Leasehold enfranchisement — Leasehold Reform Act 1967 — Enfranchisement of house — Claim by lessee to acquire freehold — Building originally designed as house — Greater part of building in use as offices as required by terms of lease — Section 2(1) of 1967 Act — Whether building a house “reasonably so called”
The respondent brought a claim, under Part I of the Leasehold Reform Act 1967, to acquire the freehold of a property that it held on a long lease from the appellant landlord. The property had been built in 1850 as a terraced house, with a basement and two upper levels, to which third and fourth floors had later been added. No other major structural works had been carried out and the property continued to resemble a house, with the majority of the internal walls and many original features retained. However, since 1958 the greater part of the internal space had been used as offices, with only the fourth floor being used for residential accommodation. A user clause in the lease restricted the occupation of the flat to a director, partner, officer or senior employee of the lessee, which was required to use the rest of the property as business or professional offices.
An issue arose as to whether the property was a house “reasonably so called” within section 2(1) of the Act so as to qualify for the right to enfranchise. Allowing the enfranchisement claim in the county court, HH Judge Dight regarded as “overwhelmingly significant” the fact that the property had been designed as a house and its structure and appearance had remained largely unchanged; he considered that the current use as prescribed by the lease did not prevent the building from being a house reasonably so called. On appeal, the appellant submitted that the property could not be a house “reasonably so called” in circumstances where, at the critical date, the only living accommodation was on the fourth floor and its occupation was linked to the business occupation of the remainder of the property.
Held: The appeal was allowed. A building that was designed for residential use does not cease to be a house merely because a part of it is no longer used for living in. The question of whether a building is a house reasonably so called must be considered in the light of all the available information. The concept of a house “reasonably so called” has a degree of flexibility since, within the limits of reasonableness, different minds might reach conclusions that are not obviously wrong. However, that approach should not be taken too far. The judge in the instant case had not taken full account of all the relevant circumstances and had given too much weight to the original design and the unchanged appearance of the building, both internal and external. The prescribed and predominant office use of the building in compliance with the lease was a peculiar and exceptional circumstance of the case. Were due weight to be given to the prescriptive terms of the lease, the actual uses of the building and the relative proportions of the mixed use at the relevant date, the only possible conclusion was that it was no longer reasonable to call the building a house within the 1967 Act.
The following cases are referred to in this report.
Boss Holdings Ltd v Grosvenor West End Properties [2008] UKHL 5; [2008] 1 WLR 289; [2008] 2 All ER 759; [2008] 1 EGLR 51; [2008] 15 EG 174
Lake v Bennett [1970] 1 QB 663; [1970] 2 WLR 355; [1970] 1 All ER 457; (1969) 213 EG 633, CA
Malekshad v Howard de Walden Estates Ltd (No 1) [2002] UKHL 49; [2003] 1 AC 1013; [2002] 3 WLR 1881; [2003] 1 All ER 193; [2003] 1 EGLR 151; [2003] HLR 31
Tandon v Trustees of Spurgeons Homes [1982] AC 755; [1982] 2 WLR 735; [1982] 1 All ER 1086; (1982) 44 P&CR 307; [1982] 2 EGLR 73; 263 EG 349; 4 HLR 1, HL
This was an appeal by the appellant, Grosvenor Estates Ltd, from a decision of HH Judge Marc Dight, sitting in Central London County Court, allowing a claim by the respondent, Prospect Estates Ltd, for the enfranchisement of a house under the Leasehold Reform Act 1967.
Anthony Radevsky (instructed by Boodle Hatfield) appeared for the appellant; Stan Gallagher (instructed by Radcliffes) represented the respondent.
Giving the first judgment, Mummery LJ said:
Issue
[1] This appeal concerns the statutory right of a tenant of a long lease to acquire the freehold. The tenant succeeded in Central London County Court. The issue in this court is whether the judge was wrong in holding that the property known as 132 Ebury Street, London SW1 (the building), was, at the relevant date (3 January 2007), a house “reasonably so called” within the meaning of section 2(1) of the Leasehold Reform Act 1967, as amended (the 1967 Act). If his decision was wrong, the tenant, Prospect Estates Ltd (Prospect), in which is vested an unexpired term under a 42-year lease granted by the landlord on 29 December 1972 and expiring on 29 September 2013 (the lease), is not entitled to acquire the freehold of the building by virtue of Part I of the 1967 Act. The judge granted the landlord permission to appeal against his ruling in favour of leasehold enfranchisement.
