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LM Homes (and Others) v Queen Court Freehold Company Limited [2018] UKUT 367(LC)

The Upper Tribunal has upheld the decision of the lower tribunal (the First-Tier Tribunal) that a group of leaseholders exercising their statutory right to collectively acquire the freehold interest in their building, Queen Court, were entitled to acquire leases of the airspace above, the basement and the subsoil below.

The Upper Tribunal held that the airspace, basement and subsoil were all “common parts” of the building for the purpose of the Leasehold Reform, Housing and Urban Development Act 1993, and so the leases were acquirable by the tenants.

Defining “common parts”

The 1993 Act allows the acquisition of a lease of common parts where such acquisition is “reasonably necessary for the proper management and maintenance of those common parts”.

The 1993 Act defines common parts in relation to any building or part of a building as including “the structure and exterior of that building or part and any common facilities within it”.

The common parts leases

The Upper Tribunal upheld that the acquisition of the common parts leases was reasonably necessary for the proper management and maintenance of those common parts.

The airspace was held to be part of the exterior of the building at least to the height that would be required for the maintenance of installations on the roof.

The airspace lease reserved rights in favour of the landlord expressly allowing “for the proper management or maintenance of” the common parts comprised in the airspace. This was clearly intended to ensure that the lease was not acquirable under the 1993 Act. The landlord argued that the leaseholders, as the new freeholder and landlord under those leases, would have sufficient rights for management and maintenance and so the lease did not need to be acquired. The Upper Tribunal held that the landlord’s drafting was not sufficient to avoid the lease being caught. After development, the nature of the airspace would change fundamentally. It would cease to be a common part and would be incapable of being managed as it currently is. It accordingly satisfied the criterion under the 1993 Act for its acquisition being necessary for management.

Likewise, the acquisition of the basement was held to be reasonably necessary for proper management and maintenance and was accordingly common parts. The basement area contained installations serving the flats and the Upper Tribunal upheld that management of installations includes management of the space in which they are situated.

Furthermore, the Upper Tribunal upheld that the subsoil was a common part. Although the prospect of the subsoil requiring maintenance was low, the length of the subsoil lease was 999 years and so was likely to outlive the building itself. Some maintenance during that time was therefore likely to be needed.

The Tribunal attributed a wide meaning to “common parts” under the 1993 Act, and so including those parts of the building that have common use or benefit.

Disappointed investors

In Queen Court the common parts leases had been granted by the landlord to third party investors for not insignificant sums with the hope of making a profit in developing those spaces. The Upper Tribunal’s decision will be off-putting to future investors looking to capture development value pursuant to similar schemes.

Had the leases of the common parts not been granted, there would have been no issue as to the acquirability of the freehold interest in those common parts pursuant to the 1993 Act, which entitles the leaseholders to acquire the freehold interest in the whole building. The grant of those leases was intended to secure development value and deprive the leaseholders of the same opportunity on the basis that those leases were not acquirable.

The Upper Tribunal identified that “if it were the case that a lease of common parts, by itself, was sufficient to cause an area which continued to provide some shared benefit to the building no longer to be a common part, the provisions of the 1993 Act entitling tenants to acquire the common parts would be largely redundant”.

Appeal

Pursuant to a successful application by the landlord for leave to appeal, a decision of the Court of Appeal is awaited. The uncertainty continues.

If you have any questions regarding this subject please contact Katherine Simpson or any member of the Property team.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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