Structuring Residential Leasehold Development Schemes - Part 4

Our first three blogs in this series looked at the following three options available to a developer in structuring a residential leasehold development scheme:

• Retaining the reversion and the management of the building;
• Retaining the reversion and contracting out the management and provision of services to a management company; and
• Disposing of the reversion and the management to a tenants’ management company.

This final blog will look at some other options that are open to a developer. These are less usual and are best suited to smaller developments.

Disposal of the reversionary interest and management to a flat tenant

Under this scheme, one of the flat tenants would become the freeholder of the building and all management responsibilities would be transferred to them. As a result, they would become the landlord of all the flats in the building, including their own.

Due to the amount of responsibility that is placed on the chosen tenant and the strong possibility that they may not have any previous experience in property management, this scheme is only really suitable for very small developments.

Tyneside leases

The Tyneside flat scheme (also known as the criss-cross scheme) is a complicated scheme and would only be suitable for developments of two flats in a building (for example, ground and first floor). The scheme operates by making each flat tenant the landlord of the other.

To illustrate, the tenant of the ground floor flat will be granted a lease of that flat and at the same time will be given the freehold of the first floor flat. Similarly, the first floor tenant will be granted a lease of that flat and given the freehold of the ground floor flat.

As each tenant will be the other tenant’s landlord, each can enforce the other’s covenants directly without recourse to an external landlord.

A Tyneside flat scheme will fail to work if the lease of one flat and the freehold interest in the other do not stay together. This can be dealt with by registering restrictions on the title registers to prevent the leases of the flats being transferred without the associated freehold.

This scheme can be advantageous as it allows a developer to dispose of the building in its entirety and tenants may consider it beneficial that there is no external landlord. On the other hand, it is very complicated and lenders may not be prepared to lend money on a property that is subject to a Tyneside lease.

If you are a developer entering into a leasehold development scheme and would like advice on the best structure to suit your needs, or if you would like us to set up a particular residential leasehold development scheme for you, our Residential Property team can meet all of your legal needs. You can contact us by calling 0161 941 4000 or by emailing lawyers@myerson.co.uk.