the federa tion of private residens'as;socia tions lid. · 1 the federa tion of private...

1 THE FEDERA TION OF PRIVATE RESIDENS'AS;SOCIA TIONS LID. iXURhUN 62 EA YSWATER ROA,

T. W R O O N BUCKERIDGE - LONDON W2 3PS ; CONSULTANT

UIRDCOLEmmE . . i

TEL. 071 402 1581 - N B W S L B T T B R

JUNE 1994 Number 32

A MESSAGE FROM THE CHAIRMAN

If you are an editor of a journal or magazine of some sort you expect and usually do receive feedback in the shape of letters to that editor or an increase in readership (or decrease) as all reflected in advertising. Sadly our Newsletter is not subject to these tender mercies. As a consequence we are often working in the dark, not a position I for one care to be in.

This month I am asking some or all of you to respond and give u s your .views and reactions. It is not that we receive' none - indeed some have been very appreciative but we need more comm- unication between members and the Committee whose sole purpose is to help you in problems in an ever broadening field.

From those who have acquired their freeholds and are now acting as their own managing agents we would like to hear how things are going - the problems overcome or still to be faced. From those who have determined to acquire their freehold or failing that are desirous of extending their lease we are anxious to hear of possible reasons for delay or baulking. Others may have fissures within their own rank3 which a visit or chat on an objective basis might help to resolve. With this in mind a section headed "Correspondence" will be added to our next Newsletter in the hope that we can stimulate a little life into this quite old dog!

We are also interested in hearing about any especial subjects which concern members based on their experience of living in blocks of flats. Have any of you suffered from subsidence? There is much help available in this connection through a new service.

Unless we know of your needs we cannot attempt to fill them. Unhappily this does not initiate the appearance of the sun for which each of us must reach by his own method.

Finally, we do beg Chairmen and Secretaries of RAs who receive these Newsletters to ensure them the widest distribution amongst their own members. After all they have all paid for them and are entitled to read and pass their own comments on to you and to US.

Pleafully T. Gordon Buckeridpe

THE FEDE~ATION OF PRIVATEREE~DEMS ASOCL~ TIONS LTD ISA COh4PdNl' UkPIED BY GUARANTEE, R E t X w UNDER NLlMBER 1992130.

1 .. I

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NEWSLETTER 32

T H E C O M M I T T E E

A CURRENT LIST -

Charles Buckeridge

Muriel Guest-Smith

Michael Derome

Pauline Fowler

Reginald Jones

Susan Leon

Peter Little

Anna O'Connor

Martin Redman

Judith Samson

Philippa Turner

Richard Williams

Lord Coleraine

Peggy Crofton

Chairman

Vice-chairman and Hon.Secretary

Hon. Treasurer

Editor - Newsletter

Consultant

Administrator

DISCLAIMER

Opinions and statements contained in Federation of Private Residents' Association publications or offered in Counselling are given freely and in good faith and as such are offered with-

out legal responsibility.

MANAGING AGENTS' FEES

Members are constantly raising questions as to the size. and reasonableness of fees payable in this connection. The first point to note is that if for any reason the lease covering service charges as a whole is badly drawn, management charges may not be covered or exigible at all. These cases however are rare unless they concern a landlord's 'in house' management which are normally irrecoverable, again turning on the drafting of the lease. Some landlords effect these services through a wholly owned subsidiary having a separate legal existence from the landlord and thus are payable in consequence.

There are also two sides to this coin. Namely the case where the managing agents are appointed and in the domain of the landlord as opposed to that where the landlord now represents the tenants by virtue of a freehold purchase or statutory enfranchisement. Clearly most problems relate to the former case where the landlord determines the agents' fee in agreement with that agent. Certain protection is given to tenants here. Section 19 of the 1985 Landlord and Tenant Act as varied by the 1987 Act provide that service charges must have been reasonably incurred and no lease may exclude this protection. Service charges in this context can include management charges. The legislation particularly where the residents' association is an RTA confers certain protection on the association regarding unreasonable charge or behaviour. It can involve a quintennial review by the parties where the RTA has served notice and either a managing agent is being employed or a new one appointed (Section 30 B.LTA '87).

At one time the RICS had a scale of charges for its members but this has now been abolished. The fees can take various bases. They can be a fixed 'percentage of the total service charge. They can represent a fixed fee per flat in the relevant block.or an amalgam of the two.

In certain events fixed charges or percentages are provided for specific services over and above the general management fees.

Under S . 8 7 of the Leasehold Reform Act of 1993 the Secretary of State is empowered to approve one or more Codes of Practice for the management of residential property. The RICS, the body most concerned and representative of managing agents, were charged by the D. of E. to prepare such a Code. So far it only has the status of a consultation document but its final approval under the Act cannot be long delayed.

. t "

PAGE 4 .

I n i t s e l f i t i s a n e x c e l l e n t a n d c o m p r e h e n s i v e d o c u m e n t . One s e c t i o n c o v e r s t h e a p p o i n t m e n t a n d c h a r g e s o f a m a n a g i n g a g e n t . T h e y s h i r k t h e m a i n i s s u e by s t a t i n g t h a t t h e a m o u n t may b e d i c t a t e d by t h e t e rms o f t h e l e a s e b u t f a i l i n g t h a t t h e y " s h o u l d b e c o m m e n s u r a t e w i t h t h e t a s k i n v o l v e d a n d b e p r e - a g r e e d w i t h y o u r c l i e n t w h e r e v e r p o s s i b l e . When t h e r e i s a s e r v i c e c h a r . g e f e e s a r e u s u a l l y q u o t e d p e r a c c o m m o d a t i o n u n i t r a t h e r t h a n a p e r c e n t a g e o f o u t g o i n g s o f i n c o m e " .

T h e KICS a l s o p r o d u c e a m o d e l c o n t r a c t f o r t h e a p p o i n t m e n t o f a m a n a g i n g a g e n t . T h i s p r o v i d e s f o r (1) a s p e c i f i c i n i t i a l o n c e o n l y s e t t i n g u p f e e ( 2 ) a f i x e d f e e p a y a b l e o n a p e r i o d i c a l b a s i s a n d ( 3 ) a s p e c i f i c p e r c e n t a g e o f t h e g r o s s r e n t s , s e r v i c e c h a r g e s a n d o t h e r m o n e y s c o m i n g i n t o t h e i r h a n d s . An a n n u a l a d j u s t m e n t f o r i n f l a t i o n i n d e x i n g o r a g e n e r a l r e v i e w i s i n c l u d e d . T h e p u b l i c a t i o n s p e a k s o f a 10% c h a r g e p l u s VAT. O n e t h i n g i s c l e a r t h e r e i s n o h a r d a n d f a s t r u l e . I n c i r c u m - s t a n c e s w h e r e t e n a n t s own t h e i r f r e e h o l d t h r o u g h a m a n a g e m e n t c o m p a n y b u t p r e f e r t o l e a v e d e t a i l e d m a n a g e m e n t o f t h e p r o p e r t y t o a n i n d e p e n d e n t p r o f e s s i o n a l a g e n t , t h e ma t t e r i s o n e f o r n e g o t i a t i o n . I f t h e p a r t i e s a r e u n c e r t a i n t h e y c a n u s u a l l y e n t e r i n t o a p r o v i s i o n a l f e e o r p e r c e n t a g e a n d r e - n e g o t i a t e a t t h e e n d o f p e r h a p s t h e f i r s t y e a r . Here t h e r e i s n o r e a s o n n o t t o h o l d a b e a u t y c o n t e s t i f o n e a s s u m e s t h e r e a r e s e v e r a l f i r m s c o n t e n d i n g f o r t h e a p p o i n t m e n t b u t p l e a s e b e a r i n m i n d t h a t c h e a p e s t i s n o t a l w a y s t h e b e s t .

