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Airspace development has long been recognised as being one of the best solutions to the shortage of housing in metropolitan areas such as London.  In Planning for the Future, which was published in March, the Government committed to introducing new permitted development rights for building upwards on existing buildings by this Summer.  This was welcome news to the growing number of private developers who are seeking to bring forward developments of airspace but who are faced with a number of practical and legal challenges in doing so.  It is therefore unfortunate that a recent court decision has added to these challenges.

The facts of the case

On 5th March this year the Court of Appeal delivered its decision in the case of LM Homes and others v Queen Court Freehold Company Limited [2020] EWCA Civ 371.   The case concerned a purpose built block of 45 flats in Bloomsbury where the freeholder had granted leases of the airspace above the building, part of the existing basement of the building and the sub-soil beneath the basement of the building. The intention of the freeholder was to facilitate the development of the airspace and the basement of the building by creating new apartments and the leases included rights enabling such development.  The qualifying tenants of the building exercised their right to acquire the freehold under the Leasehold Reform, Housing and Urban Development Act 1993 (“Act”) and the question arose whether the Act entitled the tenants to acquire the development leases of the airspace, the basement and the sub-soil beneath.

The application of the Leasehold Reform, Housing and Urban Development Act 1993

Under the Act qualifying tenants are entitled to acquire the freehold of any property that is appurtenant included in the demise of a lease held by a qualifying tenant and any property that any tenant under his or her lease is entitled to use in common with the occupiers of other premises within the building.  In addition, the qualifying tenants are entitled to acquire certain leasehold interests in the building where the lease includes any common parts of the building and the acquisition of that interest is reasonably necessary for the proper management or maintenance of those common parts.

The Court of Appeal’s decision

The First Tier Tribunal held that the qualifying tenants were entitled to acquire all three leasehold interests and this decision was upheld by the Upper Tribunal.  The case then came before the Court of Appeal which unanimously upheld the decisions of the tribunals.   Lord Justice Lewison delivered the leading judgement of the Court of Appeal.  He acknowledged that the Act does not specifically mention the airspace above the building or the sub-soil beneath it   However, following the decisions in Dartmouth Court Blackheath Ltd. V Berisworth Ltd. [2008] EWHC 350 Ch. (which arose under the Landlord and Tenant Act 1987) and Cadogan v Panagopoulos [2010] EWHC 422 Ch., he held that both the airspace above and the sub-soil beneath the building form part of the “premises”, the freehold of which the qualifying tenants are entitled to acquire.  The remaining questions were whether the areas demised within the three leases all comprised common parts of the building and, if so, whether their acquisition was reasonably necessary for the proper management and maintenance of those common parts.

Does airspace fall within the “common parts”?

Under the Act “common parts” are defined as including “the structure and exterior of that building and any common facilities within it.”  Lord Justice Lewison was persuaded that the airspace above and the sub-soil beneath the building were comprised within the common parts of the building but his reasoning is somewhat unsatisfactory.  He failed to explain how these areas fell within the definition of common parts in the Act.  Whilst the definition is not exhaustive it is difficult to understand how the airspace (which included only the surface of the roof and not the roof itself) or the sub-soil could be regarded as part of the structure of the building or indeed a common facility within the building.  He did place considerable reliance on the decision in Cadogan v Panagopoulos but failed to distinguish this case, which concerned a caretaker’s flat and a lightwell, which clearly are not the same as the areas in question here.  He also did not address quite what common benefit was conferred by the airspace or the sub-soil (although in the case of the sub-soil the benefit could be the right of support which was not in any event to be removed from the qualifying tenants.)

Is the acquisition of the airspace “reasonably necessary”?

Having established to his satisfaction that the three demised areas all comprised common parts, Lord Justice Lewison then considered the question whether it was reasonably necessary to acquire these common parts for the proper management and maintenance of those common parts.  Again His Lordship simply applied the decision in Cadogan v Panagopoulos  where the conversion of the caretaker’s flat into a private apartment deprived the qualifying tenants of the benefit of a live in caretaker.  The conversion of airspace, on the other hand, does not deprive the qualifying tenants of any existing facility and the lease of the airspace expressly conferred on the freeholder such rights of entry for the proper performance of its obligations (such as to maintain the building) as may be reasonably required.  Nevertheless, His Lordship concluded that any physical alteration of the “common parts” would mean that it was no longer possible to maintain them, but it is difficult to follow this reasoning given it is not the airspace that would need to be maintained but rather the roof beneath the airspace. There is an interesting question as to what happens to the roof as a consequence of the airspace development given that it ceases to be a roof and becomes an internal part of the building.  Does it remain a “common part”?  However, this issue was not explored in this case and remains a matter of conjecture.

Does the Leasehold Reform, Housing and Urban Development Act 1993 need to be clarified?

The Leasehold Reform, Housing and Urban Development Act 1993 did not envisage the possibility of airspace or sub-basement development.  There is, nevertheless, no reason why the Act should be interpreted in a manner which frustrates such development. The purpose of the Act was to enable qualifying tenants of residential blocks to acquire their freeholds and manage their own buildings.  This purpose is entirely compatible with development of the airspace above and sub-soil beneath the building.  If the decision of the Court of Appeal in this case is not overturned then legislative reform should be high on the government’s agenda.

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