The Supreme Court has denied commercial tenants the right to acquire the freehold of their premises under statutory provisions applying to houses. The right to enfranchise The Leasehold Reform Act 1967 gives tenants of certain long leases of houses the right to enfranchise, that is to buy the freehold of the house. Originally, the right applied only to tenants occupying the house as their residence. But in 2002 the residence requirement was removed, to enable the right to be used in respect of second homes and leases held in the name of a company.  However, this loosening of the rules had unexpected consequences. It allowed tenants of commercial premises to argue that they could exercise the right if their premises were originally built as houses, notwithstanding that they were now used commercially. This was of great significance, as there are many high value buildings, particularly those forming part of historic estates in London, which were constructed as large houses but are now exclusively used for commercial purposes. The many doctors’ consulting rooms in and around Harley Street are a prime example.

What is a house? The argument turns on the question of what is a house. The definition contained in the Act (see box) comprises two limbs: the building must have been designed or adapted for living in but it must also be reasonably so called and it was the second limb that was the decisive factor in the Supreme Court case.

Leasehold Reform Act definition of house “any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes”.  

The Supreme Court decision The Supreme Court decision concerned two properties, both originally built as houses but now used for commercial purposes, at least partly in contravention of the terms of the leases under which they were held. The first comprised three buildings in a Victorian terrace in Kensington which were being used as a self-catering hotel. The second was a five storey property in Marylebone built in the early 18th century which was used as offices. In both cases the court decided that the properties were not houses within the meaning of the Act.  It gave greater weight to the current use of the buildings than to their physical appearance or the terms of the leases under which they were held. It concluded that a building wholly used for commercial purposes, whatever its original design or current appearance, is not a house “reasonably so called”. What does qualify as a house? The Supreme Court decision dealt only with buildings used entirely for commercial purposes; the table below deals with other situations, however in each case the result will depend on the precise circumstances.

Click here to view table.

Source: Day v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2012] UKSC 41;Magnohard Ltd v Earl Cadogan [2012] EWCA Civ 594 

Source: Day v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2012] UKSC 41;Magnohard Ltd v Earl Cadogan [2012] EWCA Civ 594 Source: Day v Hosebay Ltd; Howard de Walden Estates Ltd v Lexgorge Ltd [2012] UKSC 41;Magnohard Ltd v Earl Cadogan [2012] EWCA Civ 594