24 April 2013

When is a flat not a 'flat'?


Paul Brecknell
Partner | UK

For many years the appeal courts have been concerned with determining what character of building is a ‘house’ for the purposes of enfranchisement rights, notably in the recent Hosebay/Lexgorge case. In Smith and Dennis v Jafton Properties Limited, the County Court’s focus was on what constitutes a ‘flat’ for the purposes of collective enfranchisement rights. The case is therefore also relevant to whether or not a unit is a ‘flat’ for the purposes of entitlement to make a statutory lease extension claim.

The building in question, Newbury House, was divided into four units used to provide short term accommodation with the benefit of cleaning and laundry services. The units were booked through a central booking system, typically by the employer of the prospective occupier, in much the same way that hotel accommodation would be booked.

Statutory definition of ‘flat’

The Leasehold Reform, Housing and Urban Development Act 1993 requires a unit to be ‘constructed or adapted for use for the purposes of a dwelling’ if it is to qualify as a ‘flat’.

The judge said it was primarily a matter of ‘what the construction or what adaptation has made the premises suitable for. What the premises are actually being used for will be influential, often conclusive, evidence as to the purpose of construction or adaption’. Relying on what had been said in the Hosebay/Lexgorge case, the judge said that while that construction or adaptation did not have to relate to the premises being capable of permanent occupation as a ‘home’, it had to ‘make the premises capable of occupation that amounts to more than simply staying there for a time’.

In order to satisfy that test, the judge inclined to the view that a ‘flat’ would need to have not only all the usual areas for sleeping, cooking, washing etc but also for living. Adopting an arguably rather odd sociological perspective, the judge said that the premises should perhaps ‘be capable of accommodating social intercourse and even a modest social gathering’ though acknowledging that the needs of a student and a highly paid professional might differ in this respect.

Where the physical characteristics of the units (as in Newbury House) were such that they were ‘capable of accommodating both a transient population and those who wish to stay longer’, one needed to consider both ‘_ the physical characteristics and the intended and actual use’._ This involves looking at ‘a number of factors’ to establish whether the construction or adaptation was intended solely to provide ‘temporary and short term accommodation to a transient population’ or whether it was ‘for the purpose of providing more permanent accommodation, if the occupants wished to stay longer’.

The question of whether premises are ‘constructed or adapted for use for the purposes of a dwelling’ is a question of the present status of the premises, ie not a question of looking at the historical intentions at the time of the original construction. He also said that ‘the intention of the constructor or adaptor is of some relevance’ but that ‘such evidence needs to be approached with care [as] it is likely to come from those applying to enfranchise and that suggests the need for careful scrutiny’.

Following the approach in Hosebay/Lexgorge, the judge considered that current use is one of a number of factors. In some cases, it might be the single determining factor. The question is whether the physical characteristics of the unit are those of ‘premises that have been constructed or adapted to have the potential to provide the facilities necessary for the purpose of occupation with a sufficient degree of permanence to come within the definition of dwelling’. ‘Physical attributes of the premises [are] unlikely to be conclusive’. The judge gave the example of a hotel room where there might be a ‘degree of permanence to the occupation’ but the premises would nevertheless be constructed or adapted for use for the purposes of a hotel rather than a dwelling.

The current use of the Newbury House units for predominantly short term occupation arrangements did not of itself demonstrate ‘the degree of permanence necessary to enable one to say that the premises were “constructed or adapted for use for the purposes of a dwelling’”.

In this particular case, the judge felt that with one exception the relevant factors pointed to the premises being ‘flats’. However, the fact that the legal relationship with the occupiers was generally governed not by a tenancy agreement but instead by a centralised booking system which did not guarantee that prospective occupiers would get their first choice of premises was indicative of the intention of the owner at the time of the construction/adaptation of the premises. The judge said that the ‘pattern of occupancy [was] more akin to that of an hotel’. He ruled that the units were not ‘flats’, but acknowledged that it was a ‘finely balanced decision’. Had it simply been a question of the ‘physical characteristics of the premises, their potential for use for long term accommodation and a willingness on the part of the [owners] to allow such long term occupation, then the premises would be “flats”’.

Is a unit a ‘flat’ for collective enfranchisement purposes? – two stage test

In the context of collective enfranchisement (as opposed to lease extension) there is an additional hurdle to overcome: the statutory right does not arise where more than 25 per cent of the building comprises premises which are not ‘occupied or intended to be occupied for residential purposes’. The judge said that ‘residential purposes’ was synonymous with ‘dwelling’ and here the question was ‘obviously’ one of current, actual or intended use.

The judge said that there was a two stage test:

1. Consider whether the unit is a ‘flat’ within the general statutory definition, based on ‘a combination of physical characteristics, purpose of the works of construction or adaptation and historic and current use’.

2. Consider whether the unit falls to be categorised as within the non-residential element of the building based on whether it is ‘occupied or intended to be occupied for residential purposes’. When looking at intention ‘to be occupied’, one is looking at the current intention ie at the time of the enfranchisement claim although, where the unit is vacant, this may nevertheless involve looking at ‘a past history of construction, adaptation and occupation and the subjective statements of intention of the long leaseholders’.

The ‘relevant question is what is the character of the occupation now?’ One needs to consider ‘various factors’ but fewer than in relation to the question as to whether the premises are ‘constructed or adapted for use for the purposes of a dwelling’. Commercial short-term sub lettings are not a bar provided the occupation is ‘residential’.

Again, the judge was swayed by the booking system and the ‘general way in which [the owner] operated’ which was akin to a hotel operation and so ruled that the character of the occupation of the units at Newbury House was not ‘residential occupation’.

Conclusion

The judge summed up by saying that whether a unit could be defined as a ‘flat’ for the purposes of a collective enfranchisement or lease extension claim was principally a question of whether the unit was constructed or subsequently adapted such that it had the potential for long term occupation as a ‘dwelling’ (whether or not that was the actual current use). The intentions at the time of construction/adaptation will be relevant. However, a current use such as a hotel-type use could effectively negate the evidence provided by the unit’s physical characteristics.

In relation to the exclusion of non-residential premises from the collective enfranchisement qualification equation, there was a second question to be asked: whether the actual or intended occupation at the time of the enfranchisement claim could be characterised as ‘residential’ in nature.

Paul Brecknell Partner | London

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