Collective enfranchisement – tenants entitled to acquire leases of basement, airspace and subsoil

Landlords, developers and investors may not initially give much thought to collective enfranchisement claims but the potential for such claims should be carefully considered where there is scope for future development.

Collective enfranchisement – tenants entitled to acquire leases of basement, airspace and subsoil

Landlords, developers and investors may not initially give much thought to collective enfranchisement claims but the potential for such claims should be carefully considered where there is scope for future development.

Chapter 1 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 1993 Act confers on tenants holding long leases of flats in a self-contained building the right collectively to acquire the freehold interest in the building. Acquisition is by a nominee who acts on behalf of the participating tenants.

By section 2(1)(b) and (3)(a) the participating tenants are additionally entitled to have acquired by their nominee the interest of the tenant under any lease of "common parts of the relevant premises", where the acquisition of that interest is "reasonably necessary for the proper management of or maintenance of those common parts".

The expression "common parts" is defined in section 101(1) of the 1993 Act as follows: "Common parts" in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it."

In LM Homes Ltd and others v Queen Court Freehold Company Ltd [2018] UKUT 367 (LC) the Upper Tribunal (Lands Chamber) (UT) held that Leaseholders exercising their right to collective enfranchisement of a block of flats under the Leasehold Reform, Housing and Urban Development Act 1993 were entitled to acquire interests in the basement, the subsoil and the air space of the building, all of which had been let on long leases with the intention of developing them into residential accommodation.

The upper Tribunal followed the wide interpretation given to “common parts” in previous cases by determining that the basement, airspace and subsoil were all “common parts” within section 101of the Leasehold Reform, Housing and Urban Development Act 1993 and the Upper Tribunal also held that acquisition of the long leases were reasonably necessary for their proper maintenance and management.

This decision demonstrates the difficulties which can be faced by freehold owners and investors who seek to ring fence interests in their residential properties for future development, where there is a potential claim for collective enfranchisement by the tenants.

Freehold owners and investors with future developments plans may therefore wish to consider whether the exterior of the building or service items could be considered as falling within the definition of “common parts” for the purposes of a collective enfranchisement claim.

The full judgment can be read here

David Burns is a Partner and Head of the firm’s Enfranchisement and Lease Extension team. He can be contacted on his direct dial 0207 467 5751 and d.burns@rfblegal.co.uk.

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