Leasehold update

Those of you who follow the leasehold update religiously will note that J usually takes care of these things, but not this month. I have the pleasure of that.

First, we have Triplerose Ltd v Bishun [2013] UKUT 0257 (LC)

Triplerose were the freehold owners of a block comprising 48 flats. Mr Bishun was the leaseholder owner of a flat within the block. Triplerose brought a claim in the county court for judgment of unpaid service charges. Mr Bishun defended the claim on the basis that the service charges had not been reasonably incurred. The county court transferred the case to the LVT.

The LVT found that no accounts had been produced for the year 2007/08 and used its “knowledge and experience as an expert Tribunal” to assess what was reasonable. This resulted in the LVT reducing the amount of the service charge claimed by Triplerose, but it gave no reasons for how it had reached the figures it did.

Triplerose successfully appealed to the Upper Tribunal. The accounts for 2007/08 had been provided and they were in the bundle before the LVT. Those accounts contained details of the actual expenditure on services. The LVT had erred by failing to have regard to these figures or the accounts. It had been wrong to use its “knowledge and experience” when it had concrete evidence of the amounts being claimed. If it was to depart from these figures it had to give reasons why having regard to all of the evidence. In this case, the LVT appeared to have imposed its own views in an arbitrary manner and thereby denied Triplerose the opportunity to understand the basis of their findings.

Comment

This will be a useful case for landlords as it should prevent the Tribunal from being able to reduce the amount of a service charge, where there is evidence that a cost has actually been incurred, without giving actual reasons for why the amount is being reduced. It also emphasises the need for tenants to be armed with actual evidence of why they contend the costs of works was too high, e.g. evidence of alternative cheaper quotes.

The second case is Cravecrest Ltd. v (1) Trustees of the Will of the Second Duke of Westminster (2) Vowden Investments Ltd [2013] EWCA Civ 731 and concerns the notoriously complicated provisions relating to the valuation of leases being acquired under a collective enfranchisement.

Cravecrest was the nominee purchaser for the collective enfranchisement of a house that had been converted into three flats. The Trustees were the freehold owners. The Trustees’ predecessors had granted a head lease of the whole property to Grosvenor Estate Belgravia (“GEB”). That head lease expired in 2184. Grosvenor Estate Belgravia had granted individual leases in respect of flats 1, 2 and 3. The tenants of flat 1 and flat 2 were the participating tenants for the enfranchisement of the property. Vowden Investments were the leasehold owners of flat 3. In each case, the leases were due to expire on 15 March 2009, i.e. only a couple of days before the right to enfranchise was exercised. Flat 3 was also subject to an overriding lease (“ORL”) which expired on 21 March 2130.

By way of s.2, Leasehold Reform, Housing and Urban Development Act 1993, Cravecrest were to acquire both intermediate leases as part of the collective enfranchisement. The issue for the LVT was the value of both intermediate leases.

It was not in dispute that the value of the house as a whole, with vacant possession so that it could be converted back into a house and extended to include a fourth floor, was £7m. The value of the three flats was only £4.95m. Cravecrest contended before the LVT and the Upper Tribunal on appeal that the potential development value, i.e. £2.05m, could not be taken into account when determining the price to be paid for the two intermediate leases.

The LVT and Upper Tribunal disagreed. The Upper Tribunal held that the valuation of both intermediate leases should be carried out on the basis of a two stage transaction, i.e. that the hypothetical purchaser of the GEB lease and ORL would acquire one soon after the other and, as such, the sellers of both leases would factor in the potential development value when selling their respective leases. The potential development value therefore had to be reflected in the valuation of both leases. The Upper Tribunal, however, factored in a 5% deduction on the basis that the hypothetical purchaser would be unable to purchase the second lease having purchased the first.

Cravecrest unsuccessfully appealed to the Court of Appeal. The hypothetical two stage transaction was in accordance with the 1993 Act’s provisions concerning valuation and the Upper Tribunal had therefore been entitled to reach the conclusion it did.

