This case concerned the lease of an end-of-terrace house that did not give the leaseholders ownership (demise) of the structure i.e. load bearing walls, roof and foundations.
To qualify for the right to acquire the freehold title under the Leasehold Reform Act 1967 (to enfranchise) they had to be “a tenant of a leasehold house” (s.1(1)). That phrase was interpreted as requiring them to be “a tenant of substantially the whole of a leasehold house”. They did not meet this test as their the ownership (demise) did not extend to the roof or the foundations.
At first instance before the County Court the leaseholders of the houses were successful; the landlord’s argument that a material part of the house lay above the area let to the leaseholder was rejected (s2(2)).
On appeal the question examined was whether they were “Tenants of a leasehold house” within the meaning of s.1(1). The landlord’s argument that they had to be a tenant of substantially the whole of a leasehold house, was upheld viewing that phrase in its full statutory context. Otherwise for example a flying freehold interest would be created.
It took into account the risk of avoidance of the Act, noting that there would be occasions on which the landlord had legitimate reasons for excluding part of the “house” from the demise, that in some cases the legislation could be interpreted to block evasion and that buyers of leasehold houses could reflect the lack of entitlement to enfranchise in their bid or turn away from such properties.
It also found that a leaseholder in this situation could not get round their lack of entitlement via the anti-avoidance provisions contained in s.23(1) and even if that were wrong and s.23(1) did apply, it could not be used to enable them to qualify for enfranchisement as it would void offending provisions rather than permitting the court to amend the lease terms to demise substantially the whole the leasehold house and so qualify.
In conclusion buyers of leasehold houses need to carefully examine the lease terms to see whether they will be able to acquire the freehold in time.
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