Coventry View

A litigation lawyer's perspective

Posts Tagged ‘house

Day v Hosebay – The Judgment that Goes Back to Basics

with one comment

Every so often the Supreme Court shows us why it is there. This is to get the right result when the existing law – either because of sub-standard drafting of legislation, or over-enthusiastic extrapolation of a line of cases – has got us to a place that is logically impeccable, but clearly wrong when you look at it in the real world.

The House of Lords used to do this occasionally, and the CA will do so once in a while. At a lower level any litigator will know of local Circuit or District Judges who can generally be relied on to get the right answer, whether by a combination of clever interpretation of the authorities, or, if all else fails, by an imaginative interpretation of the facts, and a generous helping of judicial discretion. But the Supreme Court has the big advantage that it cannot be appealed, and the present court seems to have taken on board the idea that a judge’s duty is to do right between the parties, and has run with it.

The latest decision in the conjoined appeals of Day v Hosebay Ltd and Howard de Walden v Lexgorge Ltd [2012] UKSC 41 (10.10.12) is a good example of this. In a single judgment (always a helpful sign) the court cut away a number of CA and HL decisions that had come very logically to the wrong answer and took us back to the position we had been expecting to be in from the outset.

The technique is their normal one: go back to the original legislation, and the problem that it was intending to solve, find an ingenious way of achieving this without entirely rewriting the statute, and distinguish or over-rule any decisions that had got in the way of the result. Something you can do if you are a Supreme Court, and which the lower courts struggle with.

The Law

These two cases were about the right of tenants to enfranchise, or get the freeholds (or longer leases) of properties let to them on long leases. This had originally been introduced by the Leasehold Reform Act 1967 and applied to tenants with long leases of houses. It was extended to tenants of flats by the Leasehold Reform etc Act 1993. Both of these had various qualifications including most relevantly a residence test. The tenant had to live in the property in question as it was a way of giving tenants a right to buy their own homes.

This test was subsequently felt to be too restrictive, excluding leaseholders with second homes, or who had sub-let the property, or rented through a company, and was relaxed by the Commonhold & Leasehold Reform Act 2002 to a requirement to have held the qualifying lease for at least 2 years, and not to be holding a business lease under Part II Landlord & Tenant Act 1954, plus a few minor exceptions for resident landlords.

The basic test remained the same: the property in question had to be a “house” and this was defined in s2(1) of the 1967 Act as:

‘house’ includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes; and-

a) where a building is divided horizontally, the flats or other units into which it is  are not separate ‘houses’, though the building as a whole may be; and

b) where the building is divided vertically the building as a whole is not a ‘house’ though any of the units into which it is divided may be.

The two tests are commonly referred to as being

  • is the building designed or adapted for living in?
  • is it a house, reasonably so called?

The important things to notice are that there is now no exclusion of companies and although a tenant can’t claim if they have a business lease they can very easily get round this by holding the business in another corporate entity and sub-letting to them. And you don’t need to occupy all of the property provided you have a lease of all of it. So if you have a house that has say been converted into a shop with flats above then, provided you have a lease of the whole, you have a good chance of getting the freehold.

Landlords and especially the large estates that hold much of central London don’t like having to give up their properties, and so if you couldn’t get the claim chucked out on the grounds that the notices were incorrect, arguing that the property wasn’t a house was really all you were left with. However, a long string of cases went very much the tenants’ way, with the courts holding that basically if the property had once been a house then it had been “designed for living in” and so provided it still looked a bit like a house, it was a house for these purposes. I won’t go through the cases here, but they include Lake v Bennett, Tandon v Spurgeons, Boss v Grosvenor and Prospect v Grosvenor.

The Facts

Hosebay itself was about 3 terraced houses in South Kensington that were divided up into single rooms and used to provide self-catering accommodation to visitors. Each room had self-catering and toilet facilities, and bedding and cleaning were provided, so it was much like a hotel without the meals. The CA had decided that the properties were clearly adapted for living in, even if they weren’t used for living in as such, and the buildings had been built as houses and still looked the same externally, so they qualified.

