Real Estate monthly digest - July 2017

Government consults on proposals to ban leasehold houses and high levels of ground rent for new builds in England

Building on a manifesto pledge the Government has issued a consultation aimed at "tackling unfair practices in the leasehold market" in England. Key proposals in the consultation include:

• prohibiting the sale of new leasehold houses
• proposals to remove as far as possible Help to Buy Equity Loan support on new build houses where these are sold as leasehold
• introducing measures which would limit ground rents in new long leases to a peppercorn rent
• updating Ground 8 of the Housing Act 1988 so long leases over 21 years with an annual ground rent over £1,000 in London and £250 outside of London cannot be an Assured Tenancy and therefore be subject to the possibility of a mandatory possession order if ground rent remains unpaid, and
• providing freeholders on private estates with equivalent rights to leaseholders to challenge the reasonableness of service charges via the First-tier Tribunal (Property Chamber).

The consultation also looks at areas for future leasehold reform, the suggestions include improving commonhold, how managing agents operate and leasehold terms and enfranchisement.

It may be the case that we see a more cautious approach from those investing in ground rents and push back from consumers and their solicitors on leasehold houses and leases containing high ground rents pending the outcome of the consultation and next steps.

The consultation runs for eight weeks from 25 July 2017 until 19 September 2017.

For more details on the proposals and further analysis please click here.

The Upper Tribunal recently held that leases of student bed-sits with shared communal areas were not "separate dwellings" and so did not qualify for statutory service charge protections - JLK Ltd v Ezekwe and others [2017] UKUT 277(LC)

Sections 18 to 30 of the Landlord and Tenant Act 1985 (LTA 1985) afford residential tenants protections in relation to service charges. Particularly, section 19 requires that service charge costs must be reasonably incurred and that services or works are of a reasonable standard. Importantly, the legislation allows the landlord or tenant to request the First-tier Tribunal (Property Chamber) (FTT) to make a determination on the reasonableness of a service charge, or proposed service charge. This has been regarded as a significant protective measure for tenants.

In this case long leaseholders of student "pods" wished to challenge the level of service charge being levied by the landlord. The definition of a "service charge" is found in section 18 as "an amount payable by a tenant of a dwelling as part of or in addition to the rent" for services of various kinds. The key question was whether the pods were "dwellings" and therefore qualified for the protections of the LTA 1985. The definition of "dwelling" in the LTA 1985 required that it was a "separate dwelling." The Upper Tribunal (Lands Chamber) determined that while student bedrooms with communal facilities were "dwellings" they may not be considered "separate dwellings" for the purpose of the LTA 1985 due to the shared living accommodation and so did not benefit from the protections of the Act.

Those investing in units in a development of this type should scrutinise the service charge provisions as the protective measures within sections 18 to 30 of the LTA 1985 which would otherwise allow the FTT to determine service charge disputes will not apply.

For further details please click here.

Land Registry: Rectification v alteration of the register? NRAM Plc v Evans [2017] EWCA Civ 1013

In 2014 an e-DS1 was issued in error in relation to a property. The mistake saw the lender at risk of losing its security and therefore any ability to recover the monies advanced under the 2005 loan; there was no longer the option to pursue the borrowers personally as they had both been made bankrupt in 2008 and therefore released from their obligations. The High Court ordered rectification of the register and the charge was put back on the title.

The borrowers appealed arguing that the grounds for rectification had not been met because (a) there was no mistake or (b) if there was a mistake the lender was wholly responsible for it and the borrowers did not contribute to it (the borrowers had requested the discharge and provided an old reference number for the loan, an error in the lender’s process meant later borrowing linked to the charge was overlooked). The borrowers also argued that if there was rectification then they should receive an indemnity from the Land Registry for losses suffered as a result of this.

The Court of Appeal undertook a detailed analysis of what constitutes a mistake and concluded the High Court judge appeared to have elided the two separate questions of whether the issuing of the DS1 was a mistake and whether there was ever a mistake in the register. The Court of Appeal found that there had not been a mistake in the register; the e-DS1 was issued by mistake, but this did not mean that its entry on the register was a mistake. So far as the Land Registry was concerned this was a correct entry at the time it was made. The Court of Appeal noted:

It may be the case that the disposition was made by mistake but that does not render its entry on the register a mistake, and it is entries on the register with which Schedule 4 is concerned. Nor, so it seems to me, can such an entry become a mistake if the disposition is at some later date avoided. Were it otherwise, the policy of the LRA 2002 that the register should be a complete and accurate statement of the position at any given time would be undermined.

The Court of Appeal went on to conclude that there was nothing in the way NRAM’s case had been framed that meant the Court could not order alteration of the register for the purpose of bringing the register up to date and re-registering the charge. Because the register was altered for the purpose of bringing it up to date, rather than rectified, there was no basis for the Evans to claim an indemnity from the Land Registry.

For more details please click here.

Opposing a 1954 Act lease renewal on redevelopment grounds - S Franses Ltd v Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB)

This case confirms that in the context of opposing a 1954 Act lease renewal under ground (f) (intention to demolish or reconstruct the premises) the intention of the landlord is everything and its motive does not matter. This case concerned premises on the ground floor and basement of 80 Jermyn Street, London which was let to textile dealership and consultancy. It was noted that as part of its opposition to granting the tenant a new lease, the landlord had designed a scheme "with the material intention of undertaking works that would lead to the eviction of the Tenant regardless of the works' commercial or practical utility and irrespective of the expense".

The landlord conceded that the proposed works would not be undertaken at all if the tenant left voluntarily or a new lease to the tenant was ordered. However, they provided an undertaking to the Court to do the works if the tenant’s application for a new lease was unsuccessful. The High Court noted that the 1954 Act does not contain any anti-avoidance provisions and that it is intention not motive which is relevant; the judge commenting that in his view an examination of the landlord’s motives was in fact "impermissible".

This case is not new law and it is certainly an expensive and inconvenient option for a landlord to bring about the end of a tenancy. However, subject to any further appeal (and issues as to whether the scheme can be carried out "on the termination of the current tenancy" and further consideration of the extent to which the works require possession of the property), the approach will see this landlord achieve vacant possession.

For further analysis please click here.

Land Registry: a secure digital mortgage service

The Land Registry has published a blog post noting that they "are getting close to the day when a customer completes the first fully digital mortgage deed". The Land Registry note that "using the "Sign Your Mortgage Deed" service will mean the borrower no longer needs to apply pen to paper and instead will digitally sign their deed online". To ensure the right person is signing the deed the Land Registry advise that they are working with the GOV.UK verify service. They note that they are looking to complete the first fully digital remortgage deed later this year.

The full post can be read here.

RICS and BBA sign Memorandum of Understanding on commercial valuation

RICS and BBA recently signed a Memorandum of Understanding outlining their commitment to work together to maintain high standards in commercial property valuation and ensure a sustainable supply of valuation services.

The press release can be found here.

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The 2017 environmental impact assessment (EIA) reforms

An explanation of the key reforms to the environmental impact assessment (EIA) regime introduced by the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (SI 2017/571) for the main EIA regime in England, which came into force on 16 May 2017.