Central London County Court ruled that the two directors of serviced apartments company City Apartments Ltd could not take advantage of the Leasehold Reform, Housing and Urban Development Act (LRHUDA), which enables occupiers of flats "constructed or adapted for use as a dwelling" to buy out the freeholder and convert their long lease to full ownership.
Property litigation expert Katy Humphrey of Pinsent Masons, the law firm behind Out-Law.com, said that although the decision would almost certainly be appealed it would "give comfort to landlords of serviced apartment blocks".
"While the question of 'what is a house' under the 1967 Leasehold Reform Act has been considered on numerous occasions in recent years, there have been far fewer reported decisions considering the question of 'what is a flat' under the 1993 LRHUDA," she said.
"As with last year's decision by the Supreme Court in the Hosebay case, this ruling can be seen as a further victory for common sense with the courts placing significant weight on the actual use and nature of the occupation in determining whether the premises are a 'flat'. While not all cases will necessarily have the same outcome, this ruling sends out a clear message to opportunistic tenants seeking to rely on creative interpretations of the word 'flat' or 'house' that the courts will be looking at the actual use and pattern of occupation at the property, as well as its physical characteristics," she said.
City Apartments offered four fully-furnished apartments in a single building for use by businesses whose employees were visiting London. Although generally only used for a few days at a time, they were also available to those who wanted to stay longer. The company directors argued that if the properties were available to be used as a home, had the potential to be used as such and were sometimes used as the equivalent of a home then they satisfied the "dwelling" requirement under the LRHUDA.
The judge said that there was no doubt that the apartments looked like flats. However, he said that the pattern and nature of the occupancy of the properties had to be considered, as well as their physical aspects. On balance, he was not persuaded that the premises had been adapted for use as 'dwellings'.
"I think the physical attributes of premises need to be considered with care because taken alone they are unlikely to be conclusive," he said, according to a report in EGi. "After all, a suite at a luxury hotel may well afford all the space, comfort and facilities for a stay of several years but, to my mind, that would not make it a dwelling."
"There might be a degree of permanence to the occupation but the premises would not have been constructed or adapted for use for the purposes of a dwelling. They would be constructed or adapted for use for the purposes of a hotel," he said.
Of particular relevance in the City Apartments case was the letting history, he said. The apartments were occupied for short periods and the booking system and general pattern of occupancy were more like that of a hotel than a dwelling. In addition, the rooms were similar to rooms and flats provided by hotels and 'aparthotels', he said.
In its rulings in the Hosebay and Lexgorge cases published in October, the Supreme Court ruled that buildings used solely for commercial purposes could not qualify as 'houses' under similar laws, regardless of the original purpose of the property. In his leading judgment, Lord Carnwath said that allowing the occupiers of self-catering properties or buildings used for offices to buy out their landlords was "not the result intended by Parliament" when it removed a residence requirement from the 1967 Act.