Neville v Cowdray Trust Ltd & Anor

LORD JUSTICE MAY: Mrs Caroline Neville has lived since 1987 at Easeborne, near Midhurst in West Sussex. Her house is called Grevatts. It was converted into the present single dwelling in about 1966. The buildings from which it was converted were two modest semi-detached cottages built in 1675. Before they were converted, the cottages were separate self-contained dwellings. They were unoccupied in 1965 when the lease, to which I shall refer, was entered into.

Mrs Neville has held her property since 1987 under a long lease whose term will expire in September 2016. Her landlord is the Cowdray Estate, whose trustees are the defendants in these proceedings. Mrs Neville wants to buy the freehold reversion of her home. She says that she is entitled to do this under the Leasehold Reform Act 1967 as amended by the Leasehold Reform, Housing and Urban Development Act 1993. Unfortunately, parts of this legislation are not easy to understand.

The lease was originally granted on 1 October 1965 to Susan Maxwell for a term of 51 years from 29 September 1965. The rent was then £100 a year. On 29 September 1985, the rent increased to £200 a year.

The lease contained a covenant obliging the tenant to covert the two cottages within one year of the commencement of the term of the lease into a single modernised dwelling house in accordance with drawings and specifications approved by the landlord. The premises were not to be used except as a single dwelling house. A Mr Scott, to whom the tenancy was assigned in March 1966, duly carried out the conversion.

People are entitled to buy on fair terms the freehold of the leasehold house and premises in which they have lived for two years, if their tenancy is a long tenancy at a low rent. That is the heart of section 1 of the 1967 Act, although there are inevitably qualifications and complications. Mrs Neville’s lease is a long lease, and she satisfies other requirements of the legislation if she can show that her rent is a low rent. Section 4 of the 1967 Act essentially says that you have a low rent, if the yearly rent payable under the tenancy is less than two-thirds of the rateable value of the property on “the appropriate day”. This is where the complications start. For rents and rateable values may change, and you have to know what rent is to be compared with what rateable value.

Mrs Neville does not have the benefit of section 1AA of the 1967 Act, inserted by the Housing Act 1996, because her tenancy, being in a designated rural area, is an excluded tenancy under section 1AA(3).

Before the lease was entered into in 1965, each of the two cottages had a separate rateable value of £21 on the valuation list. They were thus each “hereditaments” according to the definition of that term in section 115(1) of the General Rate Act 1967. After the cottages were converted into a single dwelling house, there was a new entry for Grevatts on the valuation list showing a rateable value for the hereditament described as “house and car port” of £158. The date on which this rateable value was first shown on the valuation list was 9 August 1967.

Mrs Neville does not qualify as having a low rent under the original section 4 of the 1967 Act. This is because a low rent under that section is determined by a comparison between the rent current when the tenant gives notice of her desire to acquire the freehold and an historically rateable value on the appropriate day.

Section 4(1)(a) says that “appropriate day”:

“… means 23 March 1965 or such later date as by virtue of section 25(3) of the Rent Act 1977 would be the appropriate day for the purposes of that Act in relation to a dwelling house consisting of the house in question if the reference in paragraph (a) of that provision to a rateable value were to a rateable value other than nil.”

Section 25(3) of the 1977 Act produces, at most, 9 August 1967 as the appropriate day for this purpose. The comparison would then be between a currently yearly rent of £200 and an historical net rateable value of £158. This rent is not less than two-thirds of this rateable value. None of that is contentious, except that the appellants say that the proper meaning of section 25(3) of the 1977 Act would produce in this case an appropriate day earlier than 9 August 1967, and thus a lesser rateable value.

It was to deal with situations such as this, where the rent increased but the rateable value did not, that the 1993 Act amended the 1967 Act to add sections 1A and 4A.

Section 1A(2) provides that, where a tenancy of any property is not a tenancy at a low rent in accordance with section 4(1), but is a tenancy falling within section 4A(1), the tenancy shall be treated as a tenancy at a low rent for the purposes of Part 1 of the 1967 Act so far as it has effect for conferring on any person, a right to acquire the freehold of a house and premises. So far as is relevant for present purposes, a tenancy is within section 4A(1) if :

The crux of the problem in the present case is whether “the property” in section 4A(2) is to be taken in the present case as referring to the property let under the tenancy, that is initially the land and the two cottages; or to the property once the conversion into a single dwelling had taken place. If it is the first, the relevant date is the commencement of the tenancy, when the aggregate rateable value of the two cottages was £42 and the aggregate amount of the rent was £100 – more than two-thirds of the rateable value. If it was the second, the relevant date was 9 August 1967, because the property, so understood, did not have a rateable value referable to the converted dwelling on the date of the commencement of the tenancy, and 9 August 1967 was the date on which it had a rateable value other than nil. On that date, the rateable value was £158 so that the rent of £100 would be £5.34 less than two-thirds of that rateable value.