The final case is Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 0213 (LC) [transcript not yet available but will appear on the preceding link in due course I imagine - I have seen a transcript]. This case concerned the right to manage provisions under the Commonhold and Leasehold Reform Act 2002.

Regent Court RTM Co Ltd (“Regent Court”) sought an order from the LVT that it was entitled to acquire the right to manage Regent Court in Plymouth (“the building”) under s.84(3), Commonhold and Leasehold Reform Act 2002 (“2002 Act”). Regent Court had served notice on the non-participating tenants of the building inviting them to participate in its right to manage company. One of these notices, however, was sent to address registered for service at the Land Registry rather than at the tenant’ flat in the building and, as such, did not comply with s.111(5), 2002 Act.

Subsequently, Regent Court served Avon Freeholds (“Avon”) – who was the freeholder of the building – with a notice under s.80, 2002 Act, claiming the right to manage the building. That notice was defective, however, because it did not give Avon sufficient time to serve its counter notice under s.84, 2002 Act. Accordingly, a month later, Regent Court served another claim notice on Avon. Avon, in its counter notice and before the LVT, denied that Regent Court was entitled to acquire the right to manage the building because the earlier claim notice had not been withdrawn meaning that the second claim notice was of no effect and Regent Court had failed to serve a notice on all non-participating tenants within 14 days of serving its claim notice. The LVT ordered that Regent Court was entitled to acquire the right to manage the building.

Avon appealed unsuccessfully to the Upper Tribunal. The requirement to serve a notice on the non-participating tenants at its flat was directory rather than mandatory; as such unless Avon could show that a non-participating tenant had suffered any prejudice resulting from the method of service used Regent Court’s claim notice remained valid. In this case there was no such prejudice; two of the non-participating tenants had become members of Regent Court and, in respect of the remaining tenant, the flat was empty and he had shown no interest in the management of the block. Accordingly, there was no evidence that he would have received the notice had it been served at the flat or that he would have been interested in becoming a member of Regent Court. Whether Avon would be prejudiced was irrelevant; the provisions of the 2002 Act were designed to protect tenants; it was not to aid landlords who wished to prevent a company acquiring the right to manage a building.

Regent Court had also been entitled to rely on the second claim notice because the first notice was invalid. Under the collective enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 1993, of which the 2002 Act had been modelled, a notice that was not in the form specified by statute was invalid.

Comment

The Tribunal’s decision in respect of the service of the notices on participating tenants must be right; unless it can be shown that a tenant would be prejudiced by the failure to serve him with a notice inviting him to participate there can be no reason why the whole process governing the right to manage should be scuppered.

The second ground of challenge, however, is more interesting. In an earlier case – Plintal SA v 36-48A Edgewood LRX/16/2007) – the Upper Tribunal held that a claim notice does not cease to be a claim notice until an LVT declares it to be defective. The Tribunal preferred, however, to follow the latter case of Alleyn Court RTM Co Ltd v Abou-Hamdan [2012] UKUT 74 (LC), which decided the opposite. The basis for this decision being that the 1993 Act and 2002 Act were almost identical and it was well established under the 1993 Act that notices which did not comply with the statutory requirements are invalid.

The two Acts, however, are not identical. There is one crucial difference: under the 1993 Act in the absence of a counter notice there is still a hearing to determine whether the participating tenants can obtain the freehold. Under the 2002 Act in the absence of a counter notice there is not; the right to manage company simply acquires the right to manage the building. This is an important difference because it means that a court can only determine the validity of a claim notice once a counter notice has been served. It goes without saying that there must be a notice in existence before a counter notice can be served disputing the right to manage the building. As such it must follow that Plintal SA is right; a notice only becomes invalid once the First Tier Tribunal says so. Otherwise, there is no safeguard to prevent companies acquiring the right to manage buildings they aren’t entitled to. This is because the Tribunal can only consider the question if a counter notice has been served and a counter notice cannot be served if there is not a notice to respond to.

Posted in FLW case note, Housing law - All, Leasehold and shared ownership. RSS feed for this post and comments.

About

S is a barrister, based in London, who practices predominantly in housing and local government law.

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