England and Wales Lands Tribunal

[2003] EWLands LRA_2_2002 (30 April 2003)

LRA/2/2002

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT - house on Howard de Walden Estate - improvements - building agreement and lease - state of house when lease granted - whether any completion works - whether works part of bargain for grant of lease - price - restrictive covenants as to alterations, user and machinery - appeal dismissed - Leasehold Reform Act 1967, ss 9(1A)(d) & (1C), 10(4) & (5)

IN THE MATTER of an APPEAL against a DECISION of a LEASEHOLD

VALUATION TRIBUNAL of the LONDON RENT ASSESSMENT PANEL

BETWEEN ERIC MOREAU Claimant

and

HOWARD DE WALDEN Respondent

ESTATES LTD

Re: 27 Weymouth Street, London W1

Tribunal Member: P H Clarke FRICS

Sitting at 48/49 Chancery Lane, London WC2A 1JR

on 13-16 January 2003

The following cases are referred to in this decision:

Rosen v Trustees of Camden Charities [2001] 2 All ER 399

Wellcome Trust Ltd v Romines [1999] 3 EGLR 229

Swann v White [1996] 1 EGLR 199

Sinclair Gardens Investments (Kensington) Ltd v Franks (1997) 38 R&VR 261

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896

John Lyon's Charity v Rapp (unreported) (2002) LON/LVT/1482/02

Prenn v Simmonds [1971] 1 WLR 1381

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989

Re Memvale Securities Limited (1974) (unreported LP/37/73)

West Midland Baptist (Trust) Association (Inc) v Birmingham Corporation [1968] 2 QB 188

Peck v Trustees of Hornsey Parochial Charities (1970) 216 EG 943

Le Mesurier v Pitt (1972) 221 EG 979

C&G Homes Ltd v Secretary of State for Health [1991] Ch 365

Re Martin (1988) 57 P & CR 119

Mr Edwin Johnson instructed by David Conway & Co, solicitors, for the appellant.

Miss Katharine Holland instructed by Speechley Bircham, solicitors, for the respondents.


 


DECISION OF THE LANDS TRIBUNAL

1. This is an appeal by the tenant of a long leasehold house on the Howard de Walden Estate in London against the decision of a leasehold valuation tribunal determining the enfranchisement price under section 9(1C) of the Leasehold Reform Act 1967.
2. Mr Edwin Johnson of counsel appeared for the appellant and called Mr Victor Belcher MA and Mr Kenneth Gavin Buchanan BSc MRICS. Miss Katharine Holland of counsel appeared for the respondents and called Mr W H H Van Sickle MSc BA, Mr Kevin Ryan FRICS and Mr John Henry Godliman FRICS. I heard oral evidence during a four-day hearing and, by agreement with the parties, received closing submissions and counter-submissions in writing.
3. On 24 January 2003 I made an accompanied inspection of 27 Weymouth Street and an unaccompanied inspection of the Howard de Walden Estate and adjoining areas.

FACTS

4. From the statements of agreed facts and the evidence I find the following facts.
5. The house which is the subject of this appeal, 27 Weymouth Street ("the appeal property"), is on the Howard de Walden Estate ("the Estate") in St Marylebone located to the north of Oxford Street. The Estate is bounded by Cavendish Square and Wigmore Street in the south, Marylebone Lane and Marylebone High Street in the west, Marylebone Road and Park Crescent in the north and Hallam Street and Portland Place in the east. The Estate includes what is now called "the medical enclave" or, in town planning terms, the "Harley Street Special Policy Area", centred on Harley Street, which is bounded by Marylebone Road and Wigmore Street to the north and south, Beaumount Street and Welbeck Street to the west and Devonshire Close and Mansfield Street to the east. The medical enclave is in the centre of the Estate, with consulting rooms of doctors and dentists usually on ground and first floors, with ancillary medical uses and some clinics and hospitals and medical institutions. Retail uses on the Estate are concentrated to the south and west in Wigmore Street and Marylebone High Road. There are a few embassies and similar buildings on or close to Portland Place. The remainder of the Estate, is primarily residential. Part of the Estate is in the Harley Street Conservation Area (including the appeal property). The Estate is not subject to a management scheme under section 19 of the Leasehold Reform Act 1967.
6. Weymouth Street is situated towards the northern part of the Estate and runs east to west across the full width of the Estate. Number 27 is on the south side between the junctions with Harley Street and Portland Place and is within the medical enclave. Immediately to the rear is Weymouth Mews.
7. 27 Weymouth Street is a terraced house with accommodation on basement, ground and four upper floors. It was built in about 1911 (the exact period of construction is in issue). It is of brick construction with a stone-faced front elevation and a slate roof. The accommodation now comprises: hall, three rooms, kitchen and shower room in the basement; entrance hall, two rooms, kitchen and cloakroom on the ground floor; two rooms and cloakroom on the first floor and half-landing; two rooms on the second floor; two rooms and a bathroom on the third floor and half-landing; and a three rooms and a bathroom on the fourth floor. There is a lift serving all floors. The gross internal floor area is about 6,000 sq ft (557.4 sq m). The house has central heating. At half-landing level between the ground and first floors a roof terrace has been constructed on the flat roof over the rear ground floor. The layout and accommodation have changed little since the property was built in 1911. The approved plans of January 1911 show servants' accommodation in the basement comprising coal cellars, servants' room, pantry, kitchen, scullery, stores and cleaning rooms; on the ground floor an entrance hall, dining room, library, consulting room and cloakroom; on the first floor a drawing room and boudoir with a WC on the half-landing; on the second floor two bedrooms, a dressing room with a bathroom on the half-landing; on the third floor, three bedrooms and a WC; and on the fourth floor, three bedrooms, a boxroom, bathroom and linen room.
8. When the appeal property was purchased by the appellant in October 1995 the auction particulars show that the house then contained a self-contained flat in the basement comprising three rooms, kitchen, bathroom, meter room and boiler room.
9. It is agreed that the following works have been carried out since the original construction of the house:-

(i) the kitchen has been moved from the basement to the rear ground floor (formerly the consulting room) and refitted;

(ii) the bathroom on the half-landing between second and third floors has been removed and a bathroom provided on the half-landing between the third and fourth floors; all original bathroom fittings have been renewed;

(iii) the scullery in the basement has been converted to a shower room;

(iv) central heating has been installed and the hot water system renewed;

(v) the flat roof over the rear ground floor has been converted to a roof terrace;

(vi) the electrical wiring has been renewed with additional sockets, recessed lighting and an alarm system;

(vii) damp-proofing works have been carried out in the basement;

(viii) works have been carried out since 1995 to reinstate the property as a house.

10. The northern part of the Howard de Walden Estate (then the Portland Estate) was first developed in the eighteenth century. A map of 1793 shows a house on the site of 27 Weymouth Street (then known as 39 Weymouth Street). It is likely that this was built a few years before the map was prepared and let on a ground lease which expired in 1875 when a new lease was granted. This was for 35 years from 6 July 1875, expiring in July 1910. The ratebook shows that the tenant (Dr W J Gow) left the premises on 24 June 1910.
11. On 9 August 1910 Mr William Willett agreed to take a building agreement of 27 Weymouth Street. The form of agreement was sent by Howard de Walden on 17 August and accepted by Mr Willett on 7 September 1910. It is in part printed and part manuscript form. It is dated 11 October 1910. It provided for a lease to be granted by Baron Howard de Walden and Seaford for 90 years from 6 July 1910 at a rent of £15 per annum rising to £40 per annum after one year and for works to be carried out (for the erection of a private residence), particulars of which were set out in the agreement, and in accordance with the General Conditions in the agreement (including the requirement to carry out the works in accordance with approved drawings and specification). The works were to be completed by Michaelmas 1911. The acceptance on the agreement signed by Mr Willett provided that the lease may be prepared as soon as the works have been completed. Sketch plans for the new house were sent to Howard de Walden on 14 November 1910 and on 18 January 1911 plans, elevations and sections of the new house were sent for approval. They were stamped as approved on 27 January 1911.
12. The freehold of 27 Weymouth Street is now held by Howard de Walden Estates Limited. By a lease dated 9 October 1911 between (1) Baron Howard de Walden and Seaford (landlord) and (2) William Willett the Younger trading as William Willett (tenant) the property was let on full repairing and insuring terms for 90 years from 6 July 1910 at a rent of £15 per annum for the first year rising to £40 per annum thereafter. The lease provided that the tenant would not, without the landlord's consent, allow any profession trade or business to be carried on in the premises but use and occupy the property as and for a private dwellinghouse only. This lease terminated on 5 July 2000 and had about five and a half months unexpired (0.458 year) on the agreed date of valuation in this appeal, 20 January 2000. The tenant is now Mr Eric Moreau, the appellant, who acquired the lease at auction on 25 October 1995.
13. In or about September 1912 a licence was granted by the Howard de Walden to Mr Willett authorising him to allow four named doctors or dentists to practice at 27 Weymouth Street. This licence has been lost but is evidenced by a letter dated 25 September 1913 from Mr Willett's solicitors to Howard de Walden's solicitors requesting consent for a substituted physician and surgeon to be allowed to practice at the property. On 8 July 1977 Howard de Walden granted a licence to the tenant giving consent to the use of the second floor front suite at the appeal property by Miss Sarah Sutton Keys, a consultant physiotherapist. The parties agree that personal practising licences have been granted in relation to the use of the first and second floors by a physiotherapist's practice and the ground floor as a waiting room and as medical offices or consulting rooms. The parties also agree that combined residential and multiple-occupancy consulting use of the appeal property continued (apart from the Second World War when the house was requisitioned) until 1995 when the lease was acquired by the appellant.
14. By a licence dated 31 March 1967 Howard de Walden gave conditional consent for:-

(i) alterations as shown on agreed drawings;

(ii) the use of the third and fourth floors as a private self-contained residential maisonette;

(iii) the use of the basement as residential accommodation for a housekeeper.

15. On 18 March 1996 Mr Moreau sent to Howard de Walden for approval details of works to be carried out (described as refurbishment works in a letter dated 18 January 1996). On 21 March 1996 Howard de Walden confirmed that there was no objection to the proposed works. A certificate of completion issued by the District Surveyor on 10 October 1996 described the works as "alterations including new openings in basement, second, third floor levels." The extent and value of tenant's improvements are in issue in this appeal and I make further findings of fact on these matters later in this decision.
16. On 20 January 2000 Mr Moreau gave written notice under the Leasehold Reform Act 1967 ("the 1967 Act") of his desire to have the freehold of 27 Weymouth Street. This was admitted by Howard de Walden on 16 October 2000. Application was made on 26 January 2001 by Howard de Walden to a leasehold valuation tribunal to determine the price and the terms of the transfer of the freehold. Following a hearing on 18 and 19 September and 22 October 2001 the tribunal issued a decision dated 28 November 2001 determining the enfranchisement price at £1,955,000 and the terms of the transfer, including acceptance of Howard de Walden's proposed restrictions as to user, alterations and machinery. On 21 December 2001 Mr Moreau appealed to this Tribunal. There is no cross-appeal by Howard de Walden who have responded to the appeal.

ISSUES

17. There are four issues for my determination, one procedural and three substantive.
18. The procedural issue relates to the burden of proof. It is whether the burden of proof to show that the LVT decision is wrong rests wholly on the appellant (as contended by Miss Holland for the respondents) or whether it may lie on different sides for different issues (as contended by Mr Johnson for the appellant).
19. The first substantive issue relates to the extent of the improvements to be disregarded under section 9(1A)(d) of the 1967 Act when determining the enfranchisement price. The LVT decided that the only improvements to be deducted from the agreed value were the works carried out by the appellant after his purchase of the long lease in October 1995. This issue can be stated as three questions. First, on the true construction of the building agreement accepted by Mr Willett and dated 11 October 1910, what were his obligations under that agreement and when was the lease under that agreement to be granted? Second, what was the position as to the rebuilding of 27 Weymouth Street when the lease was granted on 9 October 1911? Had the building works reached the carcase stage or were they complete? Third, in the light of the answers to the first and second questions and the decision in Rosen v Trustees of Camden Charities [2001] 2 All ER 399, what improvements are to be disregarded under section 9(1A)(d) of the 1967 Act when fixing the enfranchisement price?
20. The appellant contends that when the lease was granted the house was at, or had not yet reached, completion to carcase stage (walls and roof) and therefore the improvements to be disregarded comprise the works necessary to complete the building ("the completion works") and the improvements carried out after completion ("the later works"). In the alternative, the appellant contends that the later works and those completion works which did not form part of the described works under the building agreement are to be disregarded. The respondents contend that the building works had been completed when the lease was granted in October 1911 and therefore the only improvements to be disregarded are the later works. Alternatively, even if completion works were necessary at the grant of the lease, those works were part of the original bargain for the lease and are not to be disregarded under section 9(1A)(d) of the 1967 Act.
21. The second substantive issue concerns the enfranchisement price under section 9(1C) of the 1967 Act in the light of the decision on the improvements issue. The appellant assesses this price at £1,527,381 disregarding as improvements the completion works and the later works. The respondents accept the LVT's determination that only the later works are to be disregarded as improvements and that the price is £1,955,000.
22. The final issue concerns the restrictive covenants regarding alterations, user and machinery to be included in the conveyance of the freehold under section 10(4) of the 1967 Act. The LVT accepted covenants in the form sought by the respondents, which impose restrictions on alterations and user and prevent the placing of certain machinery or mechanical or scientific apparatus (save for consulting use) in the property. The appellant contends that these restrictions do not satisfy section 10(4) of the 1967 Act. They propose shorter and less onerous covenants regarding alterations and user. They do not accept the machinery restriction in any form.

BURDEN OF PROOF

23. The first issue can be dealt with fairly shortly. It concerns the burden of proof. Mr Johnson said that this appeal takes the form of a rehearing, to be determined on the evidence before this Tribunal. If the LVT decision is shown to be wrong then the appeal must be allowed (Wellcome Trust Ltd v Romines [1999] 3 EGLR 229 at 233). In this limited sense the burden of proof is on the appellant. The LVT decision is relevant in the sense that it stands unless proved to be wrong but otherwise, save in one respect, it is irrelevant to the determination of this Tribunal. It is relevant on appeal as to the credibility of the historical experts. It is instructive to look at the decision of the LVT to see the starting point for Mr Van Sickle's approach to his evidence in this appeal. He did not appear before the LVT and the problem with his evidence is that he came to the matter to justify the LVT's decision.
24. The second point made by Mr Johnson is that, as Lands Tribunal proceedings are a rehearing on the evidence and argument at that hearing, the burden of proof may lie on different sides for different issues. The burden is on the appellant to prove that there are improvements to be disregarded in the valuation. The burden is on the respondents to make out a case for their version of the disputed restrictive covenants.
25. Miss Holland said that Romines is clear authority for the proposition that on appeal the appellant must prove that the decision of the LVT is wrong. It is the respondents' overriding contention that the appellant falls far short of satisfying the burden of proof. There is no basis for contending that the LVT's decision is wrong on any issues.

Decision

26. In his submissions Mr Johnson raises two issues: the credibility of Mr Van Sickle's expert evidence and the burden of proof on different issues in this appeal. The credibility issue can be more conveniently considered later when I deal with improvements. The burden of proof I should consider now.
27. In Romines I considered the authorities and then attempted to set out the principles regarding the right of appeal to this Tribunal from a decision of an LVT fixing an enfranchisement price under the 1967 Act. The following part of that decision is relevant (at 232M):-

"In my judgment, the cases considered above establish the following principles regarding the right of appeal to this tribunal given by para 2 of Schedule 22 to the 1980 Act:

(1) ……

(2) The proceedings before the Lands Tribunal on appeal take the form of a rehearing and must be determined on the evidence presented to the tribunal, without regard to the evidence given before the leasehold valuation tribunal:…

(3) The appellant must prove that the decision of the leasehold valuation tribunal is wrong. This decision stands until it is shown to be wrong by the evidence produced at the rehearing before the Lands Tribunal:…

(4) If this tribunal is satisfied on the evidence before it that the decision of the leasehold valuation tribunal is wrong, then it must allow the appeal; otherwise, it must dismiss the appeal."

28. I do not understand that there is any disagreement with these principles; indeed Mr Johnson seeks support from Romines in his submissions. I cannot accept, however, his contention that there are different burdens of proof, in so far as this relates to the legal burden – the burden on the appellant show that the decision of the LVT is wrong. In particular, I cannot accept that the respondents have a burden of proof to show that the restrictive covenants accepted by the LVT are within section 10(4) of the 1967 Act. The LVT decision incorporates separate decisions on the extent of improvements to be disregarded, the enfranchisement price and the restrictive covenants to be included in the conveyance of the freehold. The appellant has appealed against those decisions. The burden of proof is on him to show that the decisions are wrong, that is to say that the constituent parts of the overall decision, on improvements, price and covenants respectively, are wrong. With regard to the covenants, I agree that section 10(4) is relevant, but it is for the appellant to show that the LVT's decision in accepting the respondents' wording is wrong. This will require consideration as to whether the decision of the LVT is consistent with section 10(4) of the 1967 Act but the burden of proof, to show that the LVT were wrong to accept the respondents' covenants, still rests on the appellant. He must show that this decision is wrong; there is no burden of proof on the respondent to show that it is right. The decision of the LVT stands until it is shown to be wrong by the appellant. For example, in Swann v White [1996] 1 EGLR 199, an issue was whether the expert evidence of the appellant landlord must be accepted and the appeal allowed because it was unchallenged by the tenant in this Tribunal. I rejected this submission and said (at 200H):-

"The decision of the leasehold valuation tribunal stands until it is shown to be wrong. I think that a respondent is entitled to say to the appellant: 'I accept the decision; you prove that it is wrong.' This may be a risky course of action to take but I do not think that the respondent automatically loses the appeal by calling no evidence."

The decision in Swann was considered by HH Judge Rich QC (sitting as a member of the Lands Tribunal) in Sinclair Gardens Investments (Kensington) Ltd v Franks (1997) 38 R&VR 261 at 264:-

"I agree with Mr P H Clarke that unless I am satisfied by the freeholder company's evidence that the LVT was wrong, I should allow the decision to stand, rather than interfering with it because another valuation might equally be said not be wrong. To this extent, I do think that it is proper for me to have regard, if not to the evidence before the leasehold valuation tribunal, except in so far as the parties otherwise agree, at any rate to their decision."

29. In my judgment, the legal burden of proof, to show that the decision of the LVT is wrong, rests wholly on the appellant and applies to the whole of the LVT decision under appeal. That, in my view, is the position regarding the legal or persuasive burden. I accept that the evidential burden – proof of a fact – rests on both parties and may shift during a hearing according to the circumstances of the case. The respondents have the burden of proving facts in issue which they wish to put forward in support of their case, including facts relating to the restrictive covenants. That is not the same, however, as the legal burden in relation to those covenants, namely to show that the LVT decision is wrong. That, in my judgment, rests on the appellant throughout, notwithstanding that the LVT accepted the respondents' covenants and that the respondents sought to support that decision by evidence and submissions at the hearing of this appeal.

IMPROVEMENTS

30. I turn now to the first of the substantive issues, the extent of tenant's improvements, the value of which will result in a diminution of value under section 9(1A)(d) of the 1967 Act when assessing the enfranchisement price.

Appellant's case

31. Mr Victor Belcher is an architectural and building historian with an honours degree in History from the University of Cambridge and 30 years experience, much of it in London. He was an assistant editor of the "Survey of London" and is now a freelance writer, lecturer and consultant.
32. Mr Belcher said that in the contract to build and take a lease of 27 Weymouth Street the particulars of works refer only to interior works concerning the hardwood doors. All other internal fittings and features were left to Mr Willett's choice. Although the new house was to be built in accordance with approved plans these were not submitted until after exchange of contracts. Doubtless this was due to the high reputation of the Willett firm, which had built extensively on the Estate. The fact that the contract was concluded before sketch plans were submitted meant that those items shown on the detailed plans and not in the contract were included at Mr Willett's discretion. The appeal property was built speculatively. This has some bearing on the interpretation of the contract.
33. Under the speculative leasehold building system used in London since the early eighteenth century, leases were generally granted when the building had been completed in carcase and the roof put on (known as "covered in" or "roofed in"). Finishing for occupation was undertaken after the lease was granted. This was the usual practice even if not expressly stated in the building agreement. It suited landlords and builders, who could then sell or mortgage the lease to obtain finance for their further operations. A landlord, with an interest in seeing the successful completion of the development, usually granted a lease as soon as there was sufficient security on the ground. Sometimes this procedure was spelt out in the building agreement but in most cases by the end of the nineteenth century it was taken for granted. Thus, the term "completion" would often be used loosely when completion to carcase stage was meant. In support Mr Belcher referred to the development of South Hackney, the report of a Select Committee of the House of Commons on the Urban Leasehold System 1886-87, a building agreement for the erection of a house in The Bishops Avenue, Finchley and documents relating to developments in Melbury Road and Holland Park Road, Kensington.
34. Mr Belcher said that there is no direct evidence as to whether Howard de Walden adhered to this time-honoured method of proceeding or whether it required a house to be completed for occupation before the grant of a lease. If it did not grant leases at carcase stage it was acting contrary to the generality of landlords in London. If, however, it followed general practice then the word "completed" in the building agreement for 27 Weymouth Street can be interpreted as meaning completed to carcase stage. The requirement in the agreement that works were to be completed by Michaelmas 1911 meant completion to carcase stage by that time.
35. Referring to the building of 27 Weymouth Street, Mr Belcher said that Mr Willett's architect informed Howard de Walden in November 1910 that he hoped to demolish the old house within a few days. However, demolition may not have been completed until March 1911. Plans and elevations were approved on 27 January 1911. These show doors, fireplaces and internal fittings. This was common practice at the time. Rooms were labelled as to use. On 3 February 1911 drainage plans were sent to the borough council for approval. In March 1911 there is evidence that construction had only just begun. In July 1911 the District Surveyor recorded the "discovery" that 27 Weymouth Street was being rebuilt. On 4 August 1911 Mr Willett's architect wrote to Howard de Walden that the house was nearing completion; Mr Willett will be glad if instructions could be given for the lease to be put in hand. Completion probably meant completion to carcase stage but, given that the foundations were not laid until March and only five months had elapsed since the start of building, even that extent of building was probably exaggerated.
36. Mr Belcher said that the time it would have taken to build 27 Weymouth Street is important. He referred to a dispute between Mr Willett's executors and Howard de Walden regarding the building of other houses on the Estate and an affidavit of Mr Willett's architect. This included comments regarding the time needed to build six houses in 15 or 18 months. Mr Belcher put in evidence a schedule of houses built on the Estate by Mr Willett between 1910 and 1914 showing the periods between the date of lease and the date of occupation (generally seven to 27 months compared to 27 Weymouth Street, 13 months). In Mr Belcher's opinion it is highly unlikely that the reference to completion in the architect's letter of 4 August 1911 meant completion fit for habitation. There was a period of only seven months from the start of building to that letter: it would have been impossible to build to completion for occupation in that time. This period would have been 13-14 months.
37. The lease granted on 9 October 1911 was a standard building lease. It does not contain a clause requiring the finishing of the house. Such a provision was frequently included in such leases but there may have been several reasons for this omission. This was the building of a single house, not part of a development where the failure to finish a house could affect the whole development. Mr Willett's reputation was high and it was in his interest to finish the house so that such a finishing clause may have been considered unnecessary. He may have had a special relationship with Howard de Walden (see eg 95 Harley Street). Despite the absence of such a clause the body of evidence suggests that this lease was granted well before the house was completed for occupation.
38. Mr Belcher gave evidence as to the role of the District Surveyor. He could claim his fee from the builder when a house had been completed or covered in. He was only concerned with structural matters not with finishings. Completion to the District Surveyor meant to carcase stage. In the case of 27 Weymouth Street he recorded completion in February 1912. The District Surveyor monitored the progress of building works. The fact that he was late in receiving notification of the start of the works did not mean that he was late in recording completion. 27 Weymouth Street was not unique on the Estate in having completion signified after the lease had been granted.
39. Mr Belcher referred to the period between the grant of the lease and occupation. A provisional valuation list of 20 November 1912 showed that the house was first occupied at that date. The occupier was a dentist who shared the house with two other dentists. The long period between lease and occupation is crucial to the argument on the historical facts.
40. There is a lack of contemporaneous evidence regarding the period between lease and occupation. The marketing of the house was the responsibility of Mr Willett. There is no evidence to show how he marketed the house nor whether he experienced difficulties. The opinion that Howard de Walden might have been reluctant to grant licences for multiple medical use hardly accords with reality having regard to the proximity of Harley Street. During the Edwardian period the property market was depressed but this was general and may not have affected "Willett-built" houses at the top end of the market, with an outstanding reputation. There is no evidence that Willett houses were affected by the property depression. Furthermore, this may not have affected the specialist market in the medical enclave. The general impression is that doctors and dentist were eager to find premises there in 1911-12. Mr Belcher concluded that it was unlikely that Mr Willett experienced difficulties in letting 27 Weymouth Street. The most likely reason why the house remained empty for a year is that it had only been built to carcase stage in October 1911 and it took most of the intervening period for the house to be finished for occupation. It is entirely conjecture that Mr Willett, encouraged by Howard de Walden, tried to find a single residential tenant and that it was only when this marketing failed that he sought multiple medical use. Mr Belcher referred to a schedule of houses built by Mr Willett on the Estate between 1909 and 1913. These showed that, excluding a house affected by the First World War, the average period between grant of lease and occupation was 13 months, the same as at 27 Weymouth Street. For eight of the 16 houses the District Surveyor signified completion after the lease had been granted.
41. Mr Johnson submitted that the key questions regarding improvements are: what, if any, works were outstanding when the lease was granted (the historical issue)? and, if any completion works were outstanding, are those works prevented from constituting improvements under the decision in Rosen v Trustees of Camden Charities [2001] 2 All ER 399 (the legal issue)?
42. There is agreement between Mr Belcher and Mr Van Sickle that it was general practice for a lease to be granted when a building had reached carcase stage. Mr Van Sickle, however, thought differently in this case due to his understanding of the agreement, which, he said, required the lease to be granted when the house was ready for habitation. He could not adequately explain the departure of Howard de Walden from general practice. Thus, the real issue is whether the agreement required the house to be finished ready for occupation before the lease would be granted? The historical dispute is narrower than originally anticipated. The respondents' submissions do not, however, react to the changed landscape of the dispute and are misconceived. The fundamental mistake in the respondents' case is to treat everything shown on the approved plans as within the works required before the lease would be granted. It was not an agreement to produce a finished house: all that was required was construction to carcase stage.
43. Although the interpretation of the agreement and lease are matters of legal argument, the historical evidence is material in two respects. First, a court or tribunal may have regard to the factual background when determining the meaning of an agreement (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913E). Second, the documents in this appeal were made nearly 100 years ago and it would be wrong to construe them without regard to the different historical background.
44. Mr Belcher estimated 13 to 14 months to build 27 Weymouth Street for occupation; Mr Van Sickle did not disagree but thought it possible to reduce that period to seven to eight months if Mr Willett had thrown his resources into the project. But Mr Willett had other obligations on the Estate. In the circumstances it might have been expected that the building agreement would have stated clearly the requirement to produce a finished house by Michaelmas 1911. It does not do so. Mr Johnson referred to the printed General Provisions and the manuscript Particulars and said that they contain nothing inconsistent with an agreement imposing an obligation to build to carcase stage. The obligation in the Particulars is to erect a building for a private residence. The agreement nowhere refers to the construction of a finished house. The only non-structural references in the Particulars are to doors and windows. All that the agreement required was the construction of a structure for the creation of a private residence (i.e. to carcase standard). Although Howard de Walden had the right to approve plans, their approval extended only to the carcase stage. Alternatively, they could only require building to carcase stage by Michaelmas 1911. Beyond that stage they could approve or otherwise the proposed building but did not have the power to compel further construction. There is therefore a distinction between the right to approve plans and the right to require construction. Either way the agreement did not require the building of a finished house. The lease does not detract from this argument: there is nothing in it inconsistent with the obligation to build to carcase stage. If Howard de Walden were prepared to grant the lease at carcase stage, in accordance with general practice, there was no reason why they should have imposed an obligation in the lease regarding completion for occupation.
45. Even if the appellant is wrong, it is still unclear why the new house, in defiance of other contemporary evidence, must be taken finally to have been finished fit for habitation by September 1911 or by the date of the lease. There is no reason why Howard de Walden would not have been flexible with Mr Willett, a successful developer of high reputation. The position at 95 Harley Street shows that they were willing to be flexible.
46. With regard to the District Surveyor, Mr Johnson said that on the respondents' case 27 Weymouth Street had reached carcase stage before 28 July 1911 and the District Surveyor would have been entitled to certify completion and collect his fee. He did not certify completion until February 1912. If the respondents are right, that means he waited for six months to collect his fee. There is no rational explanation for this delay. The respondents' theory that he was routinely late in certifying completion does not fit the facts.
47. Mr Johnson said that the respondents' case requires an explanation of the long interval between lease and disposal. The respondents say that Mr Willett was caught by a change in the market. There are three problems with that explanation. First, a report in The Times in December 1911 stated that the market for Willett-built houses was holding up. Second, if Mr Willett was caught out by the market he was caught out on other properties and apparently, although an experienced and successful developer, did not learn from his mistakes. Third, the respondents' theory that Mr Willett tried to market a residential property and then switched to medical use, is refuted by the approved plans which show a consulting room on the ground floor. Mr Willett was able to market his high class houses despite a downturn in the market. The reason for the gap between lease and disposal is obvious: Mr Willett was completing the new house. It is for the respondents to explain the gap.
48. There is an issue regarding the credibility of Mr Van Sickle's evidence compared to that of Mr Belcher. Mr Van Sickle came to the case after the LVT in order to justify their decision. His investigations concentrated on the reasons for the interval between lease and disposal. Mr Belcher's evidence was more comprehensive. He is the more credible expert. This is not necessarily because he is the better historian but because Mr Van Sickle, due to circumstances for which he was not to blame, was put in the wrong position to reach reliable conclusions on the historical issue.
49. Mr Godliman gave evidence that he has never come across the situation where a house on the Estate had been let in carcase form. This evidence is unreliable. He first became aware of the carcase issue when he heard about Rosen, decided in 2000 and reported in 2001. The Howard de Walden records for the early twentieth century are not in good order and he had not looked at building agreements between 1906 and 1916, or for any other period. Mr Godliman assumed that the agreement required the new house to be finished before the lease could be granted. For these, and other reasons, Mr Godliman's evidence on this issue is unhelpful.
50. The appellant's case on the historical issue is that 27 Weymouth Street was not finished when the lease was granted. At most, it was at carcase stage.
51. Turning to the legal issue, Mr Johnson said that the appellant's primary case is that the completion works (from carcase to completion) should be disregarded under section 9(1A)(d) of the 1967 Act. The appellant is not caught by the first part of the Rosen decision because 27 Weymouth Street replaced a previous house. In Rosen in the Lands Tribunal Judge Rich QC (sitting as a member of the Tribunal) stated that the replacement of one house by another could be an improvement. This was not challenged in, or criticised by, the Court of Appeal. The appellant does, however, face the difficulty that Mr Willett was not granted a lease until carcase stage and therefore (on Rosen) he was not a predecessor in title of the appellant in respect of works prior to the lease. Mr Johnson said that the appellant reserves the right to take this point further. The Tribunal is asked to make findings of fact as to the construction of the house from agreement to completion.
52. Subject to this reservation, the legal issue is concerned with the completion works. It is the appellant's case that these works are not caught by either part of Rosen. The completion works were carried out after the lease at Mr Willett's expense. If the Tribunal finds that the works were carried out after the lease were granted then the legal issue becomes the question whether those works are disqualified from falling within paragraph (d) because they were carried out pursuant to the agreement? The respondents argue that Mr Willett received value for the works by the grant of the lease. The appellant has four answers to this argument.
53. First, this can only apply if Mr Willett was obliged to construct the new house to completion under the agreement. This is not provided for in that document. Mr Willett was only required to build to carcase stage. Works after that stage were at Mr Willett's discretion. Rosen cannot therefore apply to the completion works.
54. Second, if this point is wrong, Rosen decided that what disqualified the works in that case from constituting improvements was the fact that the builder received "equivalent value" in the form of a lease and there was no justification for making a distinction between the payment of a premium and expenditure on works (see para 19 at p404j). The facts in this appeal are different. The construction of the agreement and the lease are not critical. Mr Willett was granted the lease at carcase stage. Beyond that stage the agreement was open as to what had to be done. Applying Rosen the works for which Mr Willett received equivalent value by the lease were the construction of the house to carcase stage. He did not therefore receive any equivalent value for the completion works. The bargain under the agreement was to build to carcase stage in return for the lease. The further works (the completion works) were not part of the bargain.
55. Third, and even if the above two arguments are wrong, Rosen can only apply to those completion works which Mr Willett actually contracted to carry out. Even if it is assumed that the agreement required Mr Willett to complete the house, the Tribunal must look closely at what was contractually required as opposed to what Mr Willett chose to do. Most of the completion works fall outside the described works in the agreement, eg the lift. The approved plans (which show a lift) did not alter the obligation on Mr Willett, namely to build to carcase stage. But even if that was the case, the question of equivalent value has to be considered at the date of the contract. When the agreement was made Mr Willett was not obliged to carry out more than the described works. Support can be found in an LVT decision (now subject to appeal), John Lyon's Charity v Rapp (unreported) (2002) LON/LVT/1482/02.
56. Fourth, the part of the decision in Rosen, relied upon by the respondents, is obiter and should not be treated as binding on the Tribunal. Furthermore, this part of the decision is wrong and should be disregarded. There are four reasons why it is wrong. Paragraph (d) makes it clear that all works are capable of qualifying as improvements under this paragraph. The only requirement is that the tenant or his predecessors in title should have paid for the works. There is no requirement in paragraph (d) that nothing should have been received in return for this expenditure (compare section 34(2) of the Landlord and Tenant Act 1954). The equivalent value argument creates problems which were not immediately apparent in Rosen.
57. Mr Johnson made two final points on the legal issue. First, he said that the Tribunal, in interpreting the agreement, is not confined to choosing between the appellant's and the respondents' interpretations. The Tribunal could find that the agreement required the construction of the house to a stage beyond carcase but not to final finish. Second, Miss Holland suggested that it was conceded by the appellant that, on approval of the plans, Mr Willett became obliged to construct the house in accordance with those plans. Mr Johnson said that this so-called concession relates only to the third argument above. This does not defeat the appellant's right to have certain works disregarded, eg the lift. In value terms, the third argument leads to a builder's finish valuation.
58. In summary, the appellant's case on improvements is that the building agreement did not require the house to be finished fit for habitation. The house was at carcase stage (or before) when the lease was granted. Under paragraph (d) the appellant is entitled to have the completion works wholly disregarded in the valuation, or, in the alternative, those parts of the completion works which were not part of the described works in the agreement, eg the lift.

Respondents' case

59. Mr W H H Van Sickle is a professional building and topographical historian with a BA degree from the University of Ottawa and an MSc degree in Urban and Regional Planning from the University of Toronto. For the past 18 years he has been a consultant research historian dealing with historic buildings and sites, including continuing consultancy appointments with the Crown Estate Commissioners and the Royal Household Property Section.
60. Mr Van Sickle referred to the building of 27 Weymouth Street and Mr Belcher's evidence and said that the language of historical documents, particularly legal documents, should be taken at face value wherever possible. The Tribunal should interpret the documents in this case in the same way that any other document is interpreted. This case differs from Rosen because we have contemporary documents and therefore the role for expert evidence is limited.
61. Mr Van Sickle said that building agreements often provided for the grant of the lease at carcase and roof stage, but in this case the documents give no hint of this practice. He could not say why Howard de Walden differed from the normal practice on London estates of granting leases at carcase stage. It may have been due to the nature of the Estate: they may have required buildings to be finished and not left at carcase stage. The building agreement in this case mentioned completion; the house was clearly "completed" in accordance with that agreement prior to leasing; the subsequent lease makes no mention of further finishing. There is no evidence to show that the terms used in the agreement and lease meant anything other than what they said. Reference to building practices on other estates is irrelevant. The failure of the agreement to mention the grant of the lease at carcase stage suggests strongly that such a grant was not intended. It cannot be taken for granted as normal practice. It would be remarkable if a professional builder and a professional landlord would have intentionally omitted such a condition in favour of relying on a standard practice.
62. It is not self-evident that 27 Weymouth Street would have taken slightly over a year to complete for occupation. The time required to complete a building depends on the contractor's resources. Mr Willett was a large and successful builder capable of employing his resources to complete the house by Michaelmas 1911. Mr Van Sickle disagreed with Mr Belcher's estimate of 13-14 months to build 27 Weymouth Street: he would put the period from foundations to completion at eight months.
63. Most of Mr Van Sickle's evidence concerned the reasons for the interval between the grant of the lease and occupation. The question was whether the one year interval was due to the need to complete the building or whether it was due to the property market. He referred to Mr Belcher's analysis of the situation and said that it was reasonable for houses to be taken for multiple occupation but this did not address the question of the market for the house that was built, that is to say a private residence. Although multiple occupancy for medical purposes may have become common in houses around Harley Street, it was not the preference of Howard de Walden for new properties. The question is was the building marketable for the restricted use in the agreement?
64. Mr Van Sickle referred to market reports which indicate that the market for houses in the London inner ring was difficult between 1909 and 1912. This was due to many factors including the Finance Act (1909-10) which destroyed confidence in property investment. He reached the conclusion that both Mr Willett and Howard de Walden made a reasonable judgment in 1910 that a modern private house could be successfully developed at 27 Weymouth Street. But the market worsened due to finance and fashion and there was a change in the area from residential to multiple-occupancy medical use. Given Mr Willett's reputation it seems reasonable that he would have "carried" the house through the main season for letting in 1911-12 to see if a single tenant could be found. Although the market for modern houses improved in 1912 this only applied to good locations and Harley Street was not such a location. 27 Weymouth Street was the right house in the wrong location. By the end of the summer of 1912 both Mr Willett and Howard de Walden would have been aware that 27 Weymouth Street was not marketable for single occupation. After obtaining a licence for multiple medical occupation and altering the drains Mr Willett was able to let the building in this specialised non-residential market.
65. Mr Van Sickle said that the role of the District Surveyor was to certify when a building under construction complied with the London Building Acts. It was not his function to monitor the progress of the works. He certified that completion had taken place at a date prior to certification, not on the actual date of certification.
66. Mr John Henry Godliman is a chartered surveyor and a director of Howard de Walden Management Ltd which manages the Marylebone Estate. He has over 30 years experience of management on the Estate.
67. Mr Godliman referred to the agreement of October 1910 and the approval of plans in January 1911, which show details such as doors, fireplaces, sanitary fittings, kitchen sinks and a lift. He inspected the District Surveyor's returns for 1910-12, particularly the "discovery" in July 1911 that 27 Weymouth Street was to be rebuilt. Correspondence shows that by that date work on site was already quite advanced. The house was to be completed under the agreement by Michaelmas 1911. On 4 August 1911 Howard de Walden were advised that the property was nearing completion and the lease was granted on 9 October 1911. This provides for use as a private dwellinghouse and in September 1912 a licence was granted for multiple medical occupation. Mr Godliman said that, having looked at numerous documents relating to the Estate, he has never come across a situation where a house was let in carcase form. He acknowledged that he first took notice of this point when he read the Rosen decision in the Court of Appeal but he cannot recall any documents which provided for a lease to be granted at carcase stage. It is his view that "completion" means completion for occupation.
68. Miss Holland said that the improvements issue posed the question: is it appropriate to treat any of the works undertaken in relation to the building of 27 Weymouth Street as improvements warranting a deduction from the agreed freehold value?
69. It is the respondents' case that the LVT were correct in refusing to make a deduction for works to the original building. Rosen is clear authority against the appellant. The building of a new house cannot be an improvement and section 9(1A)(d) of the 1967 Act could be taken to contemplate a situation where the tenant received equivalent value from the landlord in the form of a long lease. This reflects the principle underlying paragraph (d). The price which a tenant is required to pay on enfranchisement ought not to include any value attributable to improvements undertaken at his own expense. Where, however, a tenant has carried out works in return for a lease, he cannot be regarded as having carried out the works at his own expense. There is no justification for a reduction in the price on enfranchisement. Permission to appeal in Rosen was refused.
70. The appellant seeks to distinguish this decision on a number of grounds. These are ill-founded. First, it is said that Rosen is distinguishable on the facts because 27 Weymouth Street had not been completed when the lease was granted. This distinction does not exist because it is clear that the property had been completed at the date of the lease in October 1911. This is shown by the evidence. The agreement provided for the grant of the lease on completion of the works. They were to be completed by Michaelmas 1911. There is no contemporary evidence that there was any breach of these provisions. The lease was granted when the house was completed. It is known that trenches had been dug and filled by 8 March 1911 and that by 4 August 1911 the works were nearing completion, two months before the lease was granted. This period for the completion of the house was reasonable, having regard to the period in the agreement and Mr Van Sickle's evidence that 27 Weymouth Street could have been built in 6-8 months compared to Mr Belcher's evidence on this point (13-14 months) which is unsupportable and speculative. The agreement required the construction of a private residence and there is no suggestion anywhere that Mr Willett had not complied with this obligation when the lease was granted. If the house had not been finished a clause would have been included in the lease requiring Mr Willett to complete the works. The absence of such a clause supports the view that the house had been completed. The fact that the District Surveyor only recorded completion in February 1912 is of little significance in the context of other more relevant evidence. It is clear that the District Surveyor's records were unreliable. Even if the house was not occupied until November 1912, this has little bearing on the question of completion. Mr Van Sickle has explained the gap between lease and occupation. Accordingly, the LVT were correct in finding that the construction works had been completed prior to the grant of the lease.
71. Second, it is clear from Rosen that section 9(1A)(d) of the 1967 Act was not intended to cover works carried out as part of the original bargain for the grant of a lease. Accordingly, all the works undertaken in the construction of the appeal property cannot be treated as improvements because they were undertaken as part of the original bargain. These principles apply to this appeal. The bargain between the parties was that Mr Willett would build a completed house in return for the lease. This is seen from the Particulars of Works in the agreement and the approval of plans. It is stated on the face of the agreement that the "lease may be prepared as soon as the works have been completed." The arguments of the appellant to counter the plain meaning of the agreement are without merit. It is said that Mr Willett was not obliged to complete the house but merely to build to carcase stage. This is contradicted by the Particulars of Works and other parts of the agreement.
72. Third, it is claimed that building agreements in 1910 usually meant "completion to carcase stage". This should be disregarded. It is a clear principle of contractual interpretation that words should be construed in their grammatical and ordinary sense, extrinsic evidence is not admissible to alter a plain and obvious meaning. The interpretation of an agreement is a legal question, not for a building historian. In Rosen the terms of the agreement between the parties had not survived and therefore expert evidence was needed as to the likely terms. That is not the position here: the documents are still in existence. A contract is not to be interpreted by ascertaining whether its terms are sufficient to displace what might otherwise have been expected to have been agreed. There is no historical documentary evidence to show that the meaning of words in the agreement such as "completed" bore the special meaning in 1910 as "built to carcase". The decision in Investors Compensation Scheme supports the respondents' case (see the first main principle of interpretation). There is no evidence to displace the clear meaning of the word "completed" in the agreement, as emphasised by other features of the document and the absence of a finishing clause in the lease. Even though the agreement is a document of 1910 this does not excuse the appellant from producing evidence to show that "completion" meant "built to carcase". The agreement is consistent with the requirement to build a finished house, having regard to the requirement that the house is to be built in accordance with approved plans which showed doors, fireplaces, etc. The substance of the obligation was to complete a private house not to build a property for a private residence. In construing a contract all parts of it must be given effect where possible (see Lewison, "The Interpretation of Contracts" para 6.03). There is no evidence to show that references to "finished" or "fit in all respects for human habitation" were considered necessary or appropriate in 1910. Howard de Walden retained control over matters beyond the structure due to the fact that the house had to be built in accordance with approved plans. This went further than approval of plans to carcase finish. It is wrong for the appellant to assert that Mr Willett's obligation was to build to carcase by Michaelmas 1911 in order to obtain a lease and that beyond that stage Howard de Walden had the right to approve or otherwise Mr Willett's proposals. The house was to be built in accordance with approved plans, which related to the overall building project.
73. Fourth, Miss Holland said that the equivalence point from Rosen is concerned with the position at the date of the contractual bargain, not when the lease was granted, as argued by Mr Johnson. At the bargain stage Mr Willett had to build a private residence in return for a lease. There was equivalent value under this bargain.
74. Fifth, the appellant contended that, if the other arguments are wrong, then it can be said that completion works outside the agreement can be treated as improvements. This is not correct because all works to provide the property are to be carried out as a contractual obligation under the approved plans.
75. Miss Holland replied to Mr Johnson's criticisms of the evidence of Mr Van Sickle and Mr Godliman. There is nothing unfortunate about the way in which Mr Van Sickle came to give evidence: he has fully considered the documents and the LVT decision. He looked at the historical issues in the round and has not taken an entrenched position. Mr Van Sickle's research as to the property market in 1910-12 has been thorough compared to Mr Belcher's brief evidence on this issue. Conversely, Mr Belcher's evidence was highly speculative. He made assertions regarding the legal meaning of the agreement without legal expertise and research. He is not the more credible witness. Mr Van Sickle's evidence, based on documents rather than speculation, should be preferred. The fact that he did not appear before the LVT has no effect upon the quality of his evidence. There is a major reason why Mr Van Sickle's evidence should be preferred. It is the respondents' contention that there is no role for expert historical opinion in relation to the construction of the agreement. This is a matter of law. There is no direct historical evidence which requires the agreement to be construed in any particular way. All the evidence on the carcase issue is therefore little more than speculation. The only matter on which Mr Belcher and Mr Van Sickle can add something to the dispute is in relation to the gap between lease and occupation. On this issue Mr Van Sickle has done all the research, Mr Belcher none whatsoever.
76. As to Mr Godliman's evidence, it is not surprising that, having looked at documents relating to the Estate for 30 years, he could not recall the properties researched. Investigations were undertaken for a variety of reasons. Although Mr Godliman acknowledged that he had not looked at the carcase issue prior to Rosen he could not recall any document where it was indicated that a lease was granted by Howard de Walden at carcase stage. This is significant. It is not significant that Mr Godliman has found no evidence in the files regarding difficulties letting 27 Weymouth Street because letting or disposal was entirely a matter for Mr Willett.
77. In reply to Mr Johnson's submissions on the legal issue, Miss Holland said that Rosen is correct. Section 9(1A)(d) is clear that improvements only fall to be disregarded if undertaken at the expense of the tenant or his predecessor in title. A tenant granted a new lease in return for works has not carried out those works at his own expense. Any different wording in section 34 of the Landlord and Tenant Act 1954 does not detract from the principle behind paragraph (d). Any difficulties arising out of the equivalent value test do not arise in this appeal where the original bargain is easy to see. The obligation in the agreement on Mr Willett was to build in accordance with plans to be approved. Accordingly, whatever was shown on those plans was part of that obligation. There is nothing in the agreement to support the contention that features on the plans (eg lift) were included at Mr Willett's choice. This is contrary to the obligation to build in accordance with the approved plans.

Decision

78. The price on enfranchisement is to be assessed under section 9(1C) of the 1967 Act, which provides that it shall be determined in accordance with subsection (1A) as amended by subsection (1C). The effect of these provisions is that the price payable for the freehold of 27 Weymouth Street "shall be the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise on" certain assumptions. The assumption which is material to this part of the decision is in paragraph (d) of subsection (1A):-

"on the assumption that the price be diminished by the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense;"

The issue regarding improvements concerns the extent of the works (if any) that were necessary to complete 27 Weymouth Street when the lease was granted to Mr Willett, the appellant's predecessor in title, on 9 October 1911.

79. The LVT decided that no completion works were to be taken into account in fixing the price, only the later works carried out by the appellant following his purchase of the property in 1995. The relevant part of the LVT's decision is as follows:-

"8. The Tribunal was not persuaded that interesting historical speculation was sufficient to displace the clear terms of the agreement for lease and the accompanying particulars of works, together with the officially stamped plans. Any lingering doubts they might have harboured, as a result of the admittedly long period between apparent completion and letting, were resolved by the explanation that the Estate had originally sought one tenant and had, eventually, accepted three. This change of marketing strategy and the obtaining of the necessary consents, the Tribunal was satisfied, would have taken time to effect.

9. Accordingly, the Tribunal, in the light of the evidence presented, considered as improvements to be deducted from the agreed value of the subject property as at the valuation date of £2.1m, only works effected by the respondent after his purchase of the property, at auction in 1995. …"

80. Mr Moreau appeals against that decision on the grounds that the lease was granted at or before the building had reached carcase stage and therefore there were completion works which are improvements to be disregarded under paragraph (d) of section 9(1A) of the 1967 Act. The burden of proof is on the appellant to show that the decision of the LVT is wrong. Matters which occurred nearly a century ago are incomplete and capable of different interpretations. The burden of proof is therefore important.
81. The improvements issue can be stated as three questions. First, on the true construction of the building agreement what were the obligations on Mr Willett and when was the lease to be granted? Second, what was the actual position on the building of 27 Weymouth Street when the lease was granted? Third, in the light of the answers to these two questions and the decision in Rosen, what improvements are to be disregarded under section 9(1A)(d) of the 1967 Act when fixing the enfranchisement price?
82. I look first at the building agreement. It was sent to Mr Willett on 17 August 1910, accepted by him on 7 September and dated 11 October 1910. It is in part printed and part manuscript form. The agreement commences with the words "The following are the terms on which a lease will be granted to you" by Baron Howard de Walden and Seaford of 27 Weymouth Street. It then refers to "The Works, particulars whereof are given on the back hereof, are to be carried out according to the General Conditions, also set out in the back", followed by brief details of the lease to be granted. The General Conditions and Particulars of Works are detailed and I return to them later in this part of the decision. The agreement then asked for an answer within 28 days. The acceptance at the foot of the first page, under Mr Willett's name in manuscript, is in the form: "I am willing to accept the Lease upon the Terms, and in the form above specified, that the Lease may be prepared as soon as the works have been completed." It then has Mr Willett's signature and a note that it was sent to BS and G (Baileys Shaw and Gillett, Howard de Walden's solicitors) and the date 11 October 1910.
83. In this document it does not expressly say whether completion of the works means completion to carcase stage (as contended by the appellant) or completion for occupation or habitation (as contended by the respondents). I was referred by Mr Johnson to guidance on interpretation in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and by Miss Holland to Lewison, "The Interpretation of Contracts" para 6.03.
84. In Investors Compensation Scheme Lord Hoffmann said (at 912F-913E):-

"My Lords, I will say at once that I prefer the approach of the judge. But I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of 'legal' interpretation has been discarded. The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact,' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. ………..

(4) The meaning which a document …….. would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. ……….."

In Lewison it states that all parts of a contract must be given effect where possible, and no part of it should be treated as inoperative or surplus. (para 6.03).

85. Lord Hoffmann's first principle of interpretation refers to the background knowledge which would have been available to the parties at the time of the contract. This background or "matrix of fact" is explained in the second principle. The background which is material to this appeal is the general practice in London at the time of the agreement of granting leases under building agreements when construction was at or about carcase and roof stage. This is common ground between Mr Belcher and Mr Van Sickle but it is in dispute as to how, if at all, it affects the interpretation of the agreement. In my judgment this is part of the background or matrix of fact. The agreement should be construed against this background.
86. The appellant says that it leads inevitably to a particular interpretation of the word "completed" in the agreement as meaning completed to carcase stage. This was meant, and would have been understood, by the parties without specific reference to completion to carcase stage. The respondents say that this general practice was not in use on the Howard de Walden Estate and, in the absence of a specific reference to completion to carcase, the word "completed" must be given its ordinary meaning. It referred to the final completion of the house.
87. Mr Belcher's evidence included examples of the general practice in London and the following two examples are, in my view, important. One shows that, contrary to the appellant's suggestion that completion to carcase was so well-known that it did not need specific mention, it was in fact specifically referred to in this example. The second shows that, where a lease had been granted at carcase stage, provision for completion was included in the lease.
88. The first example concerns a building agreement dated 23 October 1894 between the Ecclesiastical Commissioners for England and Wales and William Morley for the erection of a house in The Bishop's Avenue, Finchley. It specifically provided for the grant of a lease at carcase stage as follows:-

"The said Ecclesiastical Commissioners will at the request and cost of the Grantee when the Dwelling house shall be erected and covered in and completed in carcase and roofed in and the drains completed and the stack pipes fixed and connected with the sewers and the fences completed to the satisfaction of the Surveyors and certified so to be by the Surveyors (if all the stipulations herein contained on the part of the Grantee or such of them as for the time being ought to have been performed shall have been duly performed) demise such dwelling house unto the Grantee or such person or persons as he shall direct".

89. The second example is of a completion clause included in a lease granted at carcase stage. This is a lease dated 1 September 1908 of 20 Mulbury Road, Kensington, granted "in consideration of the said Charles James Chirney Pawley having erected the messuage or dwellinghouse and buildings hereinafter demised." The lease was clearly granted at or about carcase stage because it is later provided that:-

"… the Lessee his executors administrators and assigns will at his own costs within Twelve Calendar months of the date hereof complete and finish externally and internally fit for occupation and in good and substantial and workmanlike manner in every respect fit for habitation and with the best materials of every description and otherwise in accordance with the Specification already signed by the Lessee the said messuage or dwellinghouse …".

90. It is against this background of a general practice of granting leases at carcase stage and specific examples that I consider further the building agreement relating to 27 Weymouth Street. Under the agreement the particularised works were to be carried out according to the General Conditions.
91. Particulars of Works have been inserted in the agreement in manuscript and are reproduced in full in Appendix A to this decision. In summary they require the demolition of the existing buildings and the erection of a building "for a private residence of a superior character … in accordance with plans approved by me." Then follows a list of works to be carried out, all of which may be described as structural or external works except glazing and the choice of wood for the front entrance door and doors to the sitting rooms. The Particulars conclude with the requirement that "the works are to be completed before Michaelmas 1911."
92. The General Conditions are in printed form and are reproduced in full in Appendix B to this decision. These Conditions are a short specification as to quality of materials and works and the execution of the works. Two provisions are relevant to this dispute. The first relates to the approval of plans:-

"The works are to be carried out according to drawings and specification, to be previously submitted to, and approved by, me in writing; no deviation to be made from such approved drawings and specification without my sanction in writing."

The second relates to the start of the works:-

"You are to send a written notice to me of the commencement of the works, and when the trenches for foundations are excavated, and the foundations are not to be put in until permission has been given."

Under the agreement "the Lease may be prepared as soon as the works have been completed."

93. Having regard to the principles of interpretation in Investors Compensation Scheme and the background or matrix of fact, the questions I must answer are: what were Mr Willett's obligations under the building agreement? When was the lease to be granted? Lord Hoffmann's principles which I find particularly relevant are (1), (4) and (5).
94. In my judgment, the important parts of the agreement are the references to the approval of drawings and specification. These contained Mr Willett's obligations under the agreement. He was to carry out the works in accordance with the approved drawings and specification and not deviate from them without permission. We do not have a specification but the approved drawings have been put in evidence. These show front and rear elevations, a cross section and floor plans. They show a completed building ready for occupation with a lift, staircases, doors, all kitchen, scullery and sanitary fittings and with all rooms labelled as to use. These drawings show the works which Mr Willett was required to carry out, in both the General Condition and the Particulars of Works, in return for the lease. The works were to be completed by Michaelmas 1911. It is, in my view, immaterial that the Particulars of Works make little reference to internal works. These are shown on the approved drawings. I find it impossible to interpret the agreement in the restrictive sense argued by the appellant, as imposing only an obligation to build to carcase stage. To adopt that interpretation would require the addition, expressly or impliedly, of the words "to carcase stage" whenever the word "completed" appeared in the agreement and references to the works to be carried out would have to be qualified to ensure that they related only to works to carcase stage, all other works being optional. I do not think that the general practice – the grant of a lease at carcase stage – affects the clear obligation on Mr Willett in the agreement to build in accordance with drawings which show a completed house. In my judgment, that is how a reasonable person, with this background knowledge, would interpret the agreement. This is what the parties meant by the words they have used – words which do not refer at all to the carcase stage or a similar situation. To read the agreement as suggested by the appellant would be to construe the agreement by adding words to those used by the parties, words which in my view cannot be implied solely due to the background of general practice. In short, I do not think that the general practice in London at that time should change the clear words of the agreement.
95. The answer to the second question – when was the lease to be granted in relation to the building works – follows from the answer to my first question. The agreement provides for the lease to be prepared as soon as the works have been completed. Those works, in my view, are the works shown on the approved drawings, works to complete the house for occupation not merely to carcase stage. Again, I do not think that the general practice of granting leases at carcase stage should necessarily be read into the agreement, where completion refers to the works on approved drawings which show a completed building. The example given by Mr Belcher of an agreement relating to a house in The Bishop's Avenue shows that it was not unknown for specific reference to be made to the grant of a lease at carcase stage. And the example given by Mr Belcher of the inclusion of a completion clause in a lease granted at carcase stage (20 Mulbury Road), which is absent in the lease of 27 Weymouth Street, confirms my view that the lease was intended to be (and was as I show below) granted at completion of the house.
96. I find therefore that the obligation on Mr Willett under the agreement was to build a completed house and that the lease was to be granted on completion and not at carcase stage. That, in my view, was the intention of the parties, what was intended to happen, but it is not necessarily conclusive as to what actually happened.
97. The next question is what was the actual position as to the building of 27 Weymouth Street when the lease was granted on 9 October 1911? I look first at the chronology of development and occupation. The dates are not in dispute.
98. The building agreement was accepted by Mr Willett on 7 September and is dated 11 October 1910. On the following 14 November Mr Willett's architect, Mr Amos F Faulkner, wrote to Howard de Walden enclosing sketch plans of the proposed building at 27 Weymouth Street. He commented that "party wall notices are well in hand and I hope to be in a position to commence the demolition of the building within the next few days." Detailed drawings for approval were sent on 18 January 1911 and were stamped as approved on 27 January. There is no record of a specification having been approved. On 3 February 1911 fifteen days notice was given by Mr Willett to the Metropolitan Borough of St Marylebone of his intention to drain 27 Weymouth Street. On 8 March 1911 Mr Faulkner wrote to Howard de Walden that, by an oversight, notice of the opening up of the trenches for concreting had not been sent sooner. The trenches are out and some of them have been filled with concrete. Inspection of the remaining trenches was requested. On 28 July 1911 the District Surveyor noted in a return under the London Building Acts 1894-1905 his "discovery" of works to rebuild 27 Weymouth Street.
99. I pause at this point to consider the date when construction started at the appeal property. On 14 November 1910 Mr Faulkner wrote to Howard de Walden that he hoped to commence demolition "within the next few days." It is likely that the old house was demolished in November and December 1910. Detailed plans were approved on 27 January 1911. On 3 February 15 days notice of drainage was given and therefore drainage works might have commenced at about 18 February 1911. By 8 March foundation trenches had been dug and some filled with concrete. In my judgment, it is likely that the construction of 27 Weymouth Street started in early to mid-February 1911. I place no reliance on the District Surveyor's discovery date of 28 July, except that it shows that works were in progress at that date. I accept Mr Van Sickle's evidence regarding the role of the District Surveyor, that he was required to certify works under the London Building Acts and not to monitor the progress of construction.
100. I continue with the chronology. On 4 August 1911 Mr Faulkner wrote to Howard de Walden as follows:-

"Now that the above premises are nearing completion, Mr Willett will be glad if you will kindly give instructions for the lease to be put in hand.

I am sending you a plan, and if you can give it immediate attention in order that the Solicitors may get on with the draft I shall be greatly obliged."

On 8 August Howard de Walden wrote to Mr Faulkner that their representative would attend at the property on 10 August to take dimensions for the lease plan. On the following day Mr Faulkner confirmed that his assistant would meet the representative as arranged. The lease was granted on 9 October 1911. In the District Surveyor's return for February 1912 it is noted that 27 Weymouth Street was completed.

101. The interval between early to mid-February 1911, when I have found that construction started on 27 Weymouth Street, and the grant of the lease on 9 October 1911 is about eight months. Having regard to this period, the question is: was the house completed at the grant of the lease or was it at some earlier stage of construction, perhaps carcase or before, as contended by the appellant? This raises the question of how long it would have taken to build 27 Weymouth Street. Could it have been built to completion in eight months?
102. The building agreement was accepted by Mr Willett on 7 September and dated 11 October 1910 with an agreed date of completion (full completion as I have found) at Michaelmas 1911. This gives approximately one year for demolition and rebuilding. I heard no evidence to show that Mr Willett or Howard de Walden regarded this period as other than reasonable and realistic. Mr Belcher, however, said that 13 to 14 months would be required to build the appeal property; Mr Van Sickle said 8 months if adequate resources were employed. He acknowledged the difficulty of estimating a building period without knowledge of the contractor's resources. Mr Belcher said that Mr Willett was engaged in the construction of at least nine other houses on the Estate while he was building 27 Weymouth Street. He referred to an affidavit by Mr Faulkner in a dispute between Mr Willett's executors and Howard de Walden regarding the development of another site which included an issue regarding the time allowed to complete the contract. Mr Belcher said that Mr Faulkner's comments are instructive about the time it took to build a Willett house. He was referring to six houses built simultaneously on adjoining plots forming one building site. Mr Stevenson of Howard de Walden did not dispute that the work "could not be done under 18 months". He could not recall having expressed the view that 15 months would be sufficient to cover the site. Mr Van Sickle's view, however, is that there is no inconsistency between this evidence and his opinion that 27 Weymouth Street could have been built to completion in eight months. The evidence concerned the building of six houses in 18 months: this does not conflict with the building of one house in eight months.
103. I do not find this particular evidence helpful. It related to a much larger site at a different time with different circumstances. I do not think that it is inconsistent with Mr Van Sickle's estimate of eight months for the rebuilding of 27 Weymouth Street, dependent upon the resources available to Mr Willett.
104. On the limited and inconclusive evidence regarding the building period for the appeal property, I cannot find that the LVT were wrong to decide that the house had been completed at the grant of the lease on 9 October 1911. I accept that eight months appears to be a short period for building following demolition but I cannot find on the evidence that this figure must be wrong and that the LVT were wrong to decide that the house had been completed at the grant of the lease. I accept Mr Van Sickle's evidence that it is impossible to give an accurate estimate without more information, particularly as to the resources available to Mr Willett at the time. While it is true that Mr Willett was active on the Estate building other houses, I have no evidence as to the resources available to him. The building of nine houses at the same time may have been well within his capacity and he may have put a disproportionate effort into completing 27 Weymouth Street at a date only a few weeks after the contractual completion date. There is insufficient evidence to be conclusive on this point. I am unable to say that 27 Weymouth Street had not been completed at the grant of the lease. In one minor matter the house was not wholly complete. On 16 October 1911 (seven days after the lease) Mr Faulkner sought approval for the railings and this was granted on 26 October. This, in my view, is an insignificant matter. However, before reaching a definite conclusion, I continue with the chronology to occupation, and the inferences to be drawn therefrom. I also consider the absence of a completion clause in the lease.
105. On 10 September 1912 Mr Willett gave to St Marylebone Council 15 days notice of his "intention to drain 27 Weymouth Street", clearly an application for alterations to the drains already laid, possibly in connection with proposed multiple medical occupation. In a letter dated 25 September 1913 it is recorded that a licence was granted in September 1912 to Mr Willett authorising him to allow Messrs W B Keyes, W Meeke, W J Wilkinson and W L Strain to practice at 27 Weymouth Street. It is agreed that they were a physician and three dental surgeons. On 20 November 1912 Mr William Baldwin Keyes became the first rateable occupier.
106. There was an interval of 13 months between grant of the lease in October 1911 and occupation in November 1912. Mr Belcher said that it was likely that this long period was due to the house having been built to carcase stage in October 1911. Most of the subsequent period would have been spent finishing the house. Mr Van Sickle said that this interval was due to the restricted use of the property under the lease and a downturn in the residential property market. I prefer Mr Van Sickle's evidence on this point.
107. The lease of October 1911 provides that the property shall not (without consent) be used for any profession, trade or business and will only be used and occupied as a private dwellinghouse. The approved plans show a consultating room at the rear of the ground floor and presumably it was envisaged that the house would either be let wholly as a private residence or as the private residence of a medical or dental practitioner with professional use restricted to one room on the ground floor. The use and occupation of the house were restricted and it is clear that it could not be occupied for multiple medical use without consent.
108. It is common ground that there was a downturn in the property market in the Edwardian period; Mr Belcher said that this would not have affected 27 Weymouth Street due to the quality and reputation of Willett-built houses and the growing renown of the medical area around Harley Street. Mr Van Sickle has investigated the market in some detail from contemporary reports and I find his evidence more persuasive. As he put it succinctly, 27 Weymouth Street was the right house in the wrong location. Mr Van Sickle saw the start of the property market depression in 1909 following the introduction of extensive land taxation in the Finance Act 1909-10. This destroyed confidence in property as an investment and, by its impact on large estates and building land, affected the main sources of income for the class of buyer for 27 Weymouth Street. The census of 1911 showed that there was residential migration to the suburbs from inner London (including St Marylebone). There was no improvement in the market in 1910 and 1911. In 1912 there were some upturn in the market for houses in good locations. This would not have included the medical area around Harley Street with its increasing professional and commercial user. By 1912, said Mr Van Sickle, both Mr Willett and Howard de Walden would have realised that 27 Weymouth Street could not be let for single occupation as a private residence. The growing demand for medical occupation in and around Harley Street led to the grant of the licence in September 1912 to allow multiple medical occupation and led to the rateable occupation of the house in November 1912 by Mr W M Keyes, a dental surgeon, who lived and practised in the house with a physician and two other dental surgeons.
109. The reason for the interval between lease and occupation can only be an informed opinion but I find Mr Van Sickle's explanation, supported by contemporary market reports, to be realistic. I find it a more likely explanation than Mr Belcher's view that the 13 months period was mainly required to complete the house from carcase stage in October 1911.
110. The final point to be considered regarding the state of 27 Weymouth Street at the grant of the lease is the absence of a completion clause in the lease. It is common ground that the lease does not contain such a clause. Mr Belcher agreed in cross-examination that completion clauses were frequently included in leases at the time and gave an example relating to 20 Melbury Road. However, he gave two possible reasons for the omission of such a clause in this case. First, he said that the house was a single development and had no effect on a larger scheme. Second, that the building specification was high, Mr Willett was a frequent developer on the Estate and had a good reputation. Mr Belcher referred to 95 Harley Street where he said a lease was granted by Howard de Walden at carcase stage without a completion clause. (I add that this case is still before the LVT and I should treat the facts with some caution).
111. I am not persuaded by the reasons advanced by Mr Belcher. I find Mr Van Sickle's evidence to be more realistic. He said that it would be remarkable if a professional landlord and a professional builder would have intentionally omitted a completion clause in favour of relying upon some unspecified and unexpressed general notion of standard practice. I note that Mr Van Sickle was instructed for the respondents in Rosen in the Lands Tribunal and there reached agreement with Mr Belcher that the lease in that case (agreed to have been granted at carcase stage) would not normally have contained a contingency clause for non-fulfilment. He was there, however, dealing with a lease granted in October 1852. In my judgment, the most likely reason why the lease of October 1911 did not include provision for the completion of 27 Weymouth Street was because it had already been completed at the date of grant (or at most that any remaining works were wholly insignificant). I should add that I regard this particular point to be of minor importance in this issue.
112. My conclusion on the first two questions under the improvements issue is that I am not persuaded that the LVT were wrong to determine that 27 Weymouth Street had been completed at the grant of the lease and that therefore only the later works were to be disregarded when fixing the price. The appellants have failed to discharge the burden of proof to show that this decision is wrong. My reasons are as follows. First, on the true construction of the building agreement the house was to be completed for occupation before Michaelmas 1911 and not merely completed to carcase stage. Second, the building of the house commenced in early to mid-February 1911 and could have been completed for occupation in October 1911; I am not persuaded that this would not have been possible. Third, the interval of 13 months between lease and occupation can be explained by the restriction in the lease to a private residence, the depressed state of the residential property market between 1909 and 1912 and the location of 27 Weymouth Street in an area changing from residential to medical use at that time, particularly multiple medical use. Fourth, the omission of a completion clause in the lease, which would have been likely to have been included if the property was only at carcase stage on the grant of the lease but was unnecessary if the works had been completed or those remaining were insignificant.
113. The appeal fails on the improvements issue without considering the Rosen decision (my third question under this head). However, as both parties have made submissions on this point, I should deal with the question of law arising out of Rosen in relation to the improvements in this current appeal.
114. The facts of Rosen are as follows. In the mid-nineteenth century the Trustees of the Camden Charities were the owners of the site of Kensington Workhouse which they put up for sale by auction in January 1850. A Mr Inderwick was the successful purchaser. He entered into an agreement with the trustees whereby he undertook to build 29 houses on the site and would be granted a 99-year lease of the land. The terms of the agreement have not survived. In the Lands Tribunal Mr Belcher was instructed as expert witness for the appellant and Mr Van Sickle for the respondents. They were not called to give evidence because they were able to agree what such an agreement would probably have contained by comparison with other such contemporary documents whose terms are known. The member (Judge Rich QC sitting as a member of the Tribunal) recorded this agreement as follows (para 2 at 401E):-

"The experts are agreed that a normal type of building agreement at that time 'would provide for mutual obligations – the obligation on the part of the builder to build the houses to carcase and roof stage and the obligation on the part of the landlord to grant a lease or leases to the builder when that stage had been reached. It would not normally have contained a contingency clause for non-fulfilment.'"

He emphasised the words "when that stage had been reached". On 9 October 1852 the trustees granted to Mr Inderwick a 99-year lease of the whole site from 25 December 1849. The parties in the appeal accepted that by this date the house which was to become the subject of the appeal (25 Kensington Gate) was complete and not built only to carcase and roof stage. In 1937 the trustees granted a lease of the house to the appellant's predecessor in title.

115. In the Court of Appeal the issue was (para 10 at 402j):-

"… whether the original construction of No 25 by Inderwick before the grant of the 1852 lease was an 'improvement carried out by the tenant or his predecessors in title at their own expense' within the meaning of s9(1A)(d) of the 1967 Act, so that the price payable by the tenant is to be diminished to the extent to which the value of the 'house and premises' has been increased by the value of the original construction."

This issue was then subdivided into two, only the first of which is relevant to this current appeal, namely whether the construction of no 25 by Mr Inderwick was capable of constituting an improvement within section 9(1A)(d) of the 1967 Act? The Court of Appeal, dismissing the appeal, held (inter alia) that, for the purposes of paragraph (d), the building of the new house on a bare site (whether a greenfield site or the site on which the previous building which was not a house had been demolished) was not an improvement to the "house and premises" but the provision of the house. However, the Court went further and considered the question of equivalent value for the improvement and it is this part of the decision which is relevant to this current appeal.

116. Evans-Lombe J (with whom Ward and Otton LJJ agreed) said (404f):-

"18. I accept the respondent's submission that their construction of the subsection is supported by the inclusion of the words 'diminished by the extent to which the value … has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense'.

19. Contrary to the views expressed by the tribunal, in my judgment, when considered in the context of the provisions of the 1967 Act as a whole, these words cannot be taken to contemplate a situation where a tenant under a long lease has expended money on the relevant property but received equivalent value from the landlord in exchange, ie a valuable lease. The Act is concerned with the position of tenants of houses holding long tenancies at low rents (see s 1(1)). In the present case Inderwick, put forward by the appellant as his predecessor in title within sub-s (1A)(d), covenanted to build a house on the trustees' land in exchange for obtaining a 99-year lease at a low rent, a valuable interest in property which he was prepared to accept in exchange for his expenditure in erecting the house on the site of No 25 amongst the other sites covered by the agreement following on the auction. Had the circumstances been different so that the trustees had already constructed the house and were offering a long lease of it at a low rent to Inderwick, he would have had to have paid a substantial premium for the grant of such a lease. It cannot be suggested that the payment of such a premium would constitute an 'improvement' within sub-s (1A)(d). There can be no justification for drawing a distinction between the treatment of a tenant who has acquired his long tenancy by the payment of a premium and one who has done so by the expenditure of a similar sum in the construction of a house on his landlord's land. It follows, it seem to me, that the building lease which Inderwick took from the trustees was the original bargain, between Inderwick and the trustees, performance of which on Inderwick's part cannot be treated as an 'improvement' within sub-s (1A)(d).

20. …..

21. In my judgment the purpose of sub-s (1A)(d) is to guide a valuer so as to exclude from the 'open market' value of the 'house and premises' which, by the first part of s9(1A) is to constitute the 'price payable' by the tenant seeking enfranchisement, 'any improvement carried out by the tenant or his predecessors' by which 'the value of the house and premises has been increased'. The original construction of the house in question cannot constitute an improvement within sub-s (1A)(d). This conclusion is not, as submitted by the appellant, affected by the fact that the term of the 1852 lease was expressed to commence on 25 December 1849, before the house was built, and, indeed, before the auction, and that rent was payable and was paid by Inderwick from that date. A lease takes effect from the time of its grant notwithstanding that it may contain provisions for the backdating of payment of rent."

117. Mr Johnson said that the appellant is not caught by part of the Rosen decision because 27 Weymouth Street replaced a previous house, but he does face the difficulty that Mr Willett was not granted the lease until carcase stage and therefore was not the appellant's predecessor in title for works prior to the lease. He may wish to take this point further. However, I do not need to deal with this matter. Even if the lease of 27 Weymouth Street was granted at carcase stage, Mr Willett cannot (under Rosen) be a predecessor in title of the appellant in respect of the works up to that stage when he held, not a lease, but only an agreement for lease.
118. Mr Johnson then rejected the equivalent value point in this present appeal on four grounds. The first three essentially relate to the same point, namely that Mr Willett was not required under the agreement to carry out works after the carcase stage. His obligation was to build to carcase and the equivalent value point can only apply to works up to that stage. I have found that the agreement required Mr Willett to build 27 Weymouth Street to completion for occupation. It follows therefore that the bargain required Mr Willett to build to completion and receive in return equivalent value by the grant of the lease. This point therefore fails. The fourth ground is that the equivalent value point in Rosen is obiter and not binding on the Tribunal; it is also wrong and should not be followed. I am doubtful whether the equivalent value point in the Rosen decision is obiter, but, even if it is, it is of persuasive authority and I believe it to be correct.
119. In my judgment, the purpose of paragraph (d) of section 9(1A) is to exclude from the price payable by the tenant for the freehold the value of improvements carried out at his own expense or at the expense of a predecessor in title for which the tenant may have paid through the price when he acquired the lease. The tenant is not required to pay twice for works which have improved the property and which would otherwise be reflected in the enfranchisement price. In the case of the original tenant, who spent money on building the property, this work cannot be said to be at his own expense because he received a long lease at a low rent in return as part of the bargain. This is quite unlike the situation where a tenant improves the property, receives nothing in return, and, if it were not for paragraph (d), would find that the price on enfranchisement would include the value of the improvements for which he had already paid. This would be unfair but it is not unfair to include in the price part of the value of the original house in return for which the original tenant received the lease.
120. I agree with Rosen and follow it in this appeal. Even if I am wrong in my decision regarding the time of the grant of the lease, and it was granted at or before carcase stage, I would still find that the completion works were not improvements under paragraph (d) on the grounds of equivalent value as explained in Rosen. This part of the appeal fails. The completion works are not improvements. The only works which are to be treated as improvements under section 9(1A)(d) of the 1967 Act are the later works.

PRICE UNDER SECTION 9(1C) OF THE 1967 ACT

121. I turn now to the price payable for the freehold under section 9(1C) of the 1967 Act. This is to be determined on the basis that the only works to be treated as improvements under paragraph (d) of section 9(1A) are the later works. The LVT determined the price on this basis at £1,955,000.
122. The expert valuers for the parties call this the third basis of valuation. Mr Buchanan, for the appellant, put this value at £1,950,000 and did not include in his evidence a detailed valuation but stated that he accepted the LVT's determination of an improved freehold value of £1,967,500 and an enfranchisement price of £1,950,000 (para 7.3). By his reference to acceptance of the LVT's price I assume that the reference to £1,950,000 is a minor drafting or typing error and that he accepts the LVT's determination of £1,955,000. Mr Ryan, for the respondent, put his valuation on this basis at £2,044,000, higher than the determination by the LVT, but there is no cross-appeal by the respondents who are, in effect, defending the decision of the LVT. There is therefore, in effect, agreement as to the price of £1,955,000 on the basis that only the later works are to be disregarded. The appeal on this ground fails. I confirm the LVT's determination of the enfranchisement price at £1,955,000.
123. Rule 50(4) of the Lands Tribunal Rules 1996 requires the Tribunal to make an alternative award where a value determined is dependent on a decision on a question of law in dispute. My decision that the lease of 27 Weymouth Street was granted on completion of the building works and that the completion works are not improvements is a decision of fact and law. I should therefore give an alternative award on the assumption that I accept the appellant's case, namely that the lease was granted at carcase stage and the completion works are to be treated as improvements under paragraph (d) when fixing the price. The parties call this the first basis of valuation. Mr Buchanan's figure is £1,527,381; Mr Ryan's figure is £1,786,000.
124. Mr Buchanan is a chartered surveyor and holds a degree in Estate Management. He is a director of Colliers Conrad Ritblat Erdman of London W1 responsible for a specialist residential consultancy department formed in 1993.
125. In Buchanan's valuation he started with an agreed figure of £15 for the capitalised ground rent for the unexpired term of the lease and added a reversion to a freehold carcase value of £1,537,500 deferred for 0.458 year at 6%. He arrived at his freehold carcase value by taking an agreed site value of £1,125,000 and adding the cost of building the house to carcase stage of £412,500. To the resultant value of the landlords' interest (£1,497,026) Mr Buchanan added an agreed 75% of the marriage value, which he calculated to be £40,474 by deducting from the freehold carcase value the above value of the landlords' interest and an agreed figure of nil for the tenant's existing interest. The resultant valuation is £1,527,381.
126. Mr Ryan is a chartered surveyor and a director of Carter Jonas London Residential, specialising in all aspects of residential estate agency in Central London.
127. Mr Ryan has not presented his valuation in the conventional form but the explanation for his figure of £1,786,000 appears to be as follows. He has started with an agreed gross development value (or entirety value) of £2,500,000, representing, in Mr Ryan's view, the price likely to be achieved if the property has been completed to its full potential (including the re-siting of the lift). From this figure he deducted £700,000 for the cost of completing the house from carcase finish, comprising £100,000 for re-siting the lift, £400,000 finishing off works and £200,000 (or 50% of the finishing works) for contingencies and reward. These deductions give a carcase value of £1,800,000 and from this figure Mr Ryan deducted £14,000 for the roof terrace to produce his valuation of £1,786,000.
128. Most of the components of the valuation have been agreed; the only figure requiring determination is the value of the freehold excluding the value of the completion works and the later works. The agreed valuation date is 20 January 2000. My alternative valuation is set out in Appendix C to this decision. I start with an agreed value of the freehold interest with vacant possession as existing of £2,100,000. This includes the value of the completion works and the later works, which must be deducted under paragraph (d) of section 9(1A). As to the completion works, Mr Buchanan did not place a value on these works, having built his valuation up from the site value and not down from the completed value. Mr Ryan deducted a total figure of £700,000, but from the gross development value. Included in that figure is £400,000 for works to complete the property. In my judgment this is a reasonable figure to ascribe to the value of the completion works. As to the later works, Mr Buchanan said, in relation to the second basis of valuation (disregarding builders' finish and later works), that he was instructed to accept the LVT's figure for the later works of £132,500 (although in Mr Ryan's report Mr Buchanan's figure is given as £285,000). Mr Ryan's figure is £56,000. In my judgment, the value of later improvements should be £97,500 comprising £20,000 roof terrace, £25,000 central heating, £10,000 rewiring, £20,000 kitchen, £2,500 dampproofing works and £20,000 for general works. The freehold value excluding improvements is £1,602,500 (£2,100,000 minus £400,000 and £97,500). These figures produce an enfranchisement price of £1,592,000 as my alternative award.

RESTRICTIVE COVENANTS

129. I now deal with the final issue, the restrictive covenants relating to alterations, user and machinery to be included in the conveyance of the freehold to the appellant.

Appellant's case

130. Mr Buchanan said that the burden is on the respondents to show that the user covenant is within section 10(4) of the 1967 Act. It is not clear what interest, if any, the respondents have in adjoining properties. It is for the respondents to prove material enhancement of other properties by the covenants. There is no evidence to satisfy section 10(4). The use of the appeal property as offices would not reduce the value of other properties in which the respondents may have an interest. The introduction of commercial uses in an area does not reduce values. It is the function of planning control to prevent undesirable uses and alterations. In cross-examination and in answer to a question from me, Mr Buchanan said that the policy of active estate management pursued by Howard de Walden over the past 20 years has considerably improved the area. It is a policy to achieve an uplift in values. Restrictive covenants are a factor in this policy.
131. Mr Johnson said that the Tribunal must decide whether the respondents' covenants relating to alterations, user and machinery satisfy section 10(4) of the 1967 Act. The burden of proof is on the respondents. Before the LVT they called no evidence regarding material enhancement in value and therefore the new evidence on this matter given by Mr Ryan and Mr Godliman should be treated with caution.
132. The respondents have no right to include in the conveyance any restrictive covenants which are not agreed by the appellant or permitted by section 10(4). In the present case there are two routes by which a covenant may be permitted. First, a covenant sought by a landlord must secure restrictions arising by virtue of the lease with suitable adaptations and must be capable of benefiting and materially enhancing the value of other properties (section 10(4)(b)). The term "suitable adaptations" has a narrow meaning (see Hague "Leasehold Enfranchisement" para 6-28). A leasehold covenant may be adapted to a freehold covenant but it cannot be changed to modify its scope or effect. Second, a covenant sought by a landlord must not restrict use in a way which interferes with the previous reasonable enjoyment of the house and premises and must be shown to materially enhance the value of other property in which the landlord has an interest (section 10(4)(c)).
133. If the respondents cannot show that their covenants satisfy section 10(4) then the Tribunal should refuse to include them in the conveyance. The respondents can only have what the appellant agrees. It is not open to the Tribunal to rewrite the respondents' covenants to bring them within section 10(4). Alternatively, if the covenants do not satisfy section 10(4) and the above argument is wrong, the Tribunal may reduce the covenants to bring them within the subsection.
134. Two points are relevant to the valuation exercise as to material enhancement. First, a material enhancement can occur in circumstances where a material diminution in the value of other property will occur without the covenant. This is not the same point as the question whether the value of the other property will be materially diminished if the activity which the landlord wishes to restrain actually occurs. A form of risk analysis is required. Second, in considering whether there is a material enhancement in value, the correct comparison is not necessarily between a transfer with the covenant and a transfer without the covenant. If the tenant is willing to offer a restriction then the question is whether there is a material enhancement in value if the landlord's covenant is imposed rather than the tenant's covenant.
135. Clause 1.6 in the transfer is not in dispute. This prohibits nuisance, annoyance or damage to the respondents or their tenants or to adjoining property. The three matters are each independent. "Damage" is wide enough to include diminution in value. This clause is significant. When considering the respondents' covenants with regard to the material enhancement test it must be borne in mind that the respondents will have the controls under clause 1.6. This raises the question whether the respondents' covenants make any difference to the value of other property in the light of clause 1.6. This is a point which had not occurred to Mr Ryan or Mr Godliman until cross-examination. It is a complete answer to the respondents' evidence on material enhancement in value.
136. Mr Johnson said that Mr Godliman's evidence lacks credibility, e.g. he is not independent, he disagreed with his own expert witness. Furthermore, it is undermined by two misconceptions. First, he thought that it was significant that others on the Estate had accepted the respondents' proposed covenants. This is irrelevant to the requirements of section 10(4). Second, he thought that the decision of the Lands Tribunal in Re Memvale Securities Ltd (1974) (unreported LP/37/73) was evidence as to the insufficient protection given by planning control. Previous decisions of the Tribunal are not precedents of law or fact (West Midland Baptist (Trust) Association (Inc) v Birmingham Corporation [1968] 2 QB 188 at 201 A-F).
137. Mr Ryan suggested that a decline in the value of the Estate would occur if the transfer does not contain the respondents' covenants. This is general evidence and not relevant. Mr Ryan did not address himself in his evidence to the right question until cross-examination, namely whether there would be a diminution in value as a consequence of the transfer not containing the respondents' covenants and not whether there would be a diminution in value due to unsuitable use or alterations. The respondents' submissions on Mr Ryan's evidence are inaccurate as to what he said. By his response to the key question – what effect (if any) is there on the value of adjoining property if the transfer does not contain the respondents' covenants – Mr Ryan has fatally contradicted the respondents' case. The material enhancement test must be satisfied by specific evidence. The evidence does not show that control by covenants maintains the value of an estate: it is investment which prevents a decline in values. The Estate is a mixture of uses and there is no evidence that this has depressed values. The absence of an estate management scheme under the 1967 Act is important. The respondents have never applied for such a scheme although they had three opportunities to do so.
138. The alterations covenant sought by the respondents is a modified version of the covenant in the lease. The modifications cannot be said to be suitable adaptations within section 10(4)(b). This leaves section 10(4)(c) and the question whether this covenant will materially enhance the value of the other property in which the respondents have an interest. The respondents have no case regarding the front elevation because the appellant offers a restriction on alterations to the front of the building. This goes further than permitted by section 10(4). This is not an unjust result. If the Tribunal can alter the respondents' proposed covenant, the question is whether the appellant's covenant should apply to the rear elevation. Would it materially enhance the value of adjoining property? The respondents have failed to prove this on the evidence. Furthermore, it is not credible to suggest that the absence of a restriction on alterations to the rear elevation will affect other property of the respondents generally, having regard to planning controls. There is also clause 1.6 of the transfer which gives protection and makes the alterations restriction unnecessary.
139. The user covenant sought by the respondents is a modified version of the user clause in the lease. The modifications cannot be said to be suitable adaptations within section 10(4)(b). This leaves section 10(4)(c) and the material enhancement point. The respondents have failed to prove that there would be a material enhancement in value. The correct valuation hypothesis requires a consideration of the risk of the property being put to an unsuitable use if the transfer does not contain the respondents' user covenant. It is difficult to see why there should be such a risk having regard to planning control, the difficulty in understanding why the property should be put to an unsuitable use, the failure by the respondents to show material enhancement due to the user clause and the existence of clause 1.6. If the Tribunal accepts that the absence of the respondents' user clause will cause a diminution in value, then the appellant's case is that the respondents' user covenant goes beyond what is required. If also it is assumed that the Tribunal may vary the covenant, then the appellant is prepared to accept an amended version of the respondents' covenant. This was communicated to the respondents' solicitors by open letter on 29 January 2003 and rejected late on 30 January but with amendments if this revised wording is allowed by the Tribunal.
140. Mr Johnson said that there is no clause in the lease equivalent to the machinery covenant and therefore section 10(4)(b) is not available. This leaves section 10(4)(c) but two problems confront the respondents: lack of credible evidence and lack of a past restriction resembling the machinery covenant. This is wide and could prevent household appliances. On 22 January 2003 the respondents' solicitors, by open letter to the appellant's solicitors, offered a revised form of machinery covenant. This was rejected on 29 January as insufficient to satisfy section 10(4). The respondents' offer is an amendment to their case.
141. Mr Johnson replied to the matters of law raised by Miss Holland as follows. Miss Holland has submitted that the decisions of the Lands Tribunal in Peck v Trustees of Hornsey Parochial Charities (1970) 216 EG 943 and Le Mesurier v Pitt (1972) 221 EG 979 establish two propositions regarding section 10(4), namely that a restriction will materially enhance the value of property if it maintains values which would otherwise deteriorate and that the deterioration need not be material. Mr Johnson said that the first proposition is not disputed. The second is not accepted. A very slight diminution in value would not satisfy the material enhancement in value test in section 10(4). These decisions are not binding. The specific point as to whether deterioration in value meant any deterioration, however slight, did not arise in either case. Neither member intended to suggest that any deterioration in value, however small, would satisfy the material enhancement in value test.
142. Miss Holland suggests that this appeal is the thin end of the wedge (see Francis, "Restrictive Covenants over Freehold Land: a Practitioner's Guide" page 40). It is not in dispute that an estate landlord might be able to show that failure to include particular covenants in one conveyance on enfranchisement would have a material effect on his estate elsewhere. But in this appeal the respondents have called no evidence to show that such a risk exists. This argument does not assist the respondents.
143. Mr Johnson referred to Miss Holland's reliance on the decision in Le Mesurier and said that the appellant does not dispute that the Tribunal must include a covenant in the transfer if it satisfies section 10(4)(b). He also accepts that, subject to section 10(5) and any human rights points, it is not an answer for the tenant to say that section 10(4)(b) could be satisfied in some other way, provided the landlords' covenant satisfies paragraph (b). But the respondents' point begs the question as to whether section 10(4)(b) can be satisfied. The respondents must satisfy the material enhancement test by a comparison between what the respondents want and what is on offer from the appellant. If that test fails the respondents' case must fail. Furthermore, section 10(4)(b) is not available to the respondents.
144. Mr Holland has referred to the decision of the Court of Appeal in C&G Homes Ltd v Secretary of State for Health [1991] Ch 365, but, said Mr Johnson, clause 1.6 of the transfer in this appeal is not the same as the relevant covenant in that case. If clause 1.6 does fall to be construed in the same way as the relevant covenant was construed in C&G Homes this still does not affect the appellant's case on clause 1.6.

Respondents' case

145. Mr Ryan said that the consequence of the appellant's proposed covenants would be that the property could be used for any purpose and (except for the front elevation) could be altered irrespective of the detrimental effect on adjoining properties. The location of the appeal property is predominantly residential and medical. Any office uses are primarily professional or institutional. Unsuitable uses would include restaurants, clubs and rooming houses. Without the restrictions proposed by the respondents the uses of 27 Weymouth Street could include offices and multiple residential occupancy. The undesirability of offices depends on the type of use, eg offices which generate much activity and media and PR offices would not be suitable in this part of the Estate. Professional or institutional uses might be satisfactory. Planning controls cannot necessarily be relied upon.
146. The use of the appeal property for uses other than those proposed by the respondents would have a detrimental effect on the value of other properties in the vicinity. The effect of lack of restriction on user would be a general diminishing effect on the values of the respondents' properties in the area. It is not possible to define the diminution in value that would occur but Mr Ryan referred by comparison to Fitzrovia and Pimlico. In addition to long-term cumulative effects Mr Ryan was also of the opinion that there would be a detrimental effect on the value of other property belonging to the respondents in the immediate vicinity of 27 Weymouth Street if there was the potential for a virtually unrestricted user. He gave as an example 23/25 Weymouth Street, a block of six flats where the respondents have five in hand. In the case of an unsuitable change of the use at no 27, Mr Ryan envisaged a diminution in value of nos 23/25 of at least 5% (or £250,000). In cross-examination Mr Ryan accepted that his estimated diminution in value was the consequence of actual changes of use, rather than a diminution in value caused by the absence of the respondents' covenants in the conveyance. The observance of the respondents' covenants had the potential for a smaller diminution in value, between 0.5 and 5%.
147. With regard to alterations, Mr Ryan said that, in the most extreme case of changes in the decorations or appearance of the front elevation, the effect on surrounding properties would be disastrous. A covenant which gives the potential for this to happen also has the effect of diminishing the value of adjoining property. Similarly, unsuitable alterations to the rear elevation would affect Weymouth Mews. The same effect as above (5% diminution in value for 23/25 Weymouth Street) would occur.
148. Mr Ryan's conclusion was that, in the absence of the user and alterations restrictions proposed by the respondents, the value of surrounding properties would diminish.
149. At the start of the hearing Mr Godliman's evidence was challenged as inadmissible by Mr Johnson. He objected to part of this evidence on the grounds that it is irrelevant, misconceived and opinion evidence on matters of value, ie expert evidence. Mr Godliman is a witness of fact. He should not be allowed to give expert evidence under cover of a witness statement. Mr Godliman should be called as an expert witness and should be subject to the obligations of such a witness. He is an employee of the respondents and cannot give independent expert evidence nor form an objective view on the question of material enhancement in value. Accordingly, parts of paragraphs 13 and 14 and the whole of paragraph 20 of Mr Godliman's witness statement are inadmissible and should be struck out. Miss Holland said that Mr Godliman gave evidence before the LVT and is able to explain the position of the respondents on the covenants. Mr Johnson will be able to cross-examine him. It would be unreal to exclude part of his evidence.
150. I refused to strike out this evidence. I agree that this is opinion evidence regarding the likely detrimental effect on the Estate if the restrictions proposed by the respondents are not included in the conveyance. Mr Godliman is essentially a witness of fact and, strictly speaking, his evidence should be restricted to matters of fact. Expressions of opinion are matters for expert evidence. Mr Godliman, however, is not a lay witness in this appeal. He is a chartered surveyor but, more importantly, he is a director of the company responsible for managing the Estate and has been involved in the management of the Howard de Walden Estate for the past 30 years. He is therefore in a special position to speak from expert and first-hand knowledge about the likely effects of the absence of the respondents' covenants on the Estate, including the effect on values. I was of the opinion that I might find Mr Godliman's opinion helpful in dealing with this part of the appeal. To shut out this evidence would, in my view, deprive me of evidence which is relevant and might be of assistance. I do not think that the appellant is prejudiced by its admission. It was served in August 2002, well before the hearing; Mr Johnson has the opportunity to cross-examine Mr Godliman and to comment on his evidence in his closing submissions. In my judgment, the objection by Mr Johnson is more a question of the weight to be given to this evidence than admissibility. In the particular circumstances of this case, and the special position of Mr Godliman (as more than a witness of fact but less than an expert witness), I think that it would be wrong to exclude the disputed evidence. I should allow it and consider Mr Johnson's objections when considering the weight to be given to it.
151. Mr Godliman said that the respondents require the continuation of their previous control on use but relaxed and varied, so as to materially enhance the value of their other properties. In particular, the user and machinery covenants are likely to maintain the values of other properties which would otherwise diminish. He referred to the detrimental effect of office use. It is not the policy of the respondents to allow offices in the medical enclave. As to planning control Mr Godliman referred to the decision of the Lands Tribunal in Re Memvale and said that he does not regard planning control as a sufficient protection. He described the nature and history of the medical enclave and said that over the past 100 years it has been the respondents' aim to maintain the residential character of this area, while at the same time fostering medical and dental practice. Any reduction in their control would detract from this policy and diminish the value of surrounding properties.
152. In every case except one transfers on the Estate under the 1967 Act since 1996 have included the respondents' user restriction. In the exceptional case the omission was an oversight. Mr Godliman put in evidence a schedule showing user restrictions on the Estate. In the majority of cases the restriction limits the use of the premises to residential and any exceptions are for medical/dental use. This schedule shows the widespread acceptance of the respondents' covenants. Medical use is restricted to ground and first floors. Any increase in medical use, with constant demand, would reduce the value of other properties. Around 27 Weymouth Street most properties are restricted to residential and medical use.
153. As to the restriction on alterations, Mr Godliman referred to the wording of the alterations restriction in the lease and to the respondents' proposed alterations covenant. He said that the respondents cannot accept the appellant's limited covenant. The respondents seek to control only the external appearance. If this were to deteriorate the value of the respondents' other property would be harmed. Both front and rear elevations are important. Mr Godliman put in evidence a schedule showing alterations restrictions accepted in other transfers under the 1967 Act since 1996. These covenants are in substantially the same form as the respondents' covenant in this appeal.
154. Mr Godliman said that application was made for a management scheme for the Estate under the 1967 Act but this was refused due to an insufficient number of properties and their scattered location. Further applications were not made on legal advice.
155. Clause 1.4 regarding machinery has been accepted on other enfranchisement conveyances on the Estate.
156. Miss Holland said that the LVT were correct to determine that the transfer should contain the respondents' covenants. She referred to section 10(4) of the 1967 Act and said that a restriction will be deemed to materially enhance the value of property if it maintains a value which would otherwise deteriorate (see Peck and Hague, "Leasehold Enfranchisement" para 6-28).
157. The LVT were satisfied that the user restriction proposed by the respondents would materially enhance the value of their other properties and should be included in the transfer. This is supported by the evidence of Mr Ryan and Mr Godliman. There is no basis for disturbing this decision on appeal. The specific restriction to residential and medical use is justified by the location of the appeal property in the medical enclave. References by the appellant to office and commercial uses on other parts of the Estate do not detract from the respondents' case. The incursion of offices (even professional or institutional) into the medical enclave would lead to the area becoming less attractive residentially. Other parts of the Estate have different uses, eg offices in the Queen Anne Street Special Policy Area; diplomatic, medical institutional, professional associations and offices in the Portland Place Special Policy Area; and retail in Marylebone High Street. Mr Buchanan accepted the improvement of the Estate by the respondents, with the covenants as a factor in this improvement. There is no evidence to support the appellant's assertion that it is difficult to understand why anyone would wish to put the appeal property to an undesirable use.
158. A user restriction is necessary notwithstanding the existence of planning control. This was recognised by the Lands Tribunal in Re Memvale. Planning control is subject to fluctuating political changes and does not give permanent protection. In Peck it was recognised by the Tribunal that it was not unreasonable to continue control by covenants. The appellant has introduced at a late stage a wholly new version of the user restriction. The need by the appellant to show that the LVT were wrong has been ignored. There has been no evidence regarding the new wording. It is rejected by the respondents.
159. With regard to the machinery restriction, Miss Holland said that the respondents do not seek to prohibit the use of domestic appliances and an amendment to this covenant was suggested to the appellant's solicitors in an open letter dated 22 January 2003. Planning control and clause 1.6 of the transfer are inadequate protection. The appellant has been unable to establish why the LVT were wrong to include this restriction in the transfer.
160. The LVT were correct to determine that the transfer should contain the alterations restriction proposed by the respondents. There is no basis for disturbing this decision and including the shorter and less restrictive covenant proposed by the appellant. This would be insufficient to allow the respondents to protect values in the vicinity because control could only be exercised over the front elevation. A restriction in the form chosen by the LVT would materially enhance the value of the respondents' other property. This is shown by the evidence of Mr Ryan and Mr Godliman, the acceptance of this restriction in every other relevant transfer and the lack of evidence by Mr Buchanan to dispute Mr Ryan's opinions. The respondents will agree to amend the covenant determined by the LVT by providing for approval to the "reasonable satisfaction of the respondents".
161. The appellants' assertion that, if the respondents' covenants go beyond section 10(4) the Tribunal should refuse to introduce the covenant, is wrong. The burden of proof does not require "an all or nothing" approach. Section 10(4) allows the Tribunal to determine that the transfer should include whatever terms satisfy the requirements of this provision.
162. The appellant's statement of the material enhancement test is disputed, although the differences in the interpretation of section 10(4) do not really matter because, on the evidence, the appellant's interpretation is satisfied. It is important to recognise that a restriction will materially enhance the value of property if it maintains values which would otherwise deteriorate (see Peck and Le Mesurier). On this test the deterioration does not need to be material. Material enhancement itself includes the concept of maintaining a value which would otherwise deteriorate.
163. The test under section 10(4) does not have to be satisfied when the transfer takes place: it also requires interpretation by reference to the future potential impact of the covenant. The existence of the covenant has a value in itself because it prevents a user or alteration which has an effect on the value of the landlord's other property. The transfer constitutes the only occasion which a landlord has to obtain such a covenant. The terminology of section 10(4)(b)(i) and (c) specifically refers to the future position: it is not restricted to the current position.
164. The appropriate way to consider the future position is not by a risk analysis but by a consideration of the value to the landlord of having the ability to prevent use or alteration in order to maintain the value of its other properties. Any decision not to include a covenant in a transfer, and which thereby casts doubt on a system of covenants on an estate, would impact on values generally and be the "thin end of the wedge" (see Francis, "Restrictive Covenants and Freehold Land" pages 146-152).
165. The approach to material enhancement advocated by the appellant is not the approach previously followed by the Lands Tribunal in Le Mesurier at 981. There is no reason why general evidence as to diminution in values on the Estate should not be a relevant test under section 10(4). There is specific evidence from Mr Ryan which goes beyond a general assertion about values on the Estate.
166. The appellant argues that clause 1.6 in the transfer provides a complete answer to the respondents' case on material enhancement. This is wrong as a matter of law. The word "damage" in clause 1.6 would not include the "diminution in value" of the landlord's other property (see C & G Homes Ltd at 386D). The word "damage" in clause 1.6 would not protect the landlord against activities causing the diminution in value of its other properties (see Preston and Newsom, "Restrictive Covenants Affecting Freehold Land" (9^th edition) page 138). The clause 1.6 point was not dealt with in the evidence of Mr Ryan and Mr Godliman because it is wrong in law.
167. It is significant that other people on the Estate have accepted the respondents' covenants. Solicitors will have acted and it can be expected that they would have had regard to section 10(4) when advising their clients to accept the respondents' covenants. It shows the covenant control in existence on the Estate. Failure to secure the covenants in any particular case would undermine the respondents' control and have a general "ripple effect".
168. The appellant has argued that the respondents could maintain control by a management scheme. This argument should not be accepted. The potential availability of a different means of management control is not a good reason for refusing to impose covenants under section 10(4). Howard de Walden did make an application for a management scheme but this was refused due to the scattered location of their properties within the 1967 Act.
169. Miss Holland said that, in asserting that the transfer should contain no more than that which the appellant will concede, the appellant ignores what the hearing is about, namely whether the LVT decision is wrong. The appellant's expert, Mr Buchanan, put forward no evidence to show that this decision is wrong.

Decision

170. The final issue concerns three restrictive covenants to be included in the transfer of the freehold of the appeal property to the tenant, relating to alterations, user and machinery respectively. The LVT accepted the respondents' wording of these covenants. The appellant's case is that the only restrictive covenants which can be included in the transfer are those offered by the appellant or which satisfy section 10(4) of the 1967 Act; the burden of proof is on the respondents to show that the covenants accepted by the LVT satisfy those provisions; and, in the absence of this proof, the Tribunal should prefer the appellant's covenants as to alterations and user and should wholly reject the machinery restriction. It is the respondents' case that the decision of the LVT is correct; the burden of proof is on the appellant to show that it is wrong; no evidence has been adduced to show that this decision is wrong.
171. Under section 21(2)(a) of the 1967 Act (as amended) an LVT has the power to determine the contents of a conveyance on enfranchisement on an application to fix the price. The LVT's determination in this case was as follows:-

"27. The parties could not agree the terms of transfer and after the hearing each provided the Tribunal with their preferred versions.

28. The Tribunal was satisfied that the user restriction proposed by the applicant would materially enhance the value of the applicant's other properties and, unlike Mr Johnson, they considered that a previous Lands Tribunal decision in the matter of Memvale Securities Ltd, concerning premises at 35 Wimpole Street, to be apposite and to give additional support to their opinion.

29. Similarly the Tribunal was satisfied that the alterations restrictions proposed by the applicants were appropriate to prevent changes to the external appearance of the subject property which could adversely affect the value of the other properties belonging to the applicant in the vicinity. Unlike Mr Johnson they did not consider that the absence of an Estate Management Scheme demonstrated that the area was irredeemably mixed.

30. Accordingly, the terms of the transfer as determined by the Tribunal are attached at Annex 4."

172. The appellant has appealed against this decision. He asserts that, the LVT having accepted the respondents' covenants, it is for the respondents to show that this decision is correct. I do not agree. I dealt with the burden of proof earlier in this decision and need only summarise my conclusions. The legal or persuasive burden rests wholly on the appellant. The decision of the LVT stands until it is shown to be wrong. The burden of proof is on the appellant, notwithstanding that the LVT accepted the respondents' covenants and that the respondents have put forward evidence and submissions in support of that decision. In my judgment, the appellant's perception of the burden of proof is a weakness in his case and has resulted in an incorrect emphasis on alleged flaws in the respondents' case while omitting to show positively that the LVT decision is wrong.
173. I turn now to the relevant statutory provisions. Section 8(1) of the 1967 Act provides that, following notice by the tenant to enfranchise, the landlord is bound to make and the tenant to accept a grant of the house and premises in fee simple absolute, subject to the tenancy and to tenant's incumbrances, but otherwise free of incumbrances. Section 10 deals with the rights to be conveyed to the tenant. The following provisions are relevant in this appeal:-

"(4) As regards restrictive covenants (that is to say, any covenant or agreement restrictive of the user of any land or premises), a conveyance executed to give effect to section 8 above shall include –

(a) …

(b) such provisions (if any) as the landlord or the tenant may require to secure the continuance (with suitable adaptations) of restrictions arising by virtue of the tenancy or any agreement collateral thereto, being either –

(i) restrictions affecting the house and premises which are capable of benefiting other property and (if enforceable only by the landlord) are such as materially to enhance the value of the other property; or

(ii) …

(c) such further provisions (if any) as the landlord may require to restrict the use of the house and premises in any way which will not interfere with the reasonable enjoyment of the house and premises as they have been enjoyed during the tenancy but will materially enhance the value of other property in which the landlord has an interest.

(5) Neither the landlord nor the tenant shall be entitled under subsection (3) or (4) above to require the inclusion in a conveyance of any provision which is unreasonable in all the circumstances, in view –

(a) of the date at which the tenancy commenced, and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy; and

(b) where the tenancy is or was one of a number of tenancies of neighbouring houses, of the interest of those affected in respect of other houses."

174. The scheme of the Act is that, in the absence of agreement, there are two routes by which a landlord can include restrictive covenants in the conveyance. First, where he wishes to secure the continuance of existing restrictions in the tenancy of the house and premises, then section 10(4)(b)(i) applies. Second, where he wishes to introduce new restrictions or continue existing restrictions in a modified form or where the requirements of subparagraph (b)(i) cannot be met, then section 10(4)(c) applies. In both cases the requirement of reasonableness in subsection (5) must be satisfied. Accordingly, the following questions must be answered in respect of each restriction:-

(1) Is there a restriction on the same subject in the existing tenancy? If so, then section 10(4)(b)(i) applies; if not, then paragraph (c) of this subsection applies.

(2) Where subparagraph (b)(i) applies, does the restriction secure the continuance (with suitable adaptations) of the existing restriction?

(3) If so, then two questions must be answered. First, is the restriction capable of benefiting other property? Second, if enforceable only by the landlord, is the restriction such as materially to enhance the value of the other property?

(4) If the restriction does not secure the continuance (with suitable adaptations) of the existing restriction (eg because the existing restriction is modified and therefore falls outside the term "suitable adaptations") or it is a wholly new restriction or negative answers are given to either of the questions in (3) above, then paragraph (c) applies. The relevant questions are as follows. First, does the restriction restrict the use of the house and premises in any way which will not interfere with the reasonable enjoyment of the property as it has been enjoyed during the tenancy? Second, will the restriction materially enhance the value of other property in which the landlord has an interest?

(5) In all cases subsection (5) applies. Is the restriction unreasonable in all the circumstances, in view (a) of the date at which the tenancy commenced and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy; (b) where the tenancy is one of a number of tenancies of neighbouring houses, of the interests of those affected in respect of other houses?

On the answers to these questions it can then be determined whether a particular restriction can be included in the conveyance. I propose to follow this approach when considering the restrictive covenants in issue in this appeal.

175. I turn now to the restrictions determined by the LVT. All are preceded by the following general wording:-

"1. The Transferee so as to bind the owner for the time being of the Property into whosoever hands the same may come but not further or otherwise and so that this covenant shall be for the benefit and protection of those adjoining and neighbouring parts of the Tranferor's Marylebone Estate hereby covenants with the Transferor that the Transferee and the persons deriving title under the Transferee will at all times observe and perform the following restrictions and provisions."

176. I consider first the alterations and user restrictions which can be dealt with together. The alterations restriction, proposed by the respondents and accepted by the LVT, is as follows:-

"1.2 Not at any time without the previous consent in writing of the Transferor first obtained (such consent not to be unreasonably withheld or delayed) and to the satisfaction of the Transferor to erect or suffer to be erected any new building on the Property or any part thereof or to make any external alterations or additions whatsoever in or to the building for the time being standing on the Property or to make any material alteration in the external construction height roof main walls timbers elevations architectural appearance or external decorations (including the tint or colour of the painting) of the said building."

177. There is a restriction in the lease on the same subject-matter in the following form:-

(The tenant) "shall not without the like consent erect any building or other erection upon or make any alteration of or upon the said premises or maim or cut the main timbers of the said messuage and buildings or make any openings in the party walls or party fence walls"

The reference to "like consent" refers to the form of consent set out below in the user provision in the lease.

178. The alterations restriction proposed by the appellant and rejected by the LVT is as follows:-

"1.2 Not at any time without the previous consent in writing of the Transferor first obtained (such consent not to be unreasonably withheld or delayed) to make any external alterations or additions of any material kind to the elevation of the building fronting Weymouth Street for the time being standing on the Property".

179. The user restriction, proposed by the respondents and accepted by the LVT, is as follows:-

"1.3 Not to use and occupy the Property other than:

180. 3.1 As a private residential dwelling in the occupation of one family only or
181. 3.2 As not more than one residential flat on each floor each flat to be in the occupation of one family only or
182. 3.3 As not more than one residential flat on each floor which is not occupied in accordance with the provisions of sub-clause 1.3.4 each flat to be in the occupation of one family only or
183. 3.4 As to the ground and first floors of the property unless occupied in accordance with sub-clause 1.3.1 as consulting rooms in connection with the profession of medical or dental practitioners (but not as a nursing home nor for the reception nor treatment of any residential patients). Use of the ground and first floors as consulting rooms is to be by no more than four practitioners who shall be and remain duly qualified and fully registered in the United Kingdom as medical or dental practitioners."
184. There is a user restriction in the lease in the following form:-

(The tenant) "shall not (without the previous written consent which may be temporary or permanent revocable or irrevocable or otherwise howsoever framed or qualified of the Lessor his heirs or assigns) permit or suffer to be used or exercised in or upon the said premises any profession trade or business whatsoever but shall and will use and occupy the same as and for a private dwellinghouse only"

As recorded elsewhere in this decision a licence was granted in or about September 1912 authorising four named doctors or dentists to practice at 27 Weymouth Street. Other licences have been granted and combined residential and multiple-occupancy medical or dental consultancy use continued (apart from the Second World War) until 1995.

185. The user restriction proposed by the appellant and rejected by the LVT is as follows:-

"1.3 Not to allow the use and occupation of the Property or any part thereof by any medical or dental practitioner unless they shall be and remain duly qualified and fully registered in the United Kingdom as medical or dental practitioners."

186. Both the alterations and user restrictions have their counterparts in the lease and therefore the initial question is whether they "secure the continuance (with suitable adaptations) of restrictions arising by virtue of the tenancy or any agreement collateral thereto"? The important words are "with suitable adaptations". I accept Mr Johnson's submission that this expression does not extend to modification of the provisions in the lease. In Le Mesurier v Pitt the member (R C Walmsley) said (at 981):-

"I do not accept Mr Blum's submission that the phrase 'with suitable adaptations' is wide enough to cover modifications – the tribunal's jurisdiction to modify restrictions arises under other legislation."

187. Although the purpose and effect of the alterations and user restrictions determined by the LVT are likely in practical terms to be similar to the corresponding provisions in the lease, the different wording in each covenant is, in my view, material. As a matter of fact and degree I cannot find that the modifications to the wording are "suitable adaptations" to the lease restrictions. In my judgment, although borderline, the new covenants do not secure the continuance (with suitable adaptations) of the lease covenants and therefore they do not satisfy the requirements of section 10(4)(b). It is necessary to consider them under paragraph (c). To this extent I agree with Mr Johnson.
188. Two questions must be answered under paragraph (c). The first is whether the alterations and user restrictions determined by the LVT will restrict the use of 27 Weymouth Street in any way which will not interfere with the reasonable enjoyment of the property as it has been enjoyed during the tenancy? Put another way, will the two restrictions interfere with the reasonable enjoyment of 27 Weymouth Street as previously enjoyed under the lease? Under the lease the tenant was unable to erect any buildings or make alterations or openings without consent. The new restriction has a similar practical effect. I particularly note that the restriction in the lease would have applied to changes to the rear elevation, a matter on which I received evidence and which the appellant wished to exclude from the restriction. I am satisfied that the alterations restriction determined by the LVT will not interfere with the reasonable enjoyment of the property as previously enjoyed under the lease. As to the user restriction, the lease contains a restriction to a private dwellinghouse and the prohibition of any profession, trade or business, but licences have been granted for multiple medical and dental use and in the past the house has also been in multiple residential occupation. Under the user restriction determined by the LVT the occupation and use may be wholly residential, part residential, part residential in flats and medical or dental use on ground and first floors with up to four practitioners. I am satisfied that the proposed user restriction will not interfere with the reasonable enjoyment of the property as previously enjoyed under the lease.
189. The second question is will each proposed restriction materially enhance the value of other property in which the respondents have an interest? I heard evidence and submissions on material enhancement, including attempts to evaluate precisely in monetary terms the effect of the restrictions on adjoining property. In my judgment, this is an impossible valuation exercise. The question of material enhancement can, in my view, only realistically be considered in general terms. I give no weight to this particular evidence nor to the alleged admission by Mr Ryan (the exact extent of which has been disputed) that there would be only a slight diminution in value in the absence of the respondents' restrictions. We are not concerned with diminution in value but with the material enhancement in value in consequence of the restrictions. In my judgment, material enhancement is essentially a matter of general impression. In Peck v Trustees of Hornsey Parochial Charities the member (J Stuart Daniel) said (at 947):-

"The main conflict in evidence was whether the restrictions are such as materially to enhance the value of other property. I have no hesitation in finding that they are. When I put the question to him in argument Mr Bramall conceded that the concept of material enhancement must include the concept of maintaining a value which would otherwise deteriorate. If this is right, and I think it is, Mr Bagnall-Oakeley's evidence that the quality of the estate was being threatened by un-self-contained sub-letting seems to me to be incontestible, and to decide this particular question in favour of the landlords."

This was followed in Le Mesurier v Pitt (at 981):-

"… I deemed the concept of material enhancement to include the concept of maintaining a value which would otherwise deteriorate, …"

I accept that I am not bound to follow these earlier decisions but I agree with the concept of material enhancement as formulated and I am prepared to follow them. I understood Mr Johnson to accept the general principle but not where, as in this case through the alleged admission of Mr Ryan, the deterioration in value is slight. In my view Miss Holland is right when she says that material enhancement itself includes the concept of maintaining a value which would otherwise deteriorate. On the Estate the control of alterations and user has been, and continues to be, exercised by the respondents strictly and this can be seen when walking around the Estate. I accept Mr Godliman's evidence on this matter, particularly his evidence that since 1996 transfers on the Estate have (with one oversight exception) included the respondents' restrictions (or substantially their restrictions) on alterations and user. In my judgment these restrictions enhance the value of other property in which the respondents have an interest by maintaining values which would otherwise deteriorate. In other words the covenants raise the tone and value of the Estate. This is accomplished by restrictions on appearance, which throughout the Estate is attractive (evidence by several conservation areas including the Harley Street Conservation Area in which 27 Weymouth Street is situated), and on user, to maintain the residential and limited medical use of properties on this particular part of the Estate and the exclusion or restriction of offices and other commercial uses.

190. Before leaving the question of material enhancement I must, however, deal with three specific matters raised by Mr Johnson, planning control, the effect of clause 1.6 of the restrictive covenants and the absence of a management scheme for the Estate.
191. Mr Johnson said that planning control can achieve the same results as the alterations and user restrictions and makes them unnecessary. I do not accept this proposition. It has long been recognised by the courts and this Tribunal that there is a distinction between control under town planning legislation and control by restrictive covenants; the former is not a substitute for the latter. In Re Martin (1988) 57 P & CR 119, Fox LJ said (at 124):-

"Thus, it seems to me that, while the two regimes impinge upon each other to some extent, they constitute different systems of control and each has, and retains, an independent existence."

In Peck the member said (at 947):-

"Nor do I think that the existence of planning powers or powers under the Housing Act makes it unreasonable to continue control by covenants. These powers are not always easy to enforce and on this estate it was the trustees and not the local authority who called a halt to un-self-contained multiple occupation."

In Re Memvale Securities Ltd, an application to this Tribunal under section 84 of the Law of Property Act 1925 to modify the user covenant in the lease of 35 Wimpole Street, which is in the same form as that in the lease of the appeal property, the former President (Sir Douglas Frank) said (at 10):-

"Today there is some force in the argument that planning permission for office use would be difficult to obtain, but as I have already pointed out planning policies can change and I see no reason why the Estate should be called upon in effect to transfer their rights of control to another body."

I agree with these judicial statements. Planning control is no substitute for control by restrictive covenant. I find no substance in this point.

192. Next, Mr Johnson said that clause 1.6 of the restrictive covenants prohibits nuisance, annoyance and damage and therefore the question whether the respondents' alterations and user restrictions make any difference to the value of other property should be considered in the light of this clause. This, said Mr Johnson, is a complete answer to the respondents' case on material enhancement in value. Clause 1.6 is as follows:-

"1.6 Not to do or permit to be done upon or in connection with the Property or any part thereof anything which shall be or tend to be a nuisance or annoyance or cause damage to the Transferor or its tenants or any of them or to any neighbouring or adjoining or adjacent property or to the owners or occupiers thereof."

193. To counter this argument Miss Holland referred to the decision of the Court of Appeal in C & G Homes Ltd v Secretary of State for Health. In this case two houses were purchased subject to a covenant "not to cause or permit or suffer to be done in or upon the property any act or thing which may be or become a nuisance, annoyance, danger or detriment to the … owners or occupiers … of other parts of the estate." The houses were occupied by former mental in-patients. The plaintiffs sought a declaration as to use and damages for financial loss in respect of an alleged reduction in the marketability of other houses on the estate. Nourse LJ said (at 386D):-

"The only detriment within the purview of the covenant is one which affects the enjoyment of some part or parts of the estate. That inevitably follows from the linking of 'detriment' with 'nuisance, annoyance, danger', all of which affect the enjoyment of land, and the reference to 'the transferor or owners or occupiers for the time being of other parts of the estate', 'which confirms that the detriment etc must be suffered by the plaintiff as owner of the part or parts of the estate which for the time being it retains. A financial loss suffered in its exploitation of the retained land, but dissociated from its enjoyment of it, is something with which the covenant is not in the least concerned."

194. The wording above is not the same as clause 1.6 which refers to "nuisance or annoyance or cause damage" but the Concise Oxford Dictionary defines "detriment" as harm or damage and, in my view, having regard to the above observations of Nourse LJ, clause 1.6 would not extend to financial loss or diminution in value. I do not find that this point assists the appellant.
195. Finally, I deal with Mr Johnson's submission that the absence of a management scheme under section 19 of the 1967 Act is significant. Section 19(1) allows the Minister to grant a certificate that, "in order to maintain adequate standards of appearance and amenity and regulate redevelopment in the area" it is likely to be in the general interest that the landlord of an estate should retain powers of management. The High Court may then approve a management scheme. Application was made by Howard de Walden for a certificate under section 19 but it was refused and further applications were not made. This point was raised in Peck and the member said (at 947):-

"I should perhaps also refer to the Minister's refusal to grant a certificate under section 19(1). While no doubt the Lands Tribunal's jurisdiction is unfettered by such a decision I should, of course, have careful regard to it if I thought that its subject-matter was in pari materia with what I have to decide. But I do not think it was. The scheme of the Act seems to me to make the question of covenants quite a separate one from questions arising under section 19 and the words in section 19(1) which indicate the matters on which the Minister may base a certificate overlap only partially with the object of the covenants in the present case."

I agree with, and adopt, these observations. I do not find this point of assistance to the appellant.

196. For the reasons given I find that the alterations and user restrictions determined by the LVT satisfy the requirements of section 10(4)(c). They must now be considered under section 10(5). The test here is whether the restrictions are unreasonable in all the circumstances, in view (a) of the date of the commencement of the tenancy and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy; and (b) where the tenancy is one of a number of tenancies of neighbouring houses, of the interest of those affected in respect of the other houses.
197. No evidence was specifically directed to the requirements of this subsection and only a passing reference was made to it in submissions. The changes of use at no 27, from the single private dwellinghouse permitted under the lease to multiple residential occupancy and multiple medical – dental use under licence, correspond with the amended lease provisions as to user and the user restriction determined by the LVT. As to alterations there is also a broad correlation between the restrictions in the lease and the alterations restriction determined by the LVT. There is still a need to control alterations. I am satisfied that the restrictions as to alterations and user are not unreasonable, having regard to changes since the commencement of the tenancy. That deals with paragraph (a). In my judgment, paragraph (b) in subsection (5) does not apply: there are no interests in respect of other houses affected by the restrictions in issue, although, of course, other houses will benefit from the alterations and user restrictions affecting the appeal property. I am satisfied that the alterations and user restrictions determined by the LVT are not unreasonable under section 10(5).
198. For the reasons given above, I am satisfied that the alterations and user restrictions determined by the LVT satisfy the requirements of section 10(4) and (5) of the 1967 Act and that the decision of the LVT is correct. I should add that, if I had found that these restrictions secured the continuance (with suitable adaptations) of the corresponding restrictions in the lease (and therefore section 10(4)(b)(i) applied), I would have found that they were capable of benefiting other property (by restricting unsuitable alterations and user) and, for the reasons given above, were such as materially to enhance the value of the other property. The requirements of section 10(4)(b)(i) would have been satisfied.
199. The respondents have offered to insert the word "reasonable" before "satisfaction" in the alterations restriction (1.2), so that the second and third lines of the covenant determined by the LVT will read "and to the reasonable satisfaction of the Transferor". I accept this amendment which is to the benefit of the appellant. I do not agree, as suggested by Mr Johnson, that this Tribunal cannot vary the wording of the restrictions put forward by the parties. In both Peck and Le Mesurier the Tribunal made amendments to the restrictions proposed (see Peck at 947 and Le Mesurier at 982). The appeal against the decision of the LVT regarding the alterations and user restrictions fails and the wording of these restrictions determined by the LVT stands with the minor amendment.
200. Finally, I consider the machinery restriction. The LVT accepted the respondents' restriction as follows:-

"1.4 Not to place in or erect upon or affix to the Property or any part thereof any machinery or mechanical or scientific apparatus save for usual equipment and apparatus in connection with the consulting use mentioned in 1.3.4 above provided that such equipment does not impose any strain on the structure of the Property."

Subsequently, and to meet a point made at the hearing that this restriction would prohibit domestic appliances being used at the property, the respondents offered to insert the words "save for normal household appliances in connection with the residential use mentioned in sub-clause 1.3 above" after "scientific apparatus" in the above wording. This is to the benefit of the appellant and I consider the amended restriction in relation to the requirements of section 10(4) and (5). The appellant objects to the inclusion of this restriction in the transfer and does not suggest alternative wording.

201. The lease does not contain a provision corresponding to the machinery restriction. This is therefore a provision required by the landlords under section 10(4)(c). The first question is whether the amended machinery restriction will interfere with the reasonable enjoyment of 27 Weymouth Street as it has been previously enjoyed during the tenancy? In my judgment, a negative answer must be given to this question. Under the lease and successive licences the permitted user of the property has been residential and medical and dental use. Under the machinery restriction (as amended), machinery or mechanical or scientific apparatus comprising household appliances and usual equipment and apparatus in connection with the permitted medical or dental consulting use are excluded from the restriction. There is therefore no fetter on reasonable enjoyment for residential and consultancy use. The second question is whether a machinery restriction (as amended) will materially enhance the value of other property in which the respondents have an interest? I have discussed the concept of material enhancement in connection with the alterations and user restrictions. In my judgment, the machinery restriction will have a part to play in the control of the Estate exercised by the respondents and will therefore help to maintain values which would otherwise deteriorate. I have discussed the questions of planning control, clause 1.6 and the absence of a management scheme in relation to the alterations and user restrictions. I found these matters to be of no assistance to the appellant. Similar considerations apply to the machinery restriction. In my judgment, this restriction satisfies section 10(4)(c) of the 1967 Act.
202. As to the requirement of reasonableness under section 10(5)(a), is the machinery restriction unreasonable in all the circumstances in view of the date of the lease and the changes since that date? For similar reasons given in relation to the alterations and user restrictions, I do not find the machinery restriction unreasonable. It is not a fetter on the residential or medical consultancy uses permitted under the lease and subsequent licences and now permitted under the user restriction. Insofar as it affects alterations (eg external air conditioning plant or other plant placed on the outside of the building) it is not unreasonable and, to that extent, follows the alterations provisions in the lease. In my judgment, the machinery restriction determined by the LVT (as amended) is not unreasonable under section 10(5)(a).
203. For the above reasons I am satisfied that the machinery restriction determined by the LVT (as amended) satisfies the requirement of section 10(4) and (5) of the 1967 Act and that the decision of the LVT as to this restriction (as amended) is correct. The appeal against the machinery restriction fails and the wording accepted by the LVT, as amended by the respondents, stands.

CONCLUSION

204. The appeal fails on all grounds and is dismissed. The price on enfranchisement under section 9(1C) of the 1967 Act as determined by the LVT of £1,955,000 is confirmed. The alterations restriction (clause 1.2) determined by the LVT is confirmed subject to the minor amendment referred to in paragraph 195 above. The user restriction (clause 1.3) as determined by the LVT is confirmed unaltered. The machinery restriction (clause 1.4) determined by the LVT is confirmed subject to the amendment referred to in paragraph 196 above.
205. This decision concludes my determination of the substantive issues in this appeal. It will take effect as a decision when the question of costs has been decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and order 61 rule (1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to the costs of this appeal and a letter accompanying this decision sets out the procedure for submissions in writing.

DATED: 30 April 2003

(Signed) P H Clarke

ADDENDUM

206. I have agreed to a request from the appellant to give a second alternative award on the assumption that the building agreement did not require Mr Willett to carry out all the completion works. This addendum deals with this further award and costs.
207. Mr Johnson argued, on behalf of the appellant, as an alternative to his main submission that the building agreement only required Mr Willett to build to carcass stage, that it required him to build to carcase stage and to carry out further works but did not require the house to be finished fit for habitation. Thus, he said, under section 9(1A)(d) of the 1967 Act, the appellant is entitled to have disregarded as improvements those completion works which were not part of the described works in the agreement. Under the appellant's main argument all the completion works are to be disregarded in the valuation. In both cases the later works are also to be disregarded.
208. The parties call this alternative the second basis of valuation. Mr Buchanan's figure is £1,750,000; Mr Ryan's figure is £1,937,000. Both valuers referred to it as a valuation to builder's finish (but did not explain it further) and agreed that it excluded the lift.
209. Mr Buchanan's valuation started with an agreed figure of £15 for the capitalised ground rent for the unexpired term of the lease and then added a reversion to a freehold value excluding improvements of £1,750,000 deferred for 0.458 year at 6%. He arrived at this freehold value in two ways. First, he added to his freehold carcase value of £1,537,500 (see para 125 above) £200,000 for works to complete the house to builders' finish, giving a value of £1,737,500. Second, he deducted from the agreed value as existing of £2,100,000 a figure of £132,500 for the later works and £200,000 for works to complete the house to builder's finish, giving a value of £1,767,500. He took the average of these two figures, £1,752,500 rounded down to £1,750,000. To the resultant value of the landlord's interest (£1,703,930) Mr Buchanan added an agreed 75% of marriage value, which he calculated to be £46,070 by deducting from the above freehold value excluding improvements the above value of the landlord's interest and an agreed figure of nil for the tenant's existing interest. The resultant valuation is £1,738,467 which presumably Mr Buchanan has rounded up to £1,750,000.
210. Mr Ryan has not presented his valuation in the conventional form but the explanation for his figure of £1,937,000 appears to be as follows. He has started with an agreed gross development value (or entirety value) of £2,500,000. From this figure he deducted 10% to reflect the lack of a lift, finishing off works (excluding lift) of £200,000 plus 50% of this figure for contingencies and reward to produce a market value of £1,950,000. Mr Ryan then deducted £13,000 for the roof terrace to produce his valuation of £1,937,000.
211. For this second alternative award I follow the approach that I adopted for my alternative award (see para 128 above). The valuers have agreed that the valuation is to builder's finish and excludes the lift. The deduction for completion works which I used in my alternative award (valuation to carcase) must be reduced to reflect the further works to builder's finish. My figure for the works from carcase stage to a house fit for habitation is £400,000 and must be reduced for the further works to builder's finish. Mr Buchanan's figure is £200,000 for this deduction. Mr Ryan has deducted for completion works, £250,000 for the lack of a lift, plus finishing works of £300,000, including for contingencies and reward. In my judgment the deduction I previously adopted for completion works should be reduced by £200,000 for works from carcase stage to builder's finish, leaving the remaining £200,000 for the completion works (including lift). I use my previous figure of £97,500 for the later works. Thus, the value of the freehold excluding the value of the reduced completion works and the later works is £1,802,500 (£2,100,000 agreed value as existing less £200,000 reduced completion works and £97,500 later works). The enfranchisement price is £1,790,000 as set out in Appendix D to this decision.
212. I turn now to the question of costs. I have received written representations from both parties. The appellant seeks an order that he should pay only 70% of the respondents' costs on the grounds that the alterations and machinery clauses secured by the respondents on appeal are not in exactly the same form as determined by the LVT and that my first alternative award is considerably closer to the figure contended for by the appellant than to the respondents' figure. An early and sensible concession by the respondents on this valuation issue would have achieved agreement and could have avoided the need for valuation evidence on this issue. There may be a need for a further reduction in the appellant's costs when the second alternative award is known. The respondents seek all their costs on the grounds that the appeal has failed and costs should follow the event. There are no grounds for reducing the respondents' costs on the appellant's submissions regarding the alterations and machinery covenants.
213. The starting point for my decision on costs is that the appeal has failed on all issues. Prima facie, the respondents are entitled to all their costs. During the hearing the respondents offered minor amendments to the wording of the alterations and machinery restrictions determined by the LVT (see paras 195 and 196 above). These amendments had also been considered in negotiations before the hearing and I have been referred to the relevant correspondence. I am not persuaded that these amendments are significant enough to deprive the respondents of any part of their costs nor that they acted unreasonably in relation to them before or at the hearing. I find no merit in the appellant's submission that the respondents should be deprived of part of their costs because my first alternative award is closer to the appellant's figure on this basis. This is an award on the assumption that the appeal on the improvements issue was successful. This part of the appeal, however, failed and I confirmed the LVT's decision. In my judgment, both alternative awards are irrelevant to a costs award on my decision. It would, I think, be wrong to look at my alternative awards when dealing with costs on my actual decision. Overall, I can find no grounds for depriving the wholly successful respondents of any part of their costs. All grounds of appeal failed and the unsuccessful appellant must pay all the respondents' costs.
214. Accordingly, I order the appellant to pay the respondents' costs of this appeal, such costs, if not agreed, to be the subject of a direct assessment on the standard basis by the Registrar of the Lands Tribunal.

DATED: 12 June 2003

(Signed) P H Clarke

APPENDIX A

PARTICULARS OF WORKS

To pull down the whole of the existing buildings on the site including stables in rear and as much of the party walls as may be found necessary and the vaults under the public footways. Grub up all old footings and drains, empty and fill up all cesspools, clear away all the old materials. To erect on the site with all new materials a substantial brick and stone building for a private residence of a superior character and to consist of basement, ground floor, three square stories and attic storey and to be erected so as not to interfere with the light and air of adjoining and surrounding premises and in accordance with plans to be approved by me. Rebuild the vaults under the public footway and face the walls against the areas with white glazed bricks and the main walls in area with glazed bricks of approved colour. Repair and underpin the party walls where not required to be pulled down. No Fletton bricks are to be used in the underpinning, foundations, or for the facing of external work. The street front is to be faced with Portland stone of approved quality. The back wall to Mew to be faced for a height of six feet with salt glazed bricks. Enclose the area with iron railing in Portland stone kerb and steps and landing to entrance. Cover the roofs towards the street with green Westmoreland slates, the rest of roofs with Bangor Countess slates, lead gutters, flats and flashings. Put new pipes drains throughout direct to the public sewers with manholes properly trapped and ventilated. Glaze the windows generally with 26 oz sheet, ground floor front windows with plate glass, skylights with rolled plant. The front entrance door and the doors to sitting rooms to be of hard wood either oak or mahogany. You are to take upon yourself all responsibility as to notices and party walls. The works are to be completed before Michaelmas 1911.

APPENDIX B

GENERAL CONDITIONS

Materials used are to be the best of their several kinds, the timber sound well-seasoned Memel. All lead gutters to be 7 lbs, to the flats 6 lbs, laid in narrow widths, and flashings 5 lbs, no zinc externally. All chimney pots terra-cotta. The facing bricks to be approved quality and colour. All drains to be formed with salt-glazed stone-ware, socket-jointed pipes. All soil drains to be 6-inch pipes to be ventilated. The pattern of area railings to be submitted for approval. White or ornamental glazed bricks are to be used for facing the inner areas. Hoardings are not to be placarded. No gravel to be carted away except for the foundations. The works are to be carried according to drawings and specification, to be previously submitted to, and approved by, me in writing; no deviation to be made from such approved drawings and specification without my sanction in writing, and the whole of the work is to be done in a substantial and workmanlike manner and to my satisfaction. You are not to cause any injury or annoyance to your neighbours either by these works or in the occupation of the premises. You are not to object to any works to adjoining premises that may be sanctioned by, or on behalf of, the Lessor. You are to send a written notice to me of the commencement of the works, and when the trenches for foundations are excavated, and the foundations are not to be put in until permission has been given, or the drains covered up before they are tested under my superintendence. Plans of the old buildings are to be prepared in accordance with Section 3 of the London Building Act, 1894; the cost of preparing these plans and the fees of District Surveyor are to be paid by you. You are to give all necessary notices and to get all necessary consents.

APPENDIX C

ALTERNATIVE VALUATION OF LANDS TRIBUNAL	ALTERNATIVE VALUATION OF LANDS TRIBUNAL	ALTERNATIVE VALUATION OF LANDS TRIBUNAL
Value of freehold
Agreed capital value of rent		£15
Value of freehold with vacant possession (excluding improvements)	£1,602,500
PV of £1 in 0.458 years @ 6% (agreed)	0.974	£1,560,835
Value of freehold	£1,560,850	£1,560,850
Marriage value
Value of freehold with vacant possession (excluding improvements)		£1,602,500
Less
Value of freehold	£1,560,850
Value of leasehold interest (agreed)	nil	£1,560,850
Marriage value Freeholders' share, 75% (agreed) Freeholders' share of marriage value	£41,650	£41,650
£41,650	0.75	0.75
0.75	£31,237	£31,237
Price under section 9(1C) of the 1967 Act
Value of freehold		£1,560,850
Freeholders' share of marriage value		£31,237
		£1,592,087
	Price say	£1,592,000

APPENDIX D

SECOND ALTERNATIVE VALUATION OF LANDS TRIBUNAL	SECOND ALTERNATIVE VALUATION OF LANDS TRIBUNAL	SECOND ALTERNATIVE VALUATION OF LANDS TRIBUNAL
Value of freehold
Agreed capital value of rent		£15
Value of freehold with vacant possession (excluding improvements)	£1,802,500
PV of £1 in 0.458 years @ 6% (agreed)	0.974	£1,755,635
Value of freehold	£1,755,650	£1,755,650
Marriage value
Value of freehold with vacant possession (excluding improvements)		£1,802,500
Less
Value of freehold	£1,755,650
Value of leasehold interest (agreed)	nil	£1,755,650
Freeholders' share, 75% (agreed) Freeholders' share of marriage value	£46,850	£46,850
£46,850	0.75	0.75
0.75	£35,137	£35,137
Price under section 9(1C) of the 1967 Act
Value of freehold		£1,755,650
Freeholders' share of marriage value		£35,137
		£1,790,787
	Price say	£1,790,000