Disposal of residential property, 1-16 Pondfield House, Clifton Gardens, London W9 1DS

Report: 15
Date: 23 June 2011
By: Director of Resources on behalf of the Commissioner

Summary

In November 2009 Members authorised the disposal of the Authority’s reversionary leasehold interest at Pondfield House by means of a statutory notice served on the leaseholders. A disposal has yet to be completed. This paper recommends a second statutory notice be served based on a different structure that will be attractive to the market, and that the disposal method be via auction in accordance with statutory procedures.

The leaseholders have a right to acquire the MPA’s leasehold interest on the same terms as those offered at auction (including price). Failure to do so will enable the Authority to proceed to completion with the successful auction bidder.

A. Recommendations

That members

1. Note the previous MPA approvals in regard to the disposal of Pondfield House, and the progress made to date, and
2. Agree to offer for disposal by auction (Option 2) the MPA’s reversionary interest in the block as a whole together with the two remaining vacant flats; such disposal to be in accordance with the Landlord and Tenant Act 1987.

B. Supporting information

Background

1. The MPA’s interest in Pondfield House is the remainder of a 99 year leasehold interest expiring in June 2053 in respect of the common areas of the property, together with two of the flats. In accordance with the MPA Residential Estate Strategy, the majority of the leases in regard to the individual flats within the property have been sold privately. The property includes 16 flats, 14 of which have been sold on long leases to private owners and two of which are retained by the MPA and are vacant awaiting sale.

2. There is no long term requirement for the vacant flats.

3. In accordance with the MPA’s Landlord and Tenant responsibilities basic maintenance and repairs are undertaken to the property, but the long leasehold owners of the individual flats have expressed a number of concerns in regard to the level of maintenance required to the property versus the MPA’s maintenance regime. Even though each flat has been sold as seen, with purchasers relying on their own individual surveys, the long leasehold owners are supportive of setting up service charge provisions and the principles of paying a share of maintenance costs, once the common areas have been significantly improved.

4. A condition survey undertaken in December 2008 and subsequently shared with the tenants in January 2009 highlighted those works which the MPA were obliged to undertake and these were completed. Significant additional works were requested from the occupiers, who also raised concerns with the Mayor, Commissioner and Westminster City Council, requesting urgent action is taken by the MPA.

5. As a result of this, and the MPA’s focus on supporting operational policing needs, the MPA agreed to the disposal of their leasehold interest following the required statutory process under Section 5 of the Landlord and Tenant Law Act 1987 (as amended) ‘the Act’ further details are provided in Appendix 1, in November 2009.

6. Following this decision, and subsequent approvals by the MPA in June 2010, notices were served on the long leaseholders of Pondfield House advising them of the MPA’s decision and their option to purchase the MPA’s leasehold interest in one of the vacant flats and the common parts of the building in accordance with Section 5 A of the Act.

7. The leaseholders at Pondfield House did not pursue their right to purchase the MPA’s interest in this way, thereby permitting the MPA the ability to offer the MPA’s interest to the open market in accordance with the Act. A sale has not been achieved and in accordance with the Act the MPA are obliged to offer their interest again to the leaseholders.

Current status

8. The recommendation to dispose of the reversionary interest at Pondfield House remains valid and consideration has been given to how this is to be achieved through the service of a second statutory notice.

9. The original notice was based on an offer to dispose by private treaty. This notice automatically excludes any other method of disposal in respect of the same interest. Although the notice remains valid, the deadline for a positive response from the leaseholders has expired and the notice period must now simply run its course until it expires in September 2011.

10. The Authority is not precluded from serving a second notice based on a different package and offer price. A second notice could also be an offer of disposal by private treaty (Option 1), but the statutory procedure permits a disposal offer by auction (Option 2). Full details are set out in Exempt Appendix 2.

11. The central London property market is currently buoyant and recent auction sales by the Authority have proved to be very attractive to the investor market in the auction room, where investors are returning as the market stabilises.

