Cravecrest Ltd. v Second Duke of Westminster, Trustees of the Will of & Anor

In a collective enfranchisement valuation, development hope value may be included in the open-market value of intermediate leasehold interests where a hypothetical purchaser could acquire the other interest shortly afterwards and thereby unite them. The exclusion in paragraph 3(1) of Schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993 applies to the interest being valued. It does not extend to a different interest sold in a later transaction. Separate prices remain necessary, with an appropriate discount for sequential-acquisition risk. The statutory marriage-value provisions do not exhaust development value. A valuation may also assume enquiries of an identifiable potential second seller where those enquiries and responses are supported by factual and expert evidence.

Cravecrest Limited, as nominee purchaser for participating tenants, appealed against the Upper Tribunal (Lands Chamber)'s decision concerning the price payable for two intermediate leasehold interests in a collective enfranchisement under Part I of the Leasehold Reform, Housing and Urban Development Act 1993.

The Property comprised three flats. The Upper Tribunal found that it could be restored as a single house and that a purchaser of either intermediate interest might shortly acquire the other, thereby realising substantial development value. It included that hope value and allowed a five per cent risk discount. The appeal raised whether development hope value was excluded by Schedule 6 and whether the valuation could assume prior enquiries of the owner of the other interest.

1. Appeal dismissed. The Chancellor delivered the leading judgment, with Lord Justice Rimer and Lord Justice McCombe agreeing.
2. The statutory scheme requires a separate price for each intermediate leasehold interest. Paragraph 7 applies paragraph 3 to the valuation of such an interest, subject to appropriate modifications. The exclusion of persons buying or seeking to buy concerns the interest being valued. It does not prevent the valuation from reflecting the possibility of a later sale of another intermediate interest to the same purchaser.
3. The statutory wording must be construed fairly and purposively, but the complexity and amendment history of the legislation required caution before extending the ordinary meaning of paragraph 3(1). The legislation was not intended to allow tenants to acquire development value entirely free of charge. The development hope value in issue was distinct from the marriage value defined by paragraph 4(2)(a), which concerns the participating tenants' potential ability to obtain new leases of their flats.
4. The decision in Cadogan v Sportelli, [2008] UKHL 71, did not require the exclusion of the development hope value. Its ratio, so far as relevant, concerned hope value reflecting possible marriage value from non-participating tenants and the avoidance of double counting. The present facts and statutory issue were materially different. The requirement for separate valuation was satisfied because the interests were valued separately and a discount was allowed for the risk of a two-stage transaction.
5. On the second issue, the hypothetical purchaser could be assumed to make enquiries of the actual owner who might become the second seller. The enquiries and likely responses were matters of fact and expert evidence, while their valuation consequences were matters for the valuers. The Tribunal therefore made no error of law or principle.

1. Court of Appeal (Civil Division) dismissed Cravecrest Limited's appeal.
2. Upper Tribunal (Lands Chamber), decision dated 11 May 2012, upheld the substantive conclusions of the Leasehold Valuation Tribunal and included development hope value in the valuation, allowing a five per cent discount for risk.
3. Leasehold Valuation Tribunal for the London Rent Assessment Panel, decision dated 12 September 2010, had reached the underlying valuation decision.