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||Neutral Citation Number:  EWCA Civ 748
||Case No: B5/2009/2524
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON CIVIL JUSTICE CENTRE
His Honour Judge Dight
Her Honour Judge Hazel Marshall QC
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
MASTER OF THE ROLLS
LORD JUSTICE LLOYD
LORD JUSTICE MOORE-BICK
|| (1) HUGO BENJAMIN DAY and (2) LADY HILARY MAUREEN GREENSLADE DAY
||- and -
||HOWARD DE WALDEN ESTATES LIMITED
Edwin Johnson QC (instructed by Pemberton Greenish) for the Appellants Hugo Benjamin Day and Lady Hilary Maureen Greenslade Day
Katharine Holland QC (instructed by Speechly Bircham LLP) for the Appellant Howard de Walden Estates
Anthony Radevsky (instructed by Boodle Hatfield and Wallace LLP) for the Respondents
Hearing dates : 14 June 2010
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Neuberger MR:
- These two appeals concern the meaning and effect of section 2(1) of the Leasehold Reform Act 1967 ("the 1967 Act"). In particular, they require one to focus on the question of what constitutes a "house" for the purpose of that section.
The statutory background
- Section 1 of the 1967 Act ("section 1") enables certain tenants of houses under long leases to serve notice on their landlords to enfranchise – i.e. to acquire their freeholds from their landlords - "on fair terms" (or to acquire extended leases). As originally enacted, its application was limited to relatively low value houses, let on low rents, to tenants who, at the date of their notice, resided there, and had resided there for at least five of the preceding ten years, as their only or main residence.
- Over the succeeding thirty-five years, the ambit of section 1 has been successively extended by statutory amendment, as is reflected by the rather bewildering appearance of section 1 in its current form, supplemented by sections 1A, 1AA and 1B. The value limitation was raised, and has now been removed altogether in the majority of cases. The low rent limitation was raised, and has now, in the majority of cases, been removed altogether. The residence requirement on the tenant was initially reduced, and has now, in the majority of cases, been removed altogether and replaced with a requirement of two years of ownership of the lease.
- The consequence of this last amendment, effected by section 138 of the Commonhold and Leasehold Reform Act 2002 ("the 2002 Act"), is that, not only can an individual tenant enfranchise even if he or she has never lived in the house, but (a) a corporate tenant can enfranchise (which it could not have done previously, as a company cannot reside), and (b) a tenant who holds a number, even a large number, of houses on long leases can simultaneously enfranchise all of them – see (albeit in relation to a statute relating to collective enfranchisement of leases of flats) Howard de Walden Estates Ltd v Aggio  1 AC 39. The disadvantageous consequences for landlords of this amendment were apparently mitigated by a new subsection (1B) introduced into section 1 by the 2002 Act, which excluded a tenant who had the protection of Part II of the Landlord Tenant Act 1954 ("the 1954 Act") from being able to enfranchise. However, as the facts of one of the instant cases show, that is in practice rarely of much value to landlords.
- Section 1, and sections 1A, 1AA and 1B, are thus concerned with identifying the purpose and ambit of the 1967 Act, and most of the ensuing sections effectively expand on some of the terms in those sections, or set out the procedural aspects.
- In particular for present purposes, section 2 is concerned with the definition of "house" (as only a tenant of a "house" can enfranchise under the 1967 Act) and of "house and premises" (as the enfranchisement right extends to "premises", as defined, if let with the house). Unlike section 1, which has been significantly amended on eight occasions, section 2 is in precisely the same form as it was when first enacted.
- Section 2(1) of the 1967 Act ("section 2(1)") provides as follows:
"… 'house' includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes: and-
a) where a building is divided horizontally, the flats or other units into which it is so divided are not separate 'houses' although the building as a whole may be: and
b) where a building is divided vertically the building as a whole is not a 'house' though any of the units into which it is divided may be."
