Whose garden is it anyway?

This article explores a recent case concerning a dispute between the landlord and the leaseholders about the use of a garden upon the purchase of the freehold by the leaseholders.

The recent case of 4-6 Trinity Church Square Freehold Ltd v The Corporation of the Trinity House of Deptford Strong [2016] relates to a collective enfranchisement claim of a block of flats in Southwark, South London, created following the conversion of three adjoining converted Georgian townhouses. Collective enfranchisement is the right under the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for at least 50% of leaseholders in a block to club together and buy the freehold, by serving a claim on the freeholder.

When considering what areas are actually acquired by the leaseholders taking part in a collective enfranchisement claim, the Act allows a freeholder the right to retain ownership of certain common areas (e.g. parking spaces, access ways, and entrances) provided instead that leaseholders acquiring the freehold are granted permanent rights over these areas on terms broadly equivalent to those enjoyed under their leases. In this case, it had been agreed between the parties that the freeholder would retain the freehold of the garden at the rear of the block, subject to the right of the leaseholders to continue to use it. However, the leaseholders had previously only been entitled to use a garden under revocable permission which could be terminated by the freeholder at any time.

The issue in dispute was whether the leaseholders’ rights to use the garden would continue to be terminable or become permanent after the transfer of the freehold. The Upper Tribunal’s decision sought to reconcile the apparent contradiction in the Act which prescribes that the rights over common areas, after the acquisition of the block’s freehold, be both permanent and equivalent to the leaseholders’ previous rights. Of course, if the leaseholders’ rights continued to be equivalent, after the transfer of the block’s freehold, then they would not be permanent. The Tribunal concluded that, for the landlord to retain the freehold of the garden the leaseholders’ rights to use the garden must be irrevocable and therefore permanent.

Takeaways from this decision

• This decision is important for leaseholders, contemplating or making a claim for the freehold, who benefit from terminable or otherwise precarious rights over any common areas serving the premises being acquired.
• Where these areas are being retained by the freeholder, leaseholders are entitled to and should seek the inclusion of permanent and irrevocable rights within the transfer of the freehold.
• Although these rights will be reflected in the price paid for the freehold, they are likely to enhance the value and marketability of the flats in the building.

This article first appeared on Lease Advice.