Collective enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Respondent nominee purchaser proposing to acquire freehold of building plus additional premises including leisure complex and gardens – Appellant freeholder seeking to retain additional premises with a view to demolition of leisure complex and construction of further residential units – Appellant offering rights over additional premises in terms allowing for that development – Whether respondent entitled to acquire freehold of additional premises – Whether rights offered by appellant equivalent to those enjoyed by lessees under qualifying leases so as to satisfying test under section 1(4) of 1883 Act – Appeal dismissed
The respondent was the nominee purchaser on a collective enfranchisement of a purpose-built block of flats in London W8 under Chapter I of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. By its initial notice under section 13 of the Act, the respondent proposed to acquire the freehold of the block along with additional premises comprising gardens, a driveway, parking spaces and a leisure complex.
By its counternotice, the appellant admitted the right to collective enfranchisement but disputed the terms of acquisition. The appellant had development plans for the additional premises, involving the demolition of the leisure complex and the construction of further residential units on its footprint, with a subterranean swimming pool under the existing garden area. It argued that it had the right to carry out that development under the terms of the tenants’ existing leases and that, accordingly, it was entitled to retain the freehold of the additional premises and merely to grant rights to the respondent over those premises, pursuant to section 1(4) of the Act, in terms that would not prevent the development from being carried out.
The first-tier tribunal (FTT) held that the terms of the existing leases, properly construed, did not give the appellant the right to carry out its proposed development and that the respondent was entitled to acquire the freehold of the additional premises for £10,000. In reaching that conclusion, the FTT identified the appellant’s reserved rights under the leases as being a right to erect, rebuild or alter other premises in the development; to build or rebuild or alter or extend the development in height or otherwise; to extend the development by the incorporation of other land or premises; and to enlarge the development by adding an additional storey or storey. However, it found that those reservations did not confer on the appellant any right to develop the additional premises generally, and that the acknowledged right to alter or rebuild the leisure complex was subject to the lessees’ right to access and use the complex, such that rights which the appellant proposed to grant would not meet the requirement under section 1(4) of being equivalent to those enjoyed under the qualifying leases. The appellant appealed.
Held: The appeal was dismissed.
(1) On the proper construction of the leases, the appellant did not have the right to carry out the development which it proposed. Although the lessees’ right to use the common facilities of the development related to such facilities as might “from time to time be allocated”, that did not give the appellant free rein to withdraw the use of the leisure complex as it wished. The relevant factual background included the fact that the leases had been granted in respect of flats in a new development which had been constructed so as to include within its curtilage a garden and leisure complex and that the flats were marketed for sale on the express basis that such facilities were provided for the residents. In those circumstances, clear language would be needed to confer on the appellant the right permanently to withdraw the use of the gardens and the leisure complex, forthwith and without reason, subject only to allowing an adequate right of access to and egress from the demised flat. There was nothing in the leases conferring such a right on the appellant. On the proper construction of the leases, a facility, once allocated and provided for the use of the lessees, would thereafter remain so, in accordance with the terms of its allocation and provision. While a facility provided on a temporary basis could be withdrawn, there was no right to withdraw the provision and allocation of a facility such as the leisure complex, which had been allocated and provided with no restriction, in circumstances where the clear intention was that lessees should continue to enjoy that facility. It followed that the lessees had permanent, rather than precarious, rights to use the common facilities, and in particular the leisure complex. Moreover, even if, contrary to the foregoing, there was a right to withdraw the provision or allocation of the leisure complex, there was nothing in the leases to indicate that the right was to belong to the freeholder rather than to the management company in which all the lessees were shareholders.
(2) As to the rights reserved to the freeholder under the leases, while these included the right to enlarge the development by the addition of further residential accommodation, which was what the appellant wished to do, the reservation only contemplated the addition of one or more storey on the development or part of it and did not contemplate the complete demolition of the leisure complex and the construction of new units on its cleared footprint. It followed that the provision in the lease which expressly contemplated the freeholder enlarging the development by adding extra residential units was insufficiently wide to permit the appellant to carry out its proposed development scheme. Nor did the proposed development fall within the appellant’s reserved right to carry out works to the development to “build or rebuild or alter or extend in height or otherwise”. The demolition of the leisure complex and its replacement with residential units was not covered by the words “alter or extend in height or otherwise”. Similarly, those works did not involve “rebuilding” the leisure complex, and the word “build” did not assist the appellant since it contemplated fresh building on an otherwise unbuilt on area. Accordingly, the appellant did not enjoy a general right of development in relation to the additional premises or the right to carry out the particular development which it proposed.
(4) In those circumstances, the FTT had been correct to hold that the terms of acquisition should include the acquisition by the nominee purchaser of the freehold of the additional premises, because the rights offered by the appellant did not satisfy the equivalence test in section 1(4). The terms of the appellant’s counternotice were not such as to require the FTT to assume that the appellant was entitled to retain the freehold, and confine itself to considering only what rights should be granted over the additional premises so as to satisfy the principle of equivalence. This was not a case where the counternotice made it clear that the freeholder was willing to grant whatever rights might be required, however extensive, in order to enable it to retain the freehold of the additional premises. The arguments advanced were that, if the rights offered by the freeholder satisfied the equivalence test, then it could resist the claim to acquire the additional premises, but if they did not, then the respondent would acquire the additional premises. The FTT had properly found that the appellant was not offering rights which satisfied the equivalence test under section 1(4), since the lessees enjoyed permanent rights to enjoy the use of the leisure complex and the appellant was only prepared to grant rights which were precarious and subject to a right for the appellant to carry out its proposed development. Having reached that conclusion, the FTT had correctly decided that the terms of acquisition should include the acquisition by the respondent of the freehold of the additional premises: Ulterra Ltd v Glenbarr (RTE) Co Ltd [2008] 1 EGLR 103 and Fluss v Queensbridge Terrace Residents Ltd [2011] UKUT 285 (LC) applied; Shortdean Place (Eastbourne) Residents’ Association Ltd v Lynari Properties Ltd [2003] 3 EGLR 147 distinguished. The FTT had also correctly decided that the price payable for the acquisition of the additional premises was £10,000.
Anthony Radevesky and Christopher Heather (instructed by Cripps LLP) appeared for the appellant; Edwin Johnson QC (instructed by Russell-Cooke LLP) appeared for the respondent.
Sally Dobson, barrister