This whole problem came before HHJ Robin Barrett QC in the Chichester County Court, with Mrs Neville seeking a declaration that she was entitled under the legislation to acquire the freehold of her house and premises. By a judgment of 19 May 2005, the judge decided that she was. The trustees appeal against this decision. The judge said that he did not find the case easy to decide. He gave the trustees permission to appeal.

The judge summarised the submissions made to him as follows:

“The claimant contends that this property which is now a single dwelling house had no rateable value at the commencement of the tenancy in October 1965.

On the defendants’ case the landlords contend that the proper approach is to take the property, the subject of the tenancy, as the two separate cottages at the commencement of the tenancy in October 1965. Both cottages had a net rateable value of £21 appearing in the valuation list at the appropriate time. The rent payable at all times was plainly more than two-thirds of the rateable value of either or both of these cottages at all times throughout the tenancy.

The claimant of course accepts that no claim to acquire the freehold could have been made to acquire the freehold of the two cottages under section 1 and 4 of the 1967 Act. Indeed she also accepts that because there were two cottages until their conversion into a single dwelling house, neither could have been enfranchised anyway. (Malekshad v Howard de Walden Estates Limited [2003] 1 AC 1013) Furthermore she also points out that in terms of layout and juxtaposition, there was probably in any event a horizontal overlap physically between the two properties which could have constituted a further disqualifying factor (section 2(2)).

The defendant landlords have conceded in submissions before me that in principle it has to be accepted that there has been a substantial change in these cottages since the beginning of the tenancy. They accept the conversion to a single dwelling house plainly brought about a substantial alteration to the identity of the property, the subject of the long tenancy. It had become a single dwelling by August 1967. This probably occurred within the first year of the tenancy by 29 September 1966, although there is no evidence to establish this. The building is now a significantly different property from the building when it consisted of two separate semi-detached cottages.

The defendants however deny that the extent and nature of the works of conversion or the substantial alteration of each cottage is relevant to the issue which this court has to decide in this case under section 4A(2)(b). …

It is submitted on behalf of the tenant that the ‘property’ must logically be that which is described in the valuation list for the first time following its creation. There is no good reason it is submitted in logic or semantics to take the rateable value of the premises prior to its change in identity. This is especially the case here where neither property would have been enfranchiseable in any event.

Thus in this case ‘the property’ the subject of this tenancy was not it is submitted in fact or intention the two cottages with a rateable value of £21 per annum. It has to be conceded that each property was on the valuation list on 23 March 1965 and therefore on the list at the commencement of the tenancy. The property, the subject matter of the tenancy, however described in the lease or licence to assign, must be the modernised dwelling house which the tenant was obliged under the covenants in the lease to construct during the first year of the lease. Before any lawful or indeed beneficial occupation under the terms of the covenants in this lease could commence, the approved works had to have been completed.

It is submitted that it was this dwelling house which qualifies under the Act and which appears for the first time in the valuation list on 9 August 1967. This property did not appear in the valuation list before that date.”

The landlords’ submission was that the plain meaning of the statute, as applied to this case, was that on the date on which the tenancy commenced, the property did have a rateable value, that is £42. This was in fact two rateable values, but they were to be aggregated and, in statutes, the singular comprises also the plural.

The judge decided in the end in favour of Mrs Neville. The kernel of his decision was this:

“The property the subject of this tenancy was always in fact and intention a modernised single dwelling house which the tenant was obliged to construct in the first year of the tenancy in accordance with plans approved by the landlords. This is what the landlord required of the tenant. It was not a device by him to qualify under the Act whereas otherwise he would not have done so.”

And further:

“I am persuaded that the property the subject of this tenancy did not have a rateable value at the commencement of the tenancy because the dwelling house did not exist. The property which was constructed is substantially different from what was on the valuation list. It is the dwelling house which was constructed which is the subject of this tenancy.”

The reference to a device originated from consideration of the House of Lords decision in Dixon v Allgood [1987] 1 WLR 1689, a decision under the unamended section 4 of the 1967 Act. The judge said that the landlord was not, on the judge’s decision, deprived of what otherwise he would have expected to enjoy. The freehold would be acquired at a fair open market value.

Mr Hutchings, in presenting this appeal on behalf of the landlords, emphases two points which the judge did not expressly deal with. First, there is a significant difference between the original section 4(1)(a), which defines the “appropriate day” for determining the rateable value with reference to “the house in question”; and the amended section 4A(1) and (2), which refers in three places, including that which defines the “relevant date”, to “the property”. The same applies to section 1A(2). “House” is defined in section 2(1). The meaning of “house” and “house and premises” are given in section 2. There is no provision in section 4A linking rateable value to the house which is the subject of the claim for enfranchisement. Parliament might have chosen to do this, but did not.

