The High Court has determined that an estate made up of multiple blocks of flats constituted a single "Building" in respect of the tenants' rights of first refusal under the Landlord and Tenant Act 1987.
Section 5 of the Landlord and Tenant Act 1987 (the 1987 Act) grants rights of first refusal for certain tenants of flats in buildings where the landlord intends to sell its interest. In order to comply with the tenant's rights of first refusal, before disposing of their interest in the property a landlord must serve section 5 notices on qualifying tenants. With some exceptions, this applies to premises if they constitute the whole or part of a building and contain two or more flats owned by qualifying tenants.
Section 5(3) of the 1987 Act provides that where the landlord proposes to effect a transaction involving the disposal of an estate or interest in more than one building, they shall for the purposes of complying with the section server the transaction so as to deal with each building separately.
This means that where a landlord is disposing of an interest in more than one building, separate notices must be served. However, the 1987 Act does not define the term "building".
The case of SGL 1 Ltd v FSV Freeholders Limited [2025] EWHC 3 (Ch) concerned whether a residential development consisting of four blocks of flats, being blocks A, B, C and E Fox Street, Village, Liverpool constituted one or more buildings within the meaning of the 1987 Act. The interest in the freehold of the flats had been transferred to the Claimant in the case, SGL 1 Ltd by the landlord's administrators. Before doing so, the administrators had served two Section 5 notices on the tenants one in respect of block A and a separate notice in respect of blocks B, C and E.
The Claimant sought a declaration from the Court that the joint administrators of the freehold estate in the blocks had lawfully disposed of the property in accordance with Section 5 of the Landlord and Tenant Act 1987.
The issue for the Court was whether the four blocks constituted one, two or more buildings for the purposes of the 1987 Act.
The Court ruled that the four blocks constituted a single building and as a result the notices were invalid. In assessing whether the estate was made up of one or more buildings for the purposes of service of notices under 1987 Act the Court held that the landlord should consider:
- The structure of the estate: visual impressions, plans of the structures on the estate, underlying structural support, connections between the structures, the dates of construction, how the structures are serviced and means of access to the structures and appurtenant premises.
- The shared facilities: the extent to which the estate shares common facilities, whether amenities are integrated and the extent to which they are managed.
- Appurtenant premises: the lessees right to use the appurtenant premises, shared accessways and in particular in this case shared car parking spaces.
- History and legislation: planning history of the structure and the requirements of housing legislation, and building and other applicable legislation.
Acknowledging that this was essentially a multi-factored evaluation exercise, in this case the shared use of rights of access over Back Beau Street and other communal areas and the rights to use the appurtenant car parking spaces between Blocks B, C and E were particularly important factors in the Court's decision.
In considering the case the Court had due regard to the previous case of Long Acre Securities Ltd v Karet (2004) EWHC 442 (Ch) as the leading authority in respect of what constitutes a building, which could mean:
- A single standalone structure; or
- A group of structures that share common appurtenant premises (e.g., communal facilities, parking or services).
Whilst the judge in this case expressed reservations as to the correctness of the Long Acre Securities decision, he ultimately found, that given neither party to the case had challenged the leading authority, he had to follow it loyally in this instance.
Although the implications of the Court's decision were not spelled out in its judgment, the technical consequences of a landlord having failed to serve valid section 5 notices is that criminal and civil liability can follow, as well as the tenants having the collective right to effectively unwind the disposal and acquire the property on the same terms as the purchaser.
This case serves as clarification on the meaning of "building" within section 5 of the 1987 Act where there are multiple structures involved in the sale of a freehold estate. It offers guidance on how to determine whether multiple structures in fact form only one "building" In particular, it serves to highlight the importance of shared facilities when considering this question.
