Limited companies are separate legal entities and only in limited circumstances will the court pierce the corporate veil. A freehold company cannot rely on the fiction that it holds a freehold interest in properties owned by another limited company that is neither a subsidiary, nominee nor agent for the purpose of seeking compensation under paragraph 5(2)(a) of schedule 6 of the Leasehold Reform, Housing and Urban Development Act 1993.
In Aneesh Ltd v Hinchliffe and others [2023] UKUT 82 (LC); [2023] PLSCS 66 the appellant was the freehold owner of 3-6 Odessa Court, London E7. Odessa Court was a purpose-built block with a flat roof. Flats 1-2 were situated in one self-contained section and flats 3-6 in another. Flats 1-2 were owned by Haveli Ltd. It was argued by the appellant that the two companies were owned and controlled by the same people.
In June 2018, the respondents, being the nominee purchaser and the participating tenants, served notice on the appellant seeking to exercise the right to enfranchise under the Act. The parties were unable to agree on the premium payable, in particular, the sum to be paid for the development value that the appellant would lose by virtue of the enfranchisement.
Relying on DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 32 P&CR 240, the appellant argued that the corporate veil should be pierced and both it and Haveli Ltd treated as a single economic entity. Accordingly, it should be compensated pursuant to paragraph 5(2)(a) of schedule 6 as the two companies would be deprived of the opportunity to carry out a joint development of the roof above the whole building. The First-tier Tribunal refused to pierce the corporate veil. DHN was factually distinguishable as it concerned the compulsory purchase regime and was under a different statute. The appellant appealed.
In dismissing the appeal, the Upper Tribunal recognised that it was bound by DHN, but agreed with the FTT that it was factually distinguishable. The appellant had no proprietary interest in flats 1-2. Further, although Haveli Ltd and the appellant were closely linked, they were not subsidiaries. The appellant did not fund the purchase of flats 1-2 nor did it hold them on trust for the benefit of Haveli Ltd.
The UT also determined that paragraph 5(2)(a) of schedule 6 was not widely drafted so that it could be interpreted as enabling a freeholder to be compensated for the diminution in value of property that it held no proprietary interest.
Elizabeth Dwomoh is a barrister at Lamb Chambers
