Tenants under long residential leases in England and Wales often want the opportunity to acquire outright the freehold interest in the property where they live, and the Leasehold Reform Housing and Urban Development Act 1993 provides for the acquisition of two main rights for certain tenants of long leases of flatted dwellings:

  • to acquire as a group, the freehold interest of the whole building (known as collective enfranchisement); and
  • to obtain any extension required for their leasehold interests.

In Craftrule Limited v 41-60 Albert Palace Mansions (Freehold) Limited 2010 EWHC 1230 (Ch), which concerned a group of tenants seeking enfranchisement, the High Court considered the definition of a "building" under section 3 of the 1993 Act and, in dismissing the appeal of the owner of the freehold, ruled that the phrase "a self-contained part of the building" in section 3 did not, either expressly or by implication, require that a self-contained part of the building should be indivisible into smaller such parts.

The statutory background

Qualifying premises

Section 3 of the 1993 Act lays down the criteria for premises to qualify for the rights under the 1993 Act:

  • the premises require to be a self-contained building or part of a building;
  • two or more of the flats in the application require to be held by "qualifying tenants"; and
  • two-thirds of the total number of flats contained in the whole building (or relevant part) are to be owned by qualifying tenants.

A building is classified as a self-contained building if it is structurally detached. A part of the building is a self-contained part of the building if:

  • there is a vertical division of the building and the structure of the building is such that that part could be developed independently of the remainder of the building; and
  • the relevant services provided for the occupiers of that part are either provided independently or are capable of being provided without involving the carrying out of any works likely to result in a significant interruption in the provision of services to the remainder of the building.  

Qualifying tenant

The tenants of long leases who qualify are those who occupy premises under leases that were granted for a period in excess of 21 years.

The application for enfranchisement

The case concerned a block of flats contained in an old mansion block. The mansion block was divided into eight "pairs of 20 flats". The leasehold owners of flats 41-60 (being one of the eight pairs) sought to serve an initial notice to enfranchise under the 1993 Act, having met the statutory requirements: 18 of the 20 flats were let to qualifying tenants, and flats 41-60 met the test of being a self-contained part of a building. The initial notice under the 1993 Act must be given by the tenants of at least 50% of the flats in the qualifying premises. In this case, notice was served by 10 of those occupiers.

The configuration of the building was such that the groupings of the 20 flats could have been further divided into two blocks of ten flats each, with separate entrances and stairs, meaning that both sections were capable of being independently developed from the remainder of the mansion block, and from each other. They also contained a vertical division meaning that independently both blocks of ten flats could have met the "self-contained" criteria under section 3. However, on such a configuration, the initial notice would not have been able to be served, as that part only included three qualifying tenants from flats 41-50 alone and not the requisite 50%.

The freeholder of the whole building argued that because the group of 20 flats could be further divided into two separate qualifying buildings, the notices were not validly given, saying that if buildings, which are capable of further division qualify, it would allow a combined majority from both halves to push through enfranchisement, when in respect of one half, the required 50% had not been obtained.

The leaseholders countered that the test laid out in section 3 was clear and simple with no ambiguity, and the fact that some lesser part of the property would also satisfy the test as a self-contained part of a building was irrelevant.

Flexibility in constructing the legislative provision

In dismissing the appeal of the freeholder of the building, the High Court ruled that the language in section 3 was clear, and the fact that premises were capable of being further divided into smaller qualifying parts did not prohibit a qualifying self-contained part of a building from enfranchising. The leaseholders' interpretation of the legislation was not contrary to the policy of the 1993 Act.

Previously there was no authority on the point. The High Court was robust in its interpretation of the statutory language and took the view that in absence of express exclusion under section 4 of the 1993 Act, (which lists a number of exclusions from a qualifying premises) the natural implication was that an initial notice might relate to a self-contained part of the building which was capable of further subdivisions.

The decision gives flexibility to leaseholders to join together in various configurations to satisfy the s.3 test in order to enfranchise while squashing a potential argument against enfranchisement for Landlords.

For the full details of the decision in Craftrule Limited v 41-60 Albert Palace Mansions (Freehold) Limited, click here.