- Section 3 explains what is meant by a "long tenancy", and sections 4 and 4A are concerned with the meaning of "low rent", in the circumstances when it still applies. Section 5 has "General provisions as to claims to enfranchisement or extension", and it brings in Schedule 1, which contains the procedures for enfranchisement, and deals with the tenant's notice. Sections 6, 6A and 7 apply to cases where the tenancy is held on trust or the tenant has died. Section 8 contains the "Obligation to enfranchise" on a landlord on whom a notice is served, and section 9 deals with the "Purchase price and costs of enfranchisement ...". It is unnecessary to refer to any of the other thirty-two sections or the other six schedules of the 1967 Act for present purposes.
The facts relating to the two appeals
- Day v Hosebay Ltd concerns three properties in a terrace of buildings, 29, 31, and 39 Rosary Gardens ("29", "31", and "39" respectively), which were originally constructed, and first occupied, as large houses, in South Kensington, London SW7. Each of "the three properties", as I will refer to them, was let on a long lease, which described the demised premises as "the messuage or dwellinghouse". 29 and 39 were each let by a lease granted in 1966 for some 55 years, and 31 by a lease granted in 1971 for some 60 years. The leases of 29 and 39 stipulated that the demised premises be used only "as 16 residential flatlets", with a resident caretaker, and that the external appearance of the demised premises be that of "a private dwellinghouse". The lease of 31 restricted its use to that of "a single family residence" or "a high class furnished property" for up to 20 occupiers, with a resident caretaker.
- Hosebay Ltd (a company owned by a Mr and Mrs Morris) acquired all three leases ("the three leases") in 1996, and remains the tenant under each of the three leases. It served notices on its landlords under section 8 of the 1967 Act to acquire the freeholds of the three properties. Its claim to be entitled to acquire the freeholds was challenged by the landlords, and the issue came before HH Judge Marshall QC.
- The three properties are being used to provide what the judge described in the course of her full and clear judgment as "short term accommodation for tourists and other visitors to London". The judge, who made a full inspection of 29, 31, and 39, said that each of the three properties has been "fully adapted to provide individual rooms for letting out", with the exception of two rooms in 31, one of which is used for office and reception purposes, and the other of which is used for storage. The judge thought that the most apt description of the great majority of each of the other rooms was "room with self-catering facilities". Each such room has between one and four beds, a similar number of dining chairs, a table, a television, a telephone, limited storage and clothes-hanging space, and no easy chairs. Each such room also has, in a confined space, a sink, cooking facilities and cupboards which had cooking and eating equipment, and it also has a small "wet room" with shower, basin and WC. Fresh bed linen and room cleaning, but no other services, are provided to those staying in the rooms.
- There were two main issues before the judge. The first was whether 29, 31 and 39 was in each case a "house" within section 2(1). The second issue was whether Hosebay was excluded from enfranchising each of the three properties by section 1(1B).
- On the first issue, the judge rejected the landlords' case that each of the three properties was not a "house"; that case was advanced on two grounds, namely that each of the three properties (i) was not "designed or adapted for living in" and (ii) was not a "house reasonably so called", in the light of the use to which it was currently put. With the judge's permission, the landlords appeal on both points.
- On the second issue, the judge concluded that Hosebay did not enjoy the protection of the 1954 Act, because, even though the three properties were being occupied for the purpose of a business (namely provision of short term serviced accommodation), Hosebay had lawfully sublet each of them to an associated company, Hindmill Ltd, and it was Hindmill that carried on the business. Hosebay therefore did not occupy the three properties, or any part of them, for the purpose of a business which it carried on, and, as the 1954 Act only applies to premises which are occupied by the tenant for the purpose of its business, it did not apply to the three leases. Although one might characterise the arrangement between Hosebay and Hindmill as rather artificial, the judge concluded that it was genuine, and therefore the landlords failed on the second main issue as well. The landlords (realistically in my view) do not appeal on that issue.
