Aspectos éticos

Where the lease of a house is running out and has only a short time to remain, then the necessity for a schedule of dilapidations may well arise. Shorter leases of houses will be encountered in some fashion-able London districts, and rights to enfranchise under the Leasehold Reform Act may be different or may not exist, depending upon the size and value of the property concerned. A careful reading of the lease in such circumstances is recommended before giving the appropriate advice (see Chapter 20).

Leases of flats

Leases of flats and apartments are the rule rather than the exception in England and Wales for the reasons discussed in Chapter 14. An almost infinite variety of forms of such leases will be encountered in prac-tice. However, the surveyor will find that these generally fall into one of two basic types: either there will be a lateral division of responsibility within the structure of the building with each leaseholder respon-sible for his or her own part of the structure and having no liability for other parts (mostly encountered in cases of small two- or three-storey buildings in flats, either purpose built or converted), or the lessee will be responsible for the interior of his or her own unit and share responsibility for the exterior and struc-ture as a whole with other flat owners. In the latter case, arrangements for the proper maintenance and upkeep of the exterior and structure may simply be on an ad hoc basis as the need arises. Alternatively, this may be the responsibility of the freeholder who would then recover costs from the lessees, or com-monly, may be undertaken by a management company or residents’ association.

It will be seen in such cases that a lessee may have a potential proportional liability for parts of the building, or even parts of other buildings on the estate some distance away from his or her own property.

Particularly onerous repair liabilities may arise in the case of flats in older mansion blocks in the inner cities.

Common practice is for such a mansion block to be acquired by a speculator, and for individual flats to be sold off on new long leases with a ground rent and service charge for the maintenance and repair of the exterior, roof and common parts. Initially, in order to sell the leases, the freeholder will wish to keep the service charges low, perhaps artificially low. Once the units are all sold, however, there is no such need and when the true state of repair of the structure begins to become known, large increases in the service or supplementary charges may be levied to cover the cost of repairs which should have been dealt with at the outset during refurbishment and prior to sale.

Before undertaking an inspection of a flat in such a mansion block, the surveyor should be quite sure that the survey will be sufficient to gauge whether or not any exceptional service charge increases may be due. If this is to be done, it will be clear that the inspection cannot be confined merely to one specific flat. The significance of this is discussed more fully in Chapter 14.

In all cases of surveys of leasehold residential property, the Royal Institution of Chartered Surveyors (RICS) Code of Practice advises that the surveyor should read the lease before undertaking his inspec-tion. It is advisable to establish the extent and nature of the repairing liabilities under that lease, the client’s potential responsibility for executing repairs and also his liability to pay for repairs executed by others. If the lease is not available, the surveyor must set out clearly the limitations.

If no copy of lease is available, the client’s solicitor should be approached and asked to confirm the nature of the repairing covenant which may be assumed. The surveyor may then, on receipt of such instruc-tions in writing from the client’s solicitor, refer to this in compiling the report.

The Code of Practice suggests that when taking instructions, in addition to the procedures recom-mended for freehold property, the surveyor should insist either on having a copy of the lease or on hav-ing advice on the nature of repairhav-ing liabilities. He or she should then confirm instructions in the manner recommended for freehold property, indicating also the extent to which he or she proposes to inspect other parts of the property or estate in order to advise on unacceptable or unusually heavy repairing lia-bilities outside the demised premises.

Leases of commercial premises

Dealing with leases of commercial premises, the recommendations for procedure could be similar to those for leasehold residential property in that it is highly desirable for the surveyor to read the lease before undertaking the inspection and to have it available for references as when compiling the report.

The report should cover:

(a) the repairs or other works which are required for the purposes of the client’s business occupation and necessary to comply with the various local and national regulations, and

(b) the future repairs or other works which may be required in order to comply with the repairing covenants of the lease.

In the case of (a) above it is necessary to ascertain the nature of the client’s business, how he proposes to use the premises and the staff that will be employed. In respect of (b), the surveyor will have regard to what the lease says and the current relevance of the law of dilapidations (see Chapter 20).

Section 18(1) of the Landlord and Tenant Act 1927 sets out certain principles in the assessment of damages for breaches of repairing covenants. It provides that the measure of damage for breach of a covenant to keep premises in repair, or leave premises in good repair when quitting, cannot exceed the diminution in the value of the landlord’s reversion occasioned by these breaches. A limit is therefore imposed on the amount of damages which may be recovered by a landlord. These are assessed by valu-ing the premises as they are and as they would be if the covenants had been complied with, the measure of damage being the difference between these two figures. The cost of undertaking remedial works may be the same thing as the difference in value, on the assumption that a purchaser of the lessor’s interest would reduce any price offered by an amount equal to the cost of remedying those defects. The cost of undertaking works may, however, be an amount quite different from the measure of damages in some cases. It is possible for there to be considerable breaches of repairing covenants by a lessee and for the landlord to have no right to compensation at all (e.g. if the landlord is proposing to redevelop the prop-erty in such a way that condition is immaterial to market value).

