Summary

The price payable on enfranchisement was the amount at the valuation date that the property might be expected to realise if sold on the open market by a willing vendor, so if there was a special purchaser but the vendor was unaware of his existence, no premium could be added to the price to reflect his involvement.

Facts

The appellant freeholders (D) appealed against a leasehold valuation tribunal's determination of the price payable by a special purchaser (G), the joint owner of the respondent company (R), upon enfranchisement. D were the freeholders of a mews house and R was the leaseholder, while G was the freeholder of an adjoining property. At the valuation date, the leasehold interest in the mews house and the freehold interest in the adjoining property were owned by a third party who had contracted to sell those interests to R and G respectively, with benefit of claim to the freehold in the mews house. All aspects of the valuation had been agreed, save that D sought to include the sum of £700,000 to reflect the premium that they said would be paid for the merger of the freehold interests in both properties. The tribunal found that the premium was £500,000 but did not make any addition to the price payable to reflect it since D had not been entitled to possession at the valuation date and had lost nothing by the enfranchisement, save the chance to sell the property to a special purchaser at the end of the lease. D submitted that the effect of a special purchaser on the market had to be taken into account; but R maintained that D had not been aware of a special purchaser and there was no legal presumption that a vendor must know of any special purchaser there might be and what his special interest was.

Held

Under the Leasehold Reform Act 1967 s.9(1A), the price payable was the amount at the valuation date that the property might be expected to realise if sold on the open market by a willing vendor. That was a factual matter to be determined on the basis of two assumptions only: the market being unrestricted and the seller being willing. No other assumption, such as the seller's knowledge of a special purchaser, was implied. If, as in the instant case, the evidence showed that the vendor would not have been aware of the existence of a special purchaser or their special interest then, as a matter of fact, the vendor could not have realised a price that included a special purchaser's premium. There was no justification for imputing knowledge that a vendor would not have had, Inland Revenue Commissioners v Clay (1914) 3 KB 466 considered. Since D would not have known at the valuation date of G's offer for the mews' lease and the adjoining freehold, no premium was to be added to the price payable for enfranchisement. Accordingly, the tribunal's decision about the premium had been correct, but for the wrong reasons.

Appeal dismissed