McHale & Anor v RH Cadogan & Ors

For the purpose of calculating marriage value on collective enfranchisement, the participating tenants’ interests must be valued on the same no Act rights basis as the freeholder’s interest. The relevant valuation compares the value of the freeholder’s and tenants’ interests as a package before enfranchisement with their value under the tenants’ control after enfranchisement. A consistent valuation requires the statutory right to enfranchise to be disregarded in valuing both elements. Artificial statutory assumptions displace the ordinary presumption that valuation proceeds on the basis of reality. Different wording in the lease-extension provisions does not alter the construction of schedule 6.

The appellants, the nominee purchaser and an intermediate lessee, challenged the valuation of the price payable for collective enfranchisement of 10 Sloane Gardens. The Leasehold Valuation Tribunal applied the no Act rights assumption when valuing the participating tenants’ interests for the marriage-value calculation under schedule 6 of the Leasehold Reform, Housing and Urban Development Act 1993. The Lands Tribunal dismissed the appeal on 30 October 2008, subject to correcting a mathematical error in the enfranchisement price.

The central issue before the Court of Appeal was whether paragraph 3(1)(b)’s express assumption, incorporated by paragraph 4(4)(a), applies only to the freeholder’s interest or also to the participating tenants’ interests when marriage value is calculated under paragraph 4(2).

1. Appeal dismissed. The court agreed with the Lands Tribunal that the participating tenants’ interests must be valued on the no Act rights assumption.
2. Schedule 6 paragraph 4(2) requires valuation of the increase in the aggregate value of the freeholder’s and intermediate interests when under the participating tenants’ control, compared with their aggregate value when held by the persons from whom they are acquired. The package must be valued on consistent bases. Since paragraph 4(4)(a) incorporates the paragraph 3(1) assumptions for the freeholder’s interest, the same assumptions apply when the tenants’ interests are brought into the calculation.
3. The statutory scheme seeks to identify marriage value on a principled basis. That purpose would be frustrated if the two elements were valued on different assumptions. The approach accords with the consistency principle referred to in Fattal v John Lyon Free Grammar School [2005] 1 WLR 803.
4. Schedule 13 did not control the construction of schedule 6. It concerns a separate valuation exercise, is structured differently, and begins with the tenant’s existing lease. Parliament could use different language in the two schedules without producing an inconsistent result. The absence of an express reference to the assumption in paragraph 4(4)(b) was immaterial because that provision concerns the interest acquired by the nominee purchaser.
5. The ordinary presumption that valuation proceeds on the basis of reality is displaced by the artificial assumptions required by the statute. Fairness and policy arguments could not justify a different construction. The court noted that the approach was also, on its face, consistent with the Pointe Gourde principle.

Lady Justice Arden gave the substantive judgment. Lord Justice Elias and Lord Justice Pitchford agreed.

• Court of Appeal (Civil Division): appeal dismissed on 21 December 2010: [2010] EWCA Civ 1471.
• Lands Tribunal: appeal dismissed on 30 October 2008, with the enfranchisement price adjusted to £780,405.
• Leasehold Valuation Tribunal: enfranchisement price determined at £770,940 on 17 January 2007. The tenants’ interests were held to be valued on the no Act rights assumption.