LEGAL NOTES Elizabeth Dwomoh takes a look at a collective enfranchisement case where a broad definition was given to the meaning of “common parts”.
Key points
- When determining whether an area is a “common part” regard should be had to the function served by that area
- A lessee’s intentions for a demised area which is a “common part” is a relevant consideration when determining the question of whether a nominee purchaser’s acquisition of their interest is reasonably necessary for proper management or maintenance
In LM Homes Ltd and others v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC); [2019] PLSCS 6, the Upper Tribunal (Lands Chamber) (UT) had to determine whether a nominee purchaser, Queen Court Freehold Company (QCFC), could acquire the appellants’ leasehold interests in the basement, sub-soil and airspace. Those areas were found by the First-tier Tribunal (FTT) to be common parts of the building. Additionally, the UT was also required to determine whether the FTT had jurisdiction to decide the terms of the acquisition of those parts.
The problem
Under Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act), long lessees of flats in a self-contained building have the right to collectively acquire their landlord’s freehold interest. Acquisition of the landlord’s interest is made by a nominee purchaser chosen by the participating tenants.
By virtue of sub-sections 2(1)(b) and 2(3)(a) of the 1993 Act, participating tenants, through their nominee, can acquire the interest of a tenant under any lease which the demised premises consists of or which includes any common parts of the relevant premises. Acquisition of the leasehold interest in a common part is dependent on it being reasonably necessary for the proper management or maintenance of that common part.
Queen Court in London was a purpose-built block of flats. Pursuant to section 13 of the 1993 Act, a majority of tenants gave Greymax Reversions, the freehold reversioner, an initial notice signalling their intention to exercise their right to collectively enfranchise. QCFC was the chosen nominee purchaser. The first appellant, LM Homes, was the lessee of the airspace above Queen Court. The second appellants, Mr and Mrs Emore, were the lessees of the basement. The third appellant, Dalvir Kaur was the lessee of the sub-soil beneath. Under the initial notice given, QCFC also proposed to acquire the appellants’ interests as well as a number of intermediate leases.
QCFC entered into binding contracts to acquire the freehold and the intermediate leasehold interests. It failed to reach a binding agreement to acquire the appellants’ interests. QCFC applied to the FTT to determine the dispute. It held that it had jurisdiction to determine the terms of acquisition of the appellants’ leases. Further, the appellants’ interests were found to be of “common parts” of the building and QCFC’s acquisition of those leases were reasonably necessary for the proper management and maintenance of those common parts. The appellants appealed.
Jurisdiction of the FTT
Under section 13(11) of the 1993 Act, an initial notice remained in force “until a binding contract was entered into in pursuance of the notice” or until a vesting order was made once all of the terms of acquisition had either been agreed between the parties or determined by an appropriate tribunal.
The appellants argued that the FTT lacked jurisdiction to determine the terms of acquisition of their interests because the initial notice ceased to have effect. They contended that by operation of section 13(11), the initial notice was spent once the freehold reversion was transferred to QCFC pursuant to the terms of the binding contact for the freehold. Reference to “a contract” in section 13(11)(a) of the 1993 Act had to be construed in the singular.
Relying on Penman v Upavon Enterprises Ltd [2001] EWCA Civ 956; [2001] PLSCS 135, the UT rejected the appeal. It found that the FTT retained jurisdiction because a dispute remained as to the terms of acquisition of the appellants’ leases. The proper construction of section 13(11)(a) involved reading the words “until a binding contract is entered into” as encompassing the plural as well as the singular. Under section 6(c) of the Interpretation Act 1978, unless the contrary intention appeared, any words in an Act in the singular include the plural. The statutory provisions in question required an initial notice to remain in force until binding contracts or vesting orders were in existence in respect of all interests sought to be acquired.
The common parts
Common parts are defined in section 101 of the 1993 Act as including the “structure and exterior” of a building or part and “any common facilities” within it. Drawing on earlier decisions, the UT gave a broad definition to the meaning of “common parts”, noting that they include those parts of a building that had some shared use or benefit. Further, it was not necessary for the common part to be devoted to common use or benefit as a matter of obligation in the leases, or for tenants to have access to a part of a building, for it to be considered a common part.
When determining whether the basement, sub-soil and airspace fell within the definition of “common parts”, the UT observed that consideration had to be given to the function served by those areas. The basement accommodated service installations used for the benefit of the whole building. This use was sufficient to render it a “common part”.
It found that the airspace and subsoil were also “common parts” within the extended definition of section 101 of the 1993 Act because they were parts of “the exterior” of the building (relying on Dartmouth Court v Berisworth [2008] EWHC 350 (Ch); [2008] 2 EGLR 141).
The necessity of the acquisitions
The appellants’ intentions for the “common parts” in question were relevant considerations when determining the question of whether QCFC’s acquisition of those interests was reasonably necessary for their proper management or maintenance.
The appellants had significant development rights under the terms of their leases. A realisation of those rights would result in the areas demised losing their character and ceasing to be “common parts” of the building.
On the evidence, the UT determined that the FTT was correct to regard QCFC’s acquisition of the appellants’ interests in the basement, airspace and sub-soil as reasonably necessary for their management and maintenance as common parts of the building.
Elizabeth Dwomoh is a barrister at Lamb Chambers