House of Lords
|Session 2002 - 03
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|Judgments - Malekshad (Respondent) v. Howard De Walden Estates Limited (Appellants)
HOUSE OF LORDS
Lord Nicholls of Birkenhead Lord Hope of Craighead Lord Hobhouse of Woodborough Lord Millett Lord Scott of Foscote  EWCA Civ 761
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
HOWARD DE WALDEN ESTATES LIMITED
ON 5 DECEMBER 2002
 UKHL 49
LORD NICHOLLS OF BIRKENHEAD
1. I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead and Lord Scott of Foscote. I have reached the same conclusion as them, although in one respect I am inclined to differ in my reasoning. I too would allow this appeal.
The question of interpretation
2. This appeal raises the question of the proper interpretation of the phrase 'material part' in section 2(2) of the Leasehold Reform Act 1967. The context is that the Act confers a right of enfranchisement on the tenants of some, but not all, residential units. Houses may be enfranchised, flats may not. So the statute has to draw a demarcation line between houses and flats. Typically a flat comprises one floor, or part of one floor, of a building. So section 2(1)(a) excludes from the concept of a 'house' the flats or other units resulting from the horizontal (side to side) division of a building. Typically also a house may be structurally attached to other property, as with a semi-detached house or a terraced house. So section 2(1)(b) provides that where a building is divided vertically (from top to bottom), the building as a whole is not a 'house' though any of the units into which it is divided may be.
3. So far so good. But divisions of a building, either as originally constructed or later adapted, are frequently not wholly along straight lines. A building may be divided from top to bottom, but the dividing line may have a 'kink' or a 'dog-leg' in it. The division may be along what has been described as a broken vertical line, partly vertical and partly horizontal. Then one unit will, in part, lie over or under the other. Clearly, it would be absurd if every such deviation from a straight vertical line, however trivial or unimportant, were to take a unit outside the scope of section 2(1)(b).
4. Section 2(2) provides how the concept of a 'house' is to be applied in such 'mixed' cases. The effect of this subsection is that if a material part of a (structurally attached) 'house', ascertained in accordance with section 2(1), lies above or below a part of the structure not comprised in the house, then the enfranchisement provisions are inapplicable to that house. In this context 'material part' must mean material part of the house, namely, of the unit identified as a house by application of section 2(1). This unit is to be excluded from enfranchisement by section 2(2) if, but only if, a material part of it lies above or below a part of the structure to which it is attached.
5. The criterion by which materiality is to be judged for this purpose must depend upon the purpose which section 2(2) is intended to serve. On this there has been some difference of judicial emphasis. I think the better view is that the purpose of the section is simply to avoid the absurdity mentioned above. The subsection is concerned to ensure that the right of enfranchisement is not lost by reason of the fact that a trivial or unimportant part of the house overhangs or underlies another part of the structure to which it is attached. The subsection achieves this result by excluding from the scope of the Act cases where a material part of the house lies above or below a part of the structure to which it is attached.
6. This suggests that in this context materiality calls for a broad assessment of the relative importance or unimportance of the part as a feature of the house. Does this part have the effect that the house as a whole overhangs or underlies the structure to which it is attached to a substantial, or important, extent? If, judged by this standard, the underlying or overhanging part of the house is immaterial, then the landlord's interests, if any, in the adjoining property are protected by section 2(5), not by exclusion of the whole house from enfranchisement.
7. In Parsons v Trustees of Henry Smith's Charity  1 WLR 845, 854, Stephenson LJ said that material "must mean material to the tenant or to his enjoyment of the house." This formulation seems to link materiality to the use made of the part by the tenant. I do not think this can be correct. Whether a part is material cannot vary according to the use made of the part by the particular tenant or, indeed, according to the potential use of the part. A very small area is often capable of valuable use. But this ought not to make 'material' a part of the house which otherwise would not be such. It ought not to exclude the house from enfranchisement. Section 2 (1)(b) uses the physical state of the building as the criterion ('divided vertically'). Section 2(2) is concerned to ease the rigour of the 'vertical division' criterion.
8. When the Parsons case reached your Lordships' House Lord Wilberforce left open the exact meaning of this phrase in this context: see  1WLR 435, 439-440. He did note that whether a part is material is an issue which must be largely factual and one of common sense. This suggests a simple, non-technical approach. The question I have posed conforms with this approach.
