THE FEDERATION OF PRIVATE RESIDENTS' ASSOCIA TIONS LTD. CHAlRM-4 N

T. GORDON B U C K W D G E 62 BA YSWATER ROAD -

CONSULTANT LORD COLERCUNE -

LONDON W2 3PS

TEL. ,071 402 1581 - MARCH 1994 N E W S L E T T E R Number 31

A MESSAGE FROM THE CHAIRMAN

S i n c e o u r l a s t N e w s l e t t e r t h e p r o p e r t y w o r l d h a s a w a i - t e d a h o s t o f a p p l i c a t i o n s t o p u r c h a s e collectively t h e i r f r e e h o l d s o r a t t h e l e a s t t o e x t e n d t h e i r l e a s e s u n d e r t h e 1 9 9 3 A c t l e g i s l a t i o n w h i c h h a s d o m i n a t e d t h e n e w s a n d t h e s e p a g e s f o r t h e l a s t y e a r .

I n t h e e v e n t i t h a s p r o v e d a n o n - e v e n t a n d t h e r e h a s b e e n a l o t o f w h a t c a n f a i r l y b e d e s c r i b e d a s b l e a t i n g i n t h e c o l u m n s o f t h e P r e s s r e g a r d i n g t h e h e s i t a t i o n a n d s l o w p r o g r e s s made i n t a k i n g a d v a n t a g e o f t h e new s t a t u t o r y r i g h t s c o n f e r r e d o n t e n a n t s . T h e r e i s c o n t i n u i n g c a r p i n g c r i t i c i s m a b o u t t h e g a p s i n a n d u n s a t i s f a c t o r y s t a t e o f t h e l e g i s l a t i o n as f i n a l l y p a s s e d .

I C H A N G E O F A D D R E S S I A N D

T E L E P H O N E N U M B E R

I PLEASE NOTE THAT EFFECTIVE FROM MARCH 7TH, 1 9 9 4 , I THE FEDERATION HAS MOVED I T S OFFICE TO

No. 62 BAYSWATER ROAD, LONDON W2 3 P S

I TELEPHONE NUMBER - 0 7 1 4 0 2 1581 I I I

I n o u r v i e w t h e s e m u r m u r i n g s a r e n o t h e l p f u l a n d a r e e q u a l l y n e g a t i v e . What a re t h e f a c t s ? F o r t h e f i r s t t i m e i n t h e h i s t o r y o f l a n d l o r d a n d t e n a n t s ( o t h e r t h a n l e a s e h o l d h o u s e s ) two w e a p o n s h a v e b e e n p l a c e d i n t h e h a n d s o f t e n a n t s w h i c h t h e y n e v e r h a d b e f o r e

F i r s t , t h e y c a n c a l l o n t h e i r l a n d l o r d s t o e x t e n d t h e i r e x i s t i n g l e a s e s by up t o n i n e t y y e a r s a t a n o m i n a l g r o u n d r e n t . I n t h e s e c o n d p l a c e t h e y c a n c o l l e c t i v e l y a c q u i r e t h e f r e e h o l d . Of c o u r s e , t h e s e r i g h t s a r e h e d g e d a b o u t w i t h many r e s t r i c t i o n s a n d h u r d l e s a s i d e f r o m t h e q u a l i f i c a t i o n a n d c o s t f a c t o r s .

TKE FEDERA TlON OF PRIVATE RESIDENTS1ASSOCL4 TIONS LTD 1SA COMPANY UMITED BY GUARANTEE, REGISTERED UNDER NUMBER 1992130.

D C C I C P C W C ~ ncctrr ~r A anrm - .. -

PAGE 2

However, the most important consequence of the legislation is -that the creation of these ultimate rights or their exercise can -and will have very salutory effects on landlords. Many who wish to retain their freehold may well improve their manage- ment services with a view to precluding the tenant's option. This .in turn should reflect on the service charges themselves. They may become more user friendly and more anxious to employ acceptable managing agents and management methods. This in turn will be considerably assisted by the Code of Practice currently being' finalised by the R.I.C.S. (Royal Institute of Chartered Surveyors) for the ultimate approval by the Secretary of ,State covering the discharge of all aspects of property man- agement functions. Whilst failure to comply with this Code will' not in itself be actionable any of its provisions can and may be taken into account when proceedings are taken in this area. The latest draft document we have seen is an excellent one reflecting very high standards and will serve as a warning and a guide post to present managing agents. i

Thus tenants with short leases, particularly those with under fifty years unexpired, can now apply for extensions which will substantially enhance their marketability and mortgageability. Others may want to go further. In either case the threat and the weapon should, hopefully, produce the desired effect on landlords which is to negotiate terms outside the Act and all its complexities.

Our strong advice is to seek negotiations in this manner and at the same time not to rush into the statutory procedures at least until a number of valuations under the Act have been estab- lished as precedents. Fools rush in where angels fear to tread! This is particularly relevant here.

Finally, in closing my letter I would reiterate that our office has been changed. Our new abode is lighter and much more comfortable. We hope to provide an even better service as a consequence. Happy Easter!

T. GORDON BUCKERIDGE

PLEASE DON'T FORGET TO RENEW YOUR SUBSCRIPTIONS - SEE BACK PAGE

. . !i , .

, . , . .. NEWSLETTER '31 ,,

. . . . , . . . .

' ' PAGE 3 . . . . ,

i . . . . . . . ,! j

0 B I T U A R . Y

JAMES R O B I N S O N

.<We".:are .. sad to :report to: our members that our imme'diate: past

Chairman, Jim Robinson, died suddenly on 2nd February. As

many of our members will know, illness forced him to resign

his Chairmanship in 1992 after only two years in the post;

tho.ug.h. h e remained a director and committee member until the . .

last, his condition did 'not, allow , him to attend many recent , . . , . . meetings.

Nonetheless, he will be greatly missed by us all, particularly

for his expertise in the field of acquisition of the freehold,

hard-earned by him in negotiating and concluding the purchase

of his own block in his capacity as chairman and on behalf of

his own residents' association at Riverside in Marlow. It

was in large measure through Jim's determination and good humour

that the purchase eventually went through in spite of almost

insuperable difficulties caused by one totally obstructive and

uncooperative resident. It was for these qualities that he

was also valued by the Federation.

Many of our members will have benefited from his visits to

address their own meetings - a task which he undertook with

relish and enthusiasm. We have reason also to be grateful

and to remember him for giving the Federation a new lease of

life at a time when its fortunes were at a low ebb. We extend

our sympathy to his widow. Lis, to his family and to the

residents of Riverside. -

CHESTER$ONS R E S I D E Y

Now that the Leasehold Refornr, Ilnusirrg and 1Jrban Ileuelo~~rnent Acl lras receiued Rqyal Asserit, John Cugley, Coni/~on.y Solicitor for Chestertons Residential nnd Paul Rayrrtonrl FRlCS, Matanaging Director of Chesterlorts Residerantir~l, e2.wnanirre sonane of ill(! an?nriorrs art(/ complez hurdles to be orwrcorncr before errfrarrehisenrent crrn beconze a real it^:

r . I hcrc is a strong sensc of anticipation amongst leaseholders of flats for u new law which may enable rhcrn to join forc~a w i th thair ncighhours 1,) acquire the freehald of their building.

I:or marry lcssccs, the p i l s s i ~ ~ g o f ~IIC l.ciis~:hoI~i Reflrrrn, I lollsing and U r l r t ~ ~ ~ Ilevcloptr~cnt Act is sern as a 'l'e~~ants' (:barter which will allow then1 to shrug ofl' the diniinishing tcrrn of their least: and, ill a pricc, iakc direct control o f the management of their building.

There was strong opposition to the original Rill from frccholdcrs and other I)rcssijrc g r o u p s w h o corrsidered the original ir~ter~tions to be confiscatory and unfair. 'J~Ic Bill bad a difficult passage tlirouyh Pwl ian~er~t md i n its final stryes ;I n u n l h r of important ~ n e n d m e ~ ~ t s were i idoptcd. There are now a series of <:onditions that must he sntisficrl bcforc ii leuscholder can escrcisc the r ight to enlienchisement. Some ol>servers have likened the prowss to obstacle race of Olympic proportions! Whilst. the provisions arc complex and e t~ch ci~se must be i r~d iv idua l iy assessed, thc fol lowing points go some way to dc~cl-mining which buildings will qualify:

At lcmt 90% of the hnildi~~g's total f l l ~ ~ r sl>m:,: must he rt:side~~titll.

\Vherc there is a rcsidcnl l i~ndlord, convert<:d huildillgs muat cont;lin more than four flt~ts. Otherwise, buildings wit11

N T I A L I S THE LONDON TRADING NAME dF S E R R I C E S L T D .

a , PAGE 4

two or more flats must he held by qu:&fyillg tcnants.

