Lexgorge Ltd v Howard de Walden Estates Ltd

Leasehold Reform Act 1967 – Enfranchisement of house – Terraced property originally built as single residence – Planning consent and lease covenants requiring use of second and third floors as self-contained maisonette – Long actual user of all floors as office accommodation – Claimant seeking to acquire freehold – Section 2(1) of 1967 Act – Whether building a house reasonably so called – Whether lawful use determinative regardless of actual user – Claim allowedThe claimant was the long leaseholder of a terraced property in London SW1. It applied to the court for a declaration that it was entitled to acquire the freehold by way of leasehold enfranchisement under the Leasehold Reform Act 1967. The defendant freeholder opposed the claim on the ground that the building did not qualify for enfranchisement since it did not meet the definition of a “house” in section 2(1) of the 1967 Act.The property had been constructed in 1723 as a single residence over three floors with a basement. No structural or major alterations had been carried out and it retained the internal and external appearance of a house. A 1949 planning consent permitted the conversion of the second and third floors into a self-contained maisonette. The user clause in the claimant’s lease reflected this, specifying office use on the lower floors, with storage in the basement, but requiring a residential use of the two upper floors; that requirement was reiterated in a sublease and subsequent licence granted to a firm of solicitors. The entire building had been used as offices for many years, although after the claimant served its notice of claim the second and third floors were furnished for residential use.The defendant accepted that the property was designed or adapted for living in within the first limb of section 2(1), but argued that it was not a house “reasonably so called” within the second limb since none of it was being used for residential purposes at the date of the tenant’s notice of claim and it had not been so used for 45 years. The claimant contended that the building was a house reasonably so called because it had been designed as such and was required by the relevant planning consent and lease covenants to be used in substantial part for residential purposes, even though there had been long non-residential user. The parties relied on the Court of Appeal decision in Prospect Estates Ltd v Grosvenor Estate Ltd [2008] EWCA Civ 1281; [2009] 1 EGLR 47; [2009] 02 EG 86. Accordingly, a central issue was the ratio of that decision and whether it required the court to focus on the lawful and permitted use of the building or allowed consideration of the actual use.Held: The claim was allowed. Actual user was a relevant factor in determining whether a building was a house reasonably so called. That proposition formed part of the ratio in Prospect Estates, notwithstanding that the building in that case was found not to be a house reasonably so called in the light of the exceptional circumstance that 90% of it could lawfully be used only as offices. In other cases, no such planning or contractual restrictions on use would not apply and long actual use of the building in question, rather than its lawful use, would be the determinative factor: Hosebay Ltd v Day [2009] PLSCS 318 not followed.If the court found that a building had been designed or adapted for living in at the date of its construction, it should then consider whether the building was excluded from the definition of a house because it could not reasonably be so called, bearing in mind that those were words of exclusion. It should look at all relevant information to determine whether any exceptional circumstances led to the conclusion that the building could not reasonably be called a house. That information would include the prescribed and predominant use, the lawfulness of the actual use and whether the living accommodation was ancillary to office use: Boss Holdings Ltd v Grosvenor West End Properties [2008] UKHL 5; [2008] 1 EGLR 51; [2008] 15 EG 174, Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49; [2003] 1 EGLR 151, Tandon v Trustees of Spurgeon Homes [1982] 2 EGLR 73; (1982) 263 EG 349 and Prospect Estates applied.Applying those principles to the facts of the instant case, the building was a house reasonably so called. It was relevant that, at the date of the tenant’s notice of claim: (i) the appearance of the building was that of a house; (ii) although the property had not been used for residential purposes for a considerable period of time, the second and third floors needed only a change of furniture for the residential use to resume; (iii) under the relevant planning consent, residential use was the only lawful use of the second and third floors; and (iv) under the lease covenants, the residential accommodation was to be used as separate self-contained flats and was not intended to be ancillary to the office use of the lower floors. Comparing the two floors of office use with the two floors of residential use, the proportion of residential use required by the planning consent and the terms of the lease was substantial and it was not possible to conclude that the office use was predominant. The fact that the office use of the second and third floors had been unlawful prevented it from being an exceptional circumstance and did not lead to the conclusion that the building should be excluded from the definition of a house or that it was no longer reasonable to call it such. Accordingly, the claimant was entitled to acquire the freehold.Anthony Radevsky (instructed by Wallace LLP) appeared for the claimant; Katharine Holland (instructed by Speechly Bircham LLP) appeared for the defendant.Sally Dobson, barrister