Marriage problems

1 June, 2017

The Tribunal has recently determined (1) how the landlords’ share of the marriage value created on the grant of a new lease of a flat and appurtenant property (in this case Flat 70 and garage space 30, Portman Towers) under the provisions of the 1993 Act is to be divided between Portman as freeholder and Starlight Headlease Limited as headlessee in view of the fact that the flat and appurtenant property were originally held under separate leases.

 

The answer to the question turns on the interpretation of paragraph 10(2) of Schedule 13 to the 1993 Act.

 

This provides that the marriage value is to be divided between the landlord and owners of intermediate interests “in proportion to the amounts by which the values of their respective interests in the flat will be diminished in consequence of the grant of the new lease.”

 

Starlight contended that paragraph 10(2) requires the apportionment to be determined by a single calculation of the proportions in which each party’s interests in the flat and the parking space together would be diminished by the grant of the lease. On that basis the agreed total figure for marriage value of £128,162 would be apportioned so that Portman receives £87,755 and Starlight £40,407.

 

Portman argued that paragraph 10(2) requires the apportionment to be determined by two calculations; the first being the proportions in which the parties’ respective interests in the flat alone would be diminished by the grant of the lease and the second being the proportions in which their respective interests in the parking space alone would be diminished. The marriage value referable to the flat should then be apportioned using the first ratio and the second should be applied to apportion the marriage value attributable to the parking space. On this basis the agreed marriage value would result in Portman receiving £97,219 and Starlight £30,943.

 

The reason that these different interpretations of paragraph 10(2) produce different figures in this particular case is that the relative values of the parties’ respective interests in the flat on the one hand and the parking space on the other are different. As far as the flat is concerned, Starlight’s interest is modest; it only has a 3 day reversion and the right to recover a low ground rent, capitalised over the period of the unexpired term whereas Portman’s interest, being the deferred right to recover possession, is much more valuable. Conversely in respect of the parking space, Starlight’s interest is proportionately more valuable as the rent is much higher whilst the deferred value of Portman’s right to possession is quite modest.

 

Portman contended that a single calculation of the parties’ interests in the flat and parking space taken together does not reflect these differences, dilutes the freeholders’ portion of the marriage value and is not the method which would be adopted in the open market.

 

The Decision

The Upper Tribunal agreed with Starlight. It was persuaded that the reference in paragraph 10(2) to “the flat” means the flat and any appurtenances (ie the parking space) because section 62(2), extends the definition of a “flat” to include appurtenant property and section 7(6) provides that if there are two leases with the same landlord and the same tenant each comprising part of the “flat” they are to be treated as if they were held under a single lease. Portman argued that the effect of these provisions do not, and were not intended to, influence the valuation methodology set out in Schedule 13. The Tribunal did not accept that regard should be had to the valuation methodology which would be carried out in the open market and said that paragraph 10(2) should be interpreted accordingly, suggesting that what it prescribes is an arithmetical rather than a valuation exercise.

 

The outcome of this case turned on a very narrow interpretation of paragraph 10(2). The results in other cases may not favour the tenant.

1. The Portman Estate Nominees (One) Limited (2) The Portman Estate Nominees (Two) Limited v Starlight Headlease Limited [2016] UKUT 467 (LC)