Padmore v Official Custodian for Charities (on behalf of the Trustees of the Barry and Peggy High Foundation)
Mr Martin Rodger QC, deputy president
Collective enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Purchase price – Development value – Appellant acquiring freehold of building containing two maisonettes from respondents – Appellant already holding leasehold interest in both maisonettes – Whether price payable for freehold to reflect prospect of reconversion to single house – Whether this to be taken into account under para 3 or para 4 of Schedule 6 to 1993 Act – Leasehold valuation including such value under para 3 – Appeal dismissed – Cross-appeal allowed
The appellant was the nominee purchaser on a claim to acquire the freehold of a semi-detached property in Barnet EN4 from the respondent trustees under the collective enfranchisement provisions of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993. The property was arranged as two maisonettes let on separate leases, both of which were held by the appellant, but was suitable for conversion back into a single house.
The leasehold valuation tribunal (LVT) considered the extent to which the prospect of reconversion could be taken into account when determining the price payable to the respondents on enfranchisement. It rejected the respondents’ contention that it could be taken into account as “development marriage value” when ascertaining the freeholder’s share of the marriage value in accordance with para 4 of Schedule 6, by including a sum reflecting the ability of the appellant herself, as nominee purchaser, to convert the premises to a house at the valuation date. In that regard, it applied the earlier Upper Tribunal decision in Themeline Ltd v Vowden Investments Ltd [2011] UKUT 168 (LC) that the inclusion of development marriage value under para 4 would be inconsistent with the reasoning of the House of Lords in Earl Cadogan v Sportelli [2008] UKHL 71; [2009] 1 EGLR 153.
The LVT none the less held that prospect of reconversion could be taken into account as “development hope value” when valuing the freehold interest under para 3 of Schedule 6 to the 1993 Act, on the assumption that a hypothetical purchaser of the freehold would pay a premium because of the prospect or hope of being able to reach agreement with the owner of the leasehold interests to acquire those interests so as to enable the reconversion to take place. It determined that the price payable on that assumption, as agreed by the parties, was £150,000.
The appellant appealed. She contended that the LVT’s valuation assumption was not valid since she would not, in fact, be willing to co-operate in the development of the property. By a cross-appeal, the respondents argued that Themeline had been wrongly decided and that development marriage value could be included under para 4 to produce a price of £194,000.
Held: The appeal was dismissed; the cross-appeal was allowed.
(1) It was not open to the appellant to challenge the decision of the LVT on the ground that it had given insufficient weight to her personal views. The parties had agreed that if development hope value were to be included as a component of the valuation, the appropriate price would be £150,000. It was perfectly credible that a purchaser would be prepared to pay a premium to reflect the development value, even knowing that the lessee of both flats was not currently interested in participating in any scheme to realise that value, because her circumstances and intentions might change. Moreover, it had been common ground between the parties before the LVT that the intentions of the appellant herself, rather than those of some hypothetical lessee, were relevant to the determination of the value of the freeholder’s interest under para 3 of Schedule 6. That assumption was correct since the interest being valued under para 3 was that of the freeholder, not that of the participating tenants, and there was no direction that would require an assumption of a state of affairs different from those that really existed at the valuation date so far as the identity of the tenants was concerned. That being so, the parties should be taken to have had the appellant’s personal intentions in mind when they reached their agreement on the appropriate discount to be incorporated in the calculation of development hope value.
