Earlier this summer Mark Loveday of Tanfield Chambers was successful in the Court of Appeal on a key point which could affect hundreds of thousands of existing shared ownership lessees and more in the future.
The case of Avon Ground Rents v Canary Gateway concerned the lessees of Canary Gateway and their lengthy attempt to take over the management of their building using the Right to Manage process. They started their claim in 2019 pre covid and several First Tier Tribunal and Upper Tribunal decisions later found themselves in the Court of Appeal on this specific point.
Avon Ground Rents argued that twelve of the leaseholders who were taking part did not qualify because they had not staircased their leases to 100%. The Court of Appeal disagreed with Avon Ground Rents and preferred Mr Loveday’s evidence on behalf of the leaseholders. They said “Tenants who have long shared ownership leases who have not staircased to 100% will still have an obvious interest in how the premises are managed, the more so since they will typically pay full service charges. That being so, Parliament might have been expected to have intended them to be able to participate in management issues”.
This was good news for Canary Gateway and meant that they could go on to take over the Right to Manage and will undoubtedly be good news for other blocks where there are shared ownership flats who might not otherwise have had enough participants to take over the management.
There are wider implications however because the wording of the Commonhold and Leasehold Reform Act 2002 which defines a “long lease” is identical to that of the Leasehold Reform Housing and Urban Development Act 1993 which governs lease extensions and collective enfranchisement meaning that those lessees will also be able to extend their leases or join in a collective claim.
Lease extension implications
This may not be the boon that it appears to be for those leaseholders who have not staircased as the requirement that the extended lease be at a peppercorn rent implies that they would have to staircase to 100% as part of the extension which they may not be able to afford to do.
Unless the leaseholder’s (intermediate) landlord is a Charitable Housing Trust which provides the property pursuant to its charitable purposes the leaseholder rather than their registered social landlord has the benefit of the right to an extended lease and so their landlord cannot help the leaseholder by extending their own lease and then extending the shared ownership leaseholder’s lease on terms that maintain the share of equity.
So some shared ownership leaseholders may be unable to force an extension of their lease without staircasing simultaneously and this may in practice prevent them from being able to proceed. Their only option then would be to negotiate as best they can.
Potential Reform
If the Government implements the recommendations made in the Law Commission’s report of 21 July 2020, “Leasehold home ownership: buying your freehold or extending your lease” this will improve leaseholders’ position when extending but deteriorate as regards collective freehold acquisition as:
- For lease extensions the share of equity will not have to be staircased when extending - the premium payable will reflect this.
- Leaseholders with less than 100% equity will not count as qualifying tenants for the purpose of collective enfranchisement – so enfranchising collectively in blocks containing some non-staircased shared ownership leaseholders may become more difficult to achieve.
Conclusion
Leaseholders will be pleased to see clarification that they can participate in collective claims around management or acquiring the freehold.
They may however be surprised to find that in some cases they do not have the right to claim a lease extension and that, where they do, they may have to staircase up to 100% as part of the extension which may not be affordable.
While the potential reforms gives a resolution to that issue for leaseholders it takes away with the other hand by removing the right to participate in collective claims. We will have to watch this space to see what form the reforms take if they are introduced at all.
Mark Vinall & Jane Canham
