Background to the case
The 1967 Act gives a lessee the right in certain circumstances to compulsorily acquire the freehold of its building from the landlord. However, the Commonhold and Leasehold Reform Act 2002 removed the requirements of residence from the Act, creating a loophole that allowed lessees of houses that had been adapted or used for commercial purposes to enfranchise.
In Day v Hosebay Limited and Howard de Walden Estates Limited v Lexgorge Limited, the Supreme Court held that a self-catering hotel and offices respectively are not "houses" for the purposes of the Act. The external and internal physical appearance of a building should not be treated as determinative, nor should the terms of the lease be treated as a decisive factor.
This decision will help to keep the large landed estates whole. Landlords such as the Grosvenor Estate, Cadogan Estate and Howard de Walden Estate will not be forced into selling off all their freeholds at a price determined by the Act. They will also have more flexibility to grant long leases of their buildings with lesser risk of enfranchisement than was previously the case.
However, the judgment is not as clear-cut as some commentators have been saying. The Act indicates that partial business use will not rule out enfranchisement, and the case does not discuss this point. It also does not address the situation where the buildings are unused at the date of the claim notice. Therefore a number of important issues surrounding enfranchisement may still be open to interpretation.
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