T h i s may a l l seem u n s a t i s f a c t o r y a n d u n r e s o l v e d , y e t i t d o e s r e f l e c t t h e c u r r e n t p o s i t i o n a n d i s u n l i k e l y t o b e c h a n g e d . I t o n l y r e m a i n s t o r e c a l l t h a t t h e C o u r t o f A p p e a l o p i n e d t h a t , i n r e s p e c t o f a r e s i d e n t i a l l e a s e , i t s terms w i l l n o t h a v e b e e n i n t e n d e d t o g i v e t h e l a n d l o r d a n u n f e t t e r e d r i g h t t o b e e x t r a v a - g a n t a t t h e c o s t o f t h e t e n a n t . TG B

, 1

USEFUL PUBLICATIONS RELATING TO SERVICE CHARGES

R u n n i n g a B l o c k o f L e a s e h o l d F l a t s - A ~ u i d e ' I s s u e d b y FPRA E 5 . 0 0 t o m e m b e r s

R u n n i n g a F l a t M a n a g e m e n t Company b y N i g e l G . Fox P u b l i s h e d bv J o r d a n s & S o n s . 2 1 S t . T h o m a s S t r e e t , B r i s t o l

A P r a c t i c a l G u i d e t o R e s i d e n t i a l S e r v i c e C h a r g e s P u b l i s h e d b y t h e I n c o r p o r a t e d S o c i e t y o f V a l u e r s a n d A u c t i o n e e r s 3 C a d o g a n G a t e , L o n d o n SWlX OAP T e l . 0 7 1 2 3 5 2 2 8 2

S e r v i c e C h a r g e s i n L e a s e s b y G e r a l d S h e r i f f . S o l i c i t o r P u b l i s h e d b y W a t e r l o w P u b l i s h e r s , P a u l t o n s H o u s e . 8 S h e p h e r d e s s W a l k , L o n d o n N1 7LB T e l . 0 7 1 2 5 1 9 4 4 2

NEWSLETTER 32 THE TIMES SATURDAY MAY 7 1994

Flat dwellers battle against service charge demands

First-time buyer b

Julia Hoare found .< ,

leasing a big < -

letdown, reports Antonv Barnen

w hen Julia Hoare, a fist-time buyer, bought her two bedroom flat

inThornton Heath;near Croy- dad. Surrw. in A u m t 1988, she muld & wait tomove into her new home. Six yearslater she finds herself trapped in a battle to remver thousands of pounds which she and her 6 tenants fear they may have lost. Ms Hoare is theformer secretary of the residentstsass+ ciation of Warwick Gardens, the . @flat apartment block where she liws.

The properly was owned by a mmpany called Hanpier that was run by two bmthers, Jamb and Jeremiah Harouni. whose empire spanned 4.000 properties in the South East. Hanpier collapsed into receiv- ershlp in March 1992. The Iranian-born siblings have since heen at the cenm of tenants' allegations about the handling of residents' funds.

I For the tenants of Warwick Gardens, the receivership did not mme-as a surprise. They had tea at mnstant logger- heads with their landlords' managing agents over demands for payment for work the residents claim was never undertaken or was significant- ly overprifed. Ms Hoare ex- plained: "We never knew where our money was going

I - and were paying for things llke window cleaning."

Until Chrismas 1990. in ...-. ... common with many other Hanpier properties, the man- agin agent was Park Estates. run \y Mark Harouni. Jere- rnlah's son. In February 1992

Paul Rayden, who worked for Park Estates previously.

r anr ick Gardens residents paid a total service charge of ""'

more than L40.000 in 1989 .although they had been asked for US 000 to pay for major &S 'iif 1988. A survey in

June 1990 found that f118.900 for major works was needed. Tenants were asked for an extra E50.0a0 up front in 1991, and then t20.000 for the next two vears.

1t is not clear how much they actually paid. According to the Landlord and Tenant Act of 1987, for a block of 60 flats. any . work over U.000 should be classified as major works and a Section 20 notice sewed, but Ms Hoare claims that the residents never received any such notices. In addition Ms Hoare believes her lease does not entitle the landlord to rcquest payment in advance.

Aceording to J Trevor and Webster, which is managing Hanpier's property for KPMG Peat Marwick, the receiver, there is only L23.000 in the major works account, which the residents daim shows a deficit of nearly E70.000. How- ever, J Trevor and Webster . says that the residents have not produced evidence to s u b stantiate the deficit.

Mm$hile. Ms Hoare says she is now making enquiries about how to buy the freehold of Warwick Gardens, which by law should be offered to the tenants first. She claims the residents have never been a p proached although this is de- nied by J Trevor & Webster.

Ms Hoare said: "I am angly and disgusted. It will be veW diffimit for me to ever trust a landlord a ain 1 strongly urge anybody h g about buying a leasehold flat to thlnk m y seriously about it. If you can. make sure vou do a tho;ough search on the landlord and speak to any residents' nssmintlon flrst. but I urlll only buy a freehold in fum."

T H I S ARTICLE I S REPRODUCED WITH PERMISSION OF THE TIMES A N D ,OF THE AUTHOR ANTONY

he pleaded Puilty ts mortgage fraud (unmnnectai to his rela- tionshio with Hanoierl and was la& jaiJed. Until Hanpier Went into receivership, the management of Warwick Gar- dens was carried out by Cowr 13' Eststes, run by Cl~ve and

*.

PAGE 6

NEWSLETTER 32

la As a leaseholder. what How can I ensure the essees can take the should I be paying foe [4l money 1 pay to the m z r t , which

Iandlord or managing agent has the power to appoint an Lessees are normally lia- is used properly? independent person to manage ble m pay a share of the the ~rowrtv or, in extreme

custs of mfuiaghg the property Any money paid by a cases; ;nskP -&I gnukition and keeping it in g d order. leaseholder to a landlord order and force the landlord to You will be bid through an , for maintaining the property sell the freehold to the residents. annual senile charee. must be held in a de+mated

Howdo I h o w if major works need p be car.

tied oun

A landlord must serve all those paying the service

charge with a Section 20 notice Eitina a month's notice. This

spedfy what needs to t&he,.whO .*ill da the work and how.much it will mst.

Can I Mengethiis? - Lg You have the right to

make observations over what the landlord proposes and a residents' association can recommend a mntractor to be induded in any tender list. The landlord must ensure that any work undertaken is won?ible.

