When dealing with collective enfranchisement claims (where leaseholders of flats collectively acquire the freehold) the premium negotiations can become contentious. Leaseholders may have a right to acquire the freehold of their building pursuant to the Leasehold Reform Housing and Urban Development Act 1993. Understandably where a landlord is compelled to sell its interest it wants the maximum premium. After all they will be losing the benefit of any premiums from future lease extensions and the ground rent as well as any potential development value connected to the building.
Development value essentially allows the landlord to charge as part of the premium any loss of potential future development in relation to the building. A popular example is where the landlord loses the opportunity to build additional flats on the roof. The development value here could run into the tens of thousands. This is why it can be hotly contested.
Common questions our team comes across often from a legal point of view is: does the landlord have a right to build on the roof? Does the landlord have express rights in the lease to do this? These are both valid questions and are considered on a case by case basis. However, there is general guidance which may assist.
The recent case of Vectis Property Company Ltd v Cambrai Court Management Company Ltd concerns a block of nine flats where the leaseholders, as a nominee company, exercised their 1993 Act rights to acquire the freehold. The only point in dispute which was heard by the First-Tier Tribunal and appealed to the Upper Tribunal (Lands Chamber) was the development value of the roof and roof space. The landlord had obtained planning permission to build two flats. The landlord’s view was that £203,300 was a fair reflection of the development value. This was a huge amount as parties had agreed £24,500 for the remaining elements. The nominee company argued the landlord had no right to develop into this area as it was not specifically reserved under their leases. The Upper Tribunal held that such rights did not need to be reserved and the landlord could develop so long as they were not interfering with the rights of others. As such it would be for the landlord to ensure the works are carried out safely and with little disturbance to the residents. Of course development would potentially be prohibited were those areas enjoyed by or demised to others.
Furthermore the UT decided that the nominee company would still be able to carry out the landlord’s obligations concerning the roof once it acquired the freehold. The fact that a new roof would essentially be created with new flats did not prevent any landlord from exercising those rights. It would not make practical sense for those obligations to not extend to a new roof.
We strongly advise parties to obtain specialist valuation advice when dealing with collective enfranchisement claims. However, we are on hand to assist with the legal aspects of this matter.