- Lexgorge Ltd v Howard de Walden Estates Ltd concerns 48 Queen Anne Street, in Marylebone, London W1 ("the property"). It was originally built, in about 1760, as a house (comprising five floors, including a basement), in a terrace of substantial houses, and for many years it was occupied for that purpose. It was the subject of a lease which was granted in 1952 for a term of some 109 years. In the lease, the property is described as a "messuage or residential or professional premises", and its use is restricted (subject to landlords' consent) to "self-contained flats or maisonettes" on the upper two floors, professional offices on the first and ground floors, with the use of the basement being restricted to "storage … and lavatory … in connection with other parts of the demised premises".
- In 1978, the lease was acquired by Lexgorge Ltd, who more than 25 years later served notice on the landlord to acquire the freehold. The landlord objected on the basis that the property was not a house within section 2(1), and that issue came before HH Judge Dight.
- It appears likely that, from 1961 or thereabouts, the use of all four upper floors was as offices, until the landlords objected to that use of the upper two floors, and that use ceased shortly after Lexgorge served its notice seeking to enfranchise. Certainly it seems clear that the office use of the upper two floors, which had started in about 1961 (and had never been consented to by the landlord), continued until after the notice was served, but, by the time that the judge inspected the property, those floors were occupied as a maisonette. The ground and first floors are being, and have since 1978 been, used as solicitors' offices, one of the solicitors being a Mr Pearson, effectively the owner of Lexgorge; it would seem that the upper two floors have often been used for the same purpose, but have also been occupied by quantity surveyors.
- The only issue before the judge was whether the property was a "house ... reasonably so called". Rejecting the landlords' argument in his well articulated judgment, the judge held that the fact that all the property was being used for office purposes at the date of the notice, and the fact that, under the lease, around half the internal area of the property could not be used other than for office purposes did not prevent the property from being a "house reasonably so called". With the judge's permission, the landlords appeal against that decision.
The case law
- The issue of whether premises constitute a "house" has troubled the courts in a large number of different contexts. Particularly because it is a word with a relatively wide range of possible meanings, and because it is defined in unique terms in section 2(1), it is dangerous in the present context to try and find assistance in judicial dicta as to the meaning of the word in other contexts. All the more so as the effect of section 2(1) has been considered in four relevant previous authoritative cases, one of which was concerned with the expression "designed or adapted for living in", and three of which focussed on the words "house ... reasonably so called". I now turn to consider those cases.
- The authority on the effect of the word "designed or adapted for living in" is the unanimous decision of the House of Lords in Boss Holdings Ltd v Grosvenor West End Properties Ltd  1 WLR 289.
- At  1 WLR 289, I said this in paragraph 17 of an opinion with which the other members of the committee agreed:
"[T]he words 'designed or adapted for living in', as a matter of ordinary English, require one first to consider the property as it was initially built: for what purpose was it originally designed? That is the natural meaning of the word 'designed', which is a past participle. One then goes on to consider whether work has subsequently been done to the property so that the original 'design' has been changed: has it been adapted for another purpose, and if so what purpose? When asking either question, one is ultimately concerned to decide whether the purpose for which the property has been designed or adapted, was 'for living in'."
At  1 WLR 289, paragraphs 18 and 19, I also made the point that the word "designed" is a past participle referring back to the date of the works of design, and, it is implicit in those paragraphs, and in any event it must follow as a matter of consistency of language and approach, that the word "adapted" refers back to the date of the works of adaptation.
- At  1 WLR 289, paragraph 26, I raised the question "whether a property would be a 'house' if it had been designed for living in, but had subsequently been adapted to another use", and said this:
"As a matter of literal language, such a property would be a house, because 'designed' and 'adapted' appear to be alternative qualifying requirements. At least at first sight, such a conclusion seems surprising, so there is obvious attraction in implying a qualification that, if a property has been, and remains adapted for a purpose other than living in, the tenant cannot rely upon the fact that it was originally designed for living in. However, a term is not easily implied into a statute, and further reflection suggests that the literal meaning of the words is not as surprising as it may first appear, particularly bearing in mind the existence of the residence requirement in section 1(1) of the original Act. It is unnecessary to decide this point, and, particularly as it was only touched on in argument, I do not think we ought to do so."
