Leasehold Enfranchisement – Day v Hosebay Limited

The Leasehold Reform Act 1967 (“LRA”) allows tenants of certain long leases of houses the right to acquire the freehold or be granted a lease extension. The LRA defines a house as “any building designed or adapted for living in and reasonably so called” and the case at hand revolves around the issues relating to this definition.

Facts

Three properties were originally constructed as large houses on two separate leases. Both leases described the properties as “a messuage or dwelling house”. One lease required use only as 16 residential flatlets with a residential caretaker, while the other restricted the use to that of a single family residence or high class furnished property for up to twenty occupiers. At the time of the enfranchisement claim, the properties were being used for short term tourist and business visitors’ accommodation. The tenant had sublet to an associated company which ran the short term lettings business from the properties. It was unclear when the conversion works were carried out.

The landlord challenged the tenant’s enfranchisement claim on the basis of the following grounds:

1. Each property was not a house within the LRA; and

2. The underleases were part of a sham arrangement

Decision

The County Court found in favour of the tenant on the basis that:

1. the properties were adapted, or designed for living in, and although they had been adapted from the original design, the adaption was “for living in”.
2. the tenant had sublet the properties to the associated company, which occupied them for its business. The protection of the Landlord and Tenant Act 1954 (“LTA) did not apply since the undertenant company was not in occupation. The Commonhold Leasehold Reform Act 2002 excludes a tenant from being able to enfranchise where the tenant had the protection of the LTA and as such the tenant was entitled to enfranchise.

On the landlord’s appeal of ground one only, the Court of Appeal held: 

• That the properties were “designed for living in” as they were constructed as a house for single occupation. However Lord Neuberger confirmed that where a property had been “designed for living in” but subsequently adapted for another use (unless it was readapted for living in), it would not be a house for the purposes of the LRA. This addressed the gap left by the previous case of Boss Holdings Limited v Grosvernor West End Properties and others (2008) which had found that “designed” meant the original purpose for which the property was designed, not its use at the time of the enfranchisement claim. The literal interpretation of the LRA indicated that “designed” and “adapted” were alternative requirements;
• Lord Neuberger considered the effect of the conversion works which provided mainly self-contained units of accommodation. Even if the current use of the properties was not for living in, that did not mean that they were not adapted for living in. To establish if the property had been adapted for living in the Court would:
  • look at the effect of the works which altered the building not the furnishings;
  • consider how the building was adapted and not why;
  • not look at the intention of the person carrying out the works, so far as the intended use was concerned, although the Court may consider the actual or intended use of the building; and
  • not look at the use of the building at the time of the claim.
• Lord Neuberger thought that the works had been carried out before the leases were granted. If the works had been carried out during the term of the leases, then the landlord would have been able to produce a permission to carry out the works. Such evidence was not available and therefore given the user covenants in the leases, even if the subjective purpose for which the works of adaption were carried out, and the use to which the building was then put, was relevant, that purpose was for “living in”. 
•  Each of the properties was a house reasonably so called. The factors that should be considered were the external and internal appearance of the house and the permitted use of the properties under the leases. The previous case of Grosvernor Estates Limited v Prospect Estates Limited (2008) placed too much significance on the user covenant in a lease. Essentially, reference had to be made to the physical appearance so that a property built as a house which was internally converted into offices would “reasonably be called” a house, even though it was not used for residential purposes, and even if it was not permitted to be used for that purpose.

Comment

This case is one of a number of cases on what constitutes a house for the purposes of leasehold enfranchisement. Lord Neuberger considered the above cases in detail and clarified a number of points, but it is clear that he considers the LRA has gone beyond what was originally intended by Parliament. Following the findings of various cases and the revisions introduced by the Commonhold Leasehold Reform Act 2002, it is now possible for commercial tenants to enfranchise where for example the properties are empty or are substantially commercial. This seems to go far beyond what was originally intended ( i.e. assisting residential tenants who occupy a property as their main residence to acquire the freehold or a lease extension.)