Tenants exercising rights of collective enfranchisement are entitled to purchase the freehold of their building and any common parts. However, landlords may choose to grant rights over common parts that are equivalent to the rights enjoyed by the tenants under their leases, or to offer alternative land over which such rights will be granted, rather than transfer the freehold of the common areas.
The right to retain a freehold interest in the common areas offers landlords some degree of control and flexibility over the development of any adjoining land that belongs to them. Consequently, landlords must ensure that their proposals satisfy the requirements laid down in the Leasehold Reform, Housing and Urban Development Act 1993. Failure to do so will deprive a landlord of its right to retain a freehold interest in the common parts.
Tenants exercising rights of collective enfranchisement are entitled to purchase the freehold of their building and any common parts. However, landlords may choose to grant rights over common parts that are equivalent to the rights enjoyed by the tenants under their leases, or to offer alternative land over which such rights will be granted, rather than transfer the freehold of the common areas.
The right to retain a freehold interest in the common areas offers landlords some degree of control and flexibility over the development of any adjoining land that belongs to them. Consequently, landlords must ensure that their proposals satisfy the requirements laid down in the Leasehold Reform, Housing and Urban Development Act 1993. Failure to do so will deprive a landlord of its right to retain a freehold interest in the common parts.
In Ulterra Ltd v Glenbarr (RTE) Co Ltd [2007] PLSCS 235, the landlord proposed to retain land subject to rights in favour of the tenants that the leasehold valuation tribunal (LVT) agreed were satisfactory. However, the landlord also wanted to reserve rights to “rebuild build on or alter buildings or land forming any part of the retained land”.
The tenants argued that the reservation of these rights would significantly alter their position, and that the landlord would not be granting them rights that were equivalent to the rights that they enjoyed under their leases. They argued that the reservation would enable the landlord to do things on the retained land that it was unable to do under their leases. For example, the landlord might build on a part of the retained land and interfere with access to light in their building, or could alter the pathways running between the tenants’ flats and garages so that they became less convenient to use.
The tenants claimed that the landlord had failed to satisfy the requirements laid down in the 1993 Act. The Lands Tribunal agreed. The tribunal had to construe the permanent rights offered in the context of the landlord’s proposals as a whole. A landlord will not satisfy the requirements of the 1993 Act if it proposes to grant rights with the one hand and take them back, or modify them to an unacceptable extent, with the other. The rights that the landlord was seeking to reserve affected the rights offered and differed significantly from the position under the existing leases.
This case demonstrates that landlords must take particular care when seeking to reserve rights for the benefit of retained land. If the reservations alter the tenants’ position, the LVT can refuse to allow the landlord to retain the freehold interest in the common areas.
Allyson Colby is a property law consultant
