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Lease to family – not a relevant disposal

Under s1(1) LTA 1987 L shall not make a ‘relevant disposal affecting any premises to which at the time of the disposal this Part applies’ unless it has previously served notice in accordance with s5 on ‘the qualifying tenants of the flats contained in those premises’ and the disposal is made in accordance with the requirements of ss6-10. The 1987 Act gives ‘leaseholders of residential flats in a block of flats improved rights to control the upkeep and maintenance of the block as a whole, by conferring on Ts a right of first refusal when L is proposing to dispose of his reversion’.

The HC has recently considered these provisions. York House is a purpose-built block of 42 flats in Chelsea comprising a basement, ground floor and eight upper floors. The development potential is significant. The freehold is owned by the defendants. 41 of the flats are demised on long leases – some of the long lessees were planning to claim the freehold under LRHUDA 1993. The defendants were concerned that the price payable under the 1993 Act would not properly reflect the development value. Accordingly, the defendants granted 14 leases of various parts of York House and the surrounding area to one or other of themselves. There was no premium payable and the rent reserved was a peppercorn.

The defendants did not serve the s5 notices on the qualifying Ts under LTA 1987 prior to granting the 14 leases. It was accepted that LTA 1987 applied to York House but HC had to determine whether the long leases created by the defendants were ‘relevant disposals’ which would give the claimants the right to acquire the leases.

The claimants came up with an ingenious argument – that the creation of a new tenancy could not constitute a ‘gift’ because the grant of a lease necessarily entails the tenant incurring contractual obligations towards L, sufficient to constitute consideration, which prevents the grant of the lease from constituting a gift. Even where a lease contains no express tenant’s covenants, at least some will be implied. The HC did not accept this argument and held that the 14 leases were ‘gifts to a member of L’s family’ and, as such, were not ‘relevant disposals’ so no s5 notices were required and the claimant could not compel the defendants to transfer the leases under the 1987 Act. See York House v Thompson [2019] EWHC 2203 (Ch) and reported on www.bailii.org.

 

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