FSV Freeholders Ltd v SGL 1 Ltd [2023] EWCA Civ 1318
A recent Court of Appeal case will be helpful to those landlords who are required to comply with Section 5 of the Landlord & Tenant Act 1987 (“LTA 1987”) when making reversionary disposals. It dealt with the validity of the Section 5 Notices for ‘severed’ developments, whether they need to contain the transaction terms for the entire development and (following non-acceptance by the tenants of a severed offer) whether the subsequent sale and purchase to a third party is then required to be on a severed basis.
The concept of a severed estate is an estate, which is made up of several buildings, which can be severed so as to deal with each building separately. Some estates cannot be severed as they share, for example, basement parking.
The FSV Freeholders case was a recent Appeal relating to Section 5 of LTA 1987, where the previous owner of the development had served Section 5 Notices on the qualifying tenants on a severed basis, and each Notice contained the terms for the sale of the relevant building. No acceptance notices were served by the qualifying tenants and the owner went on to sell the whole development to the buyer, not on a severed basis. The tenants disputed the validity of the Notices on the grounds that they did not know the terms for the sale of the whole development, only the terms for the block in which they owned a flat.
On the point of the validity of the Notices, and the argument put forward by the tenants that the Notices were invalid as they did not set out the entire terms of the eventual transaction, the Judge stated that Section 5 Notices do not have to contain the terms that the buyer agreed but rather the severed terms that section 5(3) of the LTA 1987 requires. This point seems to be common sense, although there may be some tenants who insist that they are entitled to know details for the entire transaction. Landlords will now have the Judge’s comments in this Appeal to rely on.
The Judge stated that if the offers to the tenants are not accepted, then it is not the case that the landlord then has to sell the development on a severed basis to the proposed buyer. It can proceed with an unsevered transaction. It was not previously clear whether sales to third parties had to be on a severed basis and this has now been clarified by the Court of Appeal.
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