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Valuation

Assumptions

Assumption of “no-Act rights”

Crown Estates Commissioners v Whitehall Court London Ltd
[2017] UKUT 242 (LC)

Summary

The UT confirmed that for the purposes of Schedule 13 Paragraph 3(2)(b) of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), the “no-Act rights” assumption extends not only to the subject flat, but also to any other flats in the same building.

This is relevant to the valuation of a headlease of premises comprising the subject flat and other flats capable of obtaining lease extensions in the same building.

Facts

A tenant of a long lease of a flat in a mansion block applied for a new lease under Section 42 of the 1993 Act. The Appellant was the freehold owner of the building comprising the flat and the Respondent held the headlease.

The parties were able to agree the total premium payable for the new lease but the freeholder and headlessee were unable to agree the proportions of that payable to each under Schedule 13 of the 1993 Act. Accordingly, the terms of acquisition were not able to be agreed. The freeholder chose not to agree the proportions with the tenant pursuant to Schedule 11 Paragraph 6 of the 1993 Act, but instead to refer the dispute to the First-tier Tribunal (“FTT”) under Section 48 of the 1993 Act.

The tenant took no part in the proceedings. The dispute was between the freeholder and headlessee both at first instance and on appeal.

Decision on Appeal

The UT accepted that Sloane Family Estate v Mundy [2016] UKUT 223 (LC) was not determinative of this issue and determined that the 1993 Act should be interpreted to give effect to the rights Parliament intended to confer on tenants, but not to go any further. This meant not pressing artificial assumptions “beyond their natural limits” so the price ascertained for relevant interests should correspond “to market reality as closely as those assumptions permit” As a result the UT overturned the FTT’s decision and held that the “no-Act rights” assumption applies not just to the subject flat, but the whole of the premises comprising it.

Comment

The issue addresses an esoteric ambiguity that will only be relevant in a minority of cases where a headlease of a building is more than a convenient device but is instead a valuable investment (here with added unusual rental provisions). The decision favours the freeholder, resulting in a marginally smaller proportion of the premium payable by the tenant going to the headlessee.

It should be noted that the UT admitted to wavering in deciding this Issue. As a result, it’s possible that other litigation may seek a more confident determination.


Improvements

Demolition and reconstruction

The Portman Estate Nominees (One) Ltd (1); The Portman Estate Nominees (Two) Ltd v Jamieson
[2018] UKUT 0027 (LC)

Summary

The Upper Tribunal determined the price payable for a mews house where the original house on the site had been demolished in 1957 and reconstructed in its current form.

Facts

This appeal concerned an enfranchisement pursuant to the provisions of the Leasehold Reform Act 1967. As at the date of service of the Respondents’ initial notice under the 1967 Act, the property comprised of a two-storey, mid-terrace mews house. However, that house had been built following the demolition in 1957 of the original property which stood on the site. The current property as built in 1957 retained one of the flank walls of the original building, a small part of the rear wall and a significant part of the foundations.

Issues

The Tribunal had to decide whether the works to the property carried out in 1957 amounted to an improvement to the house, the value of which ought to be disregarded when determining the purchase price payable on enfranchisement under section 9(1A) (d) of the 1967 Act.

Decision

The FTT held that the improvements ought to be disregarded.

Decision on Appeal

It was argued in the Upper Tribunal that the statutory disregard of improvements only applies if the house is a house (as defined by section 2 of the 1967 Act) at the time that the work is carried out. The submission found support in the fact that the Court of Appeal in Rosen v Trustees of Camden Charity [2002] Ch 69 held that the building of a house on a previously bare site could not constitute an improvement of the house (rather, those works caused the house to come into existence).

However, the Upper Tribunal pointed out that the purpose of section 9(1A) (d) of the 1967 Act was that “any improvements” should be disregarded provided that those improvements had been carried out at the expense of the tenant and so long as they enhanced the value of the building. There was no requirement for the works to be carried out to a structure which could properly be called a house at the time of the works. This was not a case in which the current house had been developed on bare land – rather the current house incorporated major elements of the old structure.

Further, on the facts of this case, the works (though they involved the demolition and rebuilding of a new house) amounted to an improvement of the building originally demised. The contrary submission would mean that the more substantial the works carried out by the tenant, the less benefit the tenant would be able to obtain from the statutory disregard of the improvements. That would defeat the statutory purpose. Whether or not works amount to an improvement is to be judged from the tenant’s perspective – plainly in this case the tenant believed that the works were an improvement otherwise he would not have carried them out.

Having been successful on these two important points, it was unfortunate for the tenants that the Upper Tribunal were not satisfied as a matter of fact that the works in 1957 were carried out at the expense of the tenants’ predecessors in title. Accordingly, the improvement works did not fall within section 9(1A) (d) of the 1967 Act and could not therefore be disregarded in determining the purchase price payable on enfranchisement.

Comment

This case is good authority for the proposition that works of demolition and rebuilding of an original house are capable of falling within section 9(1A) (d) of the 1967 Act despite the decision in Rosen v Trustees of Camden Charity [2002] Ch 69. It will be highly relevant that some element of the existing structure has been incorporated into the new building.

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