Case No: C3/2008/2868

Neutral Citation Number: [2009] EWCA Civ 995
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
(MR GEORGE BARTLETT QC, PRESIDENT)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 30th April 2009

Before:

LORD JUSTICE RIMER
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Between:

	HENRY McHALE & ANR	Appellant
	
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THE RIGHT HONOURABLE CHARLES GERALD JOHN EARL CADOGAN	
Respondent	

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THE APPELLANT APPEARED IN PERSON

Mr A Radevsky (instructed by Messrs Pemberton Greenish) appeared on behalf of the Respondent.
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Judgment
Lord Justice Rimer:

1.	This is a renewed application for permission to appeal, Carnwath LJ having refused permission on the papers on 20 February 2009. The applicant is Mr Henry McHale, who appears in person and makes the application on his own behalf as well as on behalf of a company formed for the purpose of a collective enfranchisement exercise under the Leasehold  Reform, Housing  and Urban Development Act 1993. The company is 10 Sloane Gardens Management Company Limited. The respondent to the application is The Right Honourable Charles Gerald John Earl Cadogan. The decision under challenge is one by the Lands Tribunal (Mr George Bartlett QC, The President, and Mr P.R. Francis FRICS) given on 30 October 2008.

2.	10 Sloane Gardens is a building divided into six flats. Earl Cadogan is the freeholder. It is let under a headlease dated 14 September 1983, which granted a term of 62 and a quarter years from 24 June 1983.  The headlease has since, I think, 1986 been vested in Mr McHale. Five of the flats are underlet on long leases and Mr McHale is the intermediate landlord in respect of those flats.  The sixth flat, flat 1A, is a caretaker’s flat, and I am told by Mr McHale that it was so designated. It is a flat that Mr McHale owns and occupies (at least I am not sure whether he occupies it) as head lessee.

3.	Mr McHale, as a qualifying tenant under the headlease, and two of the underlessees exercised their right of enfranchisement in respect of the freehold and were entitled to do so as being lessees of the requisite 50% of the flats in the building. The company is the nominated purchaser. Apart from Mr McHale, the participating underlessees are (i) some offshore trustees in respect of flat 3 and (ii) Lisa Allen in respect of flat 4. The non-participating flats are flats 1, 2 and 5.

4.	There was disagreement as to the price payable and so on 24 December 2004 Earl Cadogan applied to the Leasehold Valuation Tribunal (“the LVT”) for it to be determined, the respondents to the application being Mr McHale and the company. The valuation date for the fixing of the price was 16 May 2006 and the hearing took place on 15 December 2006.  Mr Radevsky appeared for Earl Cadogan and Mr McHale represented both himself and the company. In doing so, he faced an obvious conflict of interest because it was in the two underlessees’ interests that the price they should be contributing to should be as low as possible, whereas it was in his interest as intermediate lessee that the price for his interest should be as high as possible.

5.	I propose first to summarise the decision of the leasehold valuation tribunal and I will then come to the decision the subject of the proposed appeal.
The decision of the LVT
6.	Seven matters relevant to valuation were in issue before the LVT.  Not only was Mr McHale in a position of conflict, he also wanted to give expert evidence on matters of valuation.  He has various qualifications, including, I understand, those of a barrister and a chartered accountant, both of which are valuable qualifications; but he has none constituting him an expert in matters of valuation relevant to the issues. Even if he did have sufficient expertise to qualify as an expert witness for purposes of issues that the LVT was concerned with, in view of his position of conflict Mr Radevsky submitted to the LVT that it should give little or no weight to his evidence. Mr McHale recognised his position of conflict and also that he expected the LVT to have regard to it, but he said it was not a serious one because the greater the price for his interest, the smaller the price for the freeholder. He also claimed, despite his lack of directly relevant expertise, to be able to make a valuable contribution to the valuation issues.

