The defendant landlord owned the freehold of an art deco building. This comprised 14 floors, with 168 residential flats and 20 shops at ground level; all the units were let on long leases. The claimant company, as the nominee purchaser of the residential tenants, served notice to exercise the right to acquire the freehold of the building, pursuant to the collective enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 1993. The defendant served a counternotice in which it disputed the claimant’s entitlement to acquire the freehold. A preliminary issue was tried as to whether the premises were excluded from the right of collective enfranchisement by virtue of section 4(1) on the ground that more than 25% of the internal floor area was neither residential nor comprised in the common parts. By section 4(3), the area of any common parts was to be disregarded in calculating the total internal floor area of the premises. The defendant contended that “common parts” for the purposes of the Act had to have some residential character and could not include facilities that were for the use of the commercial lessees only, to the exclusion of the residential occupiers. The claimant submitted that the Act made no such distinction between commercial and residential common parts, but included within the term “common parts” any part of the building that was not let and was used in common by more than one occupier of the building. A further issue arose as to whether balconies let with the flats were to be included when calculating the internal floor area.
Held: The preliminary issue was determined in favour of the claimant.
It is for the landlord in any case to prove that the exception in section 4(1) applies. Common parts, for the purposes of the Act, do not have to be common to both residential and commercial occupants. The Act refers to “any” common parts, whether or not the residential areas have use of them: see section 4(1)(a)(ii), (2) and (3) and section 101. The legislature did not intend the courts to embark upon an exercise of classifying the different nature of different common parts. That could involve complex analysis and, by distorting the ratio of commercial to residential use to the detriment of the residential element, could significantly upset the balance of the formula for measuring internal floor area. Accordingly, areas of the defendant’s property that were not specifically demised, or intended for demise, to a commercial occupant but were for use by two or more occupants were to be treated as common parts. Balconies that were demised with the flats, did not project out beyond the footprint of the building and fell within its main structural envelope were to be included in the internal floor area for the purposes of section 4(3).
The following cases are referred to in this report.
Indiana Investments Ltd v Taylor [2004] 3 EGLR 63; [2004] 50 EG 86, CLCC
Pepper (Inspector of Taxes) v Hart [1993] AC 593; [1992] 3 WLR 1032; [1993] 1 All ER 42, HL
This was the hearing of a preliminary issue on an application by the claimant, Marine Court (St Leonards on Sea) Freeholders Ltd, under the Leasehold Reform, Housing and Urban Development Act 1993, for collective enfranchisement of a property owned by the defendant, Rother District Investments Ltd.
Mark Sefton (instructed by Mayo Perkins, of Eastbourne) appeared for the claimant; Michael Buckpitt (instructed by Coole & Haddock, of Worthing) represented the defendant.
Giving judgment, HH Judge Hollis said:
1. Introduction
[1] I am dealing with a preliminary issue that arises in an application under the Leasehold Reform, Housing and Urban Development Act 1993 (the Act). The claimant is a nominee purchaser established by participating residential lessees of Marine Court in St Leonards on Sea for the purpose of acquiring the freehold of that building under the provisions of the Act. The defendant is the freeholder, which purchased the property, subject to the various leases, in 1995.
[2] Marine Court is a fine and unusual building on the seafront at St Leonards, built in the art deco style in the late 1930s to give the appearance of an ocean liner moored at the side of the English Channel, an appearance marred somewhat today by the presence of the busy A259 road running between it and the shore. From a brochure that I have seen, the original design seems to have been with a view to establishing for its occupants something of a life on an ocean liner, with a common lounge, a ballroom and a restaurant. That intention of the original developer seems never to have been attained.
[3] Today, the premises comprise 14 floors (including the basement), with 168 residential flats and, at ground level, 20 shops. Both the flats and the shops have all been sold on long leases (that is, not rented out on a commercial rental basis). I understand that the residential leases are all in substantially the same form (no issues relating to any variations have been raised with me) as are the shop leases. A part of the building at the eastern end, which is known as Hanover House, today comprises, on the ground floor, a furniture showroom, with offices on the upper floors. A church meets in part of the basement. Hanover House forms as though it were the “prow” of the liner and so does not have the higher floors that the main building, to which it is attached and with which it overlaps to some degree, has. The overlap is sufficient to |page:40| bring Hanover House within the definition of “the premises” under the Act. This is not disputed. Those parts of Hanover House that are let, are commercial lettings on, I understand, a full-rental basis, by contrast with the long leases of the shops.
