Judgments - Malekshad (Respondent) v. Howard De Walden Estates Limited (Appellants)

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    70. This brings one to the question: what is meant by "to a material degree"? I think that in the context of section 2 as a whole, and having regard in particular to the presence of subsection (5), the word "material" must mean "substantial" rather than "relevant". There is no reason to ascribe to Parliament an intention to take the house out of the operation of the Act altogether if any prejudice to other parts of the structure can be dealt with under section 2(5). It follows that I cannot accept Nourse LJ's approach in Duke of Westminster v Birrane. I would construe section 2(5) as referring to the case where part of the house lies above or below the rest of the structure to a substantial extent.

    71. This is a question of fact and degree and is primarily a matter for the trial judge. But in approaching the question he should bear in mind (i) that "substantial" does not mean "other than trivial" and (ii) that evidence that the relevant part of the house is structurally significant in that it provides a substantial degree of support to or receives a substantial degree of support from the rest of the structure is relevant but not decisive, since this problem falls to be dealt with under subsection (5). With due respect to Stephenson LJ, I do not think that the relevant part of the house must be so extensive that the house can be regarded as a flat. Section 2(2) is not needed to deal with such a case; it is excluded by section 2(1)(a). As Lord Wilberforce recognised, section 2(2) deals with the intermediate case where the building is divided vertically but in such a way that there is a substantial degree of overlay.

    72. In the present case the part of No. 76 Harley Street which lies below No. 27 Weymouth Mews is not extensive. Excluding it from the operation of the Act while allowing Mr. Malekshad to enfranchise the rest of No. 76 Harley Street would not affect the character of his house. On the other hand it is structurally significant since it cannot be severed from the rest of the structure without giving rise to problems of support. The case is pre-eminently suited to the application of section 2(5).

    73. Loyally applying Duke of Westminster v Birrane, as he was bound to do, the trial judge thought that the last-mentioned feature meant that the relevant part of the house was material. In my opinion this was an error of principle which entitles us to examine the question for ourselves. Like the majority of your Lordships I would place the case on the other side of the line. I do not consider that the part of No 76 Harley Street which lies under No. 27 Weymouth Mews does so to any substantial extent. It follows that section 2(2) does not have the effect of taking No.76 Harley Street out of the operation of the Act altogether. On the other hand the evidence showed that that part of No. 76 Harley Street provides a significant degree of support to the rear of No. 27 Weymouth Mews; so that the freeholder may well have a case for excluding that part from the operation of the Act.

Conclusion

    74. For these reasons, which are substantially the same as those of my noble and learned friend Lord Nicholls of Birkenhead, I too would allow the freeholder's appeal in relation to the two properties; set aside the declaration of the Court of Appeal that Mr. Malekshad is entitled to enfranchise both properties; and substitute a declaration that he is entitled to enfranchise No. 76 Harley Street alone. I agree that the case should be remitted to the County Court to decide, in the light of any counter-notice which the freeholder may serve, whether the part of No. 76 Harley Street which lies under No. 27 Weymouth Mews should be included in or excluded from the property to be enfranchised.

LORD SCOTT OF FOSCOTE

My Lords,

The Issue

    75. On 2 April 1997 Mr Nasser Malekshad, the leaseholder of 76 Harley Street and 27 Weymouth Mews, London W1, served on the freeholder, Howard de Walden Estates Limited, a notice under Part 1 of the Leasehold Reform Act 1967 of his desire to acquire the freehold of the demised premises. He served another similar notice on 4 April 1997. Nothing turns on the differences between the two notices or on the reasons why the second notice was served.

    76. Mr Malekshad is the respondent on this appeal. Howard de Walden Estates Limited, the freeholder, is the appellant. The issues between them relate to the extent of the premises, if any, that Mr Malekshad is entitled to enfranchise under the provisions of the 1967 Act.

