L M Homes Ltd & Anor v Queen Court Freehold Company Ltd

Part 1 Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) gives qualifying tenants of flats contained in premises to which that Chapter applies the right to have the freehold of those premises acquired on their behalf. Qualifying tenants of Queen Court, Queen Square, London WC1 (“Queen Court”) have claimed to exercise that right. The issues raised by these appeals concern the question whether the qualifying tenants are also entitled to acquire certain leasehold interests in or connected with Queen Court. More specifically the areas in dispute are:

The Upper Tribunal (Martin Rodger QC, Deputy President), affirming the decision of the First Tier Tribunal, held that the qualifying tenants were entitled to acquire the leasehold interests in all three areas. His decision is at [2018] UKUT 367 (LC).

I can take the relevant facts from the careful decision of the Upper Tribunal.

Queen Court is a purpose-built block of flats comprising 45 flats on ground and seven upper floors (the top floor is a relatively recent addition to the original structure). The main entrance to the building is on Queen Square in Bloomsbury, with a second entrance at the opposite end of the building on Guilford Street. At the northern end of the building it has a frontage to Guilford Street from which external steps lead down to a basement containing the water tanks, boilers, oil tanks and electrical switchboards which serve the whole building. A second entrance to the basement is available by a set of steps leading from a small external courtyard on the west side of the building which is assessible only from the ground floor hallway. The basement boiler room occupies about a third of the building's total footprint and there is no basement under the remainder.

The whole building was the subject of a headlease granted in 2015 for a term of 99 years by West End & District Properties Ltd to Regal Estates Ltd.

On 3 December 2015 West End & District Properties Ltd granted Regal Estates Ltd a

On 7 October 2015 West End & District Properties Ltd granted a lease of about two thirds of the basement to Regal Estates Ltd. The basement is a relatively open area with two large rooms and a corridor running the width of the building at one end. The lease envisages further sub-division and the area demised is therefore represented by red lines on the lease plan rather than by any existing physical feature. Planning permission has been granted for the conversion of the area into a one-bedroom flat. The lease excludes the area for the time being occupied by two boilers, two hot water tanks and a number of electricity meters but includes areas occupied by an oil storage tank, a gas meter, a water pump and other service installations. Those installations are not confined to one part of the basement, but are arranged around the perimeter of the rooms, with various substantial pipes and conduits rising up the walls and across the ceiling. The basement lease also includes the staircase leading down from Guilford Street, but not the staircase from the internal courtyard. It, too, confers full rights for the lessee to develop the demised part of the basement in compliance with any planning permission which might be obtained, including the right to alter or remove any structural part of the building and full rights of access to and from the remainder of the building to facilitate such development. Rights of access are reserved to the landlord for emergency purposes or for the proper performance of its obligations to other lessees in similar terms to the reservation in the airspace lease. It contains a covenant against alterations without the lessor’s consent; but that covenant does not apply to the carrying out of works in accordance with the planning permission. That lease is now owned by Mr and Mrs Emore.

On the same day, West End & District Propeties Ltd granted a second lease, again to Regal Estates Ltd, of what were referred to in the lease as "basement areas" and noted in the register of title as being "at basement level”, but which at the date of grant comprised the sub-soil beneath the whole of Queen Court (including the sub-soil underlying the external courtyard on the western side of the building, and two small gravelled areas on the eastern side) with the exception of the existing basement. Once again the term was 999 years. The sub-soil supports Queen Court. Like the other two leases, this lease also included full rights to develop the demised premises in compliance with planning permission, similar reservations of rights of access; and contains no covenant against alterations. That lease is now owned by Mrs Kaur.

The areas comprised in all three leases are within the footprint of the built structure of Queen Court, except that the sub-soil lease also underlies the two small gravelled areas on the eastern side of the block and the external courtyard on the western side which, we were told, houses the dustbins.

Section 1 (1) of the 1993 Act entitles “qualifying tenants of flats contained in premises to which this Chapter applies” to have the freehold of “those premises” acquired on their behalf. Section 1 (2) provides that the qualifying tenants are also entitled to have acquired the freehold of any property which is “not comprised in the relevant premises” but to which section 1 (3) applies. That subsection applies to any property if at the relevant date:

it is appurtenant property which is demised by the lease held by a qualifying tenant of a flat contained in the relevant premises; or

it is property which any such tenant is entitled under the terms of the lease of his flat to use in common with the occupiers of other premises (whether those premises are contained in the relevant premises or not).”

But section 1 (6) provides:

the owner of the interest requires the minerals to be excepted, and

proper provision is made for the support of the property as it is enjoyed on the relevant date.”

