Case update: valuation dispute about enfranchisement
The Upper Tribunal (Lands Chamber) (“UT”) recently found in favour of a leaseholder in a valuation dispute relating to a lease acquired under the Leasehold Reform Act 1967 in the case of Alberti v Cadogan Holdings Limited  UKUT 85. This decision may have a significant effect on the price payable for the freehold of a property and will be of particular interest to those in the property sector.
The Leasehold Reform Act 1967 (the “1967 Act”)
The Reform Act gives leasehold tenants (leaseholders) of houses the statutory right to buy the freehold. The right to buy the freehold is called ‘enfranchisement’. The rules for calculating the price of the freehold are complex. Section 9 of the 1967 Act provides two alternatives for valuations depending on various qualification criteria. In particular, section 9 expressly requires any improvements carried out by the tenant to be disregarded in the valuation.
The case concerned a property in Chelsea, originally built as a single house, but by 1971, had been converted into five flats. In 1971, Mr Scarfe acquired a long lease of the property (comprising the five individual flats). Over several years, he restored the property to a single house by removing internal partitions, taking out unused bathrooms and kitchens and making other improvements. At the time, those conversion works did not equate to a material change in the use of the building so did not require planning permission.
In May 2019, Mr Scarfe gave notice to the freeholder, Cadogan Holdings, of his intention to purchase the freehold of the house under the 1967 Act. The claimant, Mrs Alberti then acquired the lease from Mr Scarfe and sought to also acquire the freehold under the 1967 Act.
The parties agreed any increase in value arising out of the conversion works was a tenant improvement and should therefore be disregarded pursuant to section 9(1A)(d) of the 1967 Act. However, the parties disagreed as to what impact this had on the valuation, namely whether the house had to be valued only as five flats and not a single house.
Mrs Alberti argued the former on the basis the tenant improvement works had to be disregarded pursuant to section 9(1A)(d) and on the basis such works would now be unlawful based on current planning policies in Chelsea. She valued the property at £2.6m. Cadogan contended that it was the single house being valued and therefore should be valued at £11m.
The UT found in favour of Mrs Alberti. The valuation assumption within the 1967 Act assumed the works had not been done and that planning permission and listed building consent should have been obtained for use as a single house. It therefore followed that the correct valuation was for the property being five separate flats with limited redevelopment potential.
This decision may have a significant effect on the price payable for the freehold of a property and will be of particular interest to those in the property sector. It is critical for qualifying leaseholders to understand their right to enfranchise and the complex rules and methods that apply to valuations. Earlier this year, the Housing Secretary also announced major enfranchisement reforms which we wrote about in detail here. We will keep you updated on any further developments.
Our Head of Property Disputes, Chi Collins, has significant experience advising on leasehold and collective enfranchisement. She acted for the leaseholders in the leading case of The Sloane Stanley Estate Ltd and Wellcome Trust Ltd v Mundy, Lagesse and Aaron  at the UT which tested the Parthenia model of relativity graphs relevant to valuations. If you have an enfranchisement query or would like advice on lease extension applications, please get in touch.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com