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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.

Merged properties

1967 Act

Clifton v Liverpool City Council
[2017] UKUT 74 (LC)

Summary

The Upper Tribunal considered the correct approach in ascertaining the ''appropriate day'' for calculating the rateable value of a house as part of an enfranchisement claim under the Leasehold Reform Act 1967 following the conversion of a building from two flats into one house.

Relevant statutory provision

As to the definition of “the appropriate day” under the 1967 Act, the Tribunal quoted the following statement from paragraph 3-23 of Hague: Leasehold Enfranchisement, 6th edn (2014).
    “This expression is defined to mean ‘… the 23rd March 1965 or such later day as by virtue of s.25(3) of the Rent Act 1977 would be the appropriate day for the purposes of that Act in relation to a dwelling-house consisting of the house in question if the reference in para (a) of that provision to a rateable value were to a rateable value other than nil’. The appropriate day is March 23 1965 unless the house in question fails to fulfil one of the following three conditions:

    (1) it is a hereditament for which a rateable value other than nil was shown in the rating valuation list in force on that date; or
    (2) it forms part of such a hereditament; or
    (3) it consists of or forms part of two or more such hereditaments.”
Facts

The case concerned a house that had consisted of two flats until 1985. In both 1962 and 1973 the flats appeared to have been valued individually, and had a combined ratable value of more than £200. The First-tier Tribunal (FTT) had to determine whether the ‘appropriate day’ was 23 March 1965, in which case the appropriate basis of valuation under the 1967 would be under s9(1A), or some later day after the conversion, when the house appeared in the valuation list for the first time as single dwelling, in which case the basis of valuation would be s9(1), which would be more favourable to the tenant (T).

First instance

The FTT held that the house existed as two or more hereditaments on 23 March 1965, making that date the ‘appropriate day’. Applying section 25(1) of the Rent Act 1977, the values of the two flats fell to be aggregated producing a ratable value of above £200 on the appropriate day. Therefore, Section 1A of the 1967 Act applied and the valuation fell to be conducted under section 9(1A). T appealed to the Upper Tribunal.

Decision on appeal

The Upper Tribunal dismissed the appeal. T argued that the Tribunal had erred in its approach. The house, in its present form, had not existed in 1965, and therefore the ‘appropriate day’ should have been the date that the house (as opposed to the two flats of which it formerly consisted) first appeared in the valuation list.

T based this argument upon the County Court decision in Griffiths v Birmingham City District Council [1987] CLYB 2172, in which it was held that, where there had been a change of identity in the ratable hereditament, the appropriate day would be the first day on which the modified hereditament appeared in the valuation list. It was held that for the principal to apply, the change must be “substantial”; mere improvement would not be sufficient. Whether the change was substantial in any given case would be a question of fact and degree for the judge. In Griffiths, two uninhabitable cottages had been covered into “one house of character”. The Court held that there had been a change of identity / substantial change.

However, in the present case T was not able to show on the evidence before the Upper Tribunal that the house had ever appeared in the valuation list in its modified form. The appeal failed on that basis, but, in light of the dearth of authority on the point, The Upper Tribunal went on to consider what the appropriate day would have been had the house subsequently appeared in the valuation list as a single hereditament.

After a review of the authorities and the relevant statutory provisions, HHJ Hodge reiterated the test applied by the Court in Griffiths. He observed that Parliament had clearly,
    “considered that a house and premises might comprise, or might have comprised, more than one rateable hereditament, or might form, or might have formed, part only of a rateable hereditament; and that an alteration in rateable value which did not operate retrospectively as at the appropriate date should have no effect.”
In conclusion, he remarked that:
    “[S]ome change more radical than the mere fact of improvement or structural alteration must have taken place before it can arguably be said that a house and premises have shed their identity and become a new rateable hereditament so as to displace what would otherwise be the appropriate day.”
If he had been called upon to make such a determination in the instant case, the Judge would have found that the consolidation of two single units of residential accommodation into one single house would have been insufficient to constitute a change in identity so as to bring the appropriate day forward in time.

Comment

HHJ Hodge commented that neither party in the appeal had sought to challenge the analysis at paragraph 3-23 of Hague (above) based on the decision in Griffiths v Birmingham City DC. But he pointed out that the Deputy President in the course of giving permission to appeal had noted that there was “remarkably little authority on the proper application of the complex statutory provisions to determine the ‘appropriate day’ for the purposes of the 1967 Act”. Given the paucity of authority in this area he decided to explore the question. Obviously his comments are purely obiter dicta.

He noted that Griffiths v Birmingham City DC was decided prior to the decision of the House of Lords in Dixon v Allgood [1987] 1 WLR 1689. He quoted liberally from the speech of Lord Templeman in that case and stated that:
    “Although the point was not directly in issue in Dixon v Allgood, Lord Templeman would not appear to have contemplated that a substantial change between premises in a former state and in their subsequent state would be enough to constitute a change in the identity of the rateable hereditament sufficient to displace an earlier “appropriate day”.
He then reminded himself that he did not have to decide the matter so he limited himself to summarising the points that a judge would have to bear in mind should the question arise. He concluded by saying:
    “All of this leads me to conclude that some change more radical than the mere fact of improvement or structural alteration must have taken place before it can arguably be said that a house and premises have shed their identity and become a new rateable hereditament so as to displace what would otherwise be the appropriate day. I would reject any argument that structural alterations of an insubstantial or non-structural, and still less of a trifling, character are sufficient merely because there has been a functional change in the use of the house and premises.”
That is very similar to the change of identity test in Griffiths. However, it is sometimes difficult to appreciate some of the nuances in what the Judge is saying, particularly where, as here, the matter was not argued by counsel and there is no record of the arguments for and against the proposition in question.

A change in function or use of the hereditament may come to be treated as a crucial factor. One may compare Griffiths, where two uninhabitable properties were turned into a habitable (and desirable) dwelling house, with the facts of the instant case, where the building was a habitable dwelling house both before and after the changes.


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