John Lyon’s Charity v Shalson

Leasehold enfranchisement –– Leasehold Reform Act 1967 –– Determination of price –– Disregard of improvements –– Property initially converted into flats –– Conversion depressing price on valuation date –– Property reconverted to single family house –– Whether reconversion works an improvement for purposes of section 9(1A)(d) –– Whether disregard to be construed as a whole –– Whether disregard falling to be applied in relation to totality of works affecting value on valuation date The appellant tenant held a lease of a detached house from the respondent freehold owner for a term of 99 years from March 1947. The lease had been preceded by others, the first of which had been granted in 1843, when the house was constructed. The tenant sought to enfranchise the freehold under the Leasehold Reform Act 1967. Following the grant of the 1947 lease, the house had been converted into five flats, and then subsequently altered by various assignees. By 1991, the house had been rearranged to provide only two units. In 1993, the tenant completed the conversion of the property to a single family house. In an appeal to the Lands Tribunal, the member decided that section 9(1A)(d) of the 1967 Act did not apply, and that the increase in value attributable to the conversion works did not have to be disregarded when determining the enfranchisement price. The works effectively reversed the conversion of the property into five flats, which latter arrangement, if left in place, would have diminished its total value at the valuation date. The tenant appealed. Held: The appeal was dismissed. The disregard in section 9(1A)(d) must be construed as a whole. It cannot be said that an improvement increases the value of a property if the works relied upon consist only of reversing work carried out by a predecessor in title that would have depressed the value of the property as at the valuation date. The valuation has to be made on the valuation date. The works relied upon by the tenant, in restoring the property to a single family house, did not come under section 9(1A)(d). However, care should be taken at the commencement of a very long lease when considering the nature of a property and the history of any works carried out. (A very long lease might consist of a succession of leases, considered together as a long lease under section 3(3) of the Act.) The proper question was whether the alleged works of improvement were doing nothing more than altering previous works to the property, which, in the market as it existed as at the valuation date, would have been a depressing, rather than an increasing, factor on the market price. No cases are referred to in this report. This was an appeal by the tenant, Peter Shalson, from a decision of the Lands Tribunal on an appeal from the leasehold valuation tribunal, in proceedings under the Leasehold Reform Act 1967 for the determination of the price payable to the respondent, John Lyon’s Charity. 56 Edwin Johnson (instructed by David Conway & Co) appeared for the appellant; Kenneth Munro (instructed by Pemberton Greenish) represented the respondent. Giving the first judgment, BUXTON LJ said: 1. This is an appeal from a decision of the member of the Lands Tribunal, Mr Norman J Rose FRICS, made in leasehold valuation proceedings on appeal from the London Leasehold Valuation Tribunal. 2. The question before Mr Rose was as to the proper valuation of the price to be paid by the lessee, under leasehold valuation proceedings, of a property in Hamilton Terrace, London NW8. The property is in a substantial and well-known road in St John’s Wood. It was described as being a detached period house, arranged on various floors, with a garage and other desirable amenities. It was built under an agreement for lease dated 1840, and the first lease was granted in 1843. Subsequent leases followed, and the present term was a term of 99 years, granted in March 1947. 3. It was agreed, for the purposes of this appeal, that all these leases could be considered together under section 3(3) of the Leasehold Reform Act 1967. I should, however, emphasise that the section 3(3) point has not been argued before us, and we make no concluded decision upon it. 4. The short point that gives rise to this appeal is as follows. Following the grant of the 1947 lease, the premises were converted into five flats, and subsequently altered by various assignees, in each case at the then lessee’s own expense. The result was that, by 1991, when the respondent acquired the lease, the accommodation had been rearranged to provide only two units, a self-contained basement flat and the remainder of the house. The conversion to a single family house, as the property now is, was completed in 1993 by the now lessee at his own expense. 5. The question for the member was whether the work that had been done to transform the premises from a building arranged as five flats into a single family house was an improvement under the terms of section 9(1A)(d) of the 1967 Act, and, therefore, an expense that went to the diminution of a price to be paid. 6. The arguments on each side were simple, although some of the background arguments, and the way in which they were deployed, were not so straightforward. The simple cases were these. The lessee said that the wording of section 9(1A)(d) was clear. The value of the house and premises had been increased by an improvement to it, that is to say, to convert it from a building of flats into a single property. The contention against that, which prevailed with the member, was that all that the work had done was effectively to reverse a conversion of the property into the five flats, which latter arrangement would, if left in place, have diminished its total value as at the valuation date in 1997. 7. The case is a good example, as Mr Edwin Johnson, in his careful submissions for the appellant lessee, pointed out, of the way in which fashion, or need, in the occupation and arrangement of property can vary over the years, and the way in which arrangements of property and their value can be affected by that. In 1947, it is probably the case (although I think that no one had confirmed that point) that the property, as converted into five flats, would have had a total value greater than when it was in single occupation. It was, however, the valuation view in 1996 that the property arranged in a number of flats would have been less valuable on a sale than the property taken as a whole, as it now is. It was for that reason, of course, that the lessee said that converting it to a single family house had indeed been a relevant improvement. 