Landlords Win Ruling Protecting London Aristocratic Holdings

Landlords including one of Britain’s wealthiest families won an appeal in the U.K. Supreme Court that allows them to block forced sales of their land holdings to long-term company tenants.

The court upheld an appeal by the Howard de Walden Estate and the Day family, enabling them to stop the sale of the “freehold” on properties in central London demanded by corporate leaseholders Hosebay Ltd. and Lexgorge Ltd.

The decision has the greatest effect in central London, home to the most expensive real estate in the U.K. and the basis for the fortunes of aristocratic families including the Duke of Westminster and Earl Cadogan. Had the court rejected the appeal, tenants could have diminished landholdings held by the estates in central London’s affluent Mayfair, St. James’s, Marylebone and Fitzrovia districts.

“The large estates will be breathing a huge sigh of relief,” said Sara Dolley, an associate at London-based law firm Eversheds LLP who works as a real estate litigator. The ruling “makes a much-needed return to common sense and reality. It fits completely with the original intention of the legislation.”

The ruling limits a law allowing residential tenants on long-term leases to force the landlord to sell the freehold, or outright ownership of the property. It clears up an inconsistency created when the law was changed in 2002 that enabled companies occupying a property originally built as a house to demand the freehold sale, even though the property was being used commercially.

Small Payment

A leasehold is a long-term rental agreement under which land and the property on it reverts to the owner of the freehold on maturity, typically of 99 years. The freeholder receives a small annual payment known as a ground rent in addition to the substantial lump sum paid for the leasehold, which may be extended for additional payments.

The legal loophole allowed some investors “to appropriate the freeholds of commercial buildings, which we do not believe was ever the intention of Parliament,” Howard de Walden Estates Chief Executive Officer Toby Shannon said in an e-mailed statement responding to the unanimous judgment.

The estate manages 90 acres (36 hectares) north of Oxford Street, surrounding Marylebone High Street, owned by the Howard de Walden family.

Long-Term Investors

“This is an issue which affects not only the London estates, but also pension funds, charities, local authorities, private individuals and other long-term property investors with interests throughout the country,” Shannon said.

Neither building involved in the appeal could be considered a house under the law at the relevant time, Lord Cornwath wrote in the London court’s ruling.

Hosebay didn’t qualify because it used the building at Rosary Gardens in London’s South Kensington neighborhood as a “self-catering hotel,” the judge said. Lexgorge uses an 18th century house in Marylebone solely as an office.

“It is clear that it was never Parliament’s intention to extend enfranchisement rights to commercial or business tenants,” Grosvenor Group, the property company owned by the Duke of Westminster’s family trusts, said in an e-mailed statement.

The Duke, Gerald Grosvenor, is the world’s 72nd-richest man with a net worth of $12.3 billion, according to the Bloomberg Billionaires Index. Grosvenor Group manages about 300 acres of property in Belgravia and Mayfair, two of London’s most expensive neighborhoods.

Leasehold Reform

Lawmakers adopted the 1967 Leasehold Reform Act to permit tenants in low-income housing to acquire homes they had occupied for years and protect them from rogue landlords. The 2002 amendments changed the way of determining which properties were affected, allowing business leaseholders of mansions in areas such as Mayfair to claim freehold purchasing rights originally intended for occupiers of miners’ cottages in South Wales.

Many of the offices in London’s west end were built as homes and converted to fill the supply shortage after the city’s main business districts were damaged by bombing in World War II.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net