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Move along squatters, investors in residential property also need legislative reform

After press reports of police up and down the country taking action to remove squatters from residential accommodation, perhaps the government should now turn its attention to the legislative pitfalls awaiting potential investors in this sector?

The Leasehold Reform, Housing and Urban Development Act 1993 offers rights to those who own leases of residential flats with a term of over 21 years. Such tenants can require their landlord to extend their term of occupation for a further 90 years by swapping their old lease for one at a peppercorn rent on paying a premium set by a statutory formula. The devil in the detail is that this right to “enlarge” can apply to tenants who are non-resident and own multiple flats.   This was made clear in the 2008 case of Howard de Walden Estates Ltd v Aggio. In that case it was decided that a tenant under a long lease of a whole block of flats, without long underleases, was entitled to claim the benefit of the Act in relation to each and every one of those flats.

Of course, such conversion would come at a price as a premium would have to be paid for each lease extension. However, the value of these extended leases on the open market may well justify the cost of conversion (as well as the complication of not being able to extend the lease over the common parts). The landlord might understandably see the conversion as being a misuse of legislation designed to protect the interests of people who own leases of their own homes.

This highlights another unintended consequence of the legislation having been extended to corporates in 2002 by removing the prerequisite that the tenant is in occupation of the property.  We have already blogged on the Hosebay decision, which was the latest in a line of cases which arose out of that amendment to the legislation.  There is a case for arguing that the legislation should be revisited with a view to limiting its application to individual resident tenants or, alternatively, expressly excluding from the right to enlarge all owners of leases which comprise multiple flats.

A carefully designed and complex legal structure can prevent the rights accruing but reform would simplify the entire process and avoid costly disputes and perceived injustices. Squatters may be on the run, but they are not the only ones capable of wresting control of valuable properties away from their owners.