LM Homes Ltd and others v Queen Court Freehold Company Ltd [2020] EWCA Civ 371

Summary

The Court of Appeal has upheld the decision of the Upper Tribunal that qualifying tenants are entitled to acquire the leasehold interests in airspace, the basement and sub-soil when exercising their right of collective enfranchisement.

The facts

Queen Court is a block of 45 flats in Queen Square, Bloomsbury (the Building). It comprises a ground and seven upper floors, with the top floor being a recent addition to the original structure. Under a portion of the Building is a basement boiler room with two separate entrances.

A 99 year headlease of the whole Building was granted to Regal Estates Ltd in 2015.

Basement

On 7 October 2015, a lease of about 2/3 of the basement was granted to Regal Estates Ltd, which permitted the development of the basement. This lease is now owned by Mr and Mrs Enmore, the Second Appellant.

Basement/sub-soil

Also on 7 October 2015, a 999 year lease of basement areas and sub-soil was granted to Regal Estates Ltd, which permitted development. This lease is now owned by Mrs Kaur, the Third Appellant.

Airspace

On 3 December 2015, a 999 year lease of the roof area and airspace up to a height of 7 metres above the surface of the roof of the Building was granted to Regal Estates Ltd, which permitted the development of the airspace. This lease is now owned by LM Homes Ltd, the First Appellant.

The three leases referred to above are referred to below as the Leases.

The issue

The qualifying tenants of the residential flats exercised their right to acquire the freehold of the Building, and the question arose over whether the leasehold interests demised by the Leases should be included in that acquisition as "common parts". If so, the qualifying tenants would acquire the right to develop the basement into the airspace, in place of the Appellants.  

The question

The Court of Appeal was tasked with deciding whether the Leases fall within the definition of common parts and, if so, whether it was reasonably necessary to acquire the leases for the proper management or maintenance of those common parts. Common parts are defined as including "the structure and exterior of that building or part and any common facilities within it".

Arguments before the Court of Appeal

The Appellants put forward the following submissions:

• Common law principles that an ordinary conveyance of the freehold will carry with it the freehold in all the areas subject to the Leases did not apply to the right of enfranchisement under the Act.
• Even if the basement areas were once common parts, they ceased to be on the grant of the Leases.
• It is not reasonably necessary for the qualifying tenants to acquire the Leases for the proper management or maintenance of those common parts.

The decision

The Court of Appeal held that:

• Common law principles do apply to the right of enfranchisement under the Act.
• When determining whether something falls within the definition of common parts, what matters is how the parts of the property are used and not the title under which they are held; it is a functional test.
• Airspace and sub-soil fall within the definition of common parts, despite the fact that they do not fall within the envelope of the built structure.
• The mere grant of a lease does not have the effect of causing common parts to cease to be so.
• It is reasonably necessary for the qualifying tenants to acquire the Leases for the proper management or maintenance of those common parts.

Our comments

Although what is regarded as a common part is fact-specific, this case provides useful clarification that sub-soil is likely to be regarded as part of the common parts.

This case is particularly relevant to freeholders who have granted leases for the purposes of development and for leaseholders of such leases. They should be wary that such leases may be capable of being acquired by qualifying tenants.

The Court of Appeal also touched upon the potential inadequacy of the development rights granted in the Leases, but did not deem it necessary to make any findings on this point.

If you have or are considering entering into a development lease or you are interested in exercising your right to enfranchise, our specialist team is on hand to advise you.