The Leasehold Reform, Housing and Urban Development Act 1993 enables qualifying tenants to acquire the freeholds of their buildings. Tenants who take advantage of this right act through a nominee purchaser – usually a company created specifically for this purpose.
Tenants begin the enfranchisement process by serving an initial notice on the landlord. The landlord must serve a counter-notice admitting or disputing the right to collective enfranchisement. The legislation sets deadlines for the various stages of the process and prescribes circumstances in which the tenants’ notice will be deemed to have been withdrawn.
The Leasehold Reform, Housing and Urban Development Act 1993 enables qualifying tenants to acquire the freeholds of their buildings. Tenants who take advantage of this right act through a nominee purchaser – usually a company created specifically for this purpose.
Tenants begin the enfranchisement process by serving an initial notice on the landlord. The landlord must serve a counter-notice admitting or disputing the right to collective enfranchisement. The legislation sets deadlines for the various stages of the process and prescribes circumstances in which the tenants’ notice will be deemed to have been withdrawn.
If the terms of the acquisition have been agreed and the parties do not enter into a binding contract within two months, the tenants can apply for a vesting order. If they miss the window for making the application, their initial notice will be deemed to have been withdrawn. This may have the effect of increasing the price payable for the freehold on any subsequent exercise of the right to collective enfranchisement because the unexpired terms of the tenants’ leases will be shorter. In addition, property prices may have risen.
The dispute in Pledream Properties Ltd v 5 Felix Avenue London Ltd [2010] EWHC 3048 (Ch); [2011] PLSCS 68 arose because of a delay in agreeing a form of transfer. The initial draft supplied by the tenants failed to include a declaration that the transfer had been executed for the purposes of Chapter 1 of the Act, as required by the legislation, and included a provision offering the tenants a full title guarantee, although the Act requires landlords to provide only a limited title guarantee.
The tenants eventually agreed to amend the transfer to reflect the provisions set out in the legislation and subsequently applied for a vesting order. The landlord challenged the application on the ground that the tenants were out of time. It claimed that the terms of the transfer were not in dispute, and could never have been disputed, because the provisions that were eventually agreed were prescribed by the legislation.
The court disagreed. It ruled that landlords can to provide more than the statutory minimum. The tenants had tried to persuade the landlord to change its mind and the form of transfer was not agreed until the tenants accepted a limited title guarantee. The judge endorsed the test laid down in Westminster City Council v CH2006 Ltd [2009] UKUT 174 (LC). It would not be appropriate to impose the formalities necessary to create a binding contract at common law when deciding whether parties have reached an agreement. However, it must be clear that negotiations have been completed and that final agreement has been reached, either orally or in writing, on a specific term or terms that is not in any way contingent on the agreement or determination of some other term or terms.
Tenants will welcome the decision. None the less, it may be advisable for practitioners, to avoid similar litigation, specifically to reserve their clients’ position where points remain outstanding.
Allyson Colby is a property law consultant
