Real Estate

Recoverability of cost of improvement works
17 March, 2017

On 2 February 2017 the Court of Appeal heard a landlord’s appeal from the Upper Tribunal (Lands Chamber) regarding recoverability of a landlord’s costs in relation to discretionary improvement works (The London Borough of Hounslow v Waaler [2017] EWCA Civ 45).  This case will make interesting reading for landlords and leaseholders alike, not only because of the distinction which was drawn by the Court of Appeal between obligatory repair works and discretionary improvements but also for the criteria, put forward by the Upper Tribunal and now approved by the Court of Appeal, which should be applied by the landlord when considering carrying out improvement works to a building.

 

Ms Waaler lived in a block of flats on an estate in Hounslow owned by the London Borough of Hounslow (“the council”).  Approximately 140 residents in the flats were long leaseholders whose leases were created under the right-to-buy scheme (including Ms Waaler’s) and a further 850 residents were secure tenants.

 

In 2004 the council served a section 20 notice  indicating an intention to carry out major works which included replacing the wood-framed windows with metal-framed units, which in turn necessitated the replacement of the exterior cladding and the removal of underlying asbestos.  Whilst the works were to be partly paid for by government loans under the Decent Homes initiative, the council’s intention was to recover the remaining cost from leaseholders through the service charge provisions in their leases.  The works were completed in 2006, after which time Ms Waaler and the other leaseholders were each issued with a bill for £55,195.95.

 

Ms Waaler applied to the First Tier Tribunal under section 27A of the Landlord and Tenant Act 1985 for a determination of her liability to pay this service charge.

 

The First Tier Tribunal holding that the sum demanded was payable, Mr Waaler appealed to the Upper Tribunal, which was allowed.  The question for the Upper Tribunal was whether or not the costs had been reasonably incurred.

 

The Upper Tribunal (UT) held on appeal that the works to the window frames and cladding constituted improvements which the council had only a discretion, not an obligation, to carry out under the terms of the leases.  They held that, in the case of improvements, in determining whether the cost of the works was reasonable under section 19 of the Landlord and Tenant Act 1985 the appellants should have taken into account three factors:

 

  1. the extent of the interests of the leaseholders;
  2. the views of the leaseholders on the proposals; and
  3. the financial impact upon them.

 

The council appealed this decision.

 

The Court of Appeal dismissed the appeal.  They held that the purpose of section 19 of the Landlord and Tenant Act 1985 was to provide protection against costs which otherwise would have been contractually recoverable.  Whilst they were careful to point out that the same legal test applied to all categories of work falling within the definition of “service charge” of the 1985 Act, they made the point that the application of the test did not mean that the legal and factual context applicable to each category of works should be ignored.  There was a real difference between works which the landlord was obliged to carry out and, on the other hand, work which was an optional improvement.  They approved the factors applied by the Upper Tribunal.  They held that the extent of the leaseholders’ interests, measured by the unexpired term of their leases, was a relevant factor.  With regard to the views of the leaseholders, where it was exercising a discretionary power at the leaseholders’ expense, it made sense that their views should be more influential than where the landlord was simply complying with its obligations.  In terms of the financial impact of the works, they held that whilst the landlord was not obliged to investigate their financial means, they were likely to know what kinds of people were leaseholders in a particular block or on a particular estate.

 

The decision will undoubtedly not be welcomed by landlords.  Not only will the requirement to apply the criteria as set out by the court when considering improvement works impose an additional administrative burden on landlords, but the decision could lead to greater scrutiny of service charge requests and potentially more litigation on this topic in the future.


Property Crowdfunding: a savvy investment strategy? Or, is it better to stay far from the madding crowd?
24 February, 2017

So, you have reached that distant point in your life where you have saved enough cash, and you are ready to invest in something. Maybe you already own your own home and want to invest in a buy to let property, but you don’t want to have the burden of answering unsolicited midnight telephone calls from your tenants about their broken boiler. Maybe you have saved a good amount of money, but it is still not enough to fund a property purchase on your own, when the house-price-to-income ratio in the UK is at a record high. Or, perhaps you have just won £10 on a scratch card and instead of buying that bottle of wine that is beckoning you from your local off-licence, you have the oh-so-sensible thought of investing your modest winnings on bricks (or should I say, brick) and mortar… Surely that is impossible?

