The Leasehold and Freehold Reform Act has now become law. It was introduced by the UK Government to bring substantial change for leaseholders, which also means that it will impact landlords (or Freeholders) who owns the piece of land on which the leasehold properties were built.

The reform addresses imbalances and aims to target injustices relating to the leasehold system, sometimes seen as archaic, but it also imposes limitations on freeholders and new regulations for them to comply with. This article intends to give an overview of the meaning of such reform for freeholders.

The abolition of ground rent

The biggest impact is the abolition of ground rent for newly entered long residential leases. Freeholders were relying on ground rent as a steady income, and this reform directly impacts it. As to the existing leases, the ground rent cannot be abolished retrospectively. However, the ground rents will remain under scrutiny and potentially additional regulations to prevent abusive practices.

Freeholders will lose substantial income from ground rents, which means there might be less investment in freeholds in the future as it will be less financially attractive.

More transparent service charges

Service charges must now be more transparent than ever. They must also be reasonable and justifiable. Leaseholders have more power to challenge unreasonable and excessive charges as well as the right to request a breakdown of these costs.

Historically, freeholders have had a wild discretion over services charge. However, their accountability is now increased, and they will face scrutiny over how much they charge for service charges. They will need to provide detailed explanations for all charges. It might mean more administrative work for them and less power to increase high fees but also potentially more disputes in Court over the reasonableness of the service charge.

Lease extension, a simpler way

This new piece of legislation allows for the extension of leases by up to 999 years with no ground rent payable. High premiums for lease extensions will therefore disappear, especially for shorter Leases.

As above, there might be a financial impact on freeholders and therefore on freehold investment. However, it also means a more leaseholder-friendly process with a reduction on costs for extensions.

Commonhold

Commonholds are now being encouraged by the government. Commonholds are a form of ownership for multi-occupancy developments. The Unitholder owns the freehold of their home, and a commonhold or residents’ association owns and manages the common parts of the property.

The above means freeholders will have less properties to manage and therefore fewer leaseholds’ charges and fees.

Right to Manage

Leaseholders will have more opportunities to take over the management of their buildings, even in cases where there is no mismanagement from the freeholders.

As mentioned above, there might be fewer fees to manage for the freeholders but also a loss of control over the maintenance of the properties. There might potentially be more disputes too.

What can Freeholders do?

Freeholders will need to adapt and find strategies to maintain their income and their compliance with the reform. The following are possible:

• Landlords may wish to diversify their portfolios of property, targeting freeholders that are not impacted by the new law.
• Improving and maintaining good relationships with the leaseholders might help mitigate conflictual situations. It may also help effective management of the properties and defuse challenges with them.
• Freeholders can also try to explore commonholds and manage common areas instead of the more traditional roles over Leaseholds.

Conclusion

The reform substantially impacts the UK property market and the position of the freeholders. These changes aim to create a better system for leaseholders but present financial and operational challenges for freeholders. It will require adaptation, adjustments, better management, and strategies. Freeholders will need to be proactive and address these changes to thrive in this new environment.

How we can help?

Whether you are a prospective purchaser of a leasehold property, a leaseholder looking to extend your lease or challenge an illegal ground rent, or a freeholder keen to ensure that you are complying with the new legislation, our Property team and Dispute Resolution teams at TV Edwards are well equipped to provide you with the legal expertise you need to take the best course of action for your circumstances.

If you have any questions or require any assistance on any of these issues, please contact Juanita Francis at juanita.francis@tvedwards.com (Property expert) or our Dispute Resolution team (Property Disputes) at disputeresolution@tvedwards.com or either of the two on 0203 440 8000.

This article was first published in The London Business Matters magazine in July 2024.

Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.

What is a Norwich Pharmacal Order?

A Norwich Pharmacal Order (“NPO”) is an order requiring a respondent to disclose certain documents to the applicant upon request. It allows information to be obtained from third parties who have become ‘mixed up’ in wrongdoing, helping victims to investigate, pursue those ultimately responsible and recover their losses.

NPOs are often used where a victim of wrongdoing does not know the identity of the wrongdoer but can point to a third party who has this information. They can also be used to trace assets and obtain other information needed by the victim to put together its case against the wrongdoer.

The NPO was established in Norwich Pharmacal v Commissioners of Customs & Excise [1974] UKHL.

