41-60 Albert Palace Mansions (Freehold) Ltd v Craftrule Ltd

Collective enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Respondent applying to acquire freehold of part of building containing 20 flats – That part divisible into two sets of 10 flats – Whether property constituting “self-contained part of a building” — Whether that term denoting part incapable of further subdivision into smaller self-contained parts – Appeal dismissedThe respondent was the nominee purchaser for the purposes of an application by 10 tenants, under the Leasehold Reform, Housing and Urban Development Act 1993, to acquire, by collective enfranchisement, the freehold of the property in which their flats were located. Their flats formed part of a five-storey, terraced mansion building in London SW11. The tenants’ initial notice, served on the appellant freeholder under section 13, specified the property to be enfranchised as the part of the building containing flats 41-60. This consisted of a vertically divided section of the building, which was itself divided into a left-hand and right-hand half, each containing 10 flats, with separate entrances and common parts.The appellant did not serve a counternotice but it disputed the right to enfranchise on the ground that the property did not qualify as a “self-contained part of a building” for the purposes of sections 3 and 4 of the Act. It contended that: (i) each of the two halves of the property would qualify as a self-contained part; and (ii) the statutory right to collective enfranchisement was exercisable only in respect of a self-contained part of a building that could not be further subdivided into smaller self-contained parts.In the county court, the respondent obtained a declaration that the participating tenants were entitled to enfranchise the entire property specified in the initial notice and an order, under section 25(1), that in the absence of a counternotice the respondent was entitled to acquire the freehold interest in that property on the terms proposed in the initial notice. The appellant’s appeal to the High Court was rejected: [2010] EWHC 1230 (Ch); [2010] 31 EG 64.Permission was granted for a second appeal on the ground that the case raised an important point of principle as to the meaning of “a self-contained part of a building” in sections 3 and 4 of the 1993 Act. Held: The appeal was dismissed.On the natural meaning of the words, the expression “self-contained part of a building” included a self-contained part that was itself capable of being divided into smaller self-contained units. The words were neither ambiguous nor obscure and such a meaning did not lead to absurdity. Section 13(8), (9) and (10) of the 1993 Act appeared to envisage that a notice that specified a self-contained part of an entire building (X) might later be replaced by a notice that specified a different self-contained part (Y) where Y was only a part of X. In that event, Y necessarily constituted a smaller part of the building than X. Therefore, if notices in respect of both X and Y were valid, it followed that a self-contained part of a building (for the purposes of section 3) could not be limited to the smallest possible self-contained part. Although, under section 13(8), tenants could choose whether they enfranchised only the flats or also included associated premises such as garages and walkways, it also enabled them to elect whether to specify a larger or smaller self-contained part of a building, provided that they would be entitled to seek enfranchisement of either. The smaller part had to be self-contained if it was to support a claim, but the provisions plainly envisaged that the claim could be made in respect of a larger self-contained part of the building, provided that sufficient qualifying tenants agreed to participate. Section 4(3A) was introduced into the 1993 Act by amendment in 1996, prior to which section 3(1)(a) contained an additional requirement that the freehold of the entire building or a self-contained part should be owned by the same person. The section 4(3A) exclusion clause implied that a self-contained part of a building might contain two or more self-contained units. It was permissible to have regard to that amendment, once the additional requirement was removed from section 3, in order to make clear that enfranchisement was available only in respect of a self-contained part of a building the freehold of which was in single ownership. Sections 4(3A) and 13(8), (9) and (10) taken together were conclusive of the true construction of the expression “self-contained part of a building” within section 3(1). There was no justification for putting a gloss on the clear statutory words so as to require that a self-contained part must be the smallest possible self-contained part: Oakwood Court (Holland Park) Ltd v Daejan Properties Ltd [2007] 1 EGLR 121 and Holding Management (Solitaire) Ltd v Finland Street 1-16 RTM Co Ltd [2008] 1 EGLR 107; [2008] 02 EG 152 distinguished; Majorstake Ltd v Curtis [2008] UKHL 10; [2008] 1 EGLR 44; [2008] 14 EG 102 considered.Kenneth Munro (instructed by Olswang LLP) appeared for the appellant; Philip Rainey QC (instructed by Butcher Burns LLP) appeared for the respondent.Eileen O’Grady, barrister