Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Leasebacks – Respondent applying to acquire freehold of block of flats by collective enfranchisement under 1993 Act – Appellant freeholder proposing leasebacks of various areas – Those areas subject of works to extend porter’s flat and create new flats and office – Whether leasebacks precluded on ground that relevant “units” not existing at relevant date – Whether forming part of common parts of building at relevant date so as to bar leasebacks – Whether leasebacks to be granted of areas demised to mobile phone companies – Appeal dismissed – Cross-appeal dismissed
The respondent was the nominee purchaser on a claim by qualifying tenants in a block of flats in London W2 to acquire the freehold of the block by collective enfranchisement under Chapter I of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. The respondent served its initial notice of claim on the appellant freeholder in January 2011, which was, accordingly, the “relevant date” for the purposes of Chapter I. In its counternotice, the appellant proposed that certain parts of the property should be leased back to it pursuant to section 36 of and Schedule 9 to the 1993 Act. Some of those parts were the subject of ongoing works to extend a porter’s flat, create a new two-bedroom flat from the entrance hall to the building and form a new basement office in an area previously used by the porters and residents for storage.
The respondent applied to the leasehold valuation tribunal (LVT) to determine the disputed terms of acquisition. Meanwhile, it applied unsuccessfully to the High Court for an injunction to require prevent the appellant from continuing with works that it had begun to create two light wells to serve the porter’s flat extension and the basement office: see Barrie House (Freehold) Ltd v Merie Bin Mahfouz Co (UK) Ltd [2012] EWHC 353 (Ch); [2012] PLSCS 15.
In the LVT proceedings, the respondent disputed the appellant’s entitlement to leasebacks of the porter’s flat, new flat and basement office, contending that various of those areas: (i) did not, at the relevant date, consist of a “unit” within the meaning of the Act; or (ii) were constructed within the common parts of the building, so precluding any entitlement to leasebacks.
The LVT accepted the respondent’s arguments and refused leasebacks of those areas accordingly. However, it granted leasebacks corresponding to the demise under two commercial leases that the appellant had granted to two mobile phone companies, each consisting of the rooftop site of a mobile phone antenna plus basement space.
The appellant appealed. It argued that whether an area was a “unit” attracting the right to a leaseback fell to be determined at the “appropriate time” within the meaning of Schedule 9, namely the time when the freehold of the flat or other unit was acquired by the nominee purchase, and that, until that time, the landlord was entitled to create and let units and to require leasebacks of them. The respondent cross-appealed in relation to the leasebacks of the mobile phone premises.
Held: The appeal was dismissed; the cross-appeal was dismissed.
(1) If a landlord was to claim a leaseback of a unit, that unit had to exist at the “relevant date” and the leaseback would be of the unit as it existed at that date. The 1993 Act comprised a self-contained and comprehensive code for the collective enfranchisement of leasehold property, which had to be read as a whole since, if specific provisions were read in isolation from their full context, they were liable to be misunderstood. The scheme made it necessary to consider the circumstances as they were at the relevant date. The whole process of a collective enfranchisement claim began on, and continued from, the relevant date, when the initial notice under section 13 was given. The process was designed to produce, at that stage, the greatest possible clarity as to what property was to be acquired by the participating tenants and subject to valuation when the purchase price was determined. That view was supported by a consideration of the requirements imposed by section 13 in relation to the contents of the initial notice, and those in section 21 regarding the counternotice. It was clearly implicit in those arrangements that the tenants would not have to resort to conjecture about flats or units that did not exist at the relevant date but might come into being at some later stage. Furthermore, under para 3(4) of Schedule 6 to the 1993 Act, the landlord’s interest in a flat or other unit to be leased back to it under section 36 and Schedule 9 had to be valued at “the relevant date”. If that value was to be ascertainable at that date, the flat or other unit had to have existed then. That conclusion was consistent with a basic principle apparent in the provisions relating to valuation in para 3(4) of Schedule 6, and in the scheme of the 1993 Act as a whole, that, subject to changes in tenure affecting the entitlement to leasebacks, the valuation had to represent the reality of the circumstances as they were at the relevant date. Consequently, if a unit was to be the subject of a leaseback under section 36 and para 5 of Schedule 9, the unit in question had to exist, as a unit in which a leasehold interest could properly be created, at the time when the initial notice was served. Paragraph 5(1) of Schedule 9 was not to be read as authorising leasebacks of units created after the relevant date: Cawthorne v Hamdan [2007] EWCA Civ 6; [2007] Ch 187; [2007] 1 EGLR 67 and Panagopoulos v Earl Cadogan [2010] EWCA Civ 1259; [2011] Ch 177; [2011] 1 EGLR 33 applied.
Those conclusions were not inconsistent with the provisions in section 24 allowing for the terms of acquisition to be modified to take account of any change in circumstances after they had been agreed or determined. It was impossible to eliminate every uncertainty at the relevant date. If, after the relevant date, a flat for which a leaseback was claimed was let to a qualifying tenant, or if a flat ceased to be let to a qualifying tenant, the facts underlying the enfranchisement and the parties’ respective entitlements would in that respect have changed: Queensbridge Investment Ltd v 61 Queens Gate Freehold Ltd [2014] UKUT 437 (LC); 2014] PLSCS 297 distinguished.