7.	The LVT gave its decision on 17 January 2007.  It directed itself as to the status of Mr McHale and rejected his assertion that his position of conflict was not a serious one.  It pointed out that he had not advised the other participating tenants to seek independent advice and was critical of the fact that in a letter of explanation he wrote on 12 July 2004 he had made no mention of his position of conflict; and the LVT regarded his statement in it that “In pursuing these issues I am acting against my own personal interests as head lessee and landlord” as misleading and incorrect. Its view was that Mr McHale had a direct financial interest in the outcome of the application which could affect the quality of his evidence. Whilst, therefore, the LVT allowed Mr McHale to give evidence, it did not regard him as independent and it did not accept his evidence as that of an expert.  It rejected his contention that his evidence was “factual and not opinion based on facts or proper analysis”.  

8.	That is an important point to bear in mind in relation to at least one of the issues the subject of the present application. Of the seven issues before the LVT, three became the subject of unsuccessful challenge by Mr McHale on appeal to the Lands Tribunal and he now wishes to re-open all three before the Court of Appeal. The three issues are (i) the deferment rate; (ii) the marriage value; and (iii) the value, if any, to be attributed to the caretaker’s flat.  

The Deferment Rate
9.	Part of the valuation exercise required on a collective enfranchisement is the determination of the value of the building with vacant possession at the end of the leasehold term.  In the Lands Tribunal decision of Earl Cadogan & Anr v Sportelli [2007] 1 EGLR 153, this part of the exercise was described in paragraph 2 as follows: 

“The latter is arrived at by ascertaining the open market value of the freehold interest with vacant possession as at the valuation date and then adjusting that value to reflect the fact that vacant possession will not be available until the end of the term. The adjusting factor is called the ‘deferment rate’. The valuers in the present cases explain it thus: it is ‘the annual discount applied, on a compound basis, to an anticipated future receipt (assessed at current prices) to arrive at its market value at an earlier date’ (that is to say the valuation date).”

10.	Sportelli was directed at determining the proper deferment rate to apply in the prime central London area, which is also the area where the building now in question is located. It concerned five appeals, two of which were contested, both being cases of collective enfranchisement. Each party called expert valuation and financial evidence. The tribunal had expert evidence that advanced four different methods of determining the deferment rate. Its conclusion, in paragraph 123, was that: 

“The application of the deferment rate of 5% for flats and 4.75% for houses that we have found to be generally applicable will need to be considered in relation to the facts of each individual case. Before applying a rate that is different from this, however, a valuer or an LVT should be satisfied that there are particular features that fall outside the matters that are reflected in the vacant possession value of the house or flat or in the deferment rate itself and can be shown to make a departure from the rate appropriate.”

11.	In the light of that decision, expressly intended to be of general guidance in the prime central London area, Mr Radevsky’s submission to the LVT was that the deferment rate should be 5% unless there were particular reasons to depart from it, which there were not.  Mr McHale, in what the LVT described as a densely argued submission, argued for a deferment rate of 8%. The essence of his submission was that the deferment rate had to be assessed on a discounted cash flow basis and that, whilst the Lands Tribunal in Sportelli had accepted this, it had erred in its method of arriving at the appropriate rate. The result was a rate that was inconsistent with the Investment Property Databank Ltd Index and which ignored the fundamental DCF principle that the rate chosen must be one that reflects the alternative investment opportunities. His submission was that the method of valuing a freehold conversion ought to reflect, as well as rental yields, total returns available to the investor, including a potential for realisable capital gains that are at any time available to leaseholders.

12.	The LVT summarised Mr McHale’s submission in paragraph 25 in this way: 

“Mr McHale supplied a summary of the DCF method as ‘the value of the reversion is taken as the present value of a future sum representing future proceeds of sale and that the net present value is taken as an amount that, if received now, and invested in the same investment are, with the same prospects for income, capital returns and risks as with the available for investment in the sector of the asset that is being valued, would produce the same future sum.’ He said that the best and most authoritative indicator of prospective total returns and therefore of a suitable deferment rate for valuing the freehold reversion was the IPD index which had, since 2001, been prepared as a residential index.  In his view, the IPD index would justify a deferment rate for freehold reversions well in excess of 10% pa.  His rate of 8% was considered ‘conservative’.”

