Philip Rainey QC published a paper in January of this year that was the subject of a debate held in parliament by a cross-party group assembled by LKP/Carlex. The paper looked at some possible alternatives to residential leasehold and/ or some of the “simplest” ways of dealing with the ‘problems’ of residential leasehold – by abolishing it, or making it less common.

The paper can be found on the Tanfield Chambers website.

This paper will be the subject of a debate at the ALEP Conference on 20th October which will be chaired by Joshua Rozenberg. It will be interesting to see what delegates think about this – and to hear a discussion about the possible alternatives.

This article is a bit technical for the content that usually appears on this site – but gives an overview of the issues concerning the signature of notices under the 1993 Act and discusses the possible benefits of the above Act to practitioners on the basis that notices under Section 13 and Section 42 now no longer need to be signed personally. The key points appear in the conclusions at the end of the article.

The Problem:

Prior to the introduction of the Leasehold Reform (Amendment) Act 2014 (‘the 2014 Act’) notices claiming the freehold or an extended lease under the Leasehold Reform Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) (‘the 1993 Act’) needed to be signed personally by the tenant.

This was a slightly anomalous position and one that created no small amount of hardship. Consider in particular the case of a flat owner under a disability and unable to physically sign a document. They were effectively ‘disbarred’ from exercising their rights under the 1993 Act. An attorney or agent could not sign the notice on the tenant’s behalf. The case of St Ermin’s Property v Tingay Limited [2002] EWHC 1673 (Ch) made the position clear that someone holding a power of attorney could not sign. We also had the case of Viscount Chelsea v Hirshorn [1998] 2 EGLR 90 CC which confirmed that Section 99(5) of the 1993 Act (before amendment) required personal signature.

 

In a collective claim to the freehold where multiple parties often in different parts of the world needed to sign a single notice. Whilst the signature pages could be collated evidence needs to be kept to show that the participating tenants had signed a single notice and whilst this point still applies as it relates to client authority and evidence that the clients have seen the notice, the fact that multiple original signed pages needed to be signed and returned has the capacity to cause significant delay. As the case of Cascades & Quayside Ltd v Cascades Freehold Ltd [2007] EWCA Civ 1555  shows, if the process has not been dealt with correctly or if there is any debate about what the tenants had in fact signed, then the notice will be invalid.

The Cascades case has made the position clear. This is still good law as regards the collation and creation of a valid notice as clearly, it cannot be a valid notice if on enquiry it can be shown that the tenants do not know what they have signed.

The need to obtain valid corporate signatures to notices often proved difficult because of the formalities under which a company could be said to execute a document. A company can only ‘sign’ by way of a deed and therefore notices needed to be executed as a deed in order to be signed ‘personally’ by the tenant. There were various cases which dealt with this point. However, under the 1993 Act as now amended the position is a lot easier as an officer (or indeed a solicitor or other agent) can sign on behalf of the company.

 

A bit of background

ALEP (the Association of Leasehold Enfranchisement Practitioners) has for some time had a working party looking at areas of the leasehold reform legislation that could be amended. Ever since its inception ALEP has sought to engage government in debate on areas of the legislation that could be amended and which caused hardship in practice or show signs of anomaly.

I have been pleased to chair the ALEP working party on legislative reform. In mid to late 2013 we held a further consultation on a number of amendments that had been drafted in outline by some of our working party members. This led to the private members’ bill that has (perhaps against all odds?) made it onto the statute books.

The Bill received the Royal Assent on 13th March 2014 and became law on 14th May 2014 as is reported elsewhere on this site and on the internet and in the media generally.

 

The Leasehold Reform (Amendment) Act 2014 (‘the 2014 Act’)

If you would like to see a copy of the 2014 Act, it can be found by following the links: http://www.legislation.gov.uk/ukpga/2014/10/pdfs/ukpga_20140010_en.pdf

http://www.legislation.gov.uk/ukpga/2014/10/section/1

The 2014 Act removes the requirement that notices under Section 13 or Section 42 be signed personally and instead provides that such notices may now be signed by or on behalf of the tenant.

This means that provided the person signing has authority to do so, or is the agent for the tenant, that Section 13 and 42 notices may be signed by someone other than the tenant. When enacted the 2014 Act did not apply to Wales although the Welsh Assembly has now taken steps to bring these provisions into force in Wales.

The Future – ‘What does all this mean for someone looking to buy their freehold or extend their lease?’