[2] Section 2(1) (meaning of “house”) provides that:
For purposes of this Part of this Act, “house” includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not wholly designed or adapted for living in, or is divided horizontally into flats or maisonettes…
[3] The judge referred to the relevant statutory provisions and cited the leading authorities on their interpretation: Lake v Bennett [1970] 1 QB 663*, at p760H, Tandon v Trustees of Spurgeons Homes [1982] AC 755†, at p764G and p766H-767D, Malekshad v Howard de Walden |page:48| Estates Ltd (No 1) [2002] UKHL 49; [2003] 1 AC 1013**, in [51], and Boss Holdings Ltd v Grosvenor West End Properties [2008] UKHL 5; [2008] 1 WLR 289††, in [26].
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* Editor’s note: Also reported at (1969) 213 EG 633
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† Editor’s note: Also reported at [1982] 2 EGLR 73
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** Editor’s note: Also reported at [2003] 1 EGLR 151
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†† Editor’s note: Also reported at [2008] 1 EGLR 51
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[4] The undisputed written evidence concerning the design, construction, history and use of the building and the terms of the lease is carefully summarised by the judge in his excellent judgment. There was no oral evidence. The building was originally designed as a house for living in when it was built in around 1850. Apart from the addition of a third and fourth floor, no major structural works to the building have been carried out since it was built. It still looks like a house. The essential dispute is whether, as at the date Prospect served notice of its claim to the freehold of the building on 3 January 2007 and when 88.5% of the building was used as offices, it was still a house in the statutory sense of a “building designed or adapted for living in and reasonably so called”.
[5] In consequence of amendments to the 1967 Act, there is no longer a requirement on the facts of this case for the tenant to be occupying the building as a sole or main residence. The residence test in section 1(1) of the 1967 Act was abolished by section 138 of the Commonhold and Leasehold Reform Act 2002, subject to certain exceptions inapplicable to this case. The abolition of the residence test marks, to a significant extent, a change in the legislative policy and the scope of the enfranchisement legislation. The construction of section 2(1) is, however, unaffected by subsequent amendments to other provisions of the 1967 Act, since no amendments were made to the definition of a house: see Boss Holdings, in [23], per Lord Neuberger.
Background and judgment below
[6] The building is a flat-fronted, terraced early Victorian building. It consisted of a basement and two upper storeys, to which third and fourth storeys were later added, together with other additions and extensions. Since 1965, the fourth storey (11.5% of the building’s floor space) has been used as residential accommodation. It is not separated by a door either at the top or the bottom of the staircase. Since around 1958, the remainder of the building has been used as office space (88.5% of the building’s floor space) by a number of different subtenants under short-term commercial subleases. The building has retained the majority of the main internal walls and many, if not all, of the original basic and decorative features.
[7] The terms of the lease (clause 2(x)) limit the use of the fourth floor to a self-contained private residential flat in the occupation of a director, partner, officer or senior employee of the company, organisation or firm of the person in occupation of the remainder of the demised premises. The remaining floors can be used only as business or professional offices. Clause 2(xi) prohibits any indication of the use of the building and provides that the windows should be furnished as those of a private dwelling-house. To a passerby, the building still looks like a house.
[8] The judge had the advantage of a view of both the outside and the inside of the building. He concluded that:
9. Viewed from the outside, the Building appears to be of the same type as the houses in the remainder of the terrace. Viewed from the inside the overwhelming impression that I was left with was that this was a house in its essential character.
…
27. In my judgment the overwhelmingly significant factor in determining whether or not the Building is “a house… reasonably so called”… is that the Building was designed for living in and that its structure and appearance have (largely) remained unchanged. … The terms of the current lease require the tenant to maintain the appearance of a private dwelling house while limiting the residential user to the top floor of the Building. I bear those terms in mind, but in my judgment they do not alter the fact that the Building itself resembles a house even though the majority of it may not be used as such. The use of one out of 5 floors of the Building, albeit 11.5% of the floor space, is, in any event, a substantial proportion in my judgment. Further I accept the evidence of Ms Scanlon as to her use of the top floor flat and I find that there was, at the date of the tenant’s notice, substantial residential user of the Building. Taking those various factors together I am of the view that, notwithstanding the office user of the majority of the Building, its essential character is that of a house. I accept that some people might say that the Building could reasonably be called an office block, but that is not the test. As Lord Roskill said [see Tandon at pp766H-767G cited below] the circumstances would have to be such “nobody could reasonably call the building a house” for a judge to hold that it was not a house. In my judgment the Building could reasonably be called a “house” within the meaning of section 2(1) of the 1967 Act and the circumstances are not such that nobody could reasonably call the Building a house.
Landlord’s submissions
[9] Mr Anthony Radevsky, for the landlord, contended that the judge had erred in law in holding that the building was a house “reasonably so called”. He accepted the judge’s finding that there were insufficient works of adaptation to the building to conclude that it had ceased to be designed for living as at 3 January 2007, when Prospect served its tenant’s notice. However, he submitted, the building could not have been “a house reasonably so called” at that critical date because the only living accommodation was on the fourth floor and even the occupation of that was linked to the occupation of the remainder of the building, which, in compliance with the covenants in the lease, was and could be used only for offices. Under the terms of the lease, only 11.5 % of the building could be lawfully used for living in.
