Ackerman and another v Mooney and others

Leasehold enfranchisement – Leasehold Reform Act 1967 – Applicants applying to acquire freehold of two adjoining properties – Respondent landlords seeking inclusion in transfer of absolute covenants against redevelopment – Whether proposed covenants to be included – Whether benefiting and materially enhancing value of landlords’ other property – Issue determined in favour of respondentsIn 2008, the applicants served notices of claim on the respondent landlords to acquire the freehold of two adjacent properties under the leasehold enfranchisement provisions of the Leasehold Reform Act 1967. The properties comprised a two-storey brick-built house, with loft conversion, that was divided into three residential units, and a larger four-storey Edwardian property. They formed part of a family estate, which was partly owned and managed by the respondents as trustees. Other estate properties had been sold over the years and many in the same road as the application properties had, with the estate’s consent, been converted into flats or hotels or demolished and replaced with tall modern blocks of flats. The respondents admitted the right to acquire the freehold of the two properties, but the terms of the acquisition were not agreed. The applicants applied to the leasehold valuation tribunal for determinations, under sections 9 and 12(2) of the 1967 Act respectively, as to the price payable and the terms to be included in the transfer.The latter issue was determined first. The respondents sought to include various covenants in the transfer, including absolute covenants that would effectively prevent the redevelopment of the properties unless waived by the transferor. The applicants contended that absolute covenants against redevelopment would not benefit the respondents’ retained properties or materially enhance their value, as required by section 10(4) of the Act. They submitted that: (i) the changed nature of the area meant that covenants of the kind sought were no longer suitable; (ii) both application properties were nearing the end of their useful lives; and (iii) the purpose of acquiring the freehold would be purely for redevelopment, involving their demolition of the properties and their replacement with a single block of flats.Held: The application was determined; the issue of absolute covenants was resolved in favour of the respondents.(1) A “material” enhancement for the purposes of the 1967 Act was one that was significant and more than minimal or nominal, connoting a noticeable difference. The concept of enhancing the value of the landlord’s other property encompassed maintaining a value that would otherwise deteriorate. Further, a distinction could be made between planning control under relevant legislation and control by restrictive covenant, such that the former was not a substitute for the latter. It was open to a landlord to show material enhancement as a matter of general impression; it was not necessary to provide valuation evidence of an exact figure: Moreau v Howard de Walden Estates Ltd LRA/2/2002 applied.(2) A landlord had to show that the covenant it sought to impose would benefit and materially enhance the value of its particular property. Therefore, the respondents had to satisfy the test with regard to the properties that they owned under the trust and not by reference to some wider family estate. The test could not be met by showing that the covenant could materially benefit land belonging to the other family trusts: Lay v Ackerman [2004] EWCA Civ 184; [2005] 1 EGLR 139 and Le Mesurier v Pitt (1972) 23 P&CR 389 distinguished. The land to be benefited by the imposition of covenant should, in order to provide certainty, be clearly identified and set out in the transfer as a matter of good conveyancing practice.(3) With regard to each application, the proposed covenants would materially enhance the value of the respondents other application property owned by the; this had to be taken into account since each application had to be treated individually. Since the application properties directly faced one another, they each affected the other, such that a covenant restricting the redevelopment of one would enhance the value of the other. Moreover, the effect of redevelopment would be such that absolute covenants were justified. They would ensure that the retained land would continue to be protected; that was provided for in the leases in the event that only one of the properties was enfranchised. Since the imposition of the covenants would materially enhance the value of the application properties and would not be unreasonable within section 10(5), such covenants should be imposed.Anthony Radevsky (instructed by Wallis LLP) appeared for the applicants; Kenneth Munro (instructed by Lester Aldridge LLP, of Bournemouth) appeared for the respondents.Sally Dobson, barrister