“Building” in LTA 1987 Part I Means a Functionally Integrated Built Envelope (Not a Multi-Block Estate Sharing Appurtenances)

1. Introduction

SGL 1 Ltd v FSV Freeholders Ltd [2026] EWCA Civ 267 is a Court of Appeal decision addressing a recurring, high-stakes question under Part I of the Landlord and Tenant Act 1987 (“LTA 1987”): what counts as a “building” for the purposes of the tenants’ statutory right of first refusal.

The case arose out of the disposal of the freehold title to a Liverpool residential development (“Fox Street Village”) comprising multiple blocks (A–E). The dispute concerned the validity of section 5 offer notices served by administrators of the former landlord, Fox Street Village Limited (“FSV Ltd”), in connection with a sale to SGL1 Limited (“SGL1”, the appellant). A tenants’ nominee purchaser, FSV Freeholders Limited (“Freeholders”, the respondent), challenged the notices and sought to exercise post-disposal rights.

The key legal issue was the effect of section 5(3) LTA 1987, which mandates that where a landlord proposes a transaction disposing of an estate or interest in more than one building, the landlord must sever the transaction “so as to deal with each building separately.” That requirement matters because a non-compliant section 5 notice is a nullity, and non-compliance risks both civil consequences and criminal exposure (via section 10A).

2. Summary of the Judgment

The Court of Appeal allowed SGL1’s appeal. It held:

  • Long Acre Securities Ltd v Karet [2005] Ch 61 was wrongly decided insofar as it treated multiple separate structures as one “building” merely because the occupiers shared “appurtenant premises” (such as accessways, yards, gardens, and amenity areas).
  • The central question is whether the relevant structures fall within a functionally integrated built envelope (a fact-sensitive yardstick, but intended to be more determinate than a broad multi-factorial balancing exercise driven by shared amenity land).
  • On the facts:
    • Block A was a separate “building” (a converted warehouse with its own utilities), so its section 5 notice was valid.
    • Blocks C and E were one “building” (single entrance/stairwell; access to C through E; shared plant and utilities).
    • Block B formed part of the same “building” as C and E because it was functionally dependent on their plant room and shared services; Parliament could not have intended severance to require major enabling works to make blocks independently serviceable.
    Therefore, the second notice (covering B, C and E) was also valid.

In short: section 5(3) requires building-by-building treatment, and “building” does not expand to embrace free-standing structures merely because tenants share amenity land or rights over appurtenances.

3. Analysis

3.1 Precedents Cited

Denetower Ltd v Toop & Ors [1991] 1 WLR 945

Denetower was a foundational authority on how “building” can include appurtenances (e.g., gardens, paths/roadways used with the flats). It was, however, a case about the scope of property that could be acquired following a non-compliant disposal (then under section 12), rather than about how a landlord must sever a proposed transaction under section 5(3).

In SGL 1, the Court of Appeal treated Denetower as supporting a purposive reading that avoids capricious outcomes for tenants (so that acquisition can sensibly include property “belonging to, or usually enjoyed with” the flats). But it rejected the move (made in Long Acre) from “appurtenances can be included with a building” to “separate structures become one building because appurtenances are shared.” The Court emphasised the difference between:

  • tenant-driven remedial acquisition after breach (sections 11A/12A/12B), and
  • landlord-driven compliance at the offer stage (section 5), where the landlord chooses what to dispose of subject to section 5(3).

Kay Green v Twinsectra Ltd [1996] 1 WLR 1587

Kay Green strongly influenced the Court’s insistence on a building-by-building approach. Aldous LJ explained that whether Part I applies, and whether the requisite majority exists, is assessed per building; otherwise tenants of one block could be governed by decisions (or apathy) of tenants in a different block—an “absurdity” in the statutory scheme. Staughton LJ’s observation that “in the ordinary way” separate buildings must be treated separately was especially consistent with the Court of Appeal’s outcome here.

In SGL 1, the Court accepted that there may be limited exceptions (e.g., where structures are truly integrated), but made clear that shared amenities do not, by themselves, justify collapsing separate structures into one “building.”