    77. He claims to be entitled to enfranchise the whole of the premises comprised in his lease, that is to say, both 76 Harley Street and 27 Weymouth Mews. Alternatively, he claims to be entitled to enfranchise 76 Harley Street alone. The appellant, on the other hand, contends that 76 Harley Street and 27 Weymouth Mews, taken together, do not constitute a "house" as defined in section 2 of the 1967 Act. They accept that 76 Harley Street, taken alone, would ordinarily be a "house" but it is excluded from enfranchisement, they contend, by subsection (2) because it is not structurally detached from 27 Weymouth Mews and "a material part lies above or below a part of the structure not comprised in the house". So the issues are first, whether Mr Malekshad is entitled to enfranchise the whole of the premises demised by his lease and, second, if he is not, whether 76 Harley Street is barred from enfranchisement by section 2(2) of the 1967 Act.

The buildings

    78. At some time in the 18th century a block of land fronting on to Harley Street was developed by the erection of a terrace of several dwelling houses. Each dwelling house was built on a plot some 131 feet deep bordered on the west by Harley Street and on the east by what is now Weymouth Mews. At the Mews end of each plot a building, consisting of a coach house and stables with residential accommodation above, was erected. This Mews building was intended to be enjoyed in conjunction with the main dwelling house on whose plot it stood. It would accommodate the owner's horses and at least some of his servants. 76 Harley Street is one of the dwelling houses in the terrace. It is flanked to the north and to the south by other dwelling houses in the terrace. It has a basement, a ground floor and four upper floors. The basement underlies Harley Street by a few feet and then extends all the way to Weymouth Mews. The Mews building, now 27 Weymouth Mews, was built in part above the eastern end of the basement. But, as originally built with a ground floor and an upper floor, there was no access from the Mews building to the basement. The only access to the basement was from 76 Harley Street.

    79. Over the years both 76 Harley Street and the Mews building were further developed. 76 Harley Street now consists of a flat and storage rooms in the basement, a ground and first floor maisonette, and a flat on each of the second, third and fourth floors. 27 Weymouth Mews is a separate residential unit consisting of two basement storage rooms, two garages at ground floor level and first floor accommodation. It will be apparent from these details that part of the original basement of 76 Harley Street has been incorporated into 27 Weymouth Mews. This building alteration was carried out in 1960. The two storage rooms that are now part of 27 Weymouth Mews were blocked off from the rest of the basement by bricking up the existing doorways. An access to them from the ground floor of 27 Weymouth Mews was constructed. There had originally been access to 76 Harley Street from the Mews building via a connecting door at ground floor level leading to an open yard at the back of 76 Harley Street. But at some time between 1935, when the Mews building was converted into a self-contained residential unit, and 1949, when conversion works to 76 Harley Street were carried out, the connecting door was bricked-up. There was then no means of access between 76 Harley Street and what had become 27 Weymouth Mews.

    80. At some stage, probably in the middle of the 19th century, the south side of the ground floor of 76 Harley Street was extended along the southern boundary to meet the western flank wall of the Mews building. The extension reduced the area of the yard at the back of 76 Harley Street.

    81. By a lease of 25 February 1949, under which the respondent is now the leaseholder, 76 Harley Street and 27 Weymouth Mews were demised for a term expiring on 6 April 1997 at a rent of £300 a year. The lessee was given power "to convert the buildings … into high class residential flats or maisonettes . . .". The demised property was described as:

    ". . . the messuage or dwelling house garage building and all other erections thereupon built . . . and being on the east side of and numbered 76 in Harley Street and on the west side of and numbered 27 in Weymouth Mews . . ."

It is apparent from this description, as well as from the plan attached to the lease, that in 1949 the occupation of 27 Weymouth Mews as a dwelling separate from 76 Harley Street had not yet commenced. The only significant development that had already taken place was that the coach house and stables had become garages and the southern ground floor extension of 76 Harley Street had been built. The conversion of 76 Harley Street into a maisonette and flats and of 27 Weymouth Mews into a separate, self-contained residential unit took place after the grant of the 1949 lease.

