Adrian Howard Mundy v The Trustees of the Sloane Stanley Estate
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Peter Jackson,Lord Justice Lewison |
| Judgment Date | 24 January 2018 |
| Neutral Citation | [2018] EWCA Civ 35 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 January 2018 |
| Docket Number | Case No: C3/2016/2864 |
[2018] EWCA Civ 35
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
[2016] UKUT 223 (LC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Lewison
and
Lord Justice Peter Jackson
Case No: C3/2016/2864
Mr Edwin Johnson QC (instructed by Bircham Dyson Bell LLP) for the Appellant
Mr Stephen Jourdan QC & Mr Anthony Radevsky (instructed by Pemberton Greenish LLP) for the Respondent
Hearing dates: 16 tb and 17 th January 2018
Judgment Approved
Part I, Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) gives lessees of flats holding under long leases the right to acquire a new lease of the flat in question at a peppercorn rent on payment of a premium. This appeal from the Upper Tribunal (Morgan J and Mr Andrew Trott FRICS) (“the UT”) concerns how that premium is to be calculated. The decision of the UT is at [2016] UKUT 223 (LC); [2016] L & TR 32.
The particular flat with which we are concerned is Flat 3, 36 Elm Park Road London SW3, which was the subject of one of three applications before the UT. One of the other flats in issue was Flat 5, 17 Cranley Gardens which to some extent was treated as the lead case when the UT came to consider the evidence.
The right to appeal to this court from the UT is confined to a point of law arising out of their decision: Tribunal Courts and Enforcement Act 2007 s 13 (1). At a renewed hearing before Kitchin LJ, Mr Mundy was given permission to appeal on one ground; and his application for permission to appeal on two other grounds was adjourned for consideration by the full court. Permission to appeal on a fourth ground was refused.
I should mention at this point that the test for the grant of permission to appeal from the UT when exercising an original jurisdiction is the ordinary first appeals test. Although the Appeals from the Upper Tribunal to the Court of Appeal Order 2008, prescribing the second appeals test, is apparently unqualified in its application to all appeals from the UT to the Court of Appeal, the statutory power under which the Order was made (section 13 (6) of the Tribunal Courts and Enforcement Act 2007) is limited to appeals from decisions of the UT which were themselves decisions on appeal from the First Tier Tribunal: see Nwankwo v Secretary of State for the Home Department [2018] EWCA Civ 5. There has been some uncertainty in the past about whether the 2008 Order applies to all appeals from the UT, so it is as well to set the record straight.
The statutory provisions providing for the calculation of the premium are set out in Part II of Schedule 13 to the Act. The premium consists of three components:
i) The diminution in value of the landlord's interest in the flat consequent on the grant of the new lease;
ii) The landlord's share of marriage value; and
iii) Compensation for any other loss that the landlord will suffer as the result of the grant of the new lease.
The third component of the premium played no part in the UT's decision.
Under paragraph 3 of Schedule 13 the diminution in value of the landlord's interest is the difference between:
i) The value of the landlord's interest in the flat prior to the grant of the new lease and
ii) The value of his interest in the flat once the new lease is granted.
In essence the value of the landlord's interest before the new lease is granted consists of (a) the right to receive the rent and other sums payable under the lease and (b) his right to possession of the flat at the end of the term. Both these rights must be given a capital value. Because the right to possession will not materialise until the end of the term the landlord is not entitled to exploit the vacant possession value of the flat immediately. Thus the present value of that right is determined on the basis that the vacant possession value is deferred. In the case of the valuation of the landlord's interest before the grant of the new lease it is deferred to the expiry date of the existing lease; and in the case of the valuation of the landlord's interest after the grant of the new lease, it is in theory deferred to the expiry date of the new lease (although in practice once the new lease has been granted at a peppercorn rent the landlord's interest will be worthless). The value of the landlord's interest is its open market value, but Schedule 13 paragraph 3 of the Act requires a number of assumptions to be made. Among these is the assumption that:
“Chapter I and this Chapter confer no right to acquire any interest in any premises containing the tenant's flat or to acquire any new lease.”
There is no dispute about this element of the premium.
The dispute concerns marriage value. Marriage value is defined by Schedule 13 which (so far as relevant) provides as follows:
“ Landlord's share of marriage value
4 (1) The marriage value is the amount referred to in sub-paragraph (2), and the landlord's share of the marriage value is 50 per cent of that amount.
(2) … the marriage value is the difference between the following amounts, namely—
(a) the aggregate of—
(i) the value of the interest of the tenant under his existing lease,
(ii) the value of the landlord's interest in the tenant's flat prior to the grant of the new lease, and
(iii) …; and
(b) the aggregate of—
(i) the value of the interest to be held by the tenant under the new lease,
(ii) the value of the landlord's interest in the tenant's flat once the new lease is granted, and
(iii) ….