Buildings which arc scIf-u)ntained a111i where the whcrlt: of iha freehold is ow~l*:cl by the same pcrsotl.

A nlinirnun~ of twt, thirds of the fliits in tlic l1i1ildir1g itrust 11r held by qualil'yjng terlilnts.

(:<:rtt~ir~ 1,roportics belon&ing t r ~ chi~ritril~lc l ~ o u s i ~ ~ g trusts arc excluded k o ~ n the Act. Ala,, somc buildings arc cxcluded \\\'here st lci~st two thirds of the flats nrc held or1 Icn.st*s with less than fi\,c scars to ruli and yhcrc thr landlorrl intends to raiev~:lop at the end of the term.

Assun~ing that the bui ld ing pnsscs the rihovc t~:sts, furthar qiral i f ici~tions are iq)l>lirxi 10 r:rsurc dlat a tenant is eligible. 'I'hes: 11rovisinns include that:

' A I , i l ~ i~ r l t rrrust hnvc hccn or ig i l~nl ly gl;~nrt:d i t 'long lease' (i.c. a tcml of more t11a11 2'1 yenrs).

'111c lmsc nlust ~ ' ~ e c i f y a 'low rent'. 'illis i~~,:lurl,:s t l ~ o x wit11 a p u n d rent dint u,as lcss tk?i~n two thirds ofthc ralealllc vnl~lr ttt 1111: ~ r ~ ~ i ~ n t e n m ~ n e n t or the lc;lsc or a gmund rt:nt of less thrm £1,000 for le;~scs grnllted after 1st i\pril 1990.

A i Iixst two thirds of qualifying tentints "lust agrcc tr, enfl-anchise a~nd ill tllrlr. they n~ust acmrrnt frlr at Iraa ball' of 111,: total numlwr of flats ~II tile building.

'I'hcre is a rcsidenc:y qualification whic:h spejfics that at least half ol' the tetlnrlts who wish I enfranchise inus1 rlcn~or~strate that the flat has 0ec11 thi:ir only or principal res idc~~cc o r t l ~ r pi.cvious twelvc rnt,llths (or for ;tt l c ~ ~ s t three of the prewding ten years).

(:crtain tenerlts owning two or marc flals i r ~ a building may IIII~ he elltitled tc1 be treated i ~ s a (Iualifyi~~$ tenant.

If all tllw tests can bc satisfied; tllc IICSI

;ires of dchiae is t l ~ c l ~ r i c c th i~ t hns to IN. paid 'I'h b i : l ~ ~ l d u ~ i s entitlui to rcuivt,:'

7h1, m;tlG,:t vttluc d'lris cxistilig i~lll~.ri'st.

Not less than 50% a l the mirrriagr: \due ,,f tile frechold ;III~ le~lsehold irltcrcst.

(:ornpcnsiitiu~~ for ;in). fi~~nnt:inl 10% he sul'fcn (19 his rt..nlaining propcrty irrtcn:ns us a rrsult of sellir~g the building.

'l'hi: costs o f legttl and professiontrl :lrl\,il:e in dealing wit11 tllc ulllveyuncc.

R~:i:auso ~ h t : l,~~eaisc lcvcl of 1narri:lge value is not specified in thi, Act there will no ~ i o o b t 11e spirited dehatc hetureen frccholdcrs and el~franchising lenitnts conccrnir~g thi: 1x:rccntugc of the ~ ~ ~ a r r i n g c valuc about 50% thnt shot~ld hc paid to the la~~<llord.

I t ~n i ry I>#: tIi;rt at this pilint 11 ten;~nt's kr,e~~ snnsn 01 n~rt ic ip i~t i l~n starts to wit.hcr!

Mun? flats ill (:rntral I n~ndon hli~cks arc likely 10 11,: nu,ned as picds-8-tcrre ur rental investl~~e~~ts, whilst alrrit: will have g r o ~ i ~ ~ d rents ahovc the prcjc:rihcrl level. l ' l~csc rnay struggle I satisfy thc residency qualilicdtion.

'l'hc nther major difficulties which urc ~wedicted relate to obtaining agreement amongst rhc tenants t .<~ join into thr: enfranchisement process and ns to how the costs should then he apportinnad hetween them. A landlord cannot he cornpelled to retain arty nr~ ts or nun rcsider~tinl space in a qut~lifying ht~ilding and those wishing tn enfranchise ntay he fwccd to acquire not only thcir own ylrllpertics hut also the frcchold interest rrf their neighhours who do nut wish (or cannr~t afford) to join in the process. 'l'hey coulrl therefore also he smidled with the 11n-going freehold mlinitgemcnt costs: acting ffi la~d lord to their neighhours who did not join in the prncess.

Intercsti~~gly, the law conveys no rights to an individual tenant who did not join in the original enfranchisement proccss, to

subsequently compel the new landlor(1 to allow h i m tu acquire a share of the freehold. The status of such isolated tenants can therefore only be changed upon terms dictated by the new landlord.

However, there is good news for such tenants and those who occupy non- qualifying buildings or who uu~r lo t rench agreement w i th their neighhours to enfranchise. I n these situi~tions. a qualifying lessee who has been in occupation for the last three years as his only or main residence (or three years out of the preceding ten years) will now have thc right to acquire a new lease on simihu terms. This Ie~lse wi l l be for 90 years beyond the original term but a t a peppercorn ground rent:. The price thut will have to be paid to the landlord will include the market value of the landlords present interest, and not. less that1 SO% of any marriage vaval.

'l'here has been considcrablc debate in recent yeas on the plight of lessees who tinil rhnt thcir hlncks are poorly managed and mnintair~cd, or a~nversely where. they consider thtit the cxper~i l i ture on decoration and repairs is unnecessarily hiqh. Thcre are legal provisions already in force fur the most extreme cases, hut for hlncks which qunlify for enfranchisement, thc opportunity for residents to control thcir destiny appears a very attractive proposition.

No dorrht there wil l be somc properties which will henefit From a harmonious and concerted self-administered management prngramme. Some sceptics however, point t o the tensions and lack of co- operation that o f t e ~ ~ exist between neightwurj and to the a)nflicting opinions thut arc already present in snme rcsi~lents nssociations. The large Idondon estates draw n t t e n t i o ~ ~ to the high stendard o f preservation of the properties and gnrden squares wi th in their ownership. They bcliev~: this can only he maintained by professional, lrhjective lrlnnagcment that hffi a cotsrent long tern1 strategy.

I f there are tenants interested in taking the matter further i t is likely that a compllny would he formed in which the participating lessees would he the shareholders. Early professional advice on the possible cost of enfmnchiscment will he requ i r~d from valuers so that all participating leaseholders can assess the

, '

potential cost of the freehold acquisition. . .

. They .may also n e d to Actermine the vnlue of the freehold interwt i n any other flntsor non-rcsidential space which arc to tx included in the conveyance.

Thereafter the prmess is relatively simple, requiring the service o f a ivoticc on the freeholder (and any intervening lessor) specifying the proposed terms of the transaction and including the suggested pur(:hese pricc, ?'be notice must certify that a ilunlified vn l t~er hus prepnrerl a valui~ti im of the interest to he acquired. 'I'he freeholder then has l o rcspond with a countcr-notice wi th in two months. I f purrh~ue temls cannot be tgrecd therc is provision for the price to he detcrn~ined by the l.e:wehold Valuntiurt 'rrihunt~l.

Most. of the recent cr~mrnentary on the Act has been focused on the new enfranchisement rights of flat owners. However there is an important s c c t i o ~ ~ ;;hich now extends the provisions of the Leasehold Reform Act to houses which were previously ineligible bccausc of their h igh rateahle values. The price that

qualifying leuseholders are likely to pay will be determined in acc'ordnncc wilt1 the Act. Exemptions from enfranchisement are reserved for some charitzble housing trusts etc. but therc is a specific provision that the lvuseholder should not be entitled to more t11m 50% of m y maniage v~tlue, i n determining the pricc to be paid to the frcet~older.

The n c s Act has heen (.he suhject of much crit icism h u t rnnny terannts

l e f t w i th a tern1 that is unpalatable to potential purchasers may now be ahle to contemplate a rosier future. For a pr im of course!. ,

NEWSLETTER 31

PAGE 6

Choosing your Solicitor - some Guidelines

1. Although many names of firms appear on the Federation's list this need not imply that there are npt other firms just as good or explerienced or even better! They may not have seen our enquiry or, as in some of the larger firms, refrained from putting their names forward as they like t:o select their own clients from recommendations of other clients or sources. Also of course they may not be interested in undertaking the type of work involved.

2. Do not necessarily go for the smallest or cheapest firm. Today is the day of the specialist. A one-man firm cannot possibly hope to keep up with all the new legislation or practice. He may not have knowledge of tax, or litigations or company formation and administration. He may also be very overworked. As to fees, it should be recalled that certainly in the case of tenants purchasing their freehold, this is probably the most important transaction in their lives other than the acquisition of their long lease in the first place.

