Freeholder’s entitlement to leasebacks of areas within the premises

Construction works for flat 1A were not started until after the Initial Notice had been served and the unit was not completed until after service by the freeholder of the Counter Notice. It was constructed within an area that included common parts of the building, and over which flat tenants had rights of access.

The Upper Tribunal, upholding the decision of the LVT, held that a freeholder is not entitled to a leaseback of a unit which was or was included within common parts at the Relevant Date. The Upper Tribunal went on to confirm the LVT’s decision that in order to be subject of a valid claim for a leaseback, a unit must exist such that a leasehold interest can properly be created in it at the time when the Initial Notice is served.

Works to construct the basement office, which was also created within part of the common parts of the building, did not start until after service of the Counter Notice by the freeholder. On the basis that the unit was formed within the common parts of the building and did not exist at the Relevant Date, the freeholder’s claim for a leaseback was rejected by the LVT, and this decision was upheld by the Upper Tribunal on appeal.

In relation to the porter’s flat, the Upper Tribunal upheld the decision of Roth J in the case of Panagopoulos v Cadogan [2010] that a porter’s flat was a common part. Therefore the freeholder should not be entitled to a leaseback of the porter’s flat.

This decision has provided some clarity in relation to a freeholder’s entitlement to claim a unit by way of a leaseback. For tenants contemplating a claim to collectively acquire their freehold, the decision upholds the tenants’ rights to acquire the freehold of their building which contains their flats, including the common parts.

It would be contrary to the scheme of the Leasehold Reform, Housing and Urban Development Act 1993 to allow a freeholder to seek a leaseback of a unit which it has created out of any random area between the date of the initial notice and completion of the claim.