Introduction

The case of Cravecrest Ltd v. Duke of Westminster & Ors ([2012] UKUT 68 (AAC)) was adjudicated by the Upper Tribunal (Lands Chamber) on June 28, 2012. This pivotal case revolved around the complexities of leasehold enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 (the "1993 Act"). The primary parties involved were Cravecrest Limited (the appellant) seeking to collectively enfranchise the leasehold interests of 38 Wilton Crescent, London, SW1X 8RX, against the defendants: the Sixth Duke of Westminster, the Earl of Home, Jeremy Moore Newsum (acting as trustees), and Vowden Investments Limited (in administration).

The core issues debated included whether the owner of an intermediate leasehold could withdraw an agreement to have their interest acquired, the proper assessment of the enfranchisement price, and the treatment of substantial development value arising from the potential conversion of the property back to a single dwelling.

Summary of the Judgment

The Upper Tribunal upheld the decision of the Leasehold Valuation Tribunal (LVT), determining that the development value could be included in the enfranchisement price for both Grosvenor Estates Belgravia's (GEB) leasehold and Vowden Investments Limited's (Vowden) overriding lease. The Tribunal also dismissed Vowden's application to amend its statement of case to withdraw its agreement to the acquisition of its overriding lease, deeming this withdrawal impermissible as the agreement had been conclusively reached before the appeal.

Consequently, the enfranchisement price was fixed at £6,856,500, apportioned among the freeholder, GEB, and Vowden based on their respective shares and adjusted for deemed risks associated with realizing development value.

Analysis

Precedents Cited

The judgment extensively referenced prior cases to frame its legal reasoning:

• Earl Cadogan v Sportelli [2010] 1 AC 226: Addressed the interpretation of development and marriage value in leasehold enfranchisement, establishing foundational principles for how hope value is treated under the 1993 Act.
• Pledream Properties Limited v 5 Felix Avenue London Ltd [2010] EWHC 3048 (Ch): Provided guidance on the nature of agreements under the Act, emphasizing that agreements must be final and not merely subject to contract.
• Van Dal Footwear v Ryman [2009] EWCA Civ 1478: Although primarily concerning damages for breach of repairing covenant, it influenced the Tribunal’s approach to hypothetical purchaser assumptions.
• Themeline v Vowden Investments Ltd [2011] UKUT 168 (LC): Reinforced that development value could not be included as part of the marriage value, aligning with the separation of development and marriage values.
• Wentworth Securities Ltd v Jones [1979] 1 All ER 286: Established the necessity for separate valuations of each leasehold interest in enfranchisement cases.
• Grosvenor Estate Belgravia v Klaasmeyer [2010] UKUT 69: Emphasized the principle that each interest superior to the enfranchising lease must be valued independently.

These precedents collectively underscored the importance of clear valuation methodologies and the treatment of hope and marriage values in statutory leasehold enfranchisement.

Legal Reasoning

The Tribunal meticulously dissected Schedule 6 of the 1993 Act, particularly paragraph 3(1), which mandates that each leasehold interest must be valued separately under the assumption that no one within sub-paragraph (1A) is actively purchasing or seeking to buy the interest in question. This provision was interpreted to preclude the inclusion of development value arising from potential future transactions between separate leasehold interests.

However, considering the Jurisprudence from Sportelli, the Tribunal concluded that development value could indeed be factored into the valuation, provided it was based on realistic and informed assumptions about cooperation between leaseholders. The Tribunal rejected Vowden’s late attempt to withdraw its agreement to the acquisition of its overriding lease, emphasizing that such agreements, once final and documented, could not be unilaterally rescinded without just cause.

The Tribunal also evaluated valuation evidence presented by experts, acknowledging that while certain risk discounts applied by valuers were deemed excessive, the fundamental inclusion of development value was appropriate.

Impact

This judgment has profound implications for future leasehold enfranchisement cases, particularly in how development potential is treated in valuations. By affirming that development value can be included in enfranchisement prices, courts must ensure that valuations reflect not only the current rental income but also the potential future benefits that a nominee purchaser might realize through property development or conversion.

Furthermore, the dismissal of late amendments to agree terms strengthens the procedural aspects of enfranchisement, ensuring that parties cannot alter foundational agreements after significant progress in proceedings.

Complex Concepts Simplified

Hope Value vs. Marriage Value

Hope Value refers to the additional value that a leasehold interest might realize in the future due to potential developments or transactions that could unlock previously unrealized gains. In contrast, Marriage Value is the increase in the aggregate value of freehold and leasehold interests that arises from the merging of interests during enfranchisement, such as granting new long leases to tenants.

Schedule 6 and Paragraph 3(1)

Schedule 6 outlines the methodology for valuing leasehold interests during enfranchisement. Paragraph 3(1) specifically requires that each interest must be valued assuming that certain parties are not seeking to buy the interest, which ensures that valuations are conducted on a hypothetical open market basis without considering future transactions between related parties.

Enfranchisement Price

The enfranchisement price is the total amount payable by the nominee purchaser to acquire the targeted leasehold interests. This price must reflect the current value of the leases as well as any additional development value inherent in the property.

Conclusion

The Upper Tribunal's decision in Cravecrest Ltd v. Duke of Westminster & Ors underscores the necessity of incorporating realistic development values into leasehold enfranchisement valuations. By affirming that development value is a legitimate component of the enfranchisement price, the Tribunal ensures that valuations are comprehensive and reflective of both current and potential future value. Additionally, the ruling reinforces the importance of adhering to agreed terms in enfranchisement proceedings, promoting procedural integrity and finality.

This judgment serves as a critical reference for future cases, guiding how tribunals and valuers assess and incorporate development potential into leasehold enfranchisement, thereby shaping the landscape of property law in the UK.