- The first decision on the issue of "'house' … reasonably so called" is the unanimous decision of the Court of Appeal in Lake v Bennett  1 QB 663, where, at 670C-D, Lord Denning MR, said that "[t]here have been many statutes which have used the word 'house' without defining it" and that "[t]he courts have given it a wide interpretation". He also observed at  QB 663, 670H-671A, that, while he would not seek to define the effect of the words "reasonably so called", he did not think, for example, that "a tower block of flats would reasonably be called a 'house'". Salmon LJ explained at  QB 663, 672C that the words "reasonably so called" were necessary to exclude buildings such as "the Ritz Hotel … Rowton House and a large purpose built block of flats". He went on to make the point that the fact that a building could reasonably be called something other than a house would not mean that it could not also reasonably be called a house, a point also made by Cross LJ in his brief judgment at  QB 663, 673A-B.
- The reasoning and decision in Lake  QB 663 was approved by the majority of the House of Lords in Tandon v Trustees of Spurgeons Homes  AC 755.
- In that case, Lord Wilberforce, in the minority, said at  AC 755, 760F-G that "a mixed unit consisting in part of a shop and in part of a dwelling [was] not a house within the  Act." Lord Fraser of Tullybelton, also in the minority, said at  AC 755, 762A-G, that "the original design" of the building, "the setting in which it is placed", "the proportion of residential use to the non-residential use" and the relative values of the parts used for those purposes were all relevant factors.
- Lord Roskill, who gave the majority's view, in an opinion with which Lord Bridge of Harwich and Lord Scarman agreed, said at  AC 755, 765F-G:
"[I]f the premises might also be called something other than a 'house' …, that fact alone [does] not prevent those premises from being a 'house … reasonably so called.' … [P]remises used for non-residential as well as for residential purposes [can] in law be a 'house' within the definition, and it depend[s] upon the character of the premises in question whether by reason of their mixed user they [fall] within or without the definition."
Later, Lord Roskill said this at  AC 755, 767B-C:
"[A]s long as a building of mixed use can reasonably be called a house, it is within the statutory meaning of 'house', even though it may reasonably be called something else. … [I]f the building is designed or adapted for living in, … only exceptional circumstances … would justify a judge holding that it could not reasonably be called a house. They would have to be such that nobody could reasonably call the building a house."
- In the most recent decision on the issue, Prospect Estates Ltd v Grosvenor Estates Belgravia  1 WLR 1313, the Court of Appeal unanimously reversed a first instance finding that premises could reasonably be called a house; the premises in question had been originally constructed as a house, but could only be used under the lease as to 11.5% for residential purposes, the remainder of the premises being limited to commercial use. Mummery LJ accepted that "a building designed for living in does not … cease to be a house reasonably so called, simply because a part of it is no longer used for living in" -  1 WLR 1313, paragraph 14. However, at  1 WLR 1313, paragraphs 18, he said that "it would be wrong to take [Lord Roskill's] approach too far" and that it was "necessary to take account of all the relevant circumstances in order to decide whether a building is a house reasonably so called".
- Mummery LJ then said at  1 WLR 1313, paragraph 19, that the judge "paid insufficient attention to the peculiar, even exceptional …, circumstance of prescribed and predominant office use in compliance with the lease", which he described as "the overwhelming and decisive feature of this case". In the next paragraph of his judgment, he said that the judge should have given "due weight to the prescriptive terms of the lease, the actual use of the building and the relative proportions of the mixed use at the relevant date", and that, had he done so, the judge would have held the premises in question could not reasonably be called a house. Goldring LJ agreed, implying that the essential point was that a "building can[not] reasonably be called a house although no one can lawfully live in virtually 90% of it." Smith LJ also agreed with Mummery LJ in a reasoned judgment.
Are 29, 31 and 39 Rosary Gardens each "designed or adapted for living in"?
