Residential Leasehold up for grabs – change is coming, get ready!

The report of the Parliamentary committee on residential leasehold reform has been published containing strong recommendations, many of them radical, and some where it is not at all clear how they could work in practice.  Nevertheless, this is likely to be the future and a good commercial conclusion may be to assume that this will be the direction of things, and then to “adapt and survive”, and, preferably, prosper.

Mixed use and pure residential schemes may be affected by reform, in terms of investment value of existing portfolios, the ability to finance development or acquisition, and indeed the very legal basis upon which residential flat owners will hold their properties.  The motivation of Parliament is to right the anomalous way in which residential homes, particularly flats, are owned and managed.  This, despite the fact that there have been rafts of legislation, enacted over the last 50 years, that were meant to give leasehold house and flat owners far stronger rights and control over the properties they owned.  Other countries around the world have a “condominium” land holding system for flats, viewed as much less problematic than the UK system where a landlord keeps a role as property owner even when all the flats in a building are sold.  This motivated the creation of the law of Commonhold here, which although already on the statute books has had little or no impact on the way in which homes are owned.  The Parliamentary committee asked itself the valid question as to where things currently are.

A no-choice Commonhold revival?  Banishment of Ground Rents, potentially without proper compensation to landlords? In this “deep dive” article by head of Real Estate Dispute Resolution at HSF, Matthew Bonye sets out how the laws are currently framed, what is thought to be wrong with them, what Parliament wants to do, and then he tells you what he really thinks about it all.

Click here to read on

Author: Matthew Bonye, Partner and head of real estate dispute resolution, London

For more information please contact:

Matthew Bonye
Matthew Bonye
Partner and head of real estate dispute resolution, London
+44 20 7466 2162

Changes confirmed to permitted development rights and use classes

In our blog post of 10 December 2018 (see here), we discussed the potential impact on developers and landlords of changes to permitted development (PD) rights and Use Class A which were being consulted on by the government. Despite widespread criticism, and counter to some calls for a greater role for local authorities in securing the futures of their town centres through holistic town planning, in a Written Statement on 13 March 2019 James Brokenshire announced that the government is implementing the majority of the proposals. Some of the changes to PD rights are to be made later this spring; other changes, such as upward extensions for residential use, will be dealt with in further regulations in the autumn. We were also told that we can expect an Accelerated Planning Green Paper later this year. Whilst the changes are intended to “[simplify and speed up] the planning system, to support the high street, make effective use of land and deliver more homes”, whether this can be achieved by these changes remains to be seen. This post discusses what the changes are, and what their impact could be within the context of wider change. Continue reading

Brexit isn’t frustrating…at least for leases

Landlords can (for now at least) breathe a sigh of relief as the High Court has ruled that a tenant cannot bring its obligations under a lease to an end by invoking the doctrine of frustration simply because it will have no option but to relocate if/when the UK leaves the EU.

In Canary Wharf (B4) T1 Ltd and others v European Medicines Agency [2019] EWHC 335 (Ch), the Court held that even though the European Medicines Agency (“EMA“) would be forced under EU law to relocate outside the UK after Brexit the nature of the bargain between the parties was not made radically different by Brexit and the lease is therefore not frustrated.  On the contrary, the inclusion of carefully negotiated alienation provisions in the lease indicated that the parties had contemplated that the EMA might at some point wish to dispose of its interest.  The EMA will therefore remain fully liable under the lease for the remainder of the term, unless of course it successfully appeals this ruling.

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Opening the door to community and landlord engagement

This article was first published on Lexis®PSL Property on 24 January 2019. 

Fiona Sawyer, professional support lawyer in the planning team at Herbert Smith Freehills LLP, and Frances Edwards, senior associate and specialist real estate litigator at the firm, point out that although the government’s ‘open doors’ scheme will certainly help reinstate the high street as a destination for the community, the reality is that town centre rents need to be cheaper and action taken to ameliorate the cost of business rates to enable community uses to occupy town centre premises on a longer-term basis.