Criteria for obtaining a Norwich Pharmacal Order

The requirements which must be satisfied to obtain an NPO are:

• There is no CPR provision that would provide the appropriate relief.
• The respondent is likely to have relevant documents or information.
• There is a good arguable case that there has been wrongdoing.
• The “mere witness” rule is not infringed.
• The respondent is involved in the wrongdoing.
• The order is necessary in the interests of justice and is not sought for an improper purpose.
• The applicant is good for the cross-undertaking in damages.

Procedure for applying

The process of applying for an NPO is to make an application to the High Court. This
application must be accompanied by;
• a witness statement setting out the background of the case and how the criteria, as set out above, is satisfied
• a draft of the order they seek to make.

In many circumstances the respondent will be given notice, however, sometimes in urgent situations such as where the purpose of the NPO is to seek a freezing injunction it may be that an application is made without notice. Once the order has been granted, it should be served on the respondent. Where the NPO has been made ‘without notice’, a full note of what was said at the hearing must also be served on the respondent.

This can be used separately or in conjunction with a freezing injunction to secure evidence and identify the assets, then prevent the dissipation of those assets through a freezing injunction. For example, a third party may hold information about an individuals bank account, a NPO could be used prior to the freezing injunction to disclose the evidence which can then be used to apply for a freezing injunction.

Using the information from the NPO, a party can then quickly act to freeze an individual’s assets, preventing further loss. An NPO can also be used to strengthen the application for the freezing injunction because it can be used to show that there is a significant risk of asset dissipation. The use of NPO and freezing injunction in combination can be a tactical approach to litigation.

Costs

The award for costs is at the court’s discretion, in most circumstances the applicant will be ordered to pay the costs incurred by the respondent in complying with the order and the respondent’s legal costs.

How we can help?

Our specialist Dispute Resolution team has extensive experience in obtaining Norwich Pharmacal Orders for clients and receives excellent feedback, together with its work on freezing injunctions. If you would like to discuss further, please contact Partner Adam Haffenden from the Dispute Resolution team on 0203 440 8139 or email adam.haffenden@tvedwards.com

Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.

A freezing injunction is an temporary order placed against a respondent’s assets which when granted, will stop the respondent from being able to freely dispose of their assets. However, the injunction does not place any liability on the parties involved. Often such injunctions are entered into as there are other pending proceedings to which the assets are related. These types of freezing orders are a powerful remedy designed to prevent asset dissipation that could undermine enforcement of a future judgment.

The assets affected by the freezing injunction can be dependent on these pending proceedings. Any type of asset can be included within the order such as bank accounts, shares, land, and art. Whilst domestic freezing orders only apply to assets in England and Wales, the Court can issue an international order which will restrain the respondent’s worldwide assets.

This is often referred to as a worldwide freezing injunction (WFI). It is also possible that the injunction may only affect assets up to a maximum sum such as the pending claim’s value. Alternatively, it may apply to all of the respondent’s assets or only to specific assets.

How is a Freezing Injunction granted?

Freezing injunctions can be applied for by applicants without providing advance notice to the respondent. This is known as applying on an ‘ex parte’ basis. This application process usually involves sending an application to the High Court where a judge will decide if the applicant has satisfied the required criteria to grant an injunction.
The Applicant must satisfy the judge that:

1. A good and arguable case has been made against the respondent.
2. The respondent has property within the jurisdiction of the Court.
3. There is a risk that these assets may be dissipated or moved by the respondent.
4. It is just and convenient in all circumstances to grant the injunction.

In practice, the application is usually supported by an affidavit setting out the facts of the case, the nature of the claim, and evidence of the risk of dissipation. Frequently, the hearing is held ex parte to prevent the defendant from taking pre-emptive action.

What happens once the Freezing Injunction is granted?

Once the Court grants the injunction, the respondent will be served notice of it as soon as possible. Additionally, any third party who holds assets on the respondent’s behalf will also be served notice of the injunction. An example of this may be the respondent’s bank to ensure that a bank account is frozen, and the respondent is unable to access its contents. These third parties must follow the order as assisting any breach will find them in contempt of court.

Once served, it is important that the respondent receives independent legal advice to ensure they accurately understand the terms of the injunction, which assets it applies to, and any obligations it imposes on the respondent. The order must be complied with, even if it is thought that it has been improperly granted.

