The Law Commission’s 13th Programme of Law Reform – PLA proposals (Oct 2016)

 

The Law Commission’s 13th Programme of Law Reform
Proposals submitted on behalf of the Property Litigation Association

16 October 2016

What follows was  prepared by the Law Reform  Committee of the Property Litigation Association (PLA) with the benefit of contributions from the wider  membership. Some of the proposals are fundamental and/or wide ranging whilst others relate to more discrete areas of legislation and cause difficulties for those we represent.

Landlord and Tenant (Covenants) Act 1995

It is considered that this piece of legislation is most in need of urgent reform.  Problems arising as a result of the way in which the anti-avoidance provisions of the 1995 Act have been construed in recent cases are explained and proposed amendments to address them  are set out in a detailed briefing note prepared on behalf of the PLA for the Department of Communities and  Local Government dated 18″‘ May.  Reference should be made to this document a copy of which can be found here.

Leasehold  Enfranchisement

We have read and considered the paper submitted to you by Damian Greenish, one of the editors of Hague.  His detailed  review of the relevant legislation (principally the Leasehold  Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993) identifies errors, omissions and anomalies both within each statute and in the relationship between them.

Piecemeal and ill-considered reform and amendment over many years has resulted in unnecessary complexity and continuing litigation.  Further amendment will only add to the problems  identified. Accordingly we support his call for the replacement of this legislation by a new statute providing universal  rights of enfranchisement covering all  residential  property with a single procedure and a single valuation  regime.

Landlord and Tenant Act 1987, Section 2 – Right of First Refusal

This statute  has been widely and correctly criticised for its poor drafting. A specific issue that has caused problems  is the lack of a definition of what is meant by a “building” for the purpose of exercising the right of first refusal  in cases where the premises are  part of an estate comprised of several  buildings.  This was last considered  in the case of Long Acre Securities Ltd v Karet (2004) EWHC 442 but the decision has served only to cause further problems rather than much needed clarification.

Although specific issues, such as the one referred to above, could be addressed  by amendment a more  radical solution should be considered.  If the proposal relating to enfranchisement Is adopted, or perhaps in any event, given the extensive enfranchisement rights that tenants of residential premises now have as well as the right, collectively, to acquire the right to manage them  under the provisions of the Commonhold and  Leasehold  Reform Act 2002, there would  seem to be little need to preserve the right of first refusal conferred by this unsatisfactory Act.


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ommonhold and Leasehold Reform Act 2002, Part 2 Chapter 1 – Right to Manage

We would  welcome the amendment of the above statute so as to clarify that, once the right to manage is acquired, the RTM  company  becomes the “Responsible  Person” in  respect of compliance with  Health  & Safety/Fire Safety legislation  in the premises and  is the entity that should  be the subject of any enforcement proceedings,  not the freeholder, even though the freeholder remains the legal owner.

Similarly, with  regard to planning/listed  building consents, responsibility for compliance should  be upon the RTM company and any necessary enforcement action taken against the RTM  company. Once RTM  has been acquired the freeholder is  unable to enforce the management covenants in the lease and powerless to ensure compliance.


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andlord and Tenant Act 1985, Section 20 – Consultation Requirements

Our first proposal  regarding the above is specific and seeks to address a  practical problem arising from the Upper Tribunal’s decision in Foundling Court v London Borough of Camden [2016]  UKUT366 which  imposes a duty upon head  landlords to consult with sub-tenants as well as with their direct tenants when they are contemplating major works or entering into qualifying long term agreements.

It would  be helpful to include, by amendment, a right on the part of the head  landlord to give notice to its tenant requiring details of the subtenants with whom  it has to consult and an obligation  upon the tenant to provide such information within a specific time  period.

More generally, consideration should be given to relaxing the consultation  requirements where the landlord is a company owned  by the leaseholders of the building. The cost and complexity of complying with section 20 is becoming an  unnecessary burden  upon such entities.


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aw of property Act 1925 Section 121 – Rentcharges

The recent decision of the  Upper Tribunal  in Roberts v Lawton (2016]  UKUT 395 has drawn attention to the problems that can arise with a property that is subject to a  rentcharge.  Rentcharges typically raise modest sums  per property and are payable whether or not they have been demanded.

Where  rentcharges are unpaid, a  rentcharge owner is entitled to grant a  long lease of the relevant property to trustees for the purpose of raising income to cover the arrears and the costs referable to both the non-payment and the grant of the rentcharge lease.  In Roberts such costs considerably outweighed the arrears.  The rentcharge lease can be protected  by registration thus  making the property unsaleable  until  payment Is made.

The Upper Tribunal,  with some reluctance, found that this was lawful.

Although the Rentcharges Act 1977 will abolish existing rentcharges in 2037 it is possible that the result in Roberts will encourage others to follow  a  similar business model in the interim. Sensible reform could  involve  making the right to recover (and the registration  of a  rentcharge  lease) conditional on a  demand having been properly  made. The demand should set out required information alerting the property owner of the statutory right of redemption.


O
ptions

A great deal of case law has developed  in  recent years concerning the construction of break options in  leases and continues to be fraught with traps for those seeking to exercise one. When parties agree to the inclusion of an option in a contract they do so in the knowledge that is may be exercised. To allow one party to renege on an  agreement based on technical breaches which cause no prejudice  results in  unfairness.  It seems to us to be wrong  in principle that in some cases even trivial  non- compliance with the requirements of a break clause should deprive a party of a valuable right; the case of Siemens Hearing Instruments v Friends Life (2014] 2 P&CR 5 is an example.

Contractual freedom is already constrained  by statute in a  number of respects eg Contracts (Rights of Third  Parties) Act 1995 and, as mentioned above, the Landlord and Tenant (Covenants) Act 1995. Our proposal is that any reform would  be limited to contractual options and would, in substance confer on the courts a  discretion to grant relief where the  non-compliance  has caused no material prejudice is suffered to the party seeking to enforce and even,  perhaps, a rebuttable presumption of compliance  by the party exercising the option.

Property Litigation Association
31 October 2016

Postscript:   The Law Commission has confirmed that the PLA proposals, with the exception of the proposals on Options,  have been selected for the 13th Programme of Law Reform.  (Although the email suggests that the 13th Programme will be published in July 2017, we understand that the timetable has slipped.)  To view the letter from the Law Commission click here

For more information about the 13th Programme of Law Reform visit the Law Commission website here.

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