    82. On 3 March 1960 the then leaseholder under the 1949 lease granted an underlease of 27 Weymouth Mews, including the two basement storage rooms, to a Dr McKenzie for a term expiring on 1 April 1997. Dr McKenzie was at the time the occupant of the ground and first floor maisonette in 76 Harley Street, where he had his consulting rooms. The 27 Weymouth Mews underlease gave him a personal permission to construct a doorway at ground floor level in the boundary wall of the Mews building in order to obtain access from 76 Harley Street to the 27 Weymouth Mews garages. Dr McKenzie covenanted, in the underlease, that on giving up his occupation of the 76 Harley Street maisonette he would close the doorway and restore the boundary wall to its previous condition.

    83. Dr McKenzie gave up occupation of the Harley Street maisonette in about 1970 but he did not close the doorway or reinstate the boundary wall. In November 1974 a Dr Gomez acquired the underlease of 27 Weymouth Mews and remained in occupation until shortly before the underlease expired. Her evidence at trial was that during her occupation of 27 Weymouth Mews the doorway that Dr McKenzie had constructed remained locked and was never opened. On the Mews side, she said, the door had no door handle.

    84. Mr Malekshad, as well as being the leaseholder under the 1949 lease, claims to have occupied the third floor flat in 76 Harley Street as his residence from November 1987 up to, and including, the dates on which his 1967 Act notices were served. He did not, during that period, occupy any other part of the 76 Harley Street or any part of 27 Weymouth Mews.

The 1967 Act

    85. Section 1 of the 1967 Act gives "a tenant of a leasehold house, occupying the house as his residence, a right to acquire on fair terms the freehold or an extended lease of the house and premises" provided certain qualifying conditions set out in the section are met. Section 1(2) provides that "references to a person occupying a house shall apply where he occupies it in part only." So the fact that Mr Malekshad's qualifying occupation relates only to the third floor flat in Harley Street does not disqualify him from claiming to acquire the freehold in the whole "house".

    86. Section 2 of the 1967 Act defines "house":

    "2(1) For purposes of this Part of this Act, 'house' includes any building designed or adapted for living in and reasonably so called, notwithstanding 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; and—

      "(a) where a building is divided horizontally, the flats or other units into which it is so divided are not separate 'houses', though the building as a whole may be; and

      (b) where a building is divided vertically the building as a whole is not a 'house' though any of the units into which it is divided may be.

    (2)  References in this Part of this Act to a house do not apply to a house which is not structurally detached and of which a material part lies above or below a part of the structure not comprised in the house.

    (3)  Subject to the following provisions of this section, where in relation to a house let to and occupied by a tenant reference is made in this Part of this Act to the house and premises, the reference to premises is to be taken as referring to any garage, outhouse, garden, yard and appurtenances which at the relevant time are let to him with the house and are occupied with and used for the purposes of the house or any part of it by him or by another occupant."

It is convenient to set out also subsection (5):

    "(5)  In relation to the exercise by a tenant of any right conferred by this Part of this Act there shall be treated as not included in the house and premises any part of them which lies above or below other premises (not consisting only of underlying mines or minerals), if —

(a)

      the landlord at the relevant time has an interest in the other premises and, not later than two months after the relevant time, gives to the tenant written notice objecting to the further severance from them of that part of the house and premises; and

(b)

      either the tenant agrees to the exclusion of that part of the house and premises or the court is satisfied that any hardship or inconvenience likely to result to the tenant from the exclusion, when account is taken of anything that can be done to mitigate its effects and of any undertaking of the landlord to take steps to mitigate them, is outweighed by the difficulties involved in the further severance from the other premises and any hardship or inconvenience likely to result from that severance to persons interested in those premises."

