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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
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