Floodgates are open for commercial tenants wanting to enfranchise

A WAVE OF enfranchisement claims by commercial tenants seeking to buy the freehold of their properties is predicted after a ruling by the Court of Appeal.

Lord Neuberger, Master of the Rolls, said a building designed as a house but used entirely as an office could be considered a "house" for leasehold enfranchisement purposes.

Damian Greenish, senior partner of Pemberton Greenish, who acted for one of the freeholders at the Court of Appeal, said: "The floodgates are open for all sorts of buildings that no person would perceive as being a house.

"This ruling is clearly going to have a huge impact on a wide range of properties not only in London but around the country, and it desperately needs clarification."

Greenish said leave to appeal had been refused, but his clients were considering an appeal to the Supreme Court.

Delivering the leading judgment in Day and Day v Hosebay and Howard de Walden Estates v Lexgorge [2010] EWCA Civ 748, Lord Neuberger said the question of whether a building was a "house" for the purposes of section 2(1) of the leasehold Reform Act 1967 should be determined "at least in the main" by its physical appearance and character. 

He went on: "One could, it seems to me, quite naturally describe a building built as a town house, which had subsequently been internally converted into offices, as a "house used as offices": hence it would "reasonably [be] called" a house, even though it was not used for residential purposes, and even if it was not permitted to be so used.

"If most people were asked whether a building could reasonably be called a house, I am not convinced it would occur to them to ask about the permitted use under any lease, or that they would be influenced if told what the permitted use was."

Lord Neuberger said he reached his conclusion with "no particular enthusiasm".

He said: "The 1967 Act was originally intended to assist residential tenants occupying their houses as their only or main residence to acquire their freeholds.

"Partly to extend its reach, and partly to defeat the device of company lettings, the legislature ditched the residence requirement, as a result of which the extension of the Act may well have gone further than the legislature intended or anticipated� If I am right on these appeals, it can extend to buildings exclusively used for business purposes."

Lord Neuberger said he was not sure he agreed with last year's ruling by the Court of Appeal Prospect Estates v Grosvenor Estates Belgravia  [2008] EWCA Civ 1281, which put "decisive weight" on the permitted used under the lease.

He dismissed the appeals by the freeholders.  Lord Justices Lloyd and Moore-Bick agreed.

Greenish acted for Hugo and Lady Hilary Day, freeholders of the three properties in Kensington leased by Hosebay Limited.

He said the Master of the Rolls had "sidelined" Prospect Estates, which had been the leading Court of Appeal case on the definition of a house.

"I don't know where you draw the line," Greenish said. "What about a factory with a kitchen and bathroom?"

Natasha Rees, partner at property specialists Forsters, said that following the ruling, many commercial tenants would seek to enfranchise.

"A lot of companies were waiting for this decision, particularly in central London, where so many properties built as houses are now in office use."

She added that houses might only be considered offices in the future where the terms of the lease restricted residential use and there was no planning permission.

Solicitors Journal 13.7.10