Acquiring the Freehold of a House under the Leasehold Reform Act 1967

AuthorPiers Harrison/David Lonsdale
Pages1-26
Chapter 1 Acquiring the Freehold of a House under the Leasehold Reform Act 1967

SUMMARY

1.1 The right to acquire the freehold of a house and premises is conferred on a tenant of a house by section 1 of the Leasehold Reform Act 1967 (1967 Act). To qualify, the tenant must have a long lease. He must be a tenant of the whole house. If he is a tenant of only part of the house, then he will not qualify unless he is the freeholder of the remainder. He must also have been a tenant for 2 years or more. When the 1967 Act was first passed, the tenancy had to be at a low rent. But to qualify to acquire the freehold, the low rent test has ceased to have significance except in relation to certain ‘excluded’ tenancies and certain continuation tenancies under section 3(2). However, the low rent test remains important for valuation purposes.

1.2 Section 300 of the Housing and Regeneration Act 2008 removes the low rent test qualification altogether in relation to the purchase of the freehold. A statutory instrument1provides that this section shall not apply to tenancies granted before the commencement date of 7 September 2009 or granted after that date pursuant to a contract made before that date.

1.3 One unexpected consequence of the abolition of the low rent test is that more tenants whose leases have begun after the commencement date will be entitled to enfranchise on the basis of a valuation under section 9(1) of the 1967 Act, which is the most favourable under the Act. However, very few long leases of houses have been created in recent years. In addition to the low rent test, when the 1967 Act was passed there were certain rateable value limits that had to be met. These have been abolished with regard to qualification by the passing of the


1 The Housing and Regeneration Act 2008 (Commencement No 6 and Transitional and Savings

Provisions) Order 2009 (SI 2009/2096).

2 Leasehold Enfranchisement: Law & Practice

Leasehold Reform Housing and Urban Development Act 1993 (1993 Act). However, again they remain important with regard to the basis of valuation.

1.4 The structure of this chapter is as follows: firstly, the basic qualification requirements are considered; secondly, the factors which are relevant to determining the basis of valuation are considered.

BASIC QUALIFICATION REQUIREMENTS

1.5 The basic qualification requirements which the applicant must satisfy are that the applicant:

(a) must be a lessee of a house;
(b) must have a long lease (usually defined as 21 years or more);
(c) must have been a tenant for 2 years or more.

Meaning of ‘house’

1.6 The right to enfranchise is conferred on long lessees of houses. Therefore, the first question is whether or not the property is a house.

1.7 Section 2(1) of the 1967 Act provides the statutory definition of a house:

(1) For the 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 solely designed or adapted for living in, or is divided horizontally into flats or maisonettes; and—

(a) where a building is divided horizontally, the flats or other units into which it is so divided are not separate ‘houses’, though the building as a whole may be; and

(b) where a house is divided vertically the building as a whole is not a ‘house’ though any of the units into which it is divided may be.

1.8 Notwithstanding the word ‘includes’, the definition is exhaustive. Therefore, the elements of the definition are:

(a) a building;
(b) designed or adapted for living in;
(c) reasonably called a house;
(d) flats and maisonettes are not separate houses;
(e) may be divided horizontally into flats or non-residential units.

Building

1.9 A building is a built structure of some degree of permanence. A single terrace house is a building even though the entire terrace may also be regarded as a building. However, house is singular and does not include two separate houses. This point was considered in the House of Lords’ case of Malekshad v Howard de Walden Estates Ltd 2in relation to two adjoining properties. Nevertheless, there may be circumstances where two houses have become one. Two adjoining houses may have been knocked through so that the character of two houses has been lost. In such a case, the property would be within the definition.

1.10 In Malekshad, it is worth noting that the tenant held a single lease in respect of two houses and his notice related to both of them. Where this is the case, there is, in principle, nothing to prevent a separate notice being served in respect of each house.

Designed or adapted for living in

1.11 The building must be designed or adapted for living in. Boss Holdings Ltd v Grosvenor West End Properties & Ors3 concerned an 18th-century property. At the time the notice was served, the lower floors were in commercial use and the upper floors had become so severely dilapidated that they were not fit for habitation.