Lexgorge relates to an 18th century house in Marylebone now largely used as solicitors’ offices, although the upper floors were restricted by the lease to residential use. The landlords had conceded that it was designed or adapted for living in, and the CA held that the fact that the upper floors were being used as offices in breach of the lease did not mean that the property as a whole, which looked like a house, had been built as a house, and whose upper floors were substantially as constructed as a house, and which was described in the lease as ‘messuage or residential or professional premises’, could no longer reasonably be called a house. So it qualified as well.

The Decision

Lord Carnwath gave the only judgment. He went back to the beginning, looking at the origin of the legislation, and the emphasis on residence. He said that the definitions were complementary and overlapping:

The first looks to the identity or function of the building based on its physical characteristics. The second ties the definition to the primary meaning of “house” as a single residence, as opposed to say a hostel or a block of flats…Both parts need to be read in the context of a statute which is about houses as places to live in, not about houses as pieces of architecture, or features in a street scene, or names in an address book.

Well as soon as they got that far in the judgment the landlords must have known that they had won. And they had. All the authorities were distinguished or overruled and the decision was a short one based almost entirely on the current use of the premises in question:

  • In Hosebay the buildings that were being used as self-catering hotels were not “houses”, even if they were adapted for living in (and he questioned this as there is a difference between “living” and “staying” somewhere)
  • In Lexgorge a building wholly used for offices, whatever its original design or current appearance is not a “house” even if it was designed as a house, and is still described as a house for many purposes.

The Result

Back to basics. A thing is a house if it is at least primarily a building for living in as a residence. In other words, what the original draftsmen of the 1967 and 1993 acts would have expected. Landlords can give sighs of relief. Tenants have to make sure that primary use of the property is residential, and not business.

And the Supreme Court shows again that you can’t just expect it to go along the rails. As in the case of Berrisford v Mexfield last year when the SC dragged a “lease for lives” out of the back of the cupboard so as to produce the right result for a tenant who had been granted a lease without a specific term, and which the landlord was now trying to say was invalid,  they can be relied on to produce the unexpected whenever it matters. Which, in my respectful view, is the right way to do things. Long may they continue to do so.

Written by Coventry Man

11/10/2012 at 17:53

Day v Hosebay – Warning of Supreme Court Judgment

leave a comment »

Just a brief note to say that the Supreme Court Judgments in the cases of Day v Hosebay and Howard De Walden v Lexgorge will be given by the Supreme Court tomorrow 10th October at 9.45.

This is the long-awaited decision on the meaning of a “house” in s2(1) of the Leasehold Reform Act 1967 and matters because if you have a long lease of a “house” you can normally acquire the freehold on advantageous terms, whereas if it isn’t a “house” then you can’t.
More anon.

Written by Coventry Man

09/10/2012 at 11:25

Posted in Housing

Tagged with , , ,

What is a House ? – Update

leave a comment »

I recently (16.5.12) mentioned the cases of Day v Hosebay and Howard de Walden v Lexgorge  where the Court of Appeal battled over the meaning of “house” in the Leasehold Reform Act 1967.

This is defined by s2(1) as including

any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes…

It matters because most tenants who have a long lease of a “house” can buy the freehold on advantageous terms.

Well the cases are now in the Supreme Court, with oral hearings 16-18 July and if you are very quick you can watch the SC in action via their website. The result is not likely to be out for some time, given the time of year, but perhaps they will at last decide this issue once and for all.

It would seem that Magnohard v Cadogan (also mentioned in my piece) didn’t take up the suggestion of an expedited appeal. Perhaps they are just waiting with the rest of us.

Written by Coventry Man

17/07/2012 at 22:04

What is a House?

leave a comment »

The Leasehold Reform Act 1967 allowed tenants with qualifying leases  (ie originally granted for at least 21 years) to enfranchise – usually by acquiring the freehold, on advantageous terms.  But they can only do this if the property is a “house”.

This is defined by s2(1) as including

any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes…

Now originally there were extensive residence and other qualifications but most of these have been removed and most tenants who have owned the lease for at least 2 years will qualify, including companies. The main remaining exclusion is for tenants with business leases under Part II Landlord & Tenant Act 1954 who do not reside on the premises.

Tenants discovered that if you have a house that is  – say – converted into a shop with flats over it, and provided it has been leased as a whole, with sub-leases for the components, then the head lessee can enfranchise. Landlords like to keep their properties and have been fighting this tooth and nail, especially in central London where the property values make the cost of going all the way legally seem worthwhile. And if you couldn’t turf the claim out on some technicality about the form of the notice required then arguing that the place isn’t a house seemed the best way to do so.

