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TA N F I E L D C H A M B E R S
property group newsletter
“2010 has started brightly for the Property Group. Yet again we have been recognised in the
recent editions of Chambers and Partners and the Legal 500. The second edition of our book
“Service Charges and Management: Law and Practice” has been published by Sweet &
Maxwell and has been well received. I am proud to have won the Real Estate Junior of the
Year at the Chambers and Partners Bar Awards. I could not have done it without the able
support of the Property Group as a whole. In this issue there are two articles from up and
coming junior members of the team and a profile of Joanne Meah, our clerk.”
Philip Rainey, Head of the Tanfield Property Group
PROTECTING OVERAGE RIGHTS
ISSUE NO 5: Winter 2010
Andrew Sheftel discusses some potential pitfalls with overage agreements and offers practical
solutions.
Overage in relation to land generally refers to a sum of money which will be payable to a seller of land
at a time after the sale and upon the happening of a specified event. It is commonly used in connection
with land which is intended to be developed, particularly when its potential value is still uncertain.
Overage can be included in a wide range of transactions from an individual selling a plot at the bottom
of their garden to a local authority selling a large site to be developed into a new housing estate.
Indeed, the former has recently become a political issue with calls to restrict ‘garden grabbing’, i.e. an
owner effectively selling part of their land to a developer.
Typically, overage often becomes payable upon the grant of planning permission, the construction of
houses or buildings, or the onward sale of developed land. The amount payable can range from a flat
sum to a percentage of the profit achieved by the seller, calculated using a mathematical formula.
Whatever the parties agree upon with regard to overage, however, it is imperative that the drafting is
clear and accurate both as to when the obligation to make payment will arise and how such payment
will be calculated. It will also be necessary to ensure that the obligation is drafted so that the buyer
cannot avoid the trigger event occurring.
However, in addition to drafting considerations, a separate issue is how the seller can protect himself
to secure the overage payment, beyond the mere contractual right which may prove worthless if the
buyer becomes insolvent and/or attempts to sell on the land without the seller’s knowledge. Indeed,
in Akasuc Enterprise Ltd & Ors v Farmar & Shirreff (a firm) [2003] EWHC 1275 (Ch), the
defendant firm was negligent in failing to incorporate an appropriate mechanism to protect an
overage payment.
PROTECTING OVERAGE
RIGHTS
ACQUIRING FREEHOLDS
WHEN LANDLORDS ARE
MISSING
continued overleaf
W W W. T A N F I E L D C H A M B E R S . C O . U K

our authors
It is not sufficient simply to rely on a covenant between the original
parties – if the land is sold prior to the overage trigger event occurring
there will be no privity of contract between the respective owners
when the condition is eventually satisfied. Moreover, the burden of a
positive covenant does not run with the land at law or in equity (unlike
the burden of restrictive (i.e. negative) covenants which can run in
equity to bind a buyer). The fact that a subsequent buyer knew of the
covenant does not mean that he is bound by its provisions if it is a
positive covenant. Courts will look at the substance rather than the
form of a covenant in order to determine whether it is positive or
negative. Generally, covenants requiring expenditure of money for
their performance are positive in nature (e.g. Austerberry
Corporation v Oldham (1885) 29 ChD 750). Express obligations to
pay overage are therefore generally regarded as positive.
Accordingly, where an obligation to pay overage is contained in a
positive covenant, it must be supported by some other legal device.
One of the most common ways to protect a positive overage covenant
is to ensure that the buyer also covenants to ensure that its successors
in title will enter into a similar commitment to the seller. A restriction
is then placed against the buyer’s title preventing any dealing with the
land without the consent of the seller. This method of protecting
overage rights has the benefit of being simple and cost effective as a
standard form restriction can be used (Form N is the one most often
used for overage). The use of a restriction to secure overage obligations
is in wide use. However, where the land is to be purchased by way of
mortgage, the co-operation of the bank will be required.
Many different techniques have been developed to protect overage and
it is necessary to give consideration to the risks involved and what may
or may not be appropriate depending on the nature of transaction and
the parties thereto. For example, another form of possible protection is
the use of a ransom strip of land, which would be retained by the seller
so as to prevent development until the overage is paid. However, this
would not be applicable where the buyer has an alternative means of
access. An alternative mechanism is for the seller to take a charge over
the land to secure the future overage payment. However, this will not
usually be appropriate if the land is to be purchased with the aid of a
mortgage as the bank may insist upon having a sole legal mortgage
over the land. A lender may allow the seller to take a second mortgage
over the land but the lender will want to ensure that its mortgage takes
priority.
The seller could impose a restrictive covenant on the land, for example
a covenant not to build or develop the land. It should be noted that
attempting to rely on a simple restrictive covenant, without reference
to money, could cause its own problems. Use of this device requires
that the seller retain some land as there must be some land with the
benefit of the restrictive covenant. Under section 84(1)(aa) of the Law
of Property Act 1925 the Lands Tribunal (Upper Tribunal) has powers
to vary and/or release restrictive covenants where the covenant
prevents “some reasonable user” of the land for public or private
purposes. Moreover, compensation payable for variation or discharge
of such a covenant would be determined by reference to the “loss or
disadvantage” suffered by the discharge or variation – i.e. essentially
the diminution in value of the land that had benefited from the
covenant, rather than the development value of the developed land.
