Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Premium – Grant of new lease of flat and car parking space pursuant to Chapter II of Part I of 1993 Act – Flat and parking space held on separate leases at time of application –Proper approach to apportionment of landlord’s share of marriage value in such circumstances – Para 10(2) of Schedule 13 to 1993 Act – Appeal dismissed
The appellants owned the freehold of a purpose-built 1960s apartment block, with underground car park, near Marble Arch, London W1H. The respondent held a headlease of the whole of the building and the car park for a term of 125 years from 1962. It also held three underleases of parts of the building for a similar term less two days; one underlease demised the whole building except for 89 parking spaces, while the other two demised some of those parking spaces. The individual flats and parking spaces were in turn let on occupational leases.
The holder of one such occupational lease applied, under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993, to acquire an extended lease of its flat plus an appurtenant parking space. At the time of the application, the leaseholder held the flat and the parking space on separate leases granted on the same day and for the same term.
It was agreed that the premium payable for the new lease, in accordance with Schedule 13 to the 1993 Act, was in the region of £246,882. An issue remained as to how the landlords’ share of the marriage value created on the grant of the new lease, as determined under para 2(b) of Schedule 13, should be apportioned between the appellants as the “competent landlord” and the respondent as the “intermediate landlord”.
The first-tier tribunal (FTT) determined that the marriage value should be apportioned, for the purposes of para 10(2) of Schedule 13, by making a single calculation of the proportions in which each party’s interests in the flat and the parking space together would be diminished by the grant of the new lease. On that basis, it was agreed that the total marriage value of £128,162 should be apportioned as to £87,755 for the appellants and £40,407 for the respondent.
The appellants appealed, contending that two calculations should be made to determine the share of marriage value. They argued that there should be separate determinations of the extent to which the grant of the new lease would diminish the parties’ interests in: (i) the flat; and (ii) the parking space. They submitted that the marriage value referable to the flat should then be apportioned using the first ratio, while the second ratio should be applied to the marriage value attributable to the parking space. That approach produced an apportionment of £97,219 for the appellants and £30,943 for the respondent.
Held: The appeal was dismissed.
(1) Paragraph 10(2) of Schedule 13 to the 1993 Act required the amount payable to the landlord in respect of its share of the marriage value to be divided between the landlord and the owners of intermediate interests in proportion to the amounts by which the values of their respective interests in the flat would be diminished in consequence of the grant of the new lease. The effect of section 6(2) of the Act, which provided that references to a flat included references to its appurtenances, was that, in the instant case, the landlord’s share of marriage value was to be divided between the appellants and the respondent in proportion to the amounts by which the values of their respective interests in the flat, including the parking space, would be diminished in consequence of the grant of the new lease.
Paragraph 10(2) required the tribunal to identify the relationship between the diminution in value of the intermediate leaseholder’s interests in the flat, including the parking space, as a result of the grant of the new lease and the diminution in the value of all landlords’ interests as a result of that grant. In the case of each landlord, whether competent or intermediate, that relationship or ratio could be expressed as a fraction in which the denominator was the total diminution in the value of all of the landlords’ interests in the flat, given its extended meaning, and the numerator was the diminution in that landlord’s interest or interests.
Paragraph 10(2) clearly required a comparison by reference to the reversionary interests in the flat, including its appurtenant property, viewed as a single parcel of property. While the flat and appurtenances might be held separately, it was nevertheless necessary to identify a single relationship or ratio of the diminution in value of all interests. That requirement precluded the approach advocated by the appellants of ascertaining and comparing the diminutions in value of the separate parts of the property to be comprised in the new lease. The appellants’ reversionary interest was in the whole of the freehold interest in the flat, including the parking space. The diminution in the value of that interest, by however many steps it was calculated, was a single figure which para 10(2) required to be compared to the total diminution of the interests of all landlords in the flat and parking space to determine the appellants’ share of the marriage value. The approach advocated by the appellants involved a different exercise from that required by para 10(2).
(2) The single comparison approach was inconsistent with the requirement to ascertain the diminutions in value of the interests of the landlord and the holders of intermediate leaseholds by reference to a sale of their respective interests in the open market. While the diminutions in value of the parties’ respective interests had to be ascertained by an open market valuation in accordance with para 3(2), the exercise required by para 10(2) was not a valuation; instead, it was a purely arithmetical process to derive ratios between given amounts. The valuation techniques to be employed to determine the open market value of reversionary interests in a flat and appurtenances held under a single lease, but with separate reversions, were not prescribed by the statute. However, once the necessary valuations had been undertaken and the results assembled, para 10(2) left no doubt about how they were to be employed in the division of marriage value and was not concerned with how a comparable exercise would be approached in an open market negotiation.
(3) That approach was not an unlawful interference with the appellants’ right to respect for their possessions under Article 1 of the First Protocol (A1P1) to the European Convention on Human Rights. Parliament had chosen to divide the landlord’s share of marriage value according to the relative damage sustained by the parties in respect of their original interests. Since both landlords were fully compensated for the diminution in the value of their respective interests as a result of the grant of the new lease, and since no marriage value would have been released but for the exercise of the tenant’s statutory right to require a new lease, it was not irrational or arbitrary to divide the marriage value in proportion to the damage sustained. Such an approach fell within the wide margin of appreciation afforded to signatories to the Convention.
Ellodie Gibbons (instructed by Pemberton Greenish LLP) appeared for the appellants; Stan Gallagher (instructed by Shoosmiths LLP) appeared for the respondent.
Sally Dobson, barrister