(2) A landlord could not have a leaseback of a unit that was, or was included in, an area that comprised a common part at the relevant date. One of the essential aims of the 1993 Act was that the participating tenants in a claim for collective enfranchisement were, subject to certain limitations, entitled to acquire the common parts of the premises to which the claim related. It was inherent in the provisions of sections 1 and 2 that the nominee purchaser would acquire the whole premises, including the common parts, irrespective of whether they were comprised in the freehold of the premises or subject to a lease, and so long as the specified circumstances applied. It would be hostile to the scheme and purpose of the statutory regime if the landlord could have leasebacks of areas of the relevant premises which at the relevant date were common parts. If the tenants were, in principle, entitled to acquire the common parts, the landlord could not be allowed to defeat that entitlement by getting a leaseback of them.
(3) Furthermore, the 1993 Act did not entitle a landlord to a leaseback of any unit the construction of which had involved an actionable interference with rights enjoyed by the tenants over the part of the premises in which that work had been done.
(4) For all of the above reasons, the appellant was not entitled to a leaseback of the new flat. In relation to the “actionable interference” point, the tenants had a right under the terms of their leases to unrestricted access “over and along the main entrance” of the building. That right was not confined to any specific area within the entrance hall but plainly applied to whole of that part of the building. The construction of the new flat by the appellant had substantially interfered with those express rights. For all the above reasons, the appellant was not entitled to a leaseback of the new flat.
(5) The appellant was not entitled to a leaseback of the porter’s flat. The LVT had not erred in finding that that flat was a common part by reference to its use at the relevant date rather than any obligation under a lease. Any attempt to restrict the natural meaning of the definition of “common parts” in section 101 of the 1993 Act should be resisted. There was no justification for narrowing the definition by reading into it a proviso that an area or facility could only be a common part if the landlord was under some legal obligation to provide it. Whether the tenants had access to the part of the premises or the facility in question did not matter. The essential attribute was some shared use or benefit. Nor was there any reason to regard the concepts of “common parts” and “common facilities” as excluding any part of a building that fell within the definition of a “unit” in section 38 or within the definition of a “flat” in section 101. The porter’s flat was a common part of the building at the relevant date, in circumstances where the appellant used it to house a porter who worked in the building to serve the tenants and received service charges from the tenants to pay for its maintenance, and where the leases contained covenants obliging the landlord to use its “best endeavours” to provide the services of a porter or porters, and the tenants to pay for accommodation within the building being provided and maintained for him. It followed that the appellant was not entitled to a leaseback of that flat: Panagopoulos applied.
(5) Nor was the appellant entitled to a leaseback of the basement office. Whether or not the basement office constituted a unit once it had been created, it was not a unit at the relevant date, because at that stage it did not exist. That was fatal to the claim for a leaseback. Further, the area of the basement office was comprised in the common parts at the relevant date. Although none of the tenants had any legal right to use that part of the building in any particular way or for any particular purpose, at the relevant date the basement was being used in various ways for the shared benefit of the tenants, and its upkeep was funded through their service charges.
(6) The areas let to the mobile phone companies qualified for leasebacks as “units” within the meaning of the relevant part of the section 38(1) definition, namely a “separate set of premises let, or intended for letting, on a business lease”, which was also, as section 36(1) required, “contained in” the building. The statutory scheme for collective enfranchisement was explicit in its provisions securing a landlord’s right to leasebacks of units let on business leases at the relevant date. The question of whether particular parts of a building formed a unit or units within the definition in section would always be a question of fact, and the facts were liable to vary widely. In the instant case, the appellant had let the mobile phone premises on commercial leases, for a commercial activity, and it was clear from the terms of the demise that both the appellant as lessor and the mobile phone companies as lessees regarded the constituent parts of the premises in the demise as a single entity. In each case the telecommunications equipment was designed, set up, used and maintained as a whole. Although the aerials on the roof were separate from the plant in the basement, the arrangements in each case were a single piece of engineering, with a single function, and connected so as to form a single unit by the cables running between roof and basement. Both functionally and physically, each formed a separate set of premises comprising a “unit” within the definition in section 38: Cadogan v McGirk [1996] 4 All ER 643; [1996] 2 EGLR 75 distinguished.
Moreover, while the roof of a block of flats would normally be part of the common parts of that building, the common parts had been modified when the mobile phone equipment was installed, without infringing any rights which the tenants then enjoyed and without any other significant consequence for them, and long before the relevant date. In those circumstances, the fact that the mobile phone premises had been taken out of the common parts when the telecommunications equipment was set up inside and on top of the building was no obstacle to leasebacks of those existing units being granted.
The fact that the antennae went into the airspace above the roof of the building did not put these units outside the concept of being “contained in” the building for the purposes of section 36(1). Seen as a whole, they could only sensibly be considered as units contained in the building, even though, in part, they went into the air above it. At least in the context of a claim for collective enfranchisement under the 1993 Act, the airspace immediately above the roof of a building could be regarded as being part of the building: Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350 (Ch); [2008] 2 P&CR 3; [2008] 2 EGLR 141 applied.
Philip Rainey QC and Ellodie Gibbons (instructed by Seddons) appeared for the appellant; Edwin Johnson QC and Christopher Heather (instructed by Charles Russell LLP) appeared for the respondent.
Sally Dobson, barrister
Read a transcript of Merie Bin Mahfouz Co (UK) Ltd v Barrie House (Freehold) Ltd here
