Gary Edward Hanson & Anor v Desmond Theorore Harding & Ors

In a lease-extension valuation, a tenant’s completed improvement must be disregarded, but the property’s latent potential for improvement remains an attribute of the property. Where that potential is within the demise, it falls to be valued under paragraph 3 of Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993. The value is not added as an immediately payable compensation sum merely because the improvement was undertaken without the landlord’s consent. The diminution in the landlord’s interest is calculated by comparing the present values of the opportunity at the original and extended lease expiries, with appropriate deferment in each case.

The appellants held a long lease of a first-floor flat. Their landlords could not be found, so the County Court made a vesting-order application under section 50(1) of the Leasehold Reform, Housing and Urban Development Act 1993 and transferred determination of the new lease terms and premium to the First-tier Tribunal (Property Chamber).

The FTT treated £20,000, representing potential development value associated with a completed loft conversion, as a separate compensation sum payable in full. It determined a premium of £30,580. The appeal concerned whether that value belonged in the paragraph 3 valuation and should be deferred until the reversion.

1. The appeal was allowed. The FTT’s decision was set aside, and the Tribunal determined the premium for the new lease at £10,884. There was no need to remit the matter because the evidence was sufficient and this Tribunal could make any decision which the FTT could have made under section 12(4) of the Tribunals, Courts and Enforcement Act 2007.

2. The £60,000 value created by the completed loft conversion was a tenant’s improvement. It therefore had to be disregarded in assessing freehold vacant-possession value under paragraph 3(2)(c) of Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993. That did not require the property’s potential for improvement to be ignored. The potential was an attribute of the property.

3. The roof and roof space were within the demise under the lease. The potential to carry out the improvement therefore fell to be considered under paragraph 3, rather than as loss or damage under paragraph 5. Paragraph 5 could have been relevant if the roof space had not been demised.

4. The landlord’s interest before the grant of the new lease included the value of the opportunity to improve the flat at the end of the existing term, 86 years later. After the grant, it included the value of that opportunity at the end of the extended term, 176 years later. The diminution was therefore the difference between £20,000 deferred for 86 years and the same sum deferred for 176 years. Treating the full £20,000 as immediately payable compensation was wrong.

5. The FTT’s additional reasons for refusing permission to appeal could not retrospectively supplement the reasons for its original decision. In any event, the grant of the new lease did not itself provide consent for the completed improvements.

• First-tier Tribunal (Property Chamber): By decision dated 12 November 2024, determined the premium at £30,580, including £20,000 for alleged loss of development value. Permission to appeal was refused on 9 January 2025.
• Upper Tribunal (Lands Chamber): Permission to appeal was granted on 29 January 2025. The appeal was allowed, the FTT decision was set aside, and the premium was determined at £10,884.