Before seeking to apply these statutory provisions to the facts of this case, it is convenient to make some observations about their meaning and effect. First, the definition in subsection (1), before one comes to the paragraph (a) and paragraph (b) qualifications, is expressed as an inclusive definition— ". . . includes any building . . ." etc. It is not expressed to be a comprehensive one. But I think it should be treated as comprehensive. If a building is not designed or adapted for living in or if it cannot reasonably be called a "house", the building cannot, in my opinion, be a "house" for 1967 Act purposes. Nor can a dwelling which is not a building at all be a "house", for example, a caravan (c/f Ex parte Allen [1985] EGLR 153) or a houseboat (c/f Chelsea Yacht and Boat Co Ltd v Pope [2000] 22 EG 147).

    87. Second, the requirement that the building be reasonably called a house serves to exclude buildings such as purpose-built hotels or blocks of flats, none of which could reasonably be called a house. By contrast, a building which was originally designed as a house but was subsequently divided into self-contained units could often, perhaps usually, continue to be reasonably called a "house". This possibility is expressly left open by paragraph (a). Where a building designed for residential accommodation is divided horizontally into several units, none of the units can be a "house" for 1967 Act purposes, but the building as a whole may be. Paragraph (b) is the converse. Where a building designed or adapted for living in is divided into vertical units, the building as a whole cannot be a "house" although the individual units may be. As my noble and learned friend Lord Hope of Craighead pointed out in the course of the hearing, the whole Harley Street terrace block, of which 76 forms part, may be described as a building designed for living in. But although each of the vertically divided units may be a house, a combination of them cannot be.

    88. The provisions of section 2(1) to which I have been referring do not satisfactorily cater for the case where the division of the building is a mix of the horizontal and the vertical. This must often happen when large houses are sub-divided into separate residential units. The division may have been made broadly on vertical lines but with some degree of horizontal division or it may have been made broadly on horizontal lines but with some degree of vertical division. In relation to such a building, how is section 2 to be applied? The section seeks to give the answer in subsection (2). Where the "house", the unit sought to be enfranchised, is not structurally detached, as it would not be in any case of vertical or horizontal division of a building, and where a "material part" of the house lies above or below some part of the structure of the building not comprised in the house, the enfranchisement rights conferred by the Act are not available. The house is not a "house" for the purposes of the Act. Subsection (2) raises an issue, fundamental in the present case, as to what criteria should be applied in order to decide whether the overhanging or underlying part of the house is a "material part", I must return to this.

    89. If it is concluded that the overhanging or underlying part of the house is not a "material part" of the house and if the premises underneath the overhanging part, or above the underlying part, belong to the landlord of the house, then subsection (5) comes into play. The subsection allows the landlord to serve a counter notice on the tenant objecting to the severance that the enfranchisement would bring about. Then, unless the tenant agrees to the exclusion of the overhanging part, or the underlying part, from the premises to be enfranchised the court must decide whether the part should be excluded. And it will decide that question by comparing any hardship or inconvenience that would be caused to the tenant by the exclusion with the hardship or inconvenience that would be caused to the landlord by the severance.

    90. There is a certain amount of authority as to the correct approach to subsections (1) and (2). In Tandon v Trustees of Spurgeons Homes [1982] AC 755 the issue was whether the premises of which enfranchisement was sought could reasonably be called a house. The premises consisted of living accommodation on the first floor of the building and a shop on the ground floor. The character of the premises was, therefore, a mix of residential and shop. Lord Roskill, with whose speech Lord Scarman and Lord Bridge of Harwich expressed agreement, accepted as correct three propositions that had been advanced by counsel, namely:

    "First, the question whether the particular premises were a 'house' within the definition was a mixed question of fact and law . . . Secondly, if the premises might also be called something other than a 'house' within the definition, that fact alone did not prevent those premises from being a 'house . . . reasonably so called.' Thirdly, it was implicit from such previous decisions as there have been upon this question that premises used for non-residential as well as for residential purposes could in law be a 'house' within the definition and that it depended upon the character of the premises in question whether by reason of their mixed user they fell within or without the definition." (p. 765)

Although Lord Wilberforce and Lord Fraser of Tullybelton delivered dissenting speeches they, as well as the majority, approved the Court of Appeal decision in Lake v Bennett [1970] 1 QB 663 which had established that provided a building of mixed use could reasonably be called a "house", it fell within the section 2 definition even though it might also reasonably be called something else eg. a shop. (see pp. 760, 761 and 767).

