Tenants' rights of first refusal: what is a "building"?
29 January 2025

When landlords of large residential estates plan to dispose of their interests, they must consider whether their tenants benefit from rights of first refusal pursuant to Part 1 of the Landlord and Tenant Act 1987. If they do, the landlord must follow a prescriptive statutory notice procedure or risk the potentially severe consequences of a failure to comply, which include criminal liability. Yet complying with the notice procedure for disposals of large estates is notoriously tricky, not least because the Act requires the landlord to serve separate notices in relation to each building on the estate.
At first blush that may sound like an administrative frustration, however, it poses a more fundamental problem. The Act does not include a definition of "building" and when large estates have shared access and amenities, it can be difficult to ascertain whether an estate which a layperson considers to be made up of multiple buildings is actually one building, for the purposes of the Act. In this article we examine key points landlords and tenants should take away from the recent judgment of HHJ Hodge KC in SGL 1 Ltd v FSV Freeholders Ltd & Others [2025] EWHC 3 (Ch) which considers this precise question: what is a building?
The case concerned Fox Street Village, a residential development in Everton made up of five blocks (Blocks A – E). The landlord's administrators had served two sets of notices pursuant to section 5 of the Act: the first set of notices in respect of Block A and the second set in respect of Blocks B, C and E (Block D was not subject to any rights of first refusal). The Blocks were eventually sold to the purchaser in November 2020.
Following complaints raised by the tenants, the purchaser applied for a court declaration that the notices complied with section 5 of the Act and that the sale of the Blocks was lawful. After a number of hearings and the Supreme Court's refusal of permission to appeal, the sole issue that remained for the court to decide in this case was whether Blocks A – E form one, two or more buildings for the purposes of the Act (and consequently whether the notices served by the former landlord's administrators were valid).
The judgment provides a list of factors, each of which must be taken into account as part of a "multi-factorial evaluation exercise". The list is not exhaustive and the weight given to a particular factor will depend on the facts of each case. In assessing whether an estate is made up of one or more buildings, the landlord should consider:
The judge ultimately found that Blocks A – E formed one building and, as a result, the notices served by the former landlord's administrators were invalid. In coming to this conclusion, he considered each of the abovementioned factors in turn and, as might be expected, some factors pointed in the direction of the Blocks being one building whilst others indicated multiple buildings. However, there was a particular factor which outweighed all countervailing arguments when considered alongside other factors pointing in favour of one building (such as visual impressions). This key factor was that car parking spaces situated outside Blocks C and E (and possibly B) had been demised to the tenants of Block A and were only accessible via an access road shared by all the Blocks.
In reaching his decision, the judge considered that he must "loyally follow" the decision in Long Acre Securities Ltd v Karet [2004] EWHC 442 (Ch) "wherever it may take [him]" as neither party to the proceedings had challenged the authority. Long Acre is the leading authority for the proposition that the term "building" may include more than one structure for the purposes of the 1987 Act. The judge expressed the following reservations about its correctness:
Given the judge's criticism of Long Acre it is likely that the claimant in this case will be granted permission to appeal if they choose to challenge the judgment. The level of uncertainty surrounding the meaning of "building" is causing practical and expensive problems for both landlords and tenants and consideration by a higher court would be welcome.
The case of SGL 1 Ltd v FSV Freeholders Ltd & Others illustrates the ongoing challenges and uncertainties faced by both landlords and tenants in navigating the statutory notice procedures under Part 1 of the Landlord and Tenant Act 1987. The judgment underscores the necessity for landlords to meticulously evaluate multiple factors when determining whether an estate comprises one or more buildings. A reconsideration of the court's approach in Long Acre and clearer guidance on the meaning of "building" is sorely needed. Until such clarity is achieved, landlords intending to dispose of their interests in large residential estates must exercise extreme caution and possibly adopt a conservative approach by serving notices in various forms to mitigate the risk of criminal liability.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.