Right to BuyResidential Leases

Under The Housing Act 1985

Christopher LastThomas Frith

Legal Advisers

The Leasehold System

What is a lease? A right to occupy a dwelling for a

term, with exclusive possession, at a rent

A leasehold interest is a tenancy, an owner-occupier under specific terms

The Leasehold System

The Lease A document setting out the terms for

the occupation of the premises by the tenant

A contractual agreement between the parties

Capable of assignment

The Leasehold System

Problems Lack of understanding of the nature

of the tenancy Different perspectives of the parties Diminishing asset

Rights and Obligations

The contractual relationship Specific terms in the lease Implied terms

Common law Statutory requirements

The Form of the Lease

Usual format is five parts plus schedules

1. Premises2. Habendum3. Reddendum4. Covenants5. Provisos

The Form of the Lease

Premises Parties to the lease Date on which tenancy starts Price to be paid Intention of parties to create a lease Brief description of property (the demise)

Habendum Length of tenancy

Reddendum The rent

The Form of the Lease

Covenants – Lessee’s covenants: To pay service charges Use and occupation Alterations Repairs to the interior

The Form of the Lease

Covenants - Landlord’s covenants: Quiet enjoyment Repair and decoration Mutual enforcement

Provisos Breaches of covenants, including non-

payment of rent can result in forfeiture and possession

Statutory Controls

1954 Landlord and Tenant Act Security of tenure for long leaseholders

1967 Leasehold Reform Act Right to buy freeholds of houses

1972 Housing Finance Act Right for tenants paying variable service charges to

obtain summary of costs

1974 Housing Act Right to challenge service charge

1980 Housing Act Right to buy Local authorities exempt from service charge challenges

Statutory Controls

1985 Housing Act Reasonableness requirement for service

charges

1985 Landlord & Tenant Act Tenants’ rights to information, consultation

and challenge Local authorities no longer exempt

1987 Landlord and Tenant Act Tenants’ rights to information on insurance

Statutory Controls

1993 Leasehold Reform Act Collective enfranchisement and lease extension Right to management audit Codes of practice Estate management scheme

1996 Housing Act Two-stage forfeiture process Determination of reasonableness of service

charges by LVT Right to appoint a surveyor

2002 Leasehold Reform Act

Right to Buy Leases Statutory Controls

• Housing Act 1985, Part V• Numerous other statutes and statutory instruments• Housing Act 1980 originated the right• Housing and Building Control Act 1984, Part I• Leasehold Reform, Housing and Urban Development Act 1993,Part II• Housing Act 2004

Section 125 notice – contents

• Service Charges• Reference period• 5 years beginning not more than six months after date of section 125 notice• Estimate of average amount• At current prices

Section 125 notice – contents

• Payable under each head in reference period• E.g. maintenance, insurance management• Total figure shown• Repairs• Itemised works estimated• At current prices for reference period and total shown

Section 125 notice – contents

• Non-itemised works estimated at average yearly amount• At current prices for reference period• Improvements• Estimate of amounts for reference period and total shown• Capped at these figures• Allowance for inflation

Section 125 notice – contents

Note: the right to mandatory loan during first ten years. See Section 125A (2) (b) which makes reference to Section 450A of the Act.

Mandatory Loan under S. 450A Housing Act 1985

Allows a leaseholder to request a loan within 10 years from completion of the purchase of the property under the RTB legislation.Details contained in Statutory Instruments 1992/1708 and 2000/1963

Mandatory Loan under S. 450A Housing Act 1985

Loan amount must exceed £1,500 less any amount demanded within the same accounting period. In any case the loan amount must exceed £500 but must not exceed £20,000.

How To Claim TheMandatory Loan Under S.

450A

The demand for a service charge should contain a statement form the landlord on whether in their opinion the leaseholder is entitled to a loan.Leaseholder request loan within 6 weeks.Landlord sets out the terms and the Leaseholder has 4 weeks to accept.

Mandatory Loan under S. 450A Housing Act 1985

The landlord may allow the debt to remain on the account.The landlord also has a discretionary power to grant loans in other circumstances.Any loan under S.450A can be registered against the title to the property as held by HM Land Registry.

Repayment Period of Loan

Three years, in respect of a loan of less than £1,500Five years, in respect of a loan of £1,500 or above but less than £5,000Ten years, in respect of a loan of £5,000 or aboveAt the option of the borrower, a shorter periodInterest rate is set as per Sch 16 to the HA 85

What is in the RTB Lease?