- ,

cuunt must be ceMied .by a qualified accountant a n n d y .

Q wast if I am not happy about the way things em

- g d

New legislation will be brought m durin Nov-

ember. If twothiids of%ssees are unhappy about the way the proueri~ is mana~ed. theV

veyor'dr accountant to assess whether the landlord is acting efficiently and effectively.

What happens if the auditor Iinds be

pradice?

What if my freeholder [ 9 ) . goes mto reaivrrsbip)

This should have no unpact on leaseholders la,

as they are a legal entity distincl from the landlord. m e receiver must offer the free. hold to the lessees first. '

[91 Wbst if the landlord had kco luring the money

held on busl for Ihe l a e b ?

la If money is missing from the resident's trust ac

count. this is a criminal act and legal action must be taken.

For more information: he Royall;lsr#rulron ofchar tered Suwyors (U712.22 7W The Envrmnrnenr Depan- rnenr gurde (071 276 091)1)).

NEWSLETTER 32 ., .

The following article by Sue Fieldman is reproduced with permission of the Independent on Sunday (13.3.94) * 5;

HOMEOWNERS GAIN FROM VAT SHIFT ON CHARGES

There is good news for thousands of homeowners who pay a service charge on communal facilities, writes Sue Fieldman. From 1st April they will not have to pay VAT on many of the services provided by their landlord, such as upkeep of the common parts or provision of a porter. If you live in a leasehold property and pay a service charge to your landlord, this is already exempt from VAT provided that the service is mandatory. However, owners of freehold houses who pay a service charge for maintaining the communal parts of an estate do have to pay VAT. SO do leaseholders where the service charge is not paid direct to the landlord but to a company independent of the landlord. It is a ridiculous anomaly. The liability for VAT - an extra 17.5 per cent on your bill - depends on the status of the supplier of the services or the type of property you own.

Dermot McLellan, a partner in the chartered accountants Stoy Hayward, said: "Customs and Excise have received complaints, particularly from people in sheltered housing - where there is frequently a mixture of freehold and leasehold properties. The leaseholders would not be paying VAT and the freeholders would". II Moreover, with sheltered housing, once the landlord has developed the estate he often then leaves the management and services to a separate service company," Mr. McLellan added. 11 and the homeowners are then liable for VAT".

The unfairness of these arrangements has prompted complaints to the European Commission. As a result, Customs and Excise has decided to bring in a more equitable system. From 1st April an extra-statutory concession will be introduced to bring all residential homeowners on to the same footing. They will be exempt from paying VAT if each resident is obliged to accept the service because it is supplied to the estate or block of flats as a whole.

The concession is not retrospective and the tax point will be when you pay the charges or the landlord issues the service charge bill, whichever is the earlier.

Optional cleaning services supplied personally to a resident - for example, carpet cleaning, shopping or gardening - continue to be taxed in their own right.

The concession does not apply either to the VAT treatment of service charges in respect of holiday accommodation.

LEASEHOLD REFORM ~ \ ' ~ w s L ~ : ~ ~ T E K 3.2

, P A G E 8 .

I The I993 Act - a danger do 1 mortgagees? ITI I IS ARTICLE I 4 REPXO- ~ D U C E D W I T H K I N D P E R M I S S I O N O F ESTATES

l G IZETTE

Clare Jones examines the question of leasehold enfranchisement from the

j lender's point of view. !

T e Leasehold Keform. Housing and Urban Development Act 1993 (the "Act") came

into force on November I 1993. Its purpose is to enable owners of leasehold propcnies to "enfranchise" their interests by creatir~g a slatutury ri&l lo an extension oFexistiog leases and a right to buy, or to club t~>gctlter to buy, the ircehrrld ievcrsions of their properties. Its provisiorts are complcn and ;a a result there has been nu initial rush from flat-ow~ters to exercise these new riglrls.

Whiie the A a has anracled much debate, onc arca which has not heen generally discussed is the wide-ranging implications for nlortgagers who l~a\,c lent, or who are lcnding, un properties capalilc of enlmncliiscme~~t or lease extcnskin.

The pro\'isions of the Act relating to n1ortg;lgces are based to a 1;trge extent on the cxisting sections 01 the lrasehold Reform Act 1967 dealing with thc le:tseextension and cnfrartchivment of lcaschold hotises. However,

! there arc rnmv more leasehold flats than

/ this new Act.

1 Collective enfranchisement Discharge of mortgages Under t l~c cr~iranchiscmcnt provisions contained in the Act, where a freehold pmpcrty which is to be cunvcyed to a tenartt or ;I Ie~lant's nominee (loiown in the Act ;is s nominee purcktser) is subject to a mortgage, to which the Act applies, that mortgage and any court order lor tlic enlorccment of the mongage. will hc tliscl~arged regardless o l whether or not the mortracee is a party to thc cunvcyance. Although ;hisis suhject Lo thc ~urchasc moncvs h ~ i t i ~ ? u:~id either to the ., , mortgagee or into court, this resslts in the mortgagee losing con t r~~ l over thc ~nortgaged propny. tlc cannot prevent, or coolrul h e tinling of, the sale and has no say in the price payrblc.

A mpngagee who is lending, For example, 011 a block of flats or ground rents may find that the mortgaged pmperty is required to be transferred at a price uphicli does not extinguish the anlounl outstanding under the mongage. A tnorlgagee will therefore need to consider laking other forms ol.security in addition to the t~>ungitgc ovcr thc prvpcrly

The discharge o f the mortgage does not prejudice die mortgagee's rights or remedies of' enforcement agaitist other property or any pcnonitl liability o l the landlord or others.

Repayment of secured monies I t is the duty oftbe nominee purchaser, in the

first instance, to pay the purchase moneys, or so much o l i t as is necessary to redeem the mortgage (if less), direct to the mortgagee (and i f more than one according lo their priorities) and not the landlord. A mortgagee ahould be aware that, in detenining the amount due in respect of the mongage, he is rlur entitled to consolidate the mortgage with a separav mongagc on another property.

The nominee purchaser has the option to pay the purchase rnuneys into court it' any dill icul~y arises in a%rtaini~ig how niuch is payable, or in tnaking the paynient, in res[icct of the ntongage. He is obliged to pay the purchase moneys into coon if;prior to the wnvcyztnce, writteri notiec is given to hinl thiat the landlord or the niongngce requires the purchase moncys to be so paid to protect their rights or for reasons relating to the ir~solvency of the lilndlord or i f strps have been taken to ertforce the mortgage, for example, by the appoint~ndnt of a receiver.

I f a lesser amount [halt that lo which the nlortgagec is cntitlcd is paid into coun, i t is doublful whelhcr the mongage will be effectively discharged. Questions ;ire also likely to ;rise as to the meaning of written noticc - for cxi~niple, will a n~ercly informative letter to the tenant suffice.

