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Collective enfranchisement – what is a ‘flat’?16th January 2020 Commercial Litigation
The Court of Appeal has considered the definition of ‘flat’ as contained within the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). The 1993 Act grants rights for leaseholders of a block of flats to buy the freehold of the building from their landlord collectively.
So what is the current definition of a ‘flat’?
It is defined in the 1993 Act as ‘a separate set of premises (whether or not on the same floor) (a) which forms part of a building and (b) which is constructed or adapted for use for the purposes of a dwelling, and (c) either the whole or a material part of which lies above or below some other part of the building’.
The wording in bold is what we are concerned with here.
If the leaseholders wish to buy the freehold, a nominee purchaser must be put forward and that entity must serve a valid notice on the freeholder by qualifying tenants of not less than 50% of the total number of flats in the building. In Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate and others  EWCA Civ 1848, the issue was whether that notice had been validly served, as there was a dispute as to how many flats were contained in the building. The leaseholders argued that the building contained 26, and so the notice given by the 13 qualified tenants (50%) was valid. The freeholder argued that there were 30, as substantial construction works had been carried out to units on the sixth and seventh floors which resulted in an additional two separate units on each floor, albeit they were uninhabitable. Dividing walls had been built and the units were demised under separate long leases. If the freeholder was found to be correct, then the notice served by the nominee purchaser would be invalid.
In 2018, the High Court found in favour of the freeholder. It held that there were 30 flats in the building and that the units had been constructed for the purposes of a dwelling as per section b of the definition of ‘flat’. The fact that the units were uninhabitable was irrelevant.
The Court of Appeal disagreed and found in favour of the leaseholders. It narrowly construed the definition of ‘flat’ and held that if a separate set of premises needs to have been constructed “for use” as a dwelling, then it must be in a state which is suitable for that use. It is not deemed a ‘flat’ until it has reached a stage of construction to be suitable for use as a dwelling. The nominee purchaser was able to proceed with the purchase of the freehold.
Notably, the definition of ‘flat’ contained in the Landlord and Tenant Act 1987 in relation to a tenants right of first refusal (more commonly known as the Section 5 process), is the same as that contained within the 1993 Act. Although it is not a certainty, it is likely that the same approach will be taken when serving Section 5 notices.
The decision is an important one and freeholders/landlords and developers should consider it when looking to sell the freehold of a building.