The right to enfranchise under the Leasehold Reform Act 1967 is a valuable right. Freehold Properties 250 Ltd v Field and others [2020] EWHC 792 (Ch); [2020] PLSCS 63 serves as a reminder to tenants and practitioners alike that whether a tenant qualifies as “a tenant of a leasehold house”, so as to exercise that right conferred by the Act to enfranchise, is very much dependent on what is demised by the lease.
Material provisions
Section 1 of the Act confers on a tenant of a leasehold house a right to acquire on fair terms the freehold of the house. It is clear from section 1 that a material condition to be satisfied to exercise the right to enfranchise is that the tenant must be a “tenant of a leasehold house”. The phrase “tenant of a leasehold house” is not defined within the Act, neither are the terms “leasehold” or “leasehold house”.
The term “house” is defined by section 2 of the Act. This section demonstrates that a building can fall within the definition of a “house” even if it is not structurally detached from another building or part of a building. In particular, section 2(1)(b) of the Act provides that “where a building is divided vertically the building as a whole is not a “house” though any of the units into which it is divided may be”.
A house which is not structurally detached and of which a material part lies above or below a part of the structure not comprised in the house is specifically excluded from the definition of a “house”.
To ensure that the legislative purpose of the Act is not defeated, section 23(1) of the Act voids any agreement relating to a tenancy that purports to exclude or modify the right to enfranchisement conferred by the Act.
The dispute
Freehold Properties 250 Ltd (FP) was the freehold owner of 11 purpose-built-terraced and semi-detached houses situated on an estate in Bradley Stoke, Bristol. The respondents were all long leaseholders. The leases were in substantially the same form. Crucially, the structural parts of each of the houses – namely, the load bearing walls, roofs, foundations and any service media which serviced them – were excluded from each demise.
The respondents served notices on FP, claiming to exercise their right to enfranchise under the Act. FP served notices denying the claims. It argued that the houses did not fall within the scope of section 2(2) of the Act as a material part of the demise of each house lay below or above a part of a structure not comprised in the house. This argument was rejected by the first instance judge who declared that the houses and/or leases fell within the scope of the Act and the respondents were entitled to enfranchise.
FP was given permission to appeal on a different point of law to that argued at first instance. FP’s principal ground of appeal was that the respondents were not “tenants of a leasehold house”.
The respondents could only exercise the rights to acquire the freehold conferred by section 1(1) of the Act if each leaseholder was the tenant of the “whole” and not just tenants of “part” of a leasehold house. FP argued that the respondents were only tenants of “part” of a leasehold house by virtue of the fact that the respondents’ leases did not demise the foundations or the roof.
The respondents cross-appealed, arguing that the judge at first instance had erred in holding that the anti-avoidance provisions in section 23(1) of the Act had not been engaged.
The decision
The High Court observed that the term “a tenant of a leasehold house” was ambiguous. Consequently, the phrase had to be construed within its full statutory context. Only the term “house” was defined by the Act.
It was significant that the definition of “house” in section 2 of the Act related to the physical attributes of the building. It was not qualified or affected by the nature of the legal interest in the property. Accordingly, the High Court determined that the Act having “defined the unit to be enfranchised – the ‘house’ – it would be curious if – without further clear statutory articulation – some legal interest less than an interest in substantially the whole of the leasehold house would suffice to qualify for enfranchisement”. Parliament could not have intended to expand “the physical reach of a demise, so that a lease of part of a house was converted into the whole of it”.
In allowing FP’s appeal, the court dismissed the respondents’ cross-appeal. Section 23(1) of the Act was not engaged. A limited demise did not affect a tenant’s right under the Act.
The takeaway
To preserve a future right to enfranchise under the act, a prospective buyer of a leasehold house should be careful to verify the whole of the house is demised.]
Key points
- Only the tenant of substantially the whole of a leasehold house can fall within the enfranchisement regime under the Leasehold Reform Act 1967
- A limitation on a tenant’s demise does not engage the avoidance provisions in section 23(1) of the Leasehold Reform Act 1967
Elizabeth Dwomoh is a barrister at Lamb Chambers