Although the Act providcs that the mol2gage will be automatically discharged there is no express duty on the mortgitgcc to give the landlord an efiectivc discharge. In practice this will be included in the conveyance itself orby a separate document and will he required by thc ~~oniinee purchaser to s;ttis$ a subsequent purchaser, i~nd HM Laud Registry. of the discharge. Should a mortgagee be minded to reluse to give such a discharge, i t is likely !hat the land,lord willrhrenlen to pay t l~c purchase moneys into court on the ground that the mortgagee refuses "to accept pa).nterlt ;uld gi\,e a proper discharge". Is this case i t tilay be held that all costs of payment into coun as wcll as out of coun be bomc by the molrgagee.

I b e Act dws ellable the mongtgcc, i f he s o wishes, to discharge the mortgage without payment or for a lesser amount than that to which he is entitled, subject to being a party to the conveyance, in order to recite such discharge. 111 addition, there seems rno reason why the property should not be discharged froa~ the tnortgdge by agreement betweeti all lhr; patlies cunccnlcd withuul lhc nscesrily UI invokirig the Act at all, thus saving ullnecessary l'0st.s.

Property subject to the mortgage If the purchasc moneys are not applied in respect ot'the rnortKage or prid into coun the property will remain aubjed lo the niurtglge.

ESTATES tiAZKr1.E hbrcb.! IW-

LEASEHOLD REFORM N E W S L E T T E R 3 2 P A G E 9

( c o n t i n u e d )

I but only as regards the amount which is !he terms of the landlord's notice and the price Tenant's Interest ruhjce( to a mortgage oavable bv the nomtnec ourchaser in resoen of oabable for the nrooertv. in addit~on there A monyayee whu is lending on the tenant's = , ~ , . , . . , I the mongage Under t h c ' ~ n the nomine; should be a covenant from the mortgagor that i a e r e ~ i m ~ ~ be requ~red toioncent, under the

I purchaser and the landlord can agree that the he will not enter into any agreement with the terms of the mortgage, to a leax extension.

i moneys will not be applied or p d into coun nominee purchaser that the property will k Such a leaw extension is likely to be in the ,

and the DIOCCIIV will be awuired subiffl conrcved subiect lo !he monawc without the interest? of the mongagcc, as the new lease will . . . - - to the mortgage. The agreement of tde mortgagee's consent. take effect subject tothe existing mortgage and mortnaaee is not required noiwithstandine the t e r n of the existing mortgage will apply

I that ;hFnomince p&haser may be of -

Minimalising a shodall equally to the new lease. If the mortgagee is I unsuilable covenant in many cases it is To m~nimalise an) shortfall between the entitled to the title documents, the tenant must * ke ly to be an off-the-shelf compmy with purchase price and the amount outstanding deliver the new lease to h ~ m within one month : no other asscts and an issued shim capital under the mortgage, a mort.e.a~ce should ensure uf receipt from HM Land Rewtry.

of f2. If the pmpeny remains subjffl tbthe"

mortgage, the mortgagee may be forced to accept early repayment nohvithstanding the terms of its loan arrangement with its original bormwer. The A d allows the nominee purchaser at any time to give three or more months' notice to the mortgagee of his intention to pay the whole or par1 of the amount waxed by the mortgage together with interest (the rate dhvhich is not soecified in the Act) t i the date of payment and break costs.

Under the Act tiemortgagee has little or no say in how his mortgage is dealt with on enfranchisement. In order to safeguard his interests a morteaw should review the t e r n of his mortgagetoensure that he will be notiiled immediately the landlord reccives any notice under the Act and that copies of the same are sent to him.

He should also ensure that the landlord obtains his consent to any substantive issues relating to the enfranchisemen~ for example,

that the carefully h u e d and an adequate margin of security is retained between the amount oflhc loan andthe value of the PrnpertY.

Lease extension of flats The Act alsogives a quaitfying tenant the right to extend the l a w of his flat for a term of 90 yean fmm the expiry of the existing lease at a peppercorn rent.

Landlord's interest subject ton mortgage A mortgagee who is lending on the landlord's interest is unlikely to be prejudiced by a lease extension, provided that he is looking to L e panting of leases to support his security, as o n d to the reversion. However. the &rtgagee will have no say in the amount of the premium for the extension, as this will be governed by the Act. Where the mortgagee is entitled to the title documents (as will invariably be the case for a first mortgagee) the landlord must deliver to him a duly executed counterpart of the new lease withih one month of execution.

Conclusion Mortgages lending on freeholds will need to be cautiouson the valuations given to these interests, particularly taking into account that they will not be able to consolidate the value of any specific property with othen in a portfolio. They'should also ensure thal they are made aware of any applications under the Act, and that their customer is required to consult at each stage of the p m d u r e to ensure that the highest price possible is achieved. Choice of valuer, and.whether to appeal, are manen which may be crucial. Mortgagees will also need to attune themselves to a regime where they are no longer fully in mntml of their own security.

By way of small compensation for residintii lenders, tcnank exercising their rights under the A d will need to raise money, and, subject to the valuation formula under the Act beingclarified, this could in the fnNre orovide an alternative and valuable source of iusiness fur lenders. Alternatively, such lenders will receive a better security at a reduced mst or at no extra cost to themselves.

I lease. There are mmoensation ' I

. substantial works of mnstruction and cannot reasonably do so without obtaining posseuion pf the flat.

An application for an order h d a the section may be made at any time during the period of 12 month ending with the expiry date of the original icase, and again at any time during the periad of five years ending with the expiry date of the new extended

J

o w W h u h 3 w !=!N 04 ffio a WV) ff iw h

CL: 4 w h w m h W w clh 0

I,,

- -

pmvisions mntained in Schedule

The article by Om Jones (hfar~h 5, p174) as to the dangers to mortgngees inherent in the Leasehold Reform. Housing and Urban Development Act 1993 failed to mention the extraordinary provisions of Claw 61. In ~irCUmStano~s whcre an extended lease has k e n granted the landlord retains the right to terminate such extended lease for the purposes of redevelopment if he can satisfy the court that he intends to demolish, or raConstmct or cam out 1

14 to the Act, but these are nut generous and mmpensation is to be 03id diredlv to the tenant (thus b)&ing mo;tgagees). allho&h therc arc provisions whereby the cqurt may direct that the whole or piri of the mmpensation is paid into m u d to meet any mortgage on the tenant's interest

The landlord's r ib1 to terminate extended i w s in these c i r c u h o e s must reduce their value and mortgagees will have to decide whether and to what extent the landlord's right to terminate affects the value of thcir security.

1 CJBELL Church Adams Tatham & Co &bourne Road Reigate

NEWSLETTER 32

THE FOLLOWING ARTICLE BY TONY HAZELL I S REPRODUCED

BY K I N D PERMISSION OF THE ESTATES GAZETTE (26 .3 .94)

RESIDENTIAL PROPERTY

Top lenders turn backs 1 on leasehold reform

Another obstacle has fallen in the path of those leaseholders wanting to buy out their landlord. Most lop building societies are taking a decidedly cool view towards the idea OF lending money to management companies.

About l . lm leaseholders in England and Wales wuld benefit from the Leasehold Reform, Housing and Urban Development Ad 1993 - if they can afford it. But, despite interest from leaseholders, most are being cautious and wailing for more evidence of how much it may cost.