13.	The LVT expressed short reasons why it disagreed that the DCF method was appropriate when valuing a reversion and commented that, having advocated a deferment rate exceeding 10%, Mr McHale gave no reasons for settling for 8%. It noted that in Sportelli the tribunal had been assisted in valuation exercises exercised by witnesses who, unlike Mr McHale, were independent experts. Mr McHale was not an independent expert. A DCF method of valuation was not referred to. The LVT referred to the conclusion in paragraph 123 of Sportelli that I have earlier quoted and said it had not been persuaded that there was any reason in the instant case to depart from that guidance and it determined a deferment rate of 5%.

Marriage value 
14.	The second matter, still in issue, that the LVT determined is as to marriage value, which the LVT dealt with in paragraphs 42, 49 and 50.  Earl Cadogan’s case was that he was entitled to 50% of the marriage value in respect of the participating tenants’ flats (that is not, I think, in dispute). Mr McHale advanced a complicated argument summarised by the LVT as being to the effect that: 

“…marriage value profit to be shared with the reversion ought … to be based on the potential profit as at the time of enfranchisement calculated (1) from the standpoint of the leaseholder being asked to part with his share of that profit and (2) take into account all the costs and expenses and (3) full abatement of marriage value for tenants’ improvements.”

15.	Part of his argument, summarised by the LVT in paragraph 42, was that the current values of the leases of the participating tenants should be assessed on the basis that those tenants enjoyed rights of enfranchisement under the Act. The LVT rejected the argument, saying that in calculating marriage value the current lease value is used, with the same assumptions applying as provided by paragraph 3(1) of Schedule 6 to the 1993 Act, subparagraph (b) of which provides that there is an assumption that Chapters 1 and 2 of the Act provide no right to acquire any interest in the subject premises. As for Mr McHale’s point about improvements, there was no evidence of any improvements for the tribunal and the LVT made no adjustment for improvements.

The value of the caretaker’s flat

16.	The third issue related to the value of flat 1A, the caretaker’s flat held by Mr McHale under his head lease. The main issue was whether a notional rent was, as Mr McHale contended, attributable to this flat, which would give it a current lease value. The contrary view was that no value should be attributed to it.  The resolution of this issue turned on the terms of the head lease and of the underleases and I should quote from the material provisions. 

17.	The headlease under which Mr McHale held the flat imposed, by clause 2(11)(c), a lessee’s covenant, as is follows: ‘To use its best endeavours to provide for the demised premises throughout the said term a full time Caretaker (who shall not be Lessee or a Director of other office of the Lessee if a company) who shall reside in the Caretaker’s flat rent-free as a licensee on a service basis and whose duties shall include as appropriate …[there is no need to read more].” Clause 2(10) imposed a further covenant relating to the use of the caretaker’s flat as follows: “Not to carry on or permit to be carried on in the demised premises or any part thereof any trade business or profession and not to use or permit the demised premises or any part thereof to be used … otherwise than as self-contained flats and/or self contained maisonettes … as a single private residence in one family occupation only with a Caretaker’s flat and tenants stores in the basement of the demised premises….”

18.	Also relevant to the valuation of the current lease value if any of the caretaker’s flat was the service charge provision in the underleases of the other five flats.  Paragraph 3 of the Third Schedule included in the service charge: 

“The cost of employing a housekeeper or housekeepers and also in respect of the accommodation (if any) within the Building to be provided for such housekeeper or housekeepers (a) the cost to the Lessor of outgoings for such accommodation…(including loss of rack rent thereon)….”

19.	By clause 4(1)(d) of the underleases, the underlessor’s obligation is: 

“So far as practicable [to] use its best endeavours to maintain the services of a housekeeper for the performance of such duties in the Building as shall from time to time be authorised by the Lessor….”

And by clause 4(1)(e) of the underleases, the underlessor covenanted to perform and observe the covenants of the headlease, one of which was to provide a resident caretaker rent-free.

