Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 gave tenants of long leasehold flats acting together the right to purchase the freehold of their building. In the recent case of Smith & Another -v- Jafton Properties Limited (2 November 2011) the Court of Appeal had to consider whether a clever arrangement to create a sufficient number of qualifying tenancies to establish the right of collective enfranchisement had been successful.
Two individuals (A and B) used a company of which they were the only directors to acquire the lease of a dilapidated property in Newbury Street, London EC1. The company carried out substantial works of refurbishment and created four separate flats. On completion of the works the company executed three transfers of the property purporting to assign the property comprised in the lease in three parts, a transfer of Flats 1 and 2 to A, a transfer of flats 3 and 4 to B and a transfer of the common parts to A and B jointly. The transfers also purported to apportion, without the consent of the landlord, the yearly rent payable under the lease. The landlord was not consulted about the assignment nor consented to it. A and B were subsequently registered at HM Land Registry as proprietors of the leasehold interests which had been transferred to them. A and B then served an initial notice under Section 13 of the 1993 Act claiming the right of collective enfranchisement of the whole of the property. They named themselves jointly as the nominee purchaser and asserted that the qualifying conditions had been met:
- that the premises consisted of a self-contained building or part of a building;
- contained two or more flats held by qualifying tenants; and
- the total number of flats held by such tenants was not less than two-thirds of the total number comprised in the premises.
They claimed that as the premises contained four flats and A was the qualifying tenant of two of them and B the qualifying tenant of the remainder the qualifying conditions had been met. The landlord disputed this and served a counter-notice denying the claim. The first ground, that A and B were not qualifying tenants for the purposes of the 1993 Act, was tried as a preliminary issue by His Honour Judge Dight who decided in the landlord’s favour.
On appeal to the Court of Appeal Lord Justice Lewison gave the principal judgment. He first considered the position at common law when a tenant assigns part of demised premises and then whether there was anything in the 1993 Act which would displace the common law position. He found at common law that an assignment of part of a leased property by which all of the leased property is physically severed has the effect that the holder of each severed part is the tenant of the severed part only. It followed that A was the tenant of Flats 1 and 2 and B the tenant of Flats 3 and 4. He then considered the terms of the 1993 Act but found nothing in it to displace his common law conclusion. He accepted that Parliament in enacting the 1993 Act did not expressly contemplate this rather unusual factual situation however this was by no means an uncommon occurrence. Accordingly A and B were qualifying tenants and entitled in principle to exercise the right of collective enfranchisement.
As Lewison L J accepted this is an unusual set of facts and the case may not have wider implications however it is another example, a successful one in this instance, of the lengths to which some will go to use the enfranchisement legislation to their advantage when they may have no obvious entitlement to do so.
Law: Smith & Another -v- Jafton Properties Limited  EWCA Civ 1251