Collective Enfranchisement: Whether nominee purchaser was entitled to acquire leases of some common parts (LM Homes Ltd & Others v Queen Court Freehold Company Ltd – 2020]

In serving notice of its intention to acquire the freehold interests at a property, was a nominee purchaser also entitled to acquire the rights to the property’s boiler room, air space and sub soil?

The background

In LM Homes Ltd & Others v Queen Court Freehold Company Ltd [2020], an initial notice was served by a nominee purchaser to acquire the freehold interest at a block containing 45 flats, each let to individual leaseholders. The purchaser company, comprising qualifying leaseholders at the block, also wished to acquire the leases of air space, sub soil and a boiler room.

The First-tier Tribunal and Upper Tribunal both determined that the purchaser was entitled to acquire ‘any lease of common parts of the relevant premises’ where the acquisition of those common parts was ‘reasonably necessary for the proper management of, or maintenance of, those common parts’. ‘Common parts’ included the structure and exterior of the building and any common facilities contained within it, and included the service installations where equipment was for shared use and benefit. The sub soil comprised part of ‘the exterior’ of the building, and access to the air space was required in order that the structure of the building could be properly inspected, maintained and repaired.

The decision

The Court of Appeal upheld the Upper Tribunal’s decision, finding that the air space, sub soil and boiler room were common parts and should be acquired, managed and maintained by the purchaser as well as the freehold title.

The boiler room was found to comprise a ‘common part’, even if its contents including the boiler did not fall within the demise. Air space and sub soil both formed parts of the building and were capable of acquisition by collective enfranchisement. The Court assessed whether it was ‘reasonably necessary’ for the purchaser to acquire these leases in order to manage and maintain the common parts, and in particular the Court found that a purchaser may acquire common parts where development rights in favour of a landlord may mean that those areas were no longer common parts following development.

Advice and action

Many landlords attempt to retain the development value of properties by granting leases of air space. The decision in LM Homes may negatively impact those landlords by allowing purchasers under collective enfranchisement to acquire leases of common parts which will prevent future development, restricting their plans and having a potentially significant impact on value.

Landlords are advised to be cautious when considering future development, particularly of air space, and to factor potential enfranchisement impact into values and their future plans for properties.