The Leasehold Reform, Housing and Urban Development Act 1993 enables qualifying tenants to acquire the freeholds of their buildings. The legislation operates to dispossess landlords of their property against their wishes and therefore includes anti-avoidance provisions to prevent them from depriving tenants of their rights after a collective enfranchisement claim is made.
The litigation in Panagopoulos v Earl Cadogan [2010] EWHC 422 (Ch); [2010] PLSCS 79 was sparked by the grant of a lease of a caretaker’s flat, which had fallen vacant, for a term of 999 years at a peppercorn rent. The tenants challenged the lease, which was granted to a company connected with the landlord, on the ground that the landlord had “severed” its reversion in breach of the anti-avoidance provisions in the legislation.
The Leasehold Reform, Housing and Urban Development Act 1993 enables qualifying tenants to acquire the freeholds of their buildings. The legislation operates to dispossess landlords of their property against their wishes and therefore includes anti-avoidance provisions to prevent them from depriving tenants of their rights after a collective enfranchisement claim is made.
The litigation in Panagopoulos v Earl Cadogan [2010] EWHC 422 (Ch); [2010] PLSCS 79 was sparked by the grant of a lease of a caretaker’s flat, which had fallen vacant, for a term of 999 years at a peppercorn rent. The tenants challenged the lease, which was granted to a company connected with the landlord, on the ground that the landlord had “severed” its reversion in breach of the anti-avoidance provisions in the legislation.
The tenants claimed that the landlord had severed the reversion because the lease could be enlarged under section 153 of the Law of Property Act 1925, which empowers tenants to convert leases into freeholds if certain conditions are met. In particular: (i) the lease must have been granted for a term of at least 300 years, of which at least 200 years are left to run; (ii) the lease must not contain forfeiture provisions; and (iii) the rent reserved by the lease must be no greater than a peppercorn, or must have ceased to be payable. A rent of no more than £1 pa, which has not been collected or paid for 20 years or more, is deemed to have ceased to be payable.
The judge accepted the tenants’ arguments that the grant of a lease that is liable to be converted into a freehold at any time by the unilateral act of the tenant should be treated as a severance of the reversion. He also agreed that leases of flats can be enlarged, even though this would convert them into flying freeholds, but decided that section 153 did not apply because the lease reserved insurance and service charge contributions as “further rent”.
However, the tenants’ argument that the lease was void because the caretaker’s flat formed part of the common parts of the building was successful. The judge ruled that the flat was included in the common parts, which the tenants were entitled to acquire, because the company purchasing the building on behalf of the tenants would need the flat to comply with the landlord’s covenants to provide the services of a resident caretaker.
Importantly, the judge also ruled that the issue of whether an area falls within common parts does not depend on the obligations in tenants’ leases but on the way in which premises are used when tenants seek to enfranchise. Consequently, if the landlord had designated a room as a gym and installed exercise machinery for the residents to use, that room would also have been included within the “common parts” even though the landlord had not covenanted to provide such a facility.
Food for thought indeed. The wide-ranging aspects of this decision will inform conveyancers, as well as specialists in leasehold enfranchisement law and practice.
Allyson Colby is a property law consultant
