Does the landlord care if there is a caretaker? The claimant certainly did!
I was instructed by an intermediate landlord client who served notice for an extended 90 year lease last year on the caretakers flat held under a head lease in his control. The head lease has now expired but during its currency there was an obligation to employ a caretaker with a flat for his/ her occupation in the building.
There is a risk a) that the lessees could enfranchise and thus the caretaker’s flat following Panagopoulos and Barrie House would be liable to acquisition by the nominee purchaser as a common part necessary for the safe running of the building and b) at least one lessee has an obligation for the landlord to provide a resident caretaker. Also c) the flat would need huge alteration to create a considerably smaller occupational unit free as much as possible from the parts of the accommodation that gave direct services access to the lift, lift motor room, utility meters of all the flats and finally the boiler room.
The client is only entitled to an extended lease of the flat with the caretaker provision still included and as a result offered a nominal sum as in his view the flat is unsaleable. The landlord on the other hand rejected all of the reasoning why the offer premium was so low and responded with a very high counter premium.
It asserted inter alia that in valuing the diminution in value of the landlord’s interest you have to assume that we are living in a ‘no act’ world [Schedule 13 Para 3 (2) (b)] and therefore cannot take into account the possibility that the lessees may collectively enfranchise and therefore claim the caretaker flat back as a common part. As to the only lessee with the right enshrined in the lease to provide a resident caretaker already owned a longer overriding lease, it was of no interest to them as the lessee was in effect landlord to herself!
This provides an interesting conundrum as in the real world as at the valuation date.
What value would the market put on a flat that could only be let to a caretaker and where access is needed at all times through the flat for reading of utility meters & maintenance of services?
The answer surely must be nil as the flat would be unsaleable.
The landlords stance no doubt is that it intends to grant a residential occupational lease and so these risks aren’t to be taken into account. The client though cannot under the Act acquire a new lease without Caretaker use restrictions and even if he could, the flat would need to be seriously reduced in effective area to divorce the living accommodation from the services access part.
To remove such restrictions can only be achieved by voluntary negotiation. There is no right per se under the Act to demand the waiving of the caretaker occupational use. Consequently any valuation negotiation cannot be in a ‘ no Act world.’
In the end the landlord accepted the argument that the flat with a caretaker provision was valueless.
Moreover if the argument had gone before the FtT – it was accepted that it too would have agreed a very diminished value as well as require the flat to be maintained as a caretaker’s flat without a rental income.