But the landlords haven’t been doing very well. The courts over the years have held that all sorts of things that you wouldn’t expect are in fact houses, or at any rate, can “reasonably be called houses. ”  In July 2012 the Supreme Court will be deciding if:

  • 3 terraced houses converted into self-catering accommodation for visitors; and
  • an 18th century Mayfair house, now used almost entirely for offices, as required by the terms of the lease

can be called houses as the CA held – Day v Hosebay , and Howard de Walden v Lexgeorge [2010]EWCA Civ 748.

The problem is a conflict between two earlier cases. In Boss Holdings v Grosvenor [2008]1WLR289 the HL held that once a building has been constructed as a house and retained its external appearance then the fact that you couldn’t live there didn’t prevent it being a house. But in Prospect Holdings v Grosvenor [2009] 1WLR1313 the CA decided that a house that had been let on terms allowing residential use only for 11% and with the rest being commercial you could not reasonably call the thing a house any more.

There is now another case that might join them – Magnohard v Cadogan Estates [2012]EWCA Civ 594. Here a building in Holbein Place, in central London , was built in 1888 as 6 flats with shops under them. It is now much the same, although there are now 8 flats. The County Court Judge said that the thing was a block of flats and couldn’t be called a house , and the CA agreed. But they suggested that the losing tenants might like to ask the SC for permission to be joined in the Hosebay appeal.

So we should have an authoritative decision soon. On the meaning of what Lewison LJ called “one of the 200 most frequently used words in the English language and one of the 20 most frequently used nouns” – the word “house”.

Written by Coventry Man

16/05/2012 at 00:46

Landlords and Bankruptcy – the Clash of the Titans

leave a comment »

Sharples v PPHL and Godfrey v A2 Dominion Homes [2011]EWCA Civ 813

An assured tenant gets in arrears of rent and then goes bankrupt, or has a Debt Relief Order made. Can the landlord get a possession order despite the fact that the Insolvency Act 1986 prohibits most actions against debtors?

This has been disputed for many years, with no authoritative decisions by the courts. On one side the tenants say that the landlord must take his place with the other creditors and prove for his debt. All he can insist on is that rent accruing after the bankruptcy is paid. The landlords say that taking possession is merely enforcing their security for the rent, and there has long been an exemption for the enforcing of security – eg by a mortgagee.

Both sides put forward the social arguments as well. The tenants say that losing ones house is socially undesirable and as assured tenancies do not generally pass to a Trustee in Bankruptcy parliament intended them to be protected. Landlords say that if there is no way to recover rent then social landlords will be at the mercy of tenants who run up arrears and then go bankrupt, and they will be unable to afford to provide the housing at all.

The Court of Appeal has now decided the matter decisively in favour of the landlords in this case, holding that they could recover possession under mandatory ground 8 of the Housing Act 1988 (8 weeks arrears of rent) despite the tenant going bankrupt. And they could also get a suspended possession order under ground 10 (discretionary rent arrears) against a tenant who had obtained a Debt Relief Order.

Key points are:
• No money judgement for the arrears can be given – the landlord has to take his chances with the other creditors for this.
• An SPO cannot be conditional on payment of pre-bankruptcy arrears. It can cover on-going rent and the landlord’s costs.
• If no money claim is made then leave of the court (under s 285(3)9b) IA 1986 is not needed before issuing proceedings.
• Landlords’ claims should not be stayed under the discretionary powers.

The practical result is:
• Shared ownership cases are simple: the mortgagees can be made to pay up any arrears or lose their security, without the landlord having to make an expensive application to the bankruptcy court for permission to sue.
• Ordinary assured tenancies change little from a practical point of view. Bankrupt tenants have rarely if ever been able to clear any arrears. Now they can’t be made to, but the landlord can still recover the property if they go under ground 8, or if the tenant fails to pay the on-going rent, or the Judge makes an outright discretionary order.

The secret is to keep proper control over the level of arrears and start legal action early, while the tenants can still afford to pay them. Easier said than done sometimes, but the only real answer.

Written by Coventry Man

22/07/2011 at 00:25

Posted in Housing, Insolvency

Tagged with , , ,