The Courts have held that the cost of undertaking works is prima facie evidence of the diminution in the value of the reversion, in which assumption can be rebutted by evidence that damage to the lessor’s interests may be better assessed by some other means, such as ‘before’ and ‘after’ valuations. In Drummond v.

S. & U. Stores Ltd. (1980) 258 EG 1293 (Estates Gazette, 27 June 1981, p. 1293) it was held that in the absence of clear evidence as to the damage to the reversion, the cost of undertaking necessary works was the broad measure of the diminution of value and the landlords were awarded the bulk of the cost of repairs. The landlords in this case were also awarded 3 months’ loss of rent as part of the damages, being the estimated time reasonably necessary to leave the premises empty while the works were done, and also, as the landlord in that case was not registered for value added tax (VAT), that VAT on the cost of repairs would also be recoverable.

The surveyor advising a client on a commercial lease should have uppermost in mind the possibility of either an interim or final Schedule of Dilapidations being served on the client and should warn the client about all matters which could give rise to the service of such a schedule or a claim for diminution of value. Substantial sums may often be involved in such cases. One means of protecting a client at the commencement of a lease is to arrange for the lease to state that the lessee will not have to hand the demised premises back on expiration of the term in any better condition than they were in at the com-mencement as evidenced by a Schedule of Condition. An agreed Schedule of Condition is then prepared by the lessee’s and lessee’s surveyors, signed and attached to both lease and counterpart lease.

During the course of taking instructions to inspect a leasehold property, the surveyor should ascertain whether or not a Schedule of Condition exists which indicates the condition of the premises as at the beginning of the term. If such a Schedule exists, then it would be advantageous for the surveyor to have

a copy and to take this along when carrying out the inspection. The condition of the property as described in the Schedule of Condition may then be compared with the condition found on inspection.

If a building is to be inspected when a client proposes to take a new lease, and if that building is old or in poor repair, then the surveyor may recommend that a Schedule of Condition be prepared and agreed with the prospective lessor prior to exchange of the lease and counterpart. This may be especially import-ant where a modern form of full repairing lease is being grimport-anted on a building which is old and which may suffer from signs of structural distress, past foundation movements, faulty roof construction and other matters potentially expensive to rectify. In general, the lessee’s liability is for repair, and where a defect can be repaired then the liability is not to renew or rebuild, nor will there be any liability to make a building better than it was previously. In practice, however, there is considerable room for argument as to the extent of repairs which may be required.

Perhaps a roof covering is in poor condition and should be stripped off and renewed if it is to be made satisfactory. However, a repair in the form of overhaul and patching of the covering may suffice in the short term. There could be considerable room for disagreement between lessor and lessee as to the extent and nature of repairs in such a case. A Schedule of Condition detailing the condition of the roof cover-ing at the commencement of the term would provide a standard against which any repairs or renewals may be judged adequate or otherwise.

It may be that a property suffers from dampness. Generally, there is no liability for the lessee to pro-vide damp-proof courses or other works where none previously existed, although in such circumstances he will be liable to deal with the effects of dampness if these have caused deterioration of the interior. If damp-proof courses were in good condition at the commencement of the lease term but failed and became porous during that term, then a liability to renew damp-proof courses could arise. In such a situ-ation it may be difficult to confirm all the facts and if a Schedule of Condition is discovered which clearly shows that the property had a damp problem when the lease began, then this could be of considerable benefit to the lessee’s case. Conversely, if a Schedule of Condition indicates that the property was dry and the damp-proof courses were in good condition at the commencement of the term, then this would assist the lessor in requiring remedial works to be undertaken at the lessee’s expense, or in obtaining damages for diminution of value.

On occasion, a building may suffer from structural movements of one kind or another. In old buildings such matters rarely arise overnight. More often than not they are part of a continuing process with crack damage, bulging and leaning walls and other manifestations having appeared very gradually over a long period of time. Rarely could a lessee be found liable to undertake a structural repair such as underpin-ning, but there could arise a liability to provide buttresses to leaning walls or tie bars to stiffen the struc-ture. An original Schedule of Condition is helpful in such cases if it accurately describes the structural condition of the building in detail as existing at the commencement of the lease term.

