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Wrapped: Property and Conveyancing > 14. Long residential leases > Flashcards

14. Long residential leases Flashcards

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1
Q

Where do you need to check in order to find each lender’s specific requirements as to how long needs to be left on the lease?

A

Part 2 Lender’s Handbook.

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2
Q

What is ground rent?

A

An annual sum payable to the landlord.

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3
Q

What piece of legislation introduced the assured tenancy?

A

The Housing Act 1988 (HA 1988)

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4
Q

What is an assured shorthold tenancy?

A

A type of assured tenancy where a residential landlord can regain possession of the premises without having to prove the tenant is in breach of the lease terms. Usually 6 or 12 months long.

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5
Q

How much rent needs to be paid in order for a lease to qualify as an assured tenancy?

A

£250 or £1000 in London

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6
Q

Can ground rents on long leases count as an ‘assured tenancy’?

A

Yes, because many ground rents are now higher than £250 or £1000 in London

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7
Q

Why is it a problem that ground rents on long leases become assured tenancies?

A

If the rent remains unpaid, the landlord has the right to terminate the lease under Ground 8 Sch 2 HA 1988.

As this is termination, there is no relief against forfeiture under HA 1988.

This is problematic if a long leaseholder has paid a significant premium for their property (and for the lender).

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8
Q

What does Ground 8 Sch 2 HA 1988 provide for the landlord of an assured shorthold tenancy?

A

It allows the landlord to terminate the tenancy if the tenant is:

  • at least one quarter’s rent
  • is over three months in arrears
  • if it is paid quarterly.

Even if the arrears are paid, the court will still have to end the lease.

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9
Q

What is a conveyancer looking for when they check the ground rent and whether there are any ground rent review provisions?

A

To see whether the ground rent might increase above the HA 1988 limits in the future.

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10
Q

In order for a lease to satisfy the Lender’s Handbook, what criteria must a ground rent increase reach?

A

Fixed or readily established
Reasonable

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11
Q

Would ‘ground rent doubling every five years’ be acceptable?

A

No, it would be readily established, but not reasonable.

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12
Q

What is a ground rent review formula usually linked to?

A

The Retail Prices Index

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13
Q

Would ‘the landlord has an absolute discretion to increase the rent to such amount as the landlord may think fit’ be acceptable?

A

No, because it is not readily established.

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14
Q

What two options might be considered to insert into the lease to avoid ground rent becoming problematic?

A

A clause to ensure that the ground rent remains beneath the minimum level required for an assured tenancy under HA 1988

Or

A covenant prohibiting the landlord from seeking to terminate the lease by relying on Ground 8 of Sch 2 of the HA 1988.

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15
Q

How would a conveyancer involved in an assignment of a lease make sure ground rent is not problematic in the future?

A

They could get the seller to enter into a deed of variation of the lease with the landlord.

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16
Q

Will a company or someone buying a property for investment purposes be open to issues with ground rent an the HA 1988?

A

No, because the HA 1988 states the tenant must be an individual and must occupy the property as their principal home. Therefore the tenancy would not qualify as an AST and the landlord wouldn’t be able to ‘terminate’ the tenancy.

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17
Q

What is the most conclusive way of dealing with a short residue or ground rent problems?

A

To extend the lease under the provisions of the Leasehold Reform, Housing and Urban Development Act 1993.

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18
Q

What is security of tenure?

A

It means: how difficult is it for the landlord to kick you out of your house? If a long lease ends and the lease qualifies to turn into an assured tenancy, then there are still SOME protections for the tenant, albeit not as good as the ones in the previous lease.

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19
Q

What three requirements would a lease qualify to be an assured tenancy under Sch 10 LGHA 1989?

A
  1. A long tenancy
  2. At a low rent
  3. Comply with ‘qualifying conditions’, e.g. let as a separate dwelling to a tenant as their principal home and as an individual - not as a company.
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20
Q

Explain ‘a long tenancy under Sch 10 LGHA 1989?

A

A tenancy over 21 years.

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21
Q

Explain ‘ at a low rent’ under Sch 10 LGHA 1989?

