It is often the case in collective enfranchisement claims that issues arise over communal areas. The recent appeal of The Corporation of Trinity House 2016 v 4-6 Trinity Church Square Freehold Limited [2018] EWCA Civ 764 highlights a problem concerning precarious rights over communal gardens and how these should be dealt with in collective claims.
The statutory provisions that govern what can be acquired are found in Section 1 of the 1993 Act. It allows tenants to acquire property which is not included in the relevant premises where one of two conditions apply; it is appurtenant property demised under the leases or it is property that the tenant uses in common with other tenants. In the latter case, the landlord can offer rights in lieu of the freehold. When offering rights the Landlord has to offer rights that satisfy the test in Section 1(4)(a) known as the "Equivalence Test".
There are a number of cases that have clarified how the tests in Section 1(3) and 1(4) are to be applied. In Fluss v Queensbridge Terrace Residents Limited 2011 the Upper Tribunal held it is necessary to consider what rights the tenants have at the relevant date. The decision was very much based on the actual wording of Section 1(4)(a). In Mark Cutter v Pry Ltd [2014] the UT held that if tenants are going to claim the freehold of land they enjoy rights over, the right must be used in common with other tenants at the relevant date.
The question that arose in this case is how to deal with precarious rights or rights enjoyed by the tenants that can be revoked in the future. It appears from these decisions that precarious rights will qualify under Section 1(3)(b) because it is necessary to consider the right that is enjoyed at the date of the claim as opposed to what could happen in the future.
What is less clear is how the Equivalence Test under Section 1(4) should be applied to precarious rights. If a landlord offers equivalent rights to the tenants do these have to be the same rights that they enjoy under their leases or is it necessary to look at the right they enjoyed on the relevant date and offer something more permanent? This is the question that came before the Court of Appeal.
The tenants served an Initial Notice seeking to acquire the freehold of their building and garden. Each tenant had a revocable licence to use the garden within their lease. After service of the claim the Freeholder revoked the tenants' licence to use the garden. In its counter-notice it offered the tenants a revocable licence to use the garden or such rights required to satisfy the "Equivalence Test". The question was whether the tenants were entitled to a revocable licence to use the garden or a permanent right that could not be revoked.
The claim was originally leapfrogged to the Upper Tribunal to determine this issue. The UT concluded that the freeholder was required to offer the tenants a permanent right to use the garden in order to comply with Section 1(4)(a). The UT felt that this was consistent with the underlying rationale enfranchisement. The Landlord who felt that the equivalence test was satisfied by the offer of a revocable right was given leave to appeal to the Court of Appeal.
The Court of Appeal dismissed the appeal. They felt that the language of Section 1(4) of the 1993 Act required the rights granted to be "such permanent rights as will ensure that thereafter" the occupier of the flat has "as nearly as may be the same rights as those enjoyed" under their lease. They felt Section 1(4) would not be satisfied by the grant of revocable rights, which would not be permanent.
Although it is rare for tenants to have a revocable licence to use a facility like a garden in their lease Landlords should be aware that where tenants make a collective claim they may be able to take advantage of this decision. If tenants have a revocable licence to use a garden or other communal property they will be able to seek to acquire the freehold of that property and will be entitled, at the very least, to a permanent right over that property.
Natasha Rees, Partner at Forsters
