England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL COUNTY COURT
HIS HONOUR JUDGE COWELL

		Royal Courts of Justice Strand London, WC2
		21st March 2006

1. LORD JUSTICE LAWS: These are two appeals against decisions of HHJ Cowell given in the Central London Civil Justice Centre. Both raise a question as to the correct construction of section 2 (1) of the Leasehold Reform Act 1967 as amended ("the Act"). The judgment in Boss Holdings Ltd was given on 16 May 2005 and permission to appeal was granted by Neuberger LJ on consideration of the papers on 8 August 2005. The judgment in Mallet & Sons (Antiques) Ltd was given on 23 November 2005 by which time permission of course had been granted in Boss and so in this case HHJ Cowell granted permission to appeal himself.
2. Each case concerns a substantial property in Mayfair, London W1. In Boss the property is at 21 Upper Grosvenor Street. In Mallet it is Bourdon House, 2 Davis Street. The respondents in both cases are the same two companies. They are part of the Grosvenor Estate. The second respondents own the freehold in both properties, but I will compendiously refer to the respondents as "Grosvenor". The question in both cases is whether the appellants are entitled to acquire the freehold of the property in question from Grosvenor. The appellants in each case have a leasehold interest. They each, or in Boss's case a predecessor lessee, gave notice of their desire to have the freehold transferred to them pursuant to the Act. Grosvenor served notices of objection in reply, disputing the appellants' right to have the freehold. The point taken by Gosvenor was that in each case the property was not a "house" within section 2(1) of the Act. There was another point taken in Mallet but that was abandoned. The lessees brought proceedings to make good their claims but HHJ Cowell upheld Grosvenor's argument and dismissed them.
3. It is convenient first to refer to the Act. Section 1(1) opens with the words:

"This Part of the Act shall have effect to confer on a tenant of a leasehold house … a right to acquire on fair terms the freehold …"

4. Numerous conditions are then set out which I will pass over. The critical provisions for our purposes is section 2(1) which provides:

"For purposes of this Part of this Act, "house" includes any building designed or adapted for living in and reasonably so called, not withstanding 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 …"

5. There is no dispute to speak of about the facts, which although they are important I may describe quite shortly. 21 Upper Grosvenor Street was built as a single house between 1732 and 1734; it was occupied as a single residence until 1942. Although the eighteenth century structure remains, a good deal of work has been done to the property over the years. In the nineteenth century the roof garrets were converted into a full storey and another storey was added. In 1908 the property was refaced with Portland stone. After 1942 it was occupied by the Free French government in exile. From 24 June 1946 it was occupied by a company which carried on a dressmaking business in the basement, ground and first floors. The second, third, and fourth floors were laid out as residential flats and used as such.
6. The current lease of the property was granted in 1948 to Mr Adolph Rothschild. The user clause, clause 2(10), provides for residential use only for the upper three floors. The commercial use of the lower floors continued until about 1990; those floors have been vacant since that time. The residential use of the upper floors continued into the 1990s but thereafter, certainly by the time the lessee's notice was served on 14 October 2003, they have been and remain unoccupied and very dilapidated. They were as at 14 October 2003 incapable of being occupied as residences. That is amply demonstrated by photographs in the appeal bundle, pages 105 to 191, which show bare stripped walls, in some cases ceilings stripped to the joists and floors taken out.
7. Bourdon House in Davis Street was built between 1720 and 1725 for William Bourdon, a Justice of the Peace and parish vestryman. It was occupied as a residence until 1957 or 1958 when the present lessees, the appellants, acquired the lease. The last resident was apparently Anne, Duchess of Westminster, the fourth wife of the Second Duke. Since 1958 the appellants have been in continuous occupation of the property where they have carried on business dealing in antique furniture and rare objets d'art. The whole of the property has been given over to this use save for a two-bedroomed caretaker's flat on the ground floor which is ancillary to the business. Over the years there have been substantial alterations and extensions to the properties. Since 1957 the appellants have erected a two-storey extension at the rear, which includes a goods lift. The kitchens in the basement have been stripped out and converted to workshops and storage space. In the result a substantial part of the property now comprises workshops and storerooms and the remainder, other than the caretaker's flat, is laid out as showrooms.
8. In this case, however, unlike Boss, the appellants assert that at the date of the notice the property was capable of being occupied for residential purposes. In each of the two cases HHJ Cowell held that the property was not "designed or adapted for living in" within the meaning of section 2 (1). In Mallet he also held that the property was a house "reasonably so called", and Grosvenor seek to challenge that conclusion by a Respondents Notice. However the dispositive question in both appeals is whether the judge was right on the application of the statutory test "designed or adapted for living in".
9. It is I understand common ground that in deciding whether a property satisfies the definition of house in section 2(1) the court must look at the facts as they were at the time the tenant's notice was served. The appellants and respondents part company on a single over-arching issue: does the test "designed or adapted for living in" import that at the time of the tenant's notice the property must have been capable of being occupied as a residence? Mr Radevsky for Grosvenor says that it must.
10. The issue in this case as to the construction of this statutory test is a novel one, because until 26 July 2002 there was a requirement of actual residence at the property as a condition of obtaining enfranchisement under the Act. However that requirement was abolished for most cases by section 138 of the Commonhold and Leasehold Reform Act 2002. Plainly then, earlier cases under the section 2(1) definition could not and did not grapple with the issue which has divided the parties to these appeals.
11. Authorities to which the judge was referred, Harris and Swick Securities Ltd [1969] 1 WLR 1604, Lake v Bennett [1970] QB 663 and Tandon v Trustees of Spurgeons Homes [1982] 1 AC 755, were all cases where the tenant was living at the premises and the question was whether the property was a house reasonably so called. They involved such questions as what the position would be if the tenant lived in only part of premises and other parts were put to a substantial different use. Thus in Tandon where their Lordships' House divided three to two in the tenants' favour, the premises were a shop with a shopkeeper's flat above.
12. The judgment in Boss, the first of the two cases decided by HHJ Cowell, is if I may say so, somewhat discursively expressed, but the essential basis of the judge's conclusion may be gleaned from these passages. He said:

