal or ECO (tenant’s improvement regulations)

Some of the key features of the proposed regulations’ include that:

• they will apply to properties occupied by a tenant on either an assured tenancy under the Housing Act 1988 or regulated tenancy under the Rent Act 1977

• they will apply only to those buildings within scope of the EPC Regulations 2012

• the tenant’s improvements regulations will apply regardless of whether the property has an EPC in place, whereas the minimum standard regulations will only apply where there is an existing EPC

• the tenant’s improvements regulations apply to any property regardless of the EPC rating whilst the minimum standard regulations only will apply to properties with an F or G EPC rating

• under the tenant’s improvements regulations cost safeguard provisions will mean that landlords will be able to refuse a tenant’s request for consent where the funding route proposed by the tenant to pay for requested improvements entails net or up-front costs to the landlord, such as through Green Deal finance, ECO, local or national grants, the tenant’s own sources or a combination of these

• as with the non-domestic regulations, the domestic minimum energy efficiency regulations won’t entail net or up-front costs to landlords for the required improvements, and therefore landlords

will be able to let a property below the minimum E standard where the property has undertaken all those improvements that would meet the Green Deal’s Golden Rule

• neither set of regulations would require improvements which require consent from a third party, such as a freeholder, where that consent is not given

• exemptions apply for a reasonable period of time (five years) for landlords under the minimum standard regulations, where the property has not reached an E EPC rating, despite the landlord having complied with the requirements of the regulations

• certain circumstances exist which would make it reasonable for a landlord to refuse consent, such as where planning permission is refused or where the landlord had previously offered a package of improvement to the tenant and the tenant refused. See page 34 of the consultation for more such circumstances

• the minimum standard regulations will apply to landlords who let to new tenants from 1 April 2018. From 1 April 2020 a regulatory ‘backstop’ will apply whereby all landlords of properties within scope would be required to meet the standard, or demonstrate an exemption. The implementation date for the tenant improvement regulations will be 1 April 2016

• local authorities’ Trading Standard Officers will be the enforcement bodies for the minimum standard regulations

• whether the government should set a forward trajectory of standards beyond 2018

Consultation As with the non-domestic regulations’ consultation, the domestic regulations’ consultation was open and closed on the 22 July 2014 – 2 September 2014, with a response expected in early 2015. The consultation seeks feedback on the proposals to both domestic regulations and includes questions on:

• whether additional tenancy types and buildings should be brought in scope and whether the minimum energy efficiency regulations should apply upon tenancy renewals

• whether an exemption from making improvements requested by a tenant, or required to meet the minimum standard, should be provided where an independent property valuation demonstrates that improvement works would result in a material reduction in a property’s value

• additional funding options which could be used by tenants when seeking consent for energy efficiency improvements

• the process for how a tenant makes a request for energy efficient improvements and the process for how a landlord must respond and whether they are entitled to submit a counter proposal

• whether any risks of retaliatory evictions exists and if so, what measures might reduce such risks

• the proposed set of circumstances that would make it reasonable to refuse consent to a tenant’s request

• what the best enforcement models are and whether exemptions should be certified up-front

• whether the government should set a forward trajectory of standards beyond 2018

LexisPSL Subscribers can see the following Practice Notes for further guidance: 1 What is the Green Deal? and Green Deal issues for the private rented sector. Consultation on implementation of the Energy Act

2011 provision for energy efficiency regulation (domestic). Consultation on implementation of the Energy Act 2011 provision for energy efficiency regulation (non domestic)

2 Energy performance certificates

To find out more about LexisPSL Environment, or to have a free trial, visit lexisnexis.co.uk/PropertyMag/PSL

20

Lexi

sPSL

Spotlight on Collective EnfranchisementWe highlight the recent cases on collective enfranchisement and provide a sample checklist from Lexis®PSL Property listing the issues to consider when embarking on collective enfranchisement procedure under the Leasehold Reform, Housing and Urban Development Act 1993.