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Real Estate EP4: Brexit and the UK real estate market

In this podcast, Herbert Smith Freehills’ Matthew Bonye and Tom Leech QC discuss the important Canary Wharf Group v European Medicines Agency court case.  This case is highly relevant to real estate development. The tenant, the European Medicines Agency (EMA), argues that Brexit is a frustrating event for its lease and that it can assert that the lease is thereby terminated. If EMA wins, then it can only be on the basis that the law of frustration is considerably wider than it is currently thought to be: until now, there is no English case where a lease has ended due to frustration. If a lease can come to an end due to frustration, then how will this affect investment values and therefore development appraisals, particularly for longer-term commercial leases such as those for anchor tenants or whole building lets to major banks and other institutions, often a key element of a development scheme? Matthew Bonye and Tom Leech QC discuss how the law of frustration has developed and whether this may open the floodgates for other claims by tenants where the parties have not legislated in their lease for an unexpected turn of events in the future.

Our Brexit Hub has further in-depth, sector-by-sector Brexit analysis.

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Proposed changes to permitted development rights and use classes – impact on developers and landlords

Two key themes of the Budget on 29 October 2018 were increasing the supply of housing and improving the health of high streets and town centres. Published with the Budget was the consultation ‘Planning reform: supporting the high street and increasing the delivery of new homes’. Also announced was the government’s ‘Open Doors’ project, aiming to help improve the vitality of town centres by facilitating meanwhile use of vacant units. The ‘Planning reform’ consultation closes on 14 January 2019. A call for applications from landlords who wish to pilot the Open Doors project closes on 31 December 2018. We have prepared a briefing for clients, summarising key proposals that will be of interest to retail landlords, developers and advisers and assessing how these might impact new or existing developments and the lettings of these assets.

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Indigestion for landlords: a new acid test for redevelopment under ground (f)

In October, we wrote about the Supreme Court case S. Franses Ltd v The Cavendish Hotel (London) Limited [2018] UKSC 62, concerning a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). Yesterday, the Supreme Court handed down judgment in favour of the appellant tenant. On face-value, the implications of this case seem to be tenant-friendly; however, here we discuss further the commercial implications of the ruling for both landlords and tenants. Continue reading

Landlords’ motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). If the tenant is successful in today’s hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically. Continue reading

LANDOWNERS AND DEVELOPERS – BEWARE THE RIGHT OF FIRST REFUSAL

Are you a landlord or developer of property which includes residential flats?  Are you going to dispose of your interest in that property?  If so, you may be obliged to offer your residential tenants a right of first refusal before selling to anyone else. If you don’t, you could face serious consequences including criminal sanctions.

In this blog we go back to basics to explain when the statutory right of first refusal applies, what the consequences are when it does and how it is relevant in the context of mixed-use developments.

The Landlord and Tenant Act 1987 gives tenants this statutory right, however, the legislation was rushed through parliament in the run-up to the 1987 general election by a Conservative government who were under pressure to redress the balance of power between landlords and tenants in the residential sector. The result was a complex and defective piece of legislation which has been heavily criticised by the courts over the years.

1. When does the right of first refusal apply?

2. What are the consequences when the right of first refusal applies?

3. How is the right relevant to mixed-use developments?

 

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Residential leasehold – time for change?

At the end of July, hard on the heels of the Housing White Paper published in February, DCLG issued a Consultation Paper on “Tackling unfair practices in the leasehold market”. If you wish to make your voice heard prompt action is needed – the period for responses expires on 19 September.

The main points which are proposed to be covered in future legislation are:

  • Cutting back on the future sale of freestanding houses on a leasehold basis (unfair fees have been charged for extensions etc), save where there is good reason to protect local character or amenities.
  • Limiting the charging and increase of ground rents on new flat leases over 21 years in duration (recent publicity has focused on ten-year doubling of rents which, if not capped, can reduce the price or even make the flat unsaleable).
  • How can we make the (little-used) commonhold regime fit for purpose? Briefly, this combines ownership of a freehold unit with membership of a corporate body which manages the common parts. A commonhold community statement is an essential feature, much of which is standard.
  • What else should be done to tackle “abuse of leasehold” (to adopt DCLG’s wording)? This may include reform of existing leasehold terms and a review of the cost of acquiring the freehold (known as “enfranchisement”).

This Consultation is very much about protecting the interests of the consumer who was either not made fully aware of the true cost of buying a leasehold interest (on top of paying the original price) or who was sold the property on a “take it or leave it” basis, with no ability to negotiate the terms of sale. First-time buyers would have been particularly vulnerable to the latter practice and may not have been properly advised. Continue reading