(2) It was permissible to take the prospect of reconversion into account under para 4 of Schedule 6. When determining the price payable on collective enfranchisement, no legitimate portion of value should be left out. Since the building had greater value for occupation as a single house, rather than as two maisonettes, that was a legitimate portion of the value of the building for which the nominee purchaser should in principle pay as part of the price of acquisition. If that value was capable of being realised in the manner described in para 4(2)(a), by the grant of new leases to the participating tenants without payment of a premium or restriction as to length, and if it would be shared between the freeholder and the nominee purchaser in a sale on the open market as described in para 4(2)(b), then it would be wrong for the freeholder to be deprived of its share. Although the current leases contained covenants preventing the property from being returned to use as a single house, the appellant on acquiring the freehold would effectively be free of the restrictions in her leases and would be entitled to carry out any alterations she chose and use the building as she liked. If she chose to create new longer leases, there would be no reason for her not to include in them a covenant for use that did not prevent the flats from being occupied in conjunction with each other as a single private dwelling. The opportunity to do so would flow from the unification in her hands of all the leasehold and freehold interests in the building. It made no difference that the appellant might not choose to take that course; her personal preference was not a trump card depriving the freeholder of any share in the development potential. In the circumstances to be assumed under para 4(2)(b), namely a sale of the freehold in the building in the open market, the appellant would have to agree to share the development value released by the marriage of the freehold and leasehold interests with the freeholder in order to reach agreement on the price. The ability to reconvert the building, or to sell to a third party who wished to do so, would be reflected in the price that she would have to pay in the open market, and it was not the policy of the legislation that those features should be left out of account on a collective enfranchisement. Accordingly, the price payable to the respondents was £194,000|: Cravecrest Ltd v Trustees of the Will of the Sixth Duke of Westminster [2013] EWCA Civ 731; [2013] 2 P&CR 16; [2013] EGILR 20, Money v Cadogan Holdings Ltd [2013] UKUT 211 (LC); [2013] PLSCS 250 and Forty-five Holdings v Grosvenor (Mayfair) Estate [2009] UKUT 234 (LC); [2010] EG 02 (CS) 84 applied.
Although there was scope for reconsideration of the decision in Themeline, it was not appropriate to carry out that reconsideration in the instant case. It was not necessary to do so in order to determine the present appeal and the issue had not been dealt with in the appellant’s case, leaving the respondents’ argument on the cross-appeal effectively unchallenged. The only route for the release of development value considered in Themeline was the grant by the nominee purchaser of a single lease of the whole building. If the same value could be achieved by a variation of the existing leases of the maisonettes, or by the grant of new longer leases of those maisonettes on different terms, there was nothing in Themeline, or in Sportelli, to rule out the possibility of that being taken into account when assessing marriage value under para 4.
The appellant appeared in person; Piers Harrison (instructed by HilliersHRW Solicitors, of Stevenage) appeared for the respondent.
Sally Dobson, barrister
Collective enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Purchase price – Development value – Appellant acquiring freehold of building containing two maisonettes from respondents – Appellant already holding leasehold interest in both maisonettes – Whether price payable for freehold to reflect prospect of reconversion to single house – Whether this to be taken into account under para 3 or para 4 of Schedule 6 to 1993 Act – Leasehold valuation including such value under para 3 – Appeal dismissed – Cross-appeal allowedThe appellant was the nominee purchaser on a claim to acquire the freehold of a semi-detached property in Barnet EN4 from the respondent trustees under the collective enfranchisement provisions of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993. The property was arranged as two maisonettes let on separate leases, both of which were held by the appellant, but was suitable for conversion back into a single house.The leasehold valuation tribunal (LVT) considered the extent to which the prospect of reconversion could be taken into account when determining the price payable to the respondents on enfranchisement. It rejected the respondents’ contention that it could be taken into account as “development marriage value” when ascertaining the freeholder’s share of the marriage value in accordance with para 4 of Schedule 6, by including a sum reflecting the ability of the appellant herself, as nominee purchaser, to convert the premises to a house at the valuation date. In that regard, it applied the earlier Upper Tribunal decision in Themeline Ltd v Vowden Investments Ltd [2011] UKUT 168 (LC) that the inclusion of development marriage value under para 4 would be inconsistent with the reasoning of the House of Lords in Earl Cadogan v Sportelli [2008] UKHL 71; [2009] 1 EGLR 153.The LVT none the less held that prospect of reconversion could be taken into account as “development hope value” when valuing the freehold interest under para 3 of Schedule 6 to the 1993 Act, on the assumption that a hypothetical purchaser of the freehold would pay a premium because