Long Acre Securities Ltd v Karet [2005] Ch 61

Long Acre had treated multiple “structures” as one “building” where occupants shared “appurtenant premises,” driven by the concern that severance would be “horrendously complex and unworkable” if common yards, gardens and roadways had to be divided.

The Court of Appeal in SGL 1 held that this reasoning wrongly imported a tenant-remedy lens into the landlord’s section 5 compliance context and overstated the “absurdity.” Section 5(3) compels dealing with each building separately, but does not dictate how shared land must be allocated when severing. Crucially, the Court held that:

  • the landlord can choose to dispose of part of a building, or a building without adjoining/shared land, without engaging section 5(3) (because the disposal is not “in more than one building”);
  • when section 5(3) does apply, the landlord can parcel amenity land as it chooses (subject to existing rights), so the spectre of compelled, impossible division is overstated; and
  • existing legal easements (and quasi-easements) protect tenants’ use regardless of who becomes reversioner.

The Court therefore concluded that Long Acre was wrongly decided on the key interpretive point.

30 Upperton Gardens Management Ltd v Akano [1990] 2 EGLR 232

This Leasehold Valuation Tribunal decision had suggested reading section 1(2)(a) as if it included “building scheme” to accommodate multi-block estates with shared land and services. Long Acre engaged with it, but ultimately rejected “building scheme” as legislation-by-interpretation.

SGL 1 re-affirmed that rejection: there is no statutory basis for “building scheme,” and section 5(3)’s text points the other way.

York House (Chelsea) Ltd v Thompson [2020] Ch 1

York House was cited principally for its discussion of “appurtenances” and a purposive approach to areas enjoyed with, or needed for upkeep of, the building. The Court of Appeal did not retreat from the broad, functional understanding of appurtenances, but confined that discussion to its proper role: it cannot be used to transform multiple structures into one “building” for section 5(3) merely because appurtenances are shared.

R(O (A Child)) v Secertary of State of the Home Department [2022] UKSC 2, [2023] AC 255

The Court cited this for orthodox modern statutory interpretation: the meaning is derived from the words in context, assessed objectively, and consistently with the purpose of the enactment.

Fage UK Ltd v Chobani UK Ltd [2014]

Cited for appellate restraint regarding findings of fact and evaluative judgments. The Court nonetheless intervened because the judge below adopted the wrong legal test (an error of law), which infected the evaluation.

3.2 Legal Reasoning

(a) The statutory architecture: initiative and consequences

A central insight in SGL 1 is that the LTA 1987 operates differently depending on whether the landlord complies:

  • At the section 5 stage, the landlord has the initiative: it chooses the estate/interest to dispose of and frames the offer notice (subject to section 5(3)’s requirement to sever a multi-building transaction).
  • Only after breach do tenants gain initiative through sections 11A/12A/12B (with the tribunal’s role under section 13 focused on disputes arising from tenant notices, not section 5 notice validity).

This distinction matters because Long Acre reasoned from a fear that severance would force the same amenity land to be transferred “twice” (or split in an impossible way). The Court of Appeal held that this fear does not justify rewriting “building”: the landlord can sever without destroying tenants’ rights, because easements endure and the landlord can choose what land to include with each “building” (or even sell a building without the amenity land).

(b) Text, purpose, and avoiding “absurdity” without rewriting the statute

The Court accepted the strong presumption against absurd or unworkable outcomes (reinforced by the citation to Bennion). But it held that “absurdity” was being overstated in Long Acre, and that reading “building” as plural because appurtenances are shared:

  • conflicts with the “clear instruction” of section 5(3) to deal with each building separately;
  • undermines the policy that tenants should be able to acquire the reversion of their block without being hostage to another block’s decisions (per Kay Green); and
  • introduces damaging uncertainty in a regime with criminal consequences (section 10A) and where a non-compliant notice is a nullity.

(c) The new yardstick: “functionally integrated built envelope”

Rejecting a test driven by shared appurtenances and rejecting an open-ended multi-factorial balancing exercise as the primary approach, the Court stated that the “central question” is likely to be whether the structures are within a functionally integrated built envelope.