3 . Do not be afraid to write or even see one or two or more of the firms you have heard of or been recommended to you or which appear to be located in your neighbourhood. Ask them what their previous experience has been in the landlord and tenant field and whether they undertake litigation, have knowledge of the new Act, the setting up and running of a suitable corporate vehicle and the financing of the purchase and related transactions, since building societies and other lenders will almost certainly be involved. Additionally and more specifically you could ask for a run-down of actual work in the enfranchisement or buy-out fields, whether seminais on the 1993 Act have been attended by staff or principals and for copies of any printed material published by the firm in question. You are entitled!

4. As indicated above, the size of the fees proposedbshould not necessarily clinch your choice. You really get what you pay for in most cases. Quite often you may be able to agree an overall fee or a regular method of payment which suits both parties. Make sure that a partner is handling or at least closely supervising the matter. Try and effect a rapport with the adviser of choice. By visiting the office you will gain some impression of whether it's a busy and businesslike office and the calibre of those working in it.

5. There may be advantages of instructing a neighbourhood lawyer with some local knowledge. On,the other hand with faxes and rapid communication, visits may not prove so necessary as in the past.

6. Once you have selected your solicitor make his life easier (and yours) and co-incidentally cheaper for yourself if you prepare yourself fully before a n y meeting. Make or leave notes and identify the problems or goals in advance and save time and effort whilst there. Good luck!

' LA.N&LQ.RD AN;D TENANT . . ...,~ . . . ~.

T H I S ARTICLE I S REPRODUCED WITH

. . , . ,,. ,. .~ PERMISSION OF THE AUTHOR, M A R K PAWLOWSKI. A N D OF THE'ESTATES

. . . . . : . ..'. . . ? : , .... . . . ' ..1. .

, . . . : , . . .>,.." . .. . . . GAZETTE. . . . . . * . <'

PAGE ,,:,y .y.::;.. .9..:>:,:; ,

, , , , io,, , , , i;>>! ,d, .,:3 &it: : $ : T,enant+;s;j:remedl& f6r $. - >..‘>., ;!?: . . !. . d .... . .>.. .. T b? ). !? a?,3>" x > , : .. :?. 8, ;wyi., , *%... i-. ,@ . .

X x. .,.-.. . .... ~ . . . , . J ; , . .. . ;-: , :?,, A+.: -!:, ;: .. . . . . . ~ . .. :

9. v,...~. .5 I i: 2 .;r .~-?$?;%;~;::2~;{~, , , . ,: , ,; . - ", . 8, .,*...$I .$>@$;., . , ,> . . - . . . . : - , . + . , . , , . , . pv. , :! 2% , : condensatlpn d,&:Pnem .!ti +... L . . . : j5 ' . f t - ..-. ..*.A,.2L . . ,, . ,.-b4(;i.. . ., . L K ... ,.. ... i~ ..

, . . . , . . . I .. . , . . . : I . ..r:,> : #,, P ... :>:. , : ;,.,: , q+, .+g :. , : k . ~ : : ~ & $ $ ~ & t , : . ~ ; ~ ~ $ : . , '..- , I .,. 1" ' .* . ,".s$.',;'k' :: r .I , ~ \ . :*,:. :.

. . , .... ?. .:> : 7' . . .? Y ' ;,&a .%A,<+,c': ' , :,a;. , . . 5

, . ., ; .. , . .. ..,. a;E<., : ;-. . '. ,.. . . , y,; : ..;' " , , . ,;, P'... . . >,:. ,. .. -.I?*.. ' " ,,....+ t&l:becom a p & n t that the l& is q u i t e , ~ ~ ~ . ~ . n t f f e r i n g . f n , ~ ~ ' ~ s o ~ , ~ ~ the. ' . .

Condensation .dam;p~e~s~~ ' L$wte n,u.,t(.N,q., -B,+r6 . Ilrqfa w ~ h * , ,

live indamp and:mwldy k&ikyl,+bqve;i :me&viMkw fiames.~th ~ o ~ W C :. . . c o r i ~ t i n u , ~ ~ ~ . ~ , ~ , a ~ ~ @ o i ~ ~ . . . . .. ,. , t i ~ i . h p ~ o f 2 ~ H &:aa, . + . : ~ t : d ~ ~ ~ ~ g ~ r ~ ~ ~ ~ ~ + ~ ~ ~ ,;;

..c.\. ,. &...- < 5 ,* ?.%! ..,;*.>.:j., l d d , The L g w : e n h s 4 recenug.?::, o ~ * . * & - ~ >>.~,- .., , , .:; p&twfor :.,.:i telmlb , , , . . . . in . ., , ..I -@#IisM h , ~ t $ i r m &pi (iio *q :w ms : . @ o s n ' b ~ ) ~ l e : ~ ~ ~ t ~ , o f . ~ ; ~ , ~ , . . .;,

.. ., ..,:. . . legal;nspwsity:fo$ ~lei'st8li~md:&nditia , h e a ~ ' I b e . ~ i ~ t p t P d s m a g e s ~ ~ ~ . , - $, blocks, of;fl@ts_bdt.;,ln;.&e l-hld,p+iiy hd.+rs fiiaw'aid :,' : { , , gu~ :~~ ! ;~~~~w&. , .. . . , . , ,._ i. . , , :

' m i t o n of lapair- an &@w,ana, ~ f l ~ t o . t l f e % P ~ & & h m . ~ ~ h . ''- 1960s. and &I~os. The , & m e ~ ~ may go a way lbwd Gr-.. .,. ,la+ .,& for ,&@ii%,!Bt;.2"+i .

pmviding m e f fd? qedy,, lo tenants who ., . . ag!ne-ttofJ@ ~ , ' ~ ~ b f i . t ~ . .~?+.;+:... . .. : ' ~ i b @ b : . q p # @ i h f o tbetbe!I&alf ease.. - i maj.or .~8~.;ar~e:lack:.~f..:. ,m f-d to live . in . . ~ g ~ ~ o s i o g . . ,. . .,.

. . . :ii: .. :. d t i m . beca,&.,ke ~ d & ~ s . ~ & ! a & " f ~ . , : f ~ , ply)per-heating and. *. : , ,+ , , . : ,A d f i : ~ .. w&:@iila!@$:, ,j. , , .: . . A. ; 'i ,:;: - . . . . . . :;. ~ ~ 0 1 1 ~ d ~ b e a b l t . t o p ~ e I e a n , s e e . f o r c e ~ h r t a c ~ ~ - t ~ , u l b i , ~ B ~ ~ c d . . ~

velitilation andl iiiadequate ~y 6.e or YO$ pf tsi fouow~calmes M: h ~ ~ m , b B t t . W : r ~ I h s : ~ , r ~ t , ; w ~ .$. i? . . action agaiaa hi3: IMmd: let, ~ : & & e ~ a t lu.-albeit newly . : i n & @ 0 ~ 6 ? ~ : . t ~ . ; , ~ ~ ~ i .- : ( I ) bicachd theim&on:law @plied -,? awi.,+&,molts w ; b ldbve in i, . , . , . ;<:..ri,/c~< Y,, .I> ;;$ ';;& . , .:<; '2:t!,."' ;&&M"&';*,~~ h& habitsti,,,, at i,,",&& &,,., &*:*j,;,&n,~@~.&*b ,& .& ;: ., . ' .>-..:. r :,,q:;. ., ., .,

&&&,&&*.& the ,tenancy. , M ~ k : ~ # & b w s k . ~ f & w : : : . , . . , . ,,. . . . . . . . ., , . . . eonditiars, is@^^^^.^:^ sh+J k-t'far lho pbqK+% fcriwhtch : r t : . -- . - -:;." (ZF6kachbfthb:wbd WdiliOn *to fie. I*it:is :,et:, , h x

liamCot $ & . : , , . . . ,"'.T. : II.,t&iqai.ibus. feg&"l;,;.,@ti? ; !fO' h & f ~ b i & ~ ~ ~ ~ d n d b @ m 8 bf.tbC and.:mt. I a . : ' ~ e ; ~ + ~ ~ + : g ~ , ~ ~ , , a ; .. . Ladoid aiid'~&k'kd i985.(h IWA~~); ' ' . imo tht,la\ii-::,hi,: l;;l .. <:, ~ . ~ e & ~ i ~ ~ a i t a b l e j ~ a. : ,,,: ")b""h o£.the implid WcnaOt to* in %, . ,!: ,,;y. . 4, ;+~.:' pg :, i - , ~ $ + t * - k - .

, . ; .. . .. .:. . . ., , ..,;.j>.>;,.t, repau the,*:& ex(~riot:bf &, i;:~:>,;k>:~i,$$si&~~mQc:~ r~mx@,@C.,. -':. .*, hvi".i-h',& &iwfTdff,,&*989 iy , y- ,$.$; @,y@f&g&&gI:''i..: ; ten&ntj,whose- premises.: :: - .'. ,-, . . , : ..."" ;%, .* : -" r.j5 ...

