Vectis Property Company Limited v Cambrai Court Management Company Limited

A landlord which retains a roof and the airspace above it need not have expressly reserved a right to develop them. It may develop retained property, subject to respecting easements and contractual rights granted to others.

A repairing covenant for a building's structure and exterior ordinarily applies to the structure as it exists from time to time. It is not confined to the physical form of the building when the leases were granted. A letting scheme does not, without clear language or a necessary implied term, limit the estate to the original number of flats. Where further flats may lawfully be added, the scheme can require a management company to join in conforming future leases and may require adjustment of fixed service-charge proportions.

The landlord appealed from the First-tier Tribunal's valuation of the freehold on the collective enfranchisement of a nine-flat block. The parties agreed the value excluding development value. They disputed whether the landlord's retained roof and airspace could lawfully be developed to create two further flats.

The First-tier Tribunal held that development would interfere with the management company's repairing obligations and access rights in respect of the original roof. It therefore assessed only limited hope value, while making an alternative assessment if the landlord had a right to develop. The respondent sought permission to cross-appeal on the alternative development valuation and, if necessary, on hope value.

The central issues were whether the leases, including their letting scheme, prevented rooftop development and whether practical difficulties in maintaining the existing roof created a legal bar.

1. The appeal was allowed. The First-tier Tribunal erred in treating the management company's repairing obligations and access rights as confined to the roof in the form existing in 1969. There was no legal impediment to the landlord constructing two flats on the retained roof, and the price had to reflect the assessed development value.

2. The landlord had retained possession of the roof, airspace, common parts, exterior and surrounding land. It therefore did not need an express reservation in order to alter or develop the roof. Its freedom remained subject to any easements and contractual rights granted by the leases.

3. Applying the ordinary principles of construction stated in Arnold v Britton [2015] UKSC 36, the covenant to repair and maintain the structure and exterior applied to the building in its form from time to time. A replacement or raised roof would become part of the defined building. The management company would have to maintain the new roof and, insofar as the former roof required maintenance after being covered, the landlord would have to provide practicable access. Those matters created practical and financial challenges, not a legal prohibition.

4. The letting scheme did not impose a limit of nine flats. The original diagram and one-ninth service-charge provisions did not make such a limit necessary or obvious. The Tribunal preferred the reasoning in H Waites Limited v Hambledon Court Limited [2014] EWHC 651 (Ch) to that in Devonshire Reid Properties Limited v Trenaman [1997] 1 EGLR 45. A term could be implied to adjust contributions to a fair proportion if further flats were added.

5. The scheme also obliged the management company, or alternatively bound it by an implied covenant, to join in future leases in the same form. Its tripartite character was therefore no bar to development. Risks of unsafe works, disturbance, derogation from grant or breach of quiet enjoyment were matters for the developer to manage and cost; they did not remove the landlord's legal right to develop.

6. Permission to cross-appeal was refused on both valuation grounds. The First-tier Tribunal's hope-value assessment disclosed no legal error, and its market-evidence-based assessment of development value was not arguably wrong.

• Upper Tribunal (Lands Chamber): Allowed the landlord's appeal from the First-tier Tribunal (Property Chamber), substituted the conclusion that rooftop development was not legally barred, and refused the respondent permission to cross-appeal.
• First-tier Tribunal (Property Chamber): Held that the leases prevented the proposed rooftop development and assessed limited hope value, while making an alternative development-value assessment.