Shalson v Keepers and Governors of the Free Grammar School of John Lyon
| Jurisdiction | England & Wales |
| Judge | LORD SCOTT OF FOSCOTE,LORD HOFFMANN,LORD BINGHAM OF CORNHILL,LORD STEYN,LORD MILLETT |
| Judgment Date | 12 June 2003 |
| Neutral Citation | [2003] UKHL 32 |
| Date | 12 June 2003 |
| Court | House of Lords |
[2003] UKHL 32
HOUSE OF LORDS
The Appellate Committee comprised:
Lord Bingham of Cornhill
Lord Steyn
Lord Hoffmann
Lord Millett
Lord Scott of Foscote
My Lords,
I am in complete agreement with the opinion of my noble and learned friend Lord Hoffmann, and I gratefully adopt his account of the facts and issues in this appeal.
The Leasehold Reform Act 1967 as amended gives to a qualifying tenant a statutory right to buy the freehold of the house of which he is the leaseholder. The effect is that the owner, instead of recovering his property on the expiry of the lease in the ordinary way, receives a capital sum representing the value of the house at the date when the tenant gave notice of his wish to buy. The calculation of that value is governed by a statutory formula clearly intended to yield a fair result as between tenant and owner, conferring no undue benefit on either. Thus the value is based (section 9(1A)) on the amount which at the relevant time the house, if sold in the market by a willing seller, might be expected to realise on certain assumptions, among them (section 9(1A)(a)) that the vendor is selling for an estate in fee simple subject to the unexpired term of the existing tenancy.
A further assumption, with which alone this appeal is concerned, is (section 9(1A)(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."
This statutory language makes plain that the price will be diminished under this head if and only if it is found (i) that works of improvement (meaning works other than renewals and repairs) have been carried out by the tenant or his predecessors in title, (ii) that the tenant or his predecessors in title have carried out these works at their own expense, and (iii) that these works have increased the value of the house. To the extent of the increase attributable to those works the price payable for the house is diminished. The fairness of this provision is obvious. It would not be fair if the tenant were obliged 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: the tenant would in effect be paying twice. It would not be fair if the owner received a price inflated as a result of works done by the tenant or his predecessors in title (probably voluntarily) at their own expense: the owner would be reaping an adventitious gain as a result of works which he had had no right to require. Thus in each case where this assumption is in issue the question must be asked: has the value of this house been increased by any improvement carried out by the tenant or his predecessors in title at their own expense? If the answer to this question is yes, the market price must be reduced so as to discount the increase attributable to that improvement (or improvements, if there are more than one).
It has been common ground between the parties to this appeal that when this question is asked with reference to the extra storey and mansard roof built in the 1920s, the answer is yes, and they are agreed on the extent to which the price should be reduced on account of those works. The controversy has centred on the works, admittedly done by the appellant (Mr Shalson) and his predecessors in title, and admittedly done at their own expense, to reconvert the house from five flats to a single dwelling as it was when originally let.
It seems to me plain that these works were improvements within the statutory language, since they were not works of repair and renewal and the statutory language makes plain that whether such works cause an increase of value raises a separate question; it is not a defining characteristic of an improvement that it has the effect of increasing the value of the house. In the present case it is common ground that the improvements in question (the reconversion works) increased the value of the house as compared with its value had those works not been done. Thus the question posed in paragraph 3 must be answered yes, and there is agreement on the extent to which the price must be diminished on that basis.
The Leasehold Valuation Tribunal and the Lands Tribunal held that the reconversion works did not entitle the appellant to pay a diminished price because their effect was to reverse the conversion works carried out in the 1940s and return the house to its original configuration. The Court of Appeal upheld those decisions: [2003] Ch 110; [2002] EWCA Civ 538. I would accept that those conversion works were, within the statutory language, improvements. It seems very questionable whether they were improvements carried out by the appellant's predecessor in title at his own expense, since the 1947 tenant was contractually bound to carry out the works and it seems likely (although there is no finding on this) that the rent payable under the lease was abated to reflect the expense to which he was committing himself. But even if it were accepted that the conversion works were improvements carried out by the appellant's predecessor in title at his own expense, it is quite plain that they did not (as of the valuation date, which is the only date that matters) increase the value of the house. The effect of the reconversion works voluntarily undertaken by the appellant and his predecessors in title was to undo the conversion works and so render them wholly irrelevant for purposes of the statutory calculation, as having no effect on the market value of the house.
I would accordingly allow the appeal and make the order which Lord Hoffmann proposes.
My Lords,
I have read the opinions of my noble and learned friends Lord Bingham of Cornhill, Lord Hoffmann and Lord Millett. For the reasons they have given I would also make the order which Lord Hoffmann has proposed.
My Lords,
This appeal concerns the principle upon which the price which a tenant has to pay pursuant to section 9 of the Leasehold Reform Act 1967 for the freehold interest in a house should be adjusted to reflect any increase in its value attributable to improvements which he or his predecessors in title have made at their own expense.
Section 9(1A) of the 1967 Act provides that, in the case of houses over a certain rateable value, the price shall be "the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise" on various assumptions. The "relevant time" means the time at which the tenant gives notice of his desire to buy the freehold: section 37(1)(d). For present purposes, the only relevant statutory assumption is paragraph (d) of section 9(1A):
"on the assumption 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"
The appellant Mr Shalson was tenant of a large house in St John's Wood under a lease dated 19 May 1947 for a term of 99 years from 25 March 1947 at a yearly rent of £140. The lease had been granted in consideration of the covenants which it contained and the surrender of a 50 year lease of the same premises granted in 1921. That lease in turn had been granted in consideration of the surrender of a 95 year lease granted in 1843. The history is relevant because section 3(3) of the 1967 Act provides that if a tenant of property under a long tenancy, on the coming to an end of that tenancy, becomes tenant under another long tenancy, the Act is to apply as if there had been a single tenancy for a term beginning with the commencement of the earlier tenancy and expiring with the term of the later tenancy. Mr Munro, who appeared for the landlord, wanted to keep open the question of whether this provision could apply more than once and unify all three long tenancies. But, subject to that point (which need not be decided) all tenants since 1843 count as predecessors in title of Mr Shalson.
The house was originally a villa constructed for family occupation. At some time in the 1920s it was enlarged by the addition of an extra storey with a mansard roof. Under the 1947 lease, the tenant covenanted to carry out certain alterations to convert the house into five self-contained flats. It may be assumed that this reflected the weak demand for big Victorian houses in London just after the Second World War. The work was done and for the next 40 years or so the house was in multiple occupation. The lease also contained a tenant's covenant (2(21)) not to make any further alterations without the landlord's licence in writing. During the 1980s the market changed. There was a demand for big family houses in good areas of London. The result was that while the 1947 works had originally increased the value of the house, the converted state of the house made it worth rather less in the 1980s than it would have been in its original state. Pursuant to a licence granted in 1983, the upper part of the house was converted into one dwelling with a self-contained basement flat beneath. In 1991 Mr Shalson acquired the lease and made further alterations, pursuant to a further licence, to convert the basement flat into a swimming pool, sauna, gym and maid's quarters. By the time Mr Shalson gave notice of his desire to buy the freehold on 19 November 1997, the house was once more arranged for family occupation, more or less as it had originally been constructed.
There is no dispute that Mr Shalson is entitled to a deduction for the extent to which the...
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