Summary

A tenant acquiring the freehold of a house under the Leasehold Reform Act 1967 was entitled to a reduction in the price reflecting an increase in value attributable to works reconverting the house from flats into a single family dwelling, even though those works reversed the earlier conversion from a house into flats.

Facts

Appeal by the tenant ('S') from a judgment of the Court of Appeal holding that the reconversion of flats into a house could not constitute an improvement increasing its value under s.9(1A)(d) Leasehold Reform Act 1967 because it reversed a previous conversion of the house into flats. S was the tenant of a house in London under a 99 year lease granted in 1947. Under the lease the tenant covenanted to convert the house into five self-contained flats and that was done. In the 1980s and 1990s works were done to return the house to a single family dwelling. S acquired the lease in 1991 and in 1997 gave notice of his desire to buy the freehold under the 1967 Act. Under s.9(1A)(d) the price payable by S for the freehold was to be reduced by the extent to which the value of the house had been increased by any improvement carried out by the tenant or his predecessors in title at their own expense. The issue for the Leasehold Valuation Tribunal, determining the price payable under s.21(1)(a) of the Act, was whether S was entitled to a deduction for the value that he and his predecessors in title had added to the house by reconverting it from five flats into a single dwelling. The tribunal considered that the correct comparison was with the house as originally let and the lands tribunal upheld that decision on the basis that both the original conversion from a house to flats and the reconversion from flats to a house should be taken into account. The Court of Appeal upheld that decision holding that works done to the house could not constitute improvements increasing its value if they consisted of reversing the work done previously. S appealed.

Held

(1) The language of s.9(1A) was clear. A diminution in the open market value was to be allowed only to the extent to which that value had been increased by any improvement carried out by the tenant or a predecessor at their own expense. For the tenant to secure a reduction he must therefore first identify improvements and secondly satisfy the tribunal that but for those improvements the house and premises would have been worth less. (2) The first condition required consideration of any changes that had been made to the premises during the term of the lease or the period which s.3(3) of the Act deemed to have been the term of the lease. (3) An improvement was a physical and not an economic concept. It referred to the works themselves and not to the effect if any that they had on the value of the premises. It was the second condition that dealt with the effect on value. (4) To say that the value of the house and premises had been increased by the improvement signified a simple causal relationship: but for the improvement the house would have been worth less. The comparison was between the value of the house at the valuation date and what it would have been worth if the improvement had not been made. (5) The 1947 conversion works made no difference to the value of the house at the valuation date because by then they had ceased to exist. If the reconversion had not taken place the house would have been worth less and to the extent that it was worth more, S was entitled to a reduction in the open market value. (6) It was not necessary to consider, as the Court of Appeal had done, whether the improvements reversed earlier changes. (7) It was not appropriate to aggregate all the improvements made during the course of the lease, as the lands tribunal had done. If an improvement had added nothing to the value, because it no longer existed, it was disregarded.

Appeal allowed.