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01st November 2012

Is it a house?

The Leasehold Reform Act 1967 introduced rights for tenants of houses held under long leases at a low rent to acquire the freehold from their landlords.

The low rent threshold and a residency requirement have been removed in most cases to expand rights to acquire the freehold, known as enfranchisement (although the level of rent can still affect the basis of valuation). This has resulted in many commercial and corporate tenants seeking to acquire the freehold under the Act and a stream of cases examining the properties in question and whether these are "houses" for the purposes of the legislation. The definition of "house" in the Act includes any building designed or adapted for living in and reasonably so called. However, what if the building was originally designed for living in but has since been altered or changed its use?

The Supreme Court has given some welcome guidance in a long awaited decision in two appeals Day v Hosebay Limited and Howard de Walden Estates Limited v Lexgorge Limited.

The first case involved three houses converted to provide short term accommodation for tourists and other visitors to London, described as a self catering hotel. Although the Court of Appeal had concluded these were "houses" for the purpose of the Act, the Supreme Court ruling overturned that on the grounds that a building wholly used as a self catering hotel is not "a house reasonably so called" within the meaning of the Act. The fact that the buildings might look like houses was not sufficient to displace the fact that their use was wholly commercial. Whilst this conclusion made it unnecessary to decide whether the buildings were "designed or adapted for living in", the court agreed "living in" means something more than "staying in".

The second case involved an early 18th century house which, at the relevant date, was entirely used as offices, albeit described as a "Terraced House" by English Heritage. Again the Supreme Court allowed the appeal on the grounds that a building wholly used for offices, whatever its original design or current appearance, is not "a house reasonably so called". The fact that it was designed as a house and was still described as a house for many purposes was beside the point.

The emphasis is on current use and whether, in light of that, a building can be reasonably called a house. In examining a number of previous cases and semantic arguments contrasting "was designed" and "is adapted" and whether it was sufficient if the building was originally designed as a house, the judgment reinforced the emphasis on current use, making the point that generally where there is an active and settled use at least some physical adaptations will have been made for that purpose.

The decision may limit the number of commercial or corporate tenants of purely commercial premises who may take advantage of the Act to acquire the freehold. However, given the advantages of being able to acquire the freehold at a favourable valuation under the Act (the properties here were in South Kensington and Marylebone W1), there will doubtless be continued litigation pushing at the edges and, if need be, adaptations to properties to provide at least some residential accommodation. In the Lexgorge case the upper two floors were later used for residential accommodation (but not at the key date the notice was served).

Whilst the decision affects properties purely used for commercial purposes, tenants of commercial premises under long leases will still be able in some cases to acquire the freehold, for example in the classic case of a shop with a flat above. Ironically, whilst a tenant living above his shop would need to satisfy a residence test as well as a longer lease requirement, an investment landlord of such a property which is sublet (or at least where the shop is sublet) remains able to enfranchise but that is another story…

For further information, please contact Kate Church on 01223 461155 or click here to email Kate.

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