Landlord and tenant – Leasehold enfranchisement – Hope value – Respondent nominee purchaser serving notice on appellant landlord claiming right to enfranchise block of flats – Issue arising as to development hope value in relation to roof space – First-tier tribunal finding appellant having no right to build new flats on roof – Appellant appealing – Whether appellant entitled to sum for development hope value – Appeal allowed
The appellant was the landlord of Cambrai Court, North London, a block of nine flats let on long leases granted in 1969. The building had a flat roof. The respondent was the nominee purchaser for the lessees and the management company of the flats. The demise did not include the roof. The respondent covenanted to repair and maintain the building, including the roof.
Each lease created a letting scheme under which: (i) once a lease had been granted, the lessor was obliged to grant all future leases in the same form; and (ii) the covenants given and received by the lessees would be mutually enforceable between all the lessees, present and future.
In 2018, a developer obtained planning permission to build two new flats on the roof and offered to purchase the freehold. In 2019, the respondent served a notice under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 claiming the right to enfranchise the building. The parties agreed that the price for the freehold would be £24,500, plus a sum for the development hope value in relation to the roof space; the appellant claimed that the hope value was worth a further £203,300. The respondent said it had no value.
The FTT found that, under the leases, the appellant had no right to build two new flats on the roof; nevertheless £25,000 was payable for hope value, making a total of £49,500, because development might be achieved through negotiation. If that was wrong, the development value was £166,725, making a total of £191,225. The appellant appealed.
Held: The appeal was allowed.
(1) The appellant had retained possession of the roof and did not need a reserved right to alter the roof or to build on it. Nor did it need to reserve a right of access to the roof because it had not parted with possession of the common parts including the internal stairs which gave access to the roof, the exterior of the building or the surrounding land.
The appellant had the right to build on the roof; although that would present practical challenges, there was no legal impediment to the development. The construction of new flats on the roof would not interfere with the respondent’s covenant to maintain the roof, nor with the lessees’ and the respondent’s right of access; the roof in question would be the new roof over the additional flats. The original roof would be hidden beneath the new flats and the terraces. The appellant would have to provide access to the respondent to maintain that layer insofar as it required maintenance but it had the legal right to construct the new flats: Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350 (Ch); [2008] 2 EGLR 14 and LM Homes Ltd v Queen Court Freehold Co Ltd [2020] EWCA Civ 371; [2020] EGLR 18 considered.
(2) A letting scheme was the leasehold equivalent of a freehold building scheme. The parties agreed that the effect of a letting scheme was to ensure that the lessees were guaranteed that the covenants they gave and received would be mutually enforceable between all the lessees, present and future, on the estate. Further, the letting scheme took effect once the first lease was granted (if the conditions for the existence of a scheme were met and, from that point on, whenever a new lease was granted, the appellant was obliged to grant all further leases in the same form as the first: Arnold v Britton [2015] UKSC 36 considered.
A letting scheme extended to both positive and negative covenants; the purpose of creating leasehold flats was to ensure that positive covenants (whose performance was essential where a building and facilities were shared) were enforceable. It would make no sense for a letting scheme to make the negative covenants enforceable between all the lessees but not the positive ones.
(3) In the present case, it might not have occurred to anyone that there would ever be more than nine flats. But that did not mean that the scheme could not extend to any further flats that the appellant had the right to build; a term would be implied to adjust the service charge proportions in order to give business efficacy to the new scheme. The existence of a letting scheme did not preclude the building of further flats. There was no authority to the effect that the management company, once it joined in the first lease, was bound by the nature of the letting scheme to join in future leases: Hannon v 169 Queen’s Gate Ltd [2000] 1 EGLR 40, H Waites Ltd v Hambledon Court Ltd [2014] 1 EGLR 119; [2014] EGILR 54 and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) [2016] EGLR 8 considered. Devonshire Reid Properties Ltd v Trenaman [1997] 1 EGLR 45 not followed.
However, the respondent was obliged by the letting scheme itself to join in the original leases. If that was wrong, there was an implied term in the leases in the form of a covenant with the lessees and the appellant that it would do so. As the letting scheme did not restrict the number of flats, the same obligation, whether arising from the letting scheme itself or an implied covenant applied to the proposed new flats. Thus, the involvement of the respondent in the leases of the nine flats did not constitute a legal impediment to the appellant’s constructing two new flats. The leases would have to be granted in the same form as the present, and the respondent would be obliged to join in.
Accordingly, there was no legal impediment to the appellant constructing two new flats on the flat roof of the existing building. The respondent did not face the prospect of having to put up with that development because it was buying the freehold and would be able to refuse whatever temptations a developer purchaser could offer. But the appellant was entitled to be paid a price that reflected the development value it was losing when it parted with the freehold.
Sam Madge-Wyld (instructed by TWM Solicitors LLP) appeared for the appellant; Michael Jefferis (instructed by OGR Stock Denton LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Vectis Property Co Ltd v Cambrai Court Management Co Ltd
