Property : The Court of Appeal rules a shop with a residential flat above does not constitute a “house” in respect of the Leasehold Reform Act 1967, 25 May 2013

Property : The Court of Appeal rules a shop with a residential flat above does not constitute a “house” in respect of the Leasehold Reform Act 1967, 25 May 2013

Stuart Henley & Others v  Edmund Cohen               Court of Appeal             May 2013

The dispute is over the right for a leaseholder to enfranchise under the Leasehold Reform Act 1967. For this to happen, the building must fit the statutory description of a “house”. The court needed to decide whether a particular ground floor shop with a first floor adapted into a flat counts under this description.

The next question is over the rights of the leaseholders (the claimants), who had acted in breach of covenant to adapt the upper floor for living in – the court must decide whether this disqualifies them from acquiring the freehold (from the defendants).

Facts

A lease for a property with a ground floor shop and first floor storage space, along a parade of similar two-storey buildings, was originally signed in 1935 with a term for 99 years. The claimants in this case were registered as proprietors in 2004 and they sub-let the ground floor shop. This ground floor is completely separate from the first floor, which can only be reached by a flight of steps and door to the rear of the building.

The lease includes a clause that forbids any alteration to the “plan, elevation or architectural design” without the consent of the freeholder. The claimants applied for permission to renovate the first floor, with the idea that they could make it habitable and then apply for leasehold enfranchisement. The freeholder rejected the application (as he did not want the lease to be bought out) but the claimants went ahead with the works anyway, and once this was completed filed for enfranchisement.

The court had declared that the claimants were not entitled to the freehold. The judge considered the appearance of the property as shop in a parade of shops, the separate uses of the two floors and lack of accessibility between them, and the lack of intent or design for residential use in the history of the property. Even though the premises had been adapted for living in recently, it could not reasonably be called a house for the purposes of the 1967 Act. On top of this, the alterations they had made to the property put the claimants in breach of the lease, and so they could not lawfully rely on a wrong to enforce their rights.

The appellants relied heavily on the authority of Tandon v Trustees of Spurgeons Homes (1982) which illustrates that enfranchisement extends to mixed unit premises, such as premises that have been adapted for residential occupation. They also contested the interpretation of “plan” in the lease and claimed that the judge had erred in law in saying the claimants needed the freeholder’s permission make alterations.

Held

The original judgements in both parts of the case were upheld. The appellants relied on a case (Tandon) that was different in a very significant characteristic: the physical integration of the shop and flat, and the comparison was not accurate. The judge’s reasoning on this point was clear and valid, and could not be overturned. The breach issue did not need to be detailed after this point, as the appeal had already been lost, but the judge expressed a view for the sake of future clarity. It is unacceptable to instigate a statutory right based on an act that was unlawful and committed for the sake of enforcing that right. The law should not and does not allow someone to enforce a right based on a wrong.

Remarks

This judgement adds to the authorities surrounding enfranchisement, as the interpretation of a house “reasonably so called” is given a narrower meaning here. A key message is that properties consisting of two integrated parts may be treated differently from those with independent units. Also, the judgement here gave considerable weight to the “history and character” of the premise, rather than relying solely on the use at the date of the notice. Other factors such as the physical appearance of the premises, the proportions of the building and the terms of the lease must all be considered on a case-by case basis.

Careful consideration was taken of the appropriate authorities that applied in this case, each side finding that case law upheld their argument. The difficulty of the court lies in applying the authorities to a particular circumstance, and it must be remembered that small details or dissimilarities can undermine a case. The debate over the application of case law here emphasises the uncertainty surrounding this issue.