8. Despite the detailed argument that we have heard, both orally and on paper, I consider that, certainly on the facts of this particular case, the point is a short one. The question concerns, under section 9(1A)(d): the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense; 9. That expression has to be construed as a whole. Speaking for myself, I simply do not see how it can be said to be such an improvement by the tenant or his predecessors in title, increasing the value of the house and premises, if the works relied upon consist, as they consist in this case, only of reversing work done by a predecessor in title (or even, remarkably, by the instant tenant) that depressed the value of the house and premises. As at the valuation date, the conversion into five flats indeed would have so done. 10. The reason for my saying that is that the Act treats the activities of “the tenant or his predecessors in title” as a single whole, and it cannot, in my view, be an improvement by that body simply to put right what that body had earlier done wrong. In the present case, it may appear to be paradoxical that when the premises were converted into five flats, the landlord agreed to that being done, and that all concerned thought at that time that would improve the value of the property. But the short point is that the valuation has to take place on the valuation date, at the time when the tenant chooses to give notice of his desire to have the freehold, and it is within the market conditions of that date that questions of “improvement” to increase value have to be determined. 11. There are other grounds for thinking that is the correct approach. First, as the member accepted in para 42 of his determination, the construction contended for by the lessee could produce surprising results. If, for instance, for eccentric reasons peculiar to a particular tenant or to the way in which he wished to use the property, a property had been gutted or significantly altered in arrangement so that it pleased a tenant better, but materially reduced the market value of the premises, on the construction contended for by the lessee in this case, putting that right even by that tenant himself (let alone by a successor tenant) would count as an improvement of which he should have the benefit. I cannot think that that is a sensible outcome. 12. Further, the tenant, the person who applies for the freehold, obtains the benefit of what are, in fact, improvements created by his predecessors. In the present case, the property had been improved (by the creation of a mansard roof, and in other ways) by predecessors of the present tenant before 1947, and he rightly, under the statute, obtained credit for those improvements in the valuation. If the present tenant obtains the benefit of the acts of his predecessor, in my judgment it is not inequitable, and likely to be what parliament intended, that he should bear the burden if he has chosen to put right, for reasons best known to himself, what are now seen to be errors committed by his predecessor. 13. Mr Johnson said that such considerations were not dispositive, and that indeed there were aspects of the statute that should lead us not to be surprised that such outcomes could arise from the construction that he urged. He particularly drew attention to section 9(1A)(c), which requires the valuation to be made on the assumption that the tenant has no repair or maintenance liability under Part I of the Landlord and Tenant Act 1954. Therefore, he said, the tenant could allow the property to fall into disrepair, the landlord could probably do nothing about it, and the tenant would, as it were, gain the benefit of that by a reduction of the open market price, rather than by way of improvement. That I see, and, to some extent, that outcome might be thought surprising. But it is what parliament has chosen to provide. It is not a reason for giving the concept of “improvement carried out by the tenant or his predecessors in title” a meaning that will produce, in my judgment, further, and even more surprising, outcomes. 14. I would therefore determine this appeal on that short point: that, on the facts of this case, looking at what are alleged to be the improvements, they cannot be said to come under para (d). 15. I would sound a word of caution about the more expansive way in which the member expressed himself, largely adopting the contentions of Mr Kenneth Munro on behalf of the respondent. He appeared to accept that one should start from the property as it was at the original date of the lease, that is to say, in this case, in 1843, and see whether the value has been increased or decreased by works carried on by the tenant and his predecessors thereafter. To the extent that that was suggested as the right approach in every case, I would be cautious about it because, as Mr Johnson pointed out, in many cases it is going to be impossible to perform that exercise. In many cases, one simply will not know, by reason of the history, what the position was at the very start of a lease as long as this one. 57 16. But that, of course, is not a reason for adopting the construction of the section that Mr Johnson urges. The exercise that was carried out in this case would not, as a matter of fact, be possible unless there was a reliable history, as there is in this case, of why the works relied upon by the lessee were undertaken at all. The proper question to ask –– and this is the question I ask myself in this case –– is whether the alleged works of improvement are doing no more than altering previous works to the property that, in the market as it existed as at the valuation date, would have been a depressing, rather than an increasing, factor in the market price. The original condition of the property at the start of the lease is, of course, an important background to that inquiry. But where facts are available such as those in the present case, it is not necessary notionally to go back to the start of the lease, or to think that, in every case, it is going be necessary to know everything about the detailed history of the property, so long as it can properly be said that the works that are claimed are not an improvement at all, but simply a return of the property to a condition of equilibrium in which it existed before 1947. 17. For those reasons, therefore, I would consider that the member came to the correct conclusion in this case, and I would dismiss this appeal. MOSES J agreed and did not add anything. THORPE LJ agreed and did not add anything. Appeal dismissed.