Landlord and tenant — Leasehold Reform Act 1967 — Basement of house under adjoining building — Whether the whole a ‘house’ for purposes of section 2(1) — Whether basement a material part for purposes of section 2(2)
By a lease
dated February 3 1913, later varied by a deed dated May 31 1949, 2 Wilton
Crescent, of which 2 Kinnerton Street, London SW1, was the mews, was demised
for a term expiring June 24 2009. In the late 1960s 2 Kinnerton Street became a
separate dwelling-house and the rent was apportioned. In 1984 the respondent
tenant acquired the severed term of the lease. The result of the 1960s
conversion was to leave for the exclusive use of 2 Kinnerton Street a flight of
stairs and a basement of which 113 of the 140 sq ft were under 2 Wilton
Crescent. For about nine years before the application the tenant had not
occupied the basement. The landlords’ contention, that 2 Kinnerton Street was
not a house for the purposes of sections 1 and 2 of the Leasehold Reform Act
1967 because the premises were not structurally detached and a material part of
the structure lay below 2 Wilton Crescent, was not accepted by the county court
judge. The landlords appealed.
the Act are different; the requirement that the tenant should occupy the house
as his residence ought not to influence the identification of the house. In
identifying the house, section 2(1) does not require either the lease or the
portion occupied as a residence to be taken into account. In applying section
2(1), the building held by the tenant and designed or adapted for living in was
the whole of 2 Kinnerton Street including the basement. The whole building and
basement was therefore a house for the purposes of section 2(1). The part of
the basement below 2 Wilton Crescent was a material part for the purposes of
section 2(2). The primary purpose of section 2(2) must be to exclude from the
operation of the Act houses in respect of which the inability of one freehold
owner to enforce positive obligations against successors in title of the other
would be likely to prejudice the enjoyment of the house or another part of the
structure. Accordingly, if the part of the house which lies above or below a
part of the structure not comprised in it is of sufficient substance or
significance to make it likely that enfranchisement will have that prejudice,
the part of the house is material. The basement of 2 Kinnerton Street was
obviously a material part.
The following
cases are referred to in this report.
Austerberry v Oldham Corporation (1885) 29 ChD 750; 1 TLR 473, CA
Gaidowski v Gonville & Caius College, Cambridge [1975] 1 WLR 1066;
[1975] 2 All ER 952; (1975) 30 P&CR 120; 238 EG 259, CA
Parsons v Henry Smith’s Charity Trustees [1973] 1 WLR 845; [1973] 3
All ER 23, CA; [1974] 1 WLR 435; [1974] 1 All ER 1162, HL
Peck v Anicar Properties Ltd [1971] 1 All ER 517; [1970] EGD 868,
(1970) 215 EG 1135, CA
Rhone v Stephens (Executrix) [1994] Ch 310; [1994] 2 WLR 429;
[1994] 2 All ER 65; [1994] 2 EGLR 181; [1994] 37 EG 151, HL
Wolf v Crutchley [1971] 1 WLR 99; [1971] EGD 70; (1971) 217 EG
401, CA
This was an
appeal by the landlords, Gerald Cavendish, sixth Duke of Westminster, John
Nigel Courtenay James CBE and Sir John Richard Baker Wilbraham Bt, against the
decision of Judge Rich QC in Central London County Court. The respondent tenant
was Martin Birrane.
Robert Reid QC
(instructed by Boodle Hatfield) appeared for the appellants; Paul Morgan QC
(instructed by Jeffrey Green Russell) represented the respondent.
Giving
judgment, Nourse LJ said:
This appeal raises two familiar questions under the Leasehold Reform Act 1967.
What is the ‘house’ within section 2(1)? If part of it lies below a part of the
structure not comprised in it, is that a ‘material’ part of the house within
section 2(2)? On each of those questions the authorities are in a somewhat
unsatisfactory state.