Second, Mr Hutchings directs attention to section 37 of the 1967 Act which is an interpretation section for Part 1 of that Act. Section 37(6) says that:

“Section 25(1), (2) and (4) of the Rent Act 1977 shall apply to the ascertainment for the purposes of this Part of this Act of the rateable value of a house and premises or any other property as they apply to the ascertainment of that of a dwelling-house for the purposes of that Act.”

Section 25 of the Rent Act 1977 relevantly provides:

“(1)

Except where this Act otherwise provides, the rateable value on any day of a dwelling house shall be ascertained for the purposes of this Act as follows:-

(a)

If the dwelling house is a hereditament for which a rateable value is then shown in the valuation list, it shall be that rateable value;

(b)

If the dwelling house forms part only of such a hereditament or consists of or forms part of more than one such hereditament, its rateable value shall be taken to be such value as is found by a proper apportionment or aggregation of the rateable value or values so shown.

(2)

Any question arising under this section as to the proper apportionment or aggregation of any value or values shall be determined by the county court and the decision of the county court shall be final.

(3)

…

(4)

Where, after the date which is the appropriate day in relation to any dwelling-house, the valuation list is altered so as to vary the rateable value of the hereditament of which the dwelling-house consists or forms part and the alteration has effect from a date not later than the appropriate day, the rateable value of the dwelling-house on the appropriate day shall be ascertained as if the value shown in the valuation list on the appropriate day had been the value shown in the list as altered.”

Sub-section (4) thus applies where an alteration to the rateable value of a hereditament in the valuation list is backdated. That did not apply in the present case. It follows that sub-sections (1) and (2) of section 25 of the 1977 Act apply to the ascertainment of the rateable value for the purposes of section 4A(2)(b) of “the property”, with the notional substitution of “the property” for “the dwelling-house” in those sub-sections.

Mr Hutchings’ submission is that, at the commencement of the tenancy in this case, the property had a rateable value which, in accordance with section 25(1)(b) of the 1977 Act, was the aggregation of the rateable value of the two hereditaments, that is of the two cottages of which it consisted. The judge was wrong in effect to address “the house in question”, or the enfranchiseable house which the tenant was obliged to produce, and was wrong to hold that the property did not have a rateable value at the commencement of the tenancy. It did – £42.

Mr Hutchings has an alternative submission that, even if the judge was correct to decide in this case that “the property” for the purposes of determining “the relevant date” was the converted enfranchiseable house, he was wrong not to follow and regard as binding part of the decision of the House of Lords in Dixon v Allgood. In that case, a tenant had a lease of property originally consisting of a pair of semi-detached derelict cottages and six acres of land. He successively reconstructed each cottage, initially living in one of them and sub-letting the other; constructed a five door garage building; and then obtained vacant possession of the sub-let cottage and opened up the dividing wall to make the two cottages one dwelling house. He applied to acquire the freehold of the house and premises under the 1967 Act. To succeed, he needed to show that his tenancy was at a low rent under the original section 4 of the Act. He could do this if his rent was compared with a rateable value which included the garages, but not if the rateable value of the garages was excluded. The House of Lords upheld the decision of this court that, by virtue of section 4(1)(a) of the 1967 Act, the “appropriate day” was to be determined under section 25(3) of the 1977 Act in relation to “the house in question”, i.e. the cottages excluding the garages. There was a clear difference between the provisions of section 1(1) of the 1967 Act entitling the tenant to purchase “the house and premises”, and those of section 4(1)(a), requiring the appropriate day to be determined in relation to a dwelling house “consisting of the house in question”. By section 4(1), the appropriate day was determined by reference to the first day on which the dwelling house as a single hereditament or as two or more hereditaments had first appeared in the valuation list. That was 6 February 1967, the first day on which the second of the two cottages had first appeared, separately from the first cottage, on the valuation list after its conversion.

Although this was a decision under the unamended section 4, it is a quite close parallel with the present case. This part of the decision is not, I think, determinative of the present case, but it does show that particular attention has to be paid to differences in wording between the various statutory provisions.

However, the tenant, Mr Dixon, had another submission. Mr Hutchings says that the House of Lords needed to find against him on this submission too to dismiss the appeal. Lord Templeman considered this submission on page 1695H as follows:

“[Counsel for Mr Dixon] also submitted that ‘the house’ did not come into existence until 1977 when the two cottages were converted into one house and that 1977 was, therefore, the appropriate day and that the house [presumably and premises] then consisted of three hereditaments comprised of the two cottages and the garages. But section 4(1)(a) of the Act of 1967, read in conjunction with section 25(1) of the Act of 1977, requires the appropriate day to be the day when ‘the house’, consisting of two cottages and no more, was first rated and that day was 6 February 1967. A tenant of two semi-detached houses, each rated at £50 on 25 March 1965, could not by inserted communicating doors between the two houses and converting them into one house, rated in 1987 at £150, alter the appropriate day or increase the rateable value for the purposes of the Act of 1967. In the present case, ‘the house’ created by the tenant in 1977 consisted of two hereditaments rated for the first time by 6 February 1967.”