9. It follows from what I have said that on this question of interpretation I respectfully differ from the view expressed by Nourse LJ in Duke of Westminster v Birrane  QB 262, 270-271. He identified the primary purpose of section 2(2) as follows:
10. He then stated the test to be applied when deciding whether a part is material:
11. I recognise that difficulties of enforcement of positive obligations against successors in title, and other difficulties of this nature, may well have led, or contributed, to the policy decision to exclude flats from the scope of the Act. But I am not persuaded that section 2(2) is aimed directly at these difficulties. Rather, section 2(2) is aimed more generally at elucidating, and giving effect to, the broad distinction drawn by the Act between houses, which may be enfranchised, and flats, which cannot. If, having given effect to this distinction, the unit in question is not excluded from enfranchisement by section 2(2), and there are potential difficulties arising from the fact that an (immaterial) part of the house underlies or overhangs structurally attached property of the landlord, the provisions of section 2(5) are apt to produce an adequate, balanced solution. Therein lies the landlord's protection against the risk of possible prejudice in the respects identified by Nourse LJ. The test enunciated in Birrane, on the other hand, would go far to emasculate what must have been the intended operation of section 2(5).
12. In the Court of Appeal Robert Walker LJ was of the view that the whole of the built structure, or building, comprising 76 Harley Street and 27 Weymouth Mews can reasonably be called a 'house'. I have some sympathy with this view. The fact that for some years 27 Weymouth Mews was occupied and used as a separate residential unit has only a limited bearing on the question whether the whole of this single structure can reasonably be called a 'house'. 76 Harley Street is itself divided into several separate residential units. Despite this the whole of 76 Harley Street can reasonably be called a 'house', as the Act itself envisages: see section 2(1), and the observations of Dillon LJ in Malpas v St Ermin's Property Ltd  1 EGLR 109, 110.
13. Where I part company with the Court of Appeal is that, even if the whole structure can reasonably be called a 'house', I do not think that is the end of the matter. The scope of the opening words of section 2(1) (' "house" includes any building designed or adapted for living in and reasonably so called') is cut down, when the circumstances require, by section 2(1)(b) ('where a building is divided vertically the building as a whole is not a house'). That is this case. The structure comprising 76 Harley Street and 27 Weymouth Mews is divided vertically at the point where the eastern end of the extended ground floor and basement of 76 Harley Street meets 27 Weymouth Mews. The division is vertical (from top to bottom), even though part of the basement of 76 Harley Street lies under 27 Weymouth Mews.
14. Accordingly there can be no question of Mr Malekshad being entitled to enfranchise 27 Weymouth Mews as well as 76 Harley Street. Each of these two units comprises a house for the purposes of the Act. Of these two houses, Mr Malekshad was, it seems, occupying the third floor flat in 76 Harley Street as his residence. His claim to enfranchise 27 Weymouth Mews must fail.
15. Thus far I have applied the provisions of section 2(1) to the particular facts of this case. The next step is to apply section 2(2), given that at the point of division between 76 Harley Street and 27 Weymouth Mews part of the basement of 76 Harley Street lies below 27 Weymouth Mews. The basement of 76 Harley Street extends back to a wall which divides the front part of the basement from the rear part of the basement under 27 Weymouth Mews.
16. In applying section 2(2) Judge Ryland was bound to follow the test enunciated by the Court of Appeal in Duke of Westminster v Birrane  QB 262, 270-271. If that test is put aside in favour of the approach outlined above, the application of section 2(2) is straightforward and admits of no doubt: the portion of 76 Harley Street underlying 27 Weymouth Mews is not a material part of 76 Harley Street. It does not have the effect that 76 Harley Street as a whole underlies 27 Weymouth Mews to a substantial or important extent. In terms of figures, it represents an insubstantial part, just over two percent, of the overall floor area of 76 Harley Street and about seven percent of the overall basement area of 76 Harley Street.
17. Accordingly, section 2(2) does not operate to exclude 76 Harley Street from the scope of the enfranchisement provisions in the Act. I would so hold. The matter should be remitted to the County Court on this footing. This court is the appropriate venue for deciding any issues arising from any necessary amendments of Mr Malekshad's notices and application.
LORD HOPE OF CRAIGHEAD
18. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scott of Foscote. I agree with it, and I also agree on all points that matter with the speech of my noble and learned friend Lord Nicholls of Birkenhead. I would allow the appeal for the reasons which they have given, declare that the respondent is entitled to enfranchise 76 Harley Street alone, and remit the case to the County Court to decide, in the light of any counternotice which the freeholder may serve, whether the part of 76 Harley Street which lies under 27 Weymouth Mews should be included or excluded from the property to be enfranchised. I should like however to add some observations of my own, in recognition of the fact that we are differing from a unanimous decision of the Court of Appeal on the two issues which arise for consideration in this case. I gratefully adopt Lord Scott's explanation of the facts and his discussion of the authorities.
