RTM/RTE - impact of freeholder buying up leases

[JasX]

Hi all

Quick question on RTM/RTE, I live in a block of 16 flats, 12 of which were sold by F/H on long leases the remaining 4 of which were retained by the freeholder.

Residents are not too happy with F/H over a few things and considering RTM/RTE, however have heard recently (last month) one of the units has sold up and was re-purchased by the freeholder.

Although we seem ok for the moment in this as 2/3rds of 16 is 10.67 and 11 are still in private hands I was wondering what the implications might be if the freeholder aquired another unit?

presumably if the freeholder just took ownership of the leases the flats would still be under a 'long lease' arrangement and RTE/RTM qualification would be unaffected.

Is there some legal means the F/H could dissolve a lease on a block they repurchase and in theory if they get enough flats eventually 'disqualify' the block from possibility RTE/RTM?

is there some provision I should check my lease for that might prevent a freeholder 'dissolving' leases and altering the status quo?

if the go ahead with RTM now and the freeholder subsequently 'disqualifies' the building can they revoke the RTM process in future?

If we are granted RTM would the building zutomatically qualify for RTE (subject to standard exclusions) on grounds of long lease % if the freeholder subsequently started buying places up and dissolving leases?

cheers

[Gazou]

Although we seem ok for the moment in this as 2/3rds of 16 is 10.67 and 11 are still in private hands I was wondering what the implications might be if the freeholder aquired another unit?

presumably if the freeholder just took ownership of the leases the flats would still be under a 'long lease' arrangement and RTE/RTM qualification would be unaffected.

That is my interpretation too, at least prima facie so far as RTE is concerned, having looked at Sections 3, 4 and 5 of the 1993 Act - see http://www.statutelaw.gov.uk/legResults.aspx?LegType=All+Legislation&title=Leasehold+Reform+Housing+and+Urban+Developme nt&searchEnacted=0&extentMatchOnly=0&confersPower=0&blanketAmendment=0&TYPE=QS&NavFrom=0&activeTextDocId=2915024&PageNumber=1&SortAlpha=0

Note, however, that a participant in RTE cannot own more than two flats in a block in respect of which RTE is being undertaken and still be classed as a qualifying tenant in respect of such other flats.(Section 5 (5).) If the freeholder bought flats and these were held in the name of the same company (or other owner), such flats may be excluded from those classed as having qualifying tenants and the 2/3 rds threshold may then not be satisfied.


Is there some legal means the F/H could dissolve a lease on a block they repurchase and in theory if they get enough flats eventually 'disqualify' the block from possibility RTE/RTM?

I would think so, at least in theory. Those flats the lease of which has been purchased by the freeholder (so, in effect, the freeholder is both lessor and lessee albeit likely through separate legal entities) could be subject to a fresh agreement cancelling or varying the existing leases that would cause the lessee parties to be excluded from falling within the definition of "qualifying tenants" for the purposes of RTE and RTM - yet see next response



is there some provision I should check my lease for that might prevent a freeholder 'dissolving' leases and altering the status quo?

There is likely to be a convenant binding upon the landlord in which it undertakes to make all other leases in the same building include the same restrictive provisions (so not extending to all terms) and to enforce those provisions against other leseess for the benefit of all other lessees. This, if it exists (as it likely does) may, however, be insufficient to prevent the landlord varying the leases it now owns also as lessee to exclude them from the "qualifying tenants" definition.



if the go ahead with RTM now and the freeholder subsequently 'disqualifies' the building can they revoke the RTM process in future?

Very likely as the qualifying criteria for RTM then no longer apply - see http://www.opsi.gov.uk/acts/acts2002/ukpga_20020015_en_5#pt2-ch1-pb2-l1g72 - Section 72. Section 105 deals with cessation, but does not specifically refer to circumstances where the qualifying criteria no longer apply. It is hard to envision a judge agreeing to let a RTM company continue to operate when there is no basis for it doing so were it to have to make a fresh application.



If we are granted RTM would the building zutomatically qualify for RTE (subject to standard exclusions) on grounds of long lease % if the freeholder subsequently started buying places up and dissolving leases?

If long leases were cancelled by variation clauses so that the lessees were no longer classed as "qualifying tenants" for RTE purposes (see above), then the right to claim RTE would have been impaired and a prior existing RTM would not, prima facie, make any difference, I would say.

The greater problem more immediately in the face of the landlord buying up and then varying leases would be undermining the qualifying criteria to allow an existing RTM to remain.


NOTE - All of the forgoing may be contradicted by a real estate lawyer.

[TomMerralls]

Hi all

Quick question on RTM/RTE, I live in a block of 16 flats, 12 of which were sold by F/H on long leases the remaining 4 of which were retained by the freeholder.

Residents are not too happy with F/H over a few things and considering RTM/RTE, however have heard recently (last month) one of the units has sold up and was re-purchased by the freeholder.

Although we seem ok for the moment in this as 2/3rds of 16 is 10.67 and 11 are still in private hands I was wondering what the implications might be if the freeholder aquired another unit?

presumably if the freeholder just took ownership of the leases the flats would still be under a 'long lease' arrangement and RTE/RTM qualification would be unaffected.

