Acquiring Freehold
Sale by Long Lease
Some categories of long leases are tantamount to the grant of ownership to the lessee. For tax and economic purposes, they may be treated as a sale. The lessor’s rights may be only to collect a small fixed rent, often described as a ground rent only. Legislation has allowed many such long leasehold interests to be converted into freehold interests by compulsory purchase of the freehold interest, at the capital value of the rent.
In other cases, the long leases are designed to support the management of the common parts and may involve the payment of a service charge and common forms of covenants by each owner, designed to protect the development as a whole and in the interests of all owners. They may relate apartment leases, or leases generally of part of a building. They do not usually carry the right to acquire the freehold interest.
It was common practice in Ireland for many years for properties to be sold by way of long leases, with a modest rent (often described as a ground rent) subject to relatively, unburdensome conditions. The rent may have been a further return to the developer. Almost such rents were fixed and over time have become nominal. There may be have been covenants to provide a common estate standard.
In substance, the lessee’s (or tenant’s) rights under such a lease, are what would be commonly described as full ownership. Over the last 90 years, the rights of holders of lessees under long lessees (and some shorter leases) who paid for or built a building on the property, have acquired significant and increasing rights.
Enfranchisement
Many such lessees are entitled to buy the freehold interest at a relatively nominal amount. This effectively treats the land or its interest as an income, i.e., the right to receive the ground rent. In many cases, the lessee is entitled to buy out the ground rent at its capitalised value.
Once the ground rent is purchased out, the lease is destroyed and the tenant/lessee acquires the freehold interest. A few covenants are preserved.
In some cases, the lessee is entitled to a further, so-called reversionary lease. This takes effect on the termination of the lease under which property is held. The conditions are broadly similar to those for the acquisition of freehold, but they apply in different circumstances.
This chapter deals with the terms and conditions on which lessees who hold the under “long leases” or “proprietary” leases, are entitled to purchase out the freehold interest or acquire a further long reversion lease.
Procedures
A person who is entitled to a reversionary lease may apply to his immediate lessor to obtain from that lessor a reversionary lease of the land held by him
- not earlier than fifteen years before the expiration of his existing lease, and
- not later than the expiration of the lease or the expiration of three months from the service on him by his immediate lessor or any superior lessor of notice of the expiration of the lease, whichever is the later.
The notice is valid only if served not earlier than three months before the expiration of the lease. The lessee is entitled to continue in possession until the determination of his entitlement.
There are a number of distinct procedures applicable to the compulsory acquisition of the freehold interest. One procedure involves an application to the County Registrar. Another procedure for residential properties involves an application to the section of the Land Registry (Property Registration Authority).
In case of commercial property, the application to purchase the freehold or for reversionary lease is made to the County Registrar. If the property is a dwelling house, a more simplified procedure is available through the Ground Rent section of the Land Registry (Property Registration Authority) .
Notices Required
A notice of intention to acquire the fee simple must be served on such of the following who may be found and ascertained.
- landlord
- superior landlord and
- mortgagee.
Where there is a chain of landlords, the lessee may not know the identity of each. There is a procedure whereby notice may be served on the immediate landlord and any mortgage holder requiring information in relation to the identity of the superior owners.
Where a person on whom a notice is served fails to provide the information as required, the person who served the notice may apply to the court which may make such order as justice may require to compel the person on whom the notice was served to provide the information.”.
Where a person is unknown or unascertained, the county registrar may appoint the person receiving the rent or another person to represent that person. He or she may appoint an officer of the court to execute the conveyance itself. The lessee acquiring the fee simple must pay the reasonable cost of the person necessarily incurred in complying with a notice
The service of notice of intention to acquire the fee simple creates a duty on the person receiving to convey the freehold interest and intermediate interests in the land. Where this is not possible, the County Registrar may on application, grant power to an appointed person, usually an officer of the court to convey the interest.
Vesting Certificate Procedure
The Vesting Certificate procedure is operated through the Land Registry. In this case, a simple consent form may be signed by the freehold owner and lessee on foot of which a Vesting Certificate is issued, which has the same effect as the conveyance of a freehold interest. A simplified form of consent is signed by each. It has the effect of a conveyance once a vesting certificate issues from the land registry.
Where the necessary parties or all of them do not consent, the lessee may apply to the Property Registration Authority for a Vesting Certificate. He must serve notice of the application on his immediate landlord. Where it is not practicable to do, this requirement may be dispensed with. In this case, the Registrar serves notices on the lessor and every person who appears to be entitled to an interest in the property including a mortgagee/incumbrance holder. The Registrar of Titles then determines the matter under the arbitration procedure. Relatively modest fees are provided for.
Former Local authority tenants who have purchased their property, usually did so by way of a long lease prior to 1978. They may acquire their freehold interest by way of a transfer order. Certain of the restrictions applicable under the lease applied for a further 25 years.
Effect of Freehold Acquisition
Where the fee simple interest is acquired either by conveyance, vesting certificate, it vests the property in the lessee free from encumbrances. Where the lessee himself has a mortgage, this is deemed to be a mortgage on the freehold interest.
Generally, the acquisition of the freehold destroys the lease covenant. Certain covenants are continued to affect land they are:
- Those protecting and enhancing the immunity of the lands occupied by the immediate lessor
- Those relating to the performance of a statutory duty
- Those relating to a right of way of an acquired land or a right to drainage or another right necessary to restore or assist in the development of other lands.
There are certain exceptions for the right to acquire the fee simple.
Exceptions to Rights
A person shall not be entitled to acquire the fee simple under this part if the lease on which such right is based is—
- a lease of land which is used for the purposes of business or includes a building divided into not less than four separate and self-contained flats; being a lease which contains provisions enabling the amount of the rent reserved by the lease to be altered within twenty-six years from the commencement of the lease (not just enabling such rent to be altered once only within five years from commencement or upon the erection after such commencement of any buildings upon the land or upon the breach of a covenant in the lease), or
- a lease granted before the commencement of the Act of 1967 of land which is used for the purposes of business, being a lease which contains provisions requiring the lessee to carry on business on the land which is restricted in whole or in part to dealing in commodities produced or supplied by the lessor, or
- a lease of land containing a covenant by the lessee to erect a building or buildings or carry out development on the land if and so long as the covenant has not been substantially complied with, or
Apartments are usually granted by way of long leases. It would be undesirable if the apartment holder could acquire the freehold interest and destroy the scheme of covenants designed for the management of the apartment or equivalent development. Therefore, the right to buy the fee simple does not apply to a building divided into at least four separate and self-contained flats, where there is a rent review within 26 years of commencement.
Where the premises are used for business purposes and there is a rent review within the first 26 years, the legislation does not apply. A rent review will not exclude the right if it is a single rent review within five years only.
State Lessors
The right to buy the fee simple is not exercisable, generally, where the State is the landlord or even superior landlord of a property. This rule has been relaxed for tenants of dwelling houses. The fee simple interest may be acquired unless the housing authority certifies that it is not in the public interest.
Generally, local authority tenants are not entitled to acquire the fee simple or reversionary interest. However, a special procedure applies under the ground rent legislation for persons who purchase their local authority house.
The legislation does not apply to leases by
- a Minister of the Government (Government Department),
- the Commissioners of Public Works in Ireland (OPW),
- Industrial Development Agency (Ireland),
- Shannon Free Airport Development Company, or
- Udarás na Gaeltachta.
- the Commissioners of Irish Lights, or
- a harbour authority, within the meaning of the Harbours Act, 1946