Property Development: Whether a landlord should have offered qualifying tenants a right of first refusal when granting leases of roof space (S Franses Ltd and another v Block 6 Ashley Gardens Roof Gardens Ltd and others – 2023)
Where a landlord grants leases over the roof space in a building, did other leaseholders in the building enjoy a right of first refusal to acquire the leases themselves?
The background
S Franses Ltd and another v Block 6 Ashley Gardens Roof Gardens Ltd and others [2023] concerned a building containing residential flats. The leaseholders of flats on the top floor were granted leases of the roof spaces above their demises, but notices were not served under s.5 of the Landlord and Tenant Act 1987, which granted qualifying tenants a right of first refusal.
Roof space leases were granted for a nominal premium in 2012, but required the leaseholders to contribute £100,000 towards works to be undertaken to common parts and to carry out roof repairs. The leaseholders wished to create roof gardens for their flats rather than carry out repairs.
Qualifying tenants in the building served notices under s.12B of the LTA 1987, and then s.19 LTA 1987 default notices, requiring the top floor leaseholders to transfer the roof space leases to them for the same nominal premium. The default notices were served on the top floor leaseholders whom the qualifying tenants alleged were in default, requiring them to make good the default within 14 days. Finding that the default notices were valid, the court at first instance ordered that the leases were transferred to the qualifying tenants at a premium to include the costs of the works.
The top floor leaseholders appealed, prompting a cross-appeal from the nominee purchaser established by the qualifying tenants on the grounds that:
- The top floor leaseholders had made an oral agreement to contributed towards the costs of the roof repair works. The nominee purchaser argued that this should be excluded on the basis that it contradicted s.2 Law of Property (Miscellaneous Provisions) Act 1989; and
- Payment towards the costs of works was not consideration, but instead constituted a lease covenant.
The decision
The High Court dismissed the appeal and the counter-appeal, finding that the default notices served under s.19 of the LTA 1987 were valid and clear in their intention, and requiring the transfer of the roof space leases to the qualifying tenants.
The judge at first instance had exercised his discretion correctly, and the order for the leases to be transferred should be made unless it was inequitable to do so. The qualifying tenants enjoyed a right of first refusal under the LTA 1987 and the High Court upheld this right.
The cross-appeal by the nominee purchaser was dismissed, finding that it was irrelevant whether or not the agreement was enforceable under the LP(MP)A 1989; when considering s.19 LTS 1987, terms did not need to be only ‘enforceable terms’ as the statute made no reference to the ability of terms to be enforced.
Finally, the High Court found that the requirement to contribute towards roof repair works was not consideration but that the top floor leaseholders had acquired the leases on this term and the parties therefore needed to take the matter into account when transferring the leases to the qualifying tenants.
Advice and action for landlords
Landlords are advised to ensure they have considered the rights of existing tenants to acquire roof space or other property before leases are granted only to specific parties.
The Landlord and Tenant Act 1987 must be complied with, identifying qualifying tenants and following the correct procedures set out in the legislation when disposals are to be made.
The High Court dismissed the appeal and the counter-appeal, finding that the default notices served under s.19 of the LTA 1987 were valid and clear in their intention, and requiring the transfer of leases to the qualifying tenants.
