- February 12, 2020
- Posted by: granitewordpress
- Category: News
Clarity for Tenants Following New Legislation – Landlord and Tenant (Ground Rents) (Amendment) Act 2019
On the 16th of January 2020, the Minister for Justice and Equality, Charlie Flanagan, signed the commencement order to bring the Landlord and Tenant (Ground Rents) (Amendment) Act, 2019 into operation. This Act will entitle more people to buy out their ground rents.
The 2019 Act is a response to a decision of the Supreme Court in the case of Shirley & Others v O'Gorman & Company Ltd, which was viewed as unfairly interpreting the eligibility requirements for those who wished to buy out their ground rents. One of the aims of the 2019 Act is to avoid the likelihood for a similar interpretation by the courts to happen again.
This article will firstly set out the legal backdrop to the ground rents legislation before dealing with the Supreme Court decision in the Shirley case and then finally moving on to the 2019 Act.
What are ‘Ground Rents’?
The term ‘ground rent’ is not defined, but is typically the rent paid by a tenant where the landlord has provided the ground only and the tenant has constructed the building(s) thereon. The low amount of rent reserved reflects the works needed to be undertaken by the tenant in order to build the property e.g. £10 a year. Ground rent leases are usually for periods between 99 and 999 years. In many instances, the landlord’s successor in title can no longer be traced and the rent will not have been paid for many years.
It became public policy at the beginning of the 20th century to enable tenants who spent their time and money on the land to purchase these landlords’ interests, commonly known as ‘buying out the ground rents’. This eliminates the uncertainty for tenants that accompanies having superior ownership on title as well as removing any onerous terms contained in the Lease.
Landlord and Tenant (Ground Rents) (No. 2) Act, 1978
This Act is the main piece of legislation which grants a legal right to tenants to buy out their ground rent, provided they satisfy certain conditions.
The tenant must firstly satisfy all of the criteria outlined in section 9 of the Act, which are:
- There are permanent buildings on the land,
- If the permanent buildings have been altered or reconstructed by the tenant, that the alteration or reconstruction was extensive enough to cause the buildings to lose their original identity,
- The buildings were not erected in contravention of a term or condition of the lease, and
- At least one of the seven criteria in section 10 is satisfied.
One of the seven criteria listed in section 10 which is most commonly availed of by tenants is that the buildings on the land were not constructed by the landlord or the landlord’s predecessors. There is a presumption that the buildings were not erected by the landlord or the landlord’s predecessors, which needs to be rebutted by the landlord. This section was understood by practitioners as meaning that if any previous tenant had built the permanent buildings (as opposed to the landlord or a previous landlord) then this part of the condition was satisfied.
The Shirley Case
In 2012, the Supreme Court ruled that:
- A building, even if substantially renovated or altered, does not ‘lose its original identity’ if part or parts of the original building(s) remain identifiable. This raises the threshold which a tenant has to meet in order to buy out the ground rent.
- If a landlord, or the landlord’s predecessors, had ever entered into possession of the land since the construction of the permanent buildings, then this criterion of section 10 would not be deemed to have been satisfied by the tenant.
These interpretations have been viewed as being unfair to tenants who would have otherwise been entitled to buy out the ground rents for the property.
The Landlord and Tenant (Ground Rents) (Amendment) Act, 2019 was introduced to address these issues.
Landlord and Tenant (Ground Rents) (Amendment) Act, 2019
The 2019 Act, firstly, outlines matters which can be taken into account by a ground rents arbitrator when determining whether the alteration or reconstruction of buildings can be interpreted as resulting in the building losing its original identity. In particular, it provides that an arbitrator cannot refuse to hold that buildings have lost their original identity by reason only of the fact that a part or parts of the original buildings remain identifiable, a line of reasoning which had occurred in the Shirley case.
Furthermore, if a landlord, or their predecessors in title, entered into possession of the property at some point since the construction of the permanent buildings, this cannot prevent a tenant from satisfying the criterion outlined in section 10 of the 1978 Act. This effectively reverses the ruling which had occurred in the Shirley case.
In conclusion, the 2019 Act reduces the ambiguity brought into play by the Shirley case concerning buying out the ground rents of a property. However, the main requirements a tenant needs to satisfy in order to buy out the ground rents still remain in the 1978 Act.
This information is for general guidance and it is not intended to be professional legal advice. For more information on ground rents contact Emma Comyn, Partner in Comyn Kelleher Tobin LLP.