A freezing injunction may request immediate action from the respondent. This can involve the respondent swearing an affidavit which would provide the applicant with the details of assets held by the respondent. The specific assets that require such disclosure will be dependent on the subject of the pending proceedings. The Court has a wide discretion regarding the scope of such obligations so it is crucial to understand them.

It is vital that this information is provided accurately and honestly as failure to do so is contempt of court which may result in fines or seizure of assets. Additionally, freezing injunctions will usually have Penal Notices attached, meaning non-compliance may also result in up to two years imprisonment.

Domestic vs worldwide freezing injunctions

A domestic freezing injunction is a court order that restrains a defendant from disposing of or dealing with assets within the jurisdiction of the issuing court. The primary purpose is to preserve the status quo and ensure that the defendant’s assets remain available to satisfy a potential judgment. Legal Framework: in jurisdictions like the UK, domestic freezing injunctions are rooted in common law and governed by procedural rules such as the Civil Procedure Rules (CPR).

The key requirements for obtaining a domestic freezing injunction include:

• Good Arguable Case: The claimant must demonstrate a solid foundation for their underlying claim.
  
• Risk of Dissipation: Evidence must be presented showing a real risk that the defendant will dissipate their assets to frustrate the enforcement of a judgment.
  
• Just and Convenient: The court must be convinced that it is just and convenient to grant the injunction.

The process of obtaining a domestic freezing injunction typically involves filing an application. The claimant files an application supported by an affidavit detailing the facts of the case, the nature of the claim, and evidence of the risk of dissipation.

A worldwide freezing injunction (WFI) extends the restraint on the defendant’s assets globally, beyond the borders of the jurisdiction where the order is issued. WFIs are crucial in international litigation involving assets spread across multiple countries. WFIs originate from English common law, with the landmark case Mareva Compania Naviera SA v International Bulkcarriers SA [1975] establishing their foundations. The principles set forth in this case have influenced jurisdictions worldwide.

To obtain a WFI, the claimant must meet similar requirements as for domestic injunctions, but with added considerations for the international scope.

Enforcing WFIs is more complex, often requiring cooperation with local courts and lawyers abroad. Choosing between a domestic or worldwide freezing order depends on the location of the respondent’s assets: if confined to one jurisdiction, a domestic order suffices, but if spread across multiple countries, a WFI is usually necessary.

Steps to Defend a Freezing Injunction

The injunction will include notice of a Return Date hearing. This will usually be held a week after the injunction has been granted and served. The Return Date is an opportunity for the Court to review the injunction and the applicant to state why it should continue. Importantly, it enables the respondent to be present at the proceedings and share their own submissions. The respondent can ask the court at this hearing to discharge the injunction, or its terms be varied.

At the Return Date hearing, it is possible for the Respondent to make the following applications to the Court which should be made promptly:

1. Apply for Variation

It is possible for the defendant to ask to vary the terms of the injunction. This may be necessary where the terms are too wide, apply to too many assets, or they have been oppressive. The injunction may be oppressive if the amount it allocates the respondent for living expenses is not enough.

An application to vary the injunction can be done through consent if its terms permit. However, it is important to note that if the respondent does vary the injunction by consent, it may mean they are prevented from relying on the grounds for it to be discharged later.

If the injunction does not include variation of terms by consent, it is possible to apply to the Court instead. The Court will then consider the overall fairness of the case as well as considering the respondent’s conduct so far in the proceedings and the impact the injunction is having on the respondent. This may involve assessing the loss that the respondent has suffered so far due to the injunction being in place.

In practice, variation is often sought when the scope of a freezing order is unnecessarily wide or daily living/business expenses have not been adequately provided for.

2. Apply for Discharge/Dismissal

To discharge the injunction, the Respondent must apply promptly to the Court. There are multiple grounds available to do so including:

• There has been an unreasonable delay by the applicant. As the injunction is restrictive on the respondent, the applicant is under a duty to reflect the urgent nature of the injunction and they should press ahead with the relevant proceedings to limit the impact on the respondent. If they fail to do so, the injunction may be discharged.
  
• The applicant failed to comply with its duty of full and frank disclosure. Due to the initial hearing being without notice, the Court considers the duty of full and frank disclosure strictly. This means that the applicant must have provided all relevant information to the Court, even if it negatively affects their case. If the applicant has not done so, it is possible to challenge the freezing injunction and ask for it to be set aside.
  
