The Crown Provides Lesson for Landlords with Sale of Buildings to Residents

Over three-quarters of the value of the Crown Estate is located in urban centres. The Crown’s office building property is worth some £1.6 billion, its retail buildings are valued at £800 million and its residential property is worth £520 million, according to a Crown Office spokesman. The Crown Estate owns over 2,600 residential buildings and has about 10,000 letting agreements on properties throughout Britain.

While the Crown Estate’s portfolio dates back further than other large-scale landlords, it has adopted a progressive approach towards leaseholders’ newly-won right to buy the buildings in which they live. An important law in 1993, the Leasehold Reform, Housing & Urban Development Act 1993, gave flat owners (leaseholders) the right to compel their landlord to sell them the freehold of their building, and to do so at a fair price within a defined timeframe. This right to “Collectively Enfranchise” one’s building was expanded with the Commonhold and Leasehold Reform Act 2002.

The 1993 and 2002 Acts declared that certain property categories were exempt from Collective Enfranchisement, including all Crown property. However, the Crown Estate has made it clear, since the 1993 Act was passed, that it would seek to follow the spirit of the law and would voluntarily sell the freeholds of its residential buildings to leaseholders that wish collectively to buy.

Since then, the Crown Estate has quietly sold off dozens of its houses and blocks of flats in London to leaseholders, according to residents and property experts. “The Crown Estate has always considered the sale of freeholds of its properties to leaseholders when they have made an approach, except in those properties in sensitive locations,” a spokeman told this writer in a written statement. “Therefore, it was no significant change for us to adopt the spirit of the legislation when it entered the statutes in 1993. In this regard, we were ahead of the legislation.”

“They (the Crown) do seem to be more than happy to sell,” said Rupert Rokeby-Johnson, a solicitor specialising in Enfranchisement. “In general, they are willing to go with the spirit of and to follow the principle of the legislation.”

In September 2004 the leaseholders of Bessborough Gardens, an estate of six blocks containing over 150 flats in London’s Westminster area, completed the negotiated purchase of their freehold from the Crown. Several other Crown residential properties in nearby Lindsay Square and Balniel Garden, which are near the River Thames and a few minutes’ walk from the Houses of Parliament, have also been sold.

Reay Tannahill, a Scottish author whose bestseller books include Sex in History, has first-hand knowledge of the Crown’s move to sell its residential properties. In her limited spare time, Tannahill does volunteer work as Chairman of the resident management company in her block of flats, where leaseholders are negotiating to buy the freehold from the Crown Estate. She said leaseholders decided to approach the Crown because they wanted to buy the freehold to increase the value of their flats. “There is a perception that owning the freehold helps protect or push up the value of flats,” she said. Flats in Enfranchised buildings invariably appreciate in value because the leaseholders are able to grant themselves 999-year leases and to make other improvements in the building.

Although technically Crown Estate assets belong to the Monarch, the Estate pays all of its net revenue, some £170 million a year, to the British Treasury. It reports that in the last 10 years the value of its property has shot up by 146%, with revenue increasing by 130%. The Crown Estate says it actively manages its portfolio, making millions of pounds in sales and purchases each year. But it holds the land and buildings in a trustee capacity, with what it describes as a strong focus on stewardship. For this reason, the Estate refuses to sell to leaseholders those residential properties that have special historic importance. This includes its 460 houses and blocks of flats in and around Regent’s Park in London. The Crown has over 1,000 listed buildings across the country, a third of which are Grade 1. This compares with the national average of just three percent of all listed buildings being Grade 1.

Crown property accounts for large swathes of prime London real estate, including Regent’s Street, parts of Kensington, Victoria, St James’s, Millbank and the West End. One particularly glamorous holding is Kensington Palace Gardens, an exclusive road running northward from Kensington Palace and that is home to many embassies. Kensington Palace became Crown property in 1689, when King William III bought what was then a Jacobean House from the Earl of Nottingham. The house was reconstructed in the 17th century by the famous architect Sir Christopher Wren and his disciple, Nicholas Hawksmoor. The Crown owns humbler residential property as well, including 1,300 homes in the East End of London and elsewhere that are rented at below-market rates to teachers, police, fire fighters and other so-called key workers that would not otherwise be able to afford London housing prices.

Buying the freehold of a building from the Crown is not always a rapidly-moving process, according to Rokeby-Johnson of Rokeby Johnson Baars Solicitors. “They can be quite slow,” he said. Reay Tannahill cautions leaseholders to examine not only the benefits of buying one’s building freehold – whether from the Crown or another large landlord – but also the organisational cost to residents. “It’s a hell of a lot of work,” she says with a sigh.

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“The Crown Estate has adopted a progressive approach towards leaseholders’ right to buy their buildings”

Kat Callo is a strategy consultant at Rosetta Consulting Ltd, which advises leaseholders on buying their freehold. Contact here on phone 020 7853 2282 or email kat.callo@rosettaconsulting.com