Qualification Grounds
Acquisition Conditions
Originally, rights were granted in the 1930s, to the lessees of so-called building and proprietary leases. A building lease was one where the substantial buildings on the premises had been built by the lessee or his predecessor as lessee. The other type of case was where; a substantial capital sum was paid for the lease. In both cases, the lessee is in substance owner and the present lessee may have purchased the lease for a substantial capital sum.
The law on acquisition of the freeholds was revised in 1967 and 1978. There are now a number of mandatory conditions, with which all leases must qualify, and a number of alternative conditions which also apply, in order to confer the right to acquire a reversionary lease or to acquire the fee simple.
The following rights are equally applicable to the right to purchase the freehold and reversionary interest. There are some differences. In some cases, there is a right to acquire a reversionary lease or to purchase the freehold reversion interest only.
Permanent Buildings
The first condition which must be satisfied requires that there are permanent buildings on the land and that any land not covered by them, is subsidiary and ancillary to those permanent buildings. This test is important and must be applied per lease. If there is a separate lease of land only, it will not qualify.
Whether the land is subsidiary and ancillary depends on the circumstances. It is a question of fact. Other lands must accommodate or be of some benefit to the building.
The buildings must be permanent. They must not be temporary structures. The permanent buildings must be on the land comprised in the lease.
The permanent buildings must not be an improvement. That is to say, they must not be a mere addition to an existing building. They will qualify, if the works are such, that the previous building loses its identity.
Who Constructed
It is of critical importance whether the landlord or tenant or their respective predecessors constructed the building. An improvement of the original landlord’s building is not a building. However, improvements and alterations which are so fundamental, that they change the identity of the original structure, may qualify.
In considering whether the permanent buildings have lost their original identity the arbitrator may have regard to all or any of the following matters—
- a change in the use of the buildings,
- the extent of any alteration or reconstruction,
- a change in the character of the buildings, and
- such other matter as the arbitrator considers relevant,
The arbitrator shall not refuse to hold that the buildings have lost their original identity by reason only of the fact that a part or parts of the original buildings are identifiable at the date of the application.
The 2019 Act applies to applications after 5th November 2019. It provides that new qualifying permanent buildings may be permanent buildings or such of those permanent buildings as have caused the buildings to lose their original identity.
Built Under Lease
The permanent buildings must not have been built in breach of the lease. However, if it would be unreasonable to apply this requirement, it may not be disapplied. Where premises are rebuilt, under a covenant to reinstate premises in a lease, then they are deemed built by the person who built the original building.
Where it is claimed that the permanent buildings were erected in pursuance of an agreement for the grant of the lease on their erection but express evidence of the agreement is not available, the following provisions shall have effect:
- if it is proved that the buildings were erected by the person to whom the lease was subsequently made, it is presumed, until the contrary is proved, that the agreement was in fact made and that the buildings were erected in accordance with it;
- in any other case, the arbitrator may, if he so thinks proper on hearing such evidence as is available and is adduced, presume that the agreement was in fact made and that the buildings were erected in accordance with it.
Permanent buildings erected by a lessee in pursuance of a covenant in his lease to reinstate the buildings comprised in the lease in the event of their destruction by fire or otherwise shall be deemed to have been erected by the person who erected the original buildings.
Alternative Further Condition
In addition to the above conditions, one of seven alternative conditions must be satisfied. Most cases fall into the first second or seventh alternative grounds. Further qualifying circumstances were added over time to cater for more unusual situations.
The first qualifying ground is that the permanent buildings were erected by the person who at the time of their erection was entitled to the lessee’s interest under the lease or were erected in pursuance of an agreement for the grant of the lease upon the erection of the permanent buildings.
The second qualifying alternative ground may apply where there was a long at a low rent, and it can’t be proved who built the permanent buildings. The lease must be for at least 50 years at the outset. The yearly rent must be less than the rateable valuation at the date of the application to acquire the fee simple (but see below post-2019). For historical reasons, rateable valuation levels for houses are usually at low nominal amounts and domestic rates were abolished and have not been revised since 1978.
Erected by Lessee
The buildings must not have been built by the landlord or a superior lessor or any of their predecessors in title. This is presumed until the contrary is shown.
The 2019 Act applies to applications after 5th November 2019. The second alternative test is amended so that it applies to a lease for less than fifty years and the yearly amount of the rent or the greatest rent reserved thereunder (whether redeemed at any time or not) is of an amount that is less than the amount of the rateable valuation of the property. The reference to the date of application is deleted.