    91. As to subsection (2) there are two authorities to which I should refer. In Parsons v Trustees of Henry Smith's Charity [1973] 1 WLR 845 (in the Court of Appeal) and [1974] 1 WLR 435 (in your Lordships' House) the litigation arose out of the conversion of a building into two dwelling houses. A claim to enfranchise under the 1967 Act was made in respect of one of the dwelling houses. But two rooms and a bathroom overhung the garage of the other dwelling house. In the Court of Appeal attention was given to whether the overhanging part was a "material part" of the house of which enfranchisement was sought. Lord Denning MR said that it was. He said that a "material part" meant any "important part" (p. 849H). Stephenson LJ adopted a slightly more complex approach. He said:

    "Assuming that 'material' does not simply point the contrast with 'trivial' or 'insignificant', I think that it must mean material to the tenant or to his enjoyment of the house, and that if it is material in that sense it will be of such significance as to alter the house into a flat, and so take it outside the Act. Whether it was material in that sense is a question of fact and degree . . ." (p. 854 D-E)"

Stephenson LJ also remarked on what he took to be some degree of conflict between section 2(2) and section 2(5). Under section 2(2) an overhanging or underlying part of the "house" would, if it were a material part, exclude the whole house from enfranchisement. But the material part in question would, he said, be excluded from the rest of the house by section 2(5), thus allowing the rest of the house to be enfranchised. But Stephenson LJ had no difficulty in agreeing with Lord Denning that, on the facts, the overhanging part of the house in question was a material part. So the case fell within section 2(2) and enfranchisement was precluded.

    92. The tenant's appeal to this House was dismissed. The only substantive speech was that of Lord Wilberforce. His speech contains a valuable discussion of the function of section 2(2). After referring to subsection (1), to the exclusion from enfranchisement of units arising by horizontal division of a building and to the different treatment given to units arising by vertical division, Lord Wilberforce continued:

    "Then it was necessary to make provision for mixed cases, where units were separated by a broken vertical line, or as it might be expressed, partly vertically and partly horizontally. This I take to be the purpose of subsection (2) and it uses as the discrimen the lying of a material part above or below a part of the structure to which the house is attached. It was necessary to confine the exemption to cases of structural attachment, in order not to include within it cases of mere projection, over or under another structure, without attachment.

    Undoubtedly some difficulty exists in reconciling subsection (2), so interpreted, with subsection (5) of section 2. That provides for the exclusion from the 'house and premises' of any part of them which lies above or below other premises if the landlord gives notice of objection and either the tenant agrees to the exclusion of that part, or the court is satisfied that any hardship or inconvenience to the tenant is outweighed by the difficulties involved in severance. But it seems that subsection (5) is dealing with a different case from that covered by subsection (2): it omits any reference to 'not structurally detached' or to 'material part' and it adds a reference to 'premises' (see subsection (3)). So I understand the result to be that if a case falls within subsection (2) the whole 'house' is excluded from the operation of Part I of the Act. If, on the other hand, the different requirements of subsection (5) are satisfied, the part only may be excluded. I do not find anything in subsection (5) which is inconsistent with the meaning I would place on 'not structurally detached' in subsection (2).

    In my opinion, section 2(2) interpreted as I would suggest, both gives the natural meaning to the words 'structurally detached', and fits in with section 2(1) . . . If this is the meaning of 'structurally detached', there is no doubt that Mr Parsons' property comes within the first part of subsection (2) and it must then be considered whether what lies over the garage is a material part of the house. The exact meaning of 'material' in this context is perhaps open to discussion. Whether, in any case, the part is material is a matter for the judge . . . I am reluctant, in relation to an issue which must be largely factual and one of common sense, to attempt a closer definition, all the more so as in this House the materiality of the overhang was not disputed . . ." (pp. 439 - 440).