12. To ensure market value is established in the sale of the MPA’s interest, it is recommended that Option Two is progressed. Under this route, defined within the Landlord and Tenant Act 1987, should the leaseholders not be the highest bidder at auction they have first refusal to purchase the MPA’s interest at the auction price achieved.

C. Other organisational and community implications

Equality and Diversity Impacts

1. There are no race or equality impacts arising from the recommendation. The MPA’s interest will be openly marketed and offers taken will be subject to funding/reserve valuations.

2. The existing leaseholders will be given the opportunity to match the highest offer made (assuming this reaches the auction reserve).

Consideration of MET Forward

3. This paper aligns with the strategic intent of MET Forward Section 7, Met Support, in particular the Estates Programme and aligns with the MPA/MPS Estates Strategy.

Financial Implications

Revenue

4. The financial implications are detailed in Exempt Appendix 3.

Capital

5. The financial implications are detailed in Exempt Appendix 3.

Legal Implications

6. External legal advice has been obtained in relation to this matter and reported to Members in November 2009. The Advice confirms both options are permissible within the MPA powers under the various legislative provisions and the MPA’s standing orders under Part E.

7. By virtue of s146A of the Local Government Act 1972 (LGA 72), the MPA has the power to dispose of land under s123 of the LGA 72 as if it were a “principal council” and also has the power to do anything which is calculated to facilitate, or is conducive or incidental to, the discharge of any of its functions under s111 of the LGA 72 as if it were a local authority.

8. A transfer at market value as proposed in Options 1 and 2 appears to be compatible with the duty to obtain best consideration under s123 of the LGA 72, and as such the Secretary of State’s approval would not be required.

9. The MPA may also seek an overage mechanism enabling the Authority to benefit from any subsequent enhanced value if the property is subsequently developed.

10. The legal advice obtained also confirms that the disposals of the relevant properties are subject to requirements set out under the Landlord and Tenant Act 1987, as amended. This requires strict observance of processes set out in the Act, which involves issuing of Notices and consultation with tenants before the final disposal. Criminal sanctions can be imposed for failure to adhere to the Notice arrangements in the relevant time limits.

11. Members may approve the recommendations contained within this report in accordance with the terms of reference of the Committee.

Environmental Impact

11. The anticipated environmental implications are summarised in Table 1 below:

Table 1

Risk (Including Health and Safety) Implications

12. The exiting of older, outdated facilities surplus to the residential estate will reduce on-going revenue liabilities.

13. The commercial property market remains uncertain at present and significant macro economic changes could impact on the disposal values assumed in this paper.

D. Background papers

• Residential Estate Strategy, Disposal of residential property and the impact of the Landlord and Tenant Act 1987 (as amended) - Report to MPA Finance & Resources Committee 5 November 2009
• MPA Estates Update Paper February 2010 – MPA Finance & Resources Committee 11 February 2010
• Disposal of residential property Abbotts Close, Grice and Pondfield House - MPA Finance & Resources Committee 17 June 2010

E. Contact details

Report authors: Jane Bond, Director of Property Services, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Landlord and Tenant Act 1987 (as amended)

Right of First Refusal
Qualifying criteria and procedure

Building (property)

• The building must contain a minimum of two flats; and,
• At least 50% of the building must be in residential use; and,
• At least 50% of the flats in the building must be held by “qualifying tenants”.

Tenants

All leaseholders of long leases, fixed leases or periodic tenancies are qualifying tenants. Assured or assured shorthold tenants or tenancies that are linked with employment do not qualify.

Landlord

All landlords to whom the rent or ground rent is paid and who will be entitled to vacant possession of the flats when the leases expire meet the criteria.

Disposal

A disposal will meet the eligibility criteria where it is a disposal of the landlord’s interest in the whole building regardless of whether that is a freehold interest or a head leasehold interest or the creation of a new head leasehold interest. Under the Act a disposal a disposal of the landlord’s interest is not restricted to just those parts of the building that are effectively the common parts. A landlord can include in the disposal the title to any vacant flat that is in the landlord’s possession.

