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Qualifying Leases: Before You Buy

4th July 2023

Richard Miller looks at what the BSA defines as “qualifying leases”.

Most of the protections for leaseholders of flats in relevant buildings in Part 5 and Schedule 8 of the Building Safety Act 2022 (“the BSA”) are predicated upon the lease being a “qualifying lease”; that is, a lease which satisfies the conditions of section 119. Unfortunately, the definition of “qualifying lease” interacts poorly with other laws regulating landlord and tenant relationships and has the potential to create disputes which are evidentially difficult to resolve.

In particular, leaseholders thinking of obtaining a new lease under Part I, Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) and prospective purchasers of long leases in relevant dwellings should consider the provisions of section 119 to ensure that their lease qualifies for protection.

Section 119(2) states:

A lease is a “qualifying lease” if—

(a) it is a long lease of a single dwelling in a relevant building,

(b) the tenant under the lease is liable to pay a service charge,

(c) the lease was granted before 14 February 2022 [“Condition C”], and

(d) at the beginning of 14 February 2022 (“the qualifying time”)—

(i) the dwelling was a relevant tenant’s only or principal home,

(ii) a relevant tenant did not own any other dwelling in the United Kingdom, or

(iii) a relevant tenant owned no more than two dwellings in the United Kingdom apart from their interest under the lease [“Condition D”]

Condition C

The Government decided to fix the “qualifying time” at 14 February 2022 to give certainty to parties and prevent unscrupulous landlords from avoiding the provisions of the BSA. To quote the Explanatory Note, §948, “the choice of qualifying time means that the provisions could not be manipulated or preemptively avoided”. This has had unintended consequences.

The procedure for obtaining a new lease pursuant to Part I, Chapter II of the 1993 Act involves surrender of the existing lease and the grant of a new. Accordingly, exercising the right to obtain a new lease after 14 February 2022 will deprive the leaseholder of the protections in the Act.

The Government has accepted that this is a problem and has promised to legislate. In the meantime, according to Guidance: Qualifying Date, Qualifying Lease and Extent, last updated 21 April 2023, they expect landlords and tenants to reach agreement about the applicability of the BSA to new leases.

While such an agreement may be possible under section 57(6), there is no reason why a landlord would submit to Schedule 8 for nothing in return. If their landlord does not agree, the lessee’s options seem to be limited. Under section 57(6), a lessee may unilaterally request that an existing term may be “excluded or modified”. Case law is not currently clear whether this is wide enough to permit the addition of a term, such that Schedule 8 of the BSA could be incorporated.

Condition D

The sub-condition likely to cause most difficulty is “(i) the dwelling was a relevant tenant’s only or principal home.”

In Schedule 8, Paragraph 13 of the BSA, landlords are required to take all reasonable steps to obtain a qualifying lease certificate from the lessee, failing which the lease will be deemed to be qualifying. It is likely that, if they do obtain such a certificate, the landlord would be able to challenge an assertion of occupation as only or principal home. This is because, if the certificate were conclusive proof, the landlord would be in no better position having taken the steps than if they had not taken them.

Thus, it is to be expected that there will be disputes about whether a lessee occupied a flat as their only or principal home. The phrase is a familiar one to landlord and tenant lawyers, having featured in section 81 of the Housing Act 1985 and section 1(1)(b) of the Housing Act 1988. Case law on those provisions will assist.

The test is objective. Continuous physical presence is not necessary, but the person must have an outward intention to return (Crawley B.C. v Sawyer (1987) 20 H.L.R. 98). Where a person has been absent for some time, they must prove that they continue to occupy as their only or principal home. Relevant factors include the length of, reason for, and anticipated duration of the absence and the conduct of the lessee (Islington London Borough Council v Boyle [2011] EWCA Civ 1450).

The difficulty with Condition D is that, were a person to purchase a lease where sub-condition (i) were in doubt, a future dispute arising potentially years later would have to be resolved on the evidence of the predecessor-in-title as at 14 February 2022. It is an obliging predecessor-in-title who would give evidence for the pure financial benefit of their successor, and that is assuming they could be traced. Conveyancers may be encouraged obtain statements before purchase which clarify the quality of the current occupation in order to minimise the chance of a potential dispute years later.

 

This article first appeared in Property Law UK in July 2023. 

Expertise: Commercial Landlord & Tenant, Residential Landlord & Tenant, Building Developments & Construction

Disclaimer

This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/ or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

 

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