Right to buy and the impact of tenants’ improvements on prices payable

Posted on March 27, 2018

When tenants exercise their right to buy the freehold of their homes, improvements to the property that have been carried out by them or their predecessors in title at their own expense are disregarded for valuation purposes. That rule came under close analysis in a case concerning a London mews house.

Following the expiry of their underlease, there was no dispute that the couple who occupied the property had the right to buy its freehold pursuant to the Leasehold Reform Act 1967. The First-tier Tribunal (FTT) found that the price that they had to pay in order to exercise that right was £1,771,185. The freeholder, however, argued for a price of £2,794,410 and appealed to the Upper Tribunal (UT).

The coach house that was originally on the site had been largely demolished and rebuilt in 1957 and an issue arose as to the impact of those works on the price payable. The tenants submitted that the price should be diminished by the extent to which the value of the house had been increased by those works. In other words, it was argued that the price should be calculated on the assumption that the house had remained in its pre-1957 condition.

Notwithstanding their scale, the UT accepted that the works were works of improvement, within the meaning of Section 9(1A)(d) of the Act, and that they had been carried out by the couples predecessor in title. However, in allowing the freeholders appeal, the UT found that there was insufficient evidence to support a finding that the works had been carried out by the predecessor at his own expense. The price payable was thus the sum contended for by the freeholder.

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