• The applicant has failed to comply with their undertakings. When applicants ask for the injunction, they provide an undertaking to the Court that they will pay any damages suffered by the respondent and third parties if it has been improperly granted.
  
• The injunction itself is oppressive. If the injunction is causing the respondent to suffer an unjust amount of loss, this may be a reason for the court to consider discharge.

Additionally, the court will also consider the overall fairness of the case, balancing the applicant’s need to protect the assets with the restriction the order is placing on the respondent.

This balancing exercise ensures that freezing orders remain proportionate and fair.

3. Continuation

It is also possible, in light of the Return Date hearing, that the freezing injunction will continue indefinitely until the main proceedings have been concluded and a judgement determined. Following this judgement, the freezing injunction will be lifted, however other orders may be imposed on the respondent in its place depending on the Court’s decision.

Continuation is often critical where there is a risk that assets could otherwise be dissipated before final judgement enforcement.

Common enforcement challenges with freezing injunctions

Enforcing a WFI involves navigating different legal systems, which can be complex and time-consuming. Co-operation with local legal experts is essential to ensure effective enforcement.

Both types of injunctions carry risks of non-compliance by the defendant, leading to potential contempt of court proceedings. Additionally, wrongful freezing orders can result in significant damages against the claimant, emphasising the need for careful consideration and solid evidence before seeking an injunction.

This is why careful preparation and international expertise are vital when dealing with worldwide freezing orders.

Our proven results in domestic and worldwide freezing injunctions

Adam Haffenden, Head of Dispute Resolution and a partner at TV Edwards LLP is a prominent legal practitioner renowned for his significant experience and expertise in dealing with freezing injunctions and cross border enforcement of foreign judgements.

His career highlights include:

• High-Profile Cases: Adam has represented clients in several landmark cases involving WFIs and domestic freezing injunctions, providing strategic advice on obtaining, enforcing, and challenging these injunctions.
  
• Cross-Border Expertise: Given the global nature of WFIs, Adam’s ability to navigate multiple jurisdictions has been pivotal in securing and enforcing orders internationally.
  
• Advisory Roles: He has advised major corporations and high-net-worth individuals on the complexities and implications of WFIs, ensuring compliance and protecting their interests.
  
• Scholarly Contributions: Adam has authored articles on the subject, contributing to the legal community’s understanding of freezing injunctions in the UK. His insights have been featured in a leading London business journal.

Successful freezing injunction outcomes

Case Study 1: Asset Protection in Fraud Litigation and Cross-Border Enforcement

In a notable case, Adam successfully obtained a Worldwide Freezing Injunction against several defendants in a multi-million-pound civil fraud dispute. His meticulous preparation and persuasive arguments, together with his legal counsel, convinced the court of the imminent risk of asset dissipation. This secured his client’s position and ensured the assets remained available for potential recovery in the foreign jurisdiction.

His client commented:

“Adam you were absolutely fantastic when dealing with our fraud case and the way you secured a worldwide freezing injunction against the defendants, we cannot thank you enough for your hard efforts. Highly recommend Adam for any litigation work.”

Case Study 2: Domestic Freezing Injunction Securing £75,000

Adam also won a case where he obtained a domestic freezing injunction to prevent the dissipation of £75,000. The injunction resulted in the defendant’s assets being frozen, ensuring that the client’s money was returned directly from the defendant’s bank account. This swift resolution enabled the injunction to be lifted once the funds were recovered.

The delighted client wrote:

“I was overwhelmed with stress when I discovered the imminent threat to my assets, but Adam’s expertise and dedication were evident from the start. He and his team built a compelling case and secured a freezing injunction that gave me immediate protection and peace of mind. The outcome safeguarded my assets and ensured the defendant released all outstanding monies. I highly recommend Adam Haffenden’s services.”

Get specialist legal help with freezing injunctions

At TV Edwards LLP, our specialist freezing order solicitors have extensive experience advising clients on freezing injunctions. We understand the urgency these cases demand, whether you are seeking to secure assets at risk of dissipation or defending against an order that has already been made.

Adam’s Haffenden’s significant experience and expertise make him a leading authority in this area, capable of navigating the intricate legal and practical challenges these injunctions present.

If you would like to discuss bringing or defending an application for a freezing injunction, please contact Partner Adam Haffenden from the Disputes Resolution team on 0203 440 8139 or email adam.haffenden@tvedwards.com.

Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.