As the discussion above shows, the fact that a company or individual can authorise another to sign on their behalf should speed up the enfranchisement process considerably. Although solicitors should presumably have an express written authority from their client to serve any such a notice on their behalf given the cost consequences that flow from serving a Section 13 or Section 42 notice and also given the potential financial commitment that comes with the service of a notice.

Cases where no notice could be served before (such as sales by a receiver or mortgagee) presumably can now proceed with the service of a notice by the seller where this could not happen before. The claim can be subsequently assigned in the usual way, saving time and the new owner having to wait for the qualifying two year period in order to be able to serve notice. In the case of a sale by a mortgagee or receiver, provided that they are appointed by the borrower to act as the bank’s agent in relation to the realisation and perfection of any security then they should be able to sign on behalf of the borrower.  Similarly, persons who have an appointed an attorney under a lasting power of attorney, or a general power of attorney can now exercise enfranchisement rights without difficulty.

Collective claims should also now be easier as well as the signature of the notice by each individual qualifying tenant can be made by a signature on their behalf by their duly appointed agent (usually the solicitor).

This makes it all the more important to ensure that those advising you are sufficiently expert in this area, as there is the still the risk that claims can go wrong with the potential cost consequences that flow from this. I anticipate that as time progresses there will be a number of claims against advisors who have (or may have) outstepped their authority.

However, the pathway to buying your freehold or extending your lease, has now been made a little easier and certainly (as far as collectives are concerned) the process should now move more quickly.

I am delighted to report that the Leasehold Reform Amendment Bill has been making its way through the House of Lords and has now received the Royal Assent.

The Leasehold Reform Amendment Bill received the Royal Assent on Friday 14th March 2014 which means that it will be come law shortly. The bill is a private members’ bill which makes a small but important amendment to the 1993 Leasehold Reform Housing and Urban Development Act.

When enacted it will remove the requirement that the tenant should sign any notice of claim to a new lease (or to buy the freehold) personally and will allow a duly authorised person (such as a solicitor) or someone holding a power of attorney to sign on their behalf.

This will make it easier for flat owners, particularly those under a disability, to access their rights under the 1993 legislation and will also make it far easier for flat owners to bring claims as where parties are some distance apart a solicitor can be authorised to sign on their behalf. This will make claims to larger freehold blocks easier.

Whilst many of the technical challenges in the 1993 Act will remain, this will make it easier for flat owners to access their rights and should in practice speed up the process.

As I commented previously on Leasehold Reform News (see the article on that site) the decision in Kelton Court is of interest to any long leasehold flat owners with property outside of Prime Central London (PCL) who are looking to either purchase their freehold or extend their lease.

Why?

Essentially, because a 6 percent deferment rate was decided upon in a departure from the standard 5% rate in Sportelli. The Lands Tribunal came to this decision for three reasons; the enhanced risk of obsolescence, the perceived lesser rate of growth outside PCL and the enhanced ‘management risk’ associated with flats.

A higher deferment rate, of course reduces the amount that the flat owners will have to pay as part of the calculation.

Does this affect all property outside PCL?

Not necessarily. Whilst two of the factors, (obsolescence and growth rate) are features of any property outside PCL the combined effect of which is to take the deferment rate to 5.25%, the enhanced management risk will only be a feature of properties where the landlord is directly responsible for the management. Where there is a head lease, or the leases are fully repairing the ‘management issue’ does not arise and the most the flat owners can argue for is therefore likely to be 5.25%.

Management issues

The focus on management as an issue is interesting as in reaching this decision the Lands Tribunal looked at evidence of the increased use of the LVT’s service charge jurisdiction (411 cases in 2007 compared to 232 in 2005 and 27 in 2004). The interesting point is that is that the numbers mentioned relate to applications to the London LVT. Perhaps a better comparable might have been the regional LVT?

Developments since Kelton Court

Since Kelton Court, we have the decision in Ashdown Hove, (Ashdown Hove Limited v Remstar Properties Limited [2010] 37 EG 138) in which 6% was achieved for a block in Hove, the enhanced risk of management being argued for successfully despite their being a management company that was a party to the leases.

The point being made (successfully) that where the lease contains an obligation on the landlord to take on the management company’s obligations in the event of its failure, there is still a risk to the landlord that it may have to be involved in the ‘day to day’ management of the property and that this will therefore ‘taint’ the amount that an investor would pay for the landlord’s interest.

Conclusions

We are now at the point where outside PCL valuers will normally be arguing for 5.25% and if possible, more based on the arguments concerning management. The decision in Ashdown Hove is an LVT decision and arguably slightly unique for a number of reasons. Therefore it may be that the Upper Tribunal will need to comment further before there is any greater certainty in this area.