20.	Earl Cadogan’s argument in relation to the value of the caretaker’s flat was that the underlessor’s obligation was to provide a resident caretaker, who would occupy the flat rent-free, so that Mr McHale was not entitled to charge a rent for it.  It followed that on a sale of the head lease the purchaser would not pay anything for the right to let out that flat.  Whilst it was true that under the service charge provisions the underlessees had to contribute to the underlessor’s loss of rack rent in respect of the flat, there could and would in practice be none, because the underlessor was not entitled to let the flat at a rack rent.  Mr McHale’s contrary argument was that the headlease only operated as between the head lessee and the superior landlord, with the underlessees having no notice of the terms.  He asserted that the headlease did not prevent the head lessee from charging the undertenants via the service charge what was in effect a rack rent for the caretaker’s flat, which is what he said he, like his predecessor as head lessee, had done following his acquisition of the head lease in 1986. He had, however, later discontinued that practice at the request of the tenants.

21.	The LVT’s conclusion was that the position under the head lease underleases was clear. The former required the caretaker’s flat to be occupied rent-free by a caretaker and there was no provision in the underleases under which the head lessor could recover a rack rent in respect of that flat under the service charge provisions. They held, therefore, that no notional rent was attributable to the caretaker’s flat and they fixed its current lease value at nil.

The decision of the Lands Tribunal
22.	The matter then went to the Lands Tribunal on the three issues I have explained, Mr McHale having been given permission to appeal.  In paragraph 2 of its decision the Lands Tribunal referred to minor errors in the LVT’s valuation that required correction and on which nothing turns. Mr McHale challenged the LVT’s decision on the three issues.  Again, he did so in his capacity as intermediate lessee and on behalf of the nominee purchaser.  The Lands Tribunal permitted him to rely on the evidence he had given to the LVT but made it clear that it would not be accepted as expert evidence.  He sought to persuade the Lands Tribunal to accept his evidence as expert evidence in relation to the deferment rate issue, pointing out that he was a chartered accountant with experience as a management consultant specialising in finance and mergers and acquisition work.  The tribunal rejected that request on the basis that Mr McHale manifestly lacked the independence required of an expert witness.  It accepted his evidence simply on the basis that it included arguments that might be relevant to the deferment rate issue.  They said that: 

“To the extent that expert evidence would be needed to show that the deferment rate should be other than that determined by this tribunal in Cadogan v Sportelli [2007] 1 EGLR 153 the appeal on this point could not succeed.  Nevertheless we will deal shortly with the points that Mr McHale raises.”

23.	The Tribunal then dealt with those arguments in paragraphs 10 and 11.  There was no suggestion that factors specific to the subject property required a departure from the 5% Sportelli rate.  Its view was that the essence of the points made by Mr McHale was the subject of extensive evidence in Sportelli and brought nothing new to the debate. They provided no basis for the view that the LVT had been wrong to adopt the 5% rate and they rejected his challenge on the deferment rate issue.

24.	The tribunal then turned to the marriage value issue.  They pointed out that the LVT had valued flats 3 and 4 on the basis that there were no rights of collective enfranchisement or lease extension under the 1993 Act.  In that connection they quoted paragraph 42 of the LVT’s decision, which I did not read when dealing with that decision but will do now: 

“… Mr McHale did not wish to make any adjustments to his figures, particularly in relation to the ‘No Act’ world. The Applicant made a 10% reduction in this respect.  Schedule 6 values the freeholder’s interest on the assumption that this Chapter and Chapter II confer no right to acquire any interest in the specified premises or to acquire any new lease. This is a repeat of similar assumptions in section 9(1)(A)(a) of the 1967 Act.  Valuations are carried out in the ‘No Act’ world and, in the view of the Tribunal, adjustments must be made to reflect the lack of 1993 Act rights.  The Tribunal therefore rejects Mr McHale’s arguments in this respect and considers the Applicant’s deduction of 10% to be justified.  The Tribunal accepts there is no value in respect of Flat 1A [which relates to the caretaker’s flat point to which I shall come]”

25.	In relation to marriage value, the point that Mr McHale took before the Lands Tribunal was that the LVT was in error in making the assumption that, for the purpose of valuing the interests of the participating tenants’ current leases, there were no 1993 Act rights. In dealing with that argument, the Lands Tribunal referred to paragraphs 2(1)(a), 3(1)(b), 4, 6 and 7 of Schedule 6.  I do not propose to read them out in full.  Suffice to say that they make it expressly clear that part of the price payable by the nominee purchaser to the freeholder is “the value of the freeholder’s interest as determined in accordance with paragraph 3” and paragraph 3(1) requires that, in valuing it, certain assumptions are to be made, including:

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

What the statutory provisions do not, however, also make similarly expressly clear is that, in valuing the current leasehold interests, the like assumption is also to be made.

