April 2009 Jaffe Porter Crossick LLP Newsletter Jaffe Porter Crossick LLP October 2012 Property Law Introduction Supreme Court decisions on (Day and another v Hosebay Limited and Howard de Walden Estates Limited v Lexgorge Limited DO WE FINALLY KNOW WHAT A HOUSE IS? On 10 th October 2012 the Supreme Court handed down it decision in two joined appeals (Day and another (Appellants) v Hosebay Limited (Respondents) and Howard de Walden Estates Limited (Appellants) v Lexgorge Limited (Respondents)) which raised the question of whether a property used wholly for commercial purposes may qualify as a house for the purpose of the legislation governing the right of a tenant to acquire the freehold of the building from his landlord or acquire an extended lease. THE ISSUES: Under the Leasehold Reform Act 1967 (1967 Act) a tenant of a house is entitled to acquire the freehold if certain conditions are met at the date that the notice of claim is served. An important condition was the obligation that the tenant reside at the property as his only or main residence. Since Section 138 of the Commonhold and Reform Act 2002 (CLRA) came into force, a tenant no longer needs to reside in the property for three years as a condition of acquiring the freehold (except in limited circumstances). The only requirement is that a leaseholder own the lease for two years. There were two consequences to this amendment: First, a commercial tenant or company could now enfranchise under the 1967 Act if they did not occupy the property exclusively for the purpose of their business and could establish that the property is a house. Second, a tenant could enfranchise numerous properties of which he held a lease for the two-year period.
Section 2(1) of the LRA defines a house as including: THE FACTS 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 although 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. In Hosebay, there were three terrace properties which were originally constructed, and first occupied, as large houses in Rosary Gardens in South Kensington, London. Each of them was let on a long lease which described the demised premises as the messuage or dwellinghouse. The leases restricted the use of the houses for use for residential purposes Hosebay Limited acquired all three leases in 1996 and subsequently commenced lawfully subletting them to an associated company which in turn provided short term accommodation to tourists and visitors to London. This was the position on the day notice were served on the landlord to acquire the freehold in respect of all three properties. The landlord subsequently challenged its claim on the basis that the properties were not houses because they, i. were not designed or adapted for living in, and ii. were not a house reasonably so called in light of the use to which the properties were currently put; and Hosebay Limited was a protected business tenant under Part II of the Landlord and Tenant Act 1954 (the 1954 Act). The judge at first instance found against Day on both points concluding that the properties were houses within the meaning of s.2 of the 1967 Act. The properties were held to be properties adapted for living in. Although the rooms were being occupied on short-term basis, they were entirely appropriate for use as long-term accommodation. The judge also held that Hosebay Limited did not occupy the properties for the purposes of Part II of the 1954 Act as it had lawfully sublet to a different company which occupied them. Day appealed to the Court of Appeal only in respect of the first issue.
In Lexgorge, the subject property was 48 Queen Anne Street in Marylebone, London which comprised five floors was built in about 1760 as a terraced house and for many years was occupied for that purpose. Under the terms of the leases, the building was described as a messuage or residential or professional premises and its use was restricted to self-contained flats or maisonettes on the upper two floors, professional offices on the first and ground floors, with the use of the basement being restricted to storage. Lexgorge Limited acquired the lease in 1978 and more than 25 years later served notice on the landlord to acquire the freehold. At the time that Lexgorge Limited sought to enfranchise all the floors were being used for office accommodation. The building was listed as a building of special architectural or historic interest and English Heritage s records described it as a terraced house. The landlord objected on the basis that the property was not a house within s.2(1) because since around 1961 the use of all four upper floors was as offices. The fact that it was being used wholly for offices meant that it could not reasonably be called a house. The judge held that the fact that all the property was being used for office purposes at the date of the notice, and the fact that, under the lease, around half the internal area of the property could not be used other than for office purposes did not prevent the property from being a house reasonably so called. The landlord appealed to the Court of Appeal. THE COURT OF APPEAL DECISION The Court of Appeal reviewed a number of authorities on the meaning of house. Designed or adapted for living in In Hosebay, the Appeal Court concluded that the properties were designed or adapted for living in because: 1. the properties were originally designed for living in; 2. for the purpose of establishing whether premises are adapted for living in, it is necessary to examine the most recent works of adaptation and assesses objectively, whether they result in the property being adapted for living in; 3. it is necessary to look at the effect of the works which alter the building, not furnishings or furniture which are not works of adaptation; 4. the subjective intention of the person responsible for the works will rarely be of any relevance 5. the actual or intended use of the building may sometimes have some relevance; and 6. the use to which the building is actually put at the date of the tenant s notice is of little relevance. In other words, it is necessary to examine the physical construction and nature of the property (as designed or adapted) rather than focusing on its use or intended use when considering whether it was designed or adapted for living in.
House reasonably so called In Hosebay, the Court concluded that whether a building is a house reasonably so called depends, at least in the main, by reference to its physical appearance and character. In this case, the properties were designed for living in and had the same external appearance (and a very similar internal appearance) to the properties as originally designed. Furthermore, the leases referred to residential use. Lord Neuberger went so far as to observe that, it seems clear that a five-storey building constructed as a house, but converted internally into five self-contained flats, would, at least absent any special factors, be a house reasonably so called. In Lexgorge, on the same issue, the Court held that the fact that the whole of the property was used for office purposes at the date of the notice did not assist the landlord because this only applies where both the permitted use and the actual use of the building concerned exclude residential use or limit it to a very small proportion of the building. In this case, the lease concerned residential use in relation to the top two floors and the fact they were used as office space did not affect that conclusion. The landlords appealed to the Supreme Court which unanimously allowed both appeals. The case was heard on 16-18 July 2012. SUPREME COURT On 10 th October 2012 the Supreme Court handed down its decision. The judgment of the Court was given by Lord Carnwath. The Supreme Court concluded neither property constituted a house for the purposes of the 1967 Act on the date when the relevant statutory notice was served for the following reasons: the decision of the Court of Appeal was not the result intended by Parliament when pursuant to the CLRA it removed the requirement of residence from the 1967 Act; The first element of definition of house looks to the identity of function of the building base on its physical characeristics. The second element ties the definition to the primary meaning of house as a single residence, as opposed to, for example, a hostel or block of flats. Both parts of the definition need to be read in context which is about houses as places to live in, not about houses as pieces of architecture As to the first part of the definition of house, the words designed or adapted do not constitute alternative qualifying requirements, despite the literal meaning of the provision. The buildings in Hosebay case were not houses reasonably so called. The fact that they might look like houses and might be referred to as houses for some purposes was not sufficient to displace the fact hat their use was entirely commercial. The building in Lexgorge was not a house reasonably so called because it was used wholly for office purposes. The fact that it was designed as a house and is still described as a house for many purposes was beside the point.
A Are we now finally clear on what a house is? A full copy of the judgment is available at: www.supremecourt.gov.uk/decided-cases/index.html For further information and advice please contact: Yashmin Mistry Partner JPC Law Direct Dial: + 44 (0) 2076447294 Direct Fax: + 44 (0) 2076447272 Direct Email: ymistry@jpclaw.co.uk Disclaimer We try to ensure that the information contained in this newsletter is correct. However, we cannot accept responsibility for any errors or inaccuracies unless we have given you, personally, specific advice relating to a matter about which you have given us full background details. JPC Law Omni House 252 Belsize Road London NW6 4BT t. 020 7625 4424 f. 020 7328 5840 e. enquiries@jpclaw.co.uk w. www.jpclaw.co.uk