[10] As for the decided cases, Mr Radevsky distinguished Lake, a case of a building constructed in 1869 as a house on three floors with a basement. The ground floor was later used as a shoe-repairing shop and then as a betting shop, with living accommodation still used for dwelling purposes in the remainder of the building. The Court of Appeal reversed the decision of the county court judge and held that the building was “a house reasonably so called” within section 2(1). The living accommodation appears, on one view, to have been 75% of the floor area of the building. Only one floor was occupied as a shop. The dominant use of the building was for living in. It was still a house. It was within the original policy of the legislation, even though part of it was used for shop purposes.
[11] Mr Radevsky distinguished Tandon, a case of a shop built as such in a shopping parade with living accommodation above (50% of the floor space, or 25% on one view). The House of Lords held by a majority that the building was “a house reasonably so called.” In his speech, with which Lords Scarman and Bridge concurred, Lord Roskill approved Lake. He stressed the importance of uniformity of principle in the approach to this question and the need for broad consistency in the conclusions reached. I shall consider Tandon in greater detail later.
[12] On Mr Radevsky’s analysis, the judge in this case went wrong in the passage quoted in [8] above. It is clear, he submitted, that the judge was unduly swayed by the original design of the building and by the fact that it had remained unchanged. The judge had erred in treating this as “the overwhelmingly significant factor”. He gave little or no weight to the fact that, at the relevant date, the greater part of the building was no longer used, and could not be lawfully used, for residential purposes. Mr Radevsky argued that it was no longer reasonable to call the building a house. The result was that Prospect was not entitled to acquire the freehold compulsorily under the 1967 Act.
Discussion and conclusion
[13] The House of Lords held in Tandon that the question of whether a building is a house “reasonably so called” is one of law. In another part of his opinion, at p765E-F, Lord Roskill appears to have accepted the submission of the parties that it was a mixed question of law and fact, but I do not think that anything turns on this point. More important is the ruling that the expression “a house reasonably so called” is a limitation or qualification. Its purpose was to exclude certain buildings, which were regarded as a house under other legislation (for example, the Rent Acts), from being a house within the 1967 Act.
[14] When is it reasonable to call a building a house under the 1967 Act? On the one hand, it is clear that there are buildings that could not, as a matter of law, be a house reasonably so called: a purpose-built hotel, a hostel, a purpose-built block of flats, a factory with a caretaker’s accommodation or an office block with a residential penthouse suite. |page:49| Under other legislation, such buildings may have been treated as a house. On the other hand, it is clear that a building designed for living in does not, as a matter of law, cease to be a house reasonably so called simply because a part of it is no longer used for living in. In between these two kinds of building, there is the grey area of varying degrees of mixed use. Depending upon the particular circumstances of the case, such buildings may, or may not, as a matter of law, be a house reasonably so called.
[15] The authoritative interpretation of section 2(1) is in the opinions of the majority in Tandon. The extent of judicial disagreement on the question of law is an indication of the challenge to achieving the consistency of outcomes to which the law aspires. The judge at first instance in Tandon decided that the purpose-built shop with living accommodation above was reasonably a house so called. He was reversed by a majority in the Court of Appeal, which was in turn reversed by a majority of 3:2 in the House of Lords. Five judges took one view; four judges (including Lord Wilberforce) took the opposite view.
[16] In Tandon, Lord Roskill derived three propositions of law from Lake, which he said was welcome as stating a principle of which he approved. Lord Scarman and Lord Bridge agreed with him: see at pp763C-D, 767B-C and F-G.
… (1) as long as a building of mixed use can reasonably be called a house, it is within the statutory meaning of “house”, even though it may also reasonably be called something else; (2) it is a question of law whether it is reasonable to call a building a “house”; (3) if the building is designed or adapted for living in, by which, as is plain from section 1(1) of the Act of 1967, is meant designed or adapted for occupation as a residence, only exceptional circumstances, which I find hard to envisage, would justify a judge in holding that it could not reasonably be called the house. They would have to be such that nobody could reasonably call the building a house.
[17] Mr Stan Gallagher, who appeared for Prospect, relied heavily upon Lord Roskill’s proposition (3), as did the judge. He contended that it clearly covered the case: the building was originally designed for living in; the original design had not been changed or adapted; it was still reasonable to call it a house; and the fact that part only of it was still occupied as a residence did not mean that it was no longer reasonable to call it a house. The change from sole use as a residence to mixed residential and office use was not an “exceptional circumstance” that would justify the judge in holding that it could not reasonably be called a house. This was one of the intermediate mixed-use cases of the kind identified by Salmon LJ in Lake, at p672E and Cross LJ, at p673A-B. The building could “equally reasonably” be called a house with the lower floors used as offices or offices with living accommodation above. In an intermediate case, the building could still reasonably be called a house applying Lord Roskill’s proposition (3). The judge had the benefit of a view of the outside and inside of the building. This clearly influenced his conclusion. It was impossible to say that nobody could reasonably call the building a house.