26.	Mr McHale’s argument to the tribunal was, therefore, that the paragraph 3(1)(b) assumptions applied only to the valuation of the freeholder’s interest and, as there were no equivalent assumptions applicable to the valuation of the existing leasehold interests, they had to be valued on the basis that they enjoyed the enfranchisement rights under the Act.  The tribunal rejected that argument, saying: 

“17. What paragraph 4(2) provides for is the assessment, as marriage value, of any increase in the aggregate value of the freehold and intermediate leasehold interests, and subparagraphs (3) and (4) provide for the application of the paragraph 3(1) assumptions in determining the value of those interests.  The provisions do not prescribe the format in which the marriage value is to be determined, and it says nothing about the valuation of the participating tenants’ current leasehold interests.  But it is clear that the value of those current interests needs to be brought into the calculation for the purpose of determining what increase in value of the freeholder’s and intermediate leaseholder’s interest will result from a marriage of those interests. For the purpose of valuing the freeholder’s and intermediate leaseholder’s interests it must be assumed that Chapters I and II confer no right to acquire any interest in the demised premises.

18.  It follows that the assumption must be made throughout the valuation of those interests and where, as part of that valuation, the value of the participating tenants’ current interests is brought into the reckoning, it must apply there.  It is moreover implicit in paragraph 4 (2)(a), which refers to the increase in value attributable to the potential ability of the participating tenants, post-enfranchisement, to have new leases granted to them, that the before valuation must be done on a basis that they have no such rights.  In any event it would, in our view, be contrary to the scheme of the provisions to do otherwise than to assume throughout that the valuation that Chapter I and Chapter II rights do not exist in relation to the premises. The Act provides for the acquisition of the freeholder’s and intermediate leaseholder’s interests, and so they must be compensated for what they have lost by reason of the provisions of the Act that enable the acquisition to take place. To import into the valuation of the interests before acquisition values that derive from the provisions of the Act itself would be inconsistent with [that] objective and there could be no justification for it. The LVT was undoubtedly right, in our judgment, in approaching the matter on the basis that the paragraph 3(1)(b) assumption was to be applied to the value of the participating tenants’ current interests in determining marriage value.”

27.	The Lands Tribunal then turned to the valuation of the caretaker’s flat.  They referred to the relevant provisions of the head lease and underleases and upheld the LVT’s valuation of the flat at nil.  They agreed with the LVT, for the reasons it had given, and they regarded their conclusion as consistent with a decision of the Lands Tribunal in a case raising identical provisions, namely Earl Cadogan v 44/46 Sloane Street Management Company Ltd (Lands Tribunal ref LRA/29/2003, 30 July 2004, unreported), a case in which Mr McHale was also involved.

This application 
28.	Having explained at some length the way things proceeded in the tribunals below, I come now to this application.  I will deal first with the question of the deferment rate in respect of which Mr McHale seeks permission to appeal.

The deferment rate
29.	In respect of his challenge to the decision on the deferment rate by the tribunals below, Mr McHale faces considerable hurdles, including that on 25 October 2007 this court upheld the Lands Tribunal decision in the Sportelli case and found no error of law in its approach and decision on the deferment rate question: see [2008] 1 WLR 2142.  The court also endorsed the tribunal’s guidance as to the applicable deferment rate in the prime Central London area, which is, as I have said, where the building in question is located.

