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Mark Sefton QC, Stephen Jourdan QC and Ciara Fairley appear in appeal about the disregard of improvements

On 13 April 2022, the Court of Appeal handed down judgment in Alberti v Cadogan Holdings [2022] EWCA Civ 499.

Mark Sefton QC and Ciara Fairley, instructed by Cripps Pemberton Greenish, appeared for Cadogan. Stephen Jourdan QC, instructed by Teacher Stern, and leading James Fieldsend, appeared for Mrs Alberti.

The dispute concerned works undertaken in the 1970s by the cartoonist Gerald Scarfe to a house in Chelsea, divided into five flats, which he held under a long lease. The works converted the building from five flats back to a single house. At the time, planning permission was not needed. Some 40 years later, in 2019, Mr Scarfe claimed the freehold under the Leasehold Reform Act 1967, and then assigned the lease and the benefit of the claim of the house to Mrs Alberti.

By the date of the notice of claim, which was the valuation date, the building was listed, and planning policies had changed. If the building had remained divided into five flats it would have been necessary to obtain planning permission and listed building consent to convert it into a house, and it was agreed that there was no chance of obtaining those consents.

The issue was as to the interpretation and application of s.9(1A)(d) of the 1967 Act, which directs that the price payable for the freehold must be ascertained:

“on the assumption that the price be diminished by the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense.”

It was common ground that Mr Scarfe’s works were improvements for the purpose of s.9(1A)(d).  Mrs Alberti contended that the house had to be valued as if on the valuation date it could be used only as five flats and could not lawfully be used as a single house. Cadogan argued that the house should be valued as physically divided into five flats, but on the assumption it was lawful to convert the building into a house and use it as such; by the valuation date it had been used as a house for 40 years and nothing in s.9(1A)(d) required that to be ignored.

The Deputy President of the Upper Tribunal (Lands Chamber), Martin Rodger QC, determined the issue in favour of Mrs Alberti, and Cadogan appealed.

The Court of Appeal dismissed the appeal. Sir Keith Lindblom, the Senior President of Tribunals, gave the judgment, with which the other members of the Court agreed. He agreed with the Deputy President that it was a necessary consequence of s.9(1A)(d) that, in its assumed condition, planning permission and listed building consent would need to be obtained by a purchaser of 10 Cheyne Walk if they wished to carry out work to enable it to be occupied and used as a single house. He said:

“In my view, as Mr Jourdan submitted, the tribunal’s interpretation of section 9(1A)(d) was correct. It accords with the ordinary and natural meaning of the statutory words – “the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense”. It finds support in the authorities in which those words have been construed and applied. It accurately reflects the purpose underlying the assumption. It is not at odds with the “reality principle”. And it is conducive to a realistic approach to valuation, in which the value of the unimproved building can be derived by looking at the prices paid in the open market for similar buildings sold unimproved.”

One topic addressed in submissions was the “reality principle”. Sir Keith Lindblom’s judgment on that point is of some general importance in valuation disputes. He said:

“56.   … Where a statutory assumption requires a valuation to be conducted on a different basis from reality, the language and purpose of the statute must be heeded. Here, both language and purpose are plain. The statutory assumption itself is not ambiguous. It is in clear terms. It was formulated by Parliament to concentrate the valuer’s mind on increases in value attributable to improvements carried out by the tenant or his predecessors in title, and not more broadly than that. And there is no plausible interpretation of it competing with Ms Alberti’s. In these circumstances, as Lewison L.J. said in Harbinger Capital Partners v Caldwell [2013] EWCA Civ 492 (at paragraph 23), whilst the valuer must not depart from the real world further than the hypothesis compels, it is necessary to give that hypothesis “full effect”, and any inevitable consequence of it must also be assumed. In the same case Lord Justice Mummery observed (at paragraph 122) that “the principle does not determine or limit what the statute commands us to assume contrary to reality”. As he emphasised, “[the] statute determines that”. The “reality principle”, he said, “is about what is not covered by the statutory assumption”.

57.     Submissions were made to us in the light of decisions on valuation provisions in various statutory contexts… Most pertinent here, in my view, is the fact that the “reality principle” generally requires effect to be given to the inevitable consequences of the assumed counter-factual state of affairs.”

The judgment is available here.