The Leasehold Enfranchise- ment Advisory Selvice says that it knows of just two cases where leaseholders have served notice on alandlord of their wish to enfran- chi%. Now, lenders who have previously backed the idea of leasehold reform are taking a different view when it mmes to fooling the bii.

Mast say that they will lend to individuals who want to buy their freehold or buy a new, longer, lease. But some flat-owners who already have a home loan close to the value of their property may find rrouble in raising the funds. The Building Societies Associ- ation says that ways are being investigated to allow building societies to leod lo the management company rather than to individ-

uals. But the biggest societies say that they want no part of it. Halifax comments that it will help individuals, but it would not lend to the management company "because there is no security to lend on". Woolwich, the third- biggest society, takes a similar stance. Its lending manager, John Wilson, says: "We are talking about a newly formed management company will1 no track record. We would need to be con- vinced that there will be an income before we would lend and I cannot see where that is going to come fram."

Alliance & Leicester cited the same problems of commercial lending to a company with no track record, no income stream and an asset of dubious worth.

Among the wmplications wn- ceming societies is that individuals in the management wmpany may sell their flat and movc elsewhere. Although they would be replaced by theirbuyer, that person may not be so reliable. One society likened it to lending to a wmpany with a constantly changing stream of directon, some of whom may not even be interested in the company which they are buying.

Another difficulty is that those who choose not to enfranchise may decide to buy a new lease which is 90 years longer than the old one. Each time this happened it would reduce the valuc of the

freehold which forms the lender's security.

The Building Societies As&- ation is rumoured to be putting pressure on lenders to come up with schemcs to help people who want to enfranchise. But spokes- woman Sue Armstrong says that it will be a matter for individual lenders as to how they approach the issue. Some lenders admit pri- vately that they are considering putting together packages, but none will admit to it on the m r d .

The banks may offer brighter prospects, although National Westminster was almost as cautious as the building societies. NatWest Home Loans will leod to individuals only in the same man- ner as building societies. Nat- West's commercial lending side says that it has no plans to put together a special package. A spokesman commented that, as the only asset of the company is the property, it will come down to feasibility and lookhg at afford- ability individually - which is another way of throwing the ball back into Home Loans' wurt.

Barclays was more optimistic. Although it is not looking at a special package, it says that branch managen will be allowed to wn- siderlendiig to management wm- panies individually. If the property can be taken as security it would lend at 3% to 6% over base - otheruise it would be dwer.

NEWSLETTER 32

Right b T H I S ARTICLE I S REPRODUCED BY K I N D PERMISSION OF " B U I L D I N G DESIGN" ( I S S U E 2 9 . 4 . 9 4 ) leasehold

misery he scandal ofdefective high- ?. nse flats sold to sitting

tenants under the government's Right to Buy scheme will receive the full glare ofpublicity today - or at least it should, when fohn Denham, Labour MP for Itchen; presents the second oartiamentam readin= of his

~.~~ - ~ - ~ ~- rcmfy the situadon.

ABK's Richard Burton put his finger on the issue I0 years I ago when Ronan Point campaigner Sam Webb - and BD- drew anention to the

I inherent defects in cenain types of blocks, which led to the "scientific demolition" of the infamous Canning Town tower blockmorsel by morsel. What theRight to Buy scheme amounted to, raid Bunon, was "theprivatisationof nsk".

The fact rs that litenlly ~ r n p I of thousands of tenants bought their flats fromlocal councils, bbsfully u n a m of what might be in storein terms of hture repair bills, or their inability to re-sell as building societies refused mortgages to subsequent b u y m The Halifax warned of the prublem I in 1987.

Anecdotal evidence exists thatpublicservice officers were insuucted not to make

I potential purchasers aware of 1 the true situation, in cities as ! diverse as Sheffield and Nomich. Now the search is on for any official govcmmcnt cixulars to that effect - a potential time-bomb ifthey come to light.

One officer told BD chat it was treated more as apolitical issue than a technical one, especially in Labour- conmlled authorities, which of course is where most of the flats concerned are to be found. Staff were given a "tingerwagging warning" not to disclose any problems unless spccitically tackled on chis

What Dcnham wants to achieve is a syotem whereby local authorities can act as I gusrantors for mortgages on structurally-sound propmics; and can repurchase those which are nor sound fmm their own capitsl receipts. The ultimate irony. of course, is that those caphal teceipts are thanks almost exchIsively to the Right ro Buy schcme.

NEWSLETTER 32 PAGE 12

The following tribute to James Robinson, whose death was reported

in our last issue, was received from Mr. Miller of Queens Lawns

Residents' Association.

I, On a personal note I found him a very kind and caring man,

who after our Commonhold discussion, in February 1992, took

time to walk round the grounds of our flats discussing and

advising on various matters before driving home to Marlow."

B O O K S H E L F

No new publication of direct interest to members has been

received or acquired in this period. However, a body of men

with various reputations according to one's own experiences

in buying and selling property, viz. Estate Agents, are now

subject to very strict. regulations covering or creating very

much higher standards of accuracy and business generally.

The R.I.C.S. has published a new edition of a Guidance for Estate 11 Agents entitled Putting the Estate Agents Act 1979 and the

Property mis-description Act 1991 into practice". Price £12.95

available from R.I.C.S. at 12, Great George Street, SWlP 3AE.

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In the second pan of his article, Nic Madge, a partner with Bindman & Partners, continues his examination of lessees' liability to pay service charges even where they are unhappy with the level of service provided

IT IS NOT posslble for a lease to exclude the court's jurisdiction to decide whether particular categories of expendlture are properly included as servlce charge Items a c e d c a t e (Re Davstone Estates Ltd's teases 119691 2 All ER8491. Similarly. even if a lease states that the contents of the certlflcate am conclusive and binding, lessees can still challenge d c u l a t i o n errors In court (Dean v Prince 11954) 1 AU ER 749). AU leases granted as a result of the

exercise of the nght to buy have standaid terms - for example, a term of 125 years a t an annual rent not exceed- £10 [see sched 2 to the Housing Act 1980 and sched 6 to the HousIngAct 1985. as amended bv 5.4

pass on any proportion of the cost of works relating to It in the Ave-year perlod following the grant of the lease.

Where s. 125 notices were served before 7 January 1987, the perlod during wNch the cost of 6Wuctural works could not be pas& on was ten years (sched 6. para 18(31(M to the Housing Act 1985.1

h e Brst statutory restrtctlons on the recovery of senrlce charges appeared in 55.90 to 91A of the Houslng Finance Act 1972. These sections were replaced by s. 19 of the Housing Act 1980. On the consoll- dadon of housing legislation. statutory resmctlons on the recovery of servlce charees reanneared In the

d t h e ~ i u s i n @ and Piannine Act 1986). Landlord and-~enant'ict 1985. Thev ~ ~~~~ ~ ~

These prm-slons c o n w W i r n p o r t ~ t have subsequently been amended b; limitations on the recovety of service the Landlord and Tenant Act 1987. charges. S.125 of the ~ o u s t n g Act S.19 contains a requirement that 1985 (as amended by 5.4 of the costs making up senlce charges Housing and Planning Act 19861 must be reasonably incurred and provides that prlor to the grant of a services and works canied out must lease. Ule lessor must serve a notlce be of a reasonable standard. Where giving: payment in advance is demanded. (a) a n estimate of the annual average that payment should be of no greater amount of service charees: and amount than is reasonable. The (bl details of structurai-defects wlth amount payable by lessees is limited esumates for the cost of making good accordingly. -. the structural defects.

