Compulsory Acquisition of the Freehold
After we had secured the Right to Manage it was later suggested to us by Roger Southam that we might like to try to get the freehold, in this case through compulsory acquisition under s25 of the Landlord and Tenant Act 1987 (compulsory acquisition of the landlords interest by qualifying tenants).
Both the building and the leaseholders have to meet certain criteria. The building criteria is:
- There are two or more flats;
- No more than 50% of the building is in non-residential use; and
- Not less than two thirds of the flats in the building are held by “qualifying tenants”.
The building will be excluded if more than 50% of the internal floor space (excluding the common areas) is in non-residential use, e.g., is used as offices or shops.
The criteria for leaseholders is that:
- More than half of them must be holding long leases which were originally granted for a term of more than 21 years.
In terms of the landlord, an acquisition order can’t be pursued where:
- The landlord is exempt (i.e. it is a local authority, an urban development corporation, a registered housing association or a fully mutual housing association or a charitable housing trust;
- A resident landlord where the building/premises are not purpose built and the landlord is resident on the premises at the time and has occupied it as his principle, (or main) residence for the past 12 months
- The premises are within the functional land of a charity.
Exempt leaseholders are:
- Those with business tenancies;
- Those owning three or more flats in the building; and
- Sub-tenants where the landlord is a qualifying tenant.
There have to be enough qualifying leaseholders to be able to serve a preliminary notice on the freeholder. The minimum number of participating leaseholders must equal not less than two thirds of the available votes (one vote per flat let to qualifying tenant). The following example has been extracted from LEASE: If there were 20 flats in the building at least two thirds of these, 14, would have to be owned by qualifying tenants for the building to qualify. If ,for example ,16 were qualifying tenants then at least two third of those would need to participate to be able to apply for an acquisition order, so at least 11 would need to participate.
Those qualifying tenant must then serve a Preliminary Notice on the landlord under s27 which must state:
- The name and address of the qualifying tenants (those with leases over 21 years);
- 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: leaseholders may not apply for such an order if the landlord takes the required action
If the freeholder fails to remedy the matters set out in the notice, or if there are other grounds, then the leaseholder may proceed with the application to the county court under s28 (applications for acquisition orders). The application is made in the individual names of all of the participating tenants rather than in collective enfranchisement where the name of a nominee purchasers is put forward. On the claim form the applicants need to specify a nominated person who will be joined as a party to the application. The nominated person could, for example, be a company incorporated by the participating tenants when acquired. It is the nominated person (company) who will be named in the order as the person acquiring the landlord’s interest.
The court will grant the application if they are satisfied with the following:
- 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) in England or the Leasehold Valuation Tribunal in Wales (the Tribunal) 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.
ONE LAST TRY TO FIND OUR FREEHOLDER (dead or alive)
An Acquisition Order can also be sought if the landlord is absent under s33 of the Landlord and Tenant Act 1987 (acquisition order where landlord cannot be found). Before we decided to go down this route I made one last attempt to confirm our suspicions of the death of the former freeholder as we had not receive official notification. It only came up in a conversation I’d had with the former buildings insurer a few years before. Whilst I had tracked the freeholder down to being in prison, then to an address in Pakistan I still could not get concrete proof of whether he was alive or dead, even though we had the legal right under s3 of the Landlord and Tenant Act 1985 (duty to inform tenant of assignment of landlord’s interest) to be notified of any change in freeholder.
The only people left to us that we could realistically approach were the family solicitor and I asked the council if they could help. They responded by issuing a Notice to the solicitor under s16 of the Local Government (Miscellaneous Provisions) Act 1976, a legal notice intended to get particulars of persons interested in land when the local authority considers it ought to have information connected with any land. The notice can be served on:
- The occupier of the land,
- Any person who has an interest in the land either as freeholder, mortgagee or lessee or who directly or indirectly receives rent for the land,
- Any person who, in pursuance of an agreement between himself and a person interested in the land, is authorised to manage the land or to arrange for the letting of it.
The law required the notice recipient to comply with the request and failure to do so constitutes an offence.
We were hoping that if they failed to respond we could:
- Apply to the LVT (now the FTT) to enforce our request to buy the freehold;
- If we got a response and the offer was rejected we would at the very least actually discover who a new freeholder might be as there was no update on the Land Regis.try
Unfortunately, the reply from the solicitor stated that ‘the s16 notice did not apply to him’ as he did not fall within any of those categories, which wasn’t an unsurprising response but nevertheless I contacted the Law Society to ask for further advice. They advised that the solicitor was under no obligation to provide the information to any third-party (us) unless instructed to do so by his own clients (i.e. family members).
I passed this information back to the council but there was no further help they could offer based on this information.
As we could still not serve a preliminary notice, our managing agent asked for the that part of the process to be dispensed with. An application was then made for a Vesting Order under s26(1) of the Leasehold Reform, Housing & Urban Development Act 1993 (applications where relevant landlord can’t be found) to the County Court, on a CPR Part 8 application form. We had to satisfy the court that all reasonable steps to find the freeholder had failed which meant:
- A notice of claim being served on the freeholder’s last known address or the same notice served in the London Gazette or a local paper;
- The Land Registry searched to make sure that the freeholder no longer owns his last known address, has moved to an unknown address or the services of an Enquiry Agent has been engaged;
- Witness statements provided confirming that a visit to the Freeholder’s last known address yielded no forwarding address, or;
- An absent freeholder title indemnity policy that a recent purchaser of a flat may have taken as a condition of securing the mortgage.
- Witness statements confirming that a visit to the freeholder’s last known address did not provided a forwarding address.
Our case was proved and the Court issued a judgment setting out that a) we could acquire the freehold with funds to be ‘vested’ in the Court and b) deferring the case to the FTT for determination of a ‘reasonable’ premium which they decided was £10.
There is now £10 waiting for our ‘absent’ freeholder should he return from the dead!