Landlords will welcome the recent decision of the Supreme Court restricting the rights of tenants of long leases to acquire the freehold interest in their property under the Leasehold Reform Act 1967. Jonathan Crook from our Commercial Property Team looks at this in more detail.

The tenants of some long leases of houses have the right to acquire the freehold interest from the landlord (or to be granted a lease extension).  This right is technically called enfranchisement.

The type of properties that benefit from this valuable right has been the subject of a number of cases over the years.  The test is whether the property is a "house", which in turn includes "any building designed or adapted for living in and reasonably so called".

The Supreme Court has just issued an important decision in two cases (Day vs Hosebay and Howard de Walden Estates v Lexgorge) where the question arose as to whether buildings in London that were originally constructed as houses many years ago, but were then changed to commercial use, could benefit from these rights.  In one of the cases the property was being used as temporary accommodation for visitors to London (a type of self-catering hostel) and in the other case as offices.

The Court felt that the first part of the test, as to whether a building was "designed or adapted for living in", involved considering the current physical character of the building (whether derived from its original design or subsequent adaptation) to decide whether the building could be called a house.  However, no decision had to be reached on this point.

Turning to the second test, the Court held that a property used entirely for commercial purposes could not reasonably be called a house (even though it might look like a house from the outside).  Accordingly, neither tenant was able to acquire the freehold interest in its property.

The key point for landlords to consider is the current use of the relevant property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.