The landlords
are the trustees of the will of the second Duke of Westminster. The tenant is
Mr Martin Birrane. The premises sought to be enfranchised are 2 Kinnerton
Street, London SW1, which form part of the landlords’ Belgravia estate. They
used to be the mews to 2 Wilton Crescent and by a lease made on February 3 1913
the second Duke demised the property as a whole for a term of 63 years from Christmas
1912, the term being extended until June 24 2009 by a deed of variation
executed on May 31 1949.
In the latter
part of the 1960s, pursuant to a licence granted by the landlords’ predecessors
on April 21 1966, the property was divided and converted, 2 Kinnerton Street
becoming a dwelling-house separate from 2 Wilton Crescent. By a further licence
dated April 4 1968 permission was given for the use of 2 Wilton Crescent as the
Singapore High Commission and on May 6 of that year the lease, so far as it
related to those premises, was assigned to the government of that country. By a
deed dated December 25 1968 the rent payable under the lease was apportioned
between 2 Wilton Crescent and 2 Kinnerton Street. By an assignment made on May
6 1968 the lease, so far as it related to 2 Kinnerton Street, became vested in
the tenant.
It is
necessary to describe the construction of 2 Kinnerton Street and to give some
account of how it came to be in the state that it is. It is unnecessary to go
back before the division and conversion of the property. The main part of 2
Kinnerton Street is a structure consisting of ground, first and second floors
overlooking Kinnerton Street at the front and the back of 2 Wilton Crescent at
the rear. It was originally proposed that the property should be divided along
the rear elevation of that structure. But at a late stage in the design process
a revised proposal was made for the incorporation into 2 Kinnerton Street of a
basement area of some 140 sq ft at the rear, most of which lay below
what was previously a ground-floor passage connecting the two parts of the
property.
The conversion
proceeded accordingly. It involved building a flight of seven steps down from
the rear ground floor of the main part of 2 Kinnerton Street, with a door at
the top. The connecting passage became loft space above the basement steps at
the 2 Kinnerton Street end and a lavatory within the High Commission’s premises
on the 2 Wilton Crescent side. Since the conversion the only access to the
basement area and the loft space has been from the main part of 2 Kinnerton
Street. Approximately 113 of the 140 sq ft of the basement area lie below the
rear part of 2 Wilton Crescent. The aggregate floor area of the main part of 2
Kinnerton Street is about 2,310 sq ft. It is agreed that 2 Wilton Crescent and
2 Kinnerton Street continue to form one structure.
As will
appear, I regard the use which has since been made of the basement area as
irrelevant to the questions we have to decide. However, in order to explain the
view taken by the judge in the court below a brief account must be given. The
area was originally laid out to provide what the judge described as an
inconveniently shaped small room, with a lobby beyond and then some lavatory
accommodation and possibly tea-making space. After the tenant had acquired the
premises in 1984 he adapted it to provide a small bedroom for a housekeeper,
together with a bathroom at the rear. He later abandoned that idea, not least
because the area had on a number of occasions been flooded by an overflow from
the High Commission’s lavatory above. The judge said:
Accordingly,
by 1990, although the doorway remained between the kitchen and the basement, I
accept that the property was not in fact being physically occupied by the
tenant as part of his residence. He was no doubt still in what used to be
called rateable occupation of it. He still possessed it, controlled it and he
had twice installed carpets in it. At least for the time being and, indeed, for
a period from his purchase, for some eight or nine years, he made no actual use
of the area. He had taken out the bath. He had sought to install a shower in
the area which had previously been used for a lavatory and tea room, but he had
not succeeded in maintaining its adaptation for the purposes of being lived in.
