Cadogan Holdings Limited v Fleur Marie Alberti

When a statutory valuation requires the price to be diminished by the increase attributable to a tenant’s improvements, the valuer must compare the property as it stands with the property as it would have been if the improvements had never been made. The counter-factual includes the inevitable consequences of removing the improvements. Thus, where improvements created an established lawful use, that planning status must also be disregarded. The valuation must discount the whole increase caused by the improvements, but no more. The general reality principle cannot restrict a clear statutory hypothesis. It requires the hypothesis to be given full effect, including consequences which inevitably flow from it.

Cadogan Holdings Ltd appealed from a preliminary-issue decision of the Upper Tribunal (Lands Chamber), reported at [2021] UKUT 0085 (LC). The dispute arose from Mrs Alberti’s claim to enfranchise 10 Cheyne Walk under the Leasehold Reform Act 1967. Her predecessor had converted the building from five flats into a single house without planning permission, thereby acquiring an established use after the statutory period. The parties agreed that the works were improvements. The central question was whether section 9(1A)(d) required the freehold to be valued as though the works had never been carried out, including by assuming that single-house use would have remained unlawful.

1. Appeal dismissed. The Upper Tribunal correctly held that section 9(1A)(d) required the valuation to assume that use of the building as a single house would have been unlawful on the valuation date.
2. The provision requires the valuer to calculate the increase in value caused by the tenant’s improvements and to reduce the price by that amount. The comparison is between the property as it stands and the property as it would have been if the improvements had not been made. The relevant measure is the increase attributable to the works, not their cost.
3. The hypothesis must be given full effect. It is insufficient merely to remove the physical alterations on the valuation date while retaining a lawful single-house use which arose only because the alterations were made and the building was occupied in that use for the requisite period. The valuation must instead assume the planning status which would inevitably have existed without the improvements: here, planning permission and listed building consent would have been required for single-house use.
4. This conclusion accords with Shalson and Fattal. Fattal did not establish a general rule that actual planning status must always be retained. It was factually different because the planning permission there neither formed part of the physical improvements nor resulted from them. Railstore concerned a different rent-review clause and did not justify another construction of section 9(1A)(d).
5. The reality principle does not alter the result. Under the statutory deeming principles stated in Fowler, the court must apply the fiction to its inevitable consequences. The statutory language and purpose prevail over any presumption favouring the smallest departure from reality. The comparable property identified by the Upper Tribunal, remaining divided into flats, provided a realistic basis for valuation.

• Court of Appeal (Civil Division) — Appeal dismissed.
• Upper Tribunal (Lands Chamber) — Preliminary issue determined in favour of Mrs Alberti: [2021] UKUT 0085 (LC).