Compulsory Acquisition of the Freehold
Qualifying tenants with long leases of over 21 years, under s24 (Part 2) of the Landlord and Tenant Act 1987 (appointment of a manager by Tribunal) may make application to the High Court or county court for an Acquisition Order to acquire the landlord’s interest, particularly if he has failed to comply with any relevant provision of an approved code of management practice. In other words the freeholder is in constant breach of its management obligations over a period of time. This option can also be sought if the landlord is absent. This right includes the following criteria:
- There are two or more flats;
- Two thirds of the flats are owned by qualifying tenants;
- The required majority of the qualifying tenants make the application.
The right does not apply if:
- Less than half the flats in the block are let on long leases (which are not business leases);
- There is a resident landlord.
Grounds for application under Part 2 are quite specific and are that the landlord:
- Is in breach of an obligation under the terms of the lease and the breach is likely to continue;
- Has demanded, or is likely to demand unreasonable service charges;
- Has failed to comply with any relevant provision of an approved code of management practice;
- Where a building has been subject to the appointment of a manager pursuant to this section and the manager having been appointed for no less than two years on the date of the application to the court;
- Other circumstances exist which make it just and convenient for the order to be made.
PRELIMINARY NOTICE ON THE LANDLORD
Before an application for an acquisition order can be made to the County Court, the qualifying tenants must serve a Preliminary Notice on the landlord in (under s27 of the 1987 Act).
The notice must state:
- The name and address of the qualifying tenants;
- The addresses of their flats;
- The name and address for the service of notices in England and Wales if different;
- The tenants intend to make an application to the court for an acquisition order;
- The grounds on which the order will be sought, and the matters which will be relied on in establishing those grounds; and
- The landlord should take steps to put right those matters that are capable of being remedied within a reasonable time limit as specified in the notice. Note that leaseholders may not apply for such an order if the landlord takes the required action.
- If the landlord fails to remedy the matters set out in the notice, or if there are other grounds, then the tenant may proceed with the application to the county court.
The Court may dispense with the requirement to serve the notice if it is satisfied that it would not be reasonably practicable such as where there is an absent landlord who cannot be located.
APPLYING TO THE COURT
Where the landlord fails to comply with the preliminary notice, the qualifying tenants will be entitled to make their application to the county court. Unlike collective enfranchisement (where leaseholders who meet certain criterior group together and purchase the freehold from the current freeholder) or acquiring the right to manage (where leaseholders who meet the criteria can replace the current managing agent with one of their own choosing) the application for compulsory acquisition is made in the individual names of all of the participating tenants rather than in the name of a nominee purchaser.
In the claim form, the applicants are required to specify a nominated person, who will be joined as a party to the application. The nominated person could be for example, a company incorporated by the participating tenants through which the freehold will be held when acquired. It is the nominated person who will be named in the order as the person acquiring the landlord’s interest.
Court Makes The Order
The county court can make an Acquisition Order where it is satisfied that:
- The landlord is in breach of any obligation relating to the repair, maintenance, insurance, or management of the premises in question;
- A manager has been appointed by the First-tier Tribunal (Property Chamber) for the period of two years prior to the application being made and the appointment is in force at the date of the application to the county court;
- In either case the court considers it appropriate to make an acquisition order in the circumstances.
An order can be made relating to the whole or part of a building and if made, the Tribunal will determine the terms on which the landlord’s interest may be acquired (including the purchase price) unless they have been agreed between the parties involved.