The Landlord and Tenant Act 1987 gives tenants of flats a right of first refusal if their immediate landlord wants to dispose of its reversion. If the relevant conditions are met, the landlord must first serve formal notice on the tenants offering to sell to them. Incoming landlords must also serve a notice on the tenants advising them of their rights (irrespective of whether the original landlord had or had not served an offer notice on the qualifying tenants before the disposal).
Landlords that disregard these legal requirements commit a criminal offence and, if a landlord sells without having complied with the legislation, the tenants can require the new landlord to transfer the reversion to them on the same terms.
The Landlord and Tenant Act 1987 gives tenants of flats a right of first refusal if their immediate landlord wants to dispose of its reversion. If the relevant conditions are met, the landlord must first serve formal notice on the tenants offering to sell to them. Incoming landlords must also serve a notice on the tenants advising them of their rights (irrespective of whether the original landlord had or had not served an offer notice on the qualifying tenants before the disposal).
Landlords that disregard these legal requirements commit a criminal offence and, if a landlord sells without having complied with the legislation, the tenants can require the new landlord to transfer the reversion to them on the same terms.
Maloney v Gosal [2011] PLSCS 233 concerned a sale dating back to 1997. The property appreciated in value during the following 11 years, until the tenants discovered that they were entitled to have the freehold transferred to them. The subsequent litigation serves as a useful reminder that time does not begin to run against tenants until the requisite notices have been served. It also highlights provisions in the legislation that enable the court to revalue property that has increased in value as a result of a change in circumstances: section 12B(7).
Section 12B(7) may apply where a landlord has obtained vacant possession of one or more flats or has carried out work that has increased the value of the building. However, the increase in value must be assessed as at the date of the original disposal, and not at the date of the sale to the tenants, on the assumption that the change in circumstances had already occurred.
The statutory provision specifically excepts changes in the value of money from the changes in circumstances that may be reflected by an increase in price. One of the issues that arose in Maloney was whether an increase in the market value of the building was a change of circumstances within the meaning of subsection.
The landlord relied on the president of the Lands Tribunal’s suggestion in Okonedo v Kirby unreported 9 May 2006 that an increase in market value might constitute a change in circumstances, except to the extent that such increase is due to monetary inflation. However, the leasehold valuation tribunal preferred to follow the decision in 160 Haverstock Hill (Property Management) Ltd v Galway-Cooper unreported 2005 that increases in property prices are not a relevant change in circumstances for the purposes of the legislation. However, the tribunal agreed to a modest increase in the price payable to reflect the fact that one of the flats in the building had fallen vacant.
The county court upheld the decision on the ground that it was not unfair to allow the tenants to buy the freehold at the price fixed by the tribunal. The decision highlights the importance of timely compliance with the legislation. The longer the period that elapses following a change in ownership, the more the incoming landlord stands to lose.
Allyson Colby is a property law consultant