(3) For the purposes of sub-paragraph (2)—
(a) the value of the interest of the tenant under his existing lease shall be determined in accordance with paragraph 4A;
(aa) the value of the interest to be held by the tenant under the new lease shall be determined in accordance with paragraph 4B;
(b) the value of any such interest of the landlord as is mentioned in paragraph (a) or paragraph (b) of sub-paragraph (2) is the amount determined for the purposes of paragraph 3(1)(a) or paragraph 3(1)(b) (as the case may be); and
(c) ….
4A (1) Subject to the provisions of this paragraph, the value of the interest of the tenant under the existing lease is the amount which at the relevant date that interest might be expected to realise if sold on the open market by a willing seller (with neither the landlord nor any owner of an intermediate leasehold interest buying or seeking to buy) on the following assumptions—
(a) on the assumption that the vendor is selling such interest as is held by the tenant subject to any interest inferior to the interest of the tenant;
(b) on the assumption that Chapter I and this Chapter confer no right to acquire any interest in any premises containing the tenant's flat or to acquire any new lease;
(c) on the assumption that any increase in the value of the flat which is attributable to an improvement carried out at his own expense by the tenant or by any predecessor in title is to be disregarded; and
(d) on the assumption that (subject to paragraph (b)) the vendor is selling with and subject to the rights and burdens with and subject to which any interest inferior to the existing lease of the tenant has effect.
(2) It is hereby declared that the fact that sub-paragraph (1) requires assumptions to be made in relation to particular matters does not preclude the making of assumptions as to other matters where those assumptions are appropriate for determining the amount which at the relevant date the interest of the tenant under his existing lease might be expected to realise if sold as mentioned in that sub-paragraph.”
Paragraph 4B contains similar provisions relating to the valuation of the tenant's interest after the new lease has been granted.
The point at issue in this appeal is what is known in the jargon as “relativity”. There are two aspects to this concept. First, it is used to determine the value of the freehold with vacant possession. Because sales of flats with vacant possession are almost invariably sales of leasehold interests, a valuer needs to convert values derived from sales of leases into a value to be ascribed to the freehold. The relationship, expressed as a percentage, between the value of a lease of a given term and the freehold is one form of relativity, known in the jargon as “real world relativity”. Second, the concept is used to describe the relationship between the value of a leasehold interest in the real world and the value of the same interest making the assumption required by paragraph 4A (1) (b). The problem arises because in the real world most sales of leasehold flats are sales of leases to which rights under the Act attach, whereas the Act requires those rights to be disregarded.
The problem is not a new one; and it has been recognised in many decisions of the UT (and before it the Lands Tribunal). It has been exacerbated in recent years by the abolition of the previous residence requirements under the Act and other changes which have extended the benefit of the Act to all (or almost all) long lessees. A number of methods of determining relativities have been considered by tribunals, none of which has proved to be without flaws. The most common method has been by way of relativity graphs, produced by a number of firms of chartered surveyors active in the market; but they differ in their results. These graphs plot the relationship in terms of value between a lease of a given length and the freehold. The holy grail would be a method of determining relativity which is both reliable and simple to apply. The tribunal has encouraged the Royal Institution of Chartered Surveyors to produce a standardised graph. In response the RICS established a working group, chaired by Jonathan Gaunt QC, to...
To continue reading
Request your trial
-
Cadogan Holdings Ltd v Fleur Marie Alberti
...& C.R. 366, Secretary of State for Transport v Curzon Park Ltd. [2021] EWCA Civ 651; [2021] PTSR 1560, Mundy v Sloane Stanley Estate [2018] EWCA Civ 35; [2018] 1 W.L.R. 4751 and Whitehall Court London Ltd. v Crown Estate Commissioners [2018] EWCA Civ 1704; [2019] 1 W.L.R. 2319. Most p......
-
Decision Nº LC-2022-68. Upper Tribunal (Lands Chamber), 19-08-2022 , [2022] UKUT 231 (LC)
...Limited [2000] 1 WLR 377 Ridgeland Properties Ltd v Bristol City Council [2009] UKUT 102 (LC) Trustees of Sloan Stanley Estate v Mundy [2018] 1 WLR 4751 Wellcome Trust Limited v Rominees [1999] 3 EGLR 299 3 Introduction 1. By a decision issued on 10 December 2021 the First-tier Tribunal (Pr......
-
Whitehall Court London Ltd v The Crown Estate Commissioners
...proper way to value the ILI, in our judgment, would be as a component of such a sale of the intermediate interest.” 34 Mundy v Sloane Stanley Estate Trustees [2018] EWCA Civ 35 concerned the valuation of marriage value under paragraph 4A(1)(b) of Schedule 13 of the 1993 Act. The lessee c......