29th October, 2012
Can Former Houses used for Commercial Purposes Fall Within The Right To Buy The Freehold Laws?
The Leasehold Reform Act 1967 (“LRA 1967”) allows some leaseholders of houses the right to buy the freehold – referred to as “Enfranchisement”. Whilst some freeholders will sell without the need to follow the procedure set out in the LRA 1967 the leaseholder will still need to be properly advised to work out how much to pay.
Later Acts of Parliament have made changes to the basic principles of the LRA 1967. This has made the rules a bit more complicated to follow through but we will take a brief overview of the system. The recent Landmark decision of the Supreme Court in the joined appeals of Day and Anor v. Hosebay Limited and Howard de Walden Estates Limited v. Lexgorge Limited has answers to the question as to whether the right to buy the freehold covers buildings only used for business purposes. Court of Appeal decisions earlier in the year indicated this was the case notwithstanding Parliament did not intend this. Read on to find out what happened next.
The right to enfranchise or buy the freehold depends on a number of factors relating to the house, lease and leaseholder.
The house must be a property designed or adapted for living in and a building reasonably considered a house. It has to be divided vertically from any adjoining house.
In very general terms, the lease must be a long lease. This means a lease originally granted for a term of more than 21 years or with a contractual right to renew.
Whilst business leases to which the Landlord & Tenant Act 1954 (“LTA 1954”) would normally apply are not generally excluded from the LRA 1967 unless you occupy as your only or main residence for the last 2 years or 2 out of the last 10 years some part of the property and the lease was granted for a term of more than 35 years you have no rights under the LRA 1967.
Finally, the leaseholder must be a qualifying tenant. In general terms this means you were the leaseholder of the house at the time the application was made and have held the lease for the past 2 years.
Vast swathes of the most up-market parts of London contain grand houses that were once imposing residences and are now sometimes used as office (possibly with self contained flats above) or as self catering hotels. Businesses operate from these buildings. Could they fall within the LRA 1967?
As previously mentioned there are certain restrictions on the ability for holders of a business lease to use the LRA 1967 to buy the freehold of the house they occupy.
It is, however, very easy to get round the rules about what is a business tenancy. The LTA 1954 requires that premises are occupied for the purposes of a business. If the premises are sub-let the leaseholder would no longer be in occupation for the purpose of a business so the tenancy would no longer be a business tenancy under the LTA 1954. This is what happened in Hosebay.
Similarly if you leave a property empty, this would not be a business tenancy either.
As we have seen, the issues around the LTA 1954 can be dealt with to bring a lease within the LRA 1967. This leads on to the most recent decisions regarding whether or not a fine building constructed as a residential house whose structure remains essentially unchanged is a house or not. As we tweeted on 10 October 2012, the Supreme Court has now decided whether or not a property used wholly for commercial purposes can fall within the right to buy provisions of the LRA 1967. In the two cases the lower courts decided such buildings would fall within the definition of “houses”.
However, the Supreme Court has delivered a common sense judgment. The fact that historically the building was a grand house did not mean it could not be adapted to another use. The external appearance of the building is not a major factor and does not determine whether or not it is a house. In Hosebay, where the building was used as a self catering hotel the building was not a house “reasonably so called”. The use was entirely commercial. In Lexgorge, where the building was let as offices (with a self catering flat that was not really used as such) this was also not a house, “reasonably so called”. It was a building used as an office.
Given the interests of large landed estates which own much of the very best residential real estate in the most exclusive parts of London this decision provides welcome clarity in respect of bringing or resisting an enfranchisement claim. If you use the building for wholly commercial purposes, you will not be able to exercise the right to buy under the LRA 1967. There will still be some grey areas such as where a proportion of the property is used for living in or if the building is empty.
The underlying lesson from these cases is that the LRA 1967 concerns residential property and is primarily concerned at people’s ability to buy the freehold of their homes.
If you have any queries regarding this article please contact Emma McGlinchey at [email protected] or on 01244 405567.
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