..> : fiplifl,,g@i@ i t ~ ~ ~ ' ~ i ~ ~ ~ b : f ., (4) breach of the &on law duty of care to ihe st+ e d : m d i t i a i $ f " & : ' w < , ;:>g

~ bm the problem* lake reasonable steps to ensure that the premises . . I , . . . . .. . . , . , : :*.,. . .

. ,

.. . , * ' . . . . .

3 . . . : ..i

exercise these provisions in respect of property which it owns ilselt R v Cardiff City Council, ex phrte Crass (1982) 6 HLR I CA)

Although sedion 8 of the 1985 A d appl is to bath furnished and unfurnished latings, section 8(3) stimlalis that it takes effed only in . . . . relation.to lctiings below certain rent.limits. These are orovidcd for in section 8(4) bv means ~ ~. , , , of a table, by reference to the date of I& letting and the situation of the premises. For example, if the letting was made on or aner July 6 1957 the rent limit is fsO pa in London and t52 pa elsewhere. These very low limits are far below the normal rents for a muncil house or flat and, therefore, most lettings inevitably fall outside the section. Despite judicial obsetvations lhat a new definition of a low rent is needed (see eg Quick v Tafl Ely Borough Council [I9861 QB 809. at p821 per Lawton U). Parliament ' appears to have "conspicuously refrained horn

"udatinn the limits in the 1985 Housing and Lndlor> and Tenant Am": McNemy ; L&th London Borough Council 11989) 19 EG 77, at p80, where Dillon U reiteraled the need for Parliament to intervene in this area so as lo extend the duties impmed on landlords of muncil flats or houses a other low-standard amommodation.

Section 1 I of the 1985 Act -on ll(l)(a) of the 1985 Act implies a mvenant on the part of the landlord to keep in repair the structure and exterior of the dwelling-house (including drains, gutters and external pipes). The section applies in general lo anv lease or tenancv of a dwellins-house lor

LANDLORD AND TEN+NT k - - - ., - . - - - . ,..-.-.---.,-

PAGE 8

Council (1987) 282 EG 705, (CA), where this plaster, windows]. In this situalion, the landlord same principle was applied. In Toff, DDon W . . may be obliged to carny out remedialworks to observed (at ~ 8 1 8 and 819): combat thi source ofthe mndensalion ": : . Where dearalive repair is in question on* must took for damage to the dewntiom but where, as here, the obligation is merely lo keep the slluclurc and exterior of the house in repair. the mvc;lant will only come into opration where there has teen damage to the slrudure which requires lo.,be nude good . . . In the present case the liability of !he mumil was to keep the strudure and exlerior of the house in icpair - not the decorations. 'lhough there is ample evidence of damage to the daxnations and to bedding, clothing and other fabrio, evidence of damage lo the subject malln of the mvenant, the struchlre and exterior of tk house, is far to seek. 'lhough the mndensatim mmes about from the effw of the warm atmosphere in the rooms on the mld surlaas of the walls and windows, there is no evidence at &:I of physical damage lo the walls - as oppose8 lo the decorations - or the windows.

In mntrast,to the Taffcase, reference may be made to the decision in S r a w v Lee& Cify Council 11992) 29 EG 119 (CA). Here, lwo bedrooms in the house showed severe signs of mndensation and certain plastework was so saturated that it required complete renewal. At the trial, the landlord council conceded that

"In furnished lettings, there is at a common law an, . implied condition on the part

stressed that the same conclusionawill apply in the case of an erpress mvenant on the part of the4andlord to repair the strudure and exlerior of the demixd premises.

dampness and not merely to replace he damaged pars: see Elmcrofl Dewlopments Lld v TanlrersleySabyer (19M) 270 EG 140. at.. ,, p142 per A c k e r U, Srenr v himouth Disrricr Council (1987) 282 M 705. at pllS.'per Sir John Amdd-P. However, mere intenial damage to fabrics, furniture and clothing etc"r;hich'ildoes not result from a mndition not amounting to : such physical harm will not quality within the. implied mvenant. For this reason, thbe was no "disrepair" in McNerny v & m k h Londorl, '

Borollgh Council [I9891 19 EG 77, where Dillon U had v i o n to remark thathe ' "would not be at all surprised to find that there is the same problem in the anas of veiy many other housing authorities throughout the ' .

country". , . For the sake of &mplelenws, it 'should be

.

Liability in negligence' At common law, a "bare" landlord is,under no duty of care to ensure that the premiscs are reasonable safe at the time of the letting: Cavalier <Pope [19061 AC 428, (HL). This prkciple was applied by the Court o l Appeal in Rimmer v Liverpwl Cify Cowrcil11985] QB 1 whue the defendant muncil let to themplaintiff 1

'-a'fla in a block of flats in May 1974, which had beendesimed bv their architects and built bv

oulion lo determine the term within the desien rwcified wired dass of 6nui thickness' 1

'

- ~~ , ~~ ~ ~ ~ - ~ - - , ~- ~ --0 \ - ~

part of a house) granted on or after October 24 Of the lendlord that the their work; department in 1959. A mmmon' 1961, for a term of less than seven years featule of the flats was the iwrtion of a glass (seaion 13) and, therefore, includes periodic demised premises will be fit . panel in an internal wall directly oppnsite L e * tenancies. Even a long lease may fall within loungc door, to give light lo a hallway

for human habitation." .' section 11 if the landlord has an unfettered mnntding the various rooms. The original '

s;vewyear period: Parker v O'Connor [I9741 1 WLR 1160, (CA). In Quick v TaflEly Borough Council the plaintiff was Ule tenant of a house owned by the defendant muncil. As a result of very severe mndensation throughout the house, decorations, woodwork, furnishings, bedding and clothes rotted and living conditions were appalling. The mndensalion was caused hy lack of insulation of window lintels, single-glazed metal-kame windows and inadequate heating. The plaintiff tenant brought p r m d i n g s alleging that the muncil was in breach of its mvenant, implied in the tenancy agreement by section 32(1) of lhe Housing A d 1961 (now section 11 of the 1985 Act). The Court of Appeal held that the liability under the implied covenant did not arise becaust of lack of amenity or inefficiency but only where there existed a physical condition which called for. repair to the shc tu re or exterior of the : dwelling-house. As there was no evidence to indicate physical damage to, or want of repair in, the windows or lintels themselves or any other part of the structure end exterior the council muld not be required to cany out work to alleviale the mndemation: see also Post Ofice v Aquarim Properries Ltd 11987) 1 All ER 1055 (CA) and Srenr v Monmouth Disfricf

,

there had been mnsiderable mndensation and for this&rpose but hearchitect in charge of the that it was possible lhal the house was unfit for buildingwork altered this lo 3mm gl-. On human habitation, but argued that it was not ih taking possession of the flat, the plainlifl breach of its implied covenant under section , . mmplaimd to the defendants that the thin glass 32(1) of the Housing Act 1961 because the panel c o ~ i l u t e d a danger to children., but was, plaster affected by the condensation had not told that it was a standard feature and that , , sufiered physical change since the oonsrrvction nothing s d d be done about it. Some 18 of the house. n e Court of Appeal rejected this . months late( the plaintiff himself tripped in Jhe argumenl holding that, since the plastemork hallway andput his hand lhroua the glass .was so saturated that it required mmplele panel, suslailing injuries. Giving judgment,

'

renewal, the remedial works mnstituted repsir. Stephenson U (having reviewed the rtlevant In his judgment, Uoyd U said (at plZI): authorities in lome detail) said (at pl3):

!

Here. . . the physical mndition of'the plaster, due ' D e landowner,who d c s i w or builds a house or lo saturation, was such that it required to be flat, is no more ismu* ftm pnsonal w 'iYbil- renewed. We need not inquire how much of the . ity for faults o!:;,q=@rwiion$han a ulldlnk plaster was "damaged". If the plaster required to mntranor, or @peMnal responsibility. .foi be renewed as a result of saturation, then it seems faults of design.:%@ an ardriteci, Sim~ly *Use to me that, as a matter of ordinary language, what . he has disposed W his house or flat by selling or was done was a repair. Once it was conceded, as letting it. The mncil through Ihcir architect's it was, that ihc plasrer was pan of the s t m u r e jr department d c s i e and through their dir? follows that there was a breach of the condition. .:. works dcpartmmt b l l , the plaintiffs flat with lts implied by section 11(I)(a) of the Landlord and dangerous glm pml. ?hey qwed him, not .S

Tenant Ad 1985 . . . tenant hut, lie.his wife or his2hihild as a person ! who might r&naUy bc ex@ to be affea:d

'Ihe upshot of the foregoing is that a landlord , by bi provibion of the glass panel in the flat, a will be liable under section 11 of the 1985 Act , duty to take such care as was reasonable in all the only if the tenant can poinl to some disrepair to circumstanm to sa Utat he was reasonably sale the physical condition of h e structure andlor ' . : from personal injury c a d by the 8 t q panel. . , . exterior of the dwelling-house (eg the walls, The Court of hppeal went on to distinguish

B LANDLORD AND TENANT P A G E 9

between the landlord who had designed and/or constructed the prcmita (to whom the duly of care refemd to above applied) and the ban landlord, namely, the mmornv as opposed to the owner-builder (to whom no such duty attached under the current law as set out in Cawlier v Pope.

