Forty-Five Holdings Ltd v Grosvenor (Mayfair) Estate
Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Purchase price – Appellant acting as both participating tenant and nominee purchaser – Whether potential development value of property to be taken into account in calculating marriage value – Appeal dismissed
The respondent owned the freehold of a building that comprised two mews properties, each located at first-floor level above an entrance and garage. The appellant held long leases of both properties; each lease included the roof and roof space and the air space immediately above. The appellant applied to acquire the freehold of the building under the collective enfranchisement provisions of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, acting both as participating tenant and nominee purchaser. All elements of the purchase price were agreed save for marriage value; the parties differed only as to whether, in calculating marriage value, the potential to unlock development value by adding an extra storey in the roof space should be taken into account. It was agreed that the price was £567,550 if it could be taken into account and £347,000 if it could not. The leasehold valuation tribunal (LVT) was asked to determine the issue.
It was common ground that, as things stood: (i) the appellant could not develop the roof space without negotiating a variation of the lease terms, owing to the existence of an absolute covenant against alterations; and (ii) the respondent could not so develop until the lease terminated and the property reverted to it; but (iii) the appellant would be able to develop after enfranchisement. The appellant argued that this could not be taken into account in calculating marriage value; although it represented an increase in the value of the freehold when held by the appellant, that increase was not marriage value within the meaning of para 4(2)(a) of Schedule 6 to the 1993 Act, since it was not attributable to the potential ability to enjoy new leases after enfranchisement but was caused by the fact that the appellant would be both freeholder and leaseholder and could therefore do as it wished with the premises. The LVT decided in favour of the respondent ruling that the development value could be taken into account in calculating marriage value. The appellant appealed.
Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Purchase price – Appellant acting as both participating tenant and nominee purchaser – Whether potential development value of property to be taken into account in calculating marriage value – Appeal dismissedThe respondent owned the freehold of a building that comprised two mews properties, each located at first-floor level above an entrance and garage. The appellant held long leases of both properties; each lease included the roof and roof space and the air space immediately above. The appellant applied to acquire the freehold of the building under the collective enfranchisement provisions of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, acting both as participating tenant and nominee purchaser. All elements of the purchase price were agreed save for marriage value; the parties differed only as to whether, in calculating marriage value, the potential to unlock development value by adding an extra storey in the roof space should be taken into account. It was agreed that the price was £567,550 if it could be taken into account and £347,000 if it could not. The leasehold valuation tribunal (LVT) was asked to determine the issue.It was common ground that, as things stood: (i) the appellant could not develop the roof space without negotiating a variation of the lease terms, owing to the existence of an absolute covenant against alterations; and (ii) the respondent could not so develop until the lease terminated and the property reverted to it; but (iii) the appellant would be able to develop after enfranchisement. The appellant argued that this could not be taken into account in calculating marriage value; although it represented an increase in the value of the freehold when held by the appellant, that increase was not marriage value within the meaning of para 4(2)(a) of Schedule 6 to the 1993 Act, since it was not attributable to the potential ability to enjoy new leases after enfranchisement but was caused by the fact that the appellant would be both freeholder and leaseholder and could therefore do as it wished with the premises. The LVT decided in favour of the respondent ruling that the development value could be taken into account in calculating marriage value. The appellant appealed.Decision: The appeal was dismissed. In valuing the freehold when acquired by the nominee purchaser, para 4(3) and (4) of Schedule 6 to the 1993 Act, properly construed, required an enquiry as to the value of the freehold in the hands of the nominee purchaser rather than the value that the nominee purchaser could obtain by immediately reselling the freehold in the open market. Any other conclusion would contradict the intention of para 4(2) and undermine the provisions regarding marriage value.Development value could be taken into account when assessing marriage value. In order to assess what increase in value of the freehold was attributable to the matters mentioned in para 4, a comparison was required between how happily placed the participating tenants were under their old leases and how happily placed they could become under the new leases that, by para 4(2)(a), it was assumed might be granted to them after the nominee purchaser acquired the freehold. That assumption continued to be made notwithstanding that, either by chance or deliberate design, the nominee purchaser was identical to one or all of the participating tenants, since any merger of the freehold and leasehold interests, for instance through identity of nominee purchaser and participating tenant, was to be disregarded by reason of para 4(4)(b). The valuation exercise under para 4 proceeded on the basis that the old leases remained unmerged. The possibility that the nominee purchaser would not enforce the terms of the old leases, such as the covenant prohibiting alterations, against the participating tenants was likewise to be disregarded under para 4(4)(b) as “other circumstances affecting the interest on its acquisition by the nominee purchaser”. On the other hand, the new leases contemplated by para 4(2)(a) did not have to be assumed to be on the same terms as the old leases. The potential ability to vary the terms of the leases was one of the factors that could be taken into account, under para 4(2), when calculating marriage value: Sinclair Gardens Investments (Kensington) Ltd v Franks (1998) 76 P&CR 230 and Maryland Estates Ltd v Abbathure Flat Management Co Ltd [1999] 1 EGLR 100; [1999] 06 EG 177 applied.Timothy Harry (instructed by Bircham Dyson Bell) appeared for the appellant; Anthony Radevsky (instructed by Boodle Hatfield) appeared for the respondent.Sally Dobson, barrister