No retrospective amendment to collective enfranchisement noticesWiggins v Regent Wealth [2014] EWCA Civ 1078In Wiggins the leasehold structure of the property was fairly complex, with a headlease, a management lease and occupational underleases of the seven flats. There were also overriding leases of those flats and an ‘enforcer lease’ above the management lease to allow enforcement of it despite the grant of the overriding leases. The initial notice specified all these leasehold interests as interests to be acquired, other than the occupational underleases. The freeholder served a counter-notice admitting the participating tenants were entitled to exercise the right of collective enfranchisement. The initial notice was not registered against the titles of the landlords of the overriding leases of the third, fourth and fifth floors (the old leases). Subsequently, the landlords of each of the old leases granted further long underleases (the new leases) which were registered at the Land Registry.

The solicitors for the landlords of the old leases claimed that the new leases were not liable to acquisition, and that, if the enfranchisement went ahead, the participating tenants would acquire the old leases subject to the new leases, but for a price which disregarded the existence of the new leases. They argued the participating tenants

should pay nearly £7m for the old leases which now only gave the right to possession for 10 days in 2122.

The participating tenants asked the landlords to agree an amendment to the initial notice to include the new leases. They refused.

Subsequently the participating tenants acquired the freehold, headlease and the enforcer lease.

The Court of Appeal decided that an initial notice could not be amended to include leases granted after it was served. As the initial notice had not been registered, the new tenants took free of the enfranchisement claim.

Joanna Bhatia, solicitor in the Lexis®PSL Property Team:The clear message is to ensure the initial notice is registered to avoid a situation like this. The participating tenants here can still acquire the new leases, but with a

later valuation date the premium payable is likely to be higher.

‘Artificial’ collective enfranchisement claim succeedsWestbrook Dolphin Square v Friends Life [2014] EWHC 2433 (Ch)In Westbrook, a scheme (a corporate and leasehold structure) set up specifically to take advantage of the collective enfranchisement legislation under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993) succeeded. The High Court decided that such a scheme did not fall foul of the wording in the legislation. The challenge was made on the basis of the construction of the wording, not on policy grounds.

Other findings of the court included:

• the special purpose vehicles (SPVs), in the corporate structure set up by Westbrook, were not ‘associated companies’--they were not precluded from having qualifying tenancies on this basis

• the freeholder was entitled to argue a point (that the building contained more than 25% of space occupied for non-residential purposes), even though it did not take that point in its counter-notice

• the court gave a steer on the meaning of ‘residential purpose’ (though falling short of formulating a test)--the concept of ‘home’ or ‘only residence’ was not inherently built into the concept, nor did the need for such accommodation have to be for any fixed or minimum period

• the tenants’ initial notice was not ineffective on the basis it did not ‘specify the proposed purchase price’ within the meaning

of the legislation. The court decided that the tenant’s figure must be a genuine opening offer as opposed to a nominal figure. However, an offer could be a genuine opening offer without necessarily being within a valuation range. In order to be genuine, it had to be bona fide in the sense that it would be seen by any reasonable landlord as a real offer and not merely the insertion of numbers in a form. It did not have to be an offer which the tenant believes will be, or even may be, accepted

Joanna Bhatia, solicitor in the Lexis®PSL Property Team:The judgment will be welcomed by tenants looking to collectively enfranchise. The main takeaway is that the scheme, an artificial structure set up specifically to take

advantage of the collective enfranchisement provisions of LRHUDA 1993, and designed to ensure it complied with the letter of the legislation, did not fall foul of the wording of LRHUDA 1993. The judgment is also useful in confirming a point for freeholders—they can take a point in court, even if it is not made in its counter-notice. Finally, the court gives a steer on the meaning of ‘residential purpose’ for the 25% test. It fell short of prescribing a specific test, but the remarks are a good indicator.

21

LexisPSL

Spotlight on Collective enfranchisement: Procedure ChecklistThis Checklist covers the procedural requirements for collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993.

