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LM Homes Ltd v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC)

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29th March 2019

Summary

Leaseholders exercising the right to collective enfranchisement were entitled to acquire the airspace, basement and subsoil of the building not withstanding that the freeholder had granted leases for the purpose of development.

The Tribunal’s jurisdiction was not ousted by agreement between the freeholder and the leaseholders as to the terms of acquisition if contracts were also required for the acquisition of other leasehold interests.

Facts

Queen Court is a block of 45 flats and includes a basement under part of the building, which contained installations serving those flats, as well as small areas of decorative planting.

The freeholder granted a lease of the entire building to an intermediate lessee who in turn granted sub leases of the basement and roof space to various entities for the purpose of constructing additional living accommodation which would have required excavation and re-siting of appliances.

The FTT made findings of fact that a proposed new route in and out of the basement for maintenance of appliances was not practical without disruption to the existing use of the building.

The participating tenants reached agreement with the freeholder as to terms of acquisition of the freehold and various other interests but disputed the tenants right to acquire the leasehold interest in the airspace, basement and sub-soil.

The FTT directed a trial of the preliminary issues

Issues

1. Did the Tribunal have jurisdiction to determine the terms of acquisition of the leasehold interests.
2. Whether the basement, sub-soil and airspace were part of the common parts

First Instance

The First Tier Tribunal held that s.13 (1) LAHUDA 1993 did not exclude the jurisdiction of the tribunal simply because agreement was reached with the freeholder if the agreement of other parties was required for the acquisition of leasehold interests.

On the facts the basement, sub-soil and airspace where all part of the common parts.  Being part of the ‘common parts’ did not require actual use by the tenants. The leaseholders of the basement, sub-soil and airspace appealed.

Decision on appeal

Jurisdiction

The starting point for understanding how the machinery of the Act was intended to operate was section 24. Section 24(1) confers jurisdiction on the FTT to determine disputes where “any of the terms of acquisition” remain in dispute 2 months after the date of the freeholder’s counternotice in response to the leaseholder’s initial notice under section 13. Section 24(3) enables the reversioner or the nominee purchaser to apply to the court for a vesting order under section 24(4) only where “all of the terms of acquisition have been either agreed between the parties or

determined by the appropriate tribunal under sub-section (1)”. The FTT is intended to retain jurisdiction for so long as there remains a disagreement over “any of the terms” on which the acquisition is to proceed. The Court of Appeal had considered section 24(3)(b) in Penman v Upavon Enterprises Limited [2002] L&TR 10 and had concluded (at paragraph 33) that before the court could make a vesting order the situation must have been reached “where not just some, but all, of the terms of acquisition have either been agreed between the parties or determined” by the appropriate tribunal.

The proper construction of section 13(11)(a) involves no more than reading the words “until a binding contract is entered into” as encompassing both the singular and the plural – until binding contracts are entered into – where terms of acquisition of different interests need to be agreed between a number of different parties.

Common Parts

‘Common parts’ had a wider meaning that might be suggested by everyday speech.  In Merie Bin Mahfouz Co (UK) Ltd v Barrie House (Freehold) Limited [2015] L&TR 21 the Upper Tribunal had held that the essential attributes of common parts were that they were of some shared use or benefit. It was relevant to consider the appellants proposed use of the common parts when determining of they fell within s.101 of LHUDA 1993

The airspace was part of the exterior of the building at least to the height that would be required for maintenance of installations on the roof, it was accordingly part of the common parts, Merie Bin Mahfouz CO (UK) applied.

The facts had entitled the FTT to come to the conclusion that the entire basement area was reasonably necessary for management and maintenance of the building and was accordingly part of the common parts. While the appellants may have intended to re-site the boilers further confinement would pose real difficulties for maintenance, management of installations included management of the space in which they were situated.

Sub soil is not part of a building merely by being underneath the ground on which the building rests. However, it may fall within the extended meaning of ‘common parts’ within s.101. Although the prospects of the sub soil requiring maintenance were low the length of the lease of the sub soil, 999 years, was longer than the likely survival of Queen Court, accordingly some maintenance during that time was a distinct possibility. What mattered was the management of the actual stratum of ground on which the building currently rested, the appellant’s intention was to transform the use of that stratum such that it would no longer support the building. In any event the lease contained covenants for the maintenance of landscaped areas- on the facts the sub soil was reasonably required for such maintenance.     

Comment

This case affirms that common parts has a wide meaning under s.101 LHUDA 1993 and includes those parts of the building that have a common use or benefit. While what is considered a common part is fact specific and can involve a consideration of the intention of the parties’ sub soil is now likely to be regarded as part of the common parts.

The Tribunal retains jurisdiction until the terms of acquisition are agreed, this is not limited to agreement between any two parties but means those parties with whom it is necessary to reach agreement. 

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