The Supreme Court has given comfort to freeholders by confirming that tenants do not have the right to enfranchise their leasehold interests where the property is used only for commercial purposes.

Some months ago the Court of Appeal had given some commercial tenants hope that they had the right to “enfranchise” (i.e. acquire the Landlord’s freehold). This hope had arisen because, even though the leases were plainly commercial, the let building had originally been a house and, under the Leasehold Reform Act 1967, the leaseholders of “houses” have the right to enfranchise as long as they satisfy various other conditions.

Last week the Supreme Court heard two appeals against that decision, brought by two of London’s largest landed estates the Day Estate and the Howard De Walden Estate (Day v Hosebay Limited; Howard de Walden Estates Limited v Lexgorge Limited [2012] UKSC 41).

The Estates’ argument was persuasive: in brief, the 1967 Act was not intended to allow businesses to buy their landlord’s freeholds; it was intended to allow householders to buy their landlord’s freeholds.

Section 2(1) of the 1967 Act defines a “house” as “any building designed or adapted for living in and reasonably so called”.  The Supreme Court has held that both parts of this definition need to be satisfied. That whilst the first part looked at the purpose of the building based upon its physical characteristics or architecture, the second part linked the definition to the primary function of the “house” – ie as a single residence and not, say, a block of flats, hotel or professional practice, at the date that the claim is made.  The fact that the building was originally designed as a house or was used as a house at the time the lease was originally granted will be irrelevant.

These decisions provide clarity for clients pursuing, or resisting, enfranchisement claims as it is now clear that properties that are being used solely for commercial purposes will not fall within the scope of the 1967 Act.

If you would like any further information on leasehold enfranchisement, please contact a member of our Residential Property team.