House of Lords ruling announced today will have serious ramifications for landlords

The House of Lords has dealt another blow to owners of residential or mixed use buildings following its decision today in the case of Les Aggio and Others v Howard de Walden Estates Limited and 26 Cadogan Square Limited v The Earl of Cadogan and Cadogan Estates Limited.

In May 2007, two of the largest family owned London estates, the Howard de Walden Estate and the Cadogan Estate, joined forces to secure a victory in the Court of Appeal preventing leasehold owners of buildings which include flats from claiming new leases of those flats under the Leasehold Reform, Housing and Urban Development Act 1993.

When the 1993 Act was first introduced, anyone seeking to extend his lease by 90 years had to be an individual who had owned and lived in the flat for a certain period of time. That requirement to live in the flat was abolished in 2002 so that companies and property investors could also claim 90 year lease extensions. As a result of this, leasehold owners of buildings which include flats have been attempting to take advantage of the change to claim lease extensions, so far unsuccessfully.

The Court of Appeal decision was appealed to the House of Lords in May 2008 and their decision was given today. The House of Lords disagreed with the Court of Appeal and ruled that the leasehold owner of a building, such as a block of flats or a converted house, could exercise rights under the 1993 Act and claim new leases of individual flats which they owned in the building, even though leases of those flats did not actually exist and would need to be drafted from scratch. The House of Lords’ view was that there was nothing in the legislation to prevent this, even though the leasehold owner of a building also owned the common parts and other property in addition to the flat.

Lord Neuberger, in the leading speech, dismissed the obvious practical difficulties which would then result, such as deciding what terms should be included in the lease, what rights should be given over the common parts, how rent should be split between the existing lease and the new lease and even the extent of the flat for which the new lease was being claimed. His view was that these could be resolved, if not between landlord and tenant, then by the Leasehold Valuation Tribunal (LVT).

Rachel Morrish, Property Litigation solicitor at Speechly Bircham, the law firm which acted for Howard de Walden Estates, comments: “The decision will leave landlords and their professional advisers, and ultimately the already overburdened LVT, to resolve these practical difficulties with little or no guidance from the legislation. Whilst the 1993 Act may not prevent a leasehold owner of a building from claiming new leases, it certainly appears not to have anticipated it and so there are no provisions for how this might actually work.”

Jeremy Hudson, Property Litigation Partner at Speechly Bircham, comments: “When Parliament repealed the residency qualification in 2002, several anomalies in the legislation arose, which the Courts are gradually ironing out. Whilst it is useful to have clarification of the enfranchisement rights of leasehold owners of buildings, it is surprising that the House of Lords should have been so sanguine about the ability of landlords, tenants and Tribunals to resolve practical difficulties which would inevitably arise on these claims”.