LM Homes Ltd and others v Queen Court Freehold Co Ltd

Leasehold enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Common parts – Whether initial notice ceasing to have effect on nominee purchaser exchanging contracts to acquire some but not all interests – Whether nominee purchaser entitled to acquire leases of air space, boiler room and sub-soil – Appeal dismissed The respondent, as nominee purchaser, applied to acquire the freehold and a number of leasehold interests in Queen Court, Queen Square, London WC1 under the Leasehold Reform, Housing and Urban Development Act 1993. The property was a purpose-built block of flats comprising 45 flats on ground and seven upper floors. It was subject to a number of leasehold interests which the respondent also wished to acquire on behalf of the participating tenants. The initial notice given by the respondent identified the leases of the air space, the basement and the sub-soil as interests which they proposed to acquire under section 2(1)(a) or (b) of the 1993 Act. Preliminary issues arose concerning the respondent’s entitlement to acquire leases of the boiler room, the sub-soil beneath the building and the airspace above it; and whether the tribunal had jurisdiction to determine the terms of acquisition of those leasehold interests. The appellant submitted that the effect of section 13(11) of the Act was that the binding contracts entered into for transfers of the freehold, the headlease and intermediate leases of ten of the flats meant that the initial notice no longer “continued in force” as from the date of the earliest of those contracts. The First-tier Tribunal (FTT) determined the issues in favour of the respondent and against the appellant owners of the leases of the common parts. The appellants appealed. Held: The appeal was dismissed. (1) The FTT retained jurisdiction for so long as there remained a disagreement over any of the terms on which the acquisition was to proceed. The purpose of section 13(11) was to identify the point at which an initial notice ceased to be operative because its purpose had been served. The proper construction of section 13(11)(a) involved reading the words “until a binding contract was entered into” as encompassing both the singular and the plural where terms of acquisition of different interests had to be agreed between different parties. The proper operation of the relevant statutory provisions required the initial notice to remain in force until contracts or vesting orders were in existence which caused the initial notice to cease to have effect in relation to all of the interests sought to be acquired. The FTT was right to find that it had jurisdiction when no contracts yet existed for it to acquire the appellants’ interests: Penman v Upavon Enterprises Ltd [2001] EWCA Civ 956; [2001] PLSCS 135 and Wiggins v Regent Wealth Ltd [2014] 3 EGLR 157; [2014] EGILR 75 followed. (2) By section 2(1)(b) and (3)(a) of the 1993 Act, participating tenants were entitled to have acquired by their nominee the interest of the tenant under any lease of “common parts of the relevant premises”, where the acquisition of that interest was “reasonably necessary for the proper management of or maintenance of those common parts”. The expression “common parts” was defined in section 101(1) as including the structure and exterior of the building or part and any common facilities within it. That definition did not purport to be comprehensive, but identified elements about which there might otherwise be doubt and which were intended to be included within the expression. The common parts of the building were not limited to the service installations themselves. The whole of the area which housed service installations for the whole building was one of the common parts. If the purpose of a particular room was to accommodate service installations for the benefit of the whole building, that was sufficient to render the whole of the space part of the common parts. It was immaterial that leaseholders had no rights of access to that space or the equipment housed in it. The equipment was for shared use and benefit and the area in which it was located had the same character: Cadogan v Panagopoulos [2010] EWHC 422 (Ch); [2010] 2 EGLR 151 (Ch), [2010] EWCA Civ 1259; [2011] 1 EGLR 33 (CA), Malekshad v Howard de Walden Estates Ltd [2002] UKSC 49; [2003] 1 EGLR 151, Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch); [2014] PLSCS 216 and Merie Bin Mahfouz Co (UK) Ltd v Barrie House (Freehold) Ltd [2015] EGLR 22 considered. (3) In common with the leases of the sub-soil and air space, the basement lease gave the appellants extensive right to develop the areas demised. The greater part of the area would then lose its character as a common part and cease to be managed as such. The area occupied by the boiler was very confined and, were it to be further enclosed, there would be difficulties in maintaining or replacing the equipment. The respondent had to be in a position to manage the space in which they were housed. On the facts, the acquisition of the basement premises was reasonably necessary for their management and maintenance as common parts of the building. (4) The sub-soil lay outside the ordinary meaning of the word building. However, it was within the extended meaning given to the expression “common parts” by section 101 of the 1993 Act because it was part of “the exterior” of the building. Accordingly, the FTT was correct to regard the sub-soil as within the common parts. Further, the acquisition of the sub-soil was reasonably necessary for the tenants’ management of the ground on which the building stood: Dartmouth Court v Berisworth [2008] EWHC 350 (Ch); [2008] 2 EGLR 141 and Cadogan v Panagopoulos [2010] EWHC 422 (Ch); [2010] 2 EGLR 151 followed. (5) The proper management of the airspace entailed its retention as a means of access to the structure of the building for necessary inspection and repair. If the appellant undertook its intended construction works, the airspace would no longer to be accessible and convenient access to the structure would become impossible because of the presence of additional flats on top of it. The risk of those consequences made it reasonably necessary for the proper management of the airspace that the airspace lease be acquired. Edward Denehan (instructed by Wallace LLP) appeared for the appellants; Phillip Rainey QC (instructed by Pemberton Greenish) appeared for the respondent Eileen O’Grady, barrister Click here to read a transcript of LM Homes Ltd and others v Queen Court Freehold Co Ltd