Preliminary request for information• If required, the participating tenants should identify the

‘reversioner’ and any intermediate landlords by serving a preliminary information notice on their immediate landlord or the freeholder (as appropriate), or by making a search at the Land Registry for information about any registered superior title(s)

• The landlord on whom the notice is served must reply within 28 days of receipt of the information notice

See PSL Property precedents: Tenant’s notice to immediate landlord or his agent requiring information and Tenant’s notice requiring information of freeholder relating to superior interests.Leasehold Reform, Housing and Urban Development Act 1993, Pt I, s 11

Other preliminary mattersBefore serving the initial notice, the participating tenants should consider:

• their eligibility to exercise the collective right to enfranchise—see below

• making a preliminary estimate as to the likely costs which will be incurred

• establishing a costs fund

• making initial enquiries about the availability of finance for the purchase, after identifying the likely amount of the purchase price

• identifying the nominee purchaser (usually this will be a company which is incorporated for the purpose, in which case the participating tenants need to:

- arrange for its formation or acquisition, and

- identify who its officers will be before the initial notice is served);

• instructing a surveyor, valuer and other appropriate professionals to advise as to relevant matters

• entering into a participation agreement between themselves

See PSL Property Practice Notes: Collective enfranchisement—eligibility, Collective enfranchisement or lease extension—recoverable costs, Collective enfranchisement—participation agreements.

Qualifying TenantDo the qualifying tenants hold:

• a lease for a fixed term in excess of 21 years when first granted, or

• the continuation of a long lease under the Local Government Housing Act 1989 following the expiry of the original term

• a shared ownership lease where the tenant’s share is 100%?

Is the tenant disqualified from being a qualifying tenant because:

• the landlord is a charitable housing trust and the flat is provided as part of the charity’s functions, or

• the tenant owns more than two flats in the building (note that in this regard a tenant that is a body corporate is to be treated as the tenant of any other flat let to an associated company), or

• the leaseholder has a business or commercial lease?

See PSL Property Practice Note: Collective enfranchisement—eligibility

Premises• Do the premises consist of the whole, or a structurally separate

part (by virtue of a vertical division), of a self-contained building?

• Are the premises ‘excluded’?

• Do the premises contain at least two flats held by ‘qualifying tenants’?

• Are at least two thirds of all the flats in the premises held by qualifying tenants?

• Is no more than 25% of the internal floor area of the building occupied or intended to be occupied for non-residential use (the internal floor area of any common parts is disregarded)?

See PSLProperty Practice Note: Collective enfranchisement—what are qualifying premises.

Initial noticeThe initial notice must be:

• served by at least 50% of the number of tenants in the building, or by all of them if there are only two flats in the building (all the participating tenants must be qualifying tenants)

• protected by registering a unilateral notice or an estate contract

A copy of the initial notice must be served on:

• any other landlord of which the participating tenants are aware

• every qualifying tenant

A landlord who receives an initial notice must serve a copy on anyone not shown in the notice as having been served but whom he knows has an interest in the property superior to that of the flat tenants

See PSLProperty Practice Note: Collective enfranchisement—the initial notice and precedent: Tenant’s Initial Notice.Leasehold Reform, Housing and Urban Development Act 1993, Pt I, s 13

Conduct of claim on behalf of the landlords Identify ‘the reversioner’ who is to have conduct of the claim on behalf of the holder(s) of the reversionary interest(s) on the tenant’s lease.

