In this blog, Icon Surveyors will first consider what are the tenures of home ownership within the jurisdiction of England and Wales. We will also discuss what a shareholder of a residential freehold is, and whether or not and in what circumstances a Freeholder may or may not have to inform and/or involve any other Freeholders before serving a Party Wall Notice on an adjoining owner.
As a Shareholder of a residential Freehold do I have the right to serve notice on an Adjoining Owner without the other Shareholders of the Freehold being involved?
The short answer to the question is, provided there are no prohibitive clauses within the Deeds of the Freehold/ Leasehold property to which the building owner intends to carry out notifiable works as prescribed by the Party Wall etc. Act 1996, the Leaseholder with a shareholding interest in the Freehold does have the right to serve a Party Wall Notice on any adjoining owner without the consent and /or knowledge of any other Freeholder.
If, however, there are prohibitive clauses within the above-stated Deed(s), the Leasehold shareholder of the Freehold will be legally required to involve all other holders of an interest in the Freehold.
3 Types of Homeownership Within the Jurisdiction of England
1. Freehold tenure (how the land is held by the owner) means that the ownership is absolute and the owner of the property is “free from hold” of any entity. A Freehold owner owns the building, the land it sits on and the airspace above it. It should be noted that the land and airspace are also saleable assets in their own right.
The actual depth of the ownership of the ground below is less than 8.7 miles, though has yet to be legally determined, whereas the airspace above is anywhere between 500-1000 feet above the roof of the property.
2. Leaseholders of flats that own a part of the freehold of the building are known as leasehold or collective enfranchisements. In law, an enfranchisement is; “a method for acquiring a freehold or an extended lease of a leasehold house. A tenant has a statutory right of enfranchisement when he has a long lease (exceeding 21 years).”
Please note that the above-stated statutory rights are provided by the Commonhold and Leasehold Reform Act 2002, and thus, only apply to tenancies in England and Wales.
Such tenures must be set up by way of a management company with all of the other leaseholders. The company will buy the freehold and distribute the company shares amongst the leaseholders. The management company then determines what the term and extension of each of the leaseholds is to be and what repairs and maintenance works can be carried out including the costs for such works.
3. Commonhold is a relatively new concept that was introduced by the above-stated Act. It is a form of ownership that is used for multi-occupancy developments. Thus, each unit holder owns the freehold of their home and a Commonhold/residents association is set up in order to manage the common parts of the building.
This means that each unit holder is responsible for the repairs and maintenance of their unit; collectively, the unit holders are responsible for the common parts of the building and the land upon which it sits.
Tenures and agreements
Leasehold tenures are agreements between the Freehold landlord and purchaser of the leasehold. Such agreements are for a specified term after which time the property reverts back to the Freeholder.
These types of tenure usually incorporate restrictive covenants relating to any alteration of the structural fabric, repairs and/or maintenance of a building and common parts.
However, most leasehold, leasehold enfranchisements and/or commonhold agreements in England and Wales incorporate clauses prohibiting certain works being carried out by a building owner without the prior written consent of the Freeholder.
This can pose problems not only for a freehold owner that owns an entire block of flats to which leasehold agreements have been granted, but to a block of flats where all of the occupiers are in fact equal shareholders of the Freehold of the building or, are the freehold owners of a unit (commercial or residential).
What is a shareholder of a residential freehold and in what circumstances do they have to consult with other shareholders before serving a Party Wall Notice?
As discussed, a shareholder of a freehold interest in land belongs to a leasehold or Collective Enfranchisement Company. For the purposes of this part of the blog, Icon Surveyors will focus on this type of Freehold interest.
So as not to confuse the above-stated interest with that of a Commonhold interest it should be noted that a leaseholder member of a collective enfranchisement is a shareholder of the owner of the Freehold interest of a property.
The freeholder owns the absolute freehold interest inclusive of the common parts of the building or land.
