Estates Gazette • 15 February 2025 • Legal notes

Elizabeth Dwomoh takes a look at whether more than one structure can constitute a “building” for the purposes of the right of first refusal

When a landlord intends to dispose of their reversionary interest in a block of flats, Part 1 of the Landlord and Tenant Act 1987 confers on tenants the right of first refusal. The landlord must serve an offer notice on the qualifying tenants of the flats contained in the building. Section 5(3) provides that, when a landlord effects a transaction involving the disposal of an estate or interest in more than one building (whether or not involving the same estate or interest), for the purpose of complying with this section, they must sever the transaction so as to deal with each building separately. The word “building” is not defined in the Act. The issue that fell to be determined in SGL 1 Ltd v FSV Freeholders Ltd and others [2025] EWHC 3 (Ch); [2025] PLSCS 11 concerned whether more than one structure could constitute a single “building” for the purposes of Part 1, such that only a single notice was required to be served.

Fox Street Village was a residential development in Everton, Liverpool. It initially comprised five blocks of flats: A, B, C, D and E, but block D was subsequently demolished. The remaining blocks shared a common access road and car parking facilities.

SGL 1 Ltd was the freeholder of the development. Its predecessor-in-title was Fox Street Village Ltd, a company in administration. FSV Freeholders Ltd was the nominee purchaser formed by the qualifying tenants to acquire the freehold.

In 2020, the joint administrators of FSV served one offer notice on the qualifying tenants of block A and another collectively on the qualifying tenants of blocks B, C and E. The qualifying tenants in the development argued that the offer notices were invalid as only a single offer notice should have been served in respect of blocks A, B, C and E as they constituted a single “building” for the purposes of Part 1 by virtue of the shared appurtenances.

SGL1, in arguing the contrary, asserted that block A was a self-contained block, while the remaining blocks constituted a single building for the purposes of Part 1 due to the shared appurtenances. SGL1 applied for a declaration that it had validly served the offer notices. At first instance, the declaration was granted, but FSVF successfully appealed and directions were given for the issue to be re-determined.

In Long Acre Securities Ltd v Karet [2004] EWHC 442 (Ch); [2004] 2 EGLR 121, the freeholder sought to dispose of part of its reversionary interest in the underlease of an estate comprising four integrated structures by serving a single offer notice without severing the transaction. The defendant, a qualifying tenant, challenged the validity of the notice on the basis that section 5(3) had not been complied with. The substance of the claim was eventually undefended.

The High Court held that, where a transaction involving the disposal of an estate or interest in multiple buildings was proposed, the landlord was required to sever the transaction and deal with each “building” separately, with each offer notice dealing with a maximum of one building per transaction. A notice that failed to do so would be invalid. Yet, in relation to integrated developments, with appurtenant premises used in common, there was no requirement to split them into inappropriate and unwieldy parts to comply with section 5(3). In such circumstances, a single notice could be served. Accordingly, the notice served by Long Acre Securities was valid.

The High Court, in the present case, was critical of the decision in Long Acre Securities. It observed that the substantive claim was undefended and the court did not have the benefit of any contrary arguments. Further, to include more than one structure in some, albeit limited, circumstances ran contrary to the strict construction of section 5(3) that rendered invalid an offer notice that dealt with a transaction including more than one” building”. Given that non-compliance with section 5 was a criminal offence, any layer of uncertainty concerning the ambit of the required offer notice in transactions involving the disposal of an integrated estate was undesirable. Despite its concerns, the High Court felt obliged to follow Long Acre Securities as a longstanding decision that neither party had sought to challenge.

In determining that the offer notices served by FSV were invalid, the High Court observed that a number of competing factors had to be weighed and balanced in a multi-factorial evaluation exercise. The relevant factors included: (a) the plans of the structures; (b) the underlying structural support for the structures; (c) the lessees’ rights to use appurtenant premises; (d) connections between the structures; (e) the date of construction of the structures; (f) the management of the structures; (g) the operation of the service charge; (h) visual impressions; (i) means of access to the structures and appurtenant premises; ( j) how the structures were serviced; (k) whether the structures shared common facilities and amenities; and (l) any relevant planning, housing regulation and enforcement history. The magnetic factor in the present case was the shared use of the single means of access to the appurtenant car park enjoyed by all the blocks.

■ Determining whether more than one structure could constitute a “building” for the purposes of the tenants’ right of first refusal under Part 1 of the Landlord and Tenant Act 1987 required the consideration of competing factors that had to be weighed and balanced in a multifactorial evaluation exercise