- Judge Marshall QC concluded that each of the three properties was "designed or adapted for living in", on the ground that, although they had been "adapted" from the original design, very probably before the three leases were granted, the adaptation was "for living in". Mr Radevsky, for Hosebay, supported the conclusion on three grounds. First, given that the three properties were originally designed for living in, it is unnecessary to consider the issue of adaptation; secondly, if that is wrong, then the most recent works ("the works") to the three properties were insufficient to have "adapted" them, so the original "design" stands; thirdly, if that is wrong, then the works adapted each of the three properties "for living in", i.e. the judge's reason. (The better characterisation of this third argument may be that, as each of the three properties was "designed ... for living in", that original design subsists as the works did not "adapt" the properties away from that design.) I shall take those three arguments in turn.
- I turn to Mr Radevsky's first argument. It is clear that each of the three properties was "designed … for living in", as each of them was constructed as a house for single occupation – i.e. for "living in" on any view of that expression. Picking up on the point which was left open in Boss Holdings  1 WLR 289, paragraph 26, the contention is that, even if the three properties were subsequently adapted away from residential use, that does not matter as they were "designed or adapted" for living in – i.e. that satisfaction of either alternative suffices even if the other alternative is not satisfied.
- The point has now been fully argued, and, although it is not necessary to decide it for reasons which will become apparent, it is right to record that I would reject it. It would seem somewhat illogical that one could "adapt into" residential use, but that one could not "adapt out of" such use. Further, although, as was accepted in Boss Holdings  1 WLR 289, the literalist meaning of "designed or adapted" is that either alternative will do, that is not by any means what the words naturally convey: that is well evidenced by the fact that the tenant in that case (and the tenant in the case heard together with it in the Court of Appeal -  1 WLR 2848) did not raise the point. I must confess to having started, in Boss Holdings  1 WLR 289, paragraph 26, what I now think is a hare by suggesting an over-literalist approach to the language used by the legislature.
- As to Mr Radevsky's second argument, we heard very little by way of submissions on the issue, and we were not taken to any evidence as to the precise nature of the works effected to enable the three properties to be used as contemplated by the three leases. In those circumstances, particularly as it is unnecessary to do so (in the light of my conclusion on Mr Radevsky's third argument), I do not think it would be right to interfere with the judge's conclusion on the point.
- I turn to the third argument. Assuming that the works carried out to convert 29, 31 and 39 were works which "adapted" each of the three properties, it seems to me that, despite Mr Johnson QC's argument for the landlords to the contrary, the works adapted the three properties for living in. My primary reason for that conclusion is that, in order to determine whether premises are adapted for living in, one looks at the most recent works of adaptation, and assesses objectively, whether they resulted in the property being adapted for living in.
- I emphasise in that last sentence the words "works of adaptation" and "objectively". One looks at the effect of the works which altered the building, not furnishings or furniture; they are not works of adaptation, a view supported by the reasoning in Boss Holdings  1 WLR 289. It also seems to me that the subjective intention of the person responsible for the works, so far as the intended use is concerned, will rarely, if ever, be of any relevance: one is concerned with how the building was adapted, not why it was adapted. Thus in Boss Holdings  1 WLR 289, paragraph 17, when considering the expression "designed or adapted for living in", it was said that "for present purposes one is largely concerned with the physical state of the property".
- The actual or intended use of the building may, however, sometimes have some relevance. For instance, if the building was intended to be, and was actually, used for living in immediately after the works were completed, it may help undermine the argument that it was not adapted for living in. Also of little if any relevance, in my view, is the use to which the building is actually put at the date of the tenant's notice. Again, that use could conceivably be relevant, but it appears to me to be even more unlikely to be of any significance, as it is a use which ex hypothesi occurs after, possibly many years after, the works of adaptation.