Section 3 of the Act provides, so far as relevant:

they consist of a self-contained building or part of a building . . .;

they contain two or more flats held by qualifying tenants; and …

In addition to the freehold the qualifying tenants are also entitled to acquire certain leasehold interests. These are described in section 2 (3) as:

any common parts of the relevant premises, …

Section 4 of the Act contains certain exclusions from the right to enfranchise. Section 4 (1) excludes premises where the internal floor area of premises which are neither residential nor common parts exceeds 25 per cent of the premises taken as a whole. Section 4 (5) excludes premises if the freehold of the premises includes track of an operational railway. For this purpose “track” includes tunnels.

Common parts are defined by section 101 (1) as follows:

The question is whether all or any of the areas demised by the three leases fall within this definition; and, if they do, whether it is reasonably necessary to acquire the leases themselves for the proper management or maintenance of those common parts.

It is, I think, convenient to begin with the freehold. It is now accepted that, in principle, the qualifying tenants were entitled to have the freehold of Queen Court. It is theoretically possible to create a flying freehold; but they are fraught with problems, and it seems unlikely that Parliament intended to do so. The basic proposition of English law is that the owner of the surface of land is also entitled, within limits that are irrelevant for present purposes, to the airspace above it, and the subterranean strata below it: Megarry & Wade: The Law of Real Property (9^th ed para 3-013); Bocardo SA v Star Energy UK Onshore Ltd [2010] UKSC 35, [2011] 1 AC 380.

Thus an ordinary conveyance of the freehold will carry with it the freehold in all the areas subject to the three leases. This will be the case even if the property conveyed is simply described as “Queen Court” (although in practice it is likely to be described by reference to its title number at HM Land Registry). In the first place, the basement areas are within the built envelope of the building. Second, the sub-soil will pass on an ordinary conveyance of Queen Court. As Stamp LJ put it in Grigsby v Melville [1974] 1 WLR 80:

That is consistent with the further general principle of English land law that once constructed, a building becomes “part and parcel of the land itself”: Elitestone Ltd v Morris [1997] 1 WLR 687.

The same general principle applies to the airspace above the built structure. In the case of a lease of a whole building, the grant of the lease will carry with it the airspace above the building: see, for example Straudley Investments Ltd v Barpress Ltd [1987] 1 EGLR 69 (Nicholls LJ); H Waites Ltd v Hambledon Court Ltd [2014] EWHC 651 (Ch). The case in relation to a freehold is even stronger: see for example Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Ltd [1987] 2 EGLR 173.

Mr Denehan submitted, however, that these common law principles did not apply to the right of enfranchisement under the 1993 Act. The qualifying tenants were entitled to have the freehold of the building. Although the building included the area comprised in the basement lease (because it was within the built envelope), it included neither the airspace nor the sub-soil. Nor did those areas fall within the categories of property referred to in section 1 (2). They were not demised by a lease held by a qualifying tenant of any flat within the building; nor were they property which such a tenant is entitled to use in common with other occupiers. The result would therefore be that the qualifying tenants were entitled to have only the filling in a sandwich, with the two outer slices being the airspace and the sub-soil respectively.

As Lord Millett explained in R (Edison First Power Ltd) v Central Valuation Officer [2003] UKHL 20, [2003] 4 All ER 209 at [116]:

In addition, as Lord Browne-Wilkinson explained in R v Secretary of State for the Home Department Ex p Pierson [1998] AC 539, 573:

In my judgment, the ordinary principles of the common law apply to the qualifying tenants’ right to have the freehold of the building. There is nothing in the Act to suggest otherwise. In addition it is, I think, also the underlying premise of Mr Denehan’s argument which takes as its unspoken starting point the proposition that the qualifying tenants are entitled to the reversion to each of the three leases in dispute. If they are not, then what right could they have to acquire the leases?

Those general principles are reinforced by section 1 (6) of the Act. If a conveyance of Queen Court (or the qualifying tenants’ right to have that freehold) did not extend to the subjacent ground, section 1 (6) would be unnecessary. Moreover, it is implicit in section 1 (6) that if the freeholder does not require the mines and minerals to be excluded, they will pass with the freehold. In addition, the exclusion of freeholds

To come to the contrary conclusion would produce a result which, although not theoretically impossible, is virtually unknown in ordinary conveyancing. It would produce a result which is undesirable and impracticable, if not actually absurd. The nominee purchaser would not be entitled to enter the airspace to repair the roof; nor would it be entitled to disturb the sub-soil for the purpose of repairing the foundations of the building. I also note that in Cadogan v Panagopoulos (see below) HHJ Marshall QC applied the test: what anyone buying the building would expect to get. That is clearly a common law test. Her test was approved by Roth J on the first appeal: see [2011] Ch 177 at [67]. I agree too.

