Tenants who make unlawful alterations have no right to enfranchise

Tenants who broke a covenant in their lease by converting the upper storey of a shop in north London into a flat had no right to buy the freehold under the Leasehold Reform Act 1967, the Court of Appeal has ruled.

"The claimants seek to enforce a right acquired by committing a wrong," Lord Justice Mummery said. "In general, the law should not and does not allow that."

Ruling in Henley and another v Cohen [2013] EWCA Civ 480, he said the ground floor of the building in Palmers Green was used for a 'Hallmark' card shop.

Mummery LJ said the upper storey had been used for non-residential purposes under the lease, and there was no internal access to it except from the property next door.

The court heard that the tenants blocked this up, so the only access was by an iron staircase at the back and walking across the roof of the shop.

Later they applied for consent to convert the first floor into a self-contained flat, which was refused, but they did the work anyway and let the flat on an assured tenancy.

Two days after granting the tenancy, the claimants served a notice of claim to the freehold under the 1967 Act, which the freeholder rejected. The trial judge heard the case in September 2011, before the Supreme Court ruling in Hosebay.

Mummery LJ said that it was agreed that, after the conversion, the building was "adapted for living in", the question was whether it was a "house reasonably so called".

He went on: "What something can reasonably be called is a relative question. There is no cut and dried answer to it in the sense that everyone who knows about these things would always agree upon the same answer.

"What matters for the purposes of this appeal is that the answer given by the judge was in fact amply supported by the evidence and was in law reasonably justified by the arguments relied on."

Lord Justice Mummery said the premises was neither adapted for residential uses when the lease began or ever used as such until the recent adaptation for living in.

He distinguished the case from Tandon, in which the living accommodation was "physically connected" to the shop below and there was a bathroom at the back of the shop as well as an internal connecting staircase.

"In my view, the judge was entitled to place the use of the upper floor relied on as at the date of the notice, upon which the claimants place such emphasis, into the proper setting of the use of it under the lease during the preceding 70-plus years."

Mummery LJ said that, having failed on the 'house' point, a decision on whether the tenants were entitled to claim was not necessary, but his view was that the trial judge was justified in concluding that the claimants were not entitled to rely on it.

 There was a "direct and close connection" between the unlawful alterations to the first floor, on which the claimants based their claim to enfranchise, and the statutory rights which they sought to enforce.

"Without those conversion works adapting the first floor for living in, the 1967 Act would not apply at all.

"As a matter of statutory construction it cannot have been intended by parliament to give the lessee the right to enfranchise by making, in breach of covenant, the very adaptation of the building for living in that is necessary for him to exercise the right."

Mummery LJ dismissed the appeal by the tenants. Lady Justice Hallett and Lord Justice Leveson agreed.

Jeremy Hudson, partner at Speechly Bircham, said the Court of Appeal had restricted the 'ratio of Tandon to its own facts'.

Hudson said the appeal judges had made it clear that the trial judge was "best placed to explore all the angles" in coming to his overall assessment of the premises.

"In addition, to qualify for enfranchisement, the residential and non-residential parts of a building must be combined," Hudson said.

"The Court of Appeal stressed that there is no 'cut and dried answer' to these cases, and it seems that there will inevitably be borderline cases troubling the courts in years to come."