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News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
One Significant area of contention in enfranchisement is the question of which covenants may be included in the Transfer of a freehold, where a leaseholder exercises his right to acquire the freehold of his house under the Leasehold Reform Act 1967.
Leasehold covenants include an obligation to pay ground rent; various restrictions on the use and enjoyment of their property and possibly the recovery of a service charge. Often, leasehold house owners see enfranchisement as a means of escaping these obligations. The reality is more complicated.
The starting point is that the 1967 Act entitles the leaseholder to acquire the freehold “free from incumbrances”. A covenant amounts to an incumbrance, from which the leaseholder should take free. There are certain exceptions.
The landlord may require the continuation of existing or grant of new restrictive covenants. However, those restrictions must be proven to materially enhance the value of other property belonging to the landlord. Additionally, new restrictive covenants must not affect the reasonable use and enjoyment of the leaseholder’s property. All such covenants must be reasonable.
The “material enhancement” requirement was considered in Sloane Stanley Estate Trustees v Carey-Morgan. It was decided that “material enhancement” is a matter of general impression; it does not have to be quantified in exact monetary terms; but evidence must establish the restriction will materially enhance the freeholder’s property (mere assertions by Counsel are insufficient). Note the “other property” must be sufficiently close to the leaseholder’s property to be affected by the covenant (Ackerman v Mooney).
Nothing in the 1967 Act provides the landlord with the right to require the inclusion of positive covenants (a covenant requiring the burdened party to expend money or embark on some other positive act). This is illustrated by two recent LVT cases: Ackerman v Mooney, as above and The Portman Estate Nominees (One) Ltd v Great Peter Nominees Ltd; where the imposition of a covenant to erect and maintain boundary structures and a proposed covenant “not to permit the property to fall into disrepair” were respectively disallowed.
This creates certain difficulties for the landlord where the house is part of a managed estate and the lease contains service charge provisions. Except where there is an estate management scheme in place, the leaseholder cannot be required to enter into a direct covenant to pay a proportionate part of the expense of maintaining common parts and providing common services and facilities.
Where the leaseholder does agree to enter into such covenants, statutory rights regulating the level of service charges (which do not protect freehold house owners) should be replicated in the Transfer.
Some further judicial consideration would be welcome. In the meantime, we are left to ponder whether the 1967 Act is really capable of addressing the ever evolving needs of a modern leasehold estate.
Roger Hardwick is Head of Enfranchisement at Brethertons LLP