While deliberately not framed as an exhaustive definition, the judgment illustrates what counts as functional integration:

  • physical integration (e.g., a single entrance/stair core serving multiple parts);
  • access dependency (e.g., inability to access one part without traversing another);
  • services dependency (e.g., shared plant room/boiler essential to operation, such that severance would require major works); and
  • the practical reality “on the ground” (no statutory contemplation of compelled works to create independent servicing).

(d) Application to Fox Street Village

The Court treated Block A as a separate “building” because it was a discrete structure (a converted warehouse) with its own utilities, and not part of an integrated built envelope with the other blocks. In contrast, Blocks C and E were effectively one integrated building, and Block B was brought into that same “building” because it could not function independently without installing substantial new plant and services—an outcome the Court viewed as inconsistent with what Parliament could have intended when requiring severance.

3.3 Impact

(a) Doctrinal impact: Long Acre displaced; clearer compliance boundary

The most significant doctrinal consequence is the Court of Appeal’s explicit conclusion that Long Acre Securities Ltd v Karet [2005] Ch 61 was wrongly decided on the meaning of “building” in this context. That reshapes advice and litigation under Part I:

  • Shared amenity land, accessways, and appurtenant premises will generally not permit aggregation of separate structures into one “building” for section 5(3).
  • Aggregation is more likely only where there is genuine functional integration of the built form (e.g., inseparable access/servicing dependency).

(b) Transactional impact: offer-notice drafting and severance strategy

The decision strengthens the expectation that landlords disposing of multi-block estates must structure section 5 compliance on a block/building basis, and it places renewed focus on careful mapping of what is being disposed of with each building. It also confirms that severance does not require (and the statute does not supply) a perfect legislative scheme for dividing all shared land; instead, existing property mechanisms and enduring tenant rights mitigate practical difficulties.

(c) Litigation and enforcement: reduced uncertainty against a criminal backdrop

By rejecting a broad “shared appurtenances” aggregation test (which could turn on nuanced, estate-specific patterns of use and drafting defects in leases), the Court moves the law towards a more predictable threshold—important where section 10A criminalises non-compliance absent reasonable excuse.

(d) Policy signal: legislative repair invited

Lewison LJ highlighted that section 5(3) can still yield inconvenient results and drew attention to the Secretary of State’s regulation-making power under section 20(4), suggesting serious consideration be given to reform—an unusually direct judicial nudge indicating ongoing systemic friction.

4. Complex Concepts Simplified

  • Right of first refusal (Part I LTA 1987): if a landlord plans a “relevant disposal” of premises to which Part I applies, qualifying tenants must be offered the chance to buy on the principal terms first (via a section 5 offer notice).
  • Section 5(3) severance: if one transaction would dispose of interests in more than one building, the landlord must treat each building as a separate offer-notice “package.”
  • Appurtenances / appurtenant premises: land or facilities that “belong to, or are usually enjoyed with” the flats/building (e.g., gardens, yards, access paths). Rights over them commonly exist as easements in leases.
  • Easements and quasi-easements: legal rights to use land (e.g., rights of way) that bind successors in title; “quasi-easements” can arise on a division of land and may pass automatically under doctrines such as section 62 of the Law of Property Act 1925 or Wheeldon v Burrows.
  • Functionally integrated built envelope: a practical concept: separate-looking parts may still be one “building” if they operate as one integrated unit (shared essential access/plant/services such that separation would require substantial reconfiguration).

5. Conclusion

SGL 1 Ltd v FSV Freeholders Ltd [2026] EWCA Civ 267 resets the meaning of “building” for Part I LTA 1987 away from the Long Acre “shared appurtenances” approach and towards a more structured, property-realistic inquiry anchored in a functionally integrated built envelope. The Court reaffirmed the centrality of section 5(3)’s building-by-building severance requirement, protected the autonomy of tenants in each block (as emphasised in Kay Green), and reduced uncertainty in a regime with both nullity and criminal consequences.

The practical takeaway is clear: shared amenity land seldom justifies treating multiple free-standing blocks as one “building”; true integration lies in inseparable access and servicing realities. Pending legislative refinement, this judgment is likely to become the leading reference point for section 5(3) disputes in multi-block residential developments.