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The recent decision in SGL 1 Ltd v FSV Freeholder Ltd [2025] EWHC 3 (Ch) highlights the importance for practitioners to exercise caution when advising on freehold disposals of multiple buildings on a development.
Part 1 of the Landlord and Tenant Act 1987 confers on qualifying tenants the right to acquire the freehold interest in the building containing their flats where the landlord intends to sell all or any part of the building, this is commonly known as the right of first refusal. The word “building” is not defined by the Act. In Long Acre Securities v Karet [2004] it was held that in certain circumstances “building” could include multiple buildings. Where a landlord is disposing of multiple buildings, the Act requires the Landlord to severe the disposal by servicing separate offer notices for each building.
The freeholder owned an estate in Liverpool comprising of 5 blocks of residential accommodation. The freeholder considered the estates consisted of two buildings, known as “block A” and “blocks B-E” and served two offer notices, one on the qualifying tenants of block A and one offer notice on the qualifying tenants of blocks B-E. Each offer notice offered to sell the freehold interest in that block. As issue arose as to the validity of those notices and the issues to be determined by the High Court were (1) whether blocks A, B, C and E were one or two or more “buildings” for the purposes of the Act (block D was not subject to the right of first refusal) and (2) in consequence to the answer to (1), were the offer notices served on the qualifying tenants by the freeholder valid notices.
The High Court held that relevant factors to consider when determining (1) above were:
(1) Plans of the structures
(2) Underlying structural support for the structures
(3) Lessees’ rights to use appurtenant premises
(4) Connections at any levels
(5) The dates of construction of the structures
(6) How the structures are managed (i.e., whether together or separately)
(7) How the service charge is operated
(8) Visual impressions
9) Means of access to the structures and any appurtenant premises
(10) How the structures are serviced
(11) The sharing of common facilities and amenities
(12) The planning history of the structures, and any enforcement action taken in relation to planning requirements and conditions
(13) The requirements of housing legislation, and building and other applicable regulations, and the measures considered necessary to enforce compliance with them
The above factors did not all point in the same way. For example, the plans and structural evidence suggested three buildings whereas the leases and the service charge provisions suggested only one building. HHJ Hodge KC took a multi-factorial evaluation and acknowledged that particular factors in certain cases exert a “magnetic attraction” in favour of a certain conclusion. In this case it was the shared use of Back Beau Street as the only means of access to the car parking spaces outside Blocks C and E, and possibly Block B. In this connection, HHJ Hodge KC noted that, when contemplating the judgment in Long Acre Securities v Karet and the precise circumstances in which Parliament must have intended the term ‘building’ to include more than one structure, the deputy judge cited the example of two structures with a shared access, commenting that “they might sensibly be regarded as one building for the purposes of the Act”.
When this particular factor was added in with all the other factors that point to the existence of a single ‘building’, within the meaning of the Act, it outweighed all countervailing factors and considerations. For this reason HHJ Hodge KC concluded that all four blocks constituted a single “building” within the meaning of the Act and consequently the offer notices served by the freeholder were invalid as only one notice should have been served for Blocks A, B, C and E.
If you would like to discuss a proposed section 5 right of first refusal claim and/or would like to obtain a quote for our fees, please do not hesitate to contact Sajel Patel on sajel@leaselaw.co.uk/0204 511 9103 or Sarah Osborne on sarah@leaselaw.co.uk/0204 524 3340.