Two points of relevance to the present case seem to me to emerge from the above cited passage.

    93. First, Lord Wilberforce expressed no criticism of, and said nothing inconsistent with, Stephenson LJ's conclusion that 'material' must mean material to the tenant or to his enjoyment of the house. Second, whatever difficulty there may previously have been in reconciling subsection (2) with subsection (5) seems to me to have been resolved by Lord Wilberforce's remarks. Subsection (2), if it applies, takes the case out of the Act. Enfranchisement is not available. Subsection (5) is not relevant because, as Lord Wilberforce observed, it is dealing with a different case. It is dealing with a case where the house to be enfranchised does have an overhanging, or underlying, part but the premises below or above, as the case may be, are either not structurally attached or, if they are structurally attached, are not a material part of the house to be enfranchised. The cases to which subsection (5) applies are, therefore, cases where the tenant's right to enfranchise the "house" is established notwithstanding that some part may be above or below "other premises" belonging to the landlord. The "other premises" may be part of a building to which the house is structurally attached but not a material part of the house, or may be a building to which the house is not structurally attached or may simply be land. The common feature of all these cases is that they will necessarily for one reason or another, fall outside subsection (2).

    94. The other subsection (2) authority to which I should refer is Duke of Westminster v Birrane [1995] QB 262. That case, like the present, arose out of a long lease which demised a main house together with mews premises. Conversion works later led to the mews premises becoming a separate dwelling house incorporating a basement area a part of which lay below the main house. The question arose whether the mews house was a "house" for 1967 Act purposes. The landlord contended that it was not because it came within section 2(2): it was not structurally detached from the main house and a material part of it, namely the basement, lay below the main house. The trial judge held that the basement area below the main house was not a "material part" of the mews house. The Court of Appeal allowed the appeal. Nourse LJ, with whose judgment the other members of the court agreed, did not accept as satisfactory the tests proposed by Lord Denning MR and Stephenson LJ in Parsons. As to Lord Denning's test, Nourse LJ said:

    "'Important' is sometimes synonymous with 'material', but at other times it is not. The problems inherent in treating them as equivalents are demonstrated by the judgment of Judge Rich QC. He thought the basement area important because it would add considerably to the price of the house in the market. But he held nevertheless that it was not a material part of the house. So Lord Denning MR's test has not been helpful in this case."

He went on:

    "My objection to Stephenson LJ's [test] is that although it is related, correctly as I believe, to the enjoyment of the house, it is one-sided. Why should 'material' mean material to the tenant or his enjoyment of the house, but not to the landlord?

    Stephenson LJ assumed that in section 2(2) 'material' did not, as it sometimes does, simply point the contrast with 'trivial' or 'insignificant'. As a matter of language I agree with him. In ordinary legal parlance 'material', used adjectivally, is not found in a vacuum. It imports a reference to something else. The thing to which it is applied must be material to some inquiry or for some purpose. It must be of sufficient substance or significance to have an effect of some kind. So Parliament must have intended that the part of the house, in order to be material, would be of sufficient substance or significance to have an effect of some kind. What might that effect be? Bearing in mind the primary purpose of section 2(2), I think it must be prejudice to the enjoyment of the house or another part of the structure caused by enfranchisement, in particular by reason of the inability of one freehold owner to enforce positive obligations against successors in title of the other.

    I would therefore hold that if the part of the house which lies above or below a part of the structure not comprised in it is of sufficient substance or significance to make it likely that enfranchisement will prejudice the enjoyment of the house or another part of the structure, whether by reason of the inability of one freehold owner to enforce positive obligations against successors in title of the other or otherwise, then it is a material part of the house within section 2(2). In practice it may be found that that test will exclude from the operation of the Act houses of which little more than a trivial or insignificant part lies above or below a part of the structure not comprised in it. But that is not a reason for rejecting the only test that Parliament can reasonably be supposed to have intended."

 
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