Notice

A landlord must serve an appropriate notice (under s.5 of the Act) on the qualifying tenants. The two most common forms of notice relate to a simple sale by contract (s.5A) or a sale by public auction (s.5B).
The notice must be served on at least 90% of the qualifying tenants.

When a notice has been served, the landlord cannot dispose of its interest during the period specified in the notice other than to the tenants.

But the landlord can service a further notice based on a differently structured interest and run this in parallel with the original notice.

Procedure

A. Sale by contract/private treaty (s.5A notice)

The notice must include the following:

1. The terms of the proposed disposal (i.e. the property, the interest, the price and any deposit requirement);
2. A statement that the notice constitutes an offer by the landlord to enter into a contract on the terms set out in the notice;
3. The date by which the offer must be accepted which must be at least two months from the date of the notice;
4. A date for the nomination by the tenants of a purchaser (“nominated person”) which must be at least two months after the date by which the offer must be accepted.

The price is set by the landlord and is neither non-negotiable nor challengeable by a Leasehold Valuation Tribunal. If the offer to sell is not accepted, the landlord cannot sell to another party during the next 12 months other than at the price specified in the notice. The objective is to encourage the landlord to set a realistic market price, one that is not inflated to prevent the tenants from accepting the offer.

For the qualifying tenants to accept the offer a majority of at least 50% (counting one vote per flat) must write to accept the landlord’s full offer terms before the date set down in the offer notice. If the majority of qualifying tenants have accepted the offer they must inform the landlord of the nominated person by the date set down in the offer notice.

The nominated person can be a single person, a group of people or a company. Once the landlord has been notified of the nominated person a sale contract must be issued within one month. The nominated person must sign the return the contract within two months and pay any required deposit (maximum 10%).

The landlord must exchange contracts within 7 days.

Completion takes place on the date specified in the contract. If one of the parties withdraws (or is deemed to have withdrawn by failing to meet a deadline) before contracts are exchanged the withdrawing party must pay the other side’s costs.

B. Sale by auction (s.5B notice)

Notice must be served on the qualifying tenants between four and six months before the date of the auction.

The notice must include the following:

1. The principal terms of the proposed disposal (i.e. the property and the interest);
2. A statement that the disposal is to be by public auction;
3. A statement that the notice is an offer by the landlord for the contract (if any) that will be entered into by the landlord at the auction with the purchaser will have effect as if the nominated person had entered into it;
4. The initial period for accepting the offer which must be at least two months and the initial period must end at least two months before the date of the auction; and,
5. A further period of 28 days for the qualifying tenants to notify the landlord of a nominated person. This period must end at least 28 days before the date of the auction.

For the qualifying tenants to accept the offer a majority of at least 50% (counting one vote per flat) must write to accept the landlord’s full offer terms before the end of the initial period in the offer notice. If the majority of qualifying tenants have accepted the offer they must inform the landlord of the nominated person by the date set down in the offer notice.

The nominated person must notify the landlord at least 28 days before the auction that the remaining stages of the procedure should apply.

The landlord offers its interest at auction. If a successful bid is accepted at auction the landlord must send a copy of the contract to the nominated person within seven days of the auction.

The nominated person has a period of 28 days to accept the contract and pay any deposit that is required. The price is non-negotiable and is the price achieved by the successful bid at auction. The nominated person must withdraw if at any time there is no longer a majority of qualifying tenants.

If one of the parties withdraws (or is deemed to have withdrawn by failing to meet a deadline) before contracts are exchanged the withdrawing party must pay the other side’s costs.

Failure to give Notice of First Refusal

It is a criminal offence not to give a Notice of First Refusal and in addition to the statutory penalties that a court might impose on the landlord, the qualifying tenants have rights of remedy that include forcing the landlord, or any subsequent purchaser, to sell to them.

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