PP 2011/53

The Leasehold Reform, Housing and Urban Development Act 1993 enables qualifying tenants to acquire the freehold of the buildings in which their flats are situated. However, for the scheme to work, intermediate leasehold reversions may also need to be eliminated Hemphurst Ltd v Durrels House Ltd [2011] UKUT 6 (LC); [2011] PLSCS 76 raised a novel point of law that has important implications for landlords and tenants. The tenants of a block of flats established a company to acquire the freehold of their building. The freeholder had granted a 999-year lease of the roof area for the development of a penthouse.  The value of the roof-top development was estimated at £1.295m. The tenants sought to acquire those parts of the roof that were not required for the development but would be needed for maintaining the rest of the block. The tenants’ ability to proceed with their claim depended on whether they were entitled to acquire part – as opposed to all – of the premises comprised in the roof- top lease.  The leasehold valuation tribunal said that it was important to avoid giving tenants an unfettered right to cherry-pick because this could result in a complex patchwork of titles and ancillary rights. It ruled that the tenants must acquire the entirety of the roof-top lease or nothing. However, the Upper Tribunal (Lands Chamber) upheld an appeal by the tenants. It was concerned that if it were to hold otherwise, tenants would be at the mercy of their landlords because their ability to acquire leasehold interests would depend entirely on how their landlords had structured their lettings. The judge rejected the argument that his interpretation would cause difficulties. He cited section 21(4) of the 1993 Act in response to suggestions that tenants might abuse the legislation. That section enables leaseholders whose interests are being acquired to require tenants to acquire the interest in any property that is incapable of reasonably beneficial use or becomes unmanageable. The tribunal accepted that the acquisition might be intricate and the valuation complex, but it ruled that the 1993 Act includes machinery to deal with that. It was difficult to see what purpose would be served by compelling the tenants to acquire more of the leasehold interest in the roof-top area than they wanted or needed. Consequently, the legislation should be interpreted in a flexible manner to enable the tenants to enjoy the advantages that parliament had intended them to have.  Tenants will welcome the decision; landlords, however, may feel uneasy. It underlines the complexities of enfranchisement law and practice, and adds to the issues that need to be considered before a landlord serves a counternotice admitting or disputing tenants’ rights to collective enfranchisement. Allyson Colby is a  property law consultant