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What is a Tenant's Improvement?
The law allows any tenant (with some exceptions) who has lived in a property for more than three years under a lease of more than 20 years to apply to the Landlord to purchase the freehold. The purchase price is based on the open market value of the property.
The provisions of the Leasehold Reform Act 1967 (the relevant law) stipulate that the price paid by the tenant to purchase the freehold may be reduced if the tenant has carried out improvements to the property which have increased its value. The Act has been updated several times since its introduction.
In a recent case brought before the House of Lords, tenants sought to purchase the freehold of a property they occupied as a family house. The property had been let for many years during which time it had undergone considerable change, including the addition of an extra storey. It had been converted from a family house into flats. The tenants had converted the property back in stages so that it had once again become suitable for single occupancy. The tenants claimed that the reconversion works were improvements to the property that had increased its value and which, therefore, should be taken into account in calculating the reduction in price of the freehold. There was no dispute regarding the works done to add the extra storey.
The Lords accepted the tenants' view that 'improvements' within the meaning of the Act meant physical improvements rather than merely economic ones. Had the tenants not undertaken the conversion works, the property would have remained in the same state it had been in under multiple occupancy and would therefore not have been worth as much.
A 2017 case in the Court of Appeal confirmed that where a landlord undertakes improvement expenditure as well as repairs, the improvement element of the expenditure cannot be unilaterally charged to tenants.