For Ave years aher the grants of the lease. service charges are limited to: (a1 the estlmated average amount of service charges given In the 5.125 notice plus an allowance for innation: and (bl in respect of the cost of recllfylng sUuctural defects which were notllled to the tenant before the grant of the lease, the amount glven in the notice plus an allowance for Inflation. If a structural defect i s not referred to In the s. 125 notice. the lessor cannot

A complaint which lessees frequently make is that managing agents' fees are too high. There is. howwer. Httle guldance a s to what is reasonable in temls of managing aeents' fees. Thev mav elther be c ~ c u l a t e d as a R ~ & I sum per flat or a s a percentage of expendlture. In parkside ~ n i g i b r l d g e u Horwitz (19831 268 EG 49. the court heard evidence as to the level af other managing agents' fees for similar blocks and hc1d that the sums charged were reasonable. even

GAZETTE WITH PAGE 14"

> though the way in arhlch t h y arrrr calculated was dcsmltxd an 'an unsdenttt3c method of RIilluaUng the right sum to be pad' by the hial judge and 'somewhat mugh and ready by the Court of Appeal.

Where svvlcee do not reach a reasonable standard, the judge Ls not bound to disallow lhe whole amount claimed by the freeholder. In YcftnwklnuesbMnts u Batten (1985) 18 HLR 25. the Court of Appeal held that ~n such drcumstances the Judge may deduct a pmportlon of the service charge expendlture - in that case one-seventh. ~ ~~-~ ~- - - ~

W h e n servlms are not of a reasonable standard, lessees may bejustl-

charges. Tlus wa;the &ln Cordon u Selim (1985) 275 EG 899 where chr Cotm o f ~ p p e a l found tha t there had been a .comolete and obvious unwlll- Ingncss or tnablllly of the lhdlordsl to c a r q out the scheme ol the lease In such a way as to keep the bulldlng in repair'. ~hwever, taiucaUy it may not be wise to withhold senice charges (see below).

5.20. which provides a mechanism for consultation before the carrying out of major works, provides that 'relevant costs shall be taken lnto account In determlnlng the amount of sen l r r charge payable for a p o d : [a) only to the extent that they are reasonably incurred: and (bl where they are Incurred on the provision of servlces or the canying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly.'

The Senice Charges (Est(mates and Consultation1 Order 1988 (S1 88/1285) provides that, from I September 1988. 'major works' means either El000 or 50 times the number of flats Involved. whlchwer is greater. Recognlsed tenants' associations have a speclnc role in this consultation procedure [see sched 2 to the Landlord and Tenant Act 1987 which amended s.201.

The requirements of this consultation procedure are: at least two estimates for the works should be obtained. one of them from a person who is wholly unconnected with the landlord: notice wlth a copy of the estimates must be given to each of the tenants and displayed in one or more places where it is likely that it M U come to the attention of the tenants: the notice shall descllbe the works and invite comments; the notlce shall state that works vAU not commence untU at least one month after the notice has been served and displayed: the landlord shall have regard to observations: and unless

High ri-e lrol~blq: lcss~es, frequrnciy as to whnt is reasonable wtd they nu

,, .

works . ire' urgently required, they shall not be commenced earlier than the date speciaed In the noUce.

However. in proceedings relating to service charges, the court may. if satisfied that the landlord acted reasonably. dispense with all or any of the relevant requirements in s.20. mere have been no reported cases on the circumstances tn which it is reasonable to dispense with the requirements.

Where a lessor serves an s.20 noUce it is wise for lessees to Insuvct reputable builders to prepare their own estimates and for the lessees to submit these to the lessors. However. there is no absolute requirement that a lessor must accept the cheapest quotation. It may be reasonable lor a lessor to accept a higher quotation from a buUder who is known to be reputable instead of a cheaper estimate from a 'cowboy'.

S.20A. inserted by the Landlord and Tenant Act 1987. lmposes Umita- tions on the recovery of seMce charges where a lessor has obtained local authoriw grants to enable work to be canled out.

5.208 provides that no charges which were incurred more than 18 months before any demand is served upon a tenant are recoverable as service charges unless nollfication is glven to the lessee within that 18- month period that such charges have been tncurred.

55.21 and 22 of the Landlord and Tenant Act 1985 coatain provisions enUtung Lessees to obtain information about service charges. S.21 provides that. on request. landlords must provide a wrltten summary of costs

coirp1aui thnl nuinaging rqenls: fees nr l y k cuicdard us uJuerl swn pt'rJln1

incurred which are relevant costs In relation to service charges payable or demanded. If accounts have been made up. such a summary must be provlded for the last period' of 12 months before the request. If accounts have not been made up. then they must be provided for the penod of 12 months ending with the request. Lessees may serve a request for such a sunlmary upon the i swr ' s agent. Lessors must comply with such a request within one month of the request or six months ofthe end of the period. whichever is later.

5.22 provides that lessees may. within six months of obtaining a summary in accordance with s.2 1 . require the landlord in writing to afford reasonable facilities: lo) lor inspecting the accounts. receipts and other documents supporting the summary: and Ib) for taking copies or extracts from them.

Landlords must make such facilities available for a period of two months. beginning not later than one month after the request was made. Lessees are enUtled to lnspect the accounts. receipts and other documents free of charge. However. lessors or their agents are allowed to make reasonable charges for photo- copying. Where accounts are complex. it may be advisable for lessees to employ an accountant to inspect the supporung documenta- Uon. Failwe to comply with the provisions of s.21 or 9.22 consututes a criminal offence punishable with a fine on level four.

5.42 of the Landlord and Tenant Act I987 provides that where servlce charges are payable In advance. any

re too higlt bur there ic litrle guidance or apercmloye of eqkrldilure

money received by:or on behalf of the lessor must be :placed on trust. RegulaUons (SI 88/ 12841 provide for the forms of Investment whlch are allowed for money received in advance.

The flrst reaction of many lessees who wlsh to dispute service charges demands is to &fuse to pay someor all of the charges demanded. This is not generally a wise course of action since it may well induce the freeholder to take steps to forfeit the lease. Even If a freeholder does not commence forfelture proceedings. any lessee will almost certafnly have to m v disouted arrears before assim- ing &e kase. If negotiauons fall. is ceneralhf more prudent for lessees to apply to-the co& for a deciaralion a s to what charges are lawfully recoverable.

If a lessee is in receipt of income support. servlce chargei may be paid as housine costs in accordance with sched 3.-para 1. to the LncOme Supwrt IGenerall ReaulaUons 1987.

li hay also be possible to persuade mortgagees to advance additional sum; to lessees in order to enable them to pay off servlce charges. Lenders are Ukely to take this course of action since If lessors are threat- enlng forfeiture. there is always a risk that the lender will lose its security.

