Cadogan Holdings Limited v Fleur Marie Alberti – Case Report

The recent Court of Appeal case of Cadogan Holdings Limited v Fleur Marie Alberti [2022] turned on the disputed interpretation of Section 9(1A)(d) of the Leasehold Reform Act 1967 where the parties’ interpretations resulted in rather significant differences in valuation.

Facts

The property in question was 10 Cheyne Walk, Chelsea (Number 10), a wisteria-clad, red-brick, 6 storey villa over-looking the Thames. In the 1970s, Number 10 had been inhabited by the famous, political cartoonist Gerald Scarfe, who converted the villa from five flats into a single house and then extended it further in 1987. At the time of the conversion no planning consents were required for the necessary works however under present planning policy Number 10, as a listed building, would require both planning and listed building consent for those same works; a point which became pertinent in proceedings.

On 13 May 2019, Mr Scarfe gave statutory notice to his landlord, Cadogan, that he wished to purchase the freehold. Later that year Mr Scarfe assigned the unexpired lease term, and the benefit of the claim to acquire the freehold of Number 10 to Mrs Alberti, who then brought the proceedings as a result of a disputed valuation of the freehold purchase value.

As a result of the parties being unable to agree upon a valuation of the freehold of Number 10, Mrs Alberti (as tenant) applied under Section 21 (1)(a) of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) for a determination of the correct premium payable for the freehold. The need for such arising from the parties being unable to negotiate an agreed premium as a result of their differing interpretations of section 9(1A)(d) of the Act, which directs a valuer to assume 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.”

Mrs Alberti’s valuer’s interpretation of the wording resulted in a premium for the freehold of £2.5 million, where as Cadogan’s valuer concluded a rather different valuation of £11 million.

At first instance, the Upper Tribunal (UT) considered that the price payable for the freehold interest of Number 10 was to be diminished by the extent to which its value had been increased by improvements carried out by the Mr Scarfe at his own expense. In essence, the valuation was to be based upon an assumption that Number 10 had not been altered and that it could not now be altered either (as a result of the current existing planning regime); i.e. it was a house consisting of five flats and not a single dwelling. A similar property existed adjacent to Number 10 and so a direct valuation comparable was available to uphold the assertion that the valuation should be £2.5 million. The UT also held that it would be misconceived to credit the landlord with the benefit of the planning status gained since the 1970s.

Given the sums at stake it was unsurprising that Cadogan chose to appeal the decision of the UT however it was unsuccessful in its appeal, which was dismissed by the Court of Appeal and the UT’s decision upheld. Subsequently, Cadogan appealed against the determination of the UT. However, the Court of Appeal dismissed the appeal and upheld the determination of the UT.

Law

Section 9 covers a wide range of considerations for valuation of freehold enfranchisement under the Act; including assumptions covering the purchase price, the costs of enfranchisement and the tenant’s right to withdraw. In this case the focus centred of the interpretation of the wording of Section 9(1A)(d) (as set out above).

It was agreed between the parties that the works carried out by Mr Scarfe were improvements for the purposes of Section 9(1A)(d).

As at the date of valuation Number 10 was, however, a listed building and to carry out the works of conversion as Mr Scarfe had done would now require both planning consent and listed building consent. It was agreed that were such applications to be made they would not have been successful and so no such works of conversion could be carried out in the present day.

Mrs Alberti relied on the relevant section 9 wording and the facts above to argue that Number 10 should, therefore, be valued as if it were five flats but could not lawfully be converted to a single house. In opposition, Cadogan argued that Number 10 should be valued as if it were five flats but with the assumption that conversion was, in fact, available. The former interpretation resulting in a premium of £8.5 million pounds less than the latter interpretation.

The Court of Appeal in their judgment found in favour of the UT’s decision that Mrs Alberti’s interpretation was correct, as that interpretation of the legislation provided protection to the tenant against, effectively, paying twice for its alterations. In agreeing with the findings of the UT, Sir Keith Lindblom (Senior President of Tribunals) stated that: “if one is to ascertain the extent to which the value of the property has been increased by the improvements carried out by [the tenant], one must not shut one’s eyes to what was achieved by those improvements, namely, under the planning legislation, the emergence of an established use of the building as a single house after its occupation in that use”.

Comment

The case provides helpful guidance from the UT, affirmed by the Court of Appeal, that when approaching valuations careful consideration should be given not only to what alteration may have been undertaken at the subject property but also how present statutory rights, powers and/or limitations may lead to different outcomes at the date of valuation as against those previously in effect. Such considerations will apply whether the premium is in the millions or in the hundreds of pounds and whilst the latter may not make it to Tribunal for determination, the principles stand and should be given due consideration during the valuation process to achieve the correct outcome.