Hosebay Ltd v Day and another

JurisdictionEngland & Wales
JudgeLord Sumption,Lord Phillips,Lord Wilson,Lord Walker,Lord Mance,Lord Clarke,LORD CARNWATH
Judgment Date10 October 2012
Neutral Citation[2012] UKSC 41
Date10 October 2012
CourtSupreme Court
Day and Another
(Appellants)
and
Hosebay Limited
(Respondent)
Howard De Walden Estates Limited
(Appellant)
and
Lexgorge Limited
(Respondent)

[2012] UKSC 41

Before:

Lord Phillips

Lord Walker

Lord Mance

Lord Clarke

Lord Wilson

Lord Sumption

Lord Carnwath

THE SUPREME COURT

Michaelmas Term

On appeal from: [2010] EWCA Civ 748

Appellant

Edwin Johnson QC

Oliver Phillips

(Instructed by Pemberton Greenish LLP)

Appellant

Jonathan Gaunt QC

Katharine Holland QC

(Instructed by Speechly Bircham LLP)

Responden

Stephen Jourdan QC

Anthony Radevsky

(Instructed by Bircham Dyson Bell)

Respondent

Anthony Radevsky Mark Sefton

(Instructed by Wallace LLP)

Heard on 16, 17 and 18 July 2012

LORD CARNWATH (with whom Lord Phillips, Lord Walker, Lord Mance, Lord Clarke, Lord Wilson and Lord Sumption agree)

Introduction
1

The Leasehold Reform Act 1967 is on its face a statute about houses, not commercial buildings. The buildings with which we are concerned were originally designed and used as houses, but at the relevant date were used entirely for commercial purposes, one for offices, the other (in the judge's words) as a "self-catering hotel". In both cases the courts below felt constrained to hold that they were "houses" within the meaning of the 1967 Act, with the consequence that the lessees were entitled to "enfranchise", that is, to acquire the freeholds compulsorily from their lessors on the terms fixed by the Act.

2

In the Court of Appeal [2010] EWCA Civ 748; [2010] 1 WLR 2317 Lord Neuberger of Abbotsbury MR regretted this result. He saw it as the probably unintended consequence of amendments made by the Commonhold and Leasehold Reform Act 2002, removing the previous residence requirements. However, he felt bound to apply his view of the relevant provisions as they stood after those amendments, rather than to decide what "the legislature would have said if it had fully appreciated the consequences…" (para 57).

3

From the material we have been shown, he was clearly right to think that his interpretation did not reflect Parliament's intentions. The thinking behind the 2002 legislation is apparent from the preceding Draft Bill and Consultation Paper "Commonhold and Leasehold Reform" (Cm 4843), published by the Lord Chancellor in 2000. It included proposals for the introduction of an entirely new form of tenure, known as "Commonhold", and for amendment of the existing provisions relating to leases of flats (under the Leasehold Reform, Housing and Urban Development Act 1993) and of houses (under the 1967 Act). The first paragraph of the Introduction leaves no doubt that its purpose was to address perceived flaws in the "residential leasehold system" (p 107), not in the leasehold system more generally.

4

In relation to flats, the government's view was that the residence tests under the 1993 Act were too restrictive, for example, in excluding someone subletting a flat, or occupying a flat as a second home. The residence requirement would therefore be abolished; but, to "restrict the scope for short-term speculative gains", it would be replaced by a rule requiring the qualifying tenant to have held the lease for at least two years (pp 155–6).

5

A similar approach was proposed for leases of houses under the 1967 Act:

"This would bring the residence test for houses in line with the proposals for flats. It would allow long leaseholders of second homes to benefit and would also enable leaseholders who lease houses through a company to enfranchise. Furthermore, as in the case of flats, it would restrict the scope for short-term speculative gains (p 189)."

There is no evidence then or thereafter of any ministerial or parliamentary intention to extend the scope of the Act more generally, or in particular to confer statutory rights on lessees of buildings used for purely non-residential purposes.

