Cadogan Holdings Ltd v Fleur Marie Alberti
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lady Justice King |
| Judgment Date | 13 April 2022 |
| Neutral Citation | [2022] EWCA Civ 499 |
| Docket Number | Case No: CA-2021-000639 (formerly A3/2021/1034) |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 499
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
MARTIN RODGER Q.C., DEPUTY PRESIDENT
[2021] UKUT 0085 (LC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice King
Sir Keith Lindblom
(SENIOR PRESIDENT OF TRIBUNALS)
and
Lord Justice Newey
Case No: CA-2021-000639 (formerly A3/2021/1034)
Mark Sefton Q.C. and Ciara Fairley (instructed by Cripps Pemberton Greenish) for the Appellant
Stephen Jourdan Q.C. and James Fieldsend (instructed by Teacher Stern LLP) for the Respondent
Hearing date: 8 February 2022
Judgment Approved
This judgment was handed down remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down was deemed not before 4pm on 13 April 2022
The Senior President of Tribunals:
Introduction
What is the true interpretation of section 9(1A)(d) of the Leasehold Reform Act 1967 – a counter-factual deeming provision for the valuation of the freeholder's interest in a house and premises upon enfranchisement, requiring the price payable for that interest to be diminished by the extent to which its value has been increased by improvements carried out by the tenant, or his predecessor in title, at his own expense? That question is raised in a preliminary issue decided by the Upper Tribunal (Lands Chamber) in this case. Different interpretations of section 9(1A)(d) have been put forward on either side. In my view, the tribunal's was correct.
With permission granted by Lord Justice Lewison, the appellant, Cadogan Holdings Ltd., appeals against the decision of Martin Rodger Q.C., the Deputy President of the Upper Tribunal (Lands Chamber), on a preliminary issue to establish the scope of the assumption in section 9(1A)(d) and its effect on the price payable for the freeholder's interest in the house at 10 Cheyne Walk in Chelsea by the respondent, Mrs Fleur Alberti. That preliminary issue arose on an application under section 21(1)(a) of the 1967 Act for a determination of the price payable for the house and premises under section 9. The section 21 application was necessary because the parties could not agree on the valuation.
The dispute concerns works undertaken over 40 years ago by Mrs Alberti's predecessor in title, the cartoonist Gerald Scarfe, to convert the building from five flats to a single house. As those works were undoubtedly improvements, what was the effect of the assumption in section 9(1A)(d) on the valuation of the freeholder's interest? Did it require the freehold to be valued as if, on the valuation date, the building could lawfully be used only as five flats and not as a single house, or on the basis that it could lawfully be used as a single house?
The decision on the preliminary issue will have a significant effect on the price payable for the freehold. Mrs Alberti contends that if the improvements are assumed not to have been carried out, the use of the building as a single house on or after the valuation date would be development requiring planning permission, which would not now be granted, that the freehold would therefore only have been of interest to buyers seeking a profit from the refurbishment of the flats, and that its value was £2.6 million. Cadogan contends that, in reality, it was lawful on the valuation date to use the building as a single house; and that the value of the freehold, subject only to the unexpired term of the lease, was £11 million. Mrs Alberti maintains that if Cadogan's interpretation of section 9(1A)(d) were correct the value of the freehold would be £4.25 million.
The issue in the appeal
The issue in the appeal is the same as the preliminary issue itself, which was this:
“Does section 9(1A)(d) of [the 1967 Act] require the Tribunal to assume that it was unlawful as a matter of planning control to use 10 Cheyne Walk as a single house on the valuation date?”
The tribunal determined that issue in favour of Mrs Alberti. Cadogan contends that this determination was wrong.
The facts
The tribunal had before it the parties' statement of agreed facts, which it took as the basis for the determination of the preliminary issue. It set out a short summary of the “agreed facts” (in paragraphs 8 to 20 of the decision). We have been assisted by a further agreed statement, dated 15 February 2022, which records more of the history of relevant planning policy.