[18] I appreciate that it is a strong thing to say, using Lord Roskill’s words, that nobody (least of all this judge, who had given the matter the most careful judicial consideration) could reasonably call this building a house. The concept of a house “reasonably so called” has a degree of flexibility. Within the limits of reasonableness, different minds can reach different conclusions that are not obviously wrong. It would, however, be wrong to take this approach too far. In every case, it is necessary to take account of all the relevant circumstances in order to decide whether a building is a house reasonably so called.
[19] In my judgment, the judge applied Lord Roskill’s propositions without taking full account of all the relevant circumstances. The propositions are not a statutory text and were never intended to be understood or applied as such. The judge paid insufficient attention to the peculiar, even exceptional (to echo Lord Roskill’s language), circumstance of prescribed and predominant office use in compliance with the lease. That circumstance is, in my view, the overwhelming and decisive feature of this case.
[20] The original design and the unchanged external and internal appearance of the building featured too prominently in the judge’s reasons. Had he given due weight to the prescriptive terms of the lease, the actual uses of the building and the relative proportions of the mixed use at the relevant date, he could have come to only one conclusion: that it was no longer reasonable to call the building a house within the 1967 Act.
[21] I should add that the effect of the residence requirement in the 1967 Act, as originally enacted, was that the building would not have fallen within it or its policy of enabling a tenant of a long lease of residential property compulsorily to acquire the freehold. I do not, however, think that that policy has continuing relevance to this case. The non-exhaustive definition of a house has remained the same, but other amendments, particularly the abolition of the residence test, have enlarged the scope of the 1967 Act and significantly changed the direction of its original policy.
Result
[22] I would allow the appeal. The judge’s decision that the building was a house reasonably so called has been shown to be wrong. The building was designed for living in, but, by reason of its prescribed and preponderant office use, it is impossible to say that, at the relevant date, the building could reasonably be called a house.
Goldring LJ said:
[23] I agree. I would add only this. As Mr Gallagher accepted in argument, his submission can be encapsulated in the following proposition. This building can reasonably be called a house although no one can lawfully live in virtually 90% of it. As it seems to me, that cannot be right.
Giving the second judgment, Smith LJ said:
[24] I agree with the judgment of Mummery LJ. I add a few words of my own only because we are differing from the judge who wrote a careful and lucid judgment. He also had the advantage of a view, which we have not.
[25] The question of whether a building is a house reasonably so called must be considered in the light of all the available information. Various factors will have to be taken into consideration and, as here, some factors point towards the building being a house; some point towards it being an office building and not a house, or a house reasonably so called.
[26] The question here is whether the judge was correct in his analysis of the various factors in [27], quoted in [8] above. The judge considered that the overwhelmingly significant factor was that the house was originally designed for living in and that its structure and appearance had remained largely unchanged. He was of the view that the removal of the kitchen and bathroom(s) did not amount to significant adaptation away from use for living in. I am not sure that I would have so found, but I am content to adopt the judge’s holding on that point.
[27] When the judge came to consider the terms of the lease, the point that he stressed was that the terms required the tenant to keep the building looking like a private house. The judge seemed to think that this was a pointer to the building actually being a house, or a house reasonably so called. I do not agree that it is. It seems to me highly likely that the requirement to maintain the appearance of the building was related to the requirements of the planning authorities in a conservation area. The landlord that was itself required to keep the building looking like a house (even though it was being used as offices) would pass on that obligation to the tenant. I do not think that that factor points to the building being a house reasonably so called.
[28] Although the judge mentioned that the terms of the lease limited the residential user to the upper floor and that this amounted to only 11.5% of the total floor area, the emphasis in the judge’s reasoning was that the flat was used regularly and that this amounted to significant residential user. The judge did not appear to consider it important that a very large proportion of the building was used and could be used only for office purposes and that the residential flat was ancillary to the office use. It could be occupied only by a director or an employee of one of the office tenants. |page:50|
[29] In my view, it is an important factor that this building has been predominantly used as offices since the 1950s and certainly throughout the current long lease. At the material date, it was predominantly so used. In my view, the terms of the lease are also of considerable importance. Eighty-eight-and-a-half per cent of the floor area cannot lawfully be used as living accommodation. The living accommodation is ancillary to the office use.
[30] I think the judge underestimated the importance of those factors and, as a result, he mistakenly concluded that the building was a house or a house reasonably so called when, had he given proper weight to those factors, he would have been driven to the conclusion that this building is in fact an office building and cannot reasonably be called a house.
Appeal allowed.
