John Lyon's Charity (Respondents) v. Shalson (Appellant)

For a diminution of the enfranchisement price under section 9(1A)(d) of the Leasehold Reform Act 1967, a tenant must identify an improvement made by the tenant or a predecessor at their own expense and show that, without it, the property would have been worth less at the valuation date.

An improvement is a physical alteration or addition beyond repair or renewal. Each improvement must be considered separately against the property as it would otherwise have stood, including its actual history. Earlier alterations which no longer increase value are disregarded. Works may qualify even though they reverse earlier works or restore the property to a former condition.

The appellant held a long lease of a house which a predecessor had converted into five flats under the terms of a 1947 lease. The appellant and intervening tenants later reconverted it for occupation as a single house. That reconversion increased its value at the date on which the appellant gave notice to acquire the freehold under the Leasehold Reform Act 1967.

The Leasehold Valuation Tribunal and Lands Tribunal calculated the enfranchisement price by comparison with the house as originally let. The Court of Appeal, in [2002] EWCA Civ 538, reported at [2003] Ch 110, upheld the resulting refusal to make a deduction for the reconversion works because they reversed earlier works which would have depressed the property's value at the valuation date.

The issue before the House was whether section 9(1A)(d) required the reconversion to be valued separately against the house as it would have stood without those works, or whether the cumulative effect of earlier and later alterations should be assessed against the house's original state.

1. Appeal allowed unanimously. Lord Hoffmann delivered the leading speech. Lord Bingham, Lord Steyn and Lord Scott agreed with his reasoning, while Lord Millett gave additional reasons and agreed in the result. The enfranchisement price was fixed at the agreed figure of £275,298, with the landlord ordered to pay the tenant's costs in the House, Court of Appeal and Lands Tribunal.

2. Per Lord Hoffmann, section 9(1A)(d) of the Leasehold Reform Act 1967 imposes two essential inquiries. The tenant must identify an improvement made by the tenant or a predecessor at their own expense. The tenant must then establish that, without that improvement, the house would have been worth less at the valuation date. Lord Bingham and Lord Millett expressed the same analysis as three statutory conditions: qualifying works, expenditure at the tenant's or predecessor's expense, and an increase in value.

3. Per Lord Hoffmann, an improvement is a physical rather than an economic concept. It consists of additions or alterations beyond mere repairs or renewals. Whether the works increased value is a separate question. The conversion into flats and the subsequent reconversion were therefore both improvements, although the earlier conversion had ceased to exist and would, if retained, have depressed value.

4. Per Lord Hoffmann, the statutory words require a simple causal comparison. The property as it stands is compared with the same property, including its actual history, on the hypothesis that the particular improvement had not been made. Without the reconversion, the conversion into flats would have remained and the property would have been worth less. The reconversion therefore increased value and entitled the tenant to a deduction.

5. The Court of Appeal's additional hypothesis—that the earlier changes reversed by the improvement should also be treated as absent—had no basis in the statutory language. Nor was it permissible to aggregate the net effect of every alteration by comparing the property at the valuation date with its condition when originally let. The expression “any improvement” requires each relied-upon improvement to be considered separately. Improvements which add no value at the relevant date are disregarded, while overlapping increases must not be counted twice.

6. Lord Millett further reasoned that the 1947 conversion was undertaken as consideration for the grant of the lease and therefore at the landlord's expense rather than the tenant's. Lord Hoffmann regarded that conclusion as arguable where reinstatement is required by the lease, but did not decide it. In any event, the 1947 works could not reduce the price because they did not increase the property's value at the valuation date.

1. House of Lords: Allowed the tenant's appeal unanimously, set aside the result below and determined the enfranchisement price at £275,298.
2. Court of Appeal: Thorpe and Buxton LJJ and Moses J dismissed the tenant's appeal and upheld the tribunal's approach: [2002] EWCA Civ 538; [2003] Ch 110.
3. Lands Tribunal: Upheld the Leasehold Valuation Tribunal's decision, reasoning that the original conversion and later reconversion should both enter the valuation analysis.
4. Leasehold Valuation Tribunal: Determined that the correct comparison was with the house as originally let and declined to give the tenant the claimed deduction for the reconversion works.