[4] A notice under section 13 of the Act was served on 30 January 2006, and a counternotice served disputing that the claimant was entitled to acquire the freehold, stating that the building does not qualify under the Act since, at the date of the notice, more than 25% of the internal floor area of the building was occupied, or intended for occupation, for commercial/non-residential use. These proceedings were issued and, in February 2007, I ordered that there be a preliminary trial on the issue of:
whether the premises which are the subject of the claim taking into account s4(3) of the Act were, on the 30/1/06, excluded from the right of collective enfranchisement by virtue of s4(1) of the Act, on the ground that the internal floor area of the part or parts of the premises that are
(1) neither occupied or intended to be occupied for residential purposes nor
(ii) comprised in any common parts of the premises
exceeds 25% of the internal floor area of the premises taken as a whole.
I gave consequential directions.
[5] I have read statements and heard evidence from Mr Charles Strickland, the secretary to the residents’ association, who has lived at the premises since 1992, and from Mr Jonathan Everett, the defendant’s solicitor. I have read statements from Mr Stewart a building surveyor who assisted the claimant’s expert, Mr Keith Ross, in his measurements and from the respective surveyors, Mr Peter Leacock for the landlord and Mr Ross for the lessees. I have spent some time viewing the premises for myself.
2. Law
[6] The initial relevant sections are subsections (1) to (3) of section 4:
(1) The Chapter does not apply to premises falling within section 3(1) if
(a) any part or parts of the premises is or are neither
(i) occupied, or intended to be occupied, for residential purposes, nor
(ii) comprised in any common parts of the premises; and
(b) the internal floor area of that part or of those parts (taken as a whole) exceeds 25% of the internal floor area of the premises (taken as a whole).
(2) Where in the case of any such premises any part of the premises (such as, for example, a garage, parking space or storage area) is used, or intended for use, in conjunction with a particular dwelling contained in the premises (and accordingly is not comprised in any common parts of the premises), it shall be taken to be occupied, or intended to be occupied, for residential purposes.
(3) For the purpose of determining the internal floor area of a building or of any part of a building, the floor or floors of the building or part shall be taken to extend (without interruption) throughout the whole of the interior of the building or part, except that the area of any common parts of the building or part shall be disregarded.
[7] In respect of common parts, section 101 of the Act adds:
S101(1) “common parts”, in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it.
[8] There are the following central issues to be determined at this preliminary trial:
(1) What is meant by “common parts” in the Act, and whether these extend to parts of the premises to which residents have no access but to which the commercial lessees do have access; this includes a section of Hanover House and the service areas behind the shops on the ground floor.
(2) The relevant status of different parts of the central basement area.
(3) To what extent, if any, the balconies of the flats should be included in the measurements of the internal floor area.
[9] Counsel have accepted that, having determined those issues, the actual measurements and percentages to be allotted should now be capable of agreement by the surveyors once they have guidance from the court on the issues of principle. Very recently, the surveyors have produced a schedule of permutations of the relevant proportions subject to different findings that I may come to in respect of the disputed areas.
[10] Counsel have found only limited assistance in case law, although I have been helped by a decision of HH Judge Cooke, where he succinctly and, I believe accurately, concluded in describing the necessary exercise that:
What is intended to be done is to arrive at the ratio that business bears to residential, even though it is not expressed in those terms. For this purpose, common parts that are neither business nor residential are treated as irrelevant in two ways: (1) as not being part of the definition of either business or residential, and therefore not part of the “part” that is compared with the “whole”; and (ii) as not being comprised in the “whole” with which the part is compared. In short, you leave it out of both sides of the calculation so that, in reality, what is compared is business: aggregate of business and residential.
(See Indiana Investments Ltd v Taylor [2004] 3 EGLR 63, at p64J.)
[11] I ruled, having heard submissions, that the onus of proving that the exception to the general right contained in section 4 of the Act applies falls to the landlord.
3. Common parts
[12] The central issue is whether or not common parts that are used exclusively by the commercial occupiers but used to some extent in common with each other come within the definition of “common parts” in the Act. It is argued for the landlord that they do not, that it was not the intention of the legislation to allow such a wide interpretation of common parts, an intention that is illustrated by the wording of section 155 of the Commonhold and Leasehold Reform Act 2002 (the 2002 Act), which, in increasing the floor area exclusion from the 1993 Act, says:
In section 4(1) of the 1993 Act (right not to apply in case of premises having non-residential parts with floor are exceeding 10 per cent of total), for “10 per cent” substitute “25 per cent”.
(My emphasis.)