This does not negate the fact that each of the Freehold owners’ shareholders is at liberty to ignore the terms and conditions of their leasehold agreement; on the contrary, each member is legally bound by the leasehold agreement which not only determines how the Freehold shareholdings may be divided but usually governs those of the permitted and restrictive rights of each leaseholder.
On the other hand, a Commonhold interest owner is that of several independent freeholders (i.e. they own the absolute freehold of a demised unit) joining together to control only the Freehold of the common parts of the land or building.
Terms and conditions
Generally speaking, in England and Wales, shareholders of Freehold property and/or land must all abide by the terms and conditions as specified within the Freehold and Leasehold Deed(s) and/or the collective/leasehold enfranchisement company’s Memorandum & Articles of Association. The only way that this can be overridden is by all of the members of the enfranchisement company agreeing to alter the terms of the original Deed(s).
The Freehold is actually owned by the company therefore the company’s Articles of Association should provide how the shareholders will run the company including the internal management of affairs and any legal responsibilities it may have, including the right to Alter restrictive covenants and/or draw up a Deed of Variation. (For further information concerning a Licence to Alter and a Deed of Variation please refer to Icon Surveyor’s blogs relating to the same.)
One such legal responsibility is that of the maintenance and repairs as well as each of the shareholder's rights under their leasehold agreements to carry out any improvements. Thus, if the leasehold agreement contains a restrictive covenant requiring the leaseholder to obtain written permission to carry out repairs and/or improvements, regardless of a shareholder being a co-freeholder of the building in name, permission, usually written, is required from the Freeholder (collective enfranchisement company) in accordance with its articles of association, prior to any works being carried out.
Licence to Alter
Such permissions are usually granted by way of a Licence to Alter. Once such works have been carried out to the satisfaction of the Freeholder/ Company, a Deed of Variation, recording the alterations that have been made, will be approved and registered with the Land Registry.
Please note, if the alterations that have been carried out are specific to the demise of a single Leaseholder, the Deed of Variation relating to the same will be registered on the Land Registry under the title of the Leaseholder. If however, alterations have been made to the Common Parts of the property, the Deed of Variation will be registered under the Title of the Freehold owner, namely, the collective enfranchisement company.
In answer to the question, if the works being carried out are permitted under the Leasehold agreement and/or a Licence to Alter has been granted in accordance with the Company’s Memorandum & Articles of Association, a Party Wall Notice may be served on an adjoining owner by a shareholder of the Freehold interest as a member of a collective enfranchisement without any further involvement of the Company and/or other shareholder members. Unless of course; the adjoining owner is also a shareholder of the collective enfranchisement company!
If however, such works are not permitted by the Leasehold agreement, permission will need to be obtained as per the Leasehold agreement and/or the collective enfranchisement company’s Memorandum & Articles of Association.
Put simply, the collective enfranchisement company, a separate individual in its own right, owns the freehold absolutely. Thus, the rightful owners of the equitable and legal interest in the Freehold is the enfranchisement company, whose name is registered on the Land Register.
The leaseholder merely owns a share(s) in the collective enfranchisement company. Therefore, any permission(s) which must be sought by the Leaseholder from the Freehold owner can only be granted by the enfranchisement company. Once granted, the Leaseholder as a shareholder of the enfranchisement company has the legal right to serve a Party Wall Notice as a leasehold owner under the provisions as provided by the Party Wall etc. Act 1996.
If a leaseholder intends to carry out works that are permitted by the leasehold agreement, for example, fitting a new kitchen (without altering the structural fabric of the building), there is no legal requirement for a leaseholder as a shareholder of the collective enfranchisement company to involve any other party that has obtained a freehold interest.
In conclusion, it is the covenants contained within a leasehold and/or freehold agreement that will determine whether or not a Shareholder of a residential Freehold has the right to serve notice on an Adjoining Owner without the other Shareholders of the Freehold being involved.
Icon Surveyors are happy to provide a free party wall advice to any building or adjoining owners who may be affected by the subject matter raised in this blog.
Note*: This blog is not an authoritative interpretation of the law; it is intended as a general guide.