The first issue
19. Part I of the Leasehold Reform Act 1967 enables a tenant to acquire the freehold of a leasehold house which he occupies as his residence. The tenant's ability to obtain enfranchisement had to be confined to the purpose for which it was intended, so it was necessary for the draftsman to provide a definition of the word "house". There were two distinct issues that had to be addressed. The first was what may best be described as an issue of structure. Buildings in which people live come in a variety of shapes and forms, especially in urban areas. Many people live in semi-detached or terraced houses or in smaller units such as flats or maisonettes. The buildings in which dwellings of that kind are found are often much larger than the individual units within it which the tenants occupy as their residence. The draftsman had to describe the way in which buildings might be divided up in order to identify the units within them which were available for enfranchisement. The second issue may best be described as an issue of user. Buildings in which people live may be designed or adapted for a variety of uses. These may include to a greater or a lesser degree their use as a residence. So the draftsman had to indicate how those buildings which were appropriate for enfranchisement were to be distinguished from those which were not.
20. The issue which I have described as the issue of structure was capable of being solved more precisely than the issue of user. All that was needed to resolve the issue of structure was a definition which identified the way in which buildings were to be divided up. The definition had to identify the individual units within a building which were to be available for enfranchisement. It was necessary to address two features which are common to almost every building which comprises more than one residence. These are the features by which a building may be divided up into separate units both vertically and horizontally. All that was needed was to set out the rules by which the individual units within buildings with divisions of that kind could be identified. But the issue of user was not capable of the same precise treatment. The best that could be done was identify a test by which a building which was appropriate for enfranchisement as a house occupied by the tenant as his residence could reasonably be distinguished from one which was not.
21. Section 2 of the 1967 Act is not easy to analyse, as it deals with the issues of structure and use in the same subsection. Subsection (1) deals with both use and structure, so it is necessary to pay careful attention to the words used. They must be construed and then applied to the facts precisely in the order in which they are set out. The first part of the subsection addresses the issue of user. It does so by saying that "house" includes any building "designed or adapted for living in and reasonably so called." This instruction is then qualified by the words "notwithstanding that the building is not structurally detached, or was or is not wholly designed or adapted for living in, or is divided horizontally into flats or maisonettes." This is a list of things which are to be disregarded when the issue of user is being addressed. It does not deal with the issue of structure. That issue is dealt with in the second part of the subsection. This part is divided into two separate paragraphs. Paragraph (a) deals with cases where the building is divided horizontally. Paragraph (b) deals with cases where the building is divided vertically. Different rules are set out in each of these two paragraphs. But they have this point in common, that they are both self-contained. There is no instruction that the result of giving effect to these rules must be subjected to a further test which asks whether the building is nevertheless a house "reasonably so called."
22. The houses at 76 Harley Street and 27 Weymouth Mews are designed, adapted and used for living in, and they are used by their respective occupiers as a residence. So the user test in this case is easily satisfied. The question whether we are dealing here with a building which is a "house" reasonably so called admits of only one answer, as there is no element of mixed use. The problem to which the agreed facts give rise is a different one. It is an issue of structure. The question whether the building is a house reasonably so called is not relevant to that issue. It must be answered by applying, and by applying only, the rules which are set out in the second part of section 2(1).
23. In my opinion the Court of Appeal were wrong to apply the guidance which this House gave in Tandon v Trustees of Spurgeons Homes  AC 755, and in particular that given by Lord Roskill at pp 766-767, to the facts of this case. The question of law which Lord Roskill identified in that case, namely whether it is reasonable to call the building a "house", does not need to be answered. There is no question here of any part of the building having been designed or adapted for use for any other purpose other than for living in as a residence. The judge made it clear in his judgment that his decision that there were here not one but two houses was based on his examination of the structure. The second part of section 2(1) does not admit of the possibility that a building which on an application of these rules requires to be divided up into two or more units is nevertheless to be regarded as a whole as a house. That is precisely what the rule which is set out in paragraph (b) says cannot be done.
24. I think therefore, with great respect, that Robert Walker LJ was wrong to criticise the judge for asking himself the question "is this one house or two?" He said that the judge set off on the right track, but that he then strayed off it:  EWCA Civ 761;  3 WLR 824, 838C, para 37. In my opinion the Court of Appeal strayed on to the wrong track when they asked themselves whether the building, which on the judge's findings was divided vertically into two units at the point where the extended ground floor and basement of 76 Harley Street adjoin the back wall of 27 Weymouth Mews, could nevertheless be called a "house". This is because section 2(1)(b) states that 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.
The second issue
25. This too, in my opinion, raises an issue of structure. The answer to it is to be found upon a proper construction of the words used in section 2(2) of the 1967 Act. The draftsman had to recognise that rules which are designed to deal with this issue in section 2(1) might have to be applied to cases where the vertical or horizontal division, as the case may be, was not in a straight and unbroken line from side to side of the building or from top to bottom. The rule about horizontal division did not need to be qualified to deal with cases where, for example, the horizontal line dividing the building into flats was broken by a staircase or a lift shaft. This was because all divisions of the building in this plane were to be disregarded for the purpose of dividing the building into separate houses. But the rule about vertical division was in need of qualification to deal with cases where part of the structure in that plane, such a room or a cupboard, projected above or below another part of the same structure.