[13] Mr Michael Buckpitt, for the landlord, submitted that section 4 is designed to prevent premises as a whole, with a commercial element exceeding 25%, from being subject to enfranchisement and that to be “common parts” within the Act, those parts must have some residential character, being used in common by the residential occupiers together (or by both residential and commercial occupiers) in some way. It is pointed out that each group of shops has a communal area behind them, with shared toilet facilities, and that to none of these do any residential occupiers have any rights of use or access and so, it is argued, they are not “common parts” under the Act. In respect of Hanover House, it is pointed out that this is, in effect, separate from the rest of the building and that at one time it had been let on one lease with the “common part” in that section being part of demise. This was not the case at the date of service of the notice (and it seems not for some time before) and, so, the large foyer area and stairs and upper landings in Hanover House are common to the commercial areas in that part of the premises but not to the residents in the remainder of the building, and so should be excluded.
[14] Mr Mark Sefton, for the tenants, in answer to this said that by “common parts” the Act means any part of the building that is not let and is used in common by more than one occupier of the building. He said that the question is a simple one: the common parts are segmented, there are those that lead to and serve the flats (the residential common parts) and those that lead to and serve the commercial areas (the commercial common parts). The Act refers to “any common parts of the premises” and, in section 101, stipulates, non exhaustively, that common parts “include any common facilities within it”. Whatever their nature, it is said that they are common parts within the ordinary sense of the words, they are not demised to a particular tenant but, in each case, used by two or more occupiers in common. It is pointed out that the Act could have made any other interpretation clear by qualifying the definition of common parts. It is added that if I were to follow the |page:41| landlord’s formula, it would wrongly distort the ratio of commercial to residential to the detriment of the residential element common parts serving exclusively the commercial units would be included in the calculation of the commercial area, whereas those that exclusively serve the residential areas do not get included in the calculation of the residential area, which would not produce a proper representation of the ratio that business bears to the aggregate of business and residential (to adopt Judge Cooke’s wording).
[15] Counsel for the landlord urged me to take note of the relevant parliamentary record for this section, but, even if this were to help me, which, in my view, it does not, I do not consider that the criteria in Pepper (Inspector of Taxes) v Hart (1993) AC 593 could be applicable here. First, the statement of the minister itself has some ambiguity but, more importantly, I do not accept that the legislative intention as set out in the Act is either ambiguous or obscure, nor does its application lead to a manifest absurdity. Indeed, as Judge Cooke said, and I respectfully agree, the “words of the section create a logical scheme”.
[16] I have no hesitation in preferring the tenant’s argument on this. Common parts do not have to be common to both residential and commercial occupants of the building to be common parts for the purpose of the Act. The Act could, but does not, quite simply have excluded common parts exclusively serving commercial areas. The shorthand reference in section 155 of the 2002 Act does not, on closer investigation, take the issue further. Were there to be any other interpretation of the Act, cases could involve a complex analysis and division of which common parts fall on which side of the line as parties (and the courts) struggle to classify different areas of common parts, as, indeed, the landlord is asking me to do in this case. Finally, the point raised for the tenant of the significant distortion of the balance of the formula if residential common parts were to be treated differently from non-residential common parts, bearing in mind the provisions of section 4(3), satisfies me that it could not have been the legislature’s intention that courts should embark on an exercise of classifying the different nature of different common parts. The Act quite simply refers to “any” common parts in section 4(1)(a)(ii), (2) and(3) and section 101 provides that common parts include “any common facilities within” the premises. I accept that, by the use of the word “any”, the Act includes all common parts whether or not the residential areas have use of them.
[17] I would add that, in the residential leases, the “common parts” are defined as, in clause 1.12:
all main entrances passages landing staircases (internal and external) gardens gates access yards road footpaths parking areas and garage spaces (if any) passenger lifts means of refuse disposal (if any) and other areas included in the Title above referred to provided by the lessors for the common use of residents in the building and their visitors and not subject to any lease or tenancy to which the lessors are entitled to the reversion
but that, in clause 5(5)(a)(vi), the lessees ore obliged to pay their due proportion of the maintenance charges of not only the common parts as just defined but also of:
all other parts of the building not included in the foregoing sub paragraphs (i) to (v) and not included in this demise or the demise of any other fiat or part of the Building,
which, for the purpose of the service charge, means that the residential lessees have to contribute to the maintenance of the commercial common parts, an inclusive and all-embracing view of the common parts that supports that contained in the Act.
4. Findings on the specific areas
[18] (a) Hanover House:
Hanover House comprises six commercial suites, three of which are unoccupied, with communal access ways and toilet facilities for the occupants of those suites. There is a large foyer and stairway at the rear of these units allowing for access to them. There is a doorway (possibly two) between Hanover House and the rest of Marine Court, although, as Mr Strickland confirmed, this has remained locked for some years. It is agreed that Hanover House is part of the premises for the purposes of the Act and it follows from my ruling as to the definition of common parts that the common areas of Hanover House, that is, those areas that are not specifically demised (or intended for demise) to a commercial occupant but are used by two or more of the occupants of Hanover House, whether commercial occupants or not, should be included in the relevant calculations as “common parts” for the purposes of both section 4(1)(a)(ii) and section 4(3) of the Act.