Counter-noticeThe reversioner must serve a counter-notice within the time period specified in the notice of claim. Before serving the counter-notice, the reversioner should consider:

• whether the claim is valid

• whether he or any other landlord can oppose the claim on the basis of an intention to redevelop the building

• consulting a surveyor, other appropriate professionals and any other landlords in relation to relevant matters (including the amount of any counter-offer for their respective interests)

See PSLProperty Practice Note: Collective enfranchisement—the counter notice and precedent: Reversioner’s counter-notice.Leasehold Reform, Housing and Urban Development Act 1993, Pt I, s 21

22

Lexi

sPSL

Consequential matters following service of the initial notice• The reversioner, within 21 days of receipt of the notice of claim,

should require the nominee purchaser to deduce the title of all the participating tenants to their respective flats. The nominee purchaser has 21 days to comply

• The reversioner should also consider carrying out an inspection of the building and the flats. The reversioner can give 10 days’ notice requiring access to the flats at reasonable times

• The nominee purchaser should disclose as soon as possible any agreements with non-participating tenants within Leasehold Reform, Housing and Urban Development Act 1993, s 18

County Court application if no counter-noticeIf the reversioner does not give a counter-notice within the time specified, the nominee purchaser must apply to the county court within six months for an order determining the terms of acquisition.

See PSLProperty Practice Note: Exercising the collective right to enfranchise—applications to the court or tribunal.

County Court application following counter-notice• If the counter-notice denies that the participating tenants are

entitled to exercise the right of collective enfranchisement, the nominee purchaser must, within two months, apply to the county court seeking a declaration to that effect

• If the landlord proposes to redevelop the premises, he should, within two months of the date of the counter-notice, apply to the county court for an order for redevelopment

See PSLProperty Practice Note: Exercising the collective right to enfranchise—applications to the court or tribunal.

Determination of termsIf the landlord’s counter-notice does not deny the participating tenants’ right to enfranchise but disputes the price offered or any other term proposed in the initial notice, the nominee purchaser must:

• try to reach agreement with the reversioner within two months from the date of the reversioner’s counter-notice, and

• in the absence of agreement within that period, apply to the First-Tier Tribunal (Property Division) (in England) or the Leasehold Valuation Tribunal (in Wales) within six months of the date of the reversioner’s counter-notice for determination of the disputed matters

Contract and deposit• The reversioner must prepare and deliver a draft contract within

21 days of the date of agreement or determination of the terms of acquisition

• The nominee purchaser must, within four months of the date of agreement or determination of the terms of acquisition:

- enter into a legally binding contract, and, if required

- pay a deposit of 10% (or £500 if greater)

• The nominee purchaser must apply to the county court for a vesting order, within a period being not less than two months or more than four months from the date of agreement or determination of the terms of acquisition, if no binding contract has been entered into

See PSLProperty Practice Note: Exercising the collective right to

enfranchise—contract, conveyance and payment.

Deduction of title and requisitions• The reversioner must deduce title within 28 days of being asked to

do so in writing by the nominee purchaser

• The nominee purchaser must raise requisitions within 14 days of deduction of title. The reversioner must reply within 14 days of the requisitions being raised. The nominee purchaser must raise observations on those replies within seven days of receipt

See PSLProperty Practice Note: Collective enfranchisement—deducing title.

Completion and post-completion• The nominee purchaser must prepare and deliver a draft transfer

for consideration by the reversioner

• Once the form of the transfer has been agreed, the nominee purchaser must deliver an engrossment to the reversioner

• The purchase will then complete in the usual way, with the nominee purchaser making any necessary pre-completion searches (eg Land Registry, bankruptcy, Companies House, etc)

• The tenant must:

- apply for registration of its title

- remove any protective notice or land charge

Deemed withdrawalThere will be a deemed withdrawal if any of the time limits below are missed:

• proceedings relating to the validity of an initial notice must be brought by the nominee purchaser within two months beginning with the date of the counter-notice

• where the terms of acquisition are in dispute, an application to the First-Tier Tribunal (Property Chamber) (in England) or the Leasehold Valuation Tribunal (in Wales) must be made not less than two months, or more than six months, from the date of service of the counter-notice

• if the terms of acquisition have been agreed or determined but no binding contract has been entered into, an application to the court for a vesting order must be made not less than two months or more than four months from the date of agreement or determination

• where the reversioner fails to give a counter-notice, or further counter-notice, an application to the court for determination of terms of acquisition, in accordance with the initial notice, must be made by the nominee purchaser within 6 months of the date by which the counter-notice ought to have been given

