[2024] UKUT 383 (LC)

Chapter 2, Part 1, of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) enables qualifying tenants of a self-contained building, or a self-contained part of a building, to acquire the right to manage it, through a nominee company known as an RTM company, on a no-fault basis; there is no need to prove that the landlord is not managing it properly. Section 72 of the 2002 Act says this:

“(1)

This Chapter applies to premises if—

(a)

they consist of a self-contained building or part of a building, with or without appurtenant property,

(b)

they contain two or more flats held by qualifying tenants, and

(c)

the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises.

(2)

A building is a self-contained building if it is structurally detached.”

The statute defines qualifying tenants as tenants under long leases and defines long leases. It prescribes a procedure for the acquisition of the right to manage, and there is well-known case law on what happens when that procedure is not properly followed. In the present case, the respondent’s right to acquire the right to manage is challenged on substantive, not procedural grounds, namely that this is the wrong sort of building. The first paragraph of Schedule 6 to the 2002 Act says this:

“Buildings with substantial non-residential parts

1 (1) This Chapter does not apply to premises falling within section 72(1) if the internal floor area—

(a)

of any non-residential part, or

(b)

(where there is more than one such part) of those parts (taken together),

exceeds 25 per cent. of the internal floor area of the premises (taken as a whole).

(2)

A part of premises is a non-residential part if it is neither—

(a)

occupied, or intended to be occupied, for residential purposes, nor

(b)

comprised in any common parts of the premises.

(3)

Where in the case of any such premises any part of the premises (such as, for example, a garage, parking space or storage area) is used, or intended for use, in conjunction with a particular dwelling contained in the premises (and accordingly is not comprised in any common parts of the premises), it shall be taken to be occupied, or intended to be occupied, for residential purposes.

(4)

For the purpose of determining the internal floor area of a building or of any part of a building, the floor or floors of the building or part shall be taken to extend (without interruption) throughout the whole of the interior of the building or part, except that the area of any common parts of the building or part shall be disregarded.”

The obvious purpose of those provisions is to ensure that landlords are not deprived of their right to manage the building when substantial parts of it are non-residential; so a building more than one quarter of whose floor area is in commercial use is exempt from the right to manage provisions.

Provisions with almost the same wording and to the same effectare to be found at section 4(1)-(3) of the Leasehold Reform Housing and Urban Development Act 1993, which excludes premises from the right to collective enfranchisement where the premises have substantial non-residential parts. The explanatory note to the 2002 Act refers to paragraph 1 of Schedule 6 mirroring the exclusion from the right to collective enfranchisement.

We were referred to just two cases about these provisions. Indiana Investments Ltd v Taylor [2004] 3 EGLR 63 was a decision of the county court about section 4 of the 1993 Act, while Connaught Court RTM Company Limited v Abouzaki Holdings Ltd [2008] 3 EGLR 175 was a decision of the Lands Tribunal (HHJ Reid QC). Neither is binding upon us and neither addresses the issue in the present appeal which is as follows. The building contains commercial premises on the ground floor, four flats, and two roof voids. If the internal floor area of the whole building is taken to include the roof voids, and those are regarded as non-residential areas, then the proportion of non-residential areas in the building is more than 25% and the respondent cannot acquire the right to manage. If either or both is excluded then the respondent is entitled to acquire the right to manage. The FTT found that the roof voids were not part of the internal floor area of the building and that the right to manage was acquired.