If servlce charges are not paid and landlords wish to forfeit leases. this should be done by W n g court proceedings since 9.2 of the hOtection from Eviction Act 1977 makes it a crlmlnai offence to enforce a right of re-entry or forfeiture in any other way if there is anyone 'lawfully residing in the premises. if senrice C o n f U l u e d o " ~ 2 0

GAZFlTE 90141 10 NOVEMBER 1993 I9 -

i .,

PAGE 16

NEWSLETTER 3 2 " A QUESTION O F QUALITY" c o n t .

-lmnP@ 19 charges are expressly resewed as rent in the lease. there Ls no need for an s. 146 notlce.

Even If service charges arr not ewpressiy reserved as rent. it may be that no a. 146 notice I s necessary in view of s.205 kdli) of the Law of Propaty Act 1925 which dellnes rent as including 'any annual or prlodi- cal payment in money or modes worth'. in practice, however, many landlords serve 5.146 notices.

order that all or any of the costs Incurred. or to be incurred. by the landlord in connectton with any procecdlngs are not to be qzuded as relevant costs to be taken into account In determining the amount of any service charges payable by the tenant or any other person or persons speaRed in the appllcatlon'. The murt may make such an order U it considers it 'Just and equitable in the drcumstanm'.

It has been held that a landlord ~-~

whether or not they arc strictly cannot pass on the costs of employ- necessary. because they often lng solldlors and counsel to recover . persuade lcssees to Day UD service arrears of servtce charges from other charges demanded <lhbu(the need lessees unless there lga clrar prow for court proceedings. sion to thlv ellect in the lease lsce

If lessors do commence forfelture Selh House Lcd v Mews 119891 21 proceedings bascd on failure to pay servtce charges. the normal rules a s to rellef from forfeiture apply. In the county coun these are set out in s. 138 of the County Court Act 1984 as amended by s .55 of the AdtnlnLstration of JusUce Act 1985. me re is automatic relief from forfeiture If all arrears and costs are paid into court at least Rve days before the hearing ls.138I21). If the service charzes c l m e d count a s rent lea

HLR 147; see also k2nbmsy Corn RP u Lipman (1984) 271 EG 545, and Hoidlng and Management Ltd u Roperty Holding and inveslment Thrst (19891 21 HLR 596. As to lessors' clalms to recover solicitor^' msts as part of service charges, see also Prlmeridge Ud u Jean Muir Lld 119921 EGLR273 and Morgan u SlaCner119931 W;CS 163).

If lessees are k t l s f i e d with the level of the IC~SOI'S solldtors' costs.

becacse they are expressly resew2 they may apply for a solldtor and own as rent in the leases) lessees are dtcnt Iaxation in accordance wlth entitled to automaUc suspension of s 7 0 a n d 72 ofthe bUdtors Act 1974 forfeiture for a minimum bf 28 days from the date of hearing to allow the debt to be paid off. m a t perlod may be extended at any time before possession is recovered (s. 13813) and (411. The court has a discretion as to the length of Ume to be given for payment of arrears.

In Varndeon Eswles Ltd u Buckland 11967) 11 1 51 664. thc Court of@@ held that there were special circumstances whlch meant that a period of 18 months for payment of the amears was reasonable. Even I f a lessor succeeds in forfeitbe a Lease and

S.47 of the Landlord and Tenant Act 1987 provides that any written demand for rent or other sums payable to the lessor under the terms of the tenancy (including servlce charges) must contain the following information: la) the name and address of the landlord: and (M If the address is not in England and Wales. an address in England and Wales a t which notlces may be sewed on the landlord.

Where a demand is served but does not contain that information. then -

recovers possession. the lessee r.lay any part of the amount demanded appiy to the cout wlthln six months of whlch consists of a service charge the landlord regaming possession for relief from forfeiture. Such relief may be sublect to such terms and such conditions as the court UUnks Rt 1cJDI ~ u V ( n o r i a S q u n r r 1 1 9 8 5 1 2 A U E R 676 which was decided before s. 138 was amended by the Adminismadon of Justice Act 1985).

Lessees are panicularly vulnerable as r e e d s costs in forfelture oroceed-

shall be treated for all purposes as not being due from the tenant to the landlord at any t h e before that infor- matlon is furnished by landlords by noUce given to the tenant. 5.48 provides that the landlord must. by a notlce, furnish tenants with an address in England and Wales at wNch notices may be served on them. Where landlords fail to comolv

ings.-it is normal for lessors to rely with this secuon, any rent or ser!&e upon the express provisions in leases charge othenvlse due from the tenant enabling them t o recover costs is &ted as not being due until such involved in enforcement of any time as the landlord complies with covenant in the lcnae wlthout the oe~uo". The urorldnc of these

recourse to party and party taxauon. provlslons 1s Ulusmted by Dallhold Howwer. there are IMtatlons upon Eslore RliOPIYLXd vl.u&ag 7)ndLng such covenants. S 2 0 C of the hpe~I&s inc (1992) 23 EG 112 and Landlord and Tenant Act 1985 ~ u i s a i n u Singh 119921 independent. enables lessees to apply for 'an 19 October. 0

NEWSLETTER 32

When Tenants Become their own Landlords

There can be little doubt that the only efficient'way for tenants to become owners of the freeholders of their block <or estate is for them to form a company limited by shares, usually with each tenant having one share in the company.

However, the network of relationships between the parties is often difficult to understand and can give rise to mistakes by those who take on the work of administration and misunderstandings by those who benefit from their hard work.

Some of the misunderstandings result from the use of so many words to describe the parties involved:

Resident is usually Leaseholder and also Tenant and, also Lessee and also Member (that is Shareholder) of the Company.

Company is Freeholder and also Landlord and also Lessor.

It is easiest if we call them Landlord and Tenant.

Thus, those tenants who participate in the purchase of the freehold become the members (that is the Shareholders) in the Company and ultimately have the right at the Annual General Meeting (A.G.M.) to choose a Board of Directors who must manage the Company and its assets. At the same time they have that other relationship with the Company, which becomes their Landlord and they its tenants. It is possible that they will also have a third relationship as members of a Residents' Association with the right to elect the officers and committee of that association. This committee might consist of some or all of the same individuals as the Board of the Company but it need not.

The Members of the Company also vote to appoint the Auditors of the accounts of the Company but these Auditors will not nece- ssarily be the Accountants who produce the Service Charge accounts.

The duties of the Directors fall into two separate though, of course, closely related areas. These are:

Administration of the Company

The Directors must administer the Company in accordance with the Memorandum and Articles of the Company ("the Mem.and Arts".) and at the same time comply with the Companies Acts. This includes:

1. Collecting the income of the Company (often only ground rents).

2. Keeping the accounts of the Company and having therr! audited.

i

PAGE 18

NEWSLETTER 32

3 .. Making an annual report to the members together with copies of the Company's annual accounts and the Auditor's report.

