The only way is up, or that certainly seems to be the view of landlords seeking to claim development value as part of the compensation payable to them as part of a freehold purchase under the 1993 Act.

As part of the compensation payable under the 1993 Act, the landlord is entitled to claim in addition to what might traditionally be called the ‘term and reversion’ and any marriage value – something ‘extra’ if you will, in respect of lost development value.

Often the roof is an area where it is at least arguable in a built up property that there is the scope for further addition to the property.

Some landlords take things a stage further and seek to create other property interests that are designed to protect their interests in such a situation. One such device is a lease of the ‘air space’ above the building as ownership of this is key to unlocking any future development potential.

So what happens on enfranchisement? Can this additional area be acquired? Or indeed, must it be? And if so, what price will be attributed to it?

These were the questions in the case of Durrels House (Hemphurst Limited v Durrels House Limited [2011] UKUT 6 (LC)).

In this case there was just such an airspace lease in place.  The potential – it was said – for future development was huge and as a flat of significant value could in theory be created. In fact a planning permission for just such a development had been obtained – which is a highly relevant point from the point of view of valuation.

The fact that planning permission had been obtained and that the airspace lease had been granted meant that the tribunal had to accept that the potential for the development of the upper part of the property clearly existed. In valuation terms the value attributed to this area was significant.

The tenants sought to evade the problem of having to purchase the whole of the airspace lease (at significant cost) by seeking to purchase only those parts of the surface of the roof and not the remainder of the lease that would have formed part of the potential development above.

On a collective enfranchisement, the tenants may acquire leases of other parts of the property if they comprise part of the common parts, or if the area is used in common but reasonably necessary for the management or maintenance of the property. At first instance the LVT had decided that any such lease must be acquired in its entirety.

In Durrells House, the Upper Tribunal confirmed that the nominee purchaser is was not obliged to acquire the whole of the airspace lease but could select to acquire (at a lesser cost) simply those parts of the roof and the ‘envelope’ of the building that were that were necessary for maintenance and repair.

The case establishes an important principle, which is that the nominee purchaser may acquire part of any additional leasehold interest that forms part of the common parts or a common area rather than being obliged to buy the whole of this area.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk or email leasehold@bishopandsewell.co.uk