Success for the Crown Estate Commissioners

24 Jul 2018

The judgment recently handed down by the Court of Appeal in Whitehall Court London Limited v The Crown Estate Commissioners will be of interest to anyone in the field of leasehold enfranchisement because it provides, amongst other things, clarity as to the extent of the valuation provisions in the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”).

In this particular case the valuation process for a lease extension was complicated because the headlease required payment of a rent to the freeholder worked out as a percentage of the headlessee’s total income from the block above a certain fixed sum.

The rents on all unextended leases of flats in the building doubled in 2029 taking the total income above the fixed sum.

When valuing the loss in value to the freehold and headlease respectively resulting from the grant of a new lease of the subject flat, the valuers needed to know if they were to treat as certain that the rents of all the other flats would double in 2029, or should allow for potentially diminishing rents due to future lease extensions under the Act.

The Court of Appeal therefore had to decide the extent of the no-Act assumption.

Deciding the issue in the freeholders favour the Court held that the “no-Act” assumption on lease extensions extends not only to the flat but the block containing the flat.

The Court also considered whether the headlessee had to include payments received from transactions entered into in breach of covenant when accounting for income received.

Giving the lead judgment Lord Justice Floyd answered this issue in the affirmative. The Court held that the parties would have understood that, where a breach of covenant occurred, the freeholder could waive the breach, thereby making the transaction lawful.

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