(back to preceding text)

    34. The present appeal raises two questions concerning the meaning of s.2 of the Leasehold Reform Act 1967. On the first question, that relating to the meaning of subsection (1), I entirely agree with the analysis and reasoning of my noble and learned friend Lord Hope of Craighead and do not wish to add anything. On the second question, the meaning of subsection (2), I have the misfortune to disagree with your Lordships and will shortly explain why I prefer the reasoning and decision of Nourse LJ and the Court of Appeal in Duke of Westminster v Birrane [1995] QB 262.

    35. Subsection (2) is a qualification of subsection (1). It further limits the category of parts of a structure which can be treated as a house. It applies to a part of a structure which is not structurally detached from another part but which is divided vertically, that is to say from top to bottom, from another part of the structure. If the part is neither structurally detached nor divided vertically, it will not be a house under subsection (1). The added feature is that, for subsection (2) to apply, a "material" part of the house must lie above or below another part of the structure which is not comprised in the house. I am at one with my noble and learned friend in accepting that the words "of which" relate to the house identified by applying subsection (1). But that still leaves the question what the element of materiality has to be.

    36. Subsections (3) to (5) only become relevant once the house has been shown to comply with the criteria in subsections (1) and (2). Subsection (5) only applies as between landlord and tenant; it is not dependent upon structural attachment; it applies to the premises of a house as well as the house itself. It applies criteria of hardship and convenience. I find no assistance here in answering the question of materiality under subsection (2).

    37. The word "material" in subsection (2) requires the application of some criterion which the structural feature is material to. To put it another way, what is the materiality of the fact that part of the house lies above or below another part of the undetached structure? The first indication was given by Lord Wilberforce in Parsons v Gage [1974] 1 WLR 435 at 439. He referred to the exclusion by subsection (1)(b) of 'strata' separated by horizontal division possibly deriving from the (perceived) difficulty of providing for the enforcement of necessary positive covenants. He then seems to follow the same logic through into subsection (2) where the horizontal division is only partial. He does not refer to nor adopt what Lord Denning MR and Stephenson LJ had said in the Court of Appeal. The point of materiality had ceased to be in contention.

    38. The point was specifically considered by the Court of Appeal in Duke of Westminster v Birrane [1995] QB 262 in which the only judgment was that of Nourse LJ, agreed to by Mann and Saville LJJ. He said that it did not mean simply 'not trivial, not insignificant': "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." (p.270) He then went on to ask himself what was the test that Parliament could reasonably be supposed to have intended and answered that question in the same way as had Lord Wilberforce - the inability to enforce positive covenants against successors in title. (p.271) This was a considered and unanimous decision of the Court of Appeal directly in point and binding on the judge and the Court of Appeal in the present case. I consider that it should be followed.

    39. To apply the test to the facts of this case, the agreed facts are:

"That part of 76 Harley Street which undercuts 27 Weymouth Mews provides support to the rear flank wall of 27 Weymouth Mews and, if the basement walls were to fall into disrepair so as to remove that support, the rear flank wall of 27 Weymouth Mews at ground floor and first floor level would fall down."

    It is clear from this that the two parts of the undetached structure are mutually dependent upon each other in the same way as horizontally divided strata and that the rationale of subsection (1)(a) applies. Loyalty to the scheme of subsections (1) and (2) and to the statutory intent disclosed in subsection 1(a) shows that, where there is such a structural interrelation and interdependence, subsection (2) should be given effect to.

    40. What is the alternative? It is argued that it is to be found in the judgment of Stephenson LJ in Parsons [1973] 1 WLR 845 at pp.853-4. Lord Denning had equated material with "important" and treated this assessment as simply a question of fact and impression. (p.849) Stephenson LJ rejected this. But then continued:

"Whatever meaning be given to 'material' in this context, whether I consider its size or its rateable value or its history or the use to which it is now put, I find it impossible to say that this part of the tenant's house was not material. ......... It has value and importance to the tenant ........ It must be worth taking over. ............ 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. " (p.854)

    41. What the application of the Stephenson approach comes down to in the present case is a comparison between the size and character of 76 Harley Street as a whole and 76 Harley Street without the undercutting end of the basement which had formerly contained two basement rooms. The answer would be that the owner of No.76 would say that the inclusion of those two additional rooms would add virtually nothing to the amenity of No.76. (Indeed, he would probably add that he would be better off without the undercutting end and the structural responsibility for the habitability of No.27 and legal the complications it entailed.) It follows from applying the Stephenson approach that, if the undercutting part was part of a residential unit which consisted, say, of only four rooms in all, the answer would be different although the structure of the building would be no different and the rationale of subsections (1) and (2) would not have been affected. Stripped of its embellishments, the language of Stephenson LJ really amounts to a criterion of the relative importance of the part in question to the tenant, the test adopted by Lord Denning and earlier rightly rejected by Stephenson LJ.