In addition to the repairing covenants in a lease there will also be other covenants, some not directly relevant to the survey but others which may affect the inspection and preparation of the report.

There will generally be a ‘user clause’ in the lease indicating uses which may be unacceptable and those which may be permitted. For example, a client who wishes to use premises for purposes other than those acceptable in the lease must first obtain the lessor’s consent for the change of use. If the lease pro-vides that such consent may not be unreasonably withheld, then the lessor, in determining whether or not to grant consent, is subject to a test of reasonableness which may be challenged. If in the lease there is no provision as to reasonableness the lessor may or may not grant consent for a change of use at his or her discretion. Clearly, prior to any exchange of contract to acquire a lease, a client must obtain a determi-nation in such cases.

There may be objections to a specific retailing use which conflicts with other retailing uses in adjoining premises which are owned by the same lessor. A lessor who owns a number of retail premises in the same shopping district will wish to ensure a balance of different types of retailing in the area for two reasons,

one being the need to present a broad range of retailing outlets to make the centre attractive and prof-itable, and the other being to limit competition between shop units selling identical products or services which could otherwise make one, or both, competing units unprofitable.

Objections to use may arise out of the nature of the uses themselves since dust, noise, smells or other problems could arise to the annoyance of the lessor or other adjoining lessees. Certain specific trades will often be particularly referred to in a lease as being unacceptable. These will often include panel-beating, fish-and-chip shops, heavy industry in a light industrial area, or trades such as glue factories or fertiliser storage which could cause offence.

There will generally be some mention of ‘assignment’ in the lease. A lease with an absolute bar on assignment cannot be sold and is of value only to the lessee in possession as it has no value as a mort-gage security. Where assignment is permitted with consent, the law holds that such consent may not be unreasonably withheld, even if the lease omits to state this, so that assignment to a lessee of comparable standing will normally be permitted subject to the lessor providing a Licence to Assign, generally on payment of a small fee to a solicitor.

Covenants in the lease barring structural alterations to the buildings demised are generally found. Such covenants will generally refer to the need for specific permission to be given by the lessor for any alter-ations to the premises, but an absolute bar on alteralter-ations may be provided as an alternative.

A lessee who wishes to undertake alterations to business premises which will constitute improvements and which may increase the value of the premises may, if he or she wishes, serve notices under the 1927 Landlord and Tenant Act. This is often overlooked, with the consequence that a lessee loses any rights to compensation for improvements or additions to the landlord’s property when he or she vacates. Advice about 1927 Landlord and Tenant Act procedures needs to be given at the outset before improvements are made and should be dealt with at the planning stage.

Changes in leasehold law

New legislation is now in place to allow the owners of flats and maisonettes to purchase their homes with commonhold title whilst at the same time allowing enforceable arrangements to arise to deal with the maintenance and upkeep of common parts and the payment for shared services. Such reforms have been long overdue and pressure is now growing from the owners of leases granted some years ago where the shortening lease term is having a serious effect on the resale value of the property.

Commonhold title is currently available only for purchasers of new flats and the take up of this new system of land tenure has been very slow with no current proposals to extend it to cover existing lease-hold property.

Consideration is also being given to the problems associated with the management of blocks of flats, which is a matter inevitably tied up with the existing leasehold arrangements which have been found to be unsatisfactory in many cases. Again reform of the law to provide access to special courts to settle dis-putes and order works to be carried out may be the answer as serious difficulties are arising at the pre-sent time with the management of larger blocks of flats, especially in the cities where many such buildings are old and in poor repair.

Existing arrangements permitting leaseholders of flats to club together and buy the freehold compul-sorily, or extend their leases, have been found to be complex and difficult to apply in practice.

There is also a continuing problem with valuations when leaseholders wish to extend the lease or buy the freehold, arising out of the natural desire of the freeholders to share in the marriage value that this creates, so that the freeholders often make a large capital gain over and above the investment value of their interest if they are allowed a proportion of the marriage value.

If language is not correct, then what is said is not what is meant; if what is said is not what is meant, then what ought to be done remains undone.

Confucius

Mortgagees are primarily concerned with ensuring that the security they take for the purpose of the mort-gage will be readily re-saleable at a price which will allow for the repayment of any monies due and cover the incidental costs involved, including the costs of sale.

Institutional mortgagees will also wish to ensure that their actions are seen to be in the public interest and they will want to foster the goodwill of their mortgagors and consumers generally. With this in mind,

Institutional mortgagees will also wish to ensure that their actions are seen to be in the public interest and they will want to foster the goodwill of their mortgagors and consumers generally. With this in mind,