In McNerny v Lumbeth London Borough Council (supra) the tenant sought to apply the Rimmer principle to premises suffering from condensation dampness. The duty of care was adapted so as to impose an obligation on the landlord to take reasonable steps lo ensure that the properly was habitable for the tenant and her family. Unfortunately, on the fa- the landlord council, k i n g a bare landlord (as opposed to a landlord-builder), was held to owe no such duty of care and, accordingly, the tenant's claim for damages based on negligence failed. The Coufl of Appal stressed that it had no power to overmle the House of Lords' decision in Caw l i n v P o p and that any reform of the rule should be considered and (if mccyary) undenaken only by P a r l i sc dso, section 1 of the Defective RcmkmrCa 5ST2 @ul Andrews v Schooling (19911 1 !M8 7@3. CA.

It should also be noied; itilh'b' cdri%xC'ihatl while section 4(l)of the Defeaive hemi*' Act 1972 impases on a landlord, who has covenanted to repair, an &ligation to the tenant and third parties to keep them "reasonably safe horn personal injury or from damage to their property", the statutory duty imposed is geared to the landlord's obligation to repair the prcmisu. Thus, since M i o n 4 goes no wider than the repairing avcnsnt itself. the tenant will have no redm under the subsection i f his accommodation is not in a state of "disreoair" within b e meaning of the covenant: MCN& v LMtbeth London Borough Council [I9891 19 EG 77, CA.

SIonrlory nuisance Sections 79-82 of the Envimmental Protection Act lvgO mnlain provisions to deal with "statulory nuisanas" as deflmd in section 79(1) of the 1990 Act. Section 79(1)(a) includes in the definition of a statutory nuisance "any premises in such a state as to be prejudicial to heallh or a nuisance". Section 80 entitles a local authority to serve an abatement notice on the person responsihlc for the nuisam and section 82 empowers a magistrata' coufl, on a complaint made by a person on the ground that he i s aggrieved by the existence of the nuisance, to make an order requiring inrer olio the defendant lo abate the nuisance within a specified hime in the order and to execute any works necessary for that purpox. In Grwler London C m i l v on don ~ o i o u g h of Tower HIMICIS (1984) 15 HLR 54 the GLC was the owner of a comer flat on the gmund floor o f a bhxk o f f l a b but at raised level, with t h m sides and the whole o f ils underneath o p n lo the alr, so that an exceptionally large pan of the flat was exposed lo the elemenb. When originally built, the flat had an open solid-fuel fire in the living room. but this was subsequently removed and replaced WIL an electric heater. The result was thal the advantages of a fire which could have been kept

alight for most of the day, and its considerable ventilating effect, 'we% lost. As a result of all these factors. the flat suffered from severe condensation dampness and mould growth. The GLC put in one storage heater, which was insufficient to combat the condensation. I n any even!, this storage healer was subsquently removed bv the GLC. Ev~dence wac niven IM the 'enant &d three oil fifes and an e lmr ic fire, keeping the heating on all or a major pafl of the time.

The GLC. as owners of the premises, were served with an abatement notice by the local authority vower Hamlets), requiring them to remedy the cause of the dampness. The magistrates found that the dampness was caused by condensation, resulting from lack of proper ventilation and insulation, and lack of heating, no adequate heating having been provided by the GLC. Auardingly they made a nuisance order, against which. the GLC appealed.

The Divisional Court, dismissing the appeal. held that there was ample evidence before the magistrates to entitle them to come to the conclusion that the condition of the flat was prejudicial to health and, accordingly, tha1,there was a sl'atutory nuisance witfiin the meaning of section 921) of the Public Health Act 1936 (now section 79(1) of the Environmental

"A breach of the implied ;. condition will entitle the tenant to claim damages from his landlord for any resultant injuries or damagee to proper&."

Protection Act 1990). The case is significant hccausc i t emphasises that ;I landlord is required lo apply his mind to the necessity for ventilation and. i f necersary, insulation and heating in the premises. In the instant case, the cause of the dampness was the failure of the landlord to take necessary precautions, either by way of ventilation or insulation, or by providing any special form of heating. for a properly which was exceptionally vulnerable to mndensation. More specifically, a landlord must provide a combination of these facilities to make a house habillb*. Thus, i f the construction of the buildlng is so unusual that there has lo be some spsial form of healing to combat condensation. i t is reasonable that the landlord should be expected to instal items such a storage heaters to provide warmth. I t is equally clear, however, that once the landlord has provided these facilities the tenant must use them. In other words. i f the landlord has done everything reasonable and the cause of the continuing

.condensation is that the tenant is unwilling to use the appliances or a reasonable alternative method of heating the flat, then the landlord cannot be held rr%ponrible for the ensuing state of the premises: Dover-Disrricr Council v Farrar (1980) 2 HLR 32, where the method o f

heating supplied was pl ied ly proper and adequate and would have maintained the premises in a state which would not have been prejudicial to health had the system been used by the tenants. The (understandable) refusal by the tenants to use the system on account of expense was considered irrelevant on the ground that i t could not k right to make a nuisance order which depended on the relative msts o f electricity and gas at any one time.

I t has reecntly been held thal the magistrates coufl has jurisdiction to make a compensation order under section 35 o f the Powers of CriminalCoufls Act 1973 on the making of a nuisance order under section 82 of the Environmental Protection Act 19W (formerly section 94 of the Public Health Acl 1936). In H e r k r l v Lamk111 London Borough Council (1993) W LGR 310, the tenant of a flat ownec by the council preferred an information againsl the council under section 94 of the 1936 Act contending that the stale of the flat (which wa! badly affected by mould growth caused by inadeauate ventilation) amounted to a statutor) nuisance.

The Divisional Courl held that, in finding thm case ~roved. the rnanistrates "convicted" the c o u k l o f an offen; so that they were empowered by section 35 o f the 1973 Act lo wLc a criminal compensation order i f they t h ~ ~ g h t fit to do so. I t was stressed, however. @such an order should be made only in shR#&, striightfoward cases and waq inappropriale where substantial compensation was sought for matters in respect of which civ~ proceedings could be brought. I t is unlikely. therefore, that this form o f order will have any significant impact on the armoury of remedies available to an aggrieved tenant.

LawCommission's proposals The Law Commission in its consultation papel (no 123) has suggested two allernalive approaches to !he reform of the law ul leasehol dilapidations. The first (radical) approach in. volves an abandonment of the current definitio of repair and its replacement with an approach based on a duty to maintain the premises in a condition suitable for irs intended use. This, ol course, would introduce the concepts of lack c amenity and efficiency sadly lacking within th current definition of repair. The new formula- tion would cover the remedying of inllcrcnl defcca'in deign and conrtruction su a% a1 enable the dsmacd pmpeny lo be used "safel) hygienically and satisfactorily . . . for its intended purpcse with an appropriate degree o convenience and comfort for the occupants": para 5.7.

The second approach advocates more piece meal reform. I t is suggested, for example, in relation to fimac for human habitation. that th pnsent n n l limits for implying a statutory dut should no longsr apply: para 5.54. This would certainly be a step in the right direction but. ultimately, only the more radical approach suggested by the Law Commission is likely to produce a satisfactory legal solution to the problem of condensation dampness in public- (and private) sector rented housing. I

PAGE 10

8 . H . Land Registry

Two items of practical importance can be noted here. In relation to Land Registration under the 1993 Leasehold Reform etc. a Statutory Instrument (1993 No. 3045) has been issued setting out the statements to be inserted respectively in a conveyance or transfer or in a lease made pursuant to the Act. Most solicitors should or will be aware of these Rules.

The second item concerns the Registry's own Explanatory Leaflet No. 15 being a guide to obtaining information on the Register of Land. Postal searches can be made generally speaking at a cost of some £8 per search. For this purpose Land Registry Form 96 should be used for an official search and Form 109 for office copies of title and/or a Plan unless you are making a personal search when Form 111 needs completion on your visit. The search areas are divided up into District Land Registries. Properties for instance in the City of London, City ' of Westminster and Camden are kept at Harrow (enquiries: 051 473 1106). Those for Hammersmith. Fulham. Kensington and Chelsea at Birkenhead (Enquiries: 081 427 8811).

