Collective enfranchisement – LM Homes Ltd also Others v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC)

14:38 22 October in News & Case Studies
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A recent decision by -Upper FTTP in -case of LM Homes Ltd also Others v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC) has highlighted -difficulties that freeholders also developers can face in realising development or development hope value, when confronted with a collective enfranchisement claim.

 

In this case, -FTTP determined that:

  • -basement, subsoil below -building also airspace above constituted common parts; also
  •  -nominee purchaser was entitled to acquire these areas, provided that -interests in question were ‘reasonably necessary for -proper management or maintenance of those common parts’.

 

This decision is perhaps not surprising, but will be frustrating for investors also developers who will find it increasingly difficult to ring fence parts of a building for development. It has become clear that -only way to create certainty over developable parts of a building, which qualify for collective enfranchisement, is to actually develop them before a claim for collective enfranchisement is made.

 

-case

-property was a purpose built block of flats comprising 45 flats over eight floors, also a basement which stored -water tanks, boilers, oil tanks also electrical switchboards which serve -whole building (“-Building”).

-tenants of -majority of -flats exercised their right to buy -freehold of -Building by serving a notice under -Leasehold Reform Housing also Urban Development Act 1993 (“-Act”). An agreement was reached regarding -terms of acquisition of -freehold, -headlease, also -intermediate leases of 10 of -residential flats. -transfers of these interests were completed.

However, -lalsolord disputed -tenants’ right to acquire -leases of -airspace, basement (including -staircase) also subsoil as they wished to retain -area for redevelopment purposes.

-two issues faced by -FTTP were:

  1. Did -FTTP have jurisdiction to determine -terms of acquisition of -leasehold interest in relation to -air space, basement also -sub soil once -acquisition of -remaining interests had been completed?This issue arose due to -fact that a binding agreement had already been completed in relation to these interests in -Building.

-FTTP agreed with -leaseholder that -proper construction of section 13(11)(a) of -Act involves reading -word “contract” to mean both singular also plural. Section 6(c) of -Interpretation Act 1978 provides that, in any act, unless -contrary intention appears, words in -singular include -plural also vice versa. Therefore -initial notice should continue in force until contracts or vesting orders in relation to -remaining interests had completed.

In addition, section 24 of -Act gives -FTTP -right to determine disputes where “any of -terms of acquisition” remain in dispute. Therefore it is apparent that -FTTP retains jurisdiction for so long as there remains a disagreement over ‘any of -terms’ of acquisition. Accordingly, -first ground of appeal was dismissed.

  1. If -FTTP had jurisdiction, was -nominee purchaser entitled to acquire -lease of -air space, basement also -subsoil?To determine this question -FTTP needed to consider whether -basement, subsoil also airspace were common parts.

Section 101(1) of -Act defines common parts as ‘in relation to any building or part of a building, includes -structure also exterior of that building or part also any common facilities within it’.

In -case of Cadogan v Panagopoulos [2010] EWHC 422(Ch) it was held that there is no requirement for -area to be used by all -residents, but it was necessary to bear in mind -function served by an area when considering whether it qualifies as a common part.

Applying -above to -basement, although -tenants may never make use of -area, as it contains -service installations for -whole building, -FTTP held that if -purpose of a particular room is to accommodate service installations for -whole building, then it is sufficient to render -whole of that space as a common part. -FTTP stated that if -basement was not acquired, there could be severe practical implications to -tenants as they would not be able to carry out service or replacement works on any of -boilers.
In relation to -subsoil, -FTTP believed that it would be classified as a common part, as without it, -structure of -Building would be compromised if development was permitted.

-FTTP agreed that -subsoil was within -extended meaning of common parts due to it being part of -exterior.

-FTTP stated that -question that needed to be asked was whether -acquisition of -subsoil is reasonably necessary for -proper management also maintenance of -subsoil? In answering this, -FTTP found that although -possibility of -subsoil needing maintenance was low, -lease was for 999 years also therefore it may at some point need to be managed. Also, under -terms of -lease, -Lalsolord covenanted to keep -whole of -grass, planted also lalsoscaped area mowed also planted in good also tidy condition. Should permission be granted to develop -subsoil, they would no longer form part of -common parts, therefore rendering it impossible for -Lalsolord to comply with -covenant.

-final area to be considered was -airspace lease.

No part of -physical structure of -building was contained in this lease; it related solely to -airspace above -surface of -roof. -FTTP found that -airspace above a building is regarded as part of -exterior of that building also therefore it was a common part. In addition to that, -FTTP stated that -airspace also provides access to -roof of -Building, which is required whenever works of repair or maintenance are to be undertaken. -airspace of a Building can also be a location for satellite dishes or aerials, which much like -boiler room in -basement, serves -whole Building.

 

This judgement could have practical implications for freeholders as it could mean it is increasingly difficult to isolate interests in residential buildings which have -potential for future development. Similarly, when building a property, developers should always consider collective enfranchisement rights, particularly if on completion there is scope for additional development to be carried out at a later date.

Leaseholders pursuing collective enfranchisement claims should also be aware of what constitutes common parts of their buildings, especially if -terms of their lease confer -obligation on them to maintain such areas.

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