Weekly property litigation update – 4 February 2022


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In this week's bulletin the team discuss enfranchisement and commonhold reform, telecoms leases and valuation in 1954 Act renewals and a case where the Tribunal refused to modify a restrictive covenant. All this along with the usual positive news, insights from across the firm and the weekly quiz.

Levelling up enfranchisement

The Department of Levelling Up, Housing and Communities launched a consultation on 11 January 2022 seeking views on particular reforms to the leasehold and commonhold regimes. This consultation represents the government's proposals for implementing the Law Commission's July 2020 proposals for wholesale reform of enfranchisement and lease extension rights.

This new consultation specifically focuses on:

  • Increasing the qualification threshold for non-residential space from 25% to 50% for collective enfranchisement, right to manage and house enfranchisement claims,
  • Introducing mandatory leasebacks which leaseholders can insist upon in a collective enfranchisement claim, and
  • Commonhold voting rights and information on the sale of commonhold property.

These piecemeal amendments to thresholds and provision for mandatory leasebacks would mean many more properties would qualify for enfranchisement than at present. They would also make claims more affordable for leaseholders in circumstances where not all the flat owners participate in a claim. These would be welcome reforms for leaseholders, but landlords who thought their properties were safe from enfranchisement for the time being may now see this position change.

The proposed reforms to commonhold would see shared ownership leaseholders being able to participate in a commonhold structure, which they currently cannot. The reforms also propose to cap the costs that can be charged to buyers for information packs provided on the sale of commonhold units, giving greater access and smooth running to such sales.

Having considered the Law Commission's proposals for root and branch reform to the enfranchisement regime, it appears that for now the government is preferring to make smaller (but nevertheless significant) amendments, although the consultation paper states that the government will be providing a response on the Law Commission's wider recommendations in due course.

If you would like further information or advice about the reforms, please contact William Bethune.
 
Telecoms leases and valuation in renewals under the Landlord and Tenant Act 1954

The recent case of EE Ltd and another v Morriss and others [2022] EW Misc 1 highlights the evolving approach of the courts in valuing rents under telecoms leases renewed under the Landlord and Tenant Act 1954 which, following renewal, will become subject to the Electronic Communications Code in Schedule 3A of the Communications Act 2003 (the Code).

The Court was asked to determine the terms of the new tenancy between the telecommunication provider tenants, EE Limited, and Hutchison 3G UK Ltd (the Operators) and the freehold owners of Pippingford Park Estate in East Sussex (the Site Provider).

In this case, the key matter in dispute was the rent to be payable under the new lease. The Operators argued for a rent of £950 against the passing rent of £19,000. The Site Provider's expert considered £12,000 per year was appropriate. The judge determined a rent of £3,500, which included a contribution to the Site Provider's costs over the course of the lease.

In the Hanover case, a structured approach was developed by the court for determining the rent in 1954 Act renewals of telecoms leases. However, the judge in this case considered that it was only necessary to follow the Hanover approach where there was no reliable comparable evidence available. In this case, the judge considered a number of recent comparables, converting capital sums paid up-front to an annual equivalent. Within that range of comparables, he determined the figure that the hypothetical willing parties would have negotiated, having regard to the particularly factors he identified in this case, namely, the "significantly greater than average management time, inconvenience and potential for interference with other more profitable activities on the Estate".

This case again highlights the impact of the Code on reducing rents payable under telecoms leases and while the rent determined was ultimately over 3 times what the Operators had asserted, it was almost 3 times less than the Site Provider had pushed for and over 5 times less than the passing rent had been under the previous lease, with significantly greater rights for the Operators.
 
Tribunal refuses to modify restrictive covenant to prevent setting precedent to others

In Cross v Coach House Mews (Highbury) Ltd [2022] UKUT 20 (LC) the Upper Tribunal (Lands Chamber) considered the frequently rehearsed "floodgates" or "precedent" argument in respect of an application to modify a restrictive covenant preventing the erection of an extension, pursuant to section 84(1) of the Law of Property Act 1925 (LPA 1925).

Mr and Mrs Cross wished to construct a single-storey extension to their three-storey freehold mews house in Coach House Lane, London, and obtained planning permission. However, the planned extension would be in breach of a restrictive covenant benefiting the 21 freehold owners of properties in Coach House Lane and the management company owned by them. The covenant prohibited the erection of, or material alteration or addition to the external appearance of, any buildings, walls, fences or other structures.

Mr and Mrs Cross applied to the Tribunal to modify the restriction on the grounds contained in section 84(1)(aa) of the LPA 1925: that the continued existence of the restriction impedes some reasonable use of the land and the tribunal is satisfied that it does not secure any practical benefits or advantages of substantial value or advantage to those entitled to its benefit; or (c) that the proposed discharge or modification will not injure those entitled to the benefit of the restriction.

The management company and three residents of Coach House Lane objected to the modification of the covenant on aesthetic grounds, namely, that the proposed design was not in-keeping with the visuals of the Lane and would be visible from other properties. One resident also argued that it was a "point of principle" that it should not be allowed, as this was likely to encourage others in the Lane to apply to extend their properties in a similar way, with other objectors making similar points.

The Tribunal member sitting found in favour of the objectors, holding "modification of the covenant to allow the extension would encourage others to seek to extend their properties and increase the prospects of them being successful" and further noted that this would risk a significant loss of amenity, affecting the visual amenity for owners and possibly harming the character of the estate. The covenant provided certainty as to development and prevented disturbance to outside space and light, which were attributes to be preserved in a densely developed estate. Because of this, the practical benefit conferred by the covenant was of substantial advantage and so the requirements of section 84(1)(aa) were not satisfied, and the application was dismissed.
 
Insights from around the firm

Positive news stories

  • Edna celebrates 101st birthday with 30,000 cards: Edna Clayton spent her last birthday alone, so staff at Hector House Care Home in Glasgow wanted to make this one extra special. They appealed for people to send in a card, the appeal went viral and Edna received tens of thousands of cards, a happy birthday video from David Tennant and Michael Sheen, a surprise appearance on Good Morning Britain and a card from the Queen as well as a jaunt on a party bus!
  • Brits hiring chickens as pets: The rehoming charity Fresh Start for Hens has received 52,000 requests for pet hens. The scheme was started in July 2020 and encourages people to hire a pair of hens for a few weeks at a time.
  • Chinese New Year: Tuesday 1 February marked Chinese New Year. Welcome to the year of the Tiger.
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