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The question in issue was whether a shared ownership lease granted for a term of more than 21 years amount to a long lease for the purposes of the Commonhold and Leasehold Reform Act 2002 - regardless of whether the tenant had a 100% share. The eventual outcome was always going to be significant.
What’s the background?
The landlord argued that 12 shared ownership leaseholders in a luxury block of apartments on a London development were excluded from being able to participate in a statutory right to manage the block, as they had not staircased to 100%.
Under s76 of the 2002 Act, a lease is a long lease if:
(a) it is granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant, by re-entry or forfeiture or otherwise,
(b) it is for a term fixed by law under a grant with a covenant or obligation for perpetual renewal (but is not a lease by sub-demise from one which is not a long lease),
(c) it takes effect under section 149(6) of the Law of Property Act 1925 (c. 20) (leases terminable after a death or marriage or the formation of a civil partnership),
(d) it was granted in pursuance of the right to buy conferred by Part 5 of the Housing Act 1985 (c. 68) or in pursuance of the right to acquire on rent to mortgage terms conferred by that Part of that Act,
(e) it is a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant's total share is 100 per cent… or
(f) it was granted in pursuance of that Part of that Act as it has effect by virtue of section 17 of the Housing Act 1996 (c. 52) (the right to acquire).
The landlord’s case was that the leaseholders did not satisfy paragraph (e), which expressly dealt with shared ownership where the tenant owns a 100% share.
The appeal judges ruled that on the correct construction of the 2002 Act, the judge in the Upper Tribunal was correct: a shared ownership lease for a term of more than 21 years will be a long lease - whether or not the tenant has a 100% interest. Therefore, every shared ownership tenant in the block in question is a qualifying tenant for the purposes of the 2002 Act.
Newey LJ said: “On the face of it, the various paragraphs represent… a series of gateways. A lease will be a "long lease" if any of paragraphs (a) to (f) is in point. That suggests that, as the [leaseholders] contends and the Judge held, a shared ownership lease for a term of more than 21 years will be a "long lease" whether or not the tenant has a 100% interest: paragraph (e) will not be applicable, but paragraph (a) will, and that will suffice.’
Further, there was a policy argument favouring this conclusion. Newey LJ commented: “Tenants with long shared ownership leases who have not staircased to 100% will still have an obvious interest in how the premises are managed, the more so since they will typically pay full service charges. That being so, Parliament might have been expected to have intended them to be able to participate in management issues.”
What does this mean?
The ruling provides important clarification as to how s76 relates to shared ownership leaseholders in the context of managing the property. Leaseholders who have not yet staircased to 100% are legally entitled to have a say in management issues – just as other leaseholders. They are on equal footing.
1Avon Ground Rents v Canary Gateway [2023] EWCA Civ 616
