Freehold interest — Price payable — Method of valuation — Tenants’ improvements — Treatment of development value — Whether unimproved valuation including element for potential improvements — Appeal dismissed
The appellants were the tenants of a house and premises under leases acquired in 1993. They carried out extensive works before moving into the property in 1997.
On 31 August 2000 (the valuation date), they served notice on the respondent landlord, under Part I of the Leasehold Reform Act 1967, of their wish to purchase the freehold of the property. The notice gave rise to a statutory contract for the purchase, subject to the leases, at a price to be agreed or, in default of agreement, determined by the leasehold valuation tribunal (LVT) as at the valuation date. The parties were unable to agree a price and referred the matter to the LVT, which determined it at £2,468,985, which was subsequently reduced to £1,941,655 on appeal to the Lands Tribunal. An issue arose as to whether the valuation should take account of development potential.
Section 9(1A) of the 1967 Act provided that the price payable “shall be the amount which at the [valuation date] the house and premises, if sold in the open market by a willing seller, might be expected to realise”. This was based upon six assumptions, including (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.”
In the present case, each side accepted that a comparison had to be made, as at the valuation date, between the value of the property in its improved state and the value that it would have reached had it not been improved. The Lands Tribunal held that the comparison should be between the value of the improved property and the value of the unimproved property with the potential of improvement. The appellants appealed, contending that the comparison should have been between the value the property in its improved state and its value in an unimproved state as at the valuation date.
Held: The appeal was dismissed.
There was no legitimate basis for the implication that assumption (d) required the value of the potential for improvement to be excluded from the valuation of the unimproved house. Assumption (d) required a calculation of the amount of the increase in value arising from the improvements. That necessarily involved a valuation of the property in the state it would have been in on the valuation date had it not been improved. Both valuers before the Lands Tribunal had agreed that a valuation of an unimproved house and premises would include the value of any potential for improvement. It followed that an increase in value arising from an actual improvement had to be calculated as an excess over the unimproved valuation (including the value of the potential for improvement), notwithstanding that the potential was merged in or absorbed by the actual improvement.
Furthermore, the Lands Tribunal was not required to disregard the existence of planning permission to carry out the works. An improvement was a physical concept and it was the increase in value resulting from the physical works that had to be subtracted; planning permission did not form part of those works.
Michael Driscoll QC and Edwin Johnson (instructed by Julian Holy) appeared for the appellants; Jonathan Gaunt QC and Anthony Radevsky (instructed by Pemberton Greenish) appeared for the respondent.
Eileen O’Grady, barrister
