Peta Dollar welcomes answers from the courts on questions under the Landlord and Tenant Act 1987
It is well known that the Landlord and Tenant Act 1987 creates enormous problems for a landlord wishing to sell their premises or, indeed, to grant a lease of commercial space within those premises.
The main problem is that before a landlord makes a “relevant disposal” affecting their premises, which includes any disposal of any legal or equitable estate or interest, the landlord must offer the proposed disposal to the residential tenants of flats in the premises and wait at least two months for a response. Even if there is no response, or the response is negative, the landlord is only free to make the disposal on the terms offered to the tenants and, because the landlord cannot finalise binding terms with any third party during the two-month period, the terms frequently change, leading to further delays.
As a result of these difficulties, there has been considerable focus on the ways in which a landlord can lawfully avoid having to comply. Although a landlord commits a criminal offence if they breach the Act, it is possible to structure the premises and the legal interests in them in such a way as to take the premises, the landlord or the proposed transaction outside the restrictions imposed.
There is, however, considerable uncertainty as to how the Act works. Two cases in 2019 have thankfully clarified the position for landlords seeking to escape its restrictions.
What are the premises?
The Act applies to premises if they consist of the whole or part of a building (and satisfy additional criteria), but it does not define “building”. This can give rise to tremendous difficulties for a landlord seeking to know whether or not their proposed disposal “affects” any particular premises.
York House (Chelsea) Ltd v Thompson [2019] EWHC 2203 (Ch); [2019] EGLR 46 confirms the following in relation to the meaning of “building” and “premises”:
- The Act requires that the relevant premises be identified first, on an objective basis, without regard to the subject matter of the disposal (this confirms the earlier decision of the court in Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] 2 EGLR 141). The landlord’s argument that the Act only applied to a disposal of part of the block which was either common parts or was subject to rights held by two or more qualifying tenants was rejected. This is unfortunate for landlords wishing to argue that commercial units within their building do not form part of the “premises” for the purposes of the Act.
- “Building” includes appurtenances: areas over which the tenants have rights under their leases and areas which are usually enjoyed with the building, including those to which access is required to perform services for the tenants, together with the subsoil of the building and airspace up to its full height (as this may be required for scaffolding to be erected). This means that the grant of a lease of open land, subsoil or airspace which is usually enjoyed with the relevant building will be caught by the Act. In the particular circumstances of the case, the court held that “every part of the surrounding courtyards and outbuildings is, to the extent that it is not actually a part of the building, an appurtenance within the extended meaning of the building”.
- “Common parts” included a boiler room, even though it was locked and no resident ever went into it, and a caretaker’s flat, as well as roof space up to the height of the chimneys (it is not clear how the height is determined if the building does not have chimneys). This is significant because, although the grant of a lease of a single flat is not caught by the Act, the grant of a lease of common parts is caught by the Act.
Reversionary leases within a family
A landlord is only caught by the Act where they are the immediate landlord of the residential tenants, so the existence of an intervening lease (so long as it satisfies additional requirements) will enable the reversioner to make a relevant disposal without having to comply with the Act. The grant of such a lease once the individual flat leases exist, however, will itself be a relevant disposal caught by the Act.
Where the landlord comprises two or more members of a family, however, they may grant an overriding lease to one or more of their number (or, indeed, to one or more other members of the family) without being caught by the Act. In York House, the landlord was a husband and wife, and they granted leases to either the husband or the wife alone. The court held that the grant of these leases constituted a gift to a member of the landlord’s family and hence the grant was not caught by the Act.
Development – when does a flat become a flat?
One of the additional criteria referred to above that premises must satisfy in order to fall within the Act is that the premises must contain two or more flats held by qualifying tenants. “Flat” is defined for the purposes of the Act as:
“…a separate set of premises, whether or not on the same floor, which–
(a) forms part of a building, and
(b) is divided horizontally from some other part of that building, and
(c) is constructed or adapted for use for the purposes of a dwelling.”
Does that mean that premises do not contain any “flats”, for the purposes of the Act, until the relevant flats have reached a sufficiently advanced stage of construction that they can be said to be constructed or adapted for use for the purposes of a dwelling (and that the landlord can make relevant disposals until that point without being caught by the Act)?
The answer is yes, as confirmed by Lewison LJ in Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate [2019] EWCA Civ 1848; [2019] EGLR 55, which dealt with collective enfranchisement, although the wording of the definition of “flat” was the same. He concluded his judgment by saying: “A separate set of premises is not a flat (as defined) unless at some stage in its history it has reached a stage of construction to be suitable for use for the purposes of a dwelling.”
Peta Dollar is a freelance lecturer, trainer and writer