I therefore reject Mr Denehan’s submission under this head.

It must follow that, for the purposes of the 1993 Act, the airspace and the sub-soil form part of the “premises” to the freehold of which the qualifying tenants are entitled. The primary term used in the definition of premises to which Chapter 1 applies is “building” in section 3 (1).

Neither the airspace above the built structure, nor the sub-soil beneath it, is specifically mentioned in the 1993 Act (with the exception of the reference to mines and minerals). Accordingly, if I am right so far, it is necessary to find in the definition of the “premises” something which would include them. The most promising candidate is “building.”

One meaning of “building” is “merely a built structure”; but the word is not used with any degree of precision: Malekshad v Howard de Walden Estates Ltd [2002] UKHL

In Victoria City Corporation v Bishop of Vancouver Island [1921] 2 AC 384 the question related to exemption from tax which applied to “every building set apart and in use for the public worship of God”. The Privy Council held that the land upon which a cathedral stood was entitled to the same exemption as the built fabric. As Lord Atkinson put it:

A little further on, referring to hospitals he said that:

Their Lordships concluded that, in that context, the “natural and ordinary meaning” of “building” included “the fabric of which it is composed, the ground upon which its walls stand, and the ground embraced within those walls.” Whether that is the “ordinary” meaning of the word “building” may or may not be correct; but it is plainly a possible meaning.

In Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350 (Ch), [2008] 2 P & CR 3 Warren J referred to the decision of this court in Denetower Ltd v Toop [1991] 1 WLR 945. In the latter case Sir Nicolas Browne-Wilkinson V-C held that the word “building” in Part I of the Landlord and Tenant Act 1987 included the grounds in which the built structure stood. He said:

In Dartmouth, also in the context of the Landlord and Tenant Act 1987 (“the 1987 Act”) , Warren J said at [70]:

In York House (Chelsea) Ltd v Thompson [2019] EWHC 2203 (Ch), [2020] Ch 1 Zacaroli J applied the approach in Denetower to another case under the 1987 Act. What appears to have been debated was the precise meaning to be given to the word “appurtenances”. In my judgment that debate was a distraction. The word “appurtenances” is not part of the statutory definition in the 1987 Act (although it does feature in Chapter 1 of the 1993 Act as property which the qualifying tenants are entitled to acquire). To treat Sir Nicolas Browne-Wilkinson V-C’s observations as if

In Cadogan v Panagopoulos [2010] EWHC 422 (Ch), [2011] Ch 177 Roth J referred to Darmouth at [65] and said that he could not see any difference between the 1987

I conclude, therefore, that all three areas demised by the leases in issue are parts of the building, as that word is used in section 3.

So far as the basement area is concerned, there are two aspects to consider. The first is whether the installations and the space in which they are housed fall within the expression “common facilities”. The second is, even if they do not, whether they fall within the general meaning of “common parts” which is an inclusive rather than an exclusive definition.

Mr Denehan argues that this depends on the terms of the basement lease. The boiler equipment and service installations were not within the demise. They were left in the possession of the lessor as part of the Reserved Property described in paragraph (g) of Schedule 2 (which reserves hot water service boilers and, more generally, all equipment and services not used exclusively for any one part of the Building). Full rights of access over the basement itself were reserved to the lessor by paragraph (c) of the Schedule 5 for the proper performance of the lessor's obligations including the repair and maintenance of the equipment and services. If Mr and Mrs Emore were to develop the premises comprised in the basement lease as a flat (as their lease entitles them to do) access would still be available. The area containing the boilers would be separated from the newly constructed flat; and access would be gained through a door from the internal courtyard.

In Cadogan v Panagopoulos [2010] EWHC 422 (Ch) and [2010] EWCA Civ 1259 both reported at [2011] Ch 177 Roth J and this court considered the ambit of the definition of common parts. There were two areas in contention: a caretaker’s flat and

At [54] he described his approach as “a functional basis”.

In this court Carnwath LJ said at [19]: “For example, the “facility” represented by a boiler is not just the physical structure, but also includes the service of hot water provided from it. If the lessees have the right to obtain hot water from a common boiler, then, whether or not they have access to the boiler room, it can in my view properly be regarded as a “common facility”, and therefore within the common parts.”

As Carnwath LJ said at [20] the caretaker’s flat had been identified as “a distinct part of the building with a distinct function.” This, too, is a functional test. A similar test was applied by Mann J in Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch), [2014] L & TR 28 at [284].