30.	Mr McHale’s challenge to the adoption of a 5% deferment rate is that he says it is wrong, and he has devoted several pages of his skeleton argument to making this good.  In addition he has this morning handed in a further densely reasoned submission running to some four pages, which is plainly in the nature of purported expert evidence addressed to the deferment rate point.  I do not propose to venture a summary of Mr McHale’s arguments because, with respect, I regard his bid to undermine the guidance given by the Lands Tribunal in Sportelli and now endorsed by this court as hopeless. His difficulty is that, quite apart from the fact that this court has effectively ruled on the matter and is not now going to re-open the consideration of the appropriate rate in the prime Central London area, the challenge to the Sportelli guidance could only begin to get airborne if it is founded on expert evidence that could be said to provide sufficient thrust to it. 

31.	The whole of Mr McHale’s argument is based on propositions that, if they were to be validly proffered to the court, would have to be advanced by an expert witness and perhaps subject to appropriate testing by cross-examination.  They are not matters that can simply be put before the court as submissions.  Mr McHale is not, with respect to him, an expert in the field of valuation.  He was refused permission to give expert evidence by the LVT.  Such evidence as he did give was not counted as expert evidence, and although he repeated his points to the Lands Tribunal, they were not accepted there as expert evidence either.  The points that Mr McHale wishes to raise in relation to the deferment rate arise in a highly specialised area, in which arguments of valuation must necessarily be founded upon expert evidence from true independent experts.

32.	Mr McHale seems to think that the fact that his case has not received the imprimatur of a true expert makes no difference and that this court, were he given permission, would simply entertain his submissions on the question of the appropriate deferment rate and, in the light of them, reconsider its decision in Sportelli, or at any rate would revisit the guidance of the Lands Tribunal case in Sportelli.  Any such expectation represents a triumph of hope over reality.  This court will not do so.  Moreover this court is not, unlike both tribunals below. a specialist tribunal and, absent any proper expert evidence on the matters that Mr McHale wishes to raise, there is no prospect of his being able to persuade it to reconsider its decision in Sportelli even if, as a matter of principle, it was still open to it to do so.

33.	I accordingly refuse permission to Mr McHale to appeal on the deferment rate issue. Although the proposed appeal is not strictly a second appeal within the sense of that expression as used in CPR Part 52.13, it is nevertheless a second appeal, and the court is ordinarily reluctant to give permission to appeal against decisions of specialist tribunals. But for the further reasons I have given, I anyway have no hesitation in concluding that the court should not give Mr McHale in relation to the deferment rate issue.

Marriage value
34.	Mr McHale’s argument here is that paragraph 4 of Schedule 6 refers only to the freeholder and intermediate lessor’s interests and says that the assumptions in paragraph 3(1) apply only to the valuation of their interests, not to the interests of the tenant’s current leasehold interests.  The application by the LVT of paragraph 3(1) assumptions lowered the value of those interests and so increased the marriage value. The argument against this interpretation is that it is implicit in paragraph 4 that like methods of valuation apply equally to the valuation of the leasehold interests.  I should say that I have had the benefit of short arguments from Mr Radevsky in opposition to this application on behalf of Earl Cadogan. He has advanced a cogent argument that a correct interpretation of paragraph 4 of Schedule 6 makes it abundantly plain, even if it does not say so expressly, that, insofar as it is necessary to take into account the values of the current leasehold interests, it is implicit in the entire scheme of the Act that those valuations should be made on the basis of the same assumptions as are referred to in paragraph 3.

35.	I find this issue a more difficult one than the deferment issue.  I consider that both tribunals below were probably correct on the point for the reasons that they gave and there is it seems to me, for the further reasons that Mr Radevsky has submitted, a good deal of obvious common sense in their approach to the interpretation of the quite complicated legislation which they had to consider.  As Carnwath LJ said, in refusing permission on the papers: “The LT’s treatment of marriage values was entirely consistent with the scheme of the Act.”

36.	But the legislation is certainly not straightforward, as Mr Radevsky readily accepts.  It does not, in my view, provide a direct answer to Mr McHale’s point.  I feel unable to conclude with confidence on this application that his point is not properly arguable. I have indicated that I do not regard it as likely to succeed, but the question is one of law. It is potentially of some general importance, it has not been considered by the Court of Appeal and I consider that it is probably desirable that it should be.  I accordingly propose to give Mr McHale permