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Cite as: [2014] Ch 301, [2013] EWCA Civ 731, [2013] L & TR 26, [2013] 3 EGLR 47, [2014] 2 WLR 679, [2013] HLR 43, [2014] 1 CH 301, [2013] 4 All ER 456, [2013] 26 EG 107, [2013] 2 P &CR 16, [2013] WLR(D) 243

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		Neutral Citation Number: [2013] EWCA Civ 731
		Case No: C3/2012/2135

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
LRA/1672009 and LRA/3/2010

Royal Courts of Justice
Strand, London, WC2A 2LL

19/06/2013

B e f o r e :

THE CHANCELLOR OF THE HIGH COURT
LORD JUSTICE RIMER
and
LORD JUSTICE MCCOMBE
____________________

Between:

	Cravecrest Limited	Appellant
	- and -
	(1) Trustees of the Will of the Second Duke of Westminster (2) Vowden Investments Limited	Respondent

____________________

Mr Thomas Jefferies (instructed by Maxwell Winward) for the Appellant
Mr Anthony Radevsky (instructed by Messrs. Boodle Hatfield) for the 1st Respondent
Mr Timothy Dutton QC (instructed by Walker Morris) for the 2nd Respondent

Hearing dates : 21st May 2013
____________________

HTML VERSION OF JUDGMENT
____________________

The Chancellor:

This appeal concerns the collective enfranchisement of 38 Wilton Crescent, London SW1 ("the Property") under Part I of the Leasehold Reform, Housing and Urban Development Act 1993 ("the 1993 Act"). The Appellant is the nominee purchaser for the participating tenants. It raises an important point of principle about the price payable where (1) there are intermediate leases which subsist between the freehold and the leases of the participating tenants and which are to be acquired by the nominee purchaser on the collective enfranchisement, and (2) a single owner of those leases or of those leases and the freehold could realise development value by developing the property for use other than as a building containing separate flats.

In short, the Appellant says that the hope of realising such development value must be ignored in fixing the price to be paid for the two intermediate leases in issue in the present case. They are a long lease of the whole Property, the freehold of which is owned by the First Respondents, who also represent that long intermediate leaseholder, and a long lease vested in the Second Respondent of one of the flats in the Property. The Respondents disagree with the Appellant and say that the development hope value must be taken into account.

There is another valuation issue on the appeal, specific to the facts of the present case, as to the enquiries that a hypothetical purchaser is assumed to make for the purposes of arriving at an open market value of the intermediate leases being acquired on the collective enfranchisement.

The Upper Tribunal (Lands Chamber) ("the Tribunal") in its decision dated 11 May 2012, on appeal from a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel ("the LVT") dated 12 September 2010, agreed with the Respondents on both issues. This is an appeal from the Tribunal's decision.

At the heart of this appeal are the meaning and effect of paragraphs 3(1) and (1A) of schedule 6 to the 1993 Act.

The factual and valuation context

The leasehold arrangements at the Property at the relevant time, namely 13 March 2009, which is the date of the statutory notice by the participating tenants of a claim to exercise their right to enfranchisement, were rather complicated. It is sufficient for the purpose of this appeal to summarise the situation as follows.

The Property was laid out as three flats. Flat 1 was on the basement and ground floor. Flat 2 was on the first floor. Flat 3 was on the second and third floors. Each of those flats was held under a separate underlease. In each case, the underlease was for a term expiring on 15 March 2009. The tenant of Flat 1 and the tenant of Flat 2 were participating tenants in the enfranchisement. The tenant of Flat 3 was the Second Respondent, Vowden Investments Limited, which was not a participating tenant.

There was a headlease of the whole Property held by Grosvenor Estate Belgravia ("GEB"). That headlease ("the GEB Lease") was for a term expiring on 25 March 2184, that is to say, it had 175 years to run.

There was an overriding lease of the second and third floors (which for the sake of simplicity may be described as) interposed between the GEB Lease and the occupational lease of Flat 3. That lease ("the ORL") was for a term expiring on 21 March 2130, that is to say it had 121 years to run. It was held by the Second Respondent.

There were two other leasehold interests in the entire Property, both of which were for terms expiring very shortly after the terms of the occupational underleases of the three flats. For that reason they do not play any significant part in the valuation issues which lie at the heart of the Tribunal's decision and form the substance of this appeal. They can, therefore, be ignored and I shall make no further reference to them.

It was agreed between the parties that there is potential to develop the roof space above Flat 3 so as to provide a fourth floor for the Property and extend Flat 3. It was agreed that the "site value" of the roof space and the air space above, with vacant possession and assuming the grant of a 121 year lease (so as to match the duration of the ORL) was £455,000 on the valuation date. As at that date there existed full planning permission and listed building consent (both subject to conditions) for the erection of a mansard roof extension at fourth floor level.

There was no dispute as to the value of the freehold. What is in issue on this appeal is the Tribunal's decision as to the price to be paid on enfranchisement for the GEB Lease and the ORL on the basis that, if those leases were acquired by a developer, the Property could be restored as a single house, including the potential to construct a fourth floor. The value of the Property as a house was far greater than the aggregate value of the individual flats. The value of the Property as a house could, however, only be realised by uniting in one person the GEB Lease and the ORL. Such a person would be able to grant a 175 year lease of the whole Property.

The valuation experts who gave evidence to the Tribunal were all agreed that, if one of those interests came up for sale, then, in the real world, some people in the market would take the view that if they bought that interest there would be some prospect of subsequently acquiring the other interest as well – and thereby unlocking the Property's obvious development value.

The financial advantage of such a course is demonstrated by the following figures, which were agreed by the parties before the Tribunal. The freehold values of the three flats were: Flat 1 - £2,050,000, Flat 2 - £700,000, Flat - 3 £2,200,000 (excluding any additional value attributable to the potential to develop a fourth floor). Those values amount, in aggregate, to £4,950,000. The value of the residue of the participating tenants' existing leases was agreed as nil for the purposes of assessing marriage value.

The freehold vacant possession value of the Property for conversion to a house, including the potential to extend into a fourth floor, was agreed to be £7,000,000. That figure took into account any risks associated with the conversion of the Property, as currently arranged as flats, into a single house, including those risks relating to obtaining any relevant planning consent.

The Appellant said that no part of the substantial potential development value represented by the difference between £4,950,000 and £7,000,000 can properly be reflected in the price to be paid for either the GEB Lease or the ORL. As I have said, the Respondents disagree ("the First Issue").

The Appellant further contended that, in a hypothetical valuation scenario where a purchaser acquires first one of the intermediate leases and at the same time intends and hopes to acquire the other shortly afterwards, whether that be the GEB Lease or the ORL, there would be a significant number of serious risks for the purchaser in anticipating that the owner of the other interest would be prepared to sell at a price at which the purchaser would be prepared to buy. The Respondents' expert valuers, on the other hand, considered there was little risk. They first proceeded on the basis that, before the first purchase, the purchaser would most likely have made enquiries of the owner of the other interest as to its willingness to participate in the realisation of the development value in restoring the Property to a single house by being prepared to sell to the purchaser, and the purchaser would reasonably likely have received a positive response ("the Second Issue"). Their view was that there should be a discount of only 5 per cent. if the assumption was that such enquiries had been made of the second seller before the first purchase, but, if the assumption was that there were no such discussions, there should be a 15 per cent. discount for the risk that the other party might not agree to treat and for the delay involved in a two stage process.

The statutory framework

The decision of the Tribunal sets out the statutory framework in considerable detail. It is sufficient, for the purpose of this appeal, to refer only to the following provisions of the 1993 Act.

Section 1 confers on qualifying tenants of flats in premises to which Chapter 1 of Part 1 applies on the relevant date the right to have the freehold of those premises acquired on their behalf by a nominee purchaser at a price determined in accordance with Chapter 1. Section 1 describes that right as "the right to collective enfranchisement".

Section 2 provides for the acquisition, as part of the collective enfranchisement, of the interest under any lease which is superior to the lease held by a qualifying tenant of a flat contained in the relevant premises.

Section 13 provides for the service of a notice by qualifying tenants of a claim to exercise the right to collective enfranchisement. That notice must specify any leasehold interest proposed to be acquired under section 2.

By virtue of section 32 the price payable for the freehold of the building is to be determined in accordance with schedule 6.

Schedule 6 contains the provisions for ascertaining the purchase price payable by the nominee purchaser for the freehold and for any superior leasehold interest to be acquired under section 2. The relevant provisions of the schedule for the purpose of this appeal are as follows:

"Price payable for freehold of specified premises

2.—

(1) Subject to the provisions of this paragraph, where the freehold of the whole of the specified premises is owned by the same person the price payable by the nominee purchaser for the freehold of those premises shall be the aggregate of —

(a) the value of the freeholder's interest in the premises as determined in accordance with paragraph 3,

(b) the freeholder's share of the marriage value as determined in accordance with paragraph 4, and

…

Value of freeholder's interest

3.—

(1) Subject to the provisions of this paragraph, the value of the freeholder's interest in the specified premises is the amount which at the relevant date that interest might be expected to realise if sold on the open market by a willing seller (with no person who falls within sub-paragraph (1A) buying or seeking to buy) on the following assumptions—

(a) on the assumption that the vendor is selling for an estate in fee simple—

(i) subject to any leases subject to which the freeholder's interest in the premises is to be acquired by the nominee purchaser, but

(ii) subject also to any intermediate or other leasehold interests in the premises which are to be acquired by the nominee purchaser;

(b) on the assumption that this Chapter and Chapter II confer no right to acquire any interest in the specified premises or to acquire any new lease (except that this shall not preclude the taking into account of a notice given under section 42 with respect to a flat contained in the specified premises where it is given by a person other than a participating tenant); …

(1A) A person falls within this sub-paragraph if he is—

(a) the nominee purchaser, or

(b) a tenant of premises contained in the specified premises, or

(ba) an owner of an interest which the nominee purchaser is to acquire in pursuance of section 1(2)(a), or

(c) an owner of an interest which the nominee purchaser is to acquire in pursuance of section 2(1)(b).

(2) It is hereby declared that the fact that sub-paragraph (1) requires assumptions to be made as to the matters specified in paragraphs (a) to (d) of that sub-paragraph does not preclude the making of assumptions as to other matters where those assumptions are appropriate for determining the amount which at the relevant date the freeholder's interest in the specified premises might be expected to realise if sold as mentioned in that sub-paragraph."

The "relevant date" for the purpose of those provisions means the date on which the section 13 notice was given.

Paragraph 4 of schedule 6 contains provisions as to the apportionment to the freeholder of half the "marriage value" as there described. The provisions of paragraph 4 are set out in the appendix to this judgment.

Part III of schedule 6 makes provision for the price to be paid for intermediate leasehold interests. Paragraph 6 and paragraph 7 are as follows so far as relevant to this appeal.

"Part III Intermediate Leasehold Interests

Price payable for intermediate leasehold interests

6.—

(1) Where the nominee purchaser is to acquire one or more intermediate leasehold interests—

(a) a separate price shall be payable for each of those interests, and

(b) (subject to the provisions of this paragraph) that price shall be the aggregate of—

(i) the value of the interest as determined in accordance with paragraph 7, and

…

Value of intermediate leasehold interests

7.-

(1) Subject to sub-paragraph (2), paragraph 3 shall apply for determining the value of any intermediate leasehold interest for the purposes of paragraph 6(1)(b)(i) with such modifications as are appropriate to relate that paragraph to a sale of the interest in question subject (where applicable) to any leases intermediate between that interest and any lease held by a qualifying tenant of a flat contained in the specified premises.

(1A) In its application in accordance with sub-paragraph (1), paragraph 3(1A) shall have effect with the addition after paragraph (a) of –"(aa) an owner of a freehold interest in the specified premises, or."

The dispute

Very broadly, at the heart of the Appellant's case on the First Issue are the statutory provisions in schedule 6 to the 1993 Act requiring that (1) in valuing the GEB Lease and the ORL it must be assumed that neither the First Respondents nor GEB nor the Second Respondent are buying or seeking to buy (para 7(1) and (1A), applying para 3(1) and 3(1A)); (2) the GEB Lease and the ORL must be valued separately (para 6(1)(a)); and (3) the hypothetical sale of the GEB Lease is subject to the ORL (para 7(1)). Building on those provisions, particularly in the light of Cadogan v Sportelli [2008] UKHL 71, [2010] 1 AC 226 (HL), the Appellant contends, again expressed in broad terms, that (1) the provisions of schedule 6 are to be interpreted so as to impose an assumption that not only are neither the First Respondents nor the Second Respondent nor GEB nor their respective successors in title seeking to buy, but they are not seeking to enter into an economically equivalent transaction, and (2) that includes the possibility of a purchaser of the GEB Lease or the ORL subsequently acquiring the other of them. The Appellant says that the value which might be released through such a deal is a form of marriage value, which can only be included if it falls within the marriage value provisions of paragraph 4 of schedule 6, namely where there is an increase in value attributable to the potential ability of the participating tenants to have new leases of their flats granted to them without payment of a premium. Under those provisions such marriage value, which has nothing to do with the type of development hope value which is in issue in the present case, is to be apportioned as to half to the freeholder.

On the Second Issue, the Appellant contends that it is contrary to the principle of an open market valuation under schedule 6 to make any assumption that discussions would take place between the purchaser of the ORL or the GEB Lease (whichever was sold first) and the owner of the other of them before the first sale took place about the prospect of a future sale to the same purchaser.

The Tribunal's decision

The appeal before the Tribunal proceeded by way of a rehearing. The Tribunal gave a careful and comprehensive interim decision dated 11 May 2012 running to 127 paragraphs.

In the light of the agreed freehold value of the Property when still configured as three flats (£4,950,000) as compared with the far greater freehold vacant possession value of the Property for conversion to a house (including the potential to extend into the fourth floor) (£7m), the Tribunal set out as follows its findings as to what would happen in "the real world":

"99. We have no doubt that in the real world the hypothetical purchaser at the valuation date of the ORL (we will call him X) would not limit his bid merely to the investment value of the ORL exclusive of any development potential. Instead X would increase his bid to reflect the value of the prospect of being able to unlock development value by doing some deal with GEB – e.g. by X purchasing the GEB lease at some early stage after purchasing the ORL. Similarly a willing seller of the ORL at the valuation date would not be prepared to sell the ORL unless the price to be paid included an element which reflected the substantial potential development value in the property. That a willing seller of the ORL and the hypothetical purchaser of the ORL would act in this manner is to our minds obvious – and this obvious conclusion is supported by the valuation evidence of all experts. …"

The core of the Tribunal's reasoning on the First Issue was that the bracketed words in paragraph 3(1) ("with no person who falls within sub-paragraph (1A) buying or seeking to buy") impose an assumption, for example in respect of the hypothetical sale of the ORL on the open market on the valuation day, that GEB was not at that date buying or seeking to buy the ORL, but do not impose an assumption that GEB was not then or thereafter selling or seeking to sell a different interest in the Property, namely the GEB Lease, to the same purchaser. Accordingly, reflecting its findings as to what would happen in "the real world", the Tribunal considered that the valuation of the ORL and the GEB Lease should be carried out on the basis of a two stage transaction, namely that the hypothetical purchaser of the GEB Lease and the ORL would acquire one soon after the other. The concise reasoning and conclusions of the Tribunal on these points were in paragraphs 101, 102 and 113 of its interim decision as follows:

"101. Accordingly the question arises as to whether the assumptions which have to be made when valuing say the ORL, including in particular the assumptions in the words in brackets in paragraph 3, require it to be assumed not merely that neither GEB (nor its successors) are at the valuation date (or in the future) buying or seeking to buy, but also that neither GEB (nor its successors) are at the valuation date (or in the future) selling or seeking to sell their interest. In other words must it be assumed that the ORL and GEB lease will remain owned by different persons forever and that these persons will forever refrain from acting in the manner they would in fact (in the real world) act in their own interests, namely coming together to unlock the large and immediate development value available at the property?

102. In our judgment the assumption that a person (here GEB) is not buying or seeking to buy a particular interest in a property (here the ORL) is a different assumption from an assumption that a person (here GEB) is not selling or seeking to sell a different interest in the property (namely the GEB lease)."

"113. We accordingly conclude that in valuing the GEB lease and the ORL it is proper to include such extra value as the hypothetical purchaser of the relevant interest would be willing to pay to reflect the prospect of being able soon after his purchase of that interest to acquire the other interest and to enjoy in consequence the development value. The LVT was correct in so deciding."

The Tribunal decided that neither Sportelli nor any other authority required a different conclusion.

On the Second Issue, the Tribunal said in paragraph 114 that (1) it should be assumed that at the valuation date there was no agreement in place between GEB and the Second Respondent for a joint sale nor any agreement in place between the hypothetical purchaser of (say) the ORL, on the one hand, and GEB, on the other hand, that GEB would soon thereafter sell the GEB Lease to the hypothetical purchaser, but, (2) it should also be assumed that prior to that date the hypothetical purchaser of the ORL had made an enquiry of GEB as to the latter's preparedness to sell the GEB Lease to enable a development back to a single house and GEB's reaction would have been highly favourable in principle (the position being the same – mutatis mutandis – in relation to an enquiry made of ORL by a hypothetical purchaser of the GEB Lease).

The Tribunal agreed with the Appellant (para. 116) that there must be an additional element of risk where the purchase of one interest takes place before the other. It considered, however, that there were elements to the Appellant's discounts which could not be justified. On the basis of the Tribunal's assumption that the prospective purchaser would seek to obtain and would be likely to obtain from the owner of the second intermediate lease to be sold a clear indication that they would be prepared to deal once the first purchase had been completed, the Tribunal accepted the Respondents' experts' 5 per cent. discount.

The Tribunal, having made those findings in what it described (in para 122) as its "interim decision" of 11 May 2012, it invited the expert valuers to agree the valuations, including, at the request of the Appellant's counsel, a discount of 15 per cent. for risk rather than 5 per cent.

The Tribunal added an addendum dated 28 June 2012 comprising paragraphs 128 to 130, in which it recorded the values agreed by the expert valuers on those two alternative bases. On the basis of 5 per cent. discount for risk, the value was £6,856,500, apportioned as follows (so far as relevant to this judgment):

Share to Freeholder £ 2,200

Share to GEB £3,705,800

Share to Second Respondent £3,148,500

__________

Premium £6,856,500

In the alternative, at a discount of 15 per cent., the figures were:

Share to freeholder £ 2,200

Share to GEB £3,626,100

Share to Second Respondent £3,068,800

_________

Premium £6,697,100

The Tribunal determined, therefore, in the light of its interim decision that the price was £6,856,500.

The Appeal

The Appellant appeals the decision of the Tribunal on both the First Issue and the Second Issue. Mr Thomas Jefferies, the Appellant's counsel, made numerous points in his admirable wide-ranging written and oral submissions. It would extend this judgment excessively to set them out in sufficient detail to do them full justice. The following is a summary.

Mr Jefferies submitted generally that the Tribunal failed to approach the interpretation of the relevant provisions in accordance with the correct principles of statutory construction. In that connection he emphasised two particular matters. He said, citing Cadogan v McGirk [1964] 3 All ER 643, 647-648, that the provisions should be interpreted, not on the footing that they are expropriatory, but fairly and with a view to confirming those benefits which Parliament intended tenants to enjoy. He further said, citing Ruddy v Oakfern Properties Ltd [2007] Ch 335 at [69], that the court should construe the relevant statutory provisions in their legislative context, and, having reached a provisional conclusion as to what they mean, should adopt that meaning unless that would lead to absurd consequences.

On the First Issue, Mr Jefferies drew attention to the legislative precursors of the 1993 Act, including the current bracketed exclusionary wording in paragraph 3(1) of schedule 6. They include, in particular, the original section 9(1) of the Leasehold Reform Act 1967 ("the LRA 1967") and the amendment to it by section 82 of the Housing Act 1969 which inserted after the words "a willing seller" the words "(with the tenant and the members of his family who reside in the house not buying or seeking to buy)". He relied upon the wide interpretation and effect given to those exclusionary words in section 9 of the 1967 Act in Sportelli at [37] (Lord Walker) and [81] – [84] (Lord Neuberger) as excluding any potential marriage value or hope value.

Mr Jefferies placed great weight generally on the approach of the House of Lords in Sportelli, especially in the speech of Lord Neuberger. That case concerned, among other things, the extent to which there should be excluded from the valuation of the freehold interest under schedule 6 of the 1993 Act value reflecting the hope of receiving marriage value from tenants of the building. Mr Jefferies relied upon Lord Neuberger's analysis both from a general perspective and a more focused one. In terms of general principle, Mr Jefferies particularly relied on paragraphs [103], [104] and [105] of Lord Neuberger's speech, which were as follows:

"103 I agree with the Court of Appeal that the bracketed words in the opening part of paragraph 3(1), when read together with paragraph 3(1A), exclude all flat tenants from the market, and they exclude hope value as well as marriage value because the words "buying or seeking to buy" are, for the reasons given when considering section 9(1), apt to cover the future as well as the present. But this conclusion begs the question of what precisely it is that the flat tenants are not buying or seeking to buy. The natural meaning of the opening part of paragraph 3(1) is that they are not buying, or seeking to buy, that which is described immediately before as being "sold on the open market", namely the freehold of the building. At least as a matter of words, that would not extend to excluding from account the possibility of flat tenants seeking in the future to acquire new long leases of their respective flats: they would not be "buying" anything, let alone the building. On that basis, there is nothing in paragraph 3 which excludes the hope value for which the landlords contend in these appeals.

104 However, I accept that, as Carnwath LJ [2008] 1 WLR 2142, para 50 said, such a literal reading of the bracketed words in the opening part of paragraph 3(1) will not do. The words "buying" and "buy" in paragraph 3(1) must cover seeking a 999-year lease at a peppercorn rent or any similar interest: otherwise they would have no real effect; for the same reasons, the bracketed words would extend to buying (or acquiring a 999-year lease at a peppercorn rent—or any similar interest—in) all but a small part of the building. However, those considerations by no means necessarily require one to construe the bracketed words so as to exclude the possibility of the flat tenants acquiring any interest in any part of the building, especially if there are good reasons, based on other provisions of the 1993 Act, to hold that they should not be so construed. In my opinion, when one turns to provisions other than the opening part of paragraph 3(1) and paragraph 3(1A)(b), it is apparent that such hope value is not to be excluded.

105 Of course, as Lord Hoffmann implies, if one accepts (as I do) that the bracketed words in the opening part of paragraph 3(1) of schedule 6 should be given a wide meaning, any cutting down of that wide meaning must be on a principled and clear basis, and must be justified by the provisions of the schedule. In this connection, paragraph 3(1)(b) and paragraph 4 are important. First, if, as the tenants contend and the Court of Appeal held, the bracketed words in the opening part of paragraph 3(1) require one to assume that none of the flat tenants are or will ever be interested in acquiring new leases of their flats, there would be no point in including the requirement in the opening part of paragraph 3(1)(b) that one disregards the fact that they have the right to do so. That therefore suggests that, for paragraph 3 purposes, one should not disregard the possibility of the market taking into account at least some of the flat tenants seeking to negotiate new leases of their respective flats. It is perfectly true that words such as those in the opening part of paragraph 3(1)(b) are commonplace compulsory acquisition valuation assumptions (as evidenced by paragraph (a) of sections 9(1) and 9(1A) of the 1967 Act). However, that does not invalidate the point, although I accept that, if it stood on its own, it would be a shaky foundation for my conclusion that hope value can be included in relation to non-participating tenants' flats."

Mr Jefferies submitted that those paragraphs show that (1) a purposive approach must be taken to the proper interpretation of the bracketed words in paragraph 3(1) of schedule 6 (a point also made, Mr Jefferies observed, by Lord Hope (at [29]) and Lord Walker (at [37])); (2) that involves them being interpreted to cover commercially equivalent transactions; (3) they must be given a wide meaning, (4) any cutting down of that wide meaning must be on a principled and clear basis and justified by the provisions of schedule 6.

In reliance on those principles, Mr Jefferies, adopting an argument mooted from the Bench in the course of his oral submissions, contended that it is necessarily implicit in paragraph 3 and paragraph 7 of schedule 6 to the 1993 Act that the open market valuation of the freehold and any intermediate leasehold interests cannot proceed on a hypothetical state of affairs which runs contrary to, or is inconsistent with, the statutory exclusion from the market of all tenants and reversioners by virtue of the bracketed words in paragraph 3(1). He submitted that the Tribunal's approach of a notional two stage transaction, by which a purchaser would first acquire the ORL or the GEB Lease and would then seek acquire the other, is contrary to or inconsistent with that statutory exclusion since, after the first acquisition and immediately before the second, the purchaser would be either the tenant or the reversioner in respect of that outstanding leasehold interest. Put a different way, the Tribunal's valuation approach proceeds on the assumption of the possibility of a marriage of the interests of the landlord and the tenant in respect of the ORL and the GEB Lease, with a consequent uplift in value, which is precisely what the bracketed words in section 3(1) were intended to preclude.

Mr Jefferies further submitted that there is no conceptual difference between the hope of realising development value in the present case and the type of hope addressed in Sportelli since in both cases the additional value can only be realised by uniting two different interests. He said that they are economically the same.

Referring to the decision of the Upper Tribunal in Forty-Five Holdings Ltd v Grosvenor (Mayfair) Estate [2009] UKUT 234 (LC), [2010] L&TR 21, Mr Jefferies said that development value, marriage value and hope value all result from the marriage of the interests of the reversioner and the tenant and the Tribunal was, therefore, wrong to make any distinction between them. Mr Jefferies pointed out that in Grosvenor Estate Belgravia v Klaasmeyer [2010] UKUT 69(LC); LRA/187/2006 the Upper Tribunal drew no distinction between marriage value and hope value.

Mr Jefferies pointed out that, in Sportelli, Lord Neuberger found justification in the wording of paragraph 3(1)(b) of schedule 6 to the 1993 Act for holding that hope value could be taken into account in respect of non-participating tenants' flats, that is to say the hope of non-participating tenants wishing to obtain new leases of their flats in the open market. Lord Neuberger's reasoning was that the words of paragraph 3(1)(b) would be redundant if it could not be assumed that a non-participating tenant might want a new lease of his or her flat. By contrast, the Appellant submits, there is nothing in the 1993 Act which justifies, in arriving at open market value, the inclusion of the development hope value in the present case. Furthermore, the Appellant points out, unlike the hope value permitted in Sportelli, the present case is concerned with a hypothetical transaction relating to the whole of the GEB Lease and the ORL, and which results in them coming into the same hands. There is no analogy, it is said, with the possibility of the grant of a lease of a single flat to a non-participating tenant which was at the centre of the decision in Sportelli justifying an exception from the wide meaning to be given to the words "buying or seeking to buy".

Mr Jefferies relied on Sportelli as authority that, save in the context of paragraph 4 of schedule 6 to the 1993 Act, the landlord is not entitled to share in any marriage value resulting from the marriage of different interests in the specified property. Marriage value within paragraph 4 is expressly limited to the increase in value attributable to the potential ability of the participating tenants to have new leases of their flats granted to them. That was the view expressed by the Upper Tribunal in Themeline v Vowden Investments Limited [2011] UKUT 168. It is common ground that the development hope or marriage value in the present case does not fall within paragraph 4 of schedule 6.

As I have said, Mr Jefferies relied on Lord Neuberger's speech in Sportelli in a specific focused way as well as from a general perspective. That specific focused argument centred on the description of "hope value" in paragraphs [65] and [66] of Lord Neuberger's speech, as follows:

"65. Having discussed marriage value and its treatment under section 9(1A), it is convenient to deal with "hope value". If a landlord is selling his freehold interest subject to a lease, at a time when the tenant is not interested in purchasing the freehold, there is no immediate prospect of releasing the marriage value. That is because the only way in which it can be released is either by the tenant acquiring the freehold interest or by the landlord acquiring the leasehold interest. As it is the landlord who is assumed to be selling, the latter possibility could not arise, and the former possibility is excluded by the fact that the tenant is not, on this hypothesis, in the market at the time of the sale.

66. However, where the landlord is selling his interest when the tenant is not in the market, a potential purchaser may well think that, in addition to its investment value, the freehold interest carries with it the potential benefit of a possible future sale of the freehold to the present tenant or a successor in title (or indeed the acquisition of the leasehold interest), thereby enabling a release of the marriage value in the future. In such a case, therefore, it can be said that, even though the tenant is not in the market at the time of the sale, the value of the freehold subject to the lease is greater than the aggregate of the capitalised rental stream and the deferred right to possession at the end of the term, and that something should be added for the possibility of a purchaser benefiting from a release of the marriage value. That additional sum is known as "hope value"."

The Appellant's case is that Lord Neuberger was there treating hope value as including the possibility of the purchaser of the freehold acquiring the lease (viz. marriage by sale) as much as the possibility of selling the freehold to the tenant, and that the subsequent references in Lord Neuberger's speech to "hope value" being excluded from the value of the landlord's interest clearly include the possibility of marriage by sale.

In the light of all those points, Mr Jefferies submitted that the legislative purpose underlying the bracketed exclusionary words in paragraph 3(1) would be achieved by notionally adding to them the words "or selling or seeking to sell". He said that it is not necessary for the Appellant, in order to succeed on this appeal, to formulate precise words to be added by way of implication to the express terms of paragraph 3(1), but, at it happens, the implication of those words would adequately reflect a correct purposive interpretation.

The Appellant also contends that the Tribunal's decision was inconsistent with the statutory requirement (in paragraph 6(1)(a) of schedule 6) to determine a separate price for each interest and (in paragraph 7(1)) to value to the GEB Lease subject to the ORL. It is said that the Tribunal's conclusion of the hypothetical purchaser acquiring one intermediate lease "soon after" (in the words of paragraph 113) or "almost immediately" after (in the words of paragraph 116) purchasing the other assumed, in effect, a sale of the GEB Lease with the ORL, not subject to it, and amounted to determining one price for both interests. That is contrary, it is said, to Wentworth Securities Ltd v Jones [1980] AC 74 and Klaasmeyer.

That is tied to a general merits point on the First Issue. The Appellant emphasises that the reality in the present case is that GEB chose to grant the ORL to the Second Respondent in 2005 for a term of 125 years, and neither GEB nor the Respondents took any step to exploit any development potential or to reunite their interests before the valuation date. There is nothing, the Appellant says, which is unfair about valuing their interests separately in accordance with schedule 6 to the 1993 Act and applying the statutory assumptions as described by Mr Jefferies.

Finally, on the First Issue, Mr Jefferies emphasised that, if the Tribunal's decision stands, it will result in serious anomalies. He has submitted that it would mean that hope value could be included in a valuation under section 9(1) of the LRA 1967 based on the hope of a purchaser acquiring the tenant's lease. He said that it would also allow under the 1993 Act the hope of a purchaser acquiring the participating tenants' leases and so being able to develop the property. In other words, the assumption could be made that the purchaser of the freehold would buy in all leases within, say, 5 years, even though they have 35 years unexpired. He submitted that both those examples would be inconsistent with the statutory scheme under which the assumption is that the participating tenants are not selling their leases to the freeholder and under which the participating tenants have to pay marriage value on the assumption that they will be buying extended leases and are only required under paragraph 4 of schedule 6 to the 1993 Act to pay that element of marriage value.

Turning to the Second Issue, the Appellant says that it was contrary to authority and principle for the Tribunal to value the GEB Lease and the ORL on the assumption that before the hypothetical purchaser acquired one of those interests it would have made enquiry of the owner of the other as to their willingness to sell their interest so as to enable a development back to a single house to proceed. The Appellant submits that the assumption was contrary to an established principle that property should only be valued with the attributes it in fact possesses, that uncertainties should not be valued as certainties, and counter factual assumptions should not be made. It relies on the following statement by Lord Neuberger in Transport for London (formerly London Underground Ltd) v Spirerose Ltd [2009] 1 WLR 1797:

"[50] First, if a statute directs that property is to be valued on an open market basis as at a certain date, one would not expect any counter-factual assumptions to be made other than those which are inherent in the valuation exercise (such as the assumption that the property has been on the market and is the subject of a sale agreement on the valuation date) or those which are directed by the statute. To put the point another way, the courts below appear to have inserted a judge-made assumption into a statutory formula, which seems to be complete and self-contained."

The Appellant also relies, for the same point, on Duke of Buccleuch v. Inland Revenue Commissioners [1967] 1 A.C. 506, 525, Henderson v Karmel's Executors [1984] STC 572 and Van Dal Footwear v Ryman Ltd [2009] EWCA Civ 1478, [2010] 1 WLR 2015.

In the present case no discussions had taken place at the valuation date, and there was no agreement in principle in place, between the owners of the GEB Lease and ORL as to the sale or merger of their interests to allow conversion to a house. The Appellant's criticism is that, contrary to the actual facts, the Tribunal assumed that the hypothetical purchaser of each had sought and obtained from the owner of the other interest a clear indication that they would be willing to deal once the first purchase had been completed. Furthermore, the Appellant says, the Tribunal went far beyond assuming enquiries to ascertain information. They assumed negotiations and an agreement in principle which would be completed almost immediately after the hypothetical first sale.

Mr Jefferies relied particularly on the decision in Van Dal Footwear that no agreement or offer should be assumed when none was in place. The Appellant contends that the Tribunal's assumptions of "a clear indication … that [the seller of the other intermediate lease] would be prepared to deal" (para. 118) and that "the second deal would take place almost immediately" (para. 116) are in substance no different to assuming a binding agreement. They presuppose, Mr Jefferies said, that the sale documentation had been agreed. If not, then, he submitted, it is unclear what assumption is to be made about what stage had been reached, including, for example, whether heads of agreement had been signed. Mr Jefferies drew attention, in this connection, to the statement of Lewison J in Van Dal Footwear at [12] that:

"the proposition that property must be assumed to have been exposed to the market does not entail reconstructing the hypothetical marketing period."

In short, the Appellant says that the Tribunal was wrong to make assumptions as to private enquiries and responses which were not related to the existing attributes of the Property or its uses but to the price at which the hypothetical purchaser of one intermediate lease might be able to acquire a different intermediate lease in due course. It is said that, apart from everything else, that was inconsistent with the notion of an open market transaction as discussed in Lynall v IRC [1972] AC 680 and Daejan Investments Limited v Cornwall Coast Country Club [1985] 1 EGLR 77.

Discussion

The appeal raises an interesting issue under the collective enfranchisement provisions of the 1993 Act as to the way in which the hope of realising development value, if there is a marriage of different legal interests in the specified premises, is reflected in the price payable by the participating tenants. The number and range of the Appellant's arguments, and those of the Respondents (which I have not summarised above), reflect both the potential size of the financial consequences of the issue and the complexity of the legislation.

Although the issue raised is an important one and will have implications beyond the specific facts of the present case, the factual context of these proceedings has some important features which are not common to the vast majority of collective enfranchisements. Firstly, in the present case, due to its particular geographical location in central London, the value of the Property as a single house is greater that the aggregate values of the flats within it. The ability to convert the Property back into a single house and so realise its development potential at a substantial profit is what a freehold owner of the Property with vacant possession, seeking to maximise its financial potential, would wish to do. Secondly, the participating tenants in the present case exercised their rights to collective enfranchisement under the 1993 Act only a few days before their leases expired. Thirdly, for reasons which it is not necessary to explain, the participating tenants did not have the benefit of any statutory protection entitling them to remain tenants of their respective flats after the expiry of their leases.

Accordingly, had the leases of the participating tenants expired without exercising their right to collective enfranchisement, the Respondents and GEB would have been entitled to enjoy the full financial benefit of the development potential of the Property. More relevantly, had there been no intermediate leases between the participating tenants' leases and the freehold at the date the participating tenants exercised their right to collective enfranchisement by service of the notice under section 13 of the 1993 Act, the price to be paid for the freehold under the 1993 Act would have reflected the fact that the freeholder would have been in a position to develop the Property within a few days of the notice. There is nothing in the 1993 Act that would have required that development hope value to be ignored when valuing the freehold to ascertain the price to be paid for it by the Appellant, as the nominee purchaser. What is in dispute on this appeal, on the First Issue, is whether the Appellant should be in any better position when ascertaining the price to be paid under the 1993 Act for the intermediate long leasehold interests of the Second Respondent and GEB.

There is no doubt that a purposive approach should be applied to the interpretation of the relevant provisions of schedule 6 to the 1993 Act, particularly the critical bracketed words in paragraph 3(1). Sportelli is clear authority for that proposition. It is not difficult, adopting a purposive interpretation of those words, to say, as was said by the House of Lords in that case, that "buying" or "buy" must cover seeking a 999 year lease at a peppercorn rent or any similar interest. It is quite another thing to try to find some necessary implication or obvious intention of Parliament leading to the inclusion or exclusion of development hope value from the price payable for intermediate leases by the nominated purchaser on behalf of the enfranchising tenants. Both sides on this appeal point to anomalous consequences of one interpretation rather than another.

One of the reasons for the difficulty is that the legislation governing the acquisition of the freehold of buildings by tenants of houses and flats is complex and has been amended many times, adding successive layers of complexity. In Sportelli (at [33]) Lord Walker referred to the "general intractability of this lengthy and much amended legislation" and observed (at [32]) that the legislative purpose of some of the amendments is far from obvious. He said that was particularly true of the amendment of paragraph 3 of schedule 6 to the 1993 Act by section 109 of the Housing Act 1996. Lord Neuberger said the following at paragraph [111]:

"111 The interpretation of schedule 6 is difficult, and this is attributable to its original complexity, the subsequent amendments which have been made to it, and the fact … that it is perhaps unfortunate that its drafting was based on schedule 13, which is concerned with a far simpler construct. In reaching the conclusion that hope value in respect of non-participating tenants' flats is excluded, Lord Hoffmann relies in part on the drafting history of the present paragraphs 2 to 4 of schedule 6 . The original drafting of at least parts of Chapter I of Part I of the 1993 Act left much to be desired, and subsequent amendments have in some cases made things worse. The poorness of the drafting means that, in my opinion, it is safer to construe the paragraphs as they now stand, rather than seeking to identify what purpose or errors may be revealed at earlier stages. I should add that the inept drafting of the 1993 Act is unfair on landlords, who are being deprived of their property, and on residential tenants, the very people who are intended to benefit from the legislation"

It was section 109 of the Housing Act 1996 which amended the bracketed words in paragraph 3(1) by replacing the words "(with neither the nominee purchaser nor any participating tenant buying or seeking to buy)" with the words "(with no person who falls within sub-paragraph (1A) buying or seeking to buy)" and which added the new paragraph 3(1A).

This complexity of this body of legislation and its somewhat tortuous history of successive amendment and extension make it particularly important in the present case to be cautious about deviating from the ordinary meaning and application of the statutory words. The correct approach is that expressed as follows by Lord Carnwarth in Hosebay Ltd v Howard de Walden Ltd [2012] UKSC41, [2012] 1 WLR 2884 at paragraph [6], endorsing the well-known statement of Millett LJ in Cadogan v McGirk [1996] 4 All ER 643 at p. 648:

"6. Although the 1967 Act like the 1993 Act is in a sense expropriatory, in that it confers rights on lessees to acquire rights compulsorily from their lessors, this has been held not to give rise to any interpretative presumption in favour of the latter. As Millett LJ said of the 1993 Act:

"It would, in my opinion, be wrong to disregard the fact that, while the Act may to some extent be regarded as expropriatory of the landlord's interest, nevertheless it was passed for the benefit of tenants. It is the duty of the court to construe the 1993 Act fairly and with a view, if possible, to making it effective to confer on tenants those advantages which Parliament must have intended them to enjoy." (Cadogan v McGirk [1996] 4 All ER 643, 648.)

By the same token, the court should avoid as far as possible an interpretation which has the effect of conferring rights going beyond those which Parliament intended."

Applying that approach, it can broadly be said that it is no obvious part of the social policy underlying this legislation to confer on tenants of flats in a building not only the right to acquire the freehold and intermediate leases but to do so at a price which ignores completely the value attributable to development value if those interests or some of them were vested in the same person. It is common ground that, as I have said, if there had been no intermediate leases in the present case, the price payable by the Appellant to the First Respondent freeholders would certainly have reflected the value of the development potential of the Property by restoring it to a single house.

Furthermore, if the history of the bracketed words in paragraph 3(1) of schedule 6 to the 1993 Act is traced to their original version as inserted in section 9(1) of the LRA 1967 by section 82 of the Housing Act 1969, then the legislative purpose is clear enough. It was to avoid an enhanced valuation on the basis that the tenant would pay more than others in the open market as a special purchaser because the tenant would then own his or her own home and could stay there indefinitely: see Sportelli paras. [53] and [54]. Neither side on this appeal has suggested that at that time, or when the amendments were made to paragraph 3(1) by the Housing Act 1996, did Parliament specifically have in mind an intention to give the occupying tenant or tenants the right to acquire from the freeholder inherent development hope value without any payment for it.

Having said that, I was at one stage impressed with the argument, adopted by Mr Jefferies, that the Tribunal's two stage valuation approach contravenes or implicitly contravenes the bracketed exclusion in paragraph 3(1) since the uplift in value to take account of development hope value pre-supposes a situation in which a successor in title of either GEB, as the reversioner of the Second Defendant under the ORL, or of ORL, as a tenant of GEB of the second and third floors, would, at the stage of the hypothetical second purchase, be buying the interest of the other as tenant or reversioner. This overlapped with his case that such a situation is economically no different from the express statutory prohibition (by the bracketed exclusion in paragraph 3(1)) of an assumption that a tenant of any premises in the specified premises, or the owner of any interest which the nominee purchaser is acquiring, is in the notional open market as a purchaser. It also overlapped with the Appellant's arguments that schedule 6 must be read and interpreted as a whole, and the manifest statutory objective is to exclude all additional value attributable to a marriage of the interests of different persons holding property interests in the specified premises save only the specific hope or marriage value which is the subject of paragraph 4 of schedule 6 (viz. the potential ability of the participating tenants, once they have the freehold and intermediate leases, to have new leases granted to themselves without payment of premium or restriction of length of term – applied to intermediate leases by paragraph 9 of schedule 6).

I have been persuaded by the argument of Mr Timothy Dutton QC, for the Second Respondent, that the Tribunal's hypothetical two stage open market purchase does not contravene the express terms of the bracketed words in paragraph 3(1) for the simple reason that the prohibition only applies to the interest being purchased, that is to say, in the present case, the first intermediate interest notionally to be sold on the open market. The notional development hope value, in the context of the hypothetical two stage purchase, is dependent on the possible subsequent sale of the other intermediate interest, but that hypothetical and purely potential second sale is not something to which the express terms of the bracketed wording applies.

The question then is whether it is appropriate to extend the express scope of the bracketed exclusion in paragraph 3(1) so as to encompass the Tribunal's hypothetical two stage open market sale of the GEB Lease and the ORL to the same purchaser. Despite Mr Jefferies' many and able arguments, I do not consider that it would be appropriate to do so.

For the reasons I have given, considerable caution is required in making significant leaps from the express wording of paragraph 3(1) on the basis of what is said to be a purposive interpretation. In Sportelli the question was whether application of the bracketed words in paragraph 3(1) should be restricted so as not to exclude from the price the hope value of receiving marriage value from non-participating tenants. In the present case the question is not whether the bracketed words should be restricted but whether they should be extended to include sales of intermediate interests of only part of the specified property.

Mr Jefferies said that the exclusion should be extended to "selling or seeking to sell" in addition to "buying or seeking to buy". At first blush, however, that is not a modest alteration to reflect an obviously equivalent economic transaction, such as the example of Lord Neuberger in Sportelli of an economic equivalence between the grant of a 999 year lease at a peppercorn rent and the sale of the freehold. The current bracketed exclusion is, as I have said, looking at the purchase of the interest being valued whereas the extension postulated by the Appellant is of some other interest being sold. That is a different transaction both in form and substance.

