Grosvenor Estate v Klaasmeyer & Anor, Court of Appeal - Lands Tribunal, March 26, 2010, [2010] UKUT 69 (LC)

Resolution Date:March 26, 2010
Issuing Organization:Lands Tribunal
Actores:Grosvenor Estate v Klaasmeyer & Anor





UT Neutral citation number: [2010] UKUT 69 (LC)

LT Case Number: LRA/187/2006


LEASEHOLD ENFRANCHISEMENT - Leasehold Reform Act 1967 section 9(1A), (1D) and Schedule 1 - enfranchisement by underlessee - unusual terms of head lease - calculation of marriage value - assessment of capitalisation and deferment rates.







Re: 8 Chester Street

London SW1X 7BB

Before: His Honour Judge Huskinson and Mr N J Rose FRICS

Sitting at 43-45 Bedford Square, London WC1B 3AS

On 15, 16, 17 and 18 February 2010

Johnathan Gaunt QC and Anthony Radevsky, instructed by Boodle Hatfield, on behalf of the Appellant

Phillip Rainey, instructed by Bircham Dyson Bell LLP, on behalf of the Respondents

The following cases are referred to in this decision:

Cadogan v Sportelli [2009] 2 WLR 12

Lynall v Inland Revenue Commissioners [1972] AC 680

Inland Revenue Commissioners v Crossman [1937] AC 26

Re Strand and Savoy Properties [1960] Ch 582

International Drilling Fluids [1986] 1 ch 513

Olympia & York Canary Wharf Limited v Oil Property Investments Limited [1994] 2 EGLR 48

Ashworth Frazer Ltd v Gloucester City Council [1997] 1 EGLR 104

Nailrile Limited v Earl Cadogan [2009] 2 EGLR 151

Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer Vizagapatam [1939] AC 303

F R Evans (Leeds) Limited v English Electric Co (1978) 36 P & CR 185

A-G Belize v Belize Telecom [2009] 1 WLLR 1988

Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2010] 1 All ER (Comm) 1

Pimms v Tallow Chandlers [1964] 2 QB 547

Lady Fox's Executors v Commissioners of Inland Revenue [1994] 2 EGLR 185

Hoare v National Trust [1999] 1 EGLR 155

Arbib v The Earl Cadogan [2005] 3 EGLR l39

Olympia & York Canary Wharf Limited v Oil Property Investments Limited [1994] 2 EGLR 48

Rayburn v Woolf [1985] 2 EGLR 235

Re Strand and Savoy Properties [1960] Ch 582

Wentworth Securities v Jones [1980] AC 74

Arrowdell v Coniston Court (North) Hove Ltd [2007] RVR 39



  1. This is an appeal by Grosvenor Estate Belgravia, the head leaseholder, with permission of the President, from the decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (``the LVT'') whereby the LVT decided that the price to be paid by the Respondents upon the enfranchisement under the Leasehold Reform Act 1967 as amended in respect of 8 Chester Street, London SW1X 7BB (``the Property''), was £1,269,249. Of this figure £100,799 was payable to the freeholder and £1,168,450 to the head leaseholder. The appeal comes before the Tribunal by way of a rehearing. Before us the Appellant contended for a total enfranchisement price of £1,413,200 and the Respondents' figure was £1,076,314.

  2. There are certain points of contention between the parties regarding the appropriate capitalisation rate and deferment rate to be adopted at certain stages of the calculation of the price to be paid. However the most important point of disagreement between the parties results from the question of how to deal in the statutory valuation exercise with the fact that the Property is held by the Respondents upon an underlease from the Appellant as head leaseholder. Superior to the Appellant there are the freeholders, who are the trustees of the will of the second Duke of Westminster (``the Freeholder''). The terms of the headlease are unusual and it is these terms which give rise to the disagreement between the parties as to how to carry out the statutory valuation exercise under section 9(1A) of the Act when considering separately (and it is agreed that separate valuations are required) the value at the valuation date of the freehold and of the head leasehold interest in the Property. While the terms of the headlease are possibly unique this does not mean to say that the dispute of principle arising in the present case is one which can only affect the present parties to this appeal. This is because the head lease between the Freeholder and the Appellant is of a truly immense estate of property, being effectively the entirety of the Grosvenor Belgravia Estate. Despite the vast value of the property demised there is only reserved a rent of £1,000 per annum (which is in effect purely nominal) together with the prospect of receiving additional payments of rent and of capital after 25 March 2026. The lease is for a term of 200 years from 25 March 1984. The terms of the lease are referred to in more detail below. Bearing in mind the extent of the property demised by this head lease and the possibility of other properties contained within that estate becoming the subject of an enfranchisement claim under the Leasehold Reform Act 1967 as amended, the question of the proper valuation approach to the unusual terms of this head lease is one of potentially wide application.