26. The legislative purpose of the rule that divisions of the building horizontally were to be disregarded was described by Lord Wilberforce in Parsons v Trustees of Henry Smith's Charity  1 WLR 435, 439. As he explained, the reason for the different treatment of divisions horizontally from divisions vertically may well have been the difficulty, in relation to units arising by horizontal division, of providing for the enforcement of necessary positive covenants after they became freehold by enfranchisement. Whatever the reason for it, however, the rule which section 2(1)(a) lays down does not depend on an analysis of the need for such covenants or of any difficulty which may arise in their enforcement in each case. The rule does not admit of any exceptions which might result from such an analysis. It applies to every case where a building is divided horizontally. What then is one to make of section 2(2)?
27. Section 2(2) provides that references in Part I of the 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. The problem with which it is designed to deal arises only after one has identified a "house" by applying the rules set out in section 2(1). It includes units which have been found to be a house where a building is divided vertically by applying the rule set out in section 2(1)(b). Section 2(2) contains a phrase which is of critical importance on the facts of this case. This is the phrase "of which" which immediately precedes the words "material part". The part which lies above or below a part of the structure which is not comprised in the house must be "a material part". But one cannot begin to address the question whether the part is material until one has construed the preceding phrase. Are we dealing here with a part which is a material part of the house, as the judge thought? Or are we dealing here, as the Court of Appeal thought, with a material part which, although it is not material to the use or enjoyment of the house, is material to the use or enjoyment of another part of the same structure?
28. In my opinion the answer to this problem is to be found by reading the words of the subsection in the way which their ordinary meaning indicates. The words "of which" refer back to the words "a house" which are to be found at the beginning of the subsection. They cannot reasonably be read as referring to the words which follow, which direct attention to a part of the structure not comprised in the house. So the word "material" must be understood in this context as applying to the house itself only, and not to the structure as a whole or to any other part of it which is not comprised in the house.
29. The Court of Appeal applied to the word "material" the meaning which Nourse LJ gave to it in Duke of Westminster v Birrane  QB 262, 271. Applying to it what he took to be the primary purpose of the subsection, Nourse LJ said that the issue to which it was directed was prejudice to the enjoyment of the house or another part of the structure which would be caused by enfranchisement. In my opinion however this approach is open to criticism on two grounds. The first is that it overlooks the fact that the subsection directs attention to a part which is material to the house itself, not to a part which is material to the part of the structure not comprised in the house. The second relates to Nourse LJ's reference to "the enjoyment" of the house.
30. As I said earlier, the issue which section 2(2) raises is an issue about structure. It is the structure of the house that matters, not the way it is or is capable of being used or enjoyed for the time being. Use and enjoyment may vary from tenant to tenant, whereas the test for materiality relates to the house itself. It does not depend on the tenant's use or enjoyment of it. That is indicated both by the wording of the subsection and by its context. For the same reason I am unable to agree with the approach which was described by Stephenson LJ in Parsons v Trustees of Henry Smith's Charity  1 WLR 845, 854D-E, where he said:
31. I do not read Lord Wilberforce's comments on the meaning of section 2(2) and its relationship with section 2(5) in the same case at  1 WLR 435, 439E-440B as expressing a view either way or the other on the soundness of the meaning which Stephenson LJ had given to the word in the Court of Appeal. After describing the reason why section 2(1) discriminated between divisions which were vertical and those which were horizontal, Lord Wilberforce said at p 439F-G:
The point which he was making in this passage was that the question of materiality has to be addressed only in cases where, along the broken line, there is an attachment to another part of the structure. He did not comment on the meaning of the word "material".
32. Although Lord Wilberforce did not say that the word was to be given a different meaning from that which was given to it by Stephenson LJ, I think that the meaning which Stephenson LJ gave to it should now be disapproved. I agree with Lord Scott, Lord Nicholls and Lord Millett on this point, and I agree with them that the meaning which Nourse LJ gave to it in Duke of Westminster v Birrane should also be disapproved. As to the decision in this case, it is clear, on the agreed facts, that the area of the overhang to which this part of the argument is directed was not material to the structure of the house at 76 Harley Street.
33. The discussion of this issue in the Court of Appeal was much influenced by the fact that the court permitted counsel for the applicant to amend his notice of appeal to take enable him to present an argument under reference to articles 8 and 14 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. I think that it should be mentioned, in fairness to the Court of Appeal, that the respondent did not seek to take that point in your Lordships' House. This has made it easier for your Lordships to concentrate on the essential question, which is the meaning which is to be given to the word "material" in the context in which it is used in section 2(2).
LORD HOBHOUSE OF WOODBOROUGH