Summary

A leasehold valuation tribunal's decision that the development value of a property should be taken into account in assessing its marriage value upon enfranchisement was upheld.

Facts

The appellant company (F) appealed against the leasehold valuation tribunal's decision that the development value should be taken into account in assessing the marriage value of a property that it was purchasing from the respondent (G). F was acquiring the property as nominee purchaser pursuant to the collective enfranchisement provisions in the Leasehold Reform, Housing and Urban Development Act 1993 Pt I. It was also the qualifying tenant and participating tenant for the property. The development value of the property involved the potential to add a further storey to the building by converting the roof space. The relevant leases contained an absolute covenant against making alterations. However, once the collective enfranchisement had occurred and the freehold had been conveyed to F it was common ground that F, who would own the freehold reversion and the long leases, would enjoy the development value. The question for the tribunal was whether the development value should be taken into consideration when assessing the marriage value with the result that G would be entitled to half of the development value, calculated at £472,500. F submitted that (1) as set out by Rye v Rye (1962) AC 496 HL, it was not possible for a landowner to grant a lease to himself; therefore its enjoyment of the potential development value after enfranchisement was not a matter falling within Sch.6 para.4(2)(a) as a matter attributable to the potential ability to enjoy new leases, but would instead be caused by the fact that it would be both freeholder and leaseholder and would have the power to do whatever it wished with the premises without any need for a new lease to be granted to enable it to do so; (2) alternatively, it would gain no value which was attributable to the potential ability for new leases to be granted because the new leases had to be assumed to be on the same terms as the old leases, with the exception of the premium and the length of the term, as they were the only two differences specified under Sch.6 para.4(2)(a).

Held

(1) One of the factors which could be taken into account under Sch.6 para.4(2) when calculating marriage value was the potential ability to vary the terms of the leases, Sinclair Gardens Investments (Kensington) Ltd v Franks (1998) 76 P & CR 230 Lands Tr and Maryland Estates Ltd v Abbathure Flat Management Co Ltd (1999) 1 EGLR 100 Lands Tr applied. It was assumed in Sch.6 para.4 that there would be a potential ability for the participating tenants, once the freehold had been acquired, to have new leases granted to them. That assumption should continue to be made notwithstanding that the nominee purchaser was identical to the participating tenants. Significantly, the provisions of Sch.6 para.4(4)(b) required that any merger or other circumstances affecting the interest on its acquisition by the nominee purchaser should be disregarded. Therefore, if, by reason of identity between nominee purchaser and participating tenant, there was a merger, the valuation exercise under Sch.6 para.4 was to proceed on the basis that the old leases remained unmerged. The purpose of Sch.6 para.4 was to assess what increase in value of the freehold was attributable to the matters there mentioned, which involved a comparison between the situation for the participating tenants under their old leases and their potential situation under the new leases contemplated in Sch.6 para.4(2)(a). The argument based on Rye v Rye was flawed: just as any merger was to be disregarded under Sch.6 para.4(4)(b), so should any difficulty in granting the new leases contemplated in Sch.6 para.4(2)(a) be disregarded, including a difficulty which might arise because of the identity between the nominee purchaser and the participating tenants, Rye v Rye considered. Schedule 6 para.5 did not assist F as there was no need for development value to be expressly recognised as a potential ingredient in marriage value. (2) The new leases contemplated under Sch.6 para.4(2)(a) were not assumed to be on the same terms as the old leases save only as regards duration and premium. If it had been intended to be a valuation assumption that those new leases should be on the same terms as the old, then that would need to have been expressly provided for. Confirmation that the draftsman did not intend such a result could be found in the fact that he did make express provision as to the terms of any new lease granted by way of an extension under s.57, whereas in contrast there was no such limitation on the terms of the notional new leases under Sch.6 para.4(2)(a). Accordingly, G was entitled to a share of the development value as part of the marriage value.

Appeal dismissed