The Leasehold Reform Act 1967 gives tenants the right to buy the freehold of their properties. This right exists only if the premises can reasonably be described as a “house”. The definition of a “house” has not changed since the legislation was enacted, but other amendments – and, in particular, the abolition of the residence test – have considerably extended the scope of the Act. As a result, it is now possible for companies to apply for enfranchisement.
The question for the Court of Appeal in Prospect Estates Ltd v Grosvenor Estates Ltd [2008] EWCA Civ 1281; [2008] PLSCS 320 was whether a Victorian building, which had originally been designed as a house, still constituted a “house”, even though 88.5% of the premises was used as offices. If the answer to that question was in the affirmative, the tenant was entitled to acquire the freehold from its landlord.
Section 2(1) of the 1967 Act provides that “a house includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building… was or is not solely designed or adapted for living in”. Mixed-use buildings may therefore qualify for enfranchisement if they can reasonably be described as a “house”.
The building looked like a house, but the covenants in the tenant’s lease prohibited residential use in any part of the building other than in the top-floor flat (this use was permitted only as ancillary to the office use). Consequently, the landlord argued that the building could no longer reasonably be described as a “house”.
The High Court upheld the tenant’s claim. The judge ruled that the structure, design and character of the building had not changed and it was essentially still a house. The Court of Appeal has overturned that decision. It ruled that the building was used preponderantly as offices and that the judge had underestimated the importance of the user covenants in the tenant’s lease.
The decision will leave many wondering how to reconcile the case with the recent decision of the House of Lords in Boss Holdings Ltd v Grosvenor West End Properties [2008] UKHL 5; [2008] 1 EGLR 51; [2008] 15 EG 174. In Boss, Lord Neuberger, who gave the leading judgment, suggested that a building that had originally been designed for living in, but subsequently adapted for commercial use, might still qualify as a house. In other words, a building constructed as a house remains a “house”. However, it was unnecessary to decide that point to dispose of those proceedings, and the Court of Appeal has followed other cases in which the courts have ruled that premises used primarily for commercial purposes cannot reasonably be called a “house”.
Clearly it would be unreasonable to describe purpose-built offices with a penthouse suite as a “house”. However, this case provides us with a perfect example of a mixed-used building that is more difficult to classify. Which is more important in such circumstances: design or use? We must wait to see whether the tenant pursues the matter to the House of Lords.
Allyson Colby is a property law consultant
