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Can a scheme set up specifically to take advantage of the collective enfranchisement legislation succeed? The High Court decided that such a scheme did not fall foul of the wording of the legislation.
Westbrook Dolphin Square v Friends Life  EWHC 2433 (Ch)
In Westbrook, the then parent company of Westbrook was anxious to acquire the freehold of Dolphin Square. It created a number of companies and transactions, to bring into existence underleases whose tenants could invoke the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993). Westbrook, as nominee purchaser, served an initial notice on the landlord, Friends Provident, in September 2007. Friends Provident served a counter-notice and Westbrook made an application to court. However, it later discontinued the proceedings due to a fall in the residential property market since the service of the initial notice.
In May 2010 it served a second initial notice. Again, Friends Provident served a counter-notice, challenging the validity of the notice and Westbrook’s entitlement to purchase.
Westbrook then applied to the High Court for a declaration that it was entitled to acquire the freehold.
The court decided that all challenges to Westbrook’s enfranchisement application failed and that it was entitled to its declarations as to its entitlement to enfranchise and other relief.
There were a number of challenges to Westbrooks’ entitlement to enfranchise, but the main one – of wider application - was whether it was prevented from enfranchising as it had created the scheme (the leasehold and corporate structure) to provide an opportunity for enfranchisement which would otherwise not exist. Friends Life argued that it was not the intention of Parliament to allow such schemes (because they would circumvent the apparent intention of the statute).
The High Court decided the SPVs were not disqualified from being participating tenants by interpreting LRHUDA 1993 against them. Friends Life could not look to Hansard to interpret the legislation. There was nothing ambiguous or obscure about the wording of LRHUDA 1993 and no words whose literal meaning would lead to absurdity.
The words to be interpreted were ‘tenant of a flat under a long lease’. There was no disputing that the literal wording of the section was complied with. Each of the SPVs was a tenant, each of them had a lease (two leases) of a flat and each lease was a long lease.
Friends Life’s argument was not so much an attempt to construe words in the statute, but to identify an underlying purpose and then find some words to which it could be attached as a matter of construction.
The judgment will be welcomed by tenants looking to collectively enfranchise. The main takeaway is that the scheme, an artificial structure set up specifically to take advantage of the collective enfranchisement provisions of LRHUDA 1993, and designed to ensure it complied with the letter of the legislation, did not fall foul of the wording of LRHUDA 1993.
However, as Mr Justice Mann pointed out, Friends Life’s argument was based on statutory interpretation, not public policy (though not all policy challenges succeed). It will be interesting to see if Friends Life appeals on the latter basis. This must be likely, bearing in mind the value and significance of the transaction.
The outcome of any such appeal would be interesting – particularly in light of the amendments to Leasehold Reform Act 1967 Act (made by Commonhold and Leasehold Reform Act 2002) to allow companies and investors to enfranchise a house. To do that, the residence requirement was removed so that there is a simple requirement of two years’ ownership.
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