In summary, where the parties have agreed that overage provisions
will form part of a sale, practitioners must ensure that the sale
agreement is drafted clearly so as to address the issues of when
overage will be payable (the trigger event) and how much it will be (the
method of calculation). It is also vital to consider how best to secure the
overage obligation and which legal device is most suitable for the
particular transaction.
Andrew Sheftel
TC
ACQUIRING FREEHOLD
ARE MISSING
Cecily Crampin considers the options open to long leaseholders
When leases are long with little reversionary interest and ground rent is
low, it is not uncommon for landlords to go missing leaving properties in
an increasing state of disrepair. An obvious solution is for the lessees to
acquire the freehold. Advisors for lessees in situations such as these may
suggest collective enfranchisement using the missing landlord procedure.
This article suggests that an acquisition order should be considered as an
alternative route.
Acquisition orders, made by the county court under the Landlord and
Tenant Act 1987 (“LTA”) are often thought of as a second stage to the
court’s power to appoint a manager for premises. However, an acquisition
order can be made, even when there has been no such manager, if the
landlord is in breach of an obligation to the tenants that relates to the
management of the premises, and that breach is likely to continue. It is
this provision, s29(2) of the LTA, which assists where the landlord cannot
be found, since a landlord who cannot be traced will likely be in breach of
any covenants to repair, maintain, improve and insure the premises.
Tracing the landlord
Both applications for acquisition orders and claims for collective
enfranchisement usually start when the qualifying tenants issue a notice
to the landlord, the preliminary notice for acquisition orders and the
initial notice for enfranchisement. For both, the relevant statute sets out
what tenants should do if the landlord cannot be traced. The
requirements are similar.
Section 26 of the Leasehold Reform, Housing and Urban Development Act
1993 (“LRHUDA”) governs missing landlords in enfranchisement. Where
neither the freeholder nor any intermediate landlords can be found, the
tenants should apply to the county court for a vesting order. For
acquisition orders, an application under s27 of the LTA to dispense with
service of the preliminary notice must be made, as well as the application
for an acquisition order.
In both cases, the court may require the tenants to take further steps to
trace the landlord. No statutory suggestions are made for acquisition
orders, but the requirements are likely to be similar to those for
enfranchisement, in which advertisement is specifically mentioned
(LRHUDA s26(5)). In both cases, tenants should check the Land Register,
the electoral roll and the register of deaths, and consider advertising in
local and national papers.
Qualifying tenants and qualifying premises
The qualification requirements for acquisition orders are very similar to
those for collective enfranchisement. In both cases, qualifying tenants
W W W. TA N F I E L D C H A M B E R S . C O . U K

Cecily Crampin
Cecily Crampin joined Chambers in September
2009 after successful completion of her
pupillage, and is building her practice within
the property group.
She has been instructed in a negligence claim
relating to an application for the right to
manage, and has advised in relation to enfranchisement and
acquisition orders. She is a contributor to the second edition of
Chambers’ book on Service Charges and Management: Law and
Practice.
Outside work Cecily enjoys singing, and recently sang the role of First
Witch in a very amateur concert performance of Purcell’s Dido and
Aeneas.
Andrew Sheftel
Since becoming a tenant in 2005, Andrew
has gained wide experience in propertyrelated
work. He is instructed in all areas of
landlord and tenant, both residential and
commercial, and appears before both the
courts and the LVT.
In addition, Andrew is regularly instructed to advise on issues of
real property. He is also a contributor to the second edition of
Service Charges and Management: Law and Practice.
Outside work, Andrew has temporarily abandoned his other
interests to spend as much time as possible with his newborn son.
S WHEN LANDLORDS
when their landlords go missing.
must have leases longer than 21 years (LRHUDA s7(1) and LTA s59(3)),
and they must hold at least two thirds of the total number of flats
(LRHUDA s3(1) and LTA s25(2)), with two thirds of the qualifying tenants
wishing to participate in the process (LRHUDA s26(1) and LTA s28(1)).
Enfranchisement requires the premises to be self-contained (LRHUDA s3)
whereas an acquisition order may be obtained in relation to “the whole or
part of a building” (LTA s25(2)). An acquisition order cannot be made
where more than 50% of the internal floor area of the premises is
occupied for non-residential purposes (LTA s25(4)). There is a similar
requirement for enfranchisement, but the non-residential percentage
floor area is 25% (LRHUDA s4(1)). Thus the acquisition order route might
allow tenants to acquire their freehold when enfranchisement is
excluded.