Mr Hutchings submits that, even if “the property” in the present case is to be taken as the enfranchiseable house, it did comprise an aggregation of two hereditaments for which aggregable rateable values were first shown in the valuation list well before 9 August 1967. The fact that the single house in its converted state did not come into existence until a date later than the commencement of the tenancy, would not change this, as it did not in the comparable circumstances in Dixon v Allgood.

As a fall back position, Mr Hutchings submits that “the house in question”, if such is relevant, did have a rateable value when, sometime in 1966, the conversion works were complete. The rateable value was the aggregate of that of the two hereditaments which subsisted until 9 August 1967.

Mr Hutchings submits generally that the purpose of section 4A was to counter the effect of increases in ground rent since 1967; and thereby to set up a comparison with rent in the first year of the term. The Parliamentary intention was to compare like with like. The statutory provisions do not distinguish, for premises which are converted, between conversion works which the tenant covenants to do and those which he or she does not covenant to do. A tenant could unilaterally carry out major conversion works, so that, on the respondents and the judge’s construction, there would be a disparate comparison between an initial rent and a rateable value at what could be a much later date.

Mr Radevsky had acted for Mrs Neville in the county court, and he made submissions in writing on her behalf to this court. Those submissions submit that the judge reached the right decision for the right reasons. It is significant that the lease required the tenant to effect the conversion, so that the true subject of the lease was the converted single dwelling house. There was thus a change of identity.

Mr Radevsky challenges the appellant’s factual contention, made in support of the fall back submission, that the conversion works were complete in 1966. There is evidence, he says, that works continued into 1967. There was obviously going to be an alteration to the valuation list, which would take some time. The first time the new house had a rateable value was on 9 August 1967. The word “property” is used in both section 4 and section 4A. If there is a change of identity, it is the rateable value of the new converted property which is the rateable value of the property for the purposes of the 1967 Act. There is no good reason or logic in taking the rateable value of the original demised premises, which were not then enfranchiseable.

Miss Moss has appeared for Mrs Neville before the court today. She has relied on Mr Radevsky’s written submissions. She has, if she will forgive me, no structured answer to Mr Hutchings’ construction of the relevant statutes, but submits more generally that they should be construed in a liberal way to enable county court judges to do broad justice. They should achieve fairness, and the construction should enable county courts to reach a just solution in cases such as this. She submits that the legislation should be construed so as in appropriate circumstances – and this, she submits, is one – to break the link between a previous state of affairs and the property as it now is. One does not, she submits, look for a rateable value until one has a relevant enfranchiseable unit to consider. If there is, as there is here, a change of identity, one looks for the rateable value of the property in its changed state.

These submissions have a general attraction but do not, I think, bear scrutiny against the words of these difficult statutes; and as I have indicated, and as I think the House of Lords indicated in Dixon v Allgood, one has to look at the words of the statutes.

In my judgment, the effect of the application of section 25(1) of the 1977 Act to the ascertainment of the rateable value of the property is to direct attention to the hereditament or hereditaments whose rateable value is shown in the valuation list. For section 4A(2)(b), the rateable is that of “the property”, not of “the house” or “the house and premises”. At the date of the commencement of the tenancy, the property here consisted of “more than one such hereditament”, that is more than one hereditament “for which a rateable value [was] then shown in the valuation list”. The property, therefore, had a rateable value which was not nil at the commencement of the tenancy. The rateable value was the aggregation of the rateable values of the two hereditaments then shown in the valuation list – £42, and the rent of £100 was not less than two-thirds of this rateable value. The fact that the eventual converted single dwelling house did not then exist no more affects this analysis than did the existence of the eventually converted house in Dixon v Allgood.

This conclusion at first blush may appear harsh, when the lease obliged the tenant to effect the conversion and when it may be said that the subject matter of the lease was really the converted single house. But I think that the submission which seeks to say that the property means the enfranchiseable house, begs the question whether the house and premises are under the statute indeed enfranchiseable. It also directs attention to the construction of the lease, when the issue turns on the construction of the statute. The statute does not distinguish between contractually obligatory and voluntary conversions, and Mr Hutchings is correct that Mrs Neville’s construction of section 4A could result, unfairly to a landlord, in a comparison between an original rent and a much later rateable value when the tenant was under no obligation to effect the conversion which gave rise to the higher rateable value.

For these reasons, I would allow this appeal.

LORD JUSTICE LATHAM: I agree.