11 October 2012

'What is a house?' - Judgment day

Paul Brecknell
Partner | UK

The Supreme Court has ruled that owners of leasehold properties which have been used as houses in the past but which are now used for exclusively commercial purposes do not have the right to acquire their freeholds.

The decision shifts the emphasis away from physical appearance and the historic use to current use.

There are essentially two tests:

  • is the building wholly or partly ‘designed or adapted for living in’? This test should be passed if some part of the building is actually lived in or has facilities such that it could be lived in. There remains doubt as to whether short-term accommodation qualifies, notwithstanding that it could be used for long-term accommodation.
  • is the building ‘a house reasonably so-called’? Here a number of factors are relevant, principally: appearance, current use, historic use, permitted use under the lease, and the proportion of residential use or suitability to non-residential use or suitability. The Supreme Court has made it clear that external and internal appearance are not determining factors and that the permitted use is not the major factor. Instead, current use is a more important factor so that a building which is wholly used for commercial purposes cannot be said to be a house, even if it is capable of being lived in.

This ruling does not necessarily close the door on enfranchising buildings which are only in commercial use. It leaves uncertainty as to what proportion of commercial use will prevent a building from qualifying as a house. Whereas a vacant flat over a shop is likely still to qualify, a building used as offices on a number of floors with a flat on the top floor is now less likely to qualify.

So much money is at stake that it will not be long before the issue is once again before the judges, as the Supreme Court has not availed itself of this opportunity to give wider guidance on this subject.

In some cases, enfranchisement of a property which does not qualify as a ‘house’ may be possible by the alternative route of the legislation that allows blocks of flats to enfranchise. That is because different definitions and criteria apply and in some cases a ‘collective enfranchisement’ can be engineered so as to achieve substantially the same result by another route, a classic example being buildings used as short-term accommodation.

Paul Brecknell Partner | London

Category: Article