An alienation clause is a provision in a lease that relates to the requirements and obligations of the lessee when a property is sold or disposed of to a new owner. Failure to comply with the lease requirements will be a breach of lease. The incoming lessee must ensure compliance with the alienation provisions or the Management Company or Landlord will not recognise him as the lawful tenant – which could eventually result in forfeiture of the lease.
COMMON TYPES OF ALIENATION CLAUSE
The most common alienation clause found in leases relates to the service of a ‘Notice of Transfer’. This confirms the transfer of ownership of a property following a sale and will give the details that a management company or landlord will need to correctly send out demands: the identity of the new owner, the date they acquired ownership and their correspondence address. Where property is mortgaged, there is usually a requirement to serve a ‘Notice of Charge’ to inform the management company or landlord of the identity of the mortgage lender. This is important as notice will need to be given to the mortgage lender before any forfeiture action. The lease will state to whom the notices must be served and the fee that can be charged for dealing with the notices.
Another common requirement on alienation found in residential leases is for the incoming lessee to enter into a deed of covenant. This ensures that the new tenant specifically covenants with the landlord or management company to perform and observe the lessee’s covenants in the lease. The lease will state who the incoming tenant should covenant with, the landlord, the management company or both.
If the lease makes provision for a restriction to be registered on the leasehold title of the flat this will prevent the new owner from becoming the registered owner of the property until they have obtained confirmation from the beneficiary of the restriction (usually the landlord or management company) that the provisions of the lease have been complied with. A landlord or management company can charge a fee for providing a certificate of compliance confirming that registration should be permitted. The management company or landlord can reasonably refuse to provide a certificate where there are arrears on the ground rent or service charge account. This is an ideal time to ensure that the account is paid up to date.
THE EFFECT OF RTM
Commonly problems tend to arise where an RTM Company has acquired the right to manage as the effect of RTM on compliance with the alienation provisions is not widely recognised. Section 98 of Commonhold and Leasehold Reform Act 2002 provides that, upon acquisition of the right to manage, an RTM Company has the right to grant approvals instead of the party named in the lease. This means that it is only the RTM company who can grant approvals for:
- charging (ie mortgaging the property)
- making structural alterations or improvements
- altering the use of the property
Once the RTM Company receives a notice from a leaseholder for any of the above approvals they are obliged to serve a copy of this on the landlord and allow 30 days for the landlord to raise any objections. Only upon expiry of the 30 day notice period, (and only if no objections are raised) can the RTM Company approve or receipt the notices.
This provision ensures that the landlord, who retains an interest in the building and is entitled to collect ground rent, can still keep an up to date record of the leaseholders of the building despite the powers to consent to the assignment having passed to the RTM Company.
RTM supersedes any provision of a lease which specifies a party entitled to receive notices. All notices are to be served upon the RTM Company and if a deed of covenant is required by the lease, this is to be entered into with the RTM Company and not with any previous management company or landlord specified in the original alienation clause.
As a consequence, once RTM has been acquired, landlords and management companies named in the lease will no longer be able to validly receipt notices or release restrictions on title whilst the RTM Company exists.
An RTM Company is entitled to make an application to the land registry to have their interest registered on the landlord’s title, which is an effective way of placing all incoming tenants on notice of the existence of the RTM Claim. This should ensure that the incoming tenants are aware of the correct party to give notice to where there is a sale or disposition of the property.
If you have any questions about any of the above please do not hesitate to contact Analise Broomhall of our property department.