Adrian Howard Mundy v Trustees of the Sloane Stanley Estate (2018)
In calculating marriage value for the purposes of determining the premium to be paid for the acquisition of a new lease under the Leasehold Reform, Housing and Urban Development Act 1993 Pt I, the Upper Tribunal had been entitled to have regard to real-world transactions in which the lease attracted rights under the Act.
The tenant of a flat appealed against the calculation of the premium to be paid to the landlord for the acquisition of a new lease under the Leasehold Reform, Housing and Urban Development Act 1993 Pt I.
The flat had been one of three in issue in a first-instance hearing in the Upper Tribunal. Another flat (Flat 5) had been treated as the lead case. The dispute concerned the landlord's share of marriage value, governed by Sch.13 para.4, para.4A and para.4B of the Act. "Relativity" was in issue. Relativity determined the value of the freehold with vacant possession and described the relationship between the real-world value of a leasehold interest and the value of the same interest making the assumption required by para.4A(1)(b), namely that the Act did not confer a right to acquire any interest in premises containing the flat. The UT considered methods of determining relativity, including the widely-used Gerald Eve graph and a model called Parthenia. Flat 5's real-world value was agreed; the agreement was based on an actual sale of the same lease within a week of the valuation date. It was also agreed that a lease with rights under the Act was more valuable than a lease without such rights. However, Parthenia produced a figure without rights which was higher than the figure with rights. The UT rejected Parthenia.
The tenant argued that it was illegitimate to compare the lease's real-world value, including rights under the Act, with its value without rights as shown by Parthenia; the real-world market had been corrupted by the influence of the Gerald Eve graph. He sought permission to argue that the Act required an assumption that the market was one in which no-one had rights under the Act, and that para.4A(2) required an assumption of a no-Act world.
Real-world transactions - The tenant's submission did not raise a point of law: whether to accept Parthenia was a question of fact for the UT. There had been ample evidence on which it could rely. Property valuation usually proceeded by comparison with appropriate adjustments. The fewer differences there were between the comparable and the subject of the valuation, the greater the weight that could be given to the comparable, Earl Cadogan v Sportelli  EWCA Civ 1042,  1 W.L.R. 2142 followed. Regarding Flat 5, the comparable was the same lease sold almost exactly at the valuation date; the only adjustment required had been to reflect the difference between a lease with rights under the Act and a lease without rights. There was nothing legally impermissible in making an adjustment to reflect a statutory assumption, Curtis v London Rent Assessment Committee  Q.B. 92 applied. Sportelli did not say there was no direct relationship between no-Act and subject-to-Act valuations or that comparison of the two was illegitimate; it said that whether there was such a relationship was a matter of valuation judgement, Sportelli considered. Paragraph 4A required the assumption of a sale in the open market. The starting point was that things were to be taken as they were in reality on the valuation date, except to the extent that the instrument postulating the hypothetical transaction required a departure from reality. Nothing in para.4A(1)(b) forbade a valuer from looking at real-world transactions to assist in determining value on the required assumptions. It was an overstatement to say that the market had been "corrupted" by use of the Gerald Eve graph. If the graph was used in real transactions and influenced the market's performance, it could not be said that transactions in the real market, albeit influenced by the graph, could be ignored (see paras 27-42 of judgment).
Assumption that no-one had rights under Act - The tenant's argument did not reflect the natural meaning of the words of the Act. It overlooked the fact that para.4A(1)(b) specifically delineated the geographical extent to which the assumption applied. It conflicted with the primary instruction to assume an open-market sale. It would produce an unworkable result by eliminating almost all available evidence from consideration. Permission to appeal would be refused (para.46).
Assumption of no-Act world - The tenant's argument had not been raised before the UT, so there had been no evidence about what additional assumptions were appropriate and what their effect on value might have been. What was an "appropriate" assumption was a question of valuation judgement. It was not a question of law on which the instant court could rule. The fundamental principle underlying para.4A(1) was that the sale took place in the open market. That meant the real market, subject to the required assumptions. Although the transaction was hypothetical, there was nothing hypothetical about the market in which it took place. Permission would be refused (para.48).
Test for grant of permission to appeal from Upper Tribunal exercising original jurisdiction - The test was the ordinary first appeals test. Although the Appeals from the Upper Tribunal to the Court of Appeal Order 2008, which prescribed the second appeals test, was apparently unqualified in its application, the statutory power under which the Order had been made, the Tribunals, Courts and Enforcement Act 2007 s.13(6), was limited to appeals from the UT which were themselves decisions on appeal from the First-tier Tribunal, Nwankwo v Secretary of State for the Home Department  EWCA Civ 5 applied (para.4).
Appeal dismissed, applications refused.
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24 Jan 2018
Court of Appeal (Civil Division)
Arden LJ, Lewison LJ, Peter Jackson LJ
EWCA Civ 35