- In this case, I consider that the effect of the most recent works of conversion to the three properties, if they were works of adaptation, adapted those properties for living in. Ignoring one or two rooms, each room in the three properties is a self-contained unit of accommodation, with its own basic small shower room/WC, and its own even smaller and more basic cooking facilities. As Moore-Bick LJ pointed out in argument, the rooms are entirely appropriate for letting to students on three year degree courses, and, as Mr Johnson rightly accepted, if they had been, all the rooms, and therefore the three buildings, would have been used for living in. Even if, as Mr Johnson argued and I am prepared to assume without deciding, the current use of the three properties is not for living in, that certainly does not mean that, viewed objectively, the three properties were not adapted for living in.
- As the judge indicated, the works of adaptation were in all probability carried out before the leases were granted: if the works had been carried out during the currency of the three leases, one would have expected the landlords to be able to produce, or at least to identify, a permission or contract to carry out works of alteration (either in the three leases or in a separate document) together with plans, yet no such documentary evidence was available. On that assumption, given the user covenants in the three leases, it seems to me pretty clear that, even if the subjective purpose for which the works of adaptation were carried out, and the use to which the building was then put, is of relevance, then that purpose was for "living in". Mr Johnson said that the intention of the person who carried out the works, and the actual use once the works had been completed, were matters of speculation. It is true that the intended and actual uses were not clearly established on the evidence, but, for the reasons I have briefly given, on the balance of probabilities they were the use described in the three leases.
Are 29, 31, and 39 Rosary Gardens each a "house ... reasonably so called"?
- Each of the three properties was designed and constructed for use, and first used, as a residence in single family occupation (no doubt with a number of domestic servants); externally, each of the three properties has the appearance of being a relatively large town house; internally, each of the three properties has been converted so that almost every room can be used as a self-contained unit for one or more individual, with cooking and toilet facilities. Ignoring for the moment the reasoning in Prospect Estates  1 WLR 1313, I find it hard to see how the judge could be faulted for concluding that, even if each of the three properties might be called something else as well, they could each reasonably be called a house.
- As already mentioned, in Tandon  AC 755, 767C, Lord Roskill observed that the circumstances "would have to be such that nobody could reasonably call the building a house" before a building which had been "designed or adapted for living in" was excluded from being a "house" under section 2(1). That appears to present the landlords with a high hurdle to cross. It was suggested by Mr Johnson that the observation should no longer be regarded as sound, as it was made at a time when, ex hypothesi, any building to which it referred would have been occupied, at least in part, by the tenant as his only or main residence.
- While I accept the premise, I do not agree with the conclusion. Lord Roskill's observation referred to the interrelationship of two provisions of section 2(1), a subsection which has remained unchanged since the 1967 Act was passed; further, the meaning of the provisions of the subsection cannot have changed as a result of the significant amendments to section 1 – see Boss Holdings  1 WLR 289, paragraph 23. Further, given that a building must be "designed or adapted for living in" before it can be a "house", it seems to me that, as a matter of ordinary English, the question whether it was a "house ... reasonably so called" is unlikely to be affected by the fact that it is, or, as the case may be, it is not, actually lived in at the date the issue falls to be judged. All the more so in the light of my conclusion that a building originally designed for living in, but adapted for some other purpose, is not "designed or adapted for living in" (unless it is subsequently re-adapted for living in).
- As Mr Radevsky said, a further difficulty in the way of the argument that each of the three properties could not reasonably be called a "house" is that each of them was described in the relevant lease as a "messuage or dwellinghouse". As already mentioned, it seems more likely than not that the present layout and design of the three properties has not significantly changed since the grant of the three leases, 40 to 45 years ago. Given that "messuage" is a somewhat archaic legal term for a house, it adds little if anything to the essential point that it seems almost perverse to contend that a building cannot reasonably be called a "house" if the predecessors of the two parties actually described it as a "dwellinghouse", given that, in the intervening period, the meaning of those two words has not changed, and little work of significance to the internal or external structure or appearance of any of the three buildings appears to have been done.
- In his argument for the landlords that each of the three properties could not "reasonably be ... called" a "house", Mr Johnson understandably placed considerable reliance on the reasoning in Prospect Estates  1 WLR 1313. Even assuming in the landlords' favour that the effect of that case is that the actual use of the three properties can be taken into account as a major factor in the decision as to whether they can reasonably be called "house[s]", it appears to me that the judge's decision that they could reasonably be so called was right. As already mentioned, they were each designed and originally occupied as residences in single occupation, they each have the external appearance of being a relatively large London townhouse, they are each fitted out for residential occupation, albeit multiple occupation, as "bedsits", and they are each required under each of the three leases to be used for residential purposes. In this connection, it is worth mentioning that it seems clear that a five storey building constructed as a house, but converted internally into five self-contained flats, would, at least absent any special factors, be a "house ... reasonably so called", following the reasoning and decisions in the judgments in Lake  QB 663 and in the speech of Lord Roskill in Tandon  AC 755.
- There can be no doubt that the external and internal appearance of the properties are highly relevant factors on this issue, and it is clear from Prospect Estates  1 WLR 1313 that, in so far as user is significant, the permitted use under the lease is a relevant factor. In those circumstances, even assuming that actual use is also relevant, I find it hard to see how it can be sensibly said that each of the three properties cannot "reasonably [be] called" a "house". To hold otherwise would involve concluding that the actual user, even where it involved people occupying virtually all the rooms in the building for relaxing, sleeping, cooking and washing, albeit on a short term basis, trumped all the other factors to the extent of disabling the building from being able to be a "house ... reasonably so called."
- I would therefore hold that, even assuming that Prospect Estates  1 WLR 1313 had the effect for which the landlords contend, the judge was right in concluding that each of 29, 31, and 39 Rosary Gardens was a "house ... reasonably so called".
- It is appropriate to go a little further in considering Prospect Estates  1 WLR 1313. Although it is, in principle, binding on us so far as its ratio is concerned, I must confess to some difficulty in identifying and agreeing with that ratio. Goldring LJ appeared to consider that the crucial point was the fact that only about 11% of the building concerned could lawfully be used for residential purposes under the lease in question. That is tolerably clear in its general effect: one concentrates on the permitted use, and, if it forbids residential use, or allows it only to a relatively exiguous extent, the building cannot be a "house ... reasonably so called".
- While the observation is tolerably clear, I am not sure that I would agree with it. It appears to place decisive weight on the user covenant in a lease, whereas it seems to me that the thrust of the judgments in Lake  QB 663 and the opinion of Lord Roskill in Tandon  AC 755 (as opposed to the dissenting opinion of Lord Fraser in that case) is that the question whether a building is a "house ... reasonably so called" is to be determined essentially by reference to its external and internal physical character and appearance.
- The view that the question of whether a building is a "house ... reasonably so called" depends, at least in the main, by reference to its physical appearance and character also seems to me to accord with the natural meaning of those words, the other provisions of section 2(1), and the analysis in Boss Holdings  1 WLR 289. 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. Section 2(1) also refers to buildings which are "structurally detached", "divided horizontally" and "divided vertically" – all concerned with physical state not use. In Boss Holdings  1 WLR 289, paragraph 17, the House of Lords said that, when deciding whether a building had been "designed or adapted for living in", "one is largely concerned with the physical state of the property".
- In his judgment in Prospect Estates  1 WLR 1313, Mummery LJ (and likewise Smith LJ in hers) may have been saying the same thing as was being suggested in Goldring LJ's very brief judgment. Thus, at paragraph 19, Mummery LJ appears to consider that it was the combination of the very small extent to which residential use was permitted and enjoyed that prevented the building in that case from being "reasonably ... called" a house. But he also went on to suggest that a number of relevant factors should be taken into account. There is no indication as to how they are to be taken into account, and whether they are always to be taken into account - for instance, whether the actual use should only be taken into account if it is expressly permitted under the lease. It is hard to accept that only 20% residential user would be inconsistent with a building being "reasonably ... called" a house, when, on one view, only 25% of the property in question was being used for residential purposes in Tandon  AC 755.
- For my part, I would suggest that the ratio of Prospect Estates  1 WLR 1313 should be treated as being limited to a case where residential use is either prohibited entirely, or restricted to a very small part of the building, and the actual use accords with that. The combination of the very limited permitted residential use and very limited actual residential use was, after all, described by Mummery LJ at  1 WLR 1313, paragraph 19, as "the overwhelming and decisive feature of this case". On that basis, the decision is of even less assistance to the landlords' case than I have assumed so far.
Is 48 Queen Anne Street a "house ... reasonably so called"?
- The centrally relevant facts are that the property was designed and built and initially used as a town house residence for a single family (again no doubt with staff quarters), that it maintains its physical appearance externally, that internally some works have been done so that the ground and first floors can be used as offices, that under the lease the two upper floors are restricted to residential use and the ground and first floors are restricted to office use, and that the property was used wholly as offices at the date of the notice, but the landlord had objected to that use in relation to the two upper floors.
- The property was, it is sensibly accepted by the landlord, "designed or adapted for living in", not least because, on any view, no work had been done to the upper two floors to undermine the point that those floors remained designed for living in and had not been adapted away from that design. The only ground for challenging the judge's conclusion that the property was a "house ... reasonably so called" is the fact that the whole of it was used for office purposes, and none of it for residential purposes, at what is rightly accepted to be the centrally relevant day, namely the date of the notice.
- In my judgment, the fact that the property was used wholly for office purposes does not mean that it was, as the landlord, through Miss Holland QC, contended, not a "house ... reasonably so called". The issue is not disposed of in the landlord's favour by the decision in Prospect Estates  1 WLR 1313, because, as stated above, it seems to me that the reasoning in that case only applies where both the permitted use and the actual use of the building concerned exclude residential use or limit it to a very small proportion of the building.
- If the upper two floors of the property had been empty, I have little doubt but that the property could reasonably have been called a house, bearing in mind its external character and appearance (a classic town house in London's West End), its internal character and appearance at least on the upper two floors (which were, as I understand it, substantially as constructed), the description of the property in the lease as "messuage or residential or professional premises", and, to the extent that it is relevant, the terms of the lease (restricting the use of the upper two floors to residential). I find it hard to see why the fact that the upper two floors had been used (even for many years) as offices (in contravention of the terms of the lease) should wreak such a change that the property could no longer reasonably be called a house.
- Accordingly, I agree with the judge in this case as well. There were arguments as to (i) whether, when assessing the proportion of the property restricted to residential use, the judge should have taken into account the basement as non-residential, and (ii) whether the judge had rightly analysed the planning position. In my view, it is unnecessary to resolve those issues: even if the landlord is right, and (i) the basement should be treated as non-residential, and (ii) office use of the upper two floors is lawful in planning terms, that would not alter my conclusion.
- For these reasons, I would dismiss these appeals; in each case the tenant has the right to acquire the freehold of the properties at stake.
- Like Judge Marshall in Hosebay, I reach my conclusion with no particular enthusiasm. 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. It now applies to empty and substantially commercial buildings, even if nobody recently lived there or is even intending to live there (provided they satisfy section 2(1)) as Boss Holdings  1 WLR 289 shows, and it is open to tenants to enfranchise many properties at the same time, even if they do not live in any of those properties, as Aggio  1 AC 39 shows. If I am right on these appeals, it can extend to buildings exclusively used for business purposes.
- I rather doubt that the amendments made to section 1 in 2002, and in particular the removal of the residence requirement, were intended by the legislature to have this sort of effect. Significant amendments to statutes often provide good instances of the law of unintended consequences, and this may well be an example. However, the issue we have to decide is not what we think the legislature would have said if it had fully appreciated the consequences of the primary amendment it made to the 1967 Act (removal of the residence requirement), but what we think that the Act means in the light of that amendment.
- Accordingly, the two appeals must be dismissed.
Lord Justice Lloyd:
- I agree.
Lord Justice Moore Bick:
- I also agree.
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