In the last post. we looked at some
of the historical context around how land is treated under English law. This
post follows from that and examines in more detail the legal mechanisms used to
confer ownership over land, the limitations inherent in them and how they
differ from one another.
In doing this, we immediately
encounter an anomaly in English law, manifested in the word “ownership”. This
subject is often raised by the popular pub quiz question of: “who is the
greatest landowner in England?”, the answer to which is not any of the major
house builders or commercial landlords, it is in fact the crown, which
technically owns it all.
This has been the case since the
Norman conquest of 1066, after which William I formalised land control in
England by means of the introduction of the feudal system. William achieved
this by distributing parcels of land to his barons, enabling not only a very
effective form of devolved government, but also an equally effective framework
for the collection of taxes.
Surprisingly, this system of land
control remained largely unchanged until the introduction of the Law of
Property Act in 1925, which modernised many aspects of property law. However it
still failed to change the fact that to this day nobody in England actually
owns property in the form of land, rather they own an interest in it, in the
form of an“estate in land”.
These estates take
two main forms; freehold and leasehold. More recently the government has
unsuccessfully attempted to introduce a third, known as commonhold. The lack of
take up on this is arguably due to a lack of real commitment by the state and
resistance from institutions to its introduction, but we’ll look at that in a
separate post.
Freehold Estate in Land
Without being crowned monarch (a
prerequisite for which appears to be that you are in fact not English), this is
the closest a person will get to outright ownership of land in England.
The technical term for a modern freehold
interest is a “fee simple absolute in possession”. What this actually means is that the right of occupation of the property is held until its
owner dies or sells it, or fails to pay their mortgage and suffers
repossession.
In the event that its owner dies,
the interest will pass onto their heir(s) as stated in their will. If an heir
is not specified, the courts will look to the rules of intestacy to determine
to whom the freehold will pass. In the extremely rare circumstance that no
suitable heir can be found, the estate will technically revert to the crown.
Leasehold Estate in Land
If a freeholder of a piece of land
or a building wants to retain ownership or control over it, they have the
option to sell a leasehold interest in all or more commonly several parts of
it. This mechanism is particularly effective for controlling properties with
communal element so is most often found when dealing with blocks of flats;
although sometimes you might encounter a leasehold house.
Effectively a leasehold interest is
simply a right to exclusive occupation of the property for a specified period
of time, technically know as a term of years absolute. The similarity between
this and a traditional “lease” or a tenancy should not be underplayed, as in
legal terms the only real distinction between the three is colloquial and is
due to the length of the term. So, in effect, by purchasing a leasehold
interest you are in fact buying little more than a long term tenancy, paid up
front and subject to interest.
Modern leases on properties for sale
are typically 999 years in length.However in the early years of the twentieth
century, many were set up to last as little as 99 years. Recently, this has
become a major issue for owners, valuers and mortgage lenders, particularly in
larger cities. So much so in fact, that the RICS have recently published draft
guidance around a formula designed to account for the diminishing value of
these shorter leases.
The mortgage industry’s response has
of course been rather more determined, with the majority of lenders now
refusing to lend on any leasehold property where the remaining lease is 85
years or less (unless, of course, they are in London where the underwriters are
predictably more lenient).
Leaseholds, as with any type of
tenancy will contain a number of terms and conditions. Some will restrict the
way in which a property can be used, others set out the responsibilities of the
freeholder. It is important that neither party fails to recognise their
obligations in this respect; although anyone who has lived in a leasehold
property, or worked in property management will tell you that both often do.
They will in addition usually
include an annual ground rent and a monthly charge ostensibly designed to
contribute to communal repairs, facilities provision and buildings insurance.
An obvious question arises here:
“what happens when a lease comes to an end does the leaseholder get thrown out
on the street”? Well, technically yes, but this risk that has fortunately been
considered by the courts and parliament, albeit only recently, resulting in the
formation of the Leasehold Reform Act 1967 and Leasehold Reform and Urban Development act 1993.
Within the provisions of this act,
leaseholders of residential leases that were greater than 21 years in length at
outset are entitled to engage with their landlord by means of legal notice and
renegotiate their lease. If the landlord engages, a new lease can be formed by
mutual legal agreement much like any other lease. However, if a landlord
refuses to grant the extension, the leaseholder can exercise their statutory
right under the act to have the lease extended at a peppercorn ground rent for
a period of 90 years.
It should be noted that the
extension is not automatic, and a landlord can contend this by serving
counter-notice. This can be done on two grounds; either; that the landlord can
give “acceptable” reasons to the county court or, where leases have less than
five years remaining, by exercise of a right to redevelop the property, on the
provision that it will be demolished and rebuilt.
You can see that I have used the
term “landlord” when referring to this area. This is important because the
person with whom a leaseholder should engage is not necessarily the freeholder
of the building. It is may be what the courts term a “competent landlord”. This
may be a company or other individual who has by some authority come to hold
sufficient legal control over the freehold as to have the capacity to enter
into negotiations. Alternatively it may be a superior leaseholder whose holds a
lease of sufficient length themselves to enable the grant of an extension.
There may be circumstances where a
freeholder cannot be found, or is not in a financial position to grant an
extension of the lease. As this is not uncommon, the act makes provision for
this. If the freeholder or competent landlord cannot be found, the courts are
empowered to grant a new lease under the terms of the act as described above.
This is known as a vesting order. In the event that the competent landlord has
gone into receivership or is bankrupt, notice can be served on the receiver or
trustee.
A leaseholder can also agree to
purchase the freehold. This is a potentially complex legal process which is
outside the scope of this post and is not one that is covered by the 1993 Act.
valuing surveyor is likely to be instructed in these cases to establish
the value of the freehold.
More information about this process
can be found at this excellent resource from the Leasehold Advisory Service
www.lease-advice.org/publications/documents/document.asp?item=17
Stockdale, M. (2011). Galbraith's
building and land management law for students. Oxford:
Butterworth-Heinemann.
http://www.lease-advice.org/publications/documents/document.asp?item=17
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