On October 1
1990 the landlords issued an originating application in West London County
Court claiming a declaration that 2 Kinnerton Street was not a house for the
purpose of sections 1 and 2 of the 1967 Act, on the ground that the premises
were not structurally detached and a material part of them lay below a part of the
structure not comprised in the premises, namely part of 2 Wilton Crescent. On
December 20 1990 the tenant filed an answer resisting the application. On
February 21 1992, in exercise of his rights under the Act, he gave notice to
the landlords of his desire to have the freehold of 2 Kinnerton Street. On May
1 1992 the landlords gave the tenant a notice in answer, contending that he had
not been occupying the premises as his only or main residence and repeating the
contention made in their originating application. On May 18 1992 the tenant
gave the landlords an amended notice of his claim. On June 14 1993 the
landlords issued a further originating application claiming declaratory relief
in line with their notice of May 1 1992. No difficulty arises as to the date at
which the facts are to be judged, it being agreed that there was no material
change in them between October 1 1990 and June 14 1993.
The landlords’
applications were transferred to Central London County Court and were heard
there by Judge Rich QC on July 15 and 16 1993, by which time the tenant had put
in a counterclaim. I refrain from going into procedural details. The judge had
to answer the two questions referred to at the beginning of this judgment. He
decided both in favour of the tenant, holding: first, that the ‘house’ within
section 2(1) of the Act was the main part of 2 Kinnerton Street and that it did
not include the basement area; second, that even if it did the part which lay
under the rear part of 2 Wilton Crescent was not a material part of the house
within section 2(2). The landlords now appeal to this court. The question
whether the tenant has been occupying the premises as his only or main
residence has been put on one side.
The first
question is whether the ‘house’ within section 2(1) does or does not include
the basement area. The tenant’s right to enfranchise the premises arises under
section 1(1) which, so far as material, provides:
This Part of
this Act shall have effect to confer on a tenant of a leasehold house,
occupying the house as his residence, a right to acquire on fair terms the
freehold or an extended lease of the house and premises where —
The subsection
then sets out certain requirements which have to be satisfied, all of which are
agreed to be satisfied here. ‘House’ is defined by section 2(1) which, so far
as material, provides:
For purposes
of this Part of this Act, ‘house’ includes any building designed or adapted for
living in and reasonably so called, notwithstanding that the building is not
structurally detached, or was or is not solely designed or adapted for living
in, or is divided horizontally into flats or maisonettes …
In construing
these provisions, it is, in my view, important to distinguish between section
1(1), by which the right of acquisition is conferred, and section 2(1), by
which the building to be acquired is identified. The functions of the two
provisions being quite different, I would have thought it clear, authority
apart, that the requirement that the tenant should occupy the house as his
residence ought not to have any influence on the identification of the house.
In Peck
v Anicar Properties Ltd [1971] 1 All ER 517, at p519, Lord Denning MR,
in seeking to identify the house in that case, said:
It is not
sufficient simply to look at the physical condition of the structure as it now
appears. The opening words of the Act (s 1(1)) confer the right on the tenant
of a leasehold house ‘occupying the house as his residence’. The words of s2(1)
define a ‘house’ as a ‘building designed or adapted for living in and
reasonably so called’. Those words show that one must look at three things to
find what is the ‘house’: (1) the lease itself; (2) the portion occupied as a
residence; and (3) the physical condition of the structure.
In my
respectful opinion Lord Denning, by not distinguishing between sections 1(1)
and 2(1), has brought into the identification of the house two largely
irrelevant matters. Except in so far as they may sometimes be relevant to the
secondary question whether the building is reasonably called a house, section
2(1) does not require either the lease or the portion occupied as a residence
to be taken into account. While I do not for a moment doubt the correctness of
the decision in Peck v Anicar Properties Ltd, nor that in Wolf
v Crutchley [1971] 1 WLR 99, where Lord Denning adopted the same
approach some nine days later, his observations evidently caused some confusion
both in Gaidowski v Gonville & Caius College, Cambridge [1975]
1 WLR 1066* (see in particular at p1073, per Sir Gordon Willmer) and at
the hearing in the court below. Indeed, it was largely because of the
importance he attached to the tenant’s use and occupation of the basement area,
or rather the lack of it, that Judge Rich decided the first question in his
favour.
In my view, the
correct approach to the construction of sections 1(1) and 2(1) is as follows.