On 21 May 1971 a long lease of the building, then divided into five flats, was granted to Mr Scarfe. He undertook the works to convert it back into a single house in the 1970s. The works included the removal of internal partitions, bathrooms and kitchens. They were undertaken without planning permission, which the parties agree was not required. Under section 87 of the Town and Country Planning Act 1971, after four years had passed, no enforcement action could have been taken against the use of the building as a single dwellinghouse. It is not in dispute that this became the building's “established use”. Mr Scarfe and his wife lived in it as their home.
In 1984 the building was listed, at grade II. On 2 June 1987 planning permission and listed building consent were granted for a rear studio extension at third floor level, which Mr Scarfe constructed and used as part of his studio.
Before August 2014 the development plan for the Royal Borough of Kensington and Chelsea contained a policy whose effect was that schemes of development involving the net loss of fewer than five residential units would not normally be regarded as a material change of use requiring a grant of planning permission. This was the policy prevailing when Mr Scarfe undertook the conversion works in the 1970s. But in August 2014 the relevant policies in the development plan changed, and now resist the grant of planning permission for works which would result in a net loss of one residential unit or more. Since then the local planning authority's position has been that all such “amalgamations” are development requiring planning permission. In the local plan adopted on 11 September 2019, Policy CH1 “Increasing Housing Supply” states that the local planning authority will “resist the loss of residential units through amalgamations of existing or new homes unless the amalgamation will result in the net loss of one unit only and the total floorspace of the new dwelling created will be less than or equal to 170sq m gross internal area …”.
On 13 May 2019 Mr Scarfe gave notice to Cadogan of his intention to purchase the freehold under the 1967 Act. That is the valuation date. By then, less than two years of the term of the lease remained and the value of the freehold reversion was, on any view, considerable. It is common ground that the use of the building as a single house was not unlawful at that stage. Mrs Alberti purchased the unexpired term of the lease from Mr Scarfe in August 2019.
There is no dispute that the works carried out by Mr Scarfe – both the internal alterations and the rear extension – were “improvements” within the meaning of section 9(1A)(d). It is also agreed that if they had not been carried out before the valuation date, any purchaser of the freehold on the valuation date would have been advised that an application for planning permission and listed building consent to amalgamate the five flats into a single house would have had no chance of success. It appears also to be accepted on both sides that there was a good chance of planning permission and listed building consent being granted for the third-floor extension.
The legislative provisions
Section 9(1C) of the 1967 Act provides that the price to be paid for the freeholder's interest is the amount which, at the “relevant date”, the freehold subject to the lease might be expected to realise if sold in the open market by a willing seller, on certain assumptions. The “relevant date” is the date of the service of the notice of claim. The assumption in issue here is the one specified in section 9(1A)(d):
“(d) … that the price be diminished by the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense”.
Relevant authority on section 9(1A)(d)
In Shalson v Keepers and Governors of the Free School of John Lyon [2003] UKHL 32; [2004] 1 A.C. 802 the House of Lords considered the meaning of section 9(1A)(d) of the 1967 Act. Mr Shalson, the tenant, had reconverted a house consisting of five self-contained flats into a single dwelling. The question for the court was whether Mr Shalson's conversion of the house back into its original form as a single dwelling constituted an improvement which increased the value of the house and premises under the statute and the tenant was therefore entitled to a diminution by that extent to the price payable on his purchase of the freehold. The House of Lords unanimously held this to be so.
Lord Bingham of Cornhill said (in paragraph 3 of his speech) that the “fairness” of section 9(1A)(d) was “obvious”. It would not be fair for the tenant to have to “pay an enhanced price to the extent that such enhancement was attributable to works done by him or his predecessors in title (probably voluntarily) at their own expense”, because if that were so, “the tenant would in effect be paying twice”, and “the owner would be reaping an adventitious gain as a result of works which he had no right to require”. If the value of the house has been increased by any improvement carried out by the tenant or his predecessor in title, “the market price must be reduced so as to discount the increase attributable to that improvement …”.
In Lord Hoffmann's view, the language of section 9(1A)(d) was clear. For the...
To continue reading
Request your trial