A

Pre 1990: Less than 2/3rds of the rateable value of the property, which can’t be more than £1.5K in London or £750 elsewhere.

Post 1990: No more than £1K per year for London and £250 elsewhere.

Service charges/premiums aren’t included.

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22
Q

Explain the other qualifying conditions under Sch 10 LGHA 1989?

A

Must be:
- let as a separate dwelling
- to a tenant as their principal home
- and as an individual, not as a company.

Not be an excluded tenancy, e.g. student/holiday let, resident landlord, agricultural let, business tenancy, licensed premises.

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23
Q

What will happen when a long lease comes to and end?

A

On termination of the lease, the lease will continue.

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24
Q

What happens if the tenant takes no action on the expiry of the lease?

A

Security of tenure will not be lost. An implied assured periodic lease would arise under LGHA 1989

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25
What two options does the landlord have at the termination of a long lease?
They can serve a notice (6 months to a year before termination date) either: 1. where he wishes to offer an assured periodic tenancy 2. where he wishes to seek possession (including reasons)
26
If the landlord proposes a new tenancy, how long does a tenant have to 'make an election'?
Two months and must be done in writing.
27
What are the options for the tenant when 'making an election'?
They can: - accept the tenancy being offered - object to the demand to leave - start packing
28
If the tenant has objected to the demand to leave, what can the landlord do?
They may apply to the court for possession either: - within 2 months of the tenant giving their election - within 4 months of the date of serving the notice if there is no response.
29
When would a landlord's notice lapse and what will be the consequences?
If the landlord: - fails to apply to the court - fails to prove a ground for possession If the landlord does not manage to obtain possession via the courts, then the tenancy will continue and within 1 month of the court order they must serve a 3-month notice offering the tenant an assured tenancy.
30
What are the grounds on which the landlord can oppose continuation of a lease and the creation of an AST?
Part 1 Sch 2 HA 1988: Ground 6 - redevelopment by landlord Part 2 Sch 2 HA 1988: Ground 9 - Alternative accommodation Ground 10 - rent arrears Ground 11 - persistent delay in rent Ground 12 - breach other than rent Ground 13 - deterioration of property Ground 14 - immoral/illegal purposes Ground 15 - deterioration of furniture
31
As well as the Grounds from HA 1988, what other reason could the landlord put forward as a reason for eviction?
Possession is required for the landlord as a residence for them or their child over 18yo or their spouse's parents.
32
If the landlord proposes a new tenancy, what can change and what must stay the same?
The rent must stay the same. The terms can change.
33
What can the tenant do if they do not agree with the AST proposal? What if they still don't agree?
They have 2 months from the service of the notice to propose something different. If they both don't agree after that, the landlord can go to the First-tier Tribunal.
34
What if the tenant does not reply to the proposed AST in 2 months?
They have to accept the AST.
35
What if the landlord doesn't reply to the counter-proposed AST from the tenant?
The tenant gets the terms they want.
36
How can a tenant terminate a long lease? How about after the lease has ended?
They can give 1 month's notice to the landlord at either 1 month before termination date or anytime thereafter.
37
What are the two options in LRA 1967 for a tenant who has a lease that is running out?
1. Enfranchise 2. Extend the lease for a further 50 years
38
What does 'enfranchise' mean?
Buying the freehold.
39
According to s14 LRA 1967, what are the qualifying conditions in order to enfranchise?
1. Must be a house 2. Must be on a long lease 3. Must have held the lease for at least 2 years
40
According to s14 LRA 1967, what are the qualifying conditions in order to extend a lease?
1. Must be a house 2. Must be on a long lease 3. Must have held the lease for at least 2 years 4. Must fall within a prescribed rateable value 5. Must be at a low rent
41
What does 'it must be a house' mean in LRA 1967?
Any building designed or adapted for living in and reasonably so called.
42
What does 'a long lease' mean in LRA 1967?
A tenancy exceeding 21 years.
43
What does 'must fall within a prescribed rateable value' mean when extending a lease under LRA 1967?