It is a fact that many tenants or associations when considering the purchase of their freehold do not know the registered holders of the leases of the tenants in their block or of the freeholder. Access to this information may therefore become very important as a starting point for formulating any collective purchase proposal or even a lease extension.

Are you trying to buy your block of flats under the

new legislation? If so, we'd like to hear from you.

particularly if you are facing any expected or unex-

pected problems. Please write to F.P.R.A.at 62

Bayswater Road. London W2 3PS giving a 'phone number.

PAGE 11

FLAT MANAGEMENT COMPANIES IN ENGLAND AND WALES

< . . . I'

i; The College of Estate Management (Reading) i s " currently undertaking a large research project into the operation of resident-owned companies managing blocks of flats in England and Wales.

A survey of 1,000 companies has already been completed, and the College research team are now looking to carry out interviews with residents in blocks that are managed in this way. We would be very interested in contacting any flat-owners who would be prepared to take part in an interview to discuss their experi- ences in the following areas:

- the main problems and advantages of management: through a resident-owned compan'y ; :'

- management difficulties and successes;

- professional services: management, accountancy, etc.

Interviews will be carried out in the period mid- arch to mid- May 1994.

Please write to:

Spencer Harlow, The College of Estate Management, Whiteknights, Reading RG6 2AW.

or contact him on 0734 861101

All correspondence wil1,be treated with the strictest confidence.

Spencer Marlow GEM Research

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.

THIS A R T REPRODUC LAW SOCI WITH KIN OF THE A

Block uote: the Houshg and Urban Development Act. &spUe i t s innomtons. wikl not inuodw o commonhold system Wpufes regarding the qualQ o j semlces provided and rhe kwl o j service charges wU remain

. . In part one of this article, Nic Madge, a partner with Bindman & Partners, considers lessees ' liability to pay service charges even when they are unhappy with the level of service provided

ONE OF THE MAlN complaints voiced by long lessees of residential accommodation is the lwei of service charges. Many lessees believe that they are being overcharged for services which they consider to be of a poor quallty. In 1985 the Nugee committee. In its report on the management of privately owned blocks of flats, found that over 50% of lessees complained of poor quality of

services. Over 80% of lessees wanted to be able to challenge the appoint- ment of managing agents.

The Leasehold Enfranchisement. Housing and Urban Development Act, which received the Royal Assent on 20 July and which came into force on 1 Novemberl993. will enable many lessees to exercise rights of collective enfranchisement or to purchase extensions to thelr leases.

but it will not inuoduce a common- hold system. Disputes regarding the qualily of services and the level of service charges uill remain. both where lessees have not purchased the freehold and. in some cases. even where a majorlw of lessees have enfranchised.

TWO questions arise from the issue of lessees' Iiabilio. lo pay setvice charges. First. is, each particular element of the scnlce charges sought properly recoverable in accordance nlth the ternsof.the lease? Secondly. are there any relevant statutory restrictions. principally in the Landlord and Tenant Act 1985?

Even befoie the introduction of statutory restrictions on service charges there was an implied tern in leases that sen'ice charges cllmed should be 'fair and reasonable'. In Finchbourne v Rodrigues 11 9761 3 All ER 58 1 . Lord Denning MR stated that landlords do not have 'an unfet- tered discretion to adopt the highest conceivable standard of maintenance for a block of flats and to charge the tenant with the cost thereby incurred' (cf Bandar Propem, ~oldi&s Ud v JS D a m n ISumssors~ Ltd I19681 2 All ER 305). However. thi; does not mean that at common law a landlord Confinued on page31

NEWSLETTER 31

. . Conrinuedfmrn m e 28

is under a duty to limit expenses to cheap 'fist aid'. instead of a more expensive solution which would e lkna te the problem (see Manor House Driw Ltd u Shahbazlan ( I 9651 195 EG 2831.

It is necessaq to look at the precise terms of the indi\ldual lease to ascertain what categories of senices or works are included in the service charge provisions in each case. Often therc is a 'general mopping up' clause. but in the absence of such a provision. servtce charges are not reco\:erable unless the particular category claimed, Is specifically mentioned in the lease. For example. in Uoyds Bank c Bowker OrJord 119921 31 EG 68. the provtsion in the lease relatine to service charees allowed, the l~s so r s to charge fo; a number of specified services such as cleaning. caretaking and lighting and ' a v other beneficial services which may properly be provided by the lessors'. It was held that these provisions did not allour landlords to pass on. through servtce charges. the cost of major external repairs or internal decorations. but did enable them to recover the cost of empioylng managing agents and a proportion of the notional cost of providing accom- modation for a caretaker. Similarly. landlords are only entitled to recover sums on account of service charces If - thts is expressly provided for.

Some leases include covenants. which state that lessors are entitled to recover s u m s 'expended or incurred'. In Capltal and Counties Reehold Equity T h s t Ltd u BL ( I 987) 283 EG 563 therc was a covenant that lessees should pay a proportion of 'all amounts, sums. costs and expenses of each and every klnd u.hatsoever which may fr0.m unieto time during the safd term be expended or i n c w e d ..or become payable by the lan@ord'.. %fore the expiry of the lease the landlord entered into a bullding contract to cany out works after the expiry of the Lease. It was held that the lessees were not Uable. In FLnchboume u Rodr(gues the lease provided that the l v r could recover sums 'expended'. It was held that this meant that money must actually have been patd out by the lessor before it was recov- erable (see also Froblsher U d u KUomn Trwt 119801 1 All ER 488).

Some leases contaln other condi- tions precedent to the recovery of SeMm charges. For example. in Northways Rats Management Co 1Camden.I U d u Wimpey Pension Trustees Ud 119921 EGCS 63 there was a covenant requiring the landlord to submlt a copy of the spclflcations

of pid&ied works and estimates before s M l n g work. ?he Court of Appeal held that this obligation was an essential part of the mechanism whereby dlsputes between the partles regarding works could be resolved and held that the obligation created a condition precedent to the recovery of a conuib"tlon touards the cosffi of works. As the plaintiffs had failed to comply with &s provision, they were not able to recover money which they had spent on the exterior'of the block.

From a landlord's polnt of view similar problems arise if there is not an express provision in a lease entitGg him & her to charge interest on sums emended. In Boldmark Ltd u Cohen 11986) 277 EG 745 It was held that a landlord was not able to pass on interest payments on money borrowed to finance the pro\ision of services. unless the lease contained 'clear and unanibiguous words' to thls

Lessees are entitled to inspect the accounts, receipts and other documents free "

of charge

effect. However, in some cases this may be coverrd If there is a widely drafted general administration costs service charges clause. This is unlikely to apply where. as a result of statutory provisions [see below). the amount which a landlord can cl* hi advance is llmlted (see Robffiher Ud L> Kiloran % s t 119801 1 All ER 488).

It is not generaily possible for lessors to claim that there is a n LrnpUed covenant on the part of lessees to pay the cost of employing managing agents. In Embassy Court RA v LIpman..( 1984) 27 1 EG 545 it was stated that in order for a landlord to recover service charges for any particular expendlture. It is nffessary for the landlord to speU.out spxillcally in the lease in some detail a sumctent descrlptlon of every financial obligation Imposed on the tenant. If an LndMdual lessor wishes to employ managing agents and m e r costs. the lease must include expllclt provisions to thls effect. However. where a freeholder's rlghts and obllgauons are wansferred To a restdenis' association. Lhere may be an UnpUed term that they can employ managlng agents and recover their

fees as servtce charges. In Woodtrek u Jezek (1982) 261 EG

571 It was held that landlords cannot pass on the cost of collecting rent unless the lease speclflcally makes provislon for this.

Llablllty to contrlbute towaids the cost of building works sometlmes depends upon whether the works carried out are repairs or improve- ments. For example, in, Mullaney U Maybourne Grange (Croydon) Management Co 11 9861 277 EG 1350 there was a covenant:obU@g lessees to pay a proportion of the costs of repair. maintenance. provision of senices and amcnitles lo common parts. There was no provision in the lease. stating that lessees had to contribute' towards the cost of improvements. 'The landlords replaced defective wooden framed with new double glazed windows.

It was held that t h l s was an improvement. not a repair or the provislon of an additional amenity and. accordingly. the cost of these works was not recoverable from the lessees. On the other hand. In Reston Ltd v Hudson 119901 37 EG 86 it was held that the replacement of rotten window frames was the landlord's responslbllity In accordance with the terms of the leases and that it was reasonable for the landlord to replace all windows a t same time. A declaration was granted that the landlord was entitled to pass on such costs as servlce charges.

