Freeholder demanding a premium

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    Freeholder demanding a premium

    We have a 1 bed ground floor flat with c.970 years left. Our lease stipulates that we have to get written consent to make any alterations or additions to the premises.
    We are looking to do some works to our 1 bed flat. This includes relocating the kitchen which will create a second bedroom. The freeholder has indicated they are minded to agree to the works but they will demand a premium because of the added value of creating a second bedroom.
    Can they demand a premium, is it reasonable?
    If they can, how is this calculated? They have mentioned Stokes V Cambridge which indicates 1/3 of the uplift in value.
    I thought they could only claim a premium for depreciation, in line with section 19(2) of the Landlord and Tenant Act 1927

    #2
    I think the Freeholder is correct. It is perfectly reasonable to expect a premium.
    Just make sure the amount is decided properly, not forgetting to allow for your costs.

    Comment


      #3
      How would the premium be calculated? What method would you use?
      So you would discount the section 19(2) of the Landlord and Tenant Act 1927, which implies 'payment of a reasonable sum in respect of any damage to or diminution in the value of the premises or any neighbouring premises belonging to the landlord, and of any legal or other expenses properly incurred in connection with such licence or consent nor.'?
      I am just trying to understand why it would be reasonable to expect a premium? I have read lots of people saying yes and no and no one has given a reason or explanation.

      Comment


        #4
        My understanding is that, because you have conditional right to change, the freeholder cannot unreasonably refuse, and a premium would be an unreasonable grounds for refusal.

        However, there may be valid reasons to refuse, e.g. bedrooms are normally closer to the main exit in flats and kitchens are typically beyond a firewall. Swapping them over may create a fire hazard.

        Also most flats are arranged with quiet rooms over quiet rooms and vv, so rearranging could cause a noise nuisance for the first floor resident. The freeholder could reasonably require you to cover the cost of resolving noise and fire safety issues.

        Comment


          #5
          Originally posted by Disraeli-LLH View Post
          We have a 1 bed ground floor flat with c.970 years left. Our lease stipulates that we have to get written consent to make any alterations or additions to the premises.
          We are looking to do some works to our 1 bed flat. This includes relocating the kitchen which will create a second bedroom. The freeholder has indicated they are minded to agree to the works but they will demand a premium because of the added value of creating a second bedroom.
          Can they demand a premium, is it reasonable?
          If they can, how is this calculated? They have mentioned Stokes V Cambridge which indicates 1/3 of the uplift in value.
          I thought they could only claim a premium for depreciation, in line with section 19(2) of the Landlord and Tenant Act 1927
          The landlord cannot unreasonably withhold consent, but in this case he may well have grounds to do so.

          It is not ideal to have the only living space in a flat having a kitchen in it as well, I know that planners are not keen on it. Also, the juxtaposition of the rooms as referred to be leaseholder64 needs to be considered carefully.

          You are seeking to sweat your assets so it is not unreasonable for the freeholder to do the same

          Comment


            #6
            The freeholder has indicated they are minded to agree to the works

            Depending on the words used (and the precise terms of the covenant), consent may already have been given. See Mount Eden Land Ltd v Prudential Assurance Co Ltd. Please set out the terms of the covenant and (if in writing) what the landlord said.

            Can they demand a premium...?

            No. Your interpretation of section 19(2) of the Landlord and Tenant Act 1927 is entirely correct.

            ...is it reasonable?

            The answer to that has to be that it is not. The leaseholder pays for the work. If it is an improvement the value of the landlord's reversion increases. If the leaseholder has to pay the landlord a premium based on the uplift in value he is paying for an increase in value to which the landlord has had no input. The landlord has not only had the value of his reversion increased but gets a windfall. When the lease was granted the landlord took full value for the flat. If you buy a freehold house you do not expect to have to pay the developer if you want to make the bathroom a kitchen and the kitchen a bathroom. The same should go for a flat.

            If they can, how is this calculated?

            Since they cannot, the question is irrelevant. If the works decrease the value of the reversion a significant factor will be the value of the reversion. Ignoring rent, the value of a reversion with 970 years to go is going to approach zero. How dwellings are there in your town that were around at the time of the Battle of Hastings?

            They have mentioned Stokes V Cambridge which indicates 1/3 of the uplift in value.

            That case is often bandied about in cases where it has no application. The case involved a compulsory purchase. It really has no application where the parties are free to negotiate.