• if the court has determined the terms of acquisition, but no binding contract has been entered into, an application to the court for a vesting order must be made within 4 months (or not later than two months from the end of such period as the court may have fixed when making the previous order)

• a notice of replacement of the nominee purchaser must be given within 28 days of a notice of termination of his appointment

• a notice of replacement of the nominee purchaser must be given within 56 days of the death or resignation of a previous one

• evidence of the participating tenants’ titles must be provided within 21 days of the reversioner’s notice requiring the nominee purchaser to deduce title (unless the initial notice would still have been valid even if those qualifying tenants had not been included

To find out more about LexisPSL Property, or to have a free trial, visit lexisnexis.co.uk/PropertyMag/PSL

23

LexisLibrary

LexisLibrary PropertyInstant online access to an exclusive collection of key property titles.

Bulletins• Butterworths Property Law Service Bulletin• Hill & Redman’s Law of Landlord & Tenant Bulletin

Cases• All England Law Reports (Property)• Estates Gazette - Archive• Case Overview• Estates Gazette Law Reports• General Case Digest

Citators & Digests• LexisNavigator• LexisNavigator Key Definitions

Commentary• Butterworths Property Law Service• Claims to the Possession of Land• Fisher and Lightwood’s Law of Mortgage• Halsbury’s Laws (Property)• Halsbury’s Laws Annual Abridgment• Hill and Redman’s Law of Landlord and Tenant• Housing: The New Law• Practical Guide to Land Registry Adjudication• Ross: Commercial Leases• Scammell & Densham’s Law of Agricultural Holdings• Sergeant & Sims on Stamp Taxes• Specialist News Analysis• Tolley’s Capital Allowances• Tolley’s Capital Gains Tax• Tolley’s Stamp Taxes• UK Legal News Analysis• UK Legal Newspapers Index• VAT and Property

Current Awareness• Appeal Tracker, Practice Directions and Court Information • Bulletins Index• Events• Key OJ Material• Lexis News Bites

Forms & Precedents• BPLS Property Precedents• Claims to the Possession of Land Property Precedents• Encyclopaedia of Forms and Precedents (Property)• Hill and Redman Precedents• Ross Commercial Property Precedents• Scammell & Densham Precedents

Index• EF&P Key Document Finder

Legal Journals• Journals Index *PLUS*

Legislation• Bill Tracker• UK Act Summaries• UK Legislation Status Snapshots • UK Parliament Acts (Property)• UK Parliament SIs (Property)• UK SI Summaries

Materials• Specialist Regulatory Materials• UK Regulatory Materials Summaries• Valuation Office Manuals

User Benefits:• Save valuable research time with hyperlinks. For example when viewing cases in Butterworths Property Law Service you can link to related

cases in The All England Law Reports or to legislation in the UK Parliament Acts.

• Stay updated with personalised e-mail alerts which can be set up using the Key Official Journal Material and other current awareness sources found in this menu.

To find out more about LexisLibrary, or to have a free trial, visit lexisnexis.co.uk/PropertyMag/Library

LexisNexis WebinarsWith the CPD year coming to an end, our webinars offer you the ideal solution to meet your 2014 training requirements.Each webinar consists of a one-hour, live and interactive audio-video web broadcast, delivered directly to your desk, by leading industry experts. Each webinar is worth 2 CPD points.

Commercial Property

15th Oct 2014 12:30 Planning II

18th Nov 2014 12:30 Enfranchisement of mixed use developments

Residential Property

14th Nov 2014 15:30 Leasehold issues

To find out more visit lexisnexis.co.uk/PropertyMag/Webinars

Reed Elsevier (UK) Limited trading as LexisNexis. Registered office 1-3 Strand London WC2N 5JR Registered in England number 2746621 VAT Registered No. GB 730 8595 20. LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc. © LexisNexis 2014 0814-096. The information in this brochure is current as of October 2014 and is subject to change without notice.