    42. In my judgment the Stephenson test is unsatisfactory and does not give effect to the scheme and intention of subsections (1) and (2). The correct criterion is materiality of the tenant's part to the undetached structure. I would therefore answer both the questions in favour of the appellant and allow the appeal and restore the judge's judgment.

LORD MILLETT

My Lords,

    43. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scott of Foscote. I gratefully adopt his account of the facts and description of the properties with which this appeal is concerned.

    44. The Respondent Mr. Malekshad is the leasehold owner of two properties No. 76 Harley Street and No. 27 Weymouth Mews, both in Marylebone, London W1. The properties are held under a single lease. The Appellant Howard de Walden Estates Ltd. is the freeholder. Mr. Malekshad claims to be entitled to enfranchise the two properties pursuant to Part I of the Leasehold Reform Act 1967 ("the Act"). If he cannot enfranchise both of them, then he claims to be entitled to enfranchise No. 76 Harley Street on its own. Both Mr. Malekshad's claims failed before the Judge (HH Judge Ryland), but his claim to enfranchise both properties succeeded in the Court of Appeal.

    45. Section 1 of the Act gives the tenant of "a leasehold house" who is occupying the house or part of it as his residence a right to acquire the freehold or an extended lease of "the house and premises," provided that certain qualifying conditions are satisfied. Mr. Malekshad occupies No. 76 Harley Street as his residence. He does not occupy No. 27 Weymouth Mews as his residence, but that would not prevent him from enfranchising it if it is part of the same "house". The critical question, therefore, is whether the two properties together or alternatively No. 76 Harley Street on its own is a "house" within the meaning of the Act.

    46. "House" is defined in section 2 of the Act. The definition has several elements. Taking them in the order in which they appear in the section, a "house" is (strictly speaking includes)

(i)  any building which

(ii) is designed or adapted for living in and

(iii)     which may reasonably be called a house

(iv)     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 (subsection (1); but so that

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

(vi)     (b) where it is divided vertically the building as a whole is not a house though any of the units into which it is divided may be; but so that

(vii)     it does not include 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 (subsection (2)).

With the exception of (ii) and (iii), all these elements are concerned with the structure of the building. I will take them in turn.

    47. "Any building". A "building" is merely a built structure. For the purposes of section 2 of the Act, it need not be structurally detached and may be subdivided into self-contained units. So it may form part of a larger whole, and at the same time may itself be a composite whole formed by separate units. The word is, therefore, not used with any degree of precision. The necessary precision is obtained by other elements of the definition of "house". For the purposes of section 2, the same structure may be regarded as a single building or as several buildings. Thus a terrace of houses may constitute a single building even though each house in the terrace also constitutes a building in itself.

    48. Given the degree of imprecision in the concept of a "building", I think that the primary purpose of the requirement that the house should form the whole or part of a building is to exclude other forms of residential accommodation such as caravans or houseboats. No doubt it goes further than this, for I do not see how two separate detached buildings can constitute a single building. But subject to this, I do not think that the question calls for the kind of historical, sociological and architectural investigation which was conducted by the Courts below in the present case. In my opinion No. 76 Harley Street is a building; and so are No. 76 Harley Street and No. 27 Weymouth Mews taken together.

    49. "Designed or adapted for living in". This requirement is self-explanatory. It is satisfied in relation to both properties, and I need say nothing more about it.

    50. "Which may reasonably be called a house." An authoritative explanation of these words was given by Lord Roskill in Tandon v Trustees of Spurgeons Homes [1982] AC 755 at p. 767. He made two particular points of general application which greatly influenced the Court of Appeal in the present case: (1) as long as a building of mixed use can reasonably be called a house, it is within the statutory definition of "house", even though it may also reasonably be called something else; and (2) it is a question of law whether it is reasonable to call a building a house.

    51. Earlier in his speech, however, at p.764, Lord Roskill made an equally important point of which the Court of Appeal seem to me to have taken rather less notice. This is that the words "which may reasonably be called a house" are words of limitation. They serve to exclude from the statutory definition of a "house" premises which would otherwise fall within it but which could not reasonably be called a house. They do not operate so as to bring within the statutory definition premises which are outside it merely because they are capable of reasonably being called a house.

    52. The point is important because the statutory definition of "house" does not end with this requirement. It continues, not only to bring in premises which might otherwise have been excluded ("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") but also to exclude other premises which might otherwise have been included (the individual flats or other units into which a building is divided horizontally and an entire building which is divided vertically). Where these further provisions extend the definition of a "house", the premises must also satisfy the requirement that they should be capable of being reasonably called a house. Where they limit it, however, the premises are not a "house" within the meaning of the Act, and they do not become one even if they could reasonably be so called.

