Leasehold Enfranchisement Update - Greensleeves

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Leasehold Enfranchisement Update

Leasehold Enfranchisement

Valuation

Trustees of the Alice Cooper-Dean Charitable Foundation v Greensleeves Owners Limited [2015] UKUT 320 LC

Summary

Where an intermediate interest had a negative value as a consequence of prior individual lease extension claims it was right in a subsequent collective enfranchisement claim to deduct the value of the intermediate interest from the value of the freehold.

Facts

The Trustees owned the freehold of a building known as Greensleeves. The building contained 8 flats each held on a long lease. There was a head lease of the building owned by a management company. The claim for collective enfranchisement was brought by six of the eight flats. The participating tenants were also shareholders in the management company.

In 2012 the participating tenants had obtained individual lease extensions under Chapter II of the LRHUDA 1993.

For the purposes of the collective enfranchisement claim it was agreed that the effect of those extensions was to diminish the value of the head lease so that it had a negative value of £201,900.

It was also agreed that the value of the freehold was £166,770.

Issues

Whether on its true construction paragraph 14 (2) of Schedule 6 LRHUDA 1993 requires the negative value of the head lease to be deducted from the value of the freehold so as to reduce the value from £166,770 to nil.

If so, whether the trustees were entitled to additional compensation under paragraph 5 of Schedule 6 LRHUDA 1993 in an amount equivalent to the lost value of £166,770.

First Instance

The FTT followed the decision in Nailrile v Cadogan [2009] 2 EGLR to the effect that the freeholder had the opportunity at the individual lease extension stage to recover an award of compensation under paragraph 5 of Schedule 13 LRHUDA 1993 in anticipation of the loss which would be suffered in any subsequent collective claim. In the light of that the tribunal declined to construe paragraph 14 (2) otherwise than in accordance with its plain meaning which it found to be that the negative value of the intermediate interest had to be deducted from the value of the freehold, with the net result that nil was payable in respect of the latter

Decision on appeal

The Tribunal held that paragraph 14 was not ambiguous and that its plain meaning applying ordinary principles of construction was that the negative value of an intermediate interest had to be deducted from a superior interest. Nor did the judge see any reason to deviate from the natural construction of paragraph 14 in an effort to avoid the consequences which resulted from that construction. As Sir Keith Lindblom put it:

“The enfranchisement legislation should be construed as it is, not as it might have been or yet become.”

That is to say that it was not for the Tribunal to judge what Parliament might have intended or how the Act ought to be amended (Jones v Wentworth Securities  [1980] AC 74 considered). In any event any perceived unfairness could have been mitigated had the freeholder claimed compensation under paragraph 5 of Schedule 13 at the individual lease extension stage.

There was no justification for awarding the value of the freehold as compensation under paragraph 5 of Schedule 6 as that paragraph related to loss suffered in relation to “other property”.

Comment

This case is a salutary lesson to valuers acting for freeholders and a reminder in any case where there is a possibility of a two stage enfranchisement to dust off a copy of Nailrile. In short the freeholder should claim at the lease extension stage as compensation under paragraph 5 of Schedule 13 any loss which would later be suffered in a collective claim by reason of the intermediate lease having a negative value. The tribunal will have to weigh the likelihood of a collective enfranchisement claim happening in the future and discount accordingly.