John Lyon's Charity v. Shalson

The court interpreted section 9(1A)(d) of the Leasehold Reform Act 1967 as requiring any claimed diminution to be calculated by reference to the extent to which the market value at the valuation date was increased by each improvement carried out by the tenant or a predecessor at their own expense. The correct test is causal: but for the improvement the house would have been worth less. Improvements are a physical concept (works not repairs or renewals) distinct from their effect on value, and each qualifying improvement must be assessed by comparison with the hypothetical property that is identical save for the absence of that improvement.

Applying that test the House of Lords held that the reconversion from flats to a single dwelling was an improvement carried out at the tenant's expense which increased value at the relevant time and therefore entitled the tenant to a diminution in the enfranchisement price under section 9(1A)(d). The court rejected the approach of comparing the property with its state at the original grant (1843/1921/1947) or aggregating earlier improvements that had no effect at the valuation date.

This case concerned the price payable by a qualifying tenant under the Leasehold Reform Act 1967 for the freehold of a house. The tenant, Mr Shalson, had converted a house that had previously been subdivided into five flats back into a single family dwelling; the landlord (John Lyon's Charity) contended that the reconversion should not reduce the statutory price because it merely reversed earlier conversion works.

The factual background: the lease dated 19 May 1947 required conversion into flats; that subdivision had been carried out. In the 1980s and 1990s market conditions changed and the tenant reconverted the property to single-family use and made other improvements. The tenant served notice to enfranchise on 19 November 1997. The Leasehold Valuation Tribunal, the Lands Tribunal and the Court of Appeal treated the reconversion as not giving rise to a diminution because it reversed earlier works; the Court of Appeal gave reasons emphasising practical difficulties and a view that restoring earlier works should not count.

The House of Lords, hearing an appeal from the Court of Appeal ([2002] EWCA Civ 538), framed the issues as (i) the meaning of "any improvement" in section 9(1A)(d) of the 1967 Act, (ii) whether improvements are to be assessed physically or economically, and (iii) the appropriate hypothetical comparison for measuring the increase in value attributable to an improvement.

The court held that: (i) "improvement" is a physical concept (works other than repairs or renewals) and is distinct from its effect on value; (ii) the statutory diminution is measured by asking whether, and by how much, the house would have been worth less but for that improvement; (iii) each improvement is to be considered separately ("any improvement") and earlier works that had ceased to exist or did not increase value at the valuation date are disregarded; and (iv) reconversion which increased value at the valuation date therefore entitled the tenant to a reduction in the price. The effect was to allow the agreed reduced price of £275,298. Costs were awarded to the tenant in the House of Lords, Court of Appeal and Lands Tribunal.

Appeal allowed. The House of Lords held that under section 9(1A)(d) of the Leasehold Reform Act 1967 each improvement carried out by the tenant or predecessors at their own expense must be treated separately and measured by the difference between the value with the improvement and the value but for it; reconversion from flats to a single house was an improvement that increased value at the valuation date and entitled the tenant to a diminution of the enfranchisement price.

Appeal to the House of Lords from the Court of Appeal decision [2002] EWCA Civ 538, after determinations by the Leasehold Valuation Tribunal and the Lands Tribunal.