Court ruling boosts leaseholders' rights significantly

In a landmark case, David Tartellin and Mark Forman from the Litigation team at Liverpool-based MSB Solicitors have achieved a significant victory for leaseholders following a recent Court of Appeal decision. This ruling is being heralded as one of the most impactful on leaseholders' rights in recent years, specifically concerning the definition of a “building” under the Landlord and Tenant Act 1987. This definition plays a crucial role in determining when leaseholders have the right to purchase their building before it is sold to a third party, a process referred to as the “right of first refusal.”

Traditionally, when landlords intend to sell a property, they are mandated to first offer it to the leaseholders by serving a formal notice known as a “Section 5 Notice,” detailing the terms of the proposed sale. However, the situation has become increasingly complex, particularly in modern developments consisting of multiple interconnected blocks. It has often been ambiguous whether a site should be considered one “building” or several, leading to implications for notification processes, the number of notices required, and the legality of sales.

In the case of SGL 1 Limited v FSV Freeholders Limited [2026], a development in Liverpool had been divided into two parts for sale purposes. Leaseholders, represented by Tartellin and Forman, contested this division, arguing for a unified treatment of the property as a single building. The Court of Appeal found that the previous legal framework needed revising. It introduced a more straightforward and practical assessment based on the physical structure of a development.

Instead of concentrating on shared amenities such as communal areas or heating systems, the Court asserted that the vital question was whether the structures form a “functionally integrated built envelope.” This means examining if segments of a development are physically connected and conceived as a unified unit—considering factors like shared core structural elements, load-bearing walls, and other physical connections. Following this new evaluative approach, the Court confirmed that the sale in the challenged case had been conducted appropriately.

The implications of the Court of Appeal's ruling are extensive. For leaseholders, this provides clear guidance on their entitlement to buy their buildings, thereby reducing disputes and uncertainties. For developers and landlords, it offers clearer parameters when structuring sales, particularly for intricate or substantial developments. Additionally, insolvency practitioners will face diminished risks of legal disputes when liquidating property assets from distressed developments. This ruling is anticipated to foster a more predictable sale process, minimising legal challenges surrounding property transactions.