Snowball Assets v Huntsmore House (Freehold) [2015]

Redevelopment after enfranchisement

Snowball was a nominee purchaser which served notice to acquire the freehold of Huntsmore House and its ‘additional premises’, being gardens, the driveway, parking spaces and a leisure complex. The freeholder’s counternotice acknowledged the and accepted that rights of enfranchisement should be granted in respect of the main building but it challenged the price payable and the right for the purchaser to also acquire the additional premises.

The freeholder wished to redevelop the additional premises and argued that the leases contained the right in its favour for it to redevelop them. The freeholder therefore sought to retain the freehold of the additional common areas and instead to merely grant the tenants rights over them.

The freeholder also argued that, if the purchaser was entitled to acquire the freehold, the price payable for the common areas should be £100,000 in recognition of the fact that the freeholder enjoyed the rights to redevelop.

The Law

The Leasehold Reform, Housing and Urban Development Act 1993 sets out the right for tenants of long leases to collectively acquire the freehold of their building and any common areas, known as ‘rights of collective enfranchisement’.

A test is contained within the statute (the ‘1993 Act test’) whereby the right to acquire the freehold of common areas is assumed to exist if, on acquisition:

• the freeholder grants permanent rights over the common areas for the benefit of the flats’ existing and future tenants; or
• the nominee purchaser acquires the freehold of any other property over which such permanent rights may be granted.

The Decision

The First-Tier Tribunal held that the nominee purchaser was entitled to acquire the freehold of the common areas. The Upper Tribunal upheld the decision, dismissing the freeholder’s appeal and addressing three points:

• Under the terms of the leases, did the freeholder have the right to withdraw rights from the tenants to use the common areas?

The Upper Tribunal held that the tenants enjoyed permanent rights to use the additional premises comprised within the common areas. The development had been constructed to include a garden and leisure complex; the leases contained no provision as to who had the right to provide such facilities, nor to state who may be entitled to withdraw it. The FTT and UT both held that any purchaser or tenant of a flat would rightly expect to have a right to access and use the gardens and leisure complex. In any event, any right that did exist to withdraw the right to use the facilities would be exercisable by the management company and not by the freeholder.

• Did the freeholder have the right to develop the common areas?

The UT held that the freeholder did not enjoy a right of redevelopment in respect of the additional premises. Moreover, it specifically did not have any rights to carry out the substantial proposed development, which included demolition of the leisure complex, construction of further residential units and development of an underground swimming pool. Under the leases, the freeholder was permitted only to add additional storeys to increase the residential unit volume or to build, alter or extend ‘in height or otherwise’.

• Was the test under the 1993 Act satisfied?

The UT held that it was not; the nominee purchaser should be entitled to acquire the freehold of the common areas as well as the main building. Although the freeholder had offered rights over the common areas, these were not sufficient to satisfy the 1993 Act test which was intended to ensure that tenants did not find themselves in any worse position than they would have been in if they had successfully acquired the additional premises.

The UT referenced Fluss v Queensbridge Terrace Residents Ltd [2011], upholding its decision that permanent rights over common areas of a development should be granted in accordance with rights enjoyed at the time by tenants, notwithstanding any potential future restrictions these may present.

The freeholder in Snowball argued that the Fluss decision was incorrect, putting forward that if tenants’ rights were precarious (rather than permanent), they could not then demand the grant of permanent rights in substitution.

The freeholder had not offered to grant rights which satisfied the 1993 Act test and it was not entitled to do so on appeal.

As the UT upheld the FTT’s decision that the freeholder did not enjoy rights to redevelop the common areas, it also agreed that the price payable by the nominee purchaser for such areas should be £10,000.

JB Leitch’s Rob Denman comments on the decision:

“Landlords need to be very careful when putting forward arguments relating to their rights to redevelop. The Snowball case demonstrates that courts will make their judgement in strict alignment with statute and, if freeholders have a genuine desire to redevelop, they must clearly reserve the rights to do so under the leases in express terms.”