Landmark Court of Appeal decision on the meaning of “Building” under the LTA 1987

A decision from The Court of Appeal represents a significant development in leasehold law, overturning long‑established authority on what constitutes a “building” for the purposes of section 5 of the Landlord and Tenant Act 1987 (“the 1987 Act”).

The judgment in SGL1 Ltd v FSV Freeholders Ltd [2026] EWCA Civ 267 has important implications for landlords, tenants, developers, and advisers involved in transactions where the statutory right of first refusal under Part I of the 1987 Act may be engaged.

The statutory context: a ‘building’

Part I of the 1987 Act gives qualifying tenants of flats a right of first refusal when a landlord proposes to dispose of an interest in a building containing flats. The regime is highly technical, and the application of section 5 depends on whether the premises in question amount to a single “building” within the meaning of the Act.

Until now, the courts had applied a relatively settled line of authority when determining whether structures formed one building or more than one building for these purposes. That approach often led to outcomes which were difficult to reconcile with modern mixed‑use or complex developments.

The dispute in SGL1 Ltd v FSV Freeholders Ltd

The case concerned the proposed disposal of a landlord’s interest in premises comprising multiple elements used for residential purposes. The central issue was whether the relevant premises constituted a single “building” for the purposes of section 5 of the 1987 Act, thereby triggering the statutory right of first refusal in relation to qualifying tenants.

At first instance, the court followed the established authorities and concluded that the premises did not fall within the statutory definition in a way that engaged the Act. The tenants appealed.

The Court of Appeal’s decision in SGL1 Ltd v FSV Freeholders Ltd

Allowing the appeal, the Court of Appeal undertook a detailed re‑examination of the statutory language and purpose of the 1987 Act. In doing so, it overturned long‑standing authority on how the term “building” should be interpreted.

The Court emphasised that:

• The meaning of “building” must be approached in a purpose‑driven and fact‑sensitive way, rather than by rigid adherence to earlier judicial formulations.
• Structural unity is relevant, but not determinative; the focus should be on how the premises function as a whole.
• The statutory objective of protecting qualifying tenants should not be undermined by overly narrow or formalistic interpretations.

The Court concluded that, on the facts, the premises did constitute a “building” for the purposes of section 5, with the result that the landlord’s proposed disposal engaged the tenants’ right of first refusal.

Why this decision matters

This judgment from the Court of Appeal in SGL1 Ltd v FSV Freeholders Ltd is important for several reasons:

1. A shift in legal approach
   The decision marks a clear departure from long‑established case law and signals a more flexible, purposive interpretation of the 1987 Act.
2. Increased risk in transactions
   Landlords and developers can no longer assume that previous “safe” structuring arguments will avoid the application of Part I of the Act. Transactions involving complex or composite premises now carry an increased risk of inadvertently triggering statutory rights.
3. Greater protection for tenants
   The ruling strengthens the position of qualifying tenants and reinforces the protective purpose of the legislation.
4. Renewed importance of early advice
   Whether the Act applies will often be a finely balanced question of fact and law. Early specialist advice is now more important than ever when structuring disposals or acquisitions.

Practical implications

For those involved in residential leasehold transactions, the decision means:

• Existing assumptions about what constitutes a “building” should be revisited.
• Detailed analysis of the physical layout, use, and functional unity of premises will be required.
• Transaction timetables should allow for the possibility that Part I of the 1987 Act applies, with all the procedural consequences that follow.

SGL1 Ltd v FSV Freeholders Ltd is a landmark decision which reshapes the interpretation of a key concept within the Landlord and Tenant Act 1987. By overturning long‑established authority, the Court of Appeal has introduced a more flexible and purposeful approach—one which will have wide‑ranging consequences for leasehold transactions.

Anyone involved in the disposal or acquisition of interests in residential premises should take careful note of this decision and seek advice at an early stage.

How Hamlins can help

The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. 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.