Leasehold property valuation should exclude tenant's improvements

The Court of Appeal has rule that a leaseholder buying the freehold on his property should only have to pay what it would have been worth had extensive improvements not been made over the previous 40 years.

The issue arose after a tenant had taken a long lease on the property in the 1970s and converted it from a building divided into five flats, to a single dwelling.

This work took place before planning permission was required and was paid for by the tenant.

In 1984, the building became grade II listed and three years later the tenant added a rear extension, having obtained planning permission and listed building consent. 

In 2019, the tenant gave notice of his intention to purchase the freehold.

Three months later, a new tenant purchased the unexpired term of the lease together with the benefit of the claim to acquire the freehold.

He applied for a determination of the price payable for the house and premises. This led to the dispute with the landlord.

The tenant argued that the work carried out in the 1970s had taken place without planning permission, it would not be possible to carry out the same work before the valuation date as it had since become a listed building.

This meant the works had to be treated as never having been carried out, and the property should be valued as such - around £2.6 million.

The landlord argued that since it was lawful on the valuation date to use the building as a single house that it should be priced at £11 million to reflect the freehold value, subject only to the unexpired term of the lease. 

The Upper Tribunal ruled in favour of the tenant and that ruling was upheld at the Court of Appeal.

It ruled that the way to value the property as if it were unimproved was to value a neighbouring property which had been divided into flats on the date that the lease was granted and remained in that condition on the valuation date.

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