"29. … It seems to me that some design or adaptation for living in must be demonstrated by the premises themselves. What precisely has to be shown is of course a matter of degree depending upon many factors such as the size of the property occupied, but ordinarily what is involved is somewhere to sleep, to cook, to wash and simply to be when not out at work or out otherwise, and depending on the size of the place that is commonly provided by a bedroom, a kitchen, a bathroom and w.c. and maybe a living room of some kind.

"31. The heart of my conclusion or conclusions is rather along these lines, that the words "designed or adapted for living in" must refer to the physical state of the building and, secondly, the words relate to the then present state of the property at the time that the notice is given; that is they must relate to the building being at that time designed or adapted for living in, and it does seem to me that the building's earlier, perhaps original or later, design, or earlier adaptation, is of very little or no consequence when dealing with this part of section 2(1), though I can fully understand that they are of some relevance, as Lord Roskill pointed out, to the question that arises out of the words "reasonably so called". They are relevant to that aspect of the section."

13. The judge proceeded to hold that the prospects of subsequent adaptation for residence do not form any part of the test. Then at paragraph 33 he said:

"The notion of the house or building affording residence, that is being designed or adapted for living in, remains, and it seems to me that it is not the policy or purpose of the Act to permit the leaseholder to enfranchise a building that does not afford residence and which might never afford it in the event, even if that event is more unlikely than not, of obtaining the necessary permissions for the office user."

Lastly at paragraph 38:

"… what matters is the presence or absence of design or adaptation affording, perhaps after repair, the attributes of a property in which an occupier may sleep, eat and live, and it seems to me that design and adaptation for living in is just the character that has to be established in order to exercise the right. It is of course an important question to look and see how the premises are laid out but as I say, physically they are not laid out necessarily or unequivocally for living in. It is true that the test is not fitness or readiness for immediate residential occupation but it seems to me that it must be clear that when fit and ready for use the premises will in some part be lived in, and that must be evident by looking at the premises."

14. In Mallet at paragraph 18 the judge repeated what he had said in Boss at paragraph 29. He then said:

"20. What seemed to me to be a compelling point is that the whole of the premises, including the part actually lived in (that is the caretaker's flat), are used for business purposes. The occupation by the caretaker himself is required for the purposes of the business and that appears from the agreements habitually made with the caretakers when they move in, which are in evidence. The next point that I find compelling is that the caretaker's occupation is not in a significant proportion of the premises. It is in roughly 5 per cent of the total room area in the building. The third point is that the use and occupation for business purposes brought about the physical changes that I have just mentioned.

