The challenges of mixed tenure estates

Mixed tenure estates and properties are nothing new, and are now the norm for many developers having to conform to planning policy that promotes balanced and sustainable communities.

But competing interests – those of private owners, tenants living in affordable homes for rent, and businesses/commercial interests all on the same development – can lead to significant legal difficulties for landlords and owners.

The pitfalls often centre on the competing expectations of owners and tenants around service levels and related cost expectations. It is vital, therefore, for estate managers and housing officers to be able to navigate their way around leases (whether shared ownership or outright), tenancy agreements and other occupancy agreements, so as to ensure a well-managed estate.

For landlords, failure to future-proof their property portfolio can be costly – through uncollected rent and service charges, lower property values or difficulty in selling, legal disputes and overall time wasted.

As with tenancy agreements, lease and shared ownership agreements are ultimately contracts between two parties. However, while a tenancy will refer to obligations, a lease refers to covenants. There are also different rules in respect of terminating leases when compared to tenancy possession proceedings.

Sometimes leases just aren’t fair. This may be because of a drafting error, a change of circumstances or because leaseholders are required to pay for facilities which they don’t need to use. 

The service charge proportions may not reflect the size of the property in relation to the whole building, or perhaps the tenant is required to contribute to the upkeep of a lift when he/she lives on the ground floor and is never likely to use it.

In such circumstances, it is possible to apply for a variation of the lease under Part IV of the Landlord and Tenant Act 1987. Where a majority of the leaseholders agree to the proposed variation, the Tribunal has a discretionary power to make any variation under s37. 

However, if there are less than nine leases, all or all but one of the parties must consent. If there are more than eight leases, 75 percent of the parties must consent, and no more than 10 percent can oppose the proposed variation. This degree of consensus may be hard to achieve. Similar provision is made at section 35 for individual leaseholders to make an application to vary the lease but the grounds are limited to leases failing to make satisfactory provisions in relation to repair, maintenance or buildings insurance.

Service charge disputes typically involve responsibility to contribute to the upkeep and maintenance of common parts of the whole building such as the roof and structural walls, or other things that are used in common with other occupiers of the landlord’s property, such as lifts or a reception area.

Leaseholders will also be responsible for the payment of the insurance premium for the premises to cover damage to the premises and also the loss of rent the landlord may suffer if the premises become unusable due to such damage.

There can be a cost if you want to assign the lease, or sub-let part of the property to someone else, as you will usually need the landlord’s written permission, and the landlord can normally claim the cost of considering whether to agree to the transaction and also drafting and agreeing the form of the written permission. 

It is of course best – when possible – to deal with potential problems from the outset, with clear and unambiguous legal agreements for owners and tenants.

At a policy level, the role of mixed tenure estates is still being thought through by stakeholders – who are looking at the various elements that help make such developments successful.

It is now vital that clear thinking is involved at all levels, and to ensure that the right legal structures are in place to minimise risk for landlords, owners and tenants.

Neil Brand is a partner at the law firm Bevan Brittan LLP