SGL1 Ltd v FSV Freeholders Ltd [2026] EWCA Civ 267

In a landmark decision, the Court of Appeal has re-formulated the meaning of a “building”, overturning the test in the famous decision of Deputy Judge Vos (now better known as the Master of the Rolls) in Long Acre Securities Ltd v Karet.

The appeal concerned the question of what a building is for the purposes of Part 1 of the Landlord and Tenant Act 1987 (tenants’ right of first refusal), and as a consequence whether certain notices served under section 5 of the 1987 Act were valid. Under Part I of the 1987 Act, before a freehold owner disposes of its interest, where there are flats held under long leases, the freeholder owner must first offer to sell the freehold to the tenants on the same terms as the offer to the incoming purchaser.

By way of background, the buildings in question related to a development in Liverpool called Fox Street Village (FSV) where there were 5 blocks A – E.

• Block A was a former industrial warehouse converted to residential.
• Block D was demolished following destruction by fire.
• Blocks B, C & E were newbuild residential properties.

FSV Ltd the freeholder owner of Blocks A – E entered into administration and the administrators of the freehold owner served 2 section 5 notices: 1 for Block A and 1 for Blocks B,C & E on the tenants. 2 notices were served because section 5(3) was engaged of the Act which provides that:

Where a landlord proposes to effect a transaction involving the disposal of an estate or interest in more than one building (whether or not involving the same estate or interest), he shall, for the purpose of complying with this section, sever the transaction so as to deal with each building separately.

The tenants did not accept the offer and so the administrators entered into a contract with SGL1 Ltd (the appellant in these proceedings) and it became the freehold owner.

After the sale of the freehold, a company owned by the tenants was formed, FSV Freeholders Ltd and the tenants served a section 12B notice on SGL1 claiming the right to purchase Blocks A, B, C & E. Under the 1987 Act, tenants can serve a section 12B notice if the landlord has not complied with the Act. The tenants claimed the landlord did not comply with the Act before selling to SGL1 Ltd since the section 5 notices were invalid because (in their view) Blocks A – E should be considered one building, and so only one section 5 notice should have been served.

The County Court

At first instance, District Judge Lampkin declared that FSV Ltd had complied with section 5 on its disposal of the freehold.

The tenants appealed, and permission was granted to appeal by Mr Justice Fancourt who restored the claim of the tenants for the purpose of determining whether Blocks, A, B,C and E for one or two buildings, and consequently if only one building then the section 5 notices were invalid.

The High Court

His Honour Judge Hodge KC in the High Court followed the decision of Karet, in which the High Court held that there is one building where the tenants use the same “appurtenant premises”, meaning that “it is reasonably clear . . . that the qualifying flats on the estate share the use of the same accessway, amenity areas or gardens, car parking  areas, yards, paths, and roadways . . .”. In that case Deputy Judge Vos was satisfied that “the occupants of the qualifying flats in each of the four buildings making up the estate share the use of the same “appurtenant premises””.

Hodge, using that analysis, found there was only one building and so the transaction should not have been severed, there should have been 1 notice, and so the 2 notices were invalid. He came to his decision on consideration of 13 relevant issues being:

(1) plans of the structures;

(2) underlying structural support for the structures;

(3) lessees’ rights to use appurtenant premises;

(4) connections at any levels;

(5) the dates of construction of the structures;

(6) how the structures are managed (whether together or separately);

(7) how the service charge is operated;

(8) visual impressions.

The first 8 of these factors were often considered because they mirror the considerations identified (at para 2.9) in the main practitioners textbook Radevsky and Clark.

Hodge identified a further five factors of potential relevance, being:

(9) means of access to the structures and appurtenant premises;

(10) how the structures are serviced;

(11) the sharing of common facilities and amenities;

(12) the planning history of the structures and any enforcement action taken in relation to planning requirements and conditions; and

(13) the requirements of housing legislation and building and other regulations and the measures considered necessary to enforce compliance with them.

The Court Appeal

In the Court of Appeal (at paragraphs 62 – 65) Mr de Waal KC (acting for the appellants) submitted a simple test that: a “building” is a single structure with the proviso that where, in practice, it is indivisible from another structure, or physical division is impossible, the structures are one “building”.

In the circumstances of this case, the appellant argued that Blocks C and E are invisible because they share an entrance and a staircase and have a combined plant room are indivisible, and that Block B is also indivisible from Blocks C and E because it is reliant upon the same plant room and has no heating or other facilities of its own.

The Court of Appeal unanimously agreed with Mr de Waal’s definition of a building for the purpose of the 1987 Act and concluded that it is unnecessary to undertake the detailed consideration of the 13 factors Hodge addressed in this case. Rather they said, the test should be clear and practical. The court said it made no difference in this case, that certain tenants in Block A have leases of car parking places outside Block B, C or E.

A change in the law

While this is a departure from Karet and is a change in the law, the court recognised the deficiency of the 1987 Act. LJ Lewinson added that Section 20(4) of the Act gives the Secretary of State power by regulations to make such modifications to any of the provisions in sections 5 to 18 as he considers appropriate. He said that the Secretary of State should give serious consideration to exercising that power.

Practitioners should seriously consider reviewing any existing section 5 notices to understand whether they comply with the legal test, unless the transfer has already completed in which case the ruling is not anticipated to have retrospective effect.