What matters, then, is how the parts of the property are used: not the title under which they are held. Application of those observations leads to the conclusion that the common parts in our case include not only the physical plant and machinery which provide the services, but also the spaces in which they are housed. The Deputy President said at [49]:

I agree. He went on to say at [48]:

Again, I agree. Whether the Deputy President was focussing on the general meaning of “common parts” or the meaning of “common facilities” does not matter.

Mr Denehan stressed that part of the definition of “common parts” which referred to “common facilities within” the building. Neither the airspace nor the sub-soil is within the envelope of the built structure. But, for the reasons I have given, in my judgment both are within the meaning of “building” as used in section 3. It would, in those circumstances, be natural to regard them either as part of the building itself or as part of the “exterior of the building” for the purposes of section 101 (1). Since the definition in section 101 (1) is an inclusive rather than an exclusive definition, I consider that both those areas fall within the definition of “common parts”.

Does it make any difference that the three areas in dispute are held under separate leases? In my judgment it does not. I do not accept Mr Denehan’s argument that if the basement areas were once common parts they ceased to be so on the grant of the lease. In the first place, as I have said, the test is a functional test, not a matter of title. Section 2 (3) is, to my mind, explicit on the point. One of its avowed purposes is to enable the qualifying tenants to acquire a leasehold interest which “consists of” common parts. If the grant of a lease of common parts were to remove it from the ambit of common parts, section 2 (3) would be fatally undermined. Moreover, in the Cadogan case the caretaker’s flat in issue was the subject of a separate lease, but that did not prevent it from being within the common parts. Where alterations have been carried out before the relevant date to what had been common parts, the position is different. In that event, the alterations may cause them to cease to be common parts:

Having concluded thus far that each of the areas in dispute is within the definition of

Mr Denehan submits that the answer is “no”. The question posed is not a simple question of fact. In order to answer it, it is necessary to consider what rights the freeholder already has. Each of the three leases reserves to the landlord the right to enter the demised property either for emergency purposes or for the proper performance of the lessor’s obligations to the owners or occupiers of the flats. In addition, the basement lease contains an additional right for the lessor to access the boiler room (whether in its current position or a different location) so as to connect into, repair, maintain or renew any plant or equipment. With the benefit of these rights, the freeholder can properly manage both the building and the common parts without the need to acquire the leasehold interests themselves.

In the Cadogan case Roth J considered the question whether acquisition of the caretaker’s flat was reasonably necessary. He said at [62]:

He thus held that the acquisition was reasonably necessary because it would preserve the caretaker’s flat as part of the common parts. In this court Carnwath LJ quoted that passage and said at [26] that he agreed with it. It is necessarily implicit in the statutory question that what must be asked and answered is the question whether acquisition of the leasehold interest is reasonably necessary for the proper maintenance etc of the common parts as such. The nub of the decision in Cadogan was that, in the absence of the acquisition of the caretaker’s flat, it would cease to be a common part at all, and that therefore the new freeholder would be unable to manage or maintain the flat as such. The question of rights over the flat was not, therefore, relevant.

But Roth J reached a different conclusion in relation to the lightwell. That, too, was comprised in the lease of the caretaker’s flat. There was no suggestion that any physical alteration of the lightwell was proposed. In the case of the lightwell, Roth J considered that the freeholder would require access to the floor of the lightwell (and the airspace immediately above it) for the purpose of maintenance and repair of those systems and media, as well as of the exterior walls of the structure facing towards the light-well. But he held that there were sufficient rights reserved in the lease under which it was held as to negate the necessity for acquiring the leasehold interest in the lightwell itself. The latter point did not arise for decision in this court.

Building on Cadogan, Mr Rainey QC argued that where, as here, each of the three leases envisaged that what had been common parts at the relevant date would be changed into a private residential flat, thus ceasing to be a common part at all, it was reasonably necessary to acquire those leases. Otherwise it would no longer be possible properly to manage them as common parts. In the case of common parts

That is sufficient to dispose of the appeal. But there are additional reasons for concluding that it was reasonably necessary for each of the three leases to be acquired.

As far as the basement lease is concerned, I consider that Mr Denehan’s argument founders on the finding of fact made by the FTT following their site visit. They found the current access to the basement through double doors on the Guilford Street side of the building was "designed for, and [was] essential to the maintenance of the boiler equipment". They regarded the alternative access through the communal ground floor hallway (and then down into the internal courtyard) as inappropriate for the transfer of large pieces of boiler equipment or for regular maintenance. They found that it was not reasonably possible for works of repair and replacement to the boiler to be undertaken in the area which Mr and Mrs Emore intended should remain available; nor would there be any space for the spare parts and equipment currently stored in the basement and which are reasonably required to ensure the smooth running of the boilers and the electrical apparatus. In summary the FTT found that the proposed development of the basement by Mr and Mrs Emore would significantly interfere with the reasonable maintenance and upkeep of the communal heating and electrical supply provided to the individual flats and the common parts.