Advantages of acquisition orders
The missing landlord procedure for collective enfranchisement gives
tenants a method of bypassing the initial notice when the landlord cannot
be found. If the application is successful, the county court makes a vesting
order, meaning in this case that the court will appoint a district judge to
convey the premises to a purchaser nominated by the tenants on the
payment into court of the price (LRHUDA s27(3)). The terms of the
conveyance and the price are determined by a Leasehold Valuation
Tribunal, however (s27). The price for the landlord’s interest is
determined on the usual basis for enfranchisement (s27(5)), and hence
will include marriage value. The tenants will have to pay any recoverable
outstanding rent or service charges too.
An application for an acquisition order where the landlord is missing
involves a completely different procedure. The court makes a vesting
order under s33 of LTA. This time, however, the terms of acquisition and
the conveyance are determined by the court and there is no need for a
conveyance. Under s33(3), the freehold vests in the nominated person on
payment into court of the price determined.
Furthermore, for an acquisition order there is no need for a reference to
the LVT. The price to be paid for the landlord’s interest is certified by a
surveyor appointed by the President of the Lands Tribunal (s33(2) of the
LTA), and is calculated on the assumption that none of the tenants of the
premises are seeking to buy. The price should not include marriage value,
which gives the acquisition order route an immediate advantage for
tenants with 80 years or less unexpired term. Note that the price will
include recoverable rent as above.
The acquisition order route is likely to be cheaper in relation to costs too
since it requires determination of the price by a surveyor without a
hearing, rather than representation before an LVT. Perhaps more
significantly, if an acquisition order is granted, an application to the court
for the tenant’s costs may be successful. Since acquisition orders are
designed to remedy wrongs to tenants by their landlord, a court might
award costs against the landlord to be set off against the money to be paid
into court. Such costs were awarded in Gray v Standard Home &
Counties Properties Ltd [1994] 1 EGLR 119 (although that was not a
missing landlord case).
If the landlord is missing in an enfranchisement case, a court might
similarly award the costs of the application for a vesting order against the
landlord because of the landlord’s failure to maintain a good address for
service of notices on him under s48 of the LTA. The costs in the LVT,
however, would not be recoverable; the costs of the surveyor in the Lands
Tribunal for an acquisition order might well be.
Conclusion
Collective enfranchisement has one obvious advantage over acquisition
orders. Once the court is satisfied that the tenants qualify for
enfranchisement and that the landlord is missing, it has no discretion; the
tenants have the right to acquire the freehold. The procedure for
obtaining an acquisition order is discretionary, however. Even if the
tenants and premises qualify, and the landlord has been in breach of
management obligations, the court could decide not to make an
acquisition order at all, preferring instead, for example, to order the
appointment of a manager. It seems likely, however, that the long term
absence of a landlord, for example a long standing failure to insure the
property, should be sufficient. If a landlord has all but abandoned the
property, there seems little reason why the tenants’ acquisition of the
freehold is not the appropriate solution.
Cecily Crampin
W W W. TA N F I E L D C H A M B E R S . C O . U K

Joanne meah
Tanfield Chambers welcomed Joanne in
2008 as Chambers Property Clerk. She
started clerking in 2004 and passed the
Institute of Barristers Clerks (IBC) BTEC
course in 2006. She is also a member of the
IBC.
Joanne’s approachable style and “can do” attitude along with a
flexible yet thorough manner when dealing with fees is appreciated
by clients who often sing her praises.
In her spare time Joanne is a keen runner and enjoys socialising
with family and friends.
property barristers:
Geraint Jones QC (1976)
David Berkley QC (1979)
Paul Staddon (1976)
Mark Dencer (1978)
David Daly (1979)
Christopher Coney (1979)
Charles Joseph (1980)
Mark Loveday (1986)
Michael Buckpitt (1988)
Philip Rainey (1990)
Phillip Aliker (1990)
Nicholas Isaac (1993)
Andrew Butler (1993)
Stan Gallagher (1994)
Christopher Heather (1995)
Timothy Polli (1997)
James Fieldsend (1997)
Alejandra Hormaeche (1998)
Marc Glover (1999)
Ellodie Gibbons (1999)
Adrian Carr (1999)
Carl Fain (2001)
Tom Carpenter-Leitch (2002)
Tim Hammond (2003)
Amanda Gourlay (2004)
Andrew Sheftel (2004)
Louise Mankau (2005)
Paul Stevenson (2006)
Gemma de Cordova (2006)
Cecily Crampin (2008)
For further information or to instruct a barrister, please contact
Joanne Price, Property Clerk or Kevin Moore, Senior Clerk, on
T: +44 (0) 20 7421 5300 or E: clerks@tanfieldchambers.co.uk
Tanfield Chambers’ dedicated conference facilities are readily accessible
by the mobility-impaired. Please contact the clerks to agree fees in
advance, whether on a fixed or hourly rate. Feedback on our service is
welcomed and should be directed to the Senior Clerk, Kevin Moore. A
copy of Chambers Complaints’ Procedure is available on our website or
on request.
To contact us: T: +44 (0) 20 7421 5300, F: +44 (0) 20 7421 5333, DX: 46 London Chancery Lane, E: clerks@tanfieldchambers.co.uk
Address: Tanfield Chambers, 2-5 Warwick Court, London, WC1R 5DJ