The first requirement of section 1(1) is that there should be a leasehold house
held by the tenant. In order to find out whether that requirement is satisfied
you go straight to section 2(1), which invites you to identify a building held
by the tenant and designed or adapted for living in; it need not be
structurally detached, nor solely designed or adapted for living in. If and
when you have identified such a building you must consider whether it is
reasonable to call it a house. If it is, then you go back to the other
requirements of section 1(1) and consider next whether the tenant is occupying
the building as his residence. You do not consider that question unless and until
the requirements of section 2(1) are satisfied.
Here the
building held by the tenant which is designed or adapted for living in is the
whole of 2 Kinnerton Street including the basement area. No other view of the
facts is reasonably tenable. Ever since the division and conversion of the
property in the late 1960s that area has been capable of enjoyment, and only
capable of enjoyment, with the main part of 2 Kinnerton Street. The door at the
top of the steps down to the area has never been blocked up and it has been
impossible to make access to it from 2 Wilton Crescent or elsewhere. The use
which
entirely beside the point. It is, and has at all material times been, a part of
a building held by him, which is designed or adapted for living in. It has not
been suggested, it could not have been suggested, that the building with the
basement area as part of it cannot reasonably be called a house. I would
therefore decide the first question in favour of the landlords.
That makes it
necessary to consider the second question. Is the part of the basement area
which lies below the rear part of 2 Wilton Crescent a ‘material’ part of 2
Kinnerton Street within section 2(2) of the Act, which provides:
References in this Part of this Act to a
house do not apply to a house which is not structurally detached and of which a
material part lies above or below a part of the structure not comprised in the
house.
If a house
falls within section 2(2), it is excluded from the operation of the Act and the
tenant has no right to enfranchise it.
In Parsons
v Henry Smith’s Charity Trustees [1974] 1 WLR 435 the House of Lords
considered the meaning of the words ‘not structurally detached’ in section
2(2). Those words do not usually cause difficulty and it has not been suggested
here that 2 Kinnerton Street is structurally detached. However, at p439E, Lord
Wilberforce, with whose speech the others of their lordships agreed, referred
to the distinction made by the 1967 Act between flats, on the one hand, and
terrace houses and dwellings arising by vertical division, on the other. He
said:
If one seeks
a reason for this different treatment, it may lie in the difficulty, in
relation to units arising by horizontal division, of providing, after they
become freehold by enfranchisement, for the enforcement of necessary positive
covenants — a difficulty which did not exist while they were leasehold.
Possibly there were other reasons for the discrimination: at any rate it was
clearly made in section 2(1) of the Act.
In Gaidowski
v Gonville & Caius College Cambridge (supra), at p1069H, the
experienced counsel who appeared in that case are recorded as having agreed
that the only practical reason for the inclusion of section 2(2) was that
‘flying freeholds or freeholds in the air give rise to peculiarly difficult
conveyancing problems’. The experienced counsel who have appeared in this case,
Mr Robert Reid QC for the landlords and Mr Paul Morgan QC for the tenant, have
agreed that there is in reality only one conveyancing problem, albeit a
fundamental one, in the shape of the rule, referred to by Lord Wilberforce,
that the burden of positive covenants does not run with freehold land. That
rule, usually known as the rule in Austerberry v Oldham Corporation (1885)
29 ChD 750, has recently received new life and vigour from the decision of the
House of Lords in Rhone v Stephens (Executrix) [1994] 2 WLR 429*.
The primary purpose of section 2(2) must have been to exclude from the operation
of the Act houses in respect of which the inability of one freehold owner to
enforce positive obligations against successors in title of the other would be
likely to prejudice the enjoyment of the house or another part of the
structure.
*Editor’s
note: Also reported at [1994] 2 EGLR 181.