of the prospect or hope of being able to reach agreement with the owner of the leasehold interests to acquire those interests so as to enable the reconversion to take place. It determined that the price payable on that assumption, as agreed by the parties, was £150,000.The appellant appealed. She contended that the LVT’s valuation assumption was not valid since she would not, in fact, be willing to co-operate in the development of the property. By a cross-appeal, the respondents argued that Themeline had been wrongly decided and that development marriage value could be included under para 4 to produce a price of £194,000.Held: The appeal was dismissed; the cross-appeal was allowed. (1) It was not open to the appellant to challenge the decision of the LVT on the ground that it had given insufficient weight to her personal views. The parties had agreed that if development hope value were to be included as a component of the valuation, the appropriate price would be £150,000. It was perfectly credible that a purchaser would be prepared to pay a premium to reflect the development value, even knowing that the lessee of both flats was not currently interested in participating in any scheme to realise that value, because her circumstances and intentions might change. Moreover, it had been common ground between the parties before the LVT that the intentions of the appellant herself, rather than those of some hypothetical lessee, were relevant to the determination of the value of the freeholder’s interest under para 3 of Schedule 6. That assumption was correct since the interest being valued under para 3 was that of the freeholder, not that of the participating tenants, and there was no direction that would require an assumption of a state of affairs different from those that really existed at the valuation date so far as the identity of the tenants was concerned. That being so, the parties should be taken to have had the appellant’s personal intentions in mind when they reached their agreement on the appropriate discount to be incorporated in the calculation of development hope value.(2) It was permissible to take the prospect of reconversion into account under para 4 of Schedule 6. When determining the price payable on collective enfranchisement, no legitimate portion of value should be left out. Since the building had greater value for occupation as a single house, rather than as two maisonettes, that was a legitimate portion of the value of the building for which the nominee purchaser should in principle pay as part of the price of acquisition. If that value was capable of being realised in the manner described in para 4(2)(a), by the grant of new leases to the participating tenants without payment of a premium or restriction as to length, and if it would be shared between the freeholder and the nominee purchaser in a sale on the open market as described in para 4(2)(b), then it would be wrong for the freeholder to be deprived of its share. Although the current leases contained covenants preventing the property from being returned to use as a single house, the appellant on acquiring the freehold would effectively be free of the restrictions in her leases and would be entitled to carry out any alterations she chose and use the building as she liked. If she chose to create new longer leases, there would be no reason for her not to include in them a covenant for use that did not prevent the flats from being occupied in conjunction with each other as a single private dwelling. The opportunity to do so would flow from the unification in her hands of all the leasehold and freehold interests in the building. It made no difference that the appellant might not choose to take that course; her personal preference was not a trump card depriving the freeholder of any share in the development potential. In the circumstances to be assumed under para 4(2)(b), namely a sale of the freehold in the building in the open market, the appellant would have to agree to share the development value released by the marriage of the freehold and leasehold interests with the freeholder in order to reach agreement on the price. The ability to reconvert the building, or to sell to a third party who wished to do so, would be reflected in the price that she would have to pay in the open market, and it was not the policy of the legislation that those features should be left out of account on a collective enfranchisement. Accordingly, the price payable to the respondents was £194,000|: Cravecrest Ltd v Trustees of the Will of the Sixth Duke of Westminster [2013] EWCA Civ 731; [2013] 2 P&CR 16; [2013] EGILR 20, Money v Cadogan Holdings Ltd [2013] UKUT 211 (LC); [2013] PLSCS 250 and Forty-five Holdings v Grosvenor (Mayfair) Estate [2009] UKUT 234 (LC); [2010] EG 02 (CS) 84 applied.Although there was scope for reconsideration of the decision in Themeline, it was not appropriate to carry out that reconsideration in the instant case. It was not necessary to do so in order to determine the present appeal and the issue had not been dealt with in the appellant’s case, leaving the respondents’ argument on the cross-appeal effectively unchallenged. The only route for the release of development value considered in Themeline was the grant by the nominee purchaser of a single lease of the whole building. If the same value could be achieved by a variation of the existing leases of the maisonettes, or by the grant of new longer leases of those maisonettes on different terms, there was nothing in Themeline, or in Sportelli, to rule out the possibility of that being taken into account when assessing marriage value under para 4.The appellant appeared in person; Piers Harrison (instructed by HilliersHRW Solicitors, of Stevenage) appeared for the respondent.
Sally Dobson, barrister