• A Right to Buy lease under the Act will look like most other leases and will contain covenants and rights granted to the leaseholder in a form familiar with Leasehold Practitioners• Unlike most other leases the essential covenants and the terms of the lease are imposed under the provisions of Part 3 of Schedule 6 of the Housing Act 1985

What is in the RTB Lease?

The following slides will detail the most important implied covenants contained in these leases

Implied covenants – schedule 6

• Ground rent• Must not exceed £10 per year for the whole term• Paragraph 11• Lease term• The lease term is 125 years• There are exceptions• Paragraph 12

Implied covenants – schedule 6

• The commencement date for all leases in a building may start on the same date• Only the first secure tenant to exercise the right to buy actually obtains 125 years

• If the landlord holds a head-lease for a unexpired term of less than 125 years then they can grant a lease for a term equivalent to the term the landlord enjoys less 5 days

Implied covenants – schedule 6

• If the landlord holds a head-lease for a unexpired term of less than 125 years then they can grant a lease for a term equivalent to the term the landlord enjoys less 5 days

Implied covenants – schedule 6

Common use of premises and facilities• Where a tenant has been able to use facilities and premises aspart of their tenancy they will enjoy the same rights once theybecome a leaseholder• Similar provision to Section 62 of the Law of Property Act 1925• Paragraph 13

Landlord’s Implied Covenants –

Paragraph 14

• Maintain the structure• Maintain the structure and exterior of the building andmake good any defects• Keep in repair other property, which the leaseholder hasrights to use

Landlord’s Implied Covenants –

Paragraph 14

Reinstate the building in the event of damage ordestruction• Maintain any services enjoyed by the leaseholder to areasonable level and keep in repair any installation inrespect of those services

Landlord’s Implied Covenants –

Paragraph 14

• Irvine v Moran [1991] 1 EGLR 261• Sheffield City Council v Hazel St Clare OliverLRX/146/2007

• NOTE: The Act does not define what a structure is.We have to look to case law for a workable definition

Landlord’s Implied Covenants –

Paragraph 14

• Irvine v Moran [1991] 1 EGLR 261• The definition of the structure of a residential building is not limited to those aspects of the building that is load bearing• External windows and doors fall within the definition of structuralThe windows in this instance were sash windows and it was held that the cords for the sashes and the window furniture could not be separated from the structure

Landlord’s Implied Covenants –

Paragraph 14

• Sheffield City Council v Hazel St Clare OliverLRX/146/2007• The case heard by the Lands Tribunal in 2008• The RTB lease provided that the windows and doors were part of the demise and repairable by the leaseholder• See Paragraph 14(2) of Part III of Schedule 6 referred to in a previous slide where the landlord is under an obligation to maintain the structure of the building

Landlord’s Implied Covenants –

Paragraph 14

• Sheffield City Council v Hazel St Clare OliverLRX/146/2007• Any variation from the implied covenants underParagraph 14 may be approved by a County Court• Paragraph 14 (4)• Without a court order any variation from the provisions ofParagraph 14 is void

Landlord’s implied covenantsexceptions – paragraph 15

This paragraph applies where the landlord’s interest is leasehold• To pay any rent due under the lease and to discharge its obligations• The covenants implied by Paragraph 14 shall not impose an obligation on the landlord which the landlord is not entitled to perform under its lease• Where the landlord’s lease provides for the superior landlord to perform covenants similar to those contained in Paragraph 14 the landlord shall use its best endeavours to enforce those covenants

Covenants by the leaseholder –paragraph 16

The leaseholder should keep the demised property in a good state of repairTo pay service charges to the landlord for costs incurred in meeting an obligation under Paragraph 14 subject to any initial restrictions on the recovery of service charges If the landlord does not insure the property the leaseholder may be required to pay a reasonable contribution as if the landlord was insuring the property

Avoidance of certain provisions –

paragraph 17

• Any lease provision restricting a leaseholder’s right to sublet the property in whole or in part is void• Subject to restriction on disposals within a national park• Section 157

Avoidance of certain provisions –

paragraph 17

Contrast the provision in the previous slide with a covenant found in a right to buy lease from a large local authority

Subject to the provisions of Clauses 3(11) 3(14) and 3(15) hereof not to sublet or otherwise part with possession of any part as opposed to the whole of the demised premises

Void Provisions – paragraph 19

Any provision that seeks to forfeit the lease where the leaseholder seeks to enforce the provisions of Schedule 6 is void

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