A house by any other name….

27 August, 2012
by: Cripps Pemberton Greenish

Magnohard Limited v (1) Earl Cadogan (2) Cadogan Estates Limited (2012)
It is perhaps surprising that even words in common usage can be a source of considerable strife and litigation for lawyers and their clients.  What constitutes a house for the purposes of the Leasehold Reform Act 1967 is one such example.   In 2012 alone, the meaning of this beguilingly simple term has been considered by both the Court of Appeal (inMagnohard) and the Supreme Court (in Hosebay).  

Magnohard was the tenant of a long lease of a building pictured below, in Sloane Gardens, Chelsea.  It tried to make a claim to buy the freehold of the property by exercising what it considered was a right to do so under the Leasehold Reform Act 1967.  However, to take advantage of that right, Magnohard first had to demonstrate that it would be reasonable to call the building a house.

The building was built as a block of flats and had remained a block of flats ever since.   Despite this Magnohard tried to argue that it was reasonable to call the building a house.

Various judges have commented over the years that a large block of flats would not come within the definition of “;house”. The Judge in the County Court was no exception and thought it would be odd if someone were to call the building a house given that it was clearly constructed as a block of flats.    Perhaps unsurprisingly, the Court of Appeal agreed and concluded Magnohard was not entitled to enfranchise the building.

The Supreme Court has recently refused Magnohard permission to appeal this decision.  In this case, at least, it seems the house conundrum has drawn to a close.

And when a house is not a home – the Hosebay grand finale
Day v Hosebay (2010) and Howard de Walden Estates v Lexgorge (2010)

As readers may recall, this conjoined case concerned the topical question of what amounts to a house under the Leasehold Reform Act 1967.  PG acted for the Day Estate.  In each case, the Court of Appeal held that the buildings in question were houses despite their commercial use at the time the tenants made their claims to enfranchise.  Given the far reaching implications for landlords and tenants alike, the freeholders appealed to the Supreme Court.   The case was heard in July of this year and the eagerly awaited judgement is expected to be handed down in early autumn.  Further updates will feature in our next edition.

Stamp Duty Land Tax – The Truth is out!

As many of us will recall, the budget in March made several changes to Stamp Duty Land Tax rates.There is now a new higher rate of 7% on purchases of completely residential property where the price exceeds £2 million.  This does not affect non-residential or mixed use property where the highest rate of SDLT remains at 4%.

In addition if the purchase is by a “;non-natural person”, the SDLT rate is 15%.  A “;non-natural person” includes corporate bodies such as companies and partnerships.  However it does not include companies acting in their capacity as trustees of a settlement nor property development companies that meet certain criteria.

The rent threshold on which SDLT is payable for new leases remains at £125,000 for residential property but has been increased to £150,000 for commercial and non-residential property.

At the same time the Chancellor also announced that a new annual charge would be introduced on “;non-natural persons” owning residential properties worth over £2 million. The intention is to clamp down on SDLT avoidance where residential property is held by a company via a process known as “;enveloping”.  The property is then disposed by way of sale of the shares in the company, as opposed to the sale of the property itself, in consequence avoiding the payment of SDLT.   The higher rate of SDLT for purchases by non-natural persons and the annual charge on properties already owned by them is designed to limit the ownership of high value residential property via companies thus reducing the transfer of property by means of company share sales and the subsequent avoidance of SDLT.

Coupled with this is the Chancellor’s proposal to charge capital gains tax on the sale of UK residential property by non-resident non-natural persons. This is designed to act as further discouragement for residential property to be held through enveloping arrangements.

The Treasury realises the Chancellor’s proposals will have wide ranging implications for many corporate bodies buying and owning residential properties regardless of whether these properties were held in such structures for the purpose of avoiding SDLT.  As a result, the Treasury has circulated a consultation paper about these proposals and invited responses by 23rd August 2012.