In this article, John Midgley, Head of Leasehold Enfranchisement at Seddons Law LLP and Director of the Association of Leasehold Enfranchisement Practitioners (ALEP), examines the steps that need to be taken to purchase your freehold when your landlord is missing.
If the landlord or freeholder of a block of flats is missing, flat owners may experience problems with there being a management gap in the building, leading to a deterioration in its fabric, the failure to provide services and possible insurance problems.
This article looks at lessees' rights to acquire the freehold of a block of flats under the Leasehold Reform Housing & Urban Development Act 1993 and the alternative (and possibly under-utilised provision) of applying for an Acquisition Order under Part III of the Landlord & Tenant Act 1987.
In simple terms, subject to meeting the qualification criteria set out in the Leasehold Reform Housing & Urban Development 1993 (“the 1993 Act”) – the answer is “yes”.
Firstly, you need to check that the building falls within the provisions of the 1993 Act and the flat-owning qualifying tenants are not prevented from pursuing a claim.
Secondly, you need to ensure that two out of three of the qualifying tenants wish to buy the freehold (which is different to a Collective Enfranchisement claim when the Freeholder is around - as only one half of the flat-owning tenants are needed to participate). Certain different scenarios may apply if there are any intermediate landlords.
Before any application is made to the court to exercise the right to Collective Enfranchisement against the missing landlord, it is prudent to take steps to try to trace the said missing landlord. Even if you would prefer that the landlord is not to be found, the court would expect you to jump through these hoops!
This could entail your writing to the landlord at all known addresses (by first class post and recorded delivery); advertising the prospective claim for collective enfranchisement in local newspapers and the London Gazette; writing (if applicable) to the General Registrar for England & Wales and the Probate Registry to see if the landlord or/his executors can be traced; and you may engage the services of a tracing agent to try to find him/her.
Once the participating lessees have all their ducks in a row, an application may be made to the County Court for an order dispensing with the need to serve the “usual” Initial Notice under Section 13 of the 1993 Act.
The court will want to be satisfied that the participants were entitled to bring the claim and that they have taken all necessary steps to try to trace the missing landlord. If it is satisfied, it will make an order, in principle, vesting the freehold in the Participants or in the name of a party appointed by the Participants to acquire the freehold. The latter is often a company which has been specifically incorporated for the purpose of ultimately owning the freehold of the block. As it is not within the court’s jurisdiction to determine the freehold purchase price or form of Transfer Deed/Conveyance, the matter goes off to the First Tier Tribunal (Property Chamber). Whilst the participating lessees will no doubt submit their own valuation evidence, the Tribunal will exercise its own judgement as to the sum that should be reasonably due to the landlord.
The valuation exercise will be carried out in accordance with the provisions of the 1993 Act. Therefore, if any of the leases have less than 80 years of the term remaining on them, marriage value will feature in the calculation of the premium thereby potentially making the price payable significantly more expensive.
Once the Tribunal has made its decision, the matter then goes back to the court.
In order for the earlier Vesting Order to take effect, the participants must pay into court the price determined by the First Tier Tribunal together with any other sums that would have been due to the landlord (such as up to 6 years' worth of missing ground rent).
Once the payments have been made into court, an application will be made for a District Judge to sign off the Transfer Deed. After the executed Deed has been received, the new owners of the freehold should be registered at the Land Registry.
Where there is a missing landlord, an alternative option for residential leasehold flat owners is to acquire the freehold by way of an Acquisition Order under Part III of the Landlord & Tenant Act 1987 subject to meeting various qualification criteria. Please note, this article is not designed to run through all of the qualification criteria.
It is important to keep in mind that two-thirds of the flat-owning qualifying tenants need to participate.
One of the instances in which the court may make an Acquisition Order is that there has been a breach by the landlord of an obligation relating to the management and that it is appropriate to make an order in the circumstances of the case.
If the landlord is missing, subject to the management obligations in the leases, there may be – at face value – grounds to demonstrate that the missing landlord is not complying with those obligations and, by virtue of the fact that he is missing, is likely to continue to do so. It is therefore arguable that it is appropriate for the court to make the Acquisition Order.
Whilst a preliminary notice should be prepared and served on the Landlord, the court will want to satisfy itself that practical steps had been taken to try to trace the missing landlord along the lines of the steps identified above in relation to missing landlord collective enfranchisement claims.
After all the initial preparatory work has been carried out, an application will be made to the County Court with supporting evidence as to the identity of the property, there being a requisite majority of flat-owning tenants taking part; the grounds of the claim including the landlord’s breach of its management obligations; and, details of the attempts made to trace the missing landlord.
It is often the case that the participants will set up a company to be the purchasing vehicle – and this company will also need to be joined into the proceedings.
If the court makes the Acquisition Order, then the participants will apply to the President of the Upper Tribunal (Lands Chamber) for a surveyor to be appointed to assess the price payable for the freehold. In this scenario, marriage value is not payable on leases which have a term remaining of less than 80 years - so going down the Acquisition Order route could lead to significant savings for the participants.
Once the surveyor has been appointed, prepared his report and certified the price payable for the freehold, the participants should pay this sum into court together with any additional sums awarded by it (e.g. outstanding ground rent) - with any legal and valuation costs being deducted from it.
Thereafter the Acquisition Order can take effect and the new freehold owner can be registered at the Land Registry.
A similar regime applies for missing landlord cases if a lessee wants to acquire the freehold of a house under the Leasehold Reform Act 1967 or a flat owning lessee wants to acquire a lease extension pursuant to the extension of the terms of the 1993 Act.
Caveat
This article is only designed to be a summary. It is not intended to be comprehensive legal advice that reflects the individual circumstances of any case. It is recommended that legal advice is sought before embarking on any of these processes.
For more information about John Midgley please visit the Seddons website.
To find out more about ALEP, or to search for a vetted leasehold enfranchisement practitioner, please visit the ALEP website.
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