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Tenant protection flaws in Landlord and Tenant Act 1987

12th December 2019

Tenant protection flaws in Landlord and Tenant Act 1987

A recent court case highlighted flaws with the Landlord and Tenant Act 1987, which was supposed to give tenants some protection against landlords disposing of property interests without first offering them right of pre-emption. 

In York House (Chelsea) Limited v Thompson [2019] EWHC 2203, the owners of York House got wind of the fact that their tenants were intending to try and buy the freehold of the building, as they are entitled to do under the Leasehold Reform, Housing and Urban Development Act 1993. The owners were concerned that the price the tenants may be able to pay under the 1993 Act would not properly reflect the development opportunities within the building. 

In June 2017, the freehold owners therefore granted 14 leases for various parts of the building to themselves without any premium being payable. The rent that they reserved under the leases was only a peppercorn rent. 

Ordinarily, Notices should have been served on the tenants before the leases were granted as Section 5 of the Landlord and Tenant Act 1987 prohibits the Landlord from making a relevant disposal, i.e. the grant of the lease where it is not first offered the same right to the tenant to acquire the proprietary interest, but here no notices were served on the tenants. 

The tenants then purchased the freehold of the building and discovered that the 14 leases had been granted and sought assistance from the Court that the leases be transferred to them also. 

The relevant legal question for the Court was whether the grant of the leases were relevant disposals under the 1987 Act or whether they were excluded as a gift to a member of the Landlord’s family or by way of transfer by 2 or more persons who are members of the same family to fewer of their number. The tenants were arguing that it was conceptually impossible for the creation of a new lease to constitute a gift because the covenants in the relevant leases amounted to consideration, but the Court disagreed and considered that the grant of the 14 leases had in fact been disposals by way of gift to a member of the Landlord’s family. The tenants were therefore not entitled to a transfer of the leases to them.

It seems in this instance that the Landlord’s desire to limit the tenants obtaining full control of the building was successfully thwarted. 

There has long been a call for the 1987 Act to be abolished, or at the very least heavily amended, and this appears to be another example of how it is poorly drafted and allow a Landlord to design a scheme to avoid having to offer a disposal of a property interest in direct contradiction to the intended purpose of the Act.   

It is little wonder that residential tenants have a very hard time trying to understand the rights and protections they have under ‘enfranchisement’ legislation and highlights why, if a residential tenant has a long lease and either wants to extend it or buy the freehold or their building, getting early legal advice is an absolute must.

 

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