The Court of Appeal’s recent decision in Whitehall Court London v The Crown Estate Commissioners [2018] EWCA Civ 1704 has confirmed the position for the premium payable to extend a lease in relation to the so-called ‘no-Act’ assumption.
Kerry Glanville is senior partner and head of real estate dispute resolution at Pemberton Greenish
This assumption ensures that a lease’s open-market valuation is not reduced by the compulsory acquisition rights the tenant is allowed by law.
The Court of Appeal was asked to determine the scope of the no-Act assumption in paragraph 3(2)(b) of schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993 – and specifically, whether it applies just to the tenant’s flat or also extends to other flats in the same building.
Part of the exercise to arrive at the premium payable by a tenant for an extended lease under chapter II of the 1993 act is to value the landlord’s interest in the tenant’s flat before and after the new lease is granted. This is done by reference to open-market deals, but “on the assumption that chapter I [concerning rights of collective enfranchisement] and this chapter [concerning the right to an extended lease] confer no right to acquire any interest in any premises containing the tenant’s flat or to acquire any new lease”. Were it not for this assumption, the value of the landlord’s interest would be reduced because he would be compelled to sell a new extended lease to the tenant. Assumptions in similar terms are to be found in other statutes granting compulsory purchase powers.
It was common ground that it applied just to the flat that was the subject of the new lease claim. The Crown Estate Commissioners (CEC) – the freeholder and landlord for these purposes – contended that it also applied to other flats in the building, while Whitehall Court London (‘Whitehall’), the head lessee, argued that it was limited to the tenant’s flat.
Upholding the Upper Tribunal’s decision, the Court of Appeal found in favour of the CEC. The result was to increase the CEC’s proportion of the premium paid by the tenant while that due to Whitehall correspondingly reduced.
By finding that the assumption extends to the entire building – not just the tenant’s flat – the Court of Appeal judgment ensures that the rights of other qualifying tenants do no depress the value of the landlord’s interest. It is perhaps surprising that although the scope of the no-Act assumption has been raised in other cases, this precise point had not been addressed by the court until now. The clarity provided by this decision is welcome.
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