Is there some legal means the F/H could dissolve a lease on a block they repurchase and in theory if they get enough flats eventually 'disqualify' the block from possibility RTE/RTM?

is there some provision I should check my lease for that might prevent a freeholder 'dissolving' leases and altering the status quo?

if the go ahead with RTM now and the freeholder subsequently 'disqualifies' the building can they revoke the RTM process in future?

If we are granted RTM would the building zutomatically qualify for RTE (subject to standard exclusions) on grounds of long lease % if the freeholder subsequently started buying places up and dissolving leases?

cheers

First, I'll assume there are no commercial premises in the building. If there are, this may change the advice I give, particularly if the commercial element represents greater than 25% of the total area of the building.

If the freeholder acquired another unit and then proceeded to "merge" (i.e. extinguish) all the leases it owns, there would remain 10 qualifying flats and the Right To Manage and Freehold Purchase (Right To Enfranchise or "RTE" is not yet law and very unlikely ever to become law) would not be an option for the flat owners.

Very unlikely there will be a provision in the leases preventing the freeholder from extinguishing the leases it owns. FH is free to do this in all likelihood.

With either Freehold Purchase or Right To Manage it is the date the notice is served that is the important date. So, provided your notice(s) were served prior to any acquisition of and then extinguising of the freeholder's lease, you'll still qualify.

Acquisition of Freehold and Right To Manage are two completely separate rights. So, if you exercised your Right To Manage and the freeholder THEN acquired another lease and extinguished all leases it owns, the option to buy your freehold would no longer be available to the flat owners.

I would suggest that, if there are enough people interested, you obtain a valuation report for the value fo the freehold and go for that straight away. Purchase of the Freehold comes with the Right To Manage of course.

[Gordon999]

Leasehold flats are accepted by Mortgage lenders to qualify for mortgage loans so it is unlikely the "leasehold title" of flats would be changed as this may reduce the market value of the flats.

But you should start the process for RTM to take over the service charge and follow up , if there is enough support from other leaseholders, to buy the freehold.

Residential Leases are normally written on unfair terms for the leaseholders and when the freeholds fall into the wrong hands, you get the nightmare situations which many now face under Peverel & Solitaire / Consensus Business Group .
( see www.carlex.org.uk )

[JasX]

Thanks for the replies all!


Very unlikely there will be a provision in the leases preventing the freeholder from extinguishing the leases it owns. FH is free to do this in all likelihood.

I did a little digging and might actually be in luck here, there is a clause binding on the leaseholder stating “If this lease and the reversion comes into common ownership not to permit a merger of the leasehold and reversionary estates to occur”.

I think I’m right in thinking the F/H’s interest (that the lease will revert to after 120odd years) is the reversion referred to and dissolving their lease would in effect merge these interests and therefore not be permitted? Please correct me if I’m wrong….


I would suggest that, if there are enough people interested, you obtain a valuation report for the value fo the freehold and go for that straight away. Purchase of the Freehold comes with the Right To Manage of course.

Very sensible advice in any case, we have a fairly strong 50% group together keen on RTM at the very least and had been making motions towards finding a vaguely knowledgeable lawyer not too far away.

(South London <5 miles from Beckenham - Tom you might be hearing from us soon!)

[Gazou]

I did a little digging and might actually be in luck here, there is a clause binding on the leaseholder stating “If this lease and the reversion comes into common ownership not to permit a merger of the leasehold and reversionary estates to occur”.

I think I’m right in thinking [1]the F/H’s interest (that the lease will revert to after 120odd years) is the reversion referred to and [2]dissolving their lease would in effect merge these interests and therefore not be permitted? Please correct me if I’m wrong….

[1] Yes.

[2] Yes - but this is not something that a Freeholder would wish to happen in any event and so the prohibition is merely providing against something happening that a Freeholder would do all it could to prevent anyway.

The underlying issue is that if the same party ends up as both Freeholder and Leaseholder it is, in effect and actually, in a contract with itself. In consequence, as a point of law, it cannot vary the contract and that can often represent a serious limitation.

Accordingly, what typically would happen is for a Freeholder that wishes to buy leases to which it itself is a party to set up a separate legal entity (most likely a limited company or perhaps a trust) and arrange for that legal entity (which can be and very likely would be wholly owned by the Freeholder) to purchase the leasehold interests.

Accordingly, the clause you have found is not really aimed at preventing the Freeholder buying up leases and cancelling or altering them, merely not doing so in its own capacity - which it would be foolish to do anyway.

[TomMerralls]

Right To Enfranchise or "RTE" is not yet law and very unlikely ever to become law

Gazou has rightly pointed out that my quote above may lead some readers to believe that acquiring the freehold is not possible at all. To clarify, there are provisions in the 2002 legislation changing the original right to buy the freehold and instead imposing an obligation (among other things) to use a Right To Enfranchise ("RTE") company. It is those provisions that are unlikely to come into force.

In other words, if anyone interpreted my post as meaning you cannot buy your freehold at all, this is not correct. You can still buy your freehold, assuming you qualify. It's just that you do not need to set up a formal "RTE" company. A normal company will suffice.

[jeffrey]

Yes. Also, the new provisions seem to have intended that enfranchisement rights be claimed by the RTE company itself. Absent those provisions, enfranchisement rights are still to be claimed by the participating leaseholders themselves (which is far more sensible, if you ask me!)