Mr Denehan argued that there was no evidence to support that finding; alternatively, it was one which no reasonable tribunal could have reached. I disagree. As Megarry J said in Tito v Waddell [1975] 1 WLR 1303:

What the FTT saw on their view was plainly evidence; and it is not for this court to interfere with their findings of fact based on that view.

I do not regard the possibility of reliance on reserved rights in the basement lease as overcoming the practical problem as found by the FTT.

The UT rejected Mr Denehan’s argument concerning the sub-soil by applying the reasoning in the Cadogan case. The Deputy President said at [67]:

Thus in order to maintain the sub-soil as a common part, it was necessary to acquire the lease. In those circumstances the question of rights of support reserved by the lease did not arise.

In addition, the FTT found that the proposed development by excavation of the subsoil would necessitate the creation of lightwells to illuminate the new flat. Those lightwells would have to be created by excavating what are currently amenity areas available to the residents. For that reason also, the proposed development would remove common parts; and therefore the acquisition of the lease was reasonably necessary for the proper management of the common parts. The Deputy President considered that this was in itself a sufficient reason for the acquisition of the sub-soil lease. It is (to put it no higher) also possible, that if the lightwell is created on the eastern side of the block it will prevent access to one of the staircases leading into the area where the boilers etc are located. That would make it impractical to service the boilers and other plant at all.

I agree with both these reasons, although it is doubtful whether the sub-soil lease actually gives the lessee the right to let down the surface in order to create the lightwells.

The last area that the UT considered was the airspace. The Deputy President found that the airspace provided access to the roof of the building, which was required whenever work of repair or maintenance was to be undertaken. The "proper management" of the airspace entailed its retention as a means of access to the structure of the building to enable inspection and repair when necessary. Proper management of the airspace might also involve its use as a location for facilities serving the building (such as aerials, dishes or air conditioning plant).

He continued at [85]:

Again, I agree.

In addition, as Mr Denehan accepted, if and when new flats are built on the roof of the building, whatever new roof covering is constructed would become part of the Building as defined in the leases. It would therefore be the responsibility of the freeholder to keep in repair a roof structure over which it had no design control. That is, in my judgment, plainly a question of the maintenance of common parts, which gives rise to a legitimate concern on the part of the freeholder.

During the course of the hearing a number of potential defects in the development rights were identified. In the case of the basement lease there is no obvious right to relocate the plant and equipment in parts of the building that are not within the demise.

In the case of the sub-soil lease there is no obvious right to let down the superjacent surface so as to create the lightwells which would be needed to provide natural daylight to a newly created flat. Nor is there any obvious right to create a staircase from any other part of the building.

In the case of the airspace lease there is no obvious right to cut into the roof surface so as to anchor any new construction on the roof. Nor is there any obvious right to break into the structure of the building to create an access to the roof; or to extend the lift up to what would be an eighth floor flat; or to alter any staircase now existing within the remainder of the building.

Mr Rainey submitted, correctly in my judgment, that we should not decide this appeal on the assumption that none of the three leases in fact achieved their avowed purpose. That is an argument which, if it arises at all, is an argument for another day.

I would dismiss the appeal.

I agree.

I entirely agree with the analysis and conclusions lucidly set out by Lewison L.J. in his judgment, and therefore with his final conclusion that, for the reasons he gives, the appeal should be dismissed.

In my view, the conclusions reached by Lewison L.J. on the issues before us are consistent with the general considerations on the statutory scheme identified in Hague on Leasehold Enfranchisement (sixth edition, 2014, at paragraph 1-62), and also with the three basic points to which the Upper Tribunal (Lands Chamber) referred in Barrie House (at paragraph 51): first, that the statutory scheme is self-contained and comprehensive, and, though complex, ought to be regarded as “coherent and complete”; secondly, in the interests of both landlord and tenant, that the scheme should be interpreted and applied to provide a clear and certain outcome; and thirdly, in the words of Millett L.J., as he then was, in Cadogan v McGirk [1996] 4 All E.R. 643 (at p.648B), that “[it] is the duty of the court to construe the 1993 Act fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy”.

The last of those three points, I think, reinforces the view that the decisions of the tribunals below on the preliminary issues for determination in this case were correct.