 

It is called property crowdfunding; the new phenomenon that is set to change the UK property market over the next decade. This is how it works:

 

  • An investment platform (usually on the internet) advertises either a.) Undervalued but high rent yielding properties in areas that have not shown significant house price growth (for example Durham, Merseyside etc.); or b.) (Removing focus from rental income) properties in regions that are predicted to have high house price growth (for example properties within the Crossrail development). The properties can be commercial or residential.
  • You invest your £10, along with other people, into your chosen property inside a specially created limited company and voila! The limited company now own the property and you are the landlord of a buy to let property.
  • You receive returns from the rental income of the property, or even a capital sum from an ownership transfer, equal to the value of your share in the limited company.
  • For a 15% fee, the management company deals with the tenants so you don’t have to deal with that broken boiler. Instead, you are free to focus your energy on making other investments – slowly building up a diverse portfolio of small property investments around the UK.
  • So, what’s the catch?

    In a world of “over phishing” and scam artists regularly trying to part you with your hard earned money, this sort of investment platform is a breeding ground for fraudsters. Therefore, do your diligence on your chosen investment platform.

    However, even with the most popular and trusted platform, remember that it takes a lot of £10 scratch card winners to buy a property together. If the platform folds, it will be administratively complex to recover your share of the property along with the other thousands of other investors. Even then, you have to sell the house in the first place to recover your share, the legal transaction process usually taking between 3 and 6 months. Liquidity has never been an advantage of owning property and especially not with so many other joint owners. In addition, the multiple person ownership of the property would not be attractive to a prospective buyer.

    You will also have no control over the selection of your tenants, nor for the amount of rent that they will be charged. The management company deals with this as well as the management of the property. This lack of control means that, potentially, an irresponsible tenant could be placed in the property which means that there may be delays in receiving your rental income, and there could be extensive repairs that have to be made to the property after the troublesome tenant has vacated.

    In addition, be careful of the investment platform’s terms and conditions. Some platforms reserve the right to borrow against the property in certain situations. This could mean that your share in the property may decrease, and there is nothing you can do about it.

    Lastly; “What are the investment platforms gaining from this?” I hear you cry.

    Aside from the management fee, there is a “finder’s fee” which is 5% of property price. Then you are charged between 15-25% of the rental yield or any final capital increase in the property. So your £10 share may be more hassle than it is worth.

    However, despite the negatives, property crowdfunding could be a credible alternative to the traditional approach of property investment. It is a growing sensation in the crowd funding world, real estate accounting for more than [1]20% in the UK crowdfunding market – so it obviously works. However, the risk of not being able to be in complete control of your investment, and the costs of making that investment, might just be enough to stuff that £10 note back in your pocket.      

 

[1] http://www.propertyweek.com/data/real-estate-crowdfunding-poses-challenge-to-market/5086716.article


The housing white paper – not worth the wait?
20 February, 2017

The government recently released the long-anticipated housing white paper, supposedly its answer to fixing the “broken housing market”.  The whole document was over 100 pages and contained many policy announcements and ideas for further consultation.  Among these, the white paper sought to provide further assistance to local authorities while at the same time strongly urging them to get their housing supply numbers in shape.  The government is promising to make the planning process quicker and less onerous for developers, but continues to penalise them for allegedly failing to develop land.

 

The effects of the policies will not be felt for quite some time in the future and professionals from across the sector are currently working out whether the white paper should be welcomed or criticised and whether it will aid the government in reaching their ambitious housing targets.