6

Although the 1967 Act like the 1993 Act is in a sense expropriatory, in that it confers rights on lessees to acquire rights compulsorily from their lessors, this has been held not to give rise to any interpretative presumption in favour of the latter. As Millett LJ said of the 1993 Act:

"It would, in my opinion, be wrong to disregard the fact that, while the Act may to some extent be regarded as expropriatory of the landlord's interest, nevertheless it was passed for the benefit of tenants. It is the duty of the court to construe the 1993 Act fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy." ( Cadogan v McGirk [1996] 4 All ER 643, 648)

By the same token, the court should avoid as far as possible an interpretation which has the effect of conferring rights going beyond those which Parliament intended.

Statutory definition
7

Section 2(1) defines "house" in the following terms:

"… '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 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."

8

In the present cases, nothing turns directly on the qualifications introduced by the word "notwithstanding" (which I shall refer to as "the proviso"). We are concerned with the main part of the definition, which raises two separate but overlapping questions: (i) is the building one "designed or adapted for living in"? (ii) is it a "house … reasonably so called"? Both questions remain live in Hosebay; in Lexgorge the first has been conceded in favour of the lessees.

9

The two parts of the definition are in a sense "belt and braces": complementary and overlapping, but both needing to be satisfied. The first looks to the identity or function of the building based on its physical characteristics. The second ties the definition to the primary meaning of "house" as a single residence, as opposed to say a hostel or a block of flats; but that in turn is qualified by the specific provision relating to houses divided horizontally. Both parts need to be read in the context of a statute which is about houses as places to live in, not about houses as pieces of architecture, or features in a street scene, or names in an address book.

The facts
10

The first case ( Hosebay) concerns three properties, 29, 31, and 39 Rosary Gardens, South Kensington, London SW7. They were originally built as separate houses as part of a late Victorian terrace forming the west side of Rosary Gardens. The current leases of Nos 29 and 39 were granted in 1966 for terms expiring in December 2020, subject to covenants for their use as "16 high class self-contained private residential flatlets". The current lease for No 31 was granted in 1971 for a term expiring in December 2030, subject to a covenant restricting its use to that of "a single family residence" or "a high class furnished property for accommodating not more than 20 persons". It was common ground that the current use, which had begun some time before 1981, was not in accordance with the covenants.

11

It was unclear from the evidence when the premises had been converted to their present layout. The judge (para 83) proceeded on the basis that the conversions "may well" have been carried out substantially before the current leases were granted in 1966 and 1971. Although there was no evidence as to the actual purpose of the conversions, the Master of the Rolls "on the balance of probabilities" inferred (principally from the lack of documentation in the hands of the landlords to indicate otherwise) that they had been for the uses described in the leases (para 37).

12

Hosebay Ltd acquired all three leases in 1996. On 23 April 2007 it served notices on its landlords under section 8 of the 1967 Act to acquire the freeholds of the three properties.

13

Judge Marshall QC found that the three properties were at the relevant date being used together to provide "short term accommodation for tourists and other visitors to London", or what she described as a "self-catering hotel" (paras 8 and 19). Each of the three properties had been "fully adapted to provide individual rooms for letting out" (para 9), with the exception of two rooms in No 31, one of which was used for office and reception purposes, and the other for storage. The great majority of the rooms could be described as "rooms with self-catering facilities". Each room had between one and four beds, furniture, and limited storage space, cooking facilities, and small "wet rooms" with shower, basin and WC. Fresh bed linen and room cleaning, but no other services, were provided to those staying in the rooms.

14

On these facts, the judge concluded that each of the three properties was physically "adapted for living in" even though the current use was itself too transient to qualify as such. The Court of Appeal agreed. I quote the Master of the Rolls:

"33… My primary reason for that conclusion is that, in order to determine whether premises are adapted for living in, one looks at the most recent works of adaptation, and assesses objectively, whether they resulted in the property being adapted for living in…

36. In this case, I consider that the effect of the most recent works of conversion to the three properties, if they were works of adaptation, adapted those properties for living in. Ignoring one or two rooms, each room in the three properties is a self-contained unit of accommodation, with its own basic small shower room/WC, and its own even smaller and more basic cooking facilities. As...

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