"21. So it seems to me that the question that has to be asked in this case is, was the house as a whole on 7 May 2004 still as it had been in 1957 designed for living in? The answer I give to that question is 'No'. I stress the words 'as a whole'. It is of course true that a person or a couple, possibly with another person like a son or a daughter, could live in the caretaker's flat without any structural adaptation, and a person or a couple could live on the second floor as the Harveys did without any structural alterations. All that would be needed would be the removal of the many things that are there now, but I do not think that that means that the house as a whole is designed for living in. As Mr Radevsky put it, the bath – and there was only one apart from the one in the caretaker's flat – between the second and third floors cannot be considered as a bath for the whole house. It was there for the very occasional use of such, if any, of the staff who were aware of its existence and availability to them.

"22. It seems to me, overall, that the use as business premises since 1957 has resulted in a design or layout for the carrying on of a business rather than for living in. The test is which of the two designs is the more readily demonstrated, for it seems to me that the words of section 2(1) – that is 'designed or adapted for living in' – are words that have to be compared with words indicating business user."

So again the judge found in Grosvenor's favour.

15. The appellants, by Mr Johnson, submit that the judge was wrong to accept Grosvenor's argument on the critical issue. The test, says Mr Johnson, is not whether the property is at the date of the notice capable of being occupied as a residence. Mr Johnson says that the test is essentially historic but has two stages. One: was the building at some stage wholly or partially designed or adapted for living in? Two: if so, did it at the time of the tenant's notice under the Act retain the character or configuration given by that design or adaptation, in the sense that it had not been converted into something else? If that is the test, it is said that both these properties meet it. They were undoubtedly originally designed for living in, and despite the vicissitudes of the years have not lost the essential configuration and layout given by the original residential design.
16. In his skeleton argument Mr Johnson advances reasons for accepting this test. (a) He says that it accords with the language of section 2(1); (b) the context in which the section 2(1) test is set shows that there is no requirement of actual occupation: the function of the test "designed or adapted for living in" is to distinguish between buildings which have been so designed or adapted and those which have not; (c) the argument the other way, and the judge's conclusion, produce unjust anomalies. Suppose a property which on any view is fully fitted out for immediate residential use, but then suffers a disastrous fire which guts the premises. Had the premises thus ceased to be designed or adapted for living in within section 2(1)? On Mr Radevsky's approach, presumably they would. Mr Johnson advanced a number of scenarios and responses to that situation. One was that if the fire happened very close to the end of the lease the tenant might lose all opportunity to enfranchise under the Act since he might be unable to restore the house so that it fulfilled the statutory definition before his lease expired. In his submissions today, Mr Johnson has argued that the more satisfactory approach for the sake of clarity and certainty, where the building was originally designed or adapted as a residence, is simply to ask whether the resulting layout or configuration has been changed.
17. In Boss the appellant's case on the facts is that despite the obvious and gross dilapidation of the upper floors, rendering them incapable of use as residences, still they retained and now retain the essential configuration of their earlier design for residential use. In Mallet their case is rather different. It is that although the premises are being given over to commercial use, the property remains one which could be occupied for residential use effectively immediately. It is just that the rooms are being used for non-residential purposes.
18. As far as Mr Radevsky for Grosvenor submits, as in his skeleton argument he does, that the statutory test "designed or adapted for living in" necessarily means that the structure must be capable of being put to residential use at the relevant time, I part company with it. A submission of that kind commits the elementary mistake of re-writing the statute. If one concentrates on the words the legislature has used, the judge's approach and which Mr Radevsky seeks to support is in my view nearer the mark. The judge is at pains (see for example paragraph 31 in Boss) to emphasise the importance of the physical state of the premises at the time the notice is given. He was in my judgment right to do so. It seems to me the test is a simple one. The true question is whether the premises (or at least a substantial part) viewed as at the moment when the notice is given, were designed or adapted for living in. Is residence the purpose of the design or adaptation at the time of the notice? There is no two-stage process as the appellant suggests. That is simply unwarranted on the face of the Act. It is not a question whether the premises could then and there be lived in. Premises designed or adapted for a different use altogether might in various sets of circumstances with a little ingenuity be lived in perfectly readily, but they would not be a house within section 2(1).
19. I accept, as Mr Johnson for the appellants submits, that many different kinds of structures may be designed or adapted for living in, but some will not be houses because of the words of limitation, "reasonably so called". That however does not assist Mr Johnson in these cases. Here because of the grave dilapidation apparent from the photographs the upper floors of 21 Upper Grosvenor Street were not at the time of the lessee's notice designed or adapted for anything. That is effectively what the judge held in paragraph 36; but in any event it seems to me inescapably to be the case. Bourdon House on the other hand was, as I see it, manifestly adapted for commercial use. That is effectively what the judge held at paragraph 28 in Mallet, though he referred to design rather than adaptation.
20. Mr Johnson says the configuration of Bourden House, originally with grand reception rooms and servants' areas, actually suits his clients' purpose very closely. The reception rooms are the show rooms, the others storage and workshops. But that I think does not assist him. While it is possible to level some criticisms at paragraphs 20 to 22 of the judge's judgment, the critical fact in the Mallet case remains that the only reasonable view of the facts and circumstances at the time of the notice is that the premises have been adapted for commercial use.
21. I should add that counsel's example about the fire is I think unhelpful. It is not necessary to travel through all the points, some of which related to section 9(1A) of the Act. I accept that it is possible to construct an example in which by the gravest misfortune the tenant might lose the possibility of enfranchising his property, because it cannot be restored by the end of the lease. But a catastrophe of that kind cannot drive the construction of section 2(1). Nor do I think Mr Johnson is assisted by Morleys (Birmingham) Ltd v Slater [1951] 1 KB 506 to which he referred this morning. That was a case under the Rent Restriction Acts. A house was damaged by enemy action. The tenant ceased to live there. Later the landlord served notice to quit. This court held that the tenant had the protection of the statute. The Master of the Rolls said at page 510:

