Charles Hunt (Holdings) Limited v 77-82 Bridle Close Freehold Limited

In collective-enfranchisement valuation, development potential is valued by reference to what a knowledgeable hypothetical purchaser would pay at the valuation date. The assessment must allow for planning prospects, achievable sale values, construction costs, legal risks and reliable market evidence. Speculative opportunities to profit from future deeds of variation do not add value unless the evidence establishes a realistic market payment. A covenant requiring the tenant to keep and occupy a flat as a single private residence in one occupation prohibits subletting. On the evidence, the roof-space opportunity justified only modest hope value.

Charles Hunt (Holdings) Limited, the freeholder of a block of six flats, appealed against the First-tier Tribunal’s determination of the premium payable after the leaseholders exercised collective enfranchisement through their nominee purchaser, 77–82 Bridle Close Freehold Limited.

The First-tier Tribunal had fixed the premium at £8,000. Permission was granted because it had rejected the freeholder’s roof-development valuation after identifying an alleged calculation error without giving the parties an opportunity to address it. The alleged error was accepted to be mistaken, and the Upper Tribunal ordered a re-hearing of the valuation issues.

The issues were whether the leases prohibited subletting and therefore created value in possible deeds of variation, the development or hope value of the roof space, and the value of communal grounds acquired as additional property.

1. The appeal was allowed in part following a re-hearing. The Tribunal set aside the First-tier Tribunal’s valuation outcome and fixed the collective-enfranchisement premium at £16,288.

2. The lease covenant required each tenant personally to keep and occupy the flat as a single private residence. Its plain language therefore prohibited subletting. The First-tier Tribunal’s conclusion that a subletting to one family was permitted was wrong. Triplerose Limited v Beattie [2020] UKUT 180 (LC) concerned materially different wording which restricted use, rather than requiring the tenant’s occupation.

3. The prohibition gave a hypothetical purchaser the ability in principle to seek a premium for releasing the covenant by deed of variation. It did not, however, establish a compensable value. The freeholder’s valuation assumed, without reliable support, that the difference between historic sale prices and agreed freehold vacant-possession values arose wholly from the subletting restriction and that a variation would be sought on every sale. A purchaser would view that prospect sceptically. There was also a real legal risk that a variation could be challenged under reasoning analogous to Duval v Randolph Crescent Limited [2020] UKSC 18. No value was allowed for this possibility.

4. Roof-space development value depended on the planning prospects at the valuation date and the profit after construction costs and legal and planning risks. A knowledgeable purchaser could be assumed to make reasonable preliminary enquiries during the marketing period. The Tribunal accepted that planning permission was possible, but preferred a cautious two-flat scheme, lower gross development values based on local sales evidence, and higher build costs. Earlier tribunal decisions could not substitute for the purchaser’s commercial judgment, consistently with Francia Properties Ltd v St James House Freehold Ltd [2018] UKUT 79 (LC).

5. The resulting potential profit was modest and sensitive to the scheme and final build cost. The purchaser would pay no more than £10,000 as roof-development hope value. The communal grounds had a value of £500, since they could not be treated as available for parking for new flats. Together with capitalised ground rents of £5,788, the premium was £16,288.

• Upper Tribunal (Lands Chamber) — on a re-hearing, allowed the appeal in part and assessed the premium at £16,288: [2023] UKUT 32 (LC).
• First-tier Tribunal (Property Chamber) — on 21 January 2022, held the initial notice valid, confirmed entitlement to additional property, and assessed the premium at £8,000.