Enfranchisement and development opportunity
Landlords often want to expand their property assets by building more flats on a site or block. An obvious opportunity for this is usually a roof top development. Where leaseholders are seeking to purchase the freehold during or prior to the time of a such a development, the question of compensating the landlord for that loss of development value is often a key question and was the issue before the Upper Tribunal (Lands Chamber) in the case of Vectis Property Co Ltd v Cambrai Court Management Co Ltd [2022] UKUT 42 (LC) [2022] H.L.R. 40.
In this case, the landlord had obtained planning permission to build two flats on the building's roof. The leaseholders claiming enfranchisement sought to limit the value of the freehold by arguing that the lease terms restricted development. In particular, the leaseholders argued that: (i) the lease did not expressly allow for the landlord to develop; (ii) the obligation to maintain the roof could not be performed if the development was carried out; and (iii) the lease created a letting scheme limiting the number of flats.
The Upper Tribunal held that these factors were not limiting on development. A lease need not include an express right to develop the building in order to do so. As to the obligation to maintain the roof, this applied to whatever form the element took at the time, which would apply to any new roof built in place of the old. In regard to the letting scheme argument, the lease did not restrict the building to a certain number of flats or preclude development, and with new tenants being party to the scheme this could not limit development. Accordingly, the Upper Tribunal found in the landlord's favour.
Leaseholders will often make an enfranchisement claim to stop a landlord's development. However, it is important for leaseholders to consider that development hope value may be factored into the purchase price on enfranchisement of a freehold if the development opportunity can be established.
If you have any questions about enfranchisement or would like more information please contact our specialist William Bethune.