Rights of first refusal: new leases granted by landlord before a collective enfranchisement claim were exempt disposals

27 Sep 2019

In York House (Chelsea) Ltd v Thompson and another [2019] EWHC 2203 (Ch), the High Court held that the grant of new leases of various parts of a block of flats for no premium and at a peppercorn rent, by the husband and wife freehold owners to one or other of themselves, was an exempt disposal.

In order to preserve the development value in various parts of the premises and also to frustrate a prospective collective enfranchisement claim by the tenants, the landlords granted fourteen leases to one or other of themselves of various corridors, airspace, courtyards and other parts of a block of forty-two flats in Chelsea. No premium was paid, and the rent was a peppercorn in each case. 

Section 5 notices offering the tenants a right of first refusal under the Landlord and Tenant Act 1987 were not served.

A number of tenants subsequently initiated a claim for collective enfranchisement to acquire the freehold of the block and sought an order that the Leases be transferred to them.

There were a number of issues, including whether the leases fell within the exemptions for transfers by joint owners or gifts to a family member.

The High Court held that the granting of the leases constituted a gift to a member of the landlord’s family and were not a relevant disposal, therefore being exempt from the procedural requirements under the Landlord and Tenant Act 1987. Section 5 notices had not been necessary and the tenants could not compel a transfer of the leases to themselves. The motivation behind the grant of the leases was not relevant.

Where a collective enfranchisement claim is possible or expected, landlords are keen to try to ringfence development opportunities for their own future benefit. This decision shows that it is possible to take certain measures without triggering the right of first refusal.

It is important for landlords to remember however that any such leases may still nevertheless be liable to acquisition by the tenants as part of a collective enfranchisement claim (see, for example, LM Homes Ltd and others v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC) from my blog here)

If you require advice on collective enfranchisement, please do not hesitate to contact our Enfranchisement Department and we will be happy to help.

Simon Tennant

Sayrha Elahi

Associate Solicitor

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