 

Read more …


Landlords’ new role as border guards
10 February, 2017

Following the obligations introduced in February 2016 on landlords to carry out ‘right to rent’ checks, the government has now introduced (from 1 December 2016) new statutory provisions to make it easier for landlords to evict illegal immigrant tenants and criminal sanctions if landlords fail to take sufficient steps to do so.

 

There are two new key methods of eviction relating to Assured Shorthold Tenancies (the most common form of tenancy in the private sector) in England:

 

  • Where all the occupiers of a property are disqualified from renting due to their immigration status, and the Secretary of State has notified the landlord of this, the landlord may terminate the tenancy agreement by giving notice in a prescribed form and giving at least 28 days’ notice.  This notice to quit is enforceable as if it were an order of the High Court.
  • Where one or more of the tenants of a property are illegal immigrants (but not necessarily all of them), and the Secretary of State has given notice to the landlord, the landlord may serve a section 8 notice specifying a new ground 7B, and giving the occupier two weeks’ notice to leave.  The ground 7B notice is a mandatory notice, meaning the court must grant an order for possession if the landlord has served the notice correctly.  It is an implied term of the tenancy that the tenancy may be brought to an end on the basis of ground 7B.

 

Landlords now face possible criminal sanctions for failing to carry out right to rent checks and/or for knowing, or having reasonable cause to know, that their property is occupied by an illegal immigrant tenant.  Landlords do, however, have a possible defence if they can show that they have taken reasonable steps to terminate the tenancy, within a reasonable time.  All in all, there are a lot of pitfalls for residential landlords to look out for in 2017!


Almshouse occupants: tenants or beneficiaries?
3 February, 2017

Just before Christmas the Court of Appeal handed down judgment which provides clarification on the status of almshouse occupants.  Almshouses provide accommodation for the elderly and/or poor and are almost always operated by almshouse charities.  The case of Watts v Stewart & Others considered whether the occupant of an almshouse was a licensee or a tenant.  If a tenant, it would be more challenging for an almshouse charity to recover possession.

 

Ms Watts’s occupation had many of the hallmarks of a tenancy.  She enjoyed exclusive occupation, paid money for that occupation (which was described in a written agreement as rent) and the written agreement under which she occupied referred to itself as a tenancy.  However, the County Court and the Court of Appeal both confirmed she was not a tenant but a licensee.  The Court of Appeal dealt with the reference to a tenancy and rent swiftly.  The trustees were lay people and as such should not be criticised for using these terms without appreciating their precise legal meaning.  No weight was therefore placed on the use of these terms in determining her status.

 

As to exclusive occupation, the Court of Appeal drew a distinction between a legal right to exclusive possession, meaning the legal right to exclude any third party from the property including the owners, and a personal right to enjoy exclusive occupation while the personal permission continued.  The former would be a hallmark of a tenancy.  However, the latter would necessarily be, and it was the latter which Ms Watts enjoyed.  The way in which almshouses work is that a person given shelter becomes a beneficiary under the trusts of the charity.  As a beneficiary, that person enjoys the privilege of exclusive occupation for so long as the charity allows.  The charity sets down the terms on which that occupation is enjoyed and if those terms are not met (for example the occupant ceases to be of need), then the permission will cease.  It would be contrary to the charitable objects of an almshouse charity if the occupation provided to beneficiaries ran beyond the point at which those conditions ceased.  Therefore, the Court of Appeal concluded an almshouse charity could not give to a beneficiary a legal right to exclusive possession and therefore could not grant a tenancy.  That position should be contrasted with that of a registered social landlord.  While such entities may have charitable status, their objects include the grant of tenancies and so the findings of the court in this case should not be seen as being of application to RSLs but it does provide reassurance to those involved in the provision of almshouse accommodation.

 

The decision in Watts followed a previous Court of Appeal decision concerning the rights of occupants of almshouses.  That earlier decision pre-dated the coming into force of the Human Rights Act and the incorporation of the ECHR into our law.  The Court of Appeal confirmed that the ECHR made no difference to their decision on status.  Convention rights were not infringed by her classification as a licensee.


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