Rights of Leasehold Title Owners

Option to Buy a Share of the Freehold

Background

The dispute relates to the events that took place in the year 2007, when the Claimants (“our client”) bought a house in a new development. After spotting the onerous terms contained in the draft Lease which provided that the ground rent would double every seven years, the Claimants negotiated an additional provision in the contract giving them an option to purchase the share of the freehold at 17.5 times of the ground rent paid under the lease and upon sale of the last property built in the development.

However, the developer specifically asked the Claimants not to register the option at HM Land Registry, as it did not want to offer such an option to other buyers.

In January 2013, the developer sold the freehold to another professional landlord (the “Landlord”). Shortly after that, the Claimants exercised the option and applied to purchase the share of the freehold in accordance with the additional clause as contained in the original contract. To their disappointment not only the landlord refused to sell the share in the freehold to the Claimants, but also refused to accept the validity of the contract.

Specifically, the Landlord relied on the fact that the missing words from the Claimant’s counterpart “and its successors in title” and argued that on that basis the contract containing the option to purchase the share of the freehold invalid and unenforceable. There were numerous exchanges of communication between the parties that lasted for about 5 years and the landlord would not budge and demanded a hefty sum (about £50,000.00) to transfer the freehold to the Claimants. Finally, without any further recourse, the Claimant had to file a claim at the County Court against the wealthy landlord and sought to exercise the option through the courts.

Summary Judgment

On advice of the counsel, the Claimant applied for a summary judgment seeking the Court Order to order that the option provision as contained in the contract was valid and enforceable, and the missing words were immaterial to the rights and obligations of the parties under the contract.

The Landlord’s solicitors argued in response that the differences in the two counterparts contracts, made the contract invalid and unenforceable, and that the issues could not be summarily assessed and sought that the claim should be listed for a trail where all the issues could be analysed and parties could be cross examined. The Landlord solicitors further argued that the Court needed to establish the facts about what exactly had been agreed between the Claimant and the developer in the first place before it could reach a fair and lawful conclusion.

Delivering the summary judgment, Justice Langley at Central London county court said that she could not hold that there was no contract between the parties in relation to the purchase of the share of the freehold, as it would be flying in the face of evidence. Further, she held that the words “and its successors in title” were immaterial to the rights and obligations of the parties and therefore the contract containing the option to purchase the share of the freehold was valid and enforceable. The judge further upheld the Claimant’s application costs of the claim as well as the application for summary judgement.

Conclusion

The Landlord was ordered to transfer the share of the freehold in relation to the house at 17.5 times of the ground rent paid by the Claimants which was calculated at £4,375.00 (as opposed to £50,000.00 demanded by the landlord), and also to pay the Claimant’s legal costs of the proceedings. This was a very happy and successful result for the client and a good way to end the year for the firm as well.

The long-awaited leasehold reform will probably make it easier and cheaper to purchase freehold, especially the freehold of a house, as the system in which a landlord can continue charging ground rents at geometric progression is getting increasingly difficult to justify.