London Sephardi Trust wins argument regarding statutory valuation provisions

The valuation provisions in section 9 of the Leasehold Reform Act 1967 and the Interpretation Act 1978 were evaluated in the Court of Appeal in the case of John Lyon's Charity v London Sephardi Trust. The Court of Appeal upheld the Upper Tribunal’s finding in favour of the London Sephardi Trust.

The appeal raised a question of statutory construction in relation to the scheme for leasehold enfranchisement provided for by the Leasehold Reform Act 1967, as amended. The parties were respectively the landlord and the tenant of a house in Maida Vale, London. The tenant, the London Sephardi Trust, validly exercised its right to acquire the freehold interest in the property from the landlord John Lyon's Charity by notice under Section 8 of the 1967 Act on 14 October 2013, but the parties were in dispute about the price.

The statutory scheme required the price to be ascertained by reference to the amount which, at the relevant time (that is the date of the giving of the Section 8 notice), the property might be expected to realise if sold on the open market by a willing seller, subject to stated assumptions. One of those assumptions was that the property was sold "subject to the tenancy". The original lease of this property, which gave rise to a right to enfranchise, was to expire in December 2016; but in the early 1980s the then tenants secured a 50-year extension to that lease by giving notice under section 14 of the 1967 Act so that, in fact, the lease would expire in 2066.

The expiry date of the tenancy to which the freehold interest was assumed to be subject had a major effect upon the statutory formula for determination of the price: the price for the freehold interest, on the assumption that the tenancy determines in 2066, was £1.748 million; whereas the price for the same interest, if the tenancy determined in 2016, was £2.866 million.

The issue for determination on this appeal turned on the construction of section 9 of the 1967 Act, as successively amended by section 118 of the Housing Act 1974, section 23 of the Housing and Planning Act 1986 and section 143 of the Commonhold and Leasehold Reform Act 2002, together with the Commonhold and Leasehold Reform Act 2002 (Commencement No 1, Savings and Transitional Provisions) (England) Order 2002, and upon the effect upon the interpretation of those provisions brought about by section 17(2) of the Interpretation Act 1978.

The issue as to the price for the purchase of the property was referred to the First-tier Tribunal by John Lyon's Charity. By its decision dated 4 September 2014, the First-tier Tribunal determined that the tenancy to which the freehold interest was assumed to be subject was the original lease, expiring in 2016.

The London Sephardi Trust appealed that decision to the Upper Tribunal. By its decision dated 19 November 2015 the Upper Tribunal allowed the appeal on that issue, holding that the freehold interest was to be assumed to be subject to the extended lease, expiring in 2066.

It was only before the Upper Tribunal that it was argued (successfully) that the outcome turned on section 17 of the Interpretation Act. The Upper Tribunal granted permission to John Lyon's Charity to appeal that decision to the Court of Appeal, upon the ground (among others) that it disclosed an important point of statutory construction, with potentially large valuation consequences.

The Court of Appeal upheld the Upper Tribunal’s decision and reasoning; and agreed that the 2002 Act repealed and re-enacted the 1986 Act amendments.  The upshot was that London Sephardi Trust could rely on the finding that the tenancy determines in 2066, a finding which delivers a lower purchase price of £1.748 million. This conclusion required three courts to wade through copious legislation before it could be reached and, in the end, had to rely on the Interpretation Act 1978 – a piece of legislation which is rarely consulted in property dispute cases.