The permanent buildings on the land demised by the lease must not be erected by the lessor or any superior lessor or any of their predecessors in title. It is presumed until the contrary is proved that the permanent buildings were not so erected.
‘Predecessors in title’ does not include any previous lessee of the land demised by the lease. Rateable valuation is as certified in a certificate by the Valuation Office.
Historical Practices
The third and fourth alternative grounds relate to variants of arrangements under which a lease was granted by a landowner to a builder’s nominee pursuant to an agreement or arrangement between the builder and landowner.
The fifth alternative ground relates to leases granted on or after the expiry of a previous lease. It applies where a new lease is granted at a rent less than the rateable valuation of the property at that date, or is granted to the person entitled to the lessee’s interest under the previous lease which would have qualified had the legislation been in force at the date of the previous lease.
The sixth alternative ground applies where the lessee has already obtained a reversionary lease under previous legislations. He may therefore claim the fee simple interest.
Proprietary Leases
The seventh alternative ground relates to leases granted in consideration of expenditure. Many leases of sites are granted on the condition that the lessee build permanent buildings, usually a dwelling house. These are referred to as proprietary leases.
The permanent buildings are erected by the lessee. The condition applies to leases of 50 years or more made in return for payment of a sum of money, other than rent or in consideration of expenditure, or a sum of money. The sum paid or expended (or the sum of them) must be at least 15 times the greatest rent reserved under the lease or the rent, whichever is less.
Presumption From Expenditure
Where the lease for a term of not less than fifty years it is deemed to comply with the qualifying condition if—
- the lease was granted partly in consideration of an undertaking by the lessee to carry out specified works on the premises demised by the lease,
- the amount to be expended on the works was not specified,
- the works were carried out by the lessee, and
- it is proved that the reasonable cost of the works taken either alone or together with any fine or other payment mentioned in that condition was not less than fifteen times the yearly amount of the rent or the greatest rent reserved by the lease, whichever is the less.
A relief exists where a builder was granted land for a number of houses and was not able to complete them all so that the unbuilt land was not subsidiary and ancillary to the built land. The partly built lands which would not otherwise qualify are deemed to be held under separate leases.
Yearly Tenancies
Many houses were granted on yearly tenancies and have been held as such for many years, in some cases since the middle of the 19th century. There is a right to purchase the fee simple where
- that the land is covered wholly or partly by permanent buildings and any land not so covered is subsidiary and ancillary to those buildings;
- that the land is held under a contract of yearly tenancy or under a yearly tenancy arising by operation of law or by inference on the expiration of a lease, or under a statutory tenancy implied by holding over property on the expiration of a lease which reserves a yearly rent;
- that the land has been continuously held under any one or more of the above tenancies referred (including any expired lease) by the person or his predecessors in title for a period of not less than twenty-five years prior to the date of application
- that, either the yearly rent is less than the rateable valuation of the property at the date of service of that notice of intention or application, or it is proved that the permanent buildings were erected by the tenant or a predecessor in title that the yearly rent is less than the rateable valuation of the property at the date of the application (see below post 2019 Act)
- that the permanent buildings were not erected by the immediate lessor or any superior lessor or any of their predecessors in title, provided, however, that it shall be presumed until the contrary is proved that the permanent buildings were not so erected;
The following exceptions must not apply
- that the contract of tenancy is not a letting which is made and expressed to be made for the temporary convenience of the immediate lessor or of the person holding under the contract, stating the nature of the temporary convenience, and
- that the contract of tenancy is not a letting which is made for or dependent on the continuance of the person holding under the contract in any office, employment or appointment.
Proving Rateable Valuation
The 2019 Act amends deletes the requirement that the rent is less than the rateable valuation at the date of service of that notice of intention or application for applications after 5 November 2019. It requires that the rent under the lease is less than the rateable valuations, presumably at the date of determination of the matter.
The Valuation Office on application by a person who appears to the Commissioner to have a sufficient interest in the matter, cause the value of the property to be determined. The determination is made by reference to the values of other comparable properties, as appeared on an existing valuation list relating to the rating authority area in which that property is situated.
The value of the property so determined is deemed to be the rateable valuation of the property for this purpose. The Valuation Office issues a certificate stating the value of the property. The production to a court or the Property Registration Authority of a certificate so issued is sufficient evidence, until the contrary is proven, of the matters stated in the certificate.