May 2020
by Kavita Bharti, Legal Adviser
Leasehold houses have figured in a large part of the government’s plans for future leasehold reform. Change is afoot, in terms of the law applying to leasehold houses generally and buying the freehold in particular. In the meantime, if you are you thinking of purchasing a leasehold house and, in due course, buying the freehold, there are a number of things to consider.
- Time of ownership
In order to purchase the freehold, by right, under the law (ie Leasehold Reform Act 1967 (the Act)), a leaseholder needs to have owned the property for two years and must be a “tenant of a leasehold house”. - It must qualify under the law as a house
Therefore, if the description of the property is a house and it qualifies under section 2 of the Act, the leaseholder will have the right to purchase the freehold using this Act.
What is a house?
The technical question of “what is a house”, for the purposes of exercising rights to buy the freehold, has been discussed and challenged many times over.
S2(1) of the Act states that a “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 so divided are not separate “houses”, though the building as a whole may be; and
(b)where a 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.”
This is backed up by the case of Jewelcraft v Pressland [2015] EWCA Civ 1111, where the Court said that, in the future, neither the external appearance nor the internal layout of a building ought to make a difference in deciding whether a building is a house, should it be the sort of building which, as a matter of policy, Parliament intended to fall within the 1967 Act. Therefore, it doesn’t necessarily matter what the outside of the building looks like, it is ultimately down to the use of the building as to whether or not it would qualify under the Act.
Loft space and foundations
There are situations where people own the lease to their house and under the definition above, they would be able to buy their freehold once the two-year qualification period has expired. The leaseholders in these situations would presume that as they have a lease over the whole house, that they would be entitled to buy the freehold. However, in these situations, it may be the case that the loft space or the foundations have been kept by the freeholder. The leaseholder’s ability to buy the freehold is then questioned.
What happens if the loft space and/or foundations are not included within the leaseholder’s demise?
Taking into account the fact that the loft space or foundations are not included within the demise, Section 2(2) of the Act states that:
“References in this Part of this Act to a house do not apply to a house which is not structurally detached and of which a material part lies above or below a part of the structure not comprised in the house.”
The million dollar question to ask in this situation is:
“if the landlord was to keep either the loft or foundations, does the leaseholder own the “whole” of the leasehold house and would these areas be classed as a “material part” of the structure and therefore stop the leaseholder from being able to purchase the freehold?”
This question would have to be considered in relation to the house alone and not the structure as whole, and not to any other part of it which is not included in the house.
A recent case asked this very question: “Can leaseholders of a house acquire the freehold despite their ownership not including the roof and foundations?”. FREEHOLD PROPERTIES 250 LTD v BEVERLEY ANN FIELD & 18 ORS (2020)[2020] EWHC 792 (Ch) concerned the lease of an end-of-terrace house where the leaseholders did not own the structure i.e. load bearing walls, roof and foundations. In order to qualify for the right to buy the freehold title under the Leasehold Reform Act 1967 they had to be “a tenant of a leasehold house” (s.1(1)). That phrase was interpreted as requiring them to be “a tenant of substantially the whole of a leasehold house”. It was found that the leaseholders were not tenants of a leasehold house. They were tenants of only part of a house and so did not qualify under the Act. The leaseholders did not meet this test as their ownership did not extend to the roof or the foundations.
This may present serious complications when it comes to buying the freehold of your house. If you do not qualify for the statutory right to purchase the freehold, then the one option available to you would be to negotiate. There are no rules with negotiation and no obligation for the landlord to sell. Other options would be to consider a lease extension under the Leasehold Reform Housing and Urban Development Act 1993 or possibly collective enfranchisement if the house is attached to others
One option around being unable to buy the freehold of your house under the Act may be to try to claim adverse possession over the area (where somebody claims legal ownership of land based on a history of possession without the owner’s permission), but again, this may not be successful.
Conclusion
It is, therefore, very important that you take care to read and understand exactly what is included within the demise of the lease and your ownership when buying your property.
If it is standard with new build leases to lease the house without the loft space and/or the foundations, then this scenario is likely to be a problem in the future.
Note: article originally written in December 2017, amended in April 2020 to incorporate the case of FREEHOLD PROPERTIES 250 LTD v BEVERLEY ANN FIELD & 18 ORS (2020)[2020]
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