4. Appointing a Company Secretary, who will send copies of the report and accounts to Companies House.

5. Maintaining the value of the assets of the Company. This might involve expenditure for which the wording of the leases does not allow recovery as part of the service charges.

6. If the Company lacks sufficient capital, perhaps borrowing from the Members or from third parties.

7. Calling general meetings (including the Annual General Meeting) of all the members.

Administration of the Property

1. Collecting advance contributions to service charges (if permitted by the leases or by agreement) and eventually the balances. These amounts must be kept in separate accounts fr0.m the Company's accounts, in trust for the tenants.

2. Managing the provision of . services, insurance and maintenance and repairs of the building.

3. Consulting the tenants in advance in respect of major works (as defined in the Acts).

4. Instructing a qualified accountant to produce Service Charge accounts.

5. Explaining to the tenants the make-up of the Service Charges, allowing examination of the accounts and receipts and allowing a challenge to the reasonableness of any charge.

6. Recognising, if requested, a Residents' ;Association and consulting it in respect of the above matters.

7. Appointing, if the Directors choose, Managing Agents to do some or all of the work but bearing in mind the rights of the tenants to be consulted.

Martin Redman

. , PAGE 19

NEWSLETTER 32 : .,

L E G A L J O T T I N ' G S

Most leases provide expressly that service of notices by the landlord on the tenant shall be deemed properly served if sent to the flat. But in Willowgreen v Smithers 1994 20 EG 147 the Court of Appeal held that such service was not effective. The tenant had been in arrears with rent and service charges over several years and the landlord sent a forfeiture notice to the flat. The tenant had not lived there for years and the landlord subsequently obtained judgement granting possession without the tenant ever knowing. When eventually he discovered. he applied to Court to set aside the order but was at first unsuccessful because the County Court judge held the notices had been served properly in accordance with the lease and it was the tenant's fault in that he had never informed the landlord of his current address. The Court of Appeal reversed this decision on the grounds that the Court Rules specified notices of Court proceedings must be served on the tenant's "address" and the ordinary meaning of that word must be a place where written communications could be delivered to the person concerned. The Summons should have used the expression "present address unknown".

The tenant in Leeward Securities v Lilyheath Properties 17 HLR 35 (K983) had also been at fault but was not so fortunate in the outcome of the case. He assigned the tenancy within 7 years of the end of the term in contravention of the prohibition in the lease on such an assignment without the landlord's consent. The tenant did not try to obtain consent because he knew the landlord would not agree to an assignee who would obtain statutory security of tenure under the Rent Act thus preventing the landlord regaining possession when the lease expired. It was held by the Court of Appeal that it would not have been unreasonable for the landlord to have withheld consent in such a case even though, when the lease was originally granted, such a possibility had not been envisaged - at that time no statutory protected tenancies existed - and therefore ordered the lease to be forfeited for breach of the covenant. This was not to say that consent could always be withheld for this reason; each case was to be considered on its own particular facts. Here the covenant in the lease was designed to enable the landlord to have control over the premises towards and leading up to the end of the lease; it was not confined to concern over the respectability and financial responsibility of the assignee.

In re Vedamp 1994 10 EG 104 was another case on termination of a statutory tenancy but where the landlord Company which held the headlease was in liquidation and disclaimed the lease. The statutory tenants of two flats applied to the freeholder for a vesting order, i.e. allowing them to hold their tenancies direct from the freeholder on the same terms as had the former head lessee. They then changed their minds and decided to withdraw but the freeholder insisted as a condition of withdrawal that they should surrender their existing tenancies. It was held that the freeholder could not do this since a statutory tenancy could not be determined except as provided by statute.

NEWSLETTER 32 LEGAL JOTTINGS (continued) PAGE 20

The following three cases also concern statutory tenants. The Rent Act provides a ground for the landlord to obtain possession if suitable alternative accommodation can be found for the tenant. In Dawncar Investments v Plews 1994 13 EG 110 the accommodation proposed was in some ways superior to the existing premises but whireas the latter was in- a quiet residential sought-after area, the new accommodation was in a noisy busy traffic area near a railway line and with rough neighbours. It was held that to be suitable, the alternative accommodation must be reasonably near the tenant's place of work and (a) be similar with regard to rent and size or (b) be similar in charac- ter and extent, having regard to the needs and means of the tenant. The landlord could not rely on (a) to the'exclusion of (b) and therefore the alternative accommodation was'not suitable.

Damages for unlawful eviction can, as will be seen from cases reported in Newsletter No. 22, be quite considerable and are designed to reflect the financial benefit to a landlord in obtaining vacant possession of premises subject to a secure tenancy which cannot be readily terminated thus reducing the value and marketability of the property. Under the Housing Act 1988 this principle was incorporated into statute for those tenancies which were created under that Act (eg assured tenancies).

In Nwokorie v Mason 26 HLR 60 (1994) the Court of Appeal decided that 1988 Act damages should not be in addition to Common Law damages and the latter should be set-off against the former although aggravated damages were recoverable at Common Law only. Moreover, in McMillan v Singh 17 HLR 120 (1983) it was held that even though the tenant had been not infrequently in arrears with his rent, nonetheless this was irrelevant to the amount awarded by way of exemplary damages.

Finally two cases of general interest, the first concerning specific performance by the landlord of its repairing obligations

I, and the second the implication of what is known as a user" covenant in the lease.

In Parker and ors. v London Borough of Camden 17 HLR 380 (1985) the hot water and central heating broke down in a local authority housing estate but was not repaired because of industrial action by the landlord's work force. The landlord was unwilling to escalate the dispute by bringing in outside contractors. It was decided by the Court of Appeal that although it was unusual to order specific performance (under Section 125 of the Housing Act 1974 now replaced by Section 17 of the Landlord and Tenant Act 1985) at an interlocutory stage, i.e. before the final hearing of the action, nonetheless the circumstances here were suff- iciently exceptional to do so; there were many elderly and sick residents in straightened financial circumstances whose health and safety was at severe risk.

NEWSLETTER 32 LEGAL JOTTINGS (continued) PAGE 21

The Court also decided that it would not be appropriate. to appoint a receiver/manager to take over the landlord's responsi- ilities where the landlord in question was a local authority on which Parliament had expressly conferred powers of management of residential accommodation.

The lease in Falgor Commercial SA v Alsabahia Inc. 18 HLR 123 provided, as is not unusual, that the flat was not to be used other than as a single private residence in one occupation only so the total number in residence was not to exceed three. The Court of Appeal held there had been a breach of this cove,nant when licences were granted to visitors to occupy in return for payment. However, there was evidence the landlords had waived non-compliance with the covenant because. (i) they could not have thought the Defendant Company (the leaseholder) would occupy the flat as a single private residence or even for its employees or directors since they leased 19 of the 23 flats in the block and (ii) the landlords were aware of such user not only by the Defendants but also by other leaseholders. The landlords were therefore refused an injunction to prevent its continuance.

Note: Credit Suisse v Beegas reported in Newsletter 31 is now reported in the Estates Gazette 1994 Issue 11 at page 151.

EG Estates Gazette

HLR Housing Law Reports

NEWSLETTER 32

PAGE 22

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