            Comment


              #7
              How many flats in the block ? what is the total annual ground rent ? is it cheaper to buy the freehold title than pay a hefty premium ? .

              The alternative option is set up RTM for your block and the RTM charge the premium and keep it.

              Comment


                #8
                Lawcruncher, I am always ready to admit I'm wrong and learn. I respect your knowledgeable posts.

                My reasoning is that leaseholder buys the right to occupy a specific dwelling and, in some cases, land around. If lease holder changes causes an increase in value then Freeholder, in my view, should be entitled to a share. Lease holder would now have more than he originally paid for.

                Comment


                  #9
                  Great thank you all, very helpful.
                  To give further background. The house is victorian, converted into 2 flats. We have the ground floor on a LLH. The freeholder has retained the upper parts and lets them on an AST. So unfortunately we cannot buy the freehold or set up a RTM.
                  The room we are looking to move the kitchen into is an old extension/ conservatory (1999). The freeholder has tried to argue that it is described as a conservatory and not a kitchen. From my knowledge there is no issue having a kitchen in a conservatory. It is a solid structure, not a glass lean too.
                  To answer another question from above, we currently have 2 reception rooms, a sitting room and dinning room (conservatory). So when the works are done we will have a separate sitting room leading into a kitchen dinner. We are not squeezing the kitchen into the only reception room.
                  We have also checked the layout with building control and they have confirmed they are happy with the layout.
                  I found this article which I think best explains our position :https://www.crippspg.co.uk/real-esta...o-alterations/

                  Comment


                    #10
                    Originally posted by scot22 View Post
                    Lawcruncher, I am always ready to admit I'm wrong and learn. I respect your knowledgeable posts.

                    My reasoning is that leaseholder buys the right to occupy a specific dwelling and, in some cases, land around. If lease holder changes causes an increase in value then Freeholder, in my view, should be entitled to a share. Lease holder would now have more than he originally paid for.
                    Sorry I forgot to add, this is the wording the Freeholder used in correspondence to his solicitor (he forwarded it on to us):
                    The owners of the ground floor flat wish to undertake certain structural alterations and have asked for our permission. We are minded to grant consent subject to the necessary licence agreement.

                    Comment


                      #11
                      I completely reposition myself ( politician speak for changed my mind ) I had not read carefully enough. I wrongly assumed an extension. Completely my fault.
                      You are rearranging, not adding.
                      I now see no obligation to pay a premium. Thanks for your courtesy.

                      Comment


                        #12
                        Originally posted by Disraeli-LLH View Post

                        Sorry I forgot to add, this is the wording the Freeholder used in correspondence to his solicitor (he forwarded it on to us):
                        The owners of the ground floor flat wish to undertake certain structural alterations and have asked for our permission. We are minded to grant consent subject to the necessary licence agreement.
                        I am leaning towards the opinion that that amounts to consent. I have sought further opinions here: http://swarblaw.co.uk/viewtopic.php?f=7&t=11652

                        Comment


                          #13
                          Originally posted by scot22 View Post
                          Lawcruncher, I am always ready to admit I'm wrong and learn. I respect your knowledgeable posts.

                          My reasoning is that leaseholder buys the right to occupy a specific dwelling and, in some cases, land around. If lease holder changes causes an increase in value then Freeholder, in my view, should be entitled to a share. Lease holder would now have more than he originally paid for.
                          What a leaseholder buys is an interest in land which has attached to it the right to occupy the land. It is unhelpful to think in terms of the landlord being an owner and the tenant someone who merely has the right to occupy. Ignoring oddities not relevant to this thread, all tenancies are qualitiatively the same. However, the quantitative difference between a six month tenancy at a rack rent and a 999 year tenancy at a ground rent is so vast that in practice we have to consider them to be distinct things. On the grant of a long lease the bulk of value of the property leased shifts from the freehold to the leasehold interest.

                          The idea that a tenant should not have to pay for improvements twice is enshrined not only in the Landlord and Tenant Act 1927, but also in the Landlord and Tenant Act 1954. That Act provides (subject to conditions) that on a renewal of a business tenancy the rent is to be assessed disregarding improvements made by the tenant. A similar provision is standard in rent review clauses.

                          Comment


                            #14
                            Thanks Lawcruncher
                            We are now confident we are right and our LL is trying his luck

                            Comment

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