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Court of Appeal dismisses leasehold enfranchisement claim on mixed-use property

Out-Law News | 14 May 2013 | 4:57 pm | 3 min. read

The Court of Appeal has dismissed a claim for leasehold enfranchisement by the occupiers of a mixed-use property, ruling that the property, part of which had been converted into a flat against the landlord's wishes, was not a "house reasonably so called".

Under the Leasehold Reform Act, occupiers of premises designed or adapted for living in, which can reasonably be called a "house", can buy out the freeholder of the property and convert a long lease to full ownership. However, mixed-use properties may also qualify for enfranchisement.

In its ruling, the Court of Appeal referred to the Supreme Court's judgements in last year's Hosebay and Lexgorge cases. In those cases, the Supreme Court said that buildings used solely for commercial purposes could not be considered 'houses' regardless of the original purpose of the property.

"A building may be designed or adapted for living in, yet not, in all the relevant circumstances, be a house reasonably so called," said Lord Justice Mummery in his judgment.

"The premises were neither adapted for residential use at the date when the lease began nor were they ever used as such until the recent adaptation for living in, which was completed shortly before the claimants gave notice under the [Leasehold Reform Act]. The upper floor was a subsidiary part of the building, being smaller and previously used for non-residential purposes in connection with an adjoining building ... The only means of access to the flat involved traipsing to the back of the building, climbing an outside metal staircase and then walking along a passageway," he said.

The leaseholders had taken over the remainder of a 99-year lease, dating from 1935, over a two-storey building in 2004. The premises formed part of a row of 1920s two-storey buildings with shops on the ground floor. The bottom floor of the leaseholder's building was a greetings card shop, while the first floor had been used as a storeroom in conjunction with the building next door. The only internal access to it was through the building next door.

In 2008, the leaseholders blocked up the access to the building next door and converted the first floor into a flat, accessed by an external metal staircase leading to the roof. They were refused permission to do so by the freeholder, for reasons expressly including preventing the future application of the Leasehold Reform Act. The leaseholders converted the property regardless and sublet the flat, before making an enfranchisement application.

In court, the freeholder argued that even if the Appeal Court were to conclude that the property was a house, which it did, the leaseholders had barred themselves from making an enfranchisement application by acting against the terms of the lease. Although judgment on this point was unnecessary, Lord Justice Mummery went on to suggest that the leaseholders were not entitled to rely on their unauthorised conversion works when making their application.

"In my judgement it would, as a general rule, be unacceptable, if a person were entitled to enforce a right to acquire property compulsorily by deliberately doing something that was necessary to found the claim, which act was wrongful as between him and the person against whom he seeks to enforce that right," he said.

"As a matter of statutory construction it cannot have been intended by Parliament to give the lessee the right to enfranchise by making, in breach of covenant, the very adaptation of the building for living in that is necessary for him to exercise the right. The claimants seek to enforce a right acquired by committing a wrong. In general, the law should not and does not allow that," he said.

Property litigation expert Siobhan Cross of Pinsent Masons, the law firm behind Out-Law.com, said that the higher courts had not previously considered whether a tenant would be prevented from making an application for enfranchisement if it was in breach of covenant with the freeholder.

""The leaseholders argued that the statute did not require tenants to comply with their leasehold covenants in order to enfranchise. However, the breach was recent and was committed deliberately – specifically to enable the tenant to enfranchise. The Court did not consider what the position would have been if the breach had been longstanding, or had not been committed in order to enfranchise. Additionally, there was no indication in the judgment as to whether the landlord knew about the unauthorised alterations, and had been accepting rent from the tenant regardless," she said.

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