  3. The parties have helpfully prepared an agreed statement of facts in the following terms:

    ``The following facts and issues are agreed between the parties:

  4. Valuation date: 3rd August 2005

  5. Underlease expiry: 24th December 2040

  6. Unexpired term of the underlease at the valuation date: 35.39 years

  7. Head lease expiry 24th March 2184

  8. Unexpired term of the head lease at expiry of

    the underlease: 143.25 years

  9. Present underlease rent for unimproved Property: £13,500 pa

  10. Unimproved rental value of the Property

    at the valuation date: £13,500 pa

  11. Unimproved freehold vacant possession

    value of the Property at the valuation date and

    on the agreed terms of the Transfer: £4,500,000

  12. Value of the unimproved Property on its existing underlease: £2,663,000

  13. Relativity for a lease at a peppercorn rent with a term

    unexpired of 143.25 yrs: 99.00%

  14. Capitalisation rate for the underlease rent up to review

    (assuming the Property were being valued as a single

    freehold interest): 4.75%

  15. Freeholder's deferment rate: 4.75%

  16. Period to freeholder's reversion: 178.64 years''

  17. The LVT's decision included, as it had to, an analysis of the total marriage value to be shared between the Respondents (as the enfranchising tenants) on the one hand and the superior interests on the other hand. The LVT concluded that the total marriage value was £1,135,501, such that the total price for the freehold as fixed by the LVT included one half of this sum, namely £567,751 of marriage value. It may be noted that the principal point involved in the present appeal is how the unusual terms of the head lease are to be dealt with in the valuation exercises which it is necessary to perform in order to identify what may be called the investment value or core value of the Freeholder's interest and of the Appellant's interest (100% of which the Freeholder and the Appellant respectively are entitled to retain as part of the purchase price) and how much should be attributed to marriage value (50% of which they are entitled to receive between them).

  18. The terms of the head lease between the Freeholder and the Appellant have been briefly noted above and in more detail, so far as is necessary to record them for the purposes of this case, are as follows.

    (1) The lease was for 200 years from 25 March 1984 at a rent (for the first 42 years of the term) of £1,000 per annum. No premium was payable. The property demised was effectively the whole of the Grosvenor Belgravia Estate. It is appropriate to note that the reddendum clause was in the following terms:

    ``PAYING therefor yearly and every year during the said term hereby granted the rents specified in the Second Schedule hereto ...''

    (2) The lease contained an absolute covenant against assigning part of the demised premises and a qualified covenant against assignment of the whole or under letting or parting with possession of the demised premises or any part thereof - ie qualified in the sense that this was not to be done without the previous consent in writing of the Freeholder such consent not to be unreasonably withheld.

    (3) The covenant against alienation, which is contained in Clause 2 (IX), then provided in subparagraph (d) as follows:

    ``(i) if the Lessee shall stipulate for a fine or premium as the consideration or part of the consideration for the grant of any underlease or on any other parting with the possession of the whole or any part of the demised premises permitted by this Lease (otherwise than a parting with possession by virtue of any assignment of the whole of the demised premises) then the Lessee shall forthwith account to the Landlords on the date of receipt of such fine or premium for the Appropriate Proportion of such fine or premium which shall belong to the Landlords accordingly (which Appropriate Proportion shall be determined in accordance with sub-paragraph (ii) of this paragraph (d))

    (ii) the Appropriate Proportion of any such fine or premium as is mentioned in sub-paragraph (i) of this paragraph (d) shall be determined by reference to the year of the term demised by this Lease during which the grant of the underlease or the other parting with possession in question mentioned in the said sub-paragraph (i) occurs or (if earlier) the date of any agreement relating to such grant or other parting with possession (or if such agreement shall be conditional the date on which such condition or conditions shall be fulfilled) and shall be the proportion specified in the Third Schedule hereto.''

    (4) The Third Schedule is in the following terms:

    ``The Third Schedule

    The Appropriate Proportion

    The Appropriate Proportion both for the purposes of Clause 2 (IX) (d) of this Lease and for the purposes of paragraph 1(a)(vi) of Part II of the Second Schedule to this Lease shall be as follows:-

    (5) The Second Schedule made provision for the rent to be paid. As already noted this was only £1,000...

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