What is a "building" for the purposes of tenants' rights of first refusal under the Landlord and Tenant Act 1987?

This case has provided guidance on whether more than one structure constitutes a single "building" for the purposes of the tenants' rights of first refusal under Part 1 of the Landlord and Tenant Act 1987.

 

Introduction to the 1987 Act

The 1987 Act gives certain tenants of residential flats rights to acquire their landlord's property interest, subject to meeting certain criteria.

Where the 1987 Act applies and a landlord proposes to make a "relevant disposal" of its estate or interest, it must first serve offer notices on the qualifying tenants, referred to as section 5 notices. This gives tenants the right to purchase their landlord's interest on the same terms as the landlord's proposed disposal.

Unfortunately, the legislation is not easily interpreted and has been criticised for its ambiguous drafting, as can be demonstrated in this case.

Pursuant to section 5(3) of the 1987 Act, where the landlord proposes to dispose of more than one building in a single transaction, it must sever the transaction so as to deal with each building separately. An offer notice should only deal with a maximum of one building and one transaction.

But how does this work for an integrated development with appurtenant premises in common use? Unhelpfully, "building" is not defined in the legislation. Helpfully, guidance has been provided in this case.

 

Relevant facts of the case

The landlord in this case was Fox Stret Village Limited. It owned a residential development in Everton known as Fox Street Village. Fox Street Village comprises five blocks, lettered A to E. Fox Stret Village Limited went into administration and the administrators sought to sell all five blocks in Fox Street Village to SGL 1 Limited in 2020. Prior to the sale, the administrators served 2 separate section 5 notices on the qualifying residential tenants: one for block A, and a second covering blocks B, C and E (block D was not caught by the 1987 Act). Following the sale to SGL 1, the tenants alleged that the notices had not been validly served. In 2021, SGL 1 issued proceedings for a declaration from the court that the notices were valid. The case went from the County Court to the Court of Appeal on a number of issues. This latest case was to determine the last remaining points still at large:

• Whether Blocks A, B, C & E form one, two, or more "buildings" for the purposes of the 1987 Act; and
• In consequence of the answer to (1) above, were the notices served on the qualifying tenants by the administrators in 2020 valid?

 

The High Court decision

When determining whether more than one structure constitutes a single "building" for the 1987 Act, the judge confirmed that numerous competing factors should be considered, such as:

1. Plans of the structures
2. Underlying structural support for the structures
3. Lessees' rights to use appurtenant premises
4. Connections at any levels
5. The dates of construction of the structures
6. How the structures are managed (i.e., whether together or separately)
7. How the service charge is operated
8. Visual impressions
9. Means of access to the structures and any appurtenant premises
10. How the structures are serviced
11. The sharing of common facilities and amenities
12. The planning history of the structures, and any enforcement action taken in relation to planning requirements and conditions
13. The requirements of housing legislation, and building and other applicable regulations, and the measures considered necessary to enforce compliance with them

The judge noted that some of these factors may overlap and were not intended to be an exhaustive list of all relevant factors. All factors require weighing in the balance as a multi-factorial evaluation exercise. A particular factor or factors may exert a magnetic attraction in favour of a certain conclusion.

In this particular case, the judge concluded that four blocks A, B, C and E constituted a single "building" within the meaning and purposes of the 1987 Act and the section 5 notices that had been served were not valid notices.

In reaching his decision, the judge considered the case of Long Acre Securities Ltd v Karet [2004] EWHC 442 (Ch). The factual circumstances of Long Acre were similar to this case in that the estate being sold comprised four separate structures with common amenities.  The judge in Long Acre noted that the case raised "a difficult question of construction of an Act which has been judicially described (anyway before it was amended) as ill-drafted and confused". He considered that the 1987 Act was not intended to require integrated developments to be split into inappropriate and unwieldy parts in order to satisfy the requirements of section 5(3), and that a single notice for the integrated development was the appropriate section 5 notice. Therefore, in limited circumstances, the term 'building' could include more than one structure.

The judge in this case expressed concerns about the decision in Long Acre, but determined that it was not appropriate to revisit the correctness of the decision on this occasion and would "loyally follow it", wherever it took him.

 

Practice points

The 1987 Act is full of trips and traps for the unwary, as demonstrated in this case. Each matter will turn on its own facts and we would always recommend that parties to a proposed transaction seek advice early where there are concerns about the 1987 Act being engaged.

As is also demonstrated by this case, failure to follow the requirements of the 1987 Act correctly can lead to long and costly litigation (on this occasion, the claim ran for 4 years and visited 4 separate courts). Perhaps more importantly though, if a landlord fails to comply with the legislation, it can face criminal sanctions.