Condition vs intention: when is a dwelling not a dwelling

A recent High Court decision considered a deceptively simple question: at what point does a residential building cease to be a dwelling?

In the case of ABN Group Holdings Ltd v Yarrow (PC) Ltd, the court examined whether a long-vacant block of flats had lost its status as a “dwelling” for the purpose of residential leasehold protections.

This decision will be of particular interest to landlords, property owners and developers dealing with long-vacant residential assets, as it provides guidance on when residential leasehold protections may cease to apply.

The case: ABN Group Holdings Ltd v Yarrow (PC) Ltd

The issue arose during a legal dispute about the forfeiture of Ayton Court, a former block of 29 self-contained flats in Manchester. The tenant held a long lease, but by the time the landlord peaceably re-entered for non-payment of ground rent, the building had stood vacant and been derelict for several years. Plans for refurbishment had been considered but never progressed.

Why did that matter? Because if the lease was a lease of a "dwelling" (for the purposes of the Landlord and Tenant Act 1987 and the Commonhold and Leasehold Reform Act 2002), various protections concerning notices and rent demands were potentially engaged. If it was not, those protections fell away.

Looking beyond the lease

The tenant argued that the building retained its residential character. It had been constructed as flats, the lease envisaged residential use and there were long-term plans to refurbish and re-let the units.

The landlord's case was that the court should focus on the reality of the position at the date of forfeiture. The building was derelict, uninhabitable and had been effectively mothballed for years. Despite its historic use, the landlord argued it was no longer intended to be occupied as a dwelling.

Drawing on recent decisions concerning the definition of a “dwelling” albeit in different circumstances (Cloisters Business Centre Management Co Ltd v Anvari and Sheppey Beach Villas Ltd v Taylor), the judge emphasised that the question was objective and the court was required to determine whether, at the date of forfeiture, the property was occupied, or intended to be occupied, as a separate dwelling.

Condition vs intention of a “dwelling”

The condition of the property featured heavily in the judgment. The evidence described a building with no functioning kitchens or bathrooms, extensive water damage, significant infestation and widespread disrepair.

However, the decision was not based on condition alone.

A recurring theme throughout the judgment was the issue of intention. While the tenant maintained that refurbishment remained the eventual goal, the court found there was no plan in place at the date of forfeiture, no meaningful progress towards residential occupation and no realistic short-term prospect of the flats being brought back into use.

Viewed objectively, the property was being held pending improved market conditions or a future development opportunity rather than with any present intention of residential occupation.

On that basis, the court held that the lease was not a lease of a "dwelling" for the purposes of the relevant statutory regimes.

Wider significance

This decision does not mean that every uninhabitable building will cease to be a dwelling. For instance, the court in Sheppey Beach Villas v Taylor demonstrated that even a badly damaged property, such as one largely destroyed by fire, may retain its status as a “dwelling”.

However, what this case appears to add is that the court will scrutinise not only the physical state of a building but the objective reality of the parties' intentions at the relevant date. Historic residential use and future aspirations may not be enough where a property has effectively become a land-banked development asset.

The judgment also contains helpful guidance on waiver. The court found that complying with statutory notice requirements did not mean the landlord has accepted that the lease remained in place or given up its right to forfeit.

Key takeaways for landlords

• Whether premises are a "dwelling" is assessed objectively at the date of forfeiture.
• Historic residential use will not necessarily determine the issue.
• The court will consider both the physical condition of the building and the intention for its future use.
• A long-vacant residential building may fall outside statutory residential leasehold protections if it has effectively become a development asset.
• Compliance with statutory notice requirements will not necessarily result in a landlord waiving an existing right of forfeiture.

While the decision provides useful guidance on the meaning of "dwelling", permission to appeal has been granted. The Court of Appeal may therefore have an opportunity to revisit the issue, meaning this is unlikely to be the final word on the issue meaning of "dwelling".

How Hamlins can help

The Hamlins Real Estate Disputes team has expertise in advising on complex commercial and residential developments. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.