SGL 1 Ltd v FSV Freeholders Ltd: Court of Appeal overturns Long Acre on the meaning of "building" under the LTA 1987

In a significant judgement handed down on 13 March 2026, the Court of Appeal (Lady Justice Asplin, Lord Justice Lewison, and Lord Justice Arnold) allowed the appeal in SGL 1 Limited v FSV Freeholders Limited [2026] EWCA Civ 267, holding that the lower court had applied the wrong legal test when determining whether four residential blocks at Fox Street Village, Liverpool constituted a single "building" under the Landlord and Tenant Act 1987 ("LTA 1987").

The case concerned whether section 5 offer notices served by the administrators of Fox Street Village Limited on qualifying tenants were valid. Two separate notices had been served — one relating to Block A alone, and another to Blocks B, C and E — ahead of a disposal of the freehold to SGL 1 Limited. The respondent, FSV Freeholders Limited, representing 115 qualifying tenants, argued the notices were invalid on the basis that all four blocks together constituted a single "building", requiring a single notice under section 5(3) LTA 1987.

HHJ Hodge KC, sitting as a High Court judge, agreed, conducting a thirteen-factor evaluation and concluding that the shared use of Back Beau Street — the only vehicular access serving car parking spaces demised to certain Block A leaseholders — was the "magnetic factor" rendering all four blocks a single building.

Long Acre Securities Ltd v Karet overruled

The Court of Appeal took the opportunity to overrule Long Acre Securities Ltd v Karet [2005] Ch 61, a decision that had stood for over two decades. In that case, Deputy Judge Geoffrey Vos QC had held that "building" within the LTA 1987 could encompass more than one structure where qualifying tenants shared the use of the same appurtenant premises. The reasoning had attracted academic criticism, and HHJ Hodge KC himself had expressed reservations before reluctantly following it.

Lady Justice Asplin identified the central flaw: the deputy judge in Karet had approached the question through the lens of a section 12 purchase notice, in which the initiative lies with the tenants, rather than a section 5 offer notice, where the initiative lies with the landlord. Under section 5(3), it is for the landlord to determine what to include in each severed notice. Shared appurtenances need not be split between blocks in any particular way, and shared easements will remain exercisable against any new reversioner regardless of how the transaction is divided. The perceived absurdity underpinning Karet does not, in fact, arise.

Lord Justice Lewison added that the policy behind section 5(3) — identified in the Nugee Report and affirmed in Kay Green v Twinsectra Ltd [1996] — is to ensure that tenants may acquire the reversion to their own block without being hampered by the decisions of tenants in another. Construing "building" to encompass multiple free-standing structures merely because they share appurtenances allows "the tail to wag the dog."

The correct test

Lady Justice Asplin formulated the applicable yardstick: the central question is whether structures are within a functionally integrated built envelope. This test is intended to provide clarity and avoid the extensive multi-factorial analysis that characterised the proceedings below.

Applying it to the facts, the Court held:

• Block A was a separate building. It was a converted warehouse, had its own utility services, and was structurally and functionally independent. The section 5 notice relating to it was valid.
• Blocks C and E were a single building. They shared a plant room, a single entrance, and a single stairwell; it is physically impossible to access Block C without passing through Block E.
• Block B was part of the same building as Blocks C and E. It had no basement or plant room of its own; all its services were routed through the plant room in Block C. To treat it as a separate building would require substantial new works, an outcome Parliament cannot have intended.

Both section 5 notices were therefore valid, and the appeal was allowed.

Lord Justice Lewison noted that no entirely satisfactory interpretation of section 5(3) is capable of eliminating all inconvenient results, and invited the Secretary of State to consider exercising the power under section 20(4) LTA 1987 to amend the provision by regulation.

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