Another example oithe Vnportance of the distinction is Holding and Management Ud u Property Holding and investment 'Itust (1989) 21 HLR 596 where it was held that the complete replacement of the brlck skin to a bullding was not a repalr but an improvement. The cost of such works was not recqverable Uvough the service charge pmvlsiOnS (see also New Englnnd Propertks pk u Pornmouth News Shops +:I 19931 EGCS 26). !: -, L

In Cumshaw,&td u Bowen. (1987) 281 EG 68 the lease,provided that increases in servcc _charg=$ jt$hould be tied to the RPI.

Some leases provlde that the issue of a c e d c a t e as. to the amount of service charces..:sometimes by an - . accountant or a mmaglng agent. is a precondlUon to the rePovery of rrvlce

thcrz was a requirement t h a t accounts should be c e d e d by the managing agent. It was held that this meant that the accounts had to be c e d e d by someone other than the lessor. The lessor was not able to issue a vdld c e d c a t e and accord- ingly the lessees were not Hable to pay service charges. 0

/ C o n t i n u e d ~. i n n e x t -.. . .. . N e w s l e t t e r . . . .. . ...

PAGE 14 NEWSLETTER 31 . . . ..

THE LEASEHOLD REFORM HOUSING AND URBAN DEVELOPMENT ACT 1993

THE FREEHOLDER'S TAX POSITION

It may be helpful for Residents' Associations to have some idea of the tax problems facing the freeholders with whom they negotiate. Such transactions are often undertaken in the open market, by voluntary agreement. In principle, the new legislation should not cause the tax treatment for either-party to be very different, from what it would be if the sale and purchase followed from a completely voluntary agreement. The freehold will almost certainly be an investment, held as a capital asset, rather than a trading asset so that the tax problems will be with Capital Gains Tax rather than income tax.

In the last Newsletter. we included a list of publications on the new legislation. Many have been published by professional firms. It is unlikely that any will disguise the complexity of the legislation. It is, therefore, suggested that, for a Residents' Association considering acquisition of the freehold. there will be a great deal to be said for proceeding by agreement, rather than following complex statutory procedures, not least because these will often incorporate awkward time limits. The new Act may provide the freeholder with an incentive to negotiate a voluntary sale. It may therefore be useful for Residents Associations to bear in mind some of the tax problems which may face the freeholder and may therefore influence the response to an attempt to purchase the freehold.

One problem. for the freeholder of a compulsory sale, may be the loss of the tax planning advantages of at least timing the sale to the best advantage. There could.. in theory, be very heavy Inheritance Tax or Capital Transfer Tax liabilities where the property has, in the past, been granted conditional exemp- tion under what is now Chapter I1 of Part I1 of the Inheritance Tax Act 1984. This legislation is des,igne,d to enable "National Heritage Propertyw to remain in private ownership, without capital taxes forcing a sale. The price paid for this is that if the property is sold, a heavy tax penalty is exacted. Se-ction 68 of the new Act prevents a tenant of a house which has been conditionally exempted from compulsorily acquiring the freehold under the new legislation. It is not th0ugh.t that there will be many blocks of flats which have been conditionally exempted.

For most freeholders, the problem will be the Capital Gains Tax assessment. This will be computed in the usual way, though it should be noted that the freeholder of a block of flats will be making only a part disposal and will therefore only be able to bring part of the acquisition cost into the computation.

(a) where he retains the freehold of the block, but grants an extended lease of a flat under Chapter I1 of Part I of the new Act or

PAGE 15

NEWSLETTER 31 The Freeholder's Tax Position - cont. (bl where he sells the freehold but takes a leaseback under

Section 36 of the new Act (See Sargaison v Roberts 45 TC 612).

POSTPONING THE TAX BILL

A roll-over relief may be available under Section 247 of the Taxation of Chargeable Gains Act 1992. "Roll-over relief" effectively postpones a Capital Gains Tax charge, when the sale proceeds, which should have been taxed, are invested in some statutorily approved manner. Originally, this relief only applied to businesses. Section 247 relief was introduced to help landowners whose land was taken by, or under threat of, compulsory purchase. It gives roll-over relief where the proceeds of sale of land are applied in the purchase of replacement land, within one year before or three years after the disposal of the "old land". Neither the "old land" disposed of nor the "new land" purchased need have been used for trading; the only limitation on land use is that the new replacement land must not be (or become within 6 years after purchase) the owner's "principal private residence".

In their Statement of Practice SP 13/93, the Inland Revenue have stated that tenants exercising their rights under the new Act or under the continuing provision of the Leasehold Reform Act 1967, are to be regarded a "person or a body of persons" with compulsory purchase powers, so as to make the relief available for freeholders who are obliged to sell to them. The availability of this relief, helping reinvestment, may therefore encourage some leaseholders to sell to their tenants.

It remains to be seen how well the Statement (which is, of course, a ruling on the interpretation of the legislation rather than a concession) works in practice. There will be no doubt that the relief will apply if the statutory "compulsory" procedure is actually followed, but this may be time-consuming, expensive and uncertain. Particularly in the case of blocks of flats, it may be in the best interest of both parties to agree a price and proceed as quickly as possible. But could this lead to problems with Section 247 relief?

- How far will the freeholder have to go in establishing that the tenants comply with the somewhat elaborate pro- cedures and conditions laid down in the New Act, so that they could force him to sell the freehold to them?

- One of the requirements of Section 247 is that. prior to the disposal. the landowner should not have taken steps to dispose of the land or made known his willingness to do so, by advertising or otherwise (though in practice steps taken more than three years before the disposal are ignored). The idea behind this is that there should be an implicit threat of compulsory purchase, rather than e.g. a local authority happening to purchase land that was on the market in any event.

PAGE 16 *

NEWSLETTER 31 The Freeholder's Tax Position - cont.

- However, where blocks of flats 'are concerned, the freeholder might feel that the new legislation has made it virtually impossible to sell the freehold in the open market, but the tenants won't take the initiative unless the freeholder has indicated willingness to sell.

THE BUDGET

There have been two changes in the recent Budget, which may affect freeholders' willingness to sell, or the problems that freeholders fact when they have sold. One is the announcement of a new Capital Gains Tax roll-over relief, where the proceeds of sale are reinvested in unquoted trading companies. Whilst there may be no practical difficulty with the selling part of the transaction (this relief is intended to be available to all taxpayers) it might be harder for freeholders to find the necessary unquoted companies to invest in.

The other change has been the restriction of the indexation allowance when calculating CGT losses. For example, where the freeholder bought the freehold at a high price, in the pro- perty boom, it may now be worth less than was paid for it. Before the budget, this loss could be increased to take accorlnt of inflation since the freehold was bought. This is the "index- ation allowance" because the retail price index is used in the calculation. The indexation allowance can no longer be- used to increase the size of a CGT loss (or reduce a gain below zero). This may be bad news for some freeholders. However, it may, in some cases, provide the freeholder with an incentive to "cut his losses", on the ground that inflation, and the passage of time, will no longer increase the tax relief available.

The TV programme BROOKSIDE mentioned the Federation in one of

its episodes in connection with a residents' association which

was being formed by the inhabitants of The Close.

NEWSLETTER 31

N E W P U B L I C A T I O N S

In our, last issue we set out a list of our own and other publications in the field of landlord and tenant, management of blocks, service charges, statutory rights in general and rights to leasehold extension and enfranchisement in particular. This list will be updated on a regular basis. 1n addition we shall review books on the same or related subject matters which have either come to us for review or which we may purchase. Some of the publications cover very much the same grounds and are also expensive. They wi.11 be given a mention but may not be reviewed although their names will certainly be included in our updated lists for the sake of completeness.

Since Christmas we have acquired "Service Charges - Law and Practicen by authors P. Friedman, E. Shapiro and 8 . Slater recently published by Jordans at £26.95. The book sets out to summarise the current state of the law on service charges including VAT, taxation problems and environmental law as affect- ing them. It covers material applicable to commercial and residential leases as well as residential lettings plus the oft-disputed question of reserve and sinking funds. The Appendices contain very useful specimen service charge clauses in great detail, a specimen summary of service costs as well as extracts from the relevant legislation and commentaries on decided cases. We commend this book for the professional if not the layman.

Two other publications just out require flagging:

11 Leasehold Reform - A Guide to the New Act" by James Driscoll published by Jolley at £24.95 and

n Residential Letting - Leasehold Enfranchisement - Rent Control - Security of Tenure" by Trevor Aldridge Q.C. Cost £37.00.

This latter book is an updated version of an edition first published in 1965 on Rent Control and Security of Tenure. It has now been substantially broadened to include an overview of the new rights leaseholders have under the 1993 Act, who qualify and the procedures involved. It contains a full explanation of the statutory security of tenure afforded to tenants under short and periodic tenancies and rent controls where they apply. The book has reflected the change brought about by the abolition of rateable values and the introduction of the Council Tax. Provisions regarding rack rent tenancies in relation to letting of residential property are also covered. In fact the subject matter is too wide for more than a small percentage to be of use to our Members bearing in mind other cheaper and more specialist publications on the more limited areas brought about the by 1993 Act which must be the main focus of interest to members at this time. It belongs perhaps as much to the landlord's library as to the tenant.

