In Westbrook Dolphin Square Limited -v- Friends Life Limited  EWHC 2433 (Ch) the High Court has paved the way for one commercial owner to compel the transfer of another’s freehold property to it, by the process of collective enfranchisement.
Under the collective enfranchisement regime created in the Leasehold Reform, Housing and Urban Development Act 1993, and subject to certain conditions, tenants of long leases of flats can together – through a nominee company – acquire the freehold of the property in which their flats are located. The price of acquisition is determined by a statutory formula.
There seems to be little doubt that the right to enfranchise was intended to give flat owner-occupiers greater control over their leasehold asset and the management of their buildings. Nevertheless, in a 215 page judgment, Mr. Justice Mann rejected no fewer than six arguments advanced by Friends Life as to why the head tenant of Dolphin Square (a Westbrook company) should not, as nominee for 612 SPVs, be allowed to exercise the same right.
Dolphin Square was built, and the headlease granted, in the 1930s, almost 60 years before the 1993 Act came into being. Until relatively recently, it was the largest block of flats under one roof in Europe (containing 1229 flats, shops, a fitness centre and gardens) and its proximity to Westminster has made it a scene for political scandal over the years.
Having acquired the headlease in 2007, Westbrook altered the lease structure. Each of the SPVs was granted qualifying sub-underleases of not more than 2 flats each (so as not to fall foul of the statutory exclusion from the process of tenants of 3 or more flats (and exclusion of those flats)). Occupational tenants were bought out or offered non-qualifying leases, so that the right to participate in the collective enfranchisement rested with the SPVs above them.
Each of the six arguments advanced by Friends Life in the High Court merits an article in its own right, but the principal question was whether on a proper construction of the 1993 Act each of the SPVs was really “a tenant of [a] flat under a long lease“. In broader terms: should corporate sub-undertenants, created and granted leases exclusively for the purpose of allowing Westbrook to acquire the freehold, be permitted to exercise a statutory right which was not intended to be exercised in that way.
The judge held that Westbrook had succeeded on a proper construction of the law in “getting round” what might be perceived to be the proper object of the statute. The literal wording of the relevant provisions is neither ambiguous nor obscure. Friends Life sought not so much to construe the words of the statute to establish that it did not apply to the SPVs, but to “divine a purpose behind the provisions, extract it and apply a principle that a person should not be able to evade that purpose because it was Parliament’s purpose“. The correct approach, according to the judge, was to have regard to what Parliament had actually enacted. If there are “holes” in the legislation which might be exploited for a purpose not originally contemplated by Parliament, the courts cannot always fill them.
It is quite possible that other head tenants of residential blocks might now follow Westbrook’s lead and – with the legislative loophole now established and the courts unable easily to close it – complex arrangements such as those undertaken at Dolphin Square over the last seven years will also succeed until Parliament changes the law.