"In my judgment the proper test in cases of this kind was whether the house as such could be said substantially to have ceased to exist whilst here a contract whereby the premises were let to the tenant, undoubtedly on the evidence when the letting was effected, they were left to him as a dwelling house within the meaning of the Act. It was argued for the landlord that after the bomb damage when the notice to quit expired it followed because the premises were uninhabitable and now uninhabited in fact for living purposes that they were not then let as a dwelling house to the tenant. "

22. Mr Johnson's point is that this provides analogous support for his two-tier approach to section 2(1). I do not agree. The statutory regimes are wholly different and no such analogy arises. I should add that I do not think Mr Johnson's argument is carried any further by the use of the past tense "was" in the definition section. It appears in this phrase:

"Notwithstanding that the building is not structurally detached or was or is not solely designed or adapted for living in."

It is not entirely clear to me why the past and the present are used alternately in that way. However it seems to me if one considers any given building at the time of the tenant's notice, any distinction between present and past relating to the design or adaptation in question cannot possess any significance; in every case the house must at that moment already have been designed or adapted.

23. In all those circumstances and notwithstanding the interesting and careful arguments that have been advanced for the appellants it seems to me that the learned judge below was right and I would dismiss these appeals.
24. LORD JUSTICE CARNWATH: I agree. I just add one comment on the background of these provisions. They were originally introduced in 1967 and have been amended and extended since. In his skeleton argument Mr Radevsky said:

"Although the 1967 Act has been significantly amended since the original enactment, section 2(1) has not been touched and is to be construed therefore by reference to what Parliament intended in 1967."

25. In the event we did not have to explore that sentence in argument, but I would be inclined respectfully to disagree with it. It seems to me that we have to look at the Act as it now is after the amendments. Looking back on the earlier cases it is clear that the former residence condition affected the balance of the arguments. That having disappeared, attention is focused on the central part of the section 2 definitions and undoubtedly the character of the argument is affected by that. It seems to me that we must look at the Act as it now stands.
26. I would also question Mr Johnson's reliance on a passage from the dissenting speech of Lord Fraser in Tandon v Trustees of Spurgeons Homes [1982] 1 AC 755 at 762. Lord Fraser saw the expression "designed or adapted for living in" as potentially relatively wide, but then limited by the qualification that the building must be a house "reasonably so called". However that, as I understand it, is not the approach taken by the majority. Lord Roskill gave the leading speech. He did not attribute to the requirement that it should be a "house reasonably so called" such an important role. At page 776C following the Court of Appeal in Lake v Bennett [1970} QB 663, he said that the third proposition was:

"If the building is designed or adapted for living in, by which as is plain from section 1(1) of the Act from 1967 is meant designed or adapted for occupation as a residence, only exceptional circumstances, which I find hard to envisage, would justify a judge in holding that it could not reasonably be called a house."

27. It is of interest that in Lake v Bennett itself Lord Denning noted that the statutory definition that we have been considering seems to have been derived by the draughtsman from his own words in Ashbridge Investments Ltd v Minister of Housing and Local Government [1965} 1 WLR 1320, as his way of defining a "house".
28. Otherwise I agree entirely with the reasons given by my Lord.
29. LORD JUSTICE TUCKEY: I agree that for the reasons given in both judgments these two appeals should be dismissed.

Order: Appeals dismissed.