1.12 The Court of Appeal held that at the time of serving the notice exercising the right to enfranchise, the property could not be described as designed or adapted for living in. However, the House of Lords reversed the decision holding that the property was designed or adapted for living in whether or not it was habitable at the time the notice was served. Lord Neuberger said:

In my judgment the words ‘designed or adapted for living in’, as a matter of ordinary English, require one first to consider the property as it was initially built: for what purpose was it originally designed? That is the natural meaning of the word ‘designed’, which is a past participle. One then goes on to consider whether work has subsequently been done to the property so that the original ‘design’ has been changed: has it been adapted for another purpose, and if so for what purpose? When asking either question, one is ultimately concerned to decide whether the purpose for which the property has been designed or adapted, was ‘for living in’.4

2 Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49, [2003] 1 AC 1013.

3 Boss Holdings Ltd v Grosvenor West End Properties & Ors [2008] UKHL 5, [2008] 1 WLR 289.

4 Boss Holdings Ltd v Grosvenor West End Properties & Ors [2008] UKHL 5, [2008] 1 WLR 289 at [18].

4 Leasehold Enfranchisement: Law & Practice

1.13 What, then, is the position where a building is constructed as residential property and then subsequently becomes adapted for use as offices? This question was strictly left open in Boss Holdings Ltd, but the answer Lord Neuberger appeared to give was that the property would be a house having been designed as such.

1.14 In two co-joined appeals, Day and Day v Hosebay Ltd and Howard de Walden Estates Ltd v Lexgorge Ltd,5 the Court of Appeal re-examined this definition.

1.15 Hosebay Ltd concerned three properties which were originally built as separate terrace houses but at the relevant time formed a self-catering hotel. Lexgorge Ltd concerned a property originally built as a house but used as offices at the time the notice was served.

1.16 Lord Neuberger (by then the Master of the Rolls in the Court of Appeal) dealt with the question left open by Boss Holdings Ltd, namely, what is the position if a property is adapted away from residential use? He said:

It would seem somewhat illogical that one could ‘adapt into’ residential use, but that one could not ‘adapt out of’ such use. Further, although as was accepted in Boss Holdings [2008] 1 WLR 289, the literalist meaning of ‘designed or adapted’ is that either alternative will do, that is not by any means what the words naturally convey: … I must confess to having started in Boss Holdings [2008] 1 WLR 289 … what I now think is a hare by suggesting an over-literalist approach to the language used by the legislature.6

1.17 In other words, Lord Neuberger seemed to be saying that a property which was originally designed for residential use but was then converted into offices or a hotel would not come within the definition after all.

1.18 Hosebay Ltd was further appealed to the Supreme Court.7In the only judgment of the court, Lord Carnwarth supported the second view expressed by Lord Neuberger. He said:

Once it is accepted that a ‘literalist’ approach to the definition is inappropriate, I find myself drawn back to a reading which accords more closely to what I have suggested was in Lord Denning’s mind in Ashbridge [1965] 1 WLR 1320, that is a

5 Day and Day v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2010] EWCA Civ
748, [2010] 1 WLR 2317.

6 Day and Day v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2010] EWCA Civ
748, [2010] 1 WLR 2317 at [31].

7 Day and another v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2012] UKSC
41, [2012] 1 WLR 2884.

simple way of defining the present identity or function of a building as a house, by reference to its current physical character whether derived from its original design or subsequent adaption.8

1.19 The approach taken by the Supreme Court has the important practical advantage that the court does not have to explore ancient history to see if a property used entirely for commercial purposes may have, at one time, been a grand residential house. The enquiry will be principally as to what it is used for at the time the notice is served.

Reasonably called a house

1.20 The property must be reasonably called a house at the relevant time, i.e. the time the notice is served. This does not mean that everyone would immediately refer to the property as a house, but merely that to do so would be reasonable. For example, Cromwell Tower in the Barbican, London, with its 130 flats, could...

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