The Upper Tribunal held that when considering additional compensation to be paid by leaseholders in an enfranchisement claim for the freehold, the principal of looking behind the corporate structure of companies and control, cannot be considered to determine potential development opportunities and value.
Aneesh Ltd v Hinchliffe and others [2023] concerned the development value payable by the enfranchising leaseholders of 3-6 Odessa Court, London. The freeholder in the claim argued that, in reality, it was being deprived of developing the roof of the property together with the neighbouring self-contained building 1-2 Odessa Court.
On its face, the freehold interests in the neighbouring properties were held by separate corporate entities. However, the freeholder sought for the two companies to be treated as a single economic entity, owning both 1-2 and 3-6 and the entire roof, on the basis the freehold interests were beneficially owned and controlled by the same people. Had the freeholder succeeded and the roof been deemed to be owned as a whole or jointly at freehold level, there would have been substantial development value, which the enfranchising tenants would have needed to pay to the freeholder as part of the claim.
The First – Tier Tribunal refused to pierce the corporate veil and the Upper Tribunal agreed with the approach, having considered the principle established in case law under a separate statutory regime. The Upper Tribunal distinguished previous case law on the basis that the freehold company subject to the claim at 3-6 had no proprietary interest in 1-2. As although closely linked, the two companies were not subsidiaries a trustee relationship did not exist, nor did the freeholder provide any funding to the owner of 1 - 2. In the circumstances, to scrutinise value at a beneficial level would be outside the statutory wording.
It should therefore be kept in mind that although landlords may have specific ownership structures for holding their property interests, the approach taken in a corporate structure may dictate the ultimate freehold value and development opportunities in an enfranchisement claim.
Given the proposals for reform to enfranchisement rights with more claims likely to be forthcoming, landlords may want to review how neighbouring blocks and estates are held in terms of the development value for the future.
