23 April, 2020
The Court recently decided that unless a leasehold owner owns the whole of a house, they are not entitled to enfranchisement under the Leasehold Reform Act 1967 ("the Act").
In this case, a number of leasehold tenants applied for enfranchisement, that is to purchase the freehold interest in their houses. Crucially, structural parts of the properties - such as the roof and load bearing walls - were excluded from the demised premises as per the terms of the leasehold interests.
S2 of the Act provides the definition of what constitutes a "house" or "house and premises" for the purposes of establishing to what tenancies the right to enfranchisement applies. S2(2) goes on to clarify that the definition of "house" does not apply to a house "which is not structurally detached and of which a material part lies above or below a part of the structure not comprised in the house".
The landlord denied the claim on the basis of s2(2) of the Act. The Court at first instance disagreed and allowed the enfranchisement. The landlord appealed.
The landlord continued to argue that the right to enfranchisement only applies to tenants of the whole of the premises. The tenant naturally disagreed and argued that not only did the right include tenancies of part, but that this particular lease, in excluding parts, attempted to avoid enfranchisement. These provisions are therefore void under the terms of s23(1) of the Act.
On this occasion the Courts agreed with the landlord. The right to enfranchisement only applied to tenants of substantially the whole of the premises. The Act did not intend to be able to extend rights to the tenant over parts of the physical premises which the leasehold specifically excluded. Regarding s23(1), the Court found that this section did not have the power to re-write a lease, and that a tenancy limiting the scope of the tenant's interest in the property did not affect their rights under the Act. It simply meant that the interest acquired by the tenant was insufficient to give rise to a right under the Act.
Leasehold properties, particularly in parts of Lancashire, are very common, and the ability to acquire the freehold is valuable for the owners who wish to develop the space without having to seek consent from the freeholder. It is important to know what is being purchased at the outset if enfranchisement is a future goal.
For landlords, it is concerning that your property could be subject to these rights and the freehold could be acquired by your tenant. There are innovative ways to mange the dealings with your leaseholders.
If you require any advice about purchasing the freehold of your leasehold property, or if you are a landlord, concerned that your leasehold tenant will submit an application for enfranchisement, speak with our specialist Property Litigation Team.
For more information contact Laura Hallett Lea in our Business Dispute Resolution department via email or phone on 0333 207 1141. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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