What does the future hold for resi?

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Residential leasehold law was certainly a hot political topic in 2017, but will anything actually change? Here are predictions for what’s hot and happening in 2018 by Nicola Muir, barrister, Tanfield Chambers

Ground rents and agents

The problems of escalating ground rents and letting agents’ fees have been hitting the headlines and the Housing White Paper promises reforms to improve consumer choice and fairness in leasehold.

It has now been announced that the sale of houses on long leases will be banned and ground rents will be abolished for new-build flats and houses.

Sajid Javid has vowed to ensure that letting agents will be required to operate under a regulatory scheme.

Agents will also be awaiting the case of Wells v Devani [2016] EWCA Civ 1106; [2017] EGLR 7, due to be heard by the Supreme Court, on whether there is a contract for commission when no discussion takes place as to what will trigger it.

Long leases/enfranchisement

An ambitious Leasehold Reform Bill introduced by Justin Madders MP is due to have its second reading in February. It includes a proposal that the price leaseholders pay for their freehold should be capped at 10 times the ground rent.

While this would be great news for owners of short leases in Mayfair who would save millions, the opposition to such a reform by landlords is likely to be overwhelming.

Having said that, the Law Commission has now announced that its 13th Programme of Law Reform will include what it describes as “a ground-breaking” law reform project on residential law, which will focus on enfranchisement and the reinvigoration of commonhold. The project will last until March 2020.

Although the government has promised to make the process of buying a freehold or extending a lease much easier, faster and cheaper, I doubt anything will reach the statute book in 2018.  However, the Courts will be busy interpreting the existing law.

The case of Trustees of the Sloane Stanley Estate v Mundy [2016] UKUT 223 (LC); [2016] EGLR 38, for example, is due to be heard by the Court of Appeal in February following the Upper Tribunal’s rejection of the “Parthenia Model” as a method of calculating relativity.

Relativity is the value of the existing short lease as a percentage of its freehold value – the lower the relativity, the higher the cost of a lease extension. This gives rise to numerous disputes in the First-tier Tribunal and the outcome is eagerly awaited by leaseholders.

The Court of Appeal may take the opportunity to endorse a table of relativity in much the same way as it endorsed a fixed deferment rate set by the Upper Tribunal in Earl Cadogan and another v Sportelli [2007] EWCA Civ 1042; [2007] 1 EGLR 153.

A lot has changed in the financial world since 2007 and the deferment rates in Sportelli now look rather high.

Deferment rates are based in part on the “risk free rate”, which also determines the discount rate to be applied in the assessment of damages.

In February 2017, the Lord Chancellor exercised the power to reduce the discount rate applied under section 1 of the Damages Act 1996, from 2.5% to minus 0.75%. The Sportelli rates look ripe for a new challenge.

Another enfranchisement case due to reach the Court of Appeal this year is Hautford Ltd v Rotrust Nominees Ltd. The case concerns whether a lessor acted unreasonably in refusing consent to a lessee applying for planning permission for the change of use when that change would entitle the tenant to enfranchise.

On the service charge front, in April the Court of Appeal will consider whether a rolling management contract is a qualifying long term agreement in Corvan (Properties) Ltd v Abdel-Mahmoud [2017] UKUT 228 (LC); [2017] PLSCS 124.

Grenfell Tower

The most horrifying event of last year was the catastrophic fire at Grenfell Tower. In the aftermath of the disaster, many questions have been raised and promises made in relation to fire protection works.

The Department for Communities and Local Government issued urgent guidance requiring fire safety checks to be undertaken in respect of the external cladding materials applied to buildings more than 18m high.

While there is undoubtedly the political will to improve safety, I foresee innumerable service charge disputes around who is to pay for the work. The focus has been on local authorities but, in private blocks, the cost will have to be met by leaseholders. It may be tempting to say those nasty landlords can pay but often the landlord is a leaseholder-owned company.

The building regulations were reviewed late in 2017; what happens if recently erected cladding previously deemed compliant now needs to be replaced? Is it reasonable for lessees to pay again? If the service charge provisions don’t cover fire safety works, are they repairs which are recoverable or improvements which may not be? What if the leaseholders can’t afford to do the work?

I think there will also be an increase in the number of applications by landlords to dispense with the consultation requirements in order to carry out emergency safety works. These are likely to be granted but, of course, side-step the leaseholders’ rights to be consulted and put off to another day the question of the reasonableness of the cost.

New Housing Court

Sajid Javid recently announced that the government would consult the judiciary about establishing a new Housing Court to deliver “faster, more effective justice”.

No details have yet been provided but there have been proposals to extend the jurisdiction of the First-tier Tribunal to cover rent arrears and other disputes arising from short tenancies for some time.

The Flexible Judicial Deployment pilot scheme (which allows claims which would otherwise be shuffled between the FTT and the County Court to be heard by one judge wearing two hats) has proved successful and is likely to be expanded in 2018.

I think we will see an increase in the use of specialist judges to cover all aspects of residential property law.

This article first appeared in Estates Gazette on Friday 5th January 2018.