Whitehall Court London Ltd v The Crown Estate Commissioners

In valuing a landlord’s interest under Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993, the statutory no-rights assumption applies to the whole building containing the tenant’s flat. It covers both collective enfranchisement and individual lease-extension rights, but does not extend beyond that building. The interest in the tenant’s flat remains the subject of valuation and may be valued as a component of the landlord’s wider interest in the block.

A headlease definition of Net Receipts using expansive language includes receipts from transactions which breach restrictive covenants, including unauthorised structural alterations. The court should not add words excluding such receipts where the contractual language and commercial context point the other way.

The appellant held the headlease of two blocks within Whitehall Court. A tenant of Flat 71A claimed a new lease under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993. The parties agreed the premium but disputed how it should be divided between the intermediate lessee and the freeholder.

The First-tier Tribunal determined six issues. The Upper Tribunal, in [2017] UKUT 0242 (LC), determined seven issues and granted permission to appeal on two. The appeal concerned the geographical scope of the statutory valuation assumption in paragraph 3(2)(b) of Schedule 13 and whether the headlease’s Net Receipts included payments from transactions in breach of covenant.

Floyd LJ gave the leading judgment, with which Sales LJ and Underhill LJ agreed. The appeal was dismissed.

1. Scope of the valuation assumption. The subject of valuation under Schedule 13 was the diminution in the landlord’s interest in the tenant’s flat. That did not confine the statutory assumptions to that flat. An intermediate leasehold interest could properly be valued as a component of the landlord’s interest in the block, following the approach in Nailrile v Earl Cadogan [2009] 2 EGLR 151.
2. Paragraph 3(2)(b) required the valuer to assume that neither Chapter I nor Chapter II conferred rights in any part of the premises containing the tenant’s flat. Chapter I rights held by other qualifying tenants could depress the value of the landlord’s interest in the flat, so those rights had to be switched off. The same expansive wording applied to Chapter II rights. The result was an assumption of a no-Act building, not a no-Act world.
3. The comparison with Schedule 6 supported that construction. Earl Cadogan v Sportelli [2010] AC 226 did not justify extending the assumption beyond the building. The court also treated the guidance in Mundy v Sloane Stanley Estate Trustees [2018] EWCA Civ 35 as confirming that the valuation remained a real-world valuation subject only to statutory assumptions.
4. Net Receipts. The headlease used expansive language covering rents, capital sums, other income, and sums received for variation or surrender of an under-tenancy. That language included receipts from transactions which breached covenant and had not been authorised by the freeholder. It would be uncommercial for the headlessee to retain those receipts without accounting for them. A freeholder could waive a breach and thereby make the transaction lawful: Metropolitan Properties Co. Ltd v Cordery (1980) 39 P.&C.R. 10. Receipts for prohibited structural alterations could likewise fall within Net Receipts.
5. The Upper Tribunal was therefore upheld on both issues. The consequential valuation issues were to be dealt with as agreed or remitted if necessary.

1. Court of Appeal (Civil Division): Appeal dismissed. The Upper Tribunal’s conclusions on the scope of the Schedule 13 assumption and the meaning of Net Receipts were upheld.
2. Upper Tribunal (Lands Chamber): The appeal from the First-tier Tribunal was determined in [2017] UKUT 0242 (LC). Permission to appeal was granted on two central issues.
3. First-tier Tribunal, Property Chamber: Six valuation and apportionment issues were determined following the tenant’s claim for a new lease.