Q
We live in a mixed-use block of 200 flats with offices, shops and restaurants below in prime central London. Altogether these commercial premises add up to more than 25% of the building.
The leaseholders have formed an active – and angry – recognised tenants’ association. But we seem to be utterly powerless in the face of our freeholder and his chosen managing agent.
Needless to say, the latter does the freeholder’s bidding without the slightest consideration of us – even though our financial share in the building dwarfs the freeholder’s speculative interest in its income streams and the commercial element.
As a result, we are unable to exercise right to manage, or buy the freehold. Nor does the commonhold legislation of 2002 help us at all.
Are we completely stuffed? Are reforms being proposed? How likely are they to see light of day?
… And is there anything we can do to break free from our terrible landlord?
A
By building schemes with non-residential space of 25% or more, developers artfully curtail residential rights. All perfectly legal, of course:
You are right. Under current rules, leaseholders living in mixed-use blocks that have been configured in this way are barred from pursuing enfranchisement AND right to manage opportunities.
That isn’t to say you have no options.
Have you considered the Right of First Refusal? Although you would expect most developers and professional investors to change the ownership of the freehold in a way that circumnavigates the law, there is still a chance that they bungled it. In one famous case https://staging.leaseholdknowledge.com/when-dodging-right-of-first-refusal-has-backfired-on-freeholders/, the leaseholders reversed a transaction made over a decade prior – securing the freehold for just £500 each.
If you’ve exhausted the Right of First Refusal route, Section 24 remains. It can be a blessing or a curse.
Unlike right to manage, the manager is strictly independent and is not acting for leaseholders directly. He is a court appointee, and may return to judges to seek guidance in the running of the estate.
However, a Section 24 manager is the only recourse to poor block management and surging service charges for leaseholders in the mixed-use blocks.
There is a little-known clause in the Landlord and Tenant Act 1987 which allows you to force the freeholder to sell up and part with the land. Instead of the 25% rule, the qualifying criteria includes leaseholders in buildings with non-residential premises of no more than 50 per cent.
After 2 years of having the same court-appointed manager in place, you are entitled to serve an acquisition order. In the same way you have to prove fault to obtain a Section 24 order, you have to demonstrate that the development cannot return to the unscrupulous landlord and that its future would be secured if it came under resident control and ownership.
It’s not easy to achieve, and the right to an acquisition order vanishes as soon as the court-appointed manager goes. LKP chair Martin Boyd and his neighbours over at Kingston’s upmarket riverside Charter Quay site used the 1987 Act to full effect in 2009. They broke free of Vincent Tchenguiz’s hold by compulsory purchasing the freehold for £900,000 in June 2013. They are now masters of their own destiny.
If you’ve followed the battle for Canary Riverside http://leaseholdknowledge.com/category/news/canary-riverside/, you will know that freeholders with deep pockets can cause real headaches. They will be absolutely determined not to lose their income streams.
Lawyers who act for freeholders have sadly wisened up to Part II of the 1987 Act and will try to nobble the management order, which could make the site nearly ungovernable. Your service charges will then be used to fund the court appointee’s litigation against the freeholder. If you think your landlord is one of the vigorous ones and may engage in ‘lawfare’, don’t go blindly into a Section 24. Have an action plan.
Don’t expect a Cascades situation https://decisions.lease-advice.org//app/uploads/decisions/act85/5001-6000/5206.pdf where the management order rolls over for a decade before you finally get yourself into a position where you can acquisition order the freehold.
This is a new era where freeholders and their terracotta army of lawyers will do everything they can to stop the ‘pesky tenants’ from gaining self-determination, which will include ousting the court-appointed manager through endless litigation and letting the management order revert.
The 25% rule may be nearing its expiry date, anyway …
Government has already tasked the Law Commission to abolish the 25% rule as part of its work to make the right to manage more accessible. The Law Commission will publish their final recommendations in February 2020, with legislation expected to follow.
In terms of reforms to the rules around collective enfranchisement and commonhold conversion, it’s a bit more up in the air.
The Law Commission originally suggested that the arbitrary 25% rule – which harks back to the early 1990s, when mixed-use was unheard of in this country – be maintained as part of the qualifying criteria for these rights.
However, there was a concerted pushback by leaseholders in the consultation responses. “Why should we be blocked from moving to the superior commonhold system when the values of our homes could be trashed?” they asked.
LKP understands that, in response, officials have been considering a 50% rule, which would mean that residential units must be in the majority for decision-making to qualify for freehold acquisition, bringing the rules into line with the 1987 Act.
