House of Mayfair Limited v Timothy Frank Aitchison & Ors

In collective enfranchisement, development hope value for the premises being acquired is ordinarily assessed as part of the value of the freeholder’s interest under paragraph 3 of Schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993. Where realising development depends on acquiring or securing co-operation from another interest, a hypothetical purchaser may make appropriate enquiries and a two-stage transaction may be contemplated. Whether this adds value remains a question of fact and expert evidence.

A close connection between the owners of the relevant interests does not justify assuming an attractive development opportunity. The valuation must address the practical and legal means of development, including access, planning prospects, the other interest-holder’s likely terms, and the value of the actual scheme proposed.

The respondents, leaseholders of four flats at 22 Underhill Road, exercised their collective-enfranchisement right under section 24 of the Leasehold Reform, Housing and Urban Development Act 1993. The First-tier Tribunal determined a premium of £22,000, including £2,000 for the small prospect of roof development.

The freeholder appealed, contending that the Tribunal had wrongly approached development value under paragraph 5 of Schedule 6 and had failed to allow for the close relationship between the freeholder and the lessee of the top-floor flat. It submitted that a hypothetical purchaser could secure access or co-operation through that flat and that development hope value should be £35,000.

The central issue was whether the evidence required a greater allowance for a prospective roof development.

1. Appeal dismissed. The First-tier Tribunal was entitled on the evidence to fix the premium at £22,000.

2. The statutory price comprises the value of the freeholder’s interest under paragraph 3 of Schedule 6, marriage value under paragraph 4, and any paragraph 5 compensation. Paragraph 5 concerns loss or damage caused by diminution in the value of other property belonging to the freeholder. It was therefore not the natural basis for valuing ordinary development potential of the premises being acquired. The First-tier Tribunal appeared to have been distracted by paragraph 5, but that did not affect the appeal’s outcome.

3. Cravecrest Limited v Trustees of the Will of the Second Duke of Westminster [2014] Ch 301 did not establish a general valuation principle. A tribunal may posit a purchaser making enquiries of a potential second seller and may contemplate a two-stage transaction. Whether that prospect adds value is a factual question requiring evidence of the likely enquiries, responses and valuation consequences.

4. The appellant’s proposed development depended on overcoming substantial practical and legal difficulties concerning access through the top-floor flat. The expert’s late suggestion that £10,000 would secure the lessee’s co-operation had not formed part of his considered evidence and had not been tested. The First-tier Tribunal was not obliged to accept it. Its rejection of a new self-contained roof flat also rejected the premise of that allowance.

5. There was no reliable valuation evidence for the alternative scheme of enlarging the top-floor flat. The First-tier Tribunal was entitled to regard the development prospect as very small, having regard also to planning and other uncertainties. Its modest hope-value allowance disclosed no error of law.

• Upper Tribunal (Lands Chamber): dismissed the freeholder’s appeal and upheld the £22,000 collective-enfranchisement premium.
• First-tier Tribunal (Property Chamber): on 30 March 2020 determined the premium at £22,000, including £2,000 for development hope value.