What is the smallest enfranchiseable part of a building ? – Craftrule Considered – Craftrule Limited v 41-60 Albert Palace Mansions (Freehold) Limited [2010] EWHC 1230 (Ch)

The Leasehold Reform Housing and Urban Development Act 1993 (as amended) (‘the 1993 Act’) gives long leasehold flat owners the right to purchase the freehold to their building, provided that they act collectively and in accordance with the procedures set down in the 1993 Act.

In order to exercise the right 50% or more of the qualifying tenants in that part of a property to which the claim is made must act collectively. A question therefore arises on the investigation (or instigation) of a claim as to how many of the flat owners in a particular part of the property are taking part in the claim and whether their number is sufficient.

Section 3 of the 1993 Act provides that the right to claim the freehold applies to any premises that are a ‘self-contained part of a building’ and contain at least two flats held by qualifying tenants. ((A qualifying tenant is a flat owner who owns a lease that was originally granted for a term of at least 21 years.)) Of the flats in that part of the building at least 2/3 must be qualifying tenants.

In assessing whether premises form a ‘self-contained part of a building’ the test is that this part must be a vertical division of the building and structure such that the relevant part could be developed independently of the remainder of the building and the ‘relevant services’ ((services provided by means of pipes cables or other fixed installations)) required for that part of the building are provided independently or could be provided without significant interruption in the provision of such services to occupiers of the remainder of the building.

Whilst there have been previous decisions on what constitutes a self-contained part of a building ((See in particular the case of Oakdwood Court (Holland Park) Limited v Daejan Properties Limited [2007] 1 EGLR 121.)) the point arising in Craftrule has not been considered before. Craftrule is an important decision as it shows that a wider interpretation will apply when assessing the ‘part of a building’ and counting the number of qualifying tenants within it.

In Craftrule the participating tenants chose to serve a notice in respect of a building divided in two halves, both of which it was accepted on the facts were capable of independent redevelopment. The distribution of qualifying tenants between both halves was uneven, such that one half of the building would not have qualified in its own right if the tenants there had served a notice in respect of that part. However a combined claim was made counting the total number of participating flats in each of the two halves of the whole building to reach the qualifying number.

The tenants’ initial notice was challenged by the landlords at first instance and the tenants then appealed to the High Court.

The High Court found in favour of the tenants, accepting an argument advanced by their counsel that the provisions of section 3(1) relating to the building does not require those seeking to exercise their rights under Chapter I of the 1993 Act to select the smallest ‘enfranchiseable unit’ when formulating their claim. Rather, where there are various sections in a building it is open to those initiating the claim to select the division of the property that they are seeking to enfranchise and to then establish a qualifying number in that part.

Comment

The decision in Craftrule is important as it means when assessing how many flats are in a particular part of a block to count in a qualifying number for the purposes of a claim to the freehold the flat owners no longer have to serve a notice in respect of each of the smallest ‘enfranchiseable’ units in the building. Rather, if the structure of the building is similar to that in Craftrule two adjacent units may be counted together provided that this united structure is a self-contained building.

Another intriguing possibility (as mentioned by James Driscoll in his recent article in the Estates Gazette) is the possibility that if a building is enfranchised in a condition where there are separate sub-units which are enfranchiseable in their own right, is that there is nothing to stop the flat owners in these smaller units bringing a further claim to the freehold in respect of their ‘part’ of the building at a later date. Although in practice whether such subdivision would be practical or desireable remains to be seen.

There is also the possibility of a further appeal by the landlords in this case. So as ever, it is a case of ‘watch this space’.

Mark Chick

5th October 2010

This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

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