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An office is a "house", Lord Neuberger decides

5 July 2010

A building designed as a house but exclusively used as an office is a "house" for leasehold enfranchisement purposes, Lord Neuberger, the Master of the Rolls, has decided.

The Court of Appeal ruling is likely to trigger a wave of enfranchisement claims by commercial tenants seeking to buy the freehold of their properties on favourable terms.

Delivering the leading judgment in Day and Day v Hosebay and Howard de Walden Estates v Lexgorge [2010] EWCA Civ 748, the Master of the Rolls said the question of whether a building was a “house” for the purposes of section 2 (1) of the Leasehold Reform Act 1967 should be determined “at least in the main” by its physical appearance and character.

He went on: “One could, it seems to me, quite naturally describe a building built as a town house, which had subsequently been internally converted into offices, as a ‘house used as offices’: hence it would ‘reasonably [be] called’ a house, even though it was not used for residential purposes, and even if it was not permitted to be so used.

“If most people were asked whether a building could reasonably be called a house, I am not convinced it would occur to them to ask about the permitted use under any lease, or that they would be influenced if told what the permitted use was.”

Lord Neuberger said he reached his conclusion with “no particular enthusiasm”.

He said: “The 1967 Act was originally intended to assist residential tenants occupying their houses as their only or main residence to acquire their freeholds. “Partly to extend its reach, and partly to defeat the device of company lettings, the legislature ditched the residence requirement, as a result of which the extension of the Act may well have gone further than the legislature intended or anticipated…If I am right on these appeals, it can extend to buildings exclusively used for business purposes.”

Lord Neuberger said he was not sure he agreed with last year’s ruling by the Court of Appeal in Prospect Estates v Grosvenor Estates Belgravia [2008] EWCA Civ 1281, which put “decisive weight” on the permitted use under the lease.

He dismissed the appeals by the freeholders. Lord Justices Lloyd and Moore-Bick agreed.

Natasha Rees, partner at property specialists Forsters, said that following their ruling, many commercial tenants would seek to enfranchise.

“A lot of companies were waiting for this decision, particularly in central London, where so many properties built as houses are now in office use.”

Rees said the Master of the Rolls had widened the definition of a house and made it clear that the test should not be based entirely on the terms of the lease.

She added that houses might only be considered offices in the future where the terms of the lease restricted residential use and there was no planning permission.

Categorised in:

Discrimination Commercial Conveyancing Landlord & Tenant