During the 18th and 19th century it became common for landlords who owned large areas of land to lease out this land as a way of ensuring an income. They entered long term leases for parts of their land in consideration for the lessee, or a builder constructing a building or buildings on the land. These types of leases became known as building leases. The lessee owned the buildings, while the landlord owned the land on which the buildings were built, and the lessee was said to be paying the rent for the ground only. These rents subsequently became known as “ground rents.”
Originally, when these leases ran out, the land and the buildings built on the land would revert to the freehold owner. Clearly this was not fair on the tenants under these leases who had built the buildings or paid for them. Because of the inequitable nature of this arrangement, legislation was enacted over the years which gave increasing rights to the lessees, eventually culminating in statutory rights to buy out the fee simple in certain circumstances
The purchase of the fee simple in a property held under a lease is regulated by the Landlord and Tenant (Ground Rents) (No. 2) Act 1978, with section 9 and 10 being the main provisions. Section 9 requires that there are permanent buildings on the property and that the portion of the land not covered by those buildings is “subsidiary and ancillary” to them. These buildings must not have been constructed in contravention of a covenant in the lease. If these criteria are satisfied, the property must then meet one of the alternative conditions set out in Section 10. These vary from requiring the lessee to have constructed the buildings in pursuance of an agreement for the grant of the lease upon their construction, to conditions dependent on the current rateable valuation of the buildings being in excess of the annual rent under the lease, among others.
Currently, conditions 1 and 2 of Section 10 of the Act are of particular interest, as these sections have been recently amended by the Landlord and Tenant (Ground Rents) (Amendment) Act 2019.
Condition 1 in the 1978 statute covered a situation where the permanent buildings on the property were erected by a person who, at the time of their erection, was entitled to the lessee’s interest. The 2019 Act extended this to include a situation where, although the lessee may not have constructed the original permanent structures, they may have carried out development so as to cause the building to lose its original identity. This is subject to the caveat that the works carried out by the lessee are not in contravention of a covenant of the lease.
Condition 2 of the 1978 Act entitles the tenant to purchase the fee simple if the lease is for more than 50 years, and the rent (or the greatest rent reserved under the lease) is less than the rateable valuation of the property. For this condition to apply, the permanent structures must not have been erected by the lessor or any of their predecessors in title. This condition became the subject of a Supreme Court decision by Fennelly J in Shirley v A O’Gorman & Co. Ltd. Justice Fennelly took a broad view of the meaning of “predecessors in title”, interpreting it to include not only previous owners of the freehold, but also previous lessees from previous landlords. The 2019 Act amends this condition so that “predecessors in title” shall not include a reference to any previous lessee.
Both of these changes are beneficial for any tenant who is considering an application to buy out the fee simple as they both substantially expand the ability of lessees to obtain the freehold.
For more information on the purchase of the freehold interest in your property, please contact Jack Walsh on 01-2800-340
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