Generally, I do not consider that the Appellant can derive any assistance from Sportelli, in which the facts, the nature of the dispute and the arguments were so different from the present case. In particular, I do not accept that Lord Neuberger directed his mind to the type of hypothetical two stage purchase in issue in the present case, let alone that he expressed any view that it would fall to be excluded by the bracketed words in paragraph 3(1). None of the speeches in Sportelli includes any express conclusion that the bracketed words in paragraph 3(1) extend to marriage by sale. There is nothing in that case which clearly indicates that in paragraphs [65] and [66] of Sportelli Lord Neuberger was doing anything more than identifying theoretical circumstances in which hope value can arise. It is clear that, where the expression "marriage value" is mentioned in the speeches in Sportelli, including where there is reference to hope value reflecting possible future marriage value, the expression is used in its precise statutory context as defined in paragraph 4(2)(a) of schedule 6; namely, where one or more of the relevant interests (ie the interests whose marriage will generate value) is held by a participating tenant and where the additional value is a reflection of the ability of the participating tenants to procure the grant to themselves of new leases without payment of a premium or restriction of length of term. Neither of those elements applies in the present case.

The ratio of Sportelli, so far as relevant to the present case, is that schedule 6 to the 1993 Act does not exclude hope value from the enfranchisement price to the extent that the hope value reflects the hope of receiving marriage value from non-participating tenants; but hope value which can be taken into account has to be limited to the hope of transactions with non-participating tenants because there would otherwise be double counting. There cannot be both a right to marriage value under paragraph 4 of schedule 6 and the right to hope value as at the valuation date reflecting the potential release of the same marriage value in the future. None of those matters has anything to do with the facts of the present case.

I agree with Mr Jefferies that schedule 6 must be interpreted coherently as a whole so far as possible. It does not follow, however, having regard to the complexity and history of the legislation, that Parliament could not have intended the price payable by the nominee purchaser to reflect the type of development hope value in issue in the present case because it made no provision for the price to reflect hope value or marriage value save in the context of paragraph 4 of schedule 6. On the contrary, as I have said, if there had been no intermediate leases in the present case, the development potential of the Property with vacant possession would have been fully reflected in the price payable for the freehold.

I do not accept that the Appellant's argument that the assumption in the present case of a sale of both interests to the same buyer within a short space of time is contrary to the requirement to value each separately. As the Respondents pointed out, the very allowance of a 5 per cent. discount to reflect the risk involved in a two stage process shows that (1) the Tribunal was valuing the two interests separately and (2) The Tribunal was not treating them as single contemporaneous transaction.

I do not agree with Mr Jefferies that any assistance is derived from Klaasmeyer or Wentworth Securities Ltd v Jones (on appeal from Jones v Wrotham Park Settled Estates) [1980] AC 104. Those cases were both decided under the LRA 1967 as amended, and they were both concerned with the principle that, where there are two or more interests superior to the enfranchising interest to be acquired, each of those interests must be valued separately. Neither of them was concerned with development value or the hope of releasing development value. Nor does Laura Investments assist in interpreting the statutory words in the present case.

For the sake of completeness, I should say that Mr Anthony Radevsky, counsel for the First Respondents, made submissions on the application of the European Convention on Human Rights and Fundamental Freedoms, especially Article 1 of the First Protocol. In the circumstances, it is not necessary to consider those submissions.

Turning to the Second Issue, I do not accept that the Tribunal made any error of law or principle. As Mr Dutton pointed out, in the Tribunal's hypothetical two stage open market sales, the seller of the interest at the potential second stage is not, as in many open market valuations, an abstract. It would actually be GEB or the Second Respondent. The Tribunal was, therefore, perfectly entitled to postulate what enquiries the reasonably prudent buyer would have made of whichever of them would be the potential second seller and what the reaction would have been. What enquiries the purchaser would have made and what answers would have been received are partly matters of fact and partly expert evidence. What would have been the valuation consequences of those matters is a matter for expert evidence. None of those issues raises an issue of law.

Conclusion

For the reasons I have given, I would dismiss this appeal.

Appendix

Paragraph 4 of schedule 6 to the 1993 Act

"4.—

(1) The marriage value is the amount referred to in sub-paragraph (2), and the freeholder's share of the marriage value is 50 per cent. of that amount.

(2) Subject to sub-paragraph (2A), the marriage value is any increase in the aggregate value of the freehold and every intermediate leasehold interest in the specified premises, when regarded as being (in consequence of their being acquired by the nominee purchaser) interests under the control of the participating tenants, as compared with the aggregate value of those interests when held by the persons from whom they are to be so acquired, being an increase in value—

(a) which is attributable to the potential ability of the participating tenants, once those interests have been so acquired, to have new leases granted to them without payment of any premium and without restriction as to length of term, and

(b) which, if those interests were being sold to the nominee purchaser on the open market by willing sellers, the nominee purchaser would have to agree to share with the sellers in order to reach agreement as to price.

[

(2A) Where at the relevant date the unexpired term of the lease held by any of those participating members exceeds eighty years, any increase in the value of the freehold or any intermediate leasehold interest in the specified premises which is attributable to his potential ability to have a new lease granted to him as mentioned in sub-paragraph (2)(a) is to be ignored.

] 2

(3) For the purposes of sub-paragraph (2) the value of the freehold or any intermediate leasehold interest in the specified premises when held by the person from whom it is to be acquired by the nominee purchaser and its value when acquired by the nominee purchaser—

(a) shall be determined on the same basis as the value of the interest is determined for the purposes of paragraph 2(1)(a) or (as the case may be) paragraph 6(1)(b)(i); and

(b) shall be so determined as at [the relevant date] 3 .

(4) Accordingly, in so determining the value of an interest when acquired by the nominee purchaser—

(a) the same assumptions shall be made under paragraph 3(1)(or, as the case may be, under paragraph 3(1) as applied by paragraph 7(1)) as are to be made under that provision in determining the value of the interest when held by the person from whom it is to be acquired by the nominee purchaser; and

(b) any merger or other circumstances affecting the interest on its acquisition by the nominee purchaser shall be disregarded."

Lord Justice Rimer

I agree.

Lord Justice McCombe

I also agree.