McHale and another v Earl Cadogan

Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Purchase price – Block of flats – Deferment rate – Marriage value – Paras 4 and 3(1) of Schedule 6 to 1993 Act – Whether participating tenants’ current interests to be valued on assumption that no 1993 Act rights applying for purpose of calculating marriage value – Lands Tribunal so holding – Appeal dismissedThe second appellant company was the nominee purchaser on a collective enfranchisement application by which qualifying tenants of three flats in a block sought to acquire the freehold of the block from the respondent, under section 24 of the Leasehold Reform, Housing and Urban Development Act 1993. The block contained six flats: five were let on long underleases and one was a caretaker’s flat. The participating tenants comprised two of the underlessees together with the first appellant, who held the headlease and was the qualifying tenant of the caretaker’s flat.The leasehold valuation tribunal (LVT) determined the enfranchisement price at £770,940. In doing so, it: (i) assessed the value of the participating tenants’ current interests, for the purpose of calculating the marriage value, on the assumption that there were no rights of collective enfranchisement or lease extension under the Act, thereby applying the same assumption to the valuation of the tenants’ interests as was required to be applied to the freehold interest by virtue of para 3(1) and para 4(4)(a) of Schedule 6 to the Act; and (ii) determined the current lease value of the caretaker’s flat for that purpose as nil, on the ground that the first appellant had no power, under the terms of the headlease or underleases, to charge a rent for that flat.The Lands Tribunal subsequently upheld the LVT’s decision. The appellant appealed. The Court of Appeal allowed the appeal in respect of the caretaker’s flat: see [2010] EWCA Civ 14; [2010] 1 EGLR 51; [2010] 14 EG 110. A separate appeal hearing was conducted in respect of the approach to marriage value. The appellants contended that, on the natural meaning of para 4 of Schedule 6, the para 3(1) assumptions applied only in valuing the freehold interest and not to the valuation of the tenants’ interests. They sought to contrast Schedule 6 with the provisions of Schedule 13, in which the “no Act rights” assumption was expressly stated to apply when valuing the tenant’s current interest for the purpose of a lease extension application.Held: The appeal was dismissed.When calculating marriage value, the valuation exercise under para 4(2) of Schedule 6 to the 1993 Act required both the freehold interest and the tenants’ interests to be valued. Although full directions were given as to the way in which the freehold was to be valued, including the para 3(1) assumptions incorporated by para 4(4)(a), no special directions existed regarding the valuation of the tenants’ interests. A comparison with Schedule 13 did not assist since Schedule 13 was structured in a different way and the Schedule 13 valuation exercise, although similar, did not have any link with the valuation performed under Schedule 6. The starting point was therefore Schedule 6 and the description of the valuation exercise contained in para 4(2). What had to be valued was not an item of existing property but the increase in value of two items of property taken together, namely the freeholder’s interest and the interests of the participating tenants. Those two items together formed a single package, which had to be valued on two separate bases representing the position before and after collective enfranchisement. The second basis was that spelt out in para 4(2)(a) and (b), involving a determination of the element in the increase in the post-enfranchisement value that was attributable to the ability of the participating tenants to grant new leases to themselves, which, had there been a transaction in the open market, would have been divided through negotiations between the vendor and the purchaser. The first basis was intended to give a comparable figure before enfranchisement. Since the prospect of enfranchisement had specifically been excluded from the valuation of the freehold interest on that basis, it was necessary to value the second element in that package of property in the same way in order to produce a consistent valuation. On that interpretation, the valuation of the interests of the freeholder and the participating tenants were consistent, in accordance with the presumption that parliament intended to act in a principled and consistent way. If the assumption were not applied to the valuation of the tenants’ interests, the legislative intention of identifying the marriage value on a principled basis would be thwarted. Furthermore, the element of increase attributable to the potential ability of the tenants to grant themselves new leases could not be fully achieved without valuing the participating tenants’ interests on the basis of a “no Act rights” assumption.The first appellant appeared in person for the appellants; Anthony Radevsky (instructed by Pemberton Greenish) appeared for the respondents; Stephen Jourdan QC (instructed by Forsters LLP) appeared for the intervener, Cadogan Square Ltd, the tenant of another property in respect of which the same point was being taken before the Lands Tribunal.Sally Dobson, barrister