PAGE 18 NEWSLETTER 31

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

The tenants of Silchester court in Croydon were faced with a claim for arrears of service charge. They had not paid because the building was in such a bad state of repair but unfortunately they could not raise this lack of repair as a defence; in this particular case it was not the landlord but the Management Company set up under the lease who was responsible, for carrying out repairs. The Court decided that a term could not be implied into the lease that the landlord was liable for failure b y the Management Company. It was the Company n o t the landlord which was responsible and the failure to repair would of course have been a good defence if it had been the former not the latter who had sued. In the lease was lacking the usual provision for the landlord to take over the obligations of the Management Company if, for example, i t should go into liquidation o r it failed to perform. It was also decided that the failure to repair did not constitute a breach of the landldrd's covenant for quiet enjoyment nor did the landlord have a fiduciary' duty to ensure the Management Company c'arried out its obligations.

The only crumb of comfort for the tenants in this case (Hafton Properties r Camp 8 Ano. 1994 3EG 129) was that the Court pointed out this was a typical example of when the tenants could use the Landlord & Tenant Act 1987 and apply for the appointment of a receiver to take over the management.

On the other hand, in Credit Suiese r Beegas Nominees (1993 EGCS 157) where the landlord had failed to repair, the decision was in the leaseholders' favour - there was no Management Company involved on this occasion. The exterior cladding in bronze had leaked from the time the building was erected and had contin- ued to deteriorate. As a result the leaseholders were prevented from selling their flats. The landlord's repairing covenant was "to maintain repair amend renew cleanse repaint and decorate and otherwise keep in good and tenantable condition the structure of the building....... ...p rovided that the landlord shall not be liable to the tenant for any defect or want of repair...... ... unless the landlord has had notice thereof". It was held (1) that the landlord was in breach of the covenant to keep in good repair ("keep" includes "put") (2) although the obligation to 'I repair" did not cover complete replacement (3) failure to renew and amend leading to defects or want of repair obliged the land- lord to carry out complete replacement of the cladding. In addition the landlord was to pay the leaseholder compensation for inconvenience during his occupation, for loss as a result of the failure to sell the lease and for future liability of the tenant under the lease which he would not be able to assign until the replacement was completed.

The landlord in Dame Margaret Hungerford Charity r Beazler (1993 29 EG 100) was not however obliged to carry out a complete repair to the whole roof. The facts of that case were that the tenant occupied only part of what had been old almshouses and the land- lord wished to carry out a complete refurbishment but to do so needed to obtain possession of the tenant's part. Icont.

NEWSLETTER 31 PAGE 19

Proceedings were therefore taken against the tenant for that purpose and the tenant counterclaimed for damages for failure to repair the roof in breach of the statutory obligations imposed by Sec.11 of the Landlord 8 Tenant Act 1985. It was agreed by the landlord that the roof needed such repairs but in view of the proposed scheme to refurbish running repairs only were necessary as and when the need arose. The Court of Appeal agreed with the County Court judge that the landlord had repaired the roof to a standard reasonable for the type of tenancy involved.

The following are cases where the tenants were held to be respon- sible for repairs.

In Roper r Prudential Assurance (1992 1 EGLR 5 ) the tenant covenanted to keep in good and substantial repair order and condition the premises together with the fixtures and fittings therein. The landlord was responsible for the main and exterior walls. It was held that the tenant must repair not only the electric wiring but also replace electrical installations.

The judge in Irrine r noran (1991 1 EGLR 261) usefully gave a rundown on what constituted the "structure" of a building (where the lease was otherwise silent as to a definition) for the purpose of Sec 32 of the Housing Act 1961 (now Sec 11 of the Landlord 8 Tenant Act 1985). He said that it consisted of those elements which give the property its essential appear- ance stability and shape including external decorations but did not cover the ways in which it could be fitted out equipped and decorated; for example, it did not'generally cover separate garages and gates, internal door furniture, external windows and doors including frames. It therefore did not cover plaster - of internal walls (but compare Stares v Leeds CC reported in Newsletter 24).

But in Toff r UcDovell (1993 EGCS 141) even though the landlord was responsible for repairing the structure, the tenants were nonetheless liable on the wording of the leases for party walls. floors and ceilings between the flats and, in the case of the tenant of the basement flat, for the foundations.

There was no question in Hawkings r Dhervan 8 Hishidti (19 HLR 232 1987) that the landlord was liable for a leak ,into a lower flat from a blocked overflow in the flat immediately above. Nor, however, was the tenant of the upstairs flat since there had been no negligence on his part; the overflow was from. the bathroom and there was no previous warning that it was blocked and no obligation on the tenant to check, say, every few weeks. It might have been different if the blockage had been in a kit- chen sink overflow or in a rainwater pipe because these were inherently more likely to become blocked and there was a higher duty of care to prevent such occurrences.

/continued

PAGE 20 . .... , . :

NEWSLETTER 31 , . . .

Service charges for repairs must give rise to the most frequent differences between landlord and tenant in blocks of flats. But a close runner-up is probably hot water and central heating where these are supplied centrally. The tenant in Heinenan r Cooper (19 HLR 262 1987) decided the cost of these services was too high and he would sell his flat and buy somewhere less expensive. The purchaser required to know, before committing himself. the likely cost of service charges. The block had been recently refurbished and it was therefore difficult to give an accurate estimate by looking t previous years' expendi- ture. Nonetheless the vendor gave the approximate figure of £250 pa and the purchaser went ahead on the assumption this was about right. When he received his first year's service charge demand for £625 he successfully sued the vendor for mis- representation. He was awarded compensation of £3000, the amount being calculated on expert evidence that the flat was worth that much less in the light of the higher service charges. The vendor's expert's view that there was no difference in the value of the flat because of the higher than anticipated service charges was rejected.

Finally. Handel r St. Stephens Close Ltd. (1994 5 EG 159) was a case which did not involve service charges at all. There the landlord wished to create parking bays and charge for parking where previously tenants had enjoyed free parking. The judge refused the landlord an injunction to prevent parking whiile the proposed works were carried out. H e "held that there' was an arguable case for the tenants to continue to enjoy free parking even though there was no 'right in the lease. His reasons were: (1) parking by the previous tenants had been going on for many years prior to the grant of long leases; ( 2 ) the flats were advertised for sale as having free parki'ng; (3) the landlord had stood by, knowing the tenants believed they had a right to free parking; (4) when problems occurred with outsiders taking parking space, residents' stickers had been introduced by the landlord and (5) there had been discuss- ions about giving spedific spaces to each residentbut at'no time had the landlord indicated there was no right to park. It should however be noted that this case has been reported on the question of the i'njunction only and its eventual outcome may not necessarily produce a favourable result for the tenants.

EG Estates Gazette EGCS Estates Gazette Case Summaries EGLR Estates Gazette Law Reports

. . . . HLR Housing Law Reports

Y

NEWSLETTER 31 PAGE 21

C H A N G E O F A D D R E S S

A N D

T E L E P H O N E N U M B E R

PLEASE NOTE THAT EFFECTIVE FROM MARCH 7TB, 1994,

THE FEDERATION HAS MOVED ITS OFFICE TO

No. 62 BAYSWATER ROAD, LONDON W2 3PS

TELEPHONE NUMBER - 071 402 1581

A N N U A L G E N E R A L M E E T I N G 1 9 9 4

W h i l s t a d e t a i l e d n o t i c e a n d a g e n d a w i l l b e s e n t o u t i n d u e

c o u r s e , M e m b e r s may l i k e t o m a k e a d i a r y e n t r y t h a t t h i s y e a r

t h e ANNUAL GENERAL MEETING w i l l b e h e l d o n :

MONDAY, OCTOBER 1 0 t h a t 6 . 4 5 p.m.

a t t h e

LANSDOWNE CLUB. B e r k e l e y S q u a r e , L o n d o n W . l

NEWSLETTER 31 PAGE 22

RENEWAL OF SUBSCRIPTION

Subscriptions for 199415 are due on April 1st. A Renewal form is enclosed. Members' finance officers are urged to return these with their cheques as soon as possible. This is virtually the sole source of income and if the Federation is to continue its work, much less to extend it, early payment is essential.

(This does not of course apply to those Associations who have joined between 1st January and 31st March. 1994.)

ADVERTISEMENTS

We are accepting suitable advertisements. The charge is £30.00 for a half A4 size page. No responsibility can be accepted for those making use of this service.

EXTRA COPIES

Extra copies of this Newsletter can be obtained by Members from the office at £2.50 each, postage paid.

CONTRIBUTIONS TO THE NEWSLETTER

Members' contributions are always welcome. Please send any items for inclusion in the Newsletter to the Office.

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.