To be granted an extension, the property must not exceed the rateable value on the 'appropriate days', e.g. dates on which new valuation lists came into effect. If the price is above the limit, they will not meet the requirements to qualify for an extension under LRA 1967.
44
What is 'rateable value'?
An assessment of the annual rent the property would rent for it it were available to let on the open market.
45
What kinds of leases does the LRA 1967 exclude?
Business leases Agricultural leases Charitable house trusts
46
What must the tenant serve to the landlord to show interest in enfranchisement or extending the lease?
A 'desire notice' - telling the landlord of their desire to purchase the freehold or extend the lease. It must - specify the property - describe the lease - state the tenant wants to either enfranchise or extend.
47
Where in legislation does the 'desire notice' come from?
s5 LRA 1967
48
How is the desire notice protected?
By a notice on the title at HMLR if the land if registered (like as an estate contract). By a Class C (iv) land charge, if unregistered.
49
How long does the landlord have to reply to a desire notice?
2 months
50
Does the landlord have to grant the purchase of the freehold or extend the lease?
They should, unless there is some technical reason for not admitting the tenant's claim.
51
What are the two ways landlords and tenants work out how much the reversion/freehold is worth?
1. Original valuation method 2. Specialist valuation method
52
Explain the original valuation method?
For properties with a low rateable value that meet the requirements in LRA 1967. Assuming the lease would be extended beyond 50 years, the value of the reversion is much lower as the landlord would have to wait for another 50 years to sell.
53
Explain the specialist valuation method?
For expensive properties who do not meet the requirements in LRA 1967. They use detailed calculations and take into account the marriage value (the bringing together of the leasehold and freehold, increasing value).
54
What is 'marriage value'?
The bringing together of the leasehold and the freehold, thereby increasing the value of the property.
55
If one lease has 20 years left to run and the other only has 2 years left to run, which would be more expensive to buy?
The one with 2 years left to run, as the other will have to wait 20 years of only receiving ground rent until they can use the property.
56
Who will pay for the landlord's costs of administration around enfranchisement/extending the lease?
The tenant.
57
From when would the extra 50 years start on an extension of a lease?
From the original termination date - so if the extension was done 20 years before the end of the lease, it will then be 70 years long.
58
What changes will be in the terms when extending a lease?
None, apart from removing any provision for renewal or purchase of the reversion and any break clause.
59
When will any new rent come into play once the lease has been extended?
New rent will only apply after the expiry of the existing lease.
60
When could a landlord block enfranchisement?
1. Development (demolish or reconstruct) 2. Own occupation (or adult family member)
61
Can you apply to enfranchise after having extended the lease?
Yes, you can.
62
If a tenant dies after serving a desire notice for enfranchisement, how long do the PRs have to continue the application?
2 years after the grant of probate or letters of administration.
63
Which piece of legislation deals with tenants collectively acquiring the freehold of the building?
Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993)
64
Who works for tenants to collectively acquire the freehold of their building?
A nominee purchaser appointed on their behalf.
65
Does collectively acquiring the freehold of the tenants' building include the common areas?
Yes, it does, but not car-parking spaces, as they aren't used collectively.
66
What happens if there is a superior lease to the tenants' leases when trying to collectively acquire the freehold of their building?
They must also acquire any lease which is superior to their own.
67
What are the qualifying requirements under LRHUDA 1993?
1. Must consist of self-contained dwellings 2. Must contain two or more flats held by qualifying tenants 3. The no. of flats held by qualifying tenants must not be less than two-thirds of the total no. of units in the block. E.g. 30 flats in the block, at least 20 must be held by qualifying tenants. 4. The no. of qualifying + participating tenants in the enfranchisement must be at least half the total no. of units in the block. E.g. 30 flats in the block, at least 15 must be participating.
68
What is a qualifying tenant under LRHUDA 1993?
A qualifying tenant is a person who holds a long lease (exceeding 21 years)
69
