Judgement Clarifies Collective Enfranchisement for Landlords

A judgement from the Court of Appeal has offered clarification on collective enfranchisement rules for landlords and...

A judgement from the Court of Appeal has offered clarification on collective enfranchisement rules for landlords and lenders in the UK. Previously the valuation of real estate subject to the claim of collective enfranchisement was unclear, but law firm Walker Morris has successfully defended a plea on behalf of Vowden Investments Limited that has defined the issue.

The case involved the administration of Vowden Investments Limited, which owned a number of prime residential properties in central London. When the company was placed in administration, it was faced with a claim for collective enfranchisement on a four-storey townhouse in the capital that had been divided into three self-contained flats.

The top floor flat was held in a 125-year lease by Vowden but the tenants of the other two flats, via a nominee company Cravecrest Limited, acquired the freehold interest of the building, including any intermediary leases. The structure of the leases meant Vowden's lease was an overriding interest capable of being acquired. However, dispute arose over the valuation of these intermediary leases.

Walker Morris asked the Court of Appeal to determine whether the potential increase in value - agreed to be GBP 2 million - and the potential to develop the roof space as a fourth floor should be reflected in the price paid to Vowden. Cravecrest believed it shouldn't but Vowden was adamant it should.

Timothy Dutton, instructed by Walker Morris, managed to convince the Court of Appeal that the relevant statute does allow Vowden to benefit from the development value of the property, resulting in a final valuation of GBP 6.85 million. From this sum, GBP 3.15 million will be paid to the administrators of Vowden.

Simon Clark from Walker Morris said: "The particular circumstances of this case are unusual in that it involved an overriding leasehold interest, owned by an insolvent entity, that was capable of being acquired, and secondly, that considerable development value existed which had a significant impact on the overall price to be paid. The judgement is of interest to residential landlords, and their lenders, whose properties may be affected by a claim of collective enfranchisement."

- Tuesday 20 August 2013

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