In Parsons‘
case part of the first floor of the tenant’s mews house lay above a lock-up
garage which was let with the adjoining house. By the time that the case reached
the House of Lords the tenant accepted that the overhang was a material part of
his house. However, that question had been very much in contention in this
court [1973] 1 WLR 845, where both Lord Denning MR and Stephenson LJ expressed
views on it. At p849H Lord Denning said:
I think the
judge was quite right in saying that a ‘material’ part means an important part.
He visited the premises. He found that the overhang was a material part. He did
not misdirect himself. We must accept his finding.
At p854D
Stephenson LJ said:
Assuming that
‘material’ does not simply point the contrast with ‘trivial’ or
‘insignificant’, I think that it must mean material to the tenant or to his
enjoyment of the house, and that if it is material in that sense it will be of
such significance as to alter the house into a flat, and so take it outside the
Act. Whether it was material in that sense is a question of fact and degree on
which I should differ with very great reluctance from a most experienced judge
who had seen the whole of the premises inside and out.
In the House
of Lords, Lord Wilberforce said [1974] 1 WLR 435, at p440C:
The exact
meaning of ‘material’ in this context is perhaps open to discussion. Whether,
in any case, the part is material is a matter for the judge, who may, as the
learned judge did in the present case, inspect the premises. I am reluctant, in
relation to an issue which must be largely factual and one of common sense, to
attempt a closer definition, all the more so as in this House the materiality
of the overhang was not disputed.
Although the
question is one of fact and degree on which the view of the judge at first
instance is of prime importance, the test he is to apply is a matter of law on
which it may be necessary, as it is here, for an appellate court to express a
view. In my respectful opinion, neither of the tests suggested by Lord Denning
and Stephenson LJ is wholly satisfactory. ‘Important’ is sometimes synonymous
with ‘material’, but at other times it is not. The problems inherent in
treating them as equivalents are demonstrated by the judgment of Judge Rich. He
thought the basement area important because it would add considerably to the
price of the house in the market. But he held nevertheless that it was not a
material part of the house. So Lord Denning’s test has not been helpful in this
case. My objection to Stephenson LJ’s test is that although it is related,
correctly as I believe, to the enjoyment of the house, it is one-sided. Why
should ‘material’ mean material to the tenant or his enjoyment of the house,
but not to the landlord?
Stephenson LJ
assumed that in section 2(2) ‘material’ did not, as it sometimes does, simply
point the contrast with ‘trivial’ or ‘insignificant’. As a matter of language I
agree with him. In ordinary legal parlance ‘material’, used adjectivally, is
not found in a vacuum. It imports a reference to something else. The thing to
which it is applied must be material to some inquiry or for some purpose. It
must be of sufficient substance or significance to have an effect of some kind.
So Parliament must have intended that the part of the house, in order to be
material, would be of sufficient substance or significance to have an effect of
some kind. What might that effect be? Bearing in mind the primary purpose of
section 2(2), I think it must be prejudice to the enjoyment of the house or
another part of the structure caused by enfranchisement, in particular by
reason of the inability of one freehold owner to enforce positive obligations
against successors in title of the other.
I would
therefore hold that if the part of the house which lies above or below a part
of the structure not comprised in it is of sufficient substance or significance
to make it likely that enfranchisement will prejudice the enjoyment of the
house or another part of the structure, whether by reason of the inability of
one freehold owner to enforce positive obligations against successors in title
of the other or otherwise, then it is a material part of the house within
section 2(2). In practice it may be found that that test will exclude from the
operation of the Act houses of which little more than a trivial or
insignificant part lies above or below a part of the structure not comprised in
it. But that is not a reason for rejecting the only test that Parliament can
reasonably be supposed to have intended. If it is applied to the basement area
in the present case, it is to my mind obvious that it is a material part of 2
Kinnerton Street. For myself, and with all due respect to the judge, I would
have held the result to be the same whichever of the suggested tests had been
adopted.
For these
reasons I would decide the second question, like the first, in favour of the
landlords and allow their appeal accordingly.
Mann and Saville LJJ agreed and did not add anything.
Appeal
allowed.
