Rights to acquire the freehold for commercial tenants?

United Kingdom

In a recent House of Lords decision, the court has left open the possibility of tenants of certain commercial premises acquiring the freehold of those premises under rights commonly exercised by residential tenants.

Under the Leasehold Reform Act 1967 as amended (“LRA 1967”), a long leaseholder of a house is entitled to acquire the freehold.

In this recent case, their Lordships had to consider whether the premises concerned constituted a house for these purposes.

Under the LRA 1967, to amount to a house, premises must be:

  • designed or adapted for living in; and
  • reasonably called a house

According to their Lordships:

(1) if the purpose for when the premises were first built was for it to be lived in, even if subsequently it has been adapted for mixed residential and commercial use, it can still be a “house” for the purposes of the LRA 1967.

(2) the fact that the premises in the particular case had become internally dilapidated and incapable of beneficial occupation and indeed were unoccupied did not detract from the fact the premises were “designed … for living in” when first built.

Their Lordships then went even further and considered the possibility that premises, which had been designed for living in but subsequently adapted throughout to another purpose, could still amount to a house under the LRA 1967. This they said was the literal interpretation of the relevant law.

Tenants with long leases of boutique hotels, Harley Street Clinics and other premises designed as houses but subsequently adapted to commercial use, particularly where the external appearance and original layout have not been greatly altered, may have just been given the right to acquire the freehold by the House of Lords. We await developments with interest.

LAW: Sections 1 and 2 of the Leasehold Reform Act 1967 (as amended)
Boss HoldingsLimited -v-Grosvenor West End Properties and Others [2008] UKHL 5