Malekshad v Howard De Walden Estates Ltd

This appeal concerned the interpretation of the phrase "material part" in section 2(2) of the Leasehold Reform Act 1967 and the application of the section to a building partly divided in a broken vertical line. The House held that the statutory distinction between vertical and horizontal division in section 2(1) must be given effect and that section 2(2) should be read as qualifying that scheme: "material part" refers to a material part of the house sought to be enfranchised, not to materiality in relation to other parts of the structure. The word "material" in section 2(2) denotes a substantial or significant part of the house (not merely relevant to another part or material only to a particular tenant's enjoyment) and is a question of fact and degree.

Applying these principles the House concluded that 76 Harley Street and 27 Weymouth Mews were divided vertically so they could not be enfranchised together; however the portion of basement of 76 Harley Street lying under 27 Weymouth Mews was not a material part of 76 Harley Street in the relevant sense and therefore did not exclude 76 Harley Street from enfranchisement. The matter was remitted to the County Court to deal with any necessary amendment and any subsection (5) objection by the freeholder.

Background and parties. The leaseholder (Mr Malekshad) held under a single lease both 76 Harley Street and 27 Weymouth Mews. He served notices under Part I of the Leasehold Reform Act 1967 seeking to enfranchise both properties, alternatively 76 Harley Street alone. The freeholder (Howard de Walden Estates Ltd) resisted the claim.

Procedural history. The case was litigated before Judge Ryland (County Court), then the Court of Appeal ([2001] EWCA Civ 761) where the tenant's claim to enfranchise both properties succeeded, and finally reached the House of Lords on appeal by the freeholder ([2002] UKHL 49).

Issues posed.

• Whether, for the purposes of section 2 of the Leasehold Reform Act 1967, the two structures together constituted a single "house" capable of enfranchisement; and
• Whether section 2(2) excluded 76 Harley Street from enfranchisement because a material part of it lay beneath 27 Weymouth Mews.

Facts in brief. The terrace house at 76 Harley Street had a basement extending to Weymouth Mews; part of that basement had been incorporated into the Mews building (27 Weymouth Mews) so that part of the basement of No.76 lay under No.27. The leaseholder occupied the third floor flat at No.76 as his residence and did not occupy No.27 as his residence.

Court's reasoning. The House first emphasised the separate structural and user elements in section 2(1): the paragraph (b) rule excludes a whole building from being a "house" where it is divided vertically, though individual units may be. That structure-based analysis meant the combined buildings could not be treated as one house for enfranchisement. On section 2(2) the majority held that "of which a material part lies above or below" refers back to the house claimed and that "material" should be understood in an absolute, structural sense (substantial in extent or effect on the house), not merely as material to another part of the structure or to a tenant's particular enjoyment. The contrary approach in Duke of Westminster v Birrane (Nourse LJ) and Stephenson LJ's formulation in Parsons were disapproved to the extent they treated materiality primarily by reference to prejudice to other parts or the tenant's enjoyment. Applying the correct test, the basement portion comprised only a small percentage of No.76 (insubstantial) and therefore did not exclude No.76 from enfranchisement. The House allowed the appeal, declared that the tenant can enfranchise 76 Harley Street alone, and remitted the matter to the County Court to determine any necessary amendment and to deal with any counter-notice under section 2(5).

Practical point: if the landlord wishes to protect interests in the overlying/underlying part, section 2(5) provides the mechanism by which that part may be excluded on notice and by court balancing of hardship and severance difficulties.

Appeal allowed. The House held that (i) the combined buildings were divided vertically and could not be enfranchised together under section 2(1)(b); (ii) the phrase "of which a material part lies above or below" in section 2(2) refers to a material part of the house sought to be enfranchised and "material" means substantial or significant to the house itself (a question of fact and degree); and (iii) on the facts the basement area under 27 Weymouth Mews was not a material part of 76 Harley Street and so did not exclude 76 Harley Street from enfranchisement. The matter was remitted to the County Court to deal with any amendment of notices and any subsection (5) objection by the freeholder.

County Court (Judge Ryland) -> Court of Appeal [2001] EWCA Civ 761 (tenant's claim to enfranchise both properties allowed) -> House of Lords [2002] UKHL 49 (appeal allowed by the freeholder; declaration that the tenant may enfranchise 76 Harley Street alone and remitted to the County Court).