(b) The ground-floor service areas:
For the same reasons, the ground-floor service areas behind the shops are included as such “common parts”. They are not demised to any tenant, although the shop lessees have shared rights of access to them.
(c) The central section of the basement:
This is somewhat more complicated, but it was not pressed for the landlord that the plant equipment and service rooms were other than common parts as defined in the Act. Indeed, I cannot see how they could be regarded as anything other than common parts, providing, as they do, hot water for the building as a whole. This should include the staff quarters in the basement. The staff serve the entire building, especially the residential lessees, there is a caretaker’s rest room, a paint shop, and a workshop, each of which, in my view, clearly fall under the definition of “common facilities” contained in section 101(1) and so are “common parts”. I note that the local authority’s conservation management plan describes the basement as “both capacious and inefficiently arranged at present it is nevertheless an essential service area for the buildings and should remain in that dedicated use”. Save in so far as there may be commercial occupation, the central area of the basement forms part of the common facilities of the building.
[19] Those stores that were subject to commercial occupation as at 30 January 2006 should clearly be excluded. At a late stage, the landlord produced a schedule saying that these comprise areas B3-B5 and store 6 in the relevant section on the plan. I have not been shown any documentary evidence of this. I will reserve findings in respect of these very small areas for further submissions, if they are relevant, once the final calculations have been made.
[20] There is also an electricity substation in the basement. I have seen evidence that it serves a significantly wider area of St Leonards than just Marine Court. Its presence there is historic, with all the various statutory limitations that such substations bring about. I am satisfied that it is a fully commercial area, and should therefore fall on that side of the equation.
5. Balconies
[21] This is a different and more difficult issue. Many of the flats have balconies, 119 out of 168. In each case, they are demised to the qualifying tenants under their lease and, as such, are occupied for residential purposes under section 4(2). However, the landlord says that section 4(3) refers to the “internal floor area” of the building and that this should be taken as extending “throughout the whole of the interior of the building” and that balconies do not form part of the interior of a building.
[22] There are, as far as I could see, broadly three different types of balcony. First, there are a few balconies at the eastern and western end of the building that, as the building decreases in size upwards, are open to the sky and, largely, also to the sides. Second, there are those on the southern side serving the flats on, I believe, the third residential floor, which is where the side of the building goes in somewhat, forming a flat roof above the floors below and a balcony for the flats on that floor, divided by high curved walls and with a safety wall on the south side topped by a railing. Third, there are balconies to the south side of the higher floors that are fully recessed into the main body of the building, enclosed on five sides but open, with the same low solid wall and railing, on the sea side. To make matters more complicated, many of the balconies (I believe 44 of them) have, at some stage, been wholly or partly enclosed with doors and glazing by the lessees. There is no evidence that this has occurred without the lessor’s consent or acquiescence.
[23] The balcony areas in each case form part of the demise in the lease and are included in the definition of the flat. None projects out |page:42| beyond the footprint of the building and, in different ways, each are within its main structural envelope, especially so in the case of the recessed balconies. They are all occupied for residential purposes. I note that both parties’ experts had originally treated the balconies as being included in the internal area of the residential premises, which is hardly surprising since the RICS Code of Measuring Practice (5th ed) defines gross internal area as “the area of a building measured to the infernal face of the perimeter walls at each floor level… including… internal open sided balconies”.
[24] Having viewed a number of the balconies, I am satisfied that all of those on the south side, both those that I believe are on the third floor and those on the higher floors that are recessed, and whether glazed in or not, should properly be regarded as forming part of the internal floor area of the building for the purposes of section 4(3). I think that it would be unrealistic to differentiate between these different balconies; of the ones that I saw, in each case they give an impression of being enclosed and being part of the flat, albeit those on the third floor not having a roof, save where this may have been glazed in.
[25] However, I contrast these with the rather larger balconies on the eastern and western ends of the building. These are very much more open both above and to the sides and, with some reluctance, since I do not want to make a complicated calculation even more difficult, I do not consider that it would be realistic to find these as forming part of the internal floor area.
[26] I hope that, with the assistance of these findings, the surveyors will be able to agree the appropriate percentages, although it appears from the measurements that I have already been given that, subject to the size of the excluded balconies, the commercial area for the purpose of the Act will be somewhat less than 25%.
Preliminary issue determined in favour of claimant.
