PP 2012/131

The Leasehold Reform Act 1967 enables long leaseholders to buy the freeholds of premises designed or adapted for living in, which can reasonably be described as a “house”. The issue of whether premises constitute a “house” has become increasingly contentious as a result of the Commonhold and Leasehold Reform Act 2002, which replaced the “residence requirement” in the legislation with a requirement that the tenant has owned the lease for at least two years.  The statutory provisions were amended to allow leaseholders who lease houses as second homes, or through companies, to compel landlords to sell to them at a price determined by the legislation. Unfortunately, the change has also spawned a series of cases about the scope of the legislation, culminating in Hosebay Ltd v Day and Lexgorge Ltd v Howard de Walden Estates Ltd [2012] UKSC 41.  The judgments of the Court of Appeal suggested that the provisions could be applied to buildings that were once houses, but were now used exclusively for business purposes.  The court agreed that Parliament had not intended to apply the legislation to such premises. However, it felt duty-bound to apply the provisions in the statute as they stood – and did not feel able to decide what Parliament would have said, had it appreciated the consequences of the amendments made in 2002. The decisions caused consternation among property investors of all shapes and sizes up and down the country.  Consequently, landlords will welcome the Supreme Court judgment reversing both decisions. The cases concerned converted houses in central London. One of the tenants, Hosebay, was using its premises, which were originally built as houses, as self-catering tourist accommodation. The other, Lexgorge, was using its building as offices when it notified the landlord of its desire to acquire the freehold (although the upper two floors were brought back into residential use before the hearing). The building was listed and was described in English Heritage’s records as a “Terraced House”. The Supreme Court noted that the legislation is directed at houses, not commercial buildings, and decided that it should avoid, so far as possible, an interpretation that would confer rights on tenants that went beyond Parliament’s intentions. The statutory definition of a “house” was in two parts. Was the building designed or adapted for living in (an expression which means something more settled than “staying in”) and could it reasonably be described as a house? The questions were complementary and overlapping. However, both tests must be satisfied and needed to be read in the context of a statute that was about houses as places to live in and not as pieces of architecture, or features in a street scene, or names in an address book. The fact that the buildings might look like houses, and might even be referred to as houses for some purposes, did not displace the fact that their use was entirely commercial. Consequently, neither tenant was entitled to acquire the freehold. The judgment was eagerly anticipated. It is robust and unanimous, but is unlikely to prevent further litigation testing the effect of the legislation on mixed-use premises. Allyson Colby, property law consultant