Pepper potting problems
In mixed tenure estates landlords could struggle to recoup costs for upkeep of communal areas, says Simon Bagg, senior associate at Lewis Silkin
The right to buy has left freeholders ‘pepper potted’ among social housing tenants. Recent cases concerning grass cutting have highlighted that social landlords buying properties, particularly estates, from councils should look carefully at the covenants governing charges they can recover from freeholders.
Two Rivers Housing Association lost a number of cases against freehold owners of properties on an estate which it acquired from Forest of Dean Council.
The 3,750-home landlord was trying to recover costs from freeholders for the upkeep of communal land on the estate. It appears the local authority did not impose a clear covenant on secure tenants to contribute towards the costs when they exercised their right to buy the freeholds of their homes.
The cases show that social landlords need to consider carefully what they are acquiring in terms of whether communal land is maintainable at public expense and, if not, is it the landlord’s responsibility? If so, it will want to recover costs from tenants and freeholders alike.
Matters to be considered are:
- Are the costs recoverable from tenants under the service charge clause? Once the homes are transferred to a social landlord, it will only be possible to vary tenancy agreements with the tenant’s consent.
- The requirement to pay towards the costs of maintenance should have been set out in the transfer of the property to the secure tenant purchaser. If the property is purchased under the right to buy scheme, a local authority is required to notify the purchaser of the provisions to be contained in the transfer, including a clause requiring the buyer to contribute towards costs. The title documents should be checked to see if this requirement was imposed. If there is any doubt, a landlord may have to check with the council to see what steps it took when it sold the properties.
- A requirement to contribute towards the cost of maintaining land is a positive covenant, a covenant that requires the purchaser to do something, and can only be enforced directly by the original parties, in this case the local authority and the tenant exercising the right to buy.
If the purchaser has sold the property it might be difficult to recover costs. In that event, the requirement to contribute may be enforceable if: each subsequent purchaser agrees to pay; the covenant is included in any subsequent transfer; or, a rent charge is imposed. In some cases it might also be possible to argue that the purchaser cannot use the land (or have the benefit of it) without paying towards its upkeep.
When a social landlord acquires land, particularly estates, consideration should be given to what land it might need to maintain, and whether the costs of doing so can be recovered. The difficulties surrounding enforcing positive covenants against freehold owners mean this is an area which can often cause difficulties as the law is both complex and arcane.