What are the two exceptions to when at least half of the participating tenants are taking part in the enfranchisement?
1. If over 25% of one of the the internal floor areas is non-residential. 2. If the premises have fewer than 4 units and have a resident landlord. These mean that they won't qualify for enfranchisement.
70
Who can the nominee purchaser be?
Either the management body for the block, an RTE company (right to enfranchise) or a tenant.
71
When the tenants have acquired the freehold, do they all lose their leases?
No, LRHUDA 1993 only enables the landlord to be someone that the tenants choose, usually a management company that they all have shares in. The tenants will remain tenants under a long lease.
72
What is the first step of the nominee purchaser?
To serve an initial notice on the landlord, including the valuation of the property and all the contact details necessary.
73
How long does the landlord have to reply to an initial notice under LRHUDA 1993?
2 months
74
How should an initial notice be protected?
For unregistered land, as a Class C (iv) land charge at the Land Charges Registry. For registered land, by a notice against the property at the HMLR, like an estate contract.
75
What are the options for the landlord when replying to the initial notice under LRHUDA 1993?
1. Admit the tenant's right to enfranchise. 2. Not admit the right and explain why. 3. State that they intend to redevelop the premises (but cannot extend for their own or their adult relatives occupation)
76
If the landlord comes back with a refusal to enfranchisement, how long does the nominee purchaser have to refer the matter to the FTT?
2 months
77
What is the FTT?
First-tier Tribunal (Property Chamber)
78
Can the tenants/nominee purchaser withdraw from trying to acquire the freehold reversion of the building under LRHUDA 1993?
Yes, they can withdraw at any time before the contract is signed, but should give notice. If they don't reply to the landlord's counternotice, they will be seen to have withdrawn.
79
Where can you find the determination of price when acquiring the reversion of a tenants block under LRHUDA 1993?
Sch 6 LRHUDA 1993.
80
What 3 areas are considered in Sch 6 LRHUDA 1993 when determining the price that the nominee purchaser puts forward to the landlord?
1. The value of the freeholder's interest 2. The marriage value 3. The landlord's costs
81
When is marriage value not considered?
Where the unexpired term of any lease exceeds 80 years.
82
What is the difference between extending a lease using LRA 1967 and LRHUDA 1993?
LRA 1967: - 50 years - has a max rateable value limit - (also couldn't extend flats before LRHUDA 1993) LRHUDA 1993: - 90 years - no rateable value limit
83
Where in legislation can you find where long leaseholders have the right to extend their leases for 90 years?
s39 LRHUDA 1993
84
How does a tenant qualify to extend their lease under s39 LRHUDA 1993?
1. They must be a tenant of a flat 2. Must have a long lease 3. Must have held the lease for at least 2 years No need for resident landlord/25% non residential/fewer than 4 flats limitations, like buying the freehold.
85
What is the procedure for a tenant applying for an extension of the lease under LRHUDA 1993?
Tenant serves notice Landlord serves counternotice: - accepts - counterproposal - intend to develop if there is less than 5 years left to run on lease. If landlord refuses, they must send to FTT within two months.
86
Can the landlord refuse to grant an extension of a lease to a tenant of a flat under LRHUDA 1993 if they are doing minor redevelopment?
No, it must be a substantial job.
87
How will the price be decided for a grant of an extension on a tenant's flat under LHRUDA 1993?
1. how much freehold has fallen with grant of new lease 2. marriage value 3. cost of producing a new lease
88
What 3 rights did the LTA 1987 grant?
1. Right of pre-emption 2. Right to apply to FTT for appointment of a receiver 3. Right to collectively acquire ownership of the landlord's interest when landlord fails to comply with obligations (replaced by LRHUDA 1993)
89
What is the right of pre-emption?
No landlord may now sell the freehold without asking their tenants if they would like to buy it.
90
What does the Landlord and Tenant Act 1985 restrict?
It imposes restrictions on service charges on all dwellings. The landlord can only recover such costs as are reasonable. If costs come about by carrying out of works, they can only be recovered if the works are of a reasonable standard.
91
What is the Leasehold Reform (Ground Rent) Act 2022?
It is an act: - in force in England and Wales - that restricts ground rents to a token 'peppercorn' per year - from mid-2022. - Landlords cannot charge an administrative fee for the peppercorn ground rent.
92

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