53.     Where the building is divided horizontally. In such a case the flats or other units into which it is divided are not separate "houses", though the building as a whole may be. "May be" not "is", because the building may not be reasonably capable of being called a house. A block of flats cannot reasonably be called a house, nor can an office block with a residential penthouse suite.

54.     Where the building is divided vertically. In such a case the building as a whole is not a "house", though any of the units into which it is divided may be. Even if, as I think, the whole Harley Street terrace of which No. 76 forms part is a building, it is not a "house" because it is divided vertically into separate units. On the other hand, any of the units may be a "house". "May be" not "is", because a particular unit may fall outside the definition of "house" for any number of reasons. It may, for example, be a doctor's surgery with no living accommodation, and so not designed or adapted for living in. Or a material part of it may lie above or below another part of the structure. But a building which is divided vertically is not a "house", even though it may reasonably be called a house.

    55. "Of which a material part lies above or below a part of the structure not comprised in the house." These words create a difficulty to which I shall return. For the moment it is sufficient to observe that references to "house" do not apply to such premises even though they may be reasonably called a house.

    56. I have already expressed the view that No. 76 Harley Street and No. 27 Weymouth Mews taken together can be regarded as a single building. But Mr. Malekshad's claim to enfranchise both properties depends critically on its not being a building which is "divided vertically", in contradistinction to one which is "divided horizontally". The thinking behind the different treatment of the two cases is tolerably clear. The enfranchisement of part of a building has the effect of separating the freehold titles to different parts of a single structure. This is productive of considerable legal and other difficulties where the properties in different ownership lie one above the other; but not where they lie side by side. So-called "flying freeholds" are a relatively modern innovation and bring with them many problems which need to be resolved. These include but are not confined to problems of support. Who is to bear responsibility for the repair of the roof is another example. Terraces of freehold houses, by contrast, date back at least to the 18th century.

    57. There is, however, no need to require the line of separation to be precisely horizontal or vertical, ie. at precisely 90 degrees to the vertical or horizontal as the case may be. Nor is there any need to insist that the line of separation should be an unbroken line, that is to say that it should lie in a single plane. It is not the geometric characteristics of the line of separation which matter but the structural relationship of the units into which the building is divided. In my opinion a building is divided horizontally if it is divided from side to side and vertically if it is divided from top to bottom. A building may, of course, be divided both vertically and horizontally. A building which contained two flats on the ground floor and two on the first floor would fall into this category.

    58. In my opinion the answer is plainly "no". Even if No. 76 Harley Street and No. 27 Weymouth Mews are taken to be a single building, as I think they are, that building is not a "house" because it is divided vertically from roof to basement: the two properties into which it is divided stand side by side. The line of division does not lie in a single plane, so that part of No. 76 Harley Street lies below a part of No. 27 Weymouth Mews, but as Lord Wilberforce explained in Parsons v Trustees of Henry Smith's Charity [1974] 1 WLR 435 at pp. 439-40 this situation is dealt with by section 2(2). If the division of the building results in a material part of the house lying above or below another part of the same structure, then it is taken out of the definition of a "house". But it follows that if the part in question is not material, then it remains within the definition of a "house"; and this shows that the vertical division need not be in the same plane.

    59. In considering whether No. 76 Harley Street and No. 27 Weymouth Mews together constituted a "house", the Judge asked himself whether the two properties "constitute one house or two houses". He (correctly as I have explained) found that they were two houses. He then went on to consider what he called a secondary question, whether the two houses were nevertheless a single house "reasonably so-called."

    60. In the Court of Appeal Robert Walker LJ criticised the Judge for having asked himself wrong question (though in fairness to the Judge these may have been the terms of the preliminary question on which he was being asked to rule). It was said to be the wrong question because it was based "on the assumption that the building or buildings could not simultaneously be one house or two houses." This assumption, it was said, failed to take account of the decision in Tandon v Spurgeons Homes, which laid it down that a building of mixed use can reasonably be called a house even though it may also reasonably be called something else. Like the Judge, the Court of Appeal considered whether No. 76 Harley Street and No. 27 Weymouth Mews could reasonably be called a house. They agreed with him that they could reasonably be called two houses, but unlike him they considered that they could also reasonably be called a house.

    61. I am bound to say that I find this conclusion a startling one. Whether a building can reasonably be called a house or can only reasonably be called something else is a question of appellation. The present question is not one of appellation but of number. I do not see how the same building can at one and the same time reasonably be called one house and two houses.

    62. But there is no need to decide this. In my opinion the Judge asked himself the right question. The "secondary question" whether the two properties were reasonably capable of being called a house did not arise for decision if they were not a "house" at all; and because they comprised a building divided vertically they were not. The Judge was, of course, right to ask himself the "secondary question" in case he was wrong on the first. In my respectful opinion, however, the Court of Appeal fell into error by treating their answer to the secondary question as determinative of the issue in favour of Mr. Malekshad in circumstances when it was conclusively determined against him by the nature of the structural division of the building.

    63. This depends on whether No. 76 Harley Street is "a house … of which a material part lies above or below a part of the structure not comprised in the house." Grammatically the words "of which" refer back to the words "a house" and not forwards to "a part of the structure not comprised in the house". So the question is whether the part of the basement of No. 76 Harley Street which lies under No. 27 Weymouth Mews is a "material part" of No. 76 Harley Street. If so, then the whole of No. 76 Harley street is excluded from the operation of the Act. If not, then subsection (5) comes into play, and Mr. Malekshad is entitled to enfranchise No. 76 Harley Street but may have to submit to the exclusion of the part in question.

    64. Mr. Malekshad argued that, since the part in question must be a material part of the house which the tenant is claiming to enfranchise and not of anything else, it must be material in relation to the house and not to any other part of the structure of which it forms part but which is not included in the house.

    65. With all respect to those who think otherwise, I cannot agree that the proper grammatical analysis of the sentence is conclusive of the question. "A material part of a house" merely means "a part of the house which is material". So the words "of which a material part lies above………." merely mean "of which a part which is material…..lies above…….". They serve to identify the house and the relevant part, and tell us that the part must be "material". But they tell us nothing of the meaning of the word "material" or of the identity of the whole by reference to which the materiality of the part must be assessed.

    66. The word "material" means "significant", and like that word its meaning is inherently ambiguous. It may mean "substantial" but it may equally well mean "relevant". In Parsons v Trustees of Henry Smith's Charity [1973] 1 WLR 845 the Court of Appeal adopted the former meaning and said that materiality must be judged exclusively by reference to the house which the tenant is seeking to enfranchise. Lord Denning said that "a material part" of the house meant "an important part" of the house. Stephenson LJ explained that it meant "material to the tenant or to his enjoyment of the house"; and that if it was material in that sense then it would be "of such significance as to alter the house into a flat". In Duke of Westminster v Birrane [1995] QB 262 by contrast the Court of Appeal adopted the latter meaning and said that materiality must be judged by reference to the structure of which the house forms part. Nourse LJ said, at p 271:

"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…..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…."

    67. I do not find either approach satisfactory. The former has exclusive regard to the house which the tenant is seeking to enfranchise and takes into account the relative importance of the relevant part to the rest of the house with particular regard to the use to which the tenant is putting the part in question. This could have unfortunate consequences. If the relevant part of the house is relatively small but serves an important function, for example as the location of the central heating boiler, it seems that the house is taken out of the operation of the Act altogether, even though the part in question neither provides any significant degree of support to nor receives any significant degree of support from the rest of the structure. And even if the relevant part of the house does provide a significant degree of support to or receive a significant degree of support from the rest of the structure, it is difficult to discern any good reason why the whole house rather than the relevant part of it should be excluded from the operation of the Act. Lord Wilberforce did not comment on the approach of the Court of Appeal to this question when the case reached the House (beyond saying that the meaning of the word "material" was "open to discussion"), but this should not be taken as tacit approval. The point was no longer a live one, and Lord Wilberforce was characteristically reserving the question for the future.

    68. The latter approach is equally unsatisfactory and for much the same reason. As Nourse LJ recognised, it must have the effect of excluding altogether from the operation of the Act a large number of properties in respect of which there can be no discernible reason for excluding the whole house rather than the relevant part from the operation of the Act.

    69. In my opinion the key to the meaning of the word "material" in section 2(2) is provided by the context. The subsection forms part of a section which is concerned almost exclusively with structural matters and follows immediately upon provisions which are concerned with buildings which are vertically or horizontally divided. As Lord Wilberforce remarked in Parsons, section 2(2) deals with the case where the division is in a "broken line", that is to say where it is not in a single plane. Like the immediately preceding part of the section, therefore, it is also concerned with the layout of the building and the geographical relationship to one another of the units into which it is divided. It has nothing to do with the use which the tenant happens to make of the relevant part of the house when he serves his notice, or with the importance or value of the relevant part of the house relative to the whole. I do not think that Parliament can have intended that the larger or more valuable the house the greater or more valuable is the area of the relevant part required to preclude enfranchisement. This would give rise to all kinds of anomalies. In my opinion, the word "material" has an absolute and not a relative meaning. I would construe section 2(2) as referring to the case where part of the house lies above or below the rest of the structure to a material degree.