When is a house not a house? No, not some dreadful joke from a Christmas cracker, but a question which the Supreme Court had to consider in two recent cases. *
The Court concluded that although the buildings in question were built and originally occupied as houses, they stopped being houses when they were subsequently converted to offices or other uses. Consequently, the leaseholders of the properties were not entitled to buy the freehold under the Leasehold Reform Act 1967.
Many freeholders will breathe a sigh of relief at this, especially those who own the reversions on high-value properties in areas such as the west end of London. The prospect of some tenants of the offices and hotels in such areas which were originally houses being able to insist on buying their freeholds at a discount was not one to be relished.
Can a property used as offices still be a “house”?
The cases involved the meaning of the word ‘house’ as defined in the 1967 Act. It was passed to give people who owned leasehold houses the right to buy the freehold (known as ‘leasehold enfranchisement’) at a discounted price.
The 1967 Act only applied to houses, not flats, where the original lease had been granted for a term of at least 21 years at a low rent. It defined houses as including “. . . any building designed or adapted for living in and reasonably so called. . . “.
A few cases have arisen as to exactly what the statutory definition did include – the courts have decided that a house could include a shop with living quarters above, and in 2008 it was agreed that a house which was uninhabitable as it had been stripped back to its basic structural shell was still a house for the purposes of the Act.
But what if a property had been built as a house, but subsequently converted to another use? In 2009, a building which was 88. 5% used for commercial purposes was held not to be a house, but the actual use of the property has not always been considered to be relevant. One influential judge expressed a very strong opinion that if a building had at one time been designed or adapted for living in, it did not matter if at a later date it was adapted to something else.
Abolition of the residence requirement potentially benefits companies
The 1967 Act originally only benefited owner-occupiers, since it contained a residence requirement. However that requirement was dropped in 2002, giving non-resident leaseholders – perhaps those who were subletting their houses – the right to enfranchise.
But it was soon realised that if you did not have to live in the property to be entitled to enfranchise, companies as well as individuals might also be entitled to the benefit of the Act. While companies don’t own as many ‘houses’ as do private individuals, many companies own long leases of premises which might have been built as houses originally, but which have long since been converted into offices, hotels or other commercial uses.
The possibility that companies could claim the benefit of the 1967 Act was not welcomed by many freeholders, especially those who own large estates in parts of London. So they have resisted claims under the Act relating to properties which had not been used as houses for some time.
The Supreme Court said that the definition of a house in the 1957 Act needs “to be read in the context of a statute which is about houses as places to live in, not about houses as pieces of architecture or features in a street scene… The external and internal physical appearance of a building should not be treated as determinative of whether it is a “house” for these purposes, nor should the terms of the lease be treated as a major factor. ”
These decisions should clarify the law on this important topic, and will be welcomed by many freeholders. But I am sure we can expect Solicitors acting for tenants to find some other way for commercial clients to claim the benefit of the Act.
* Day and another (Appellants) v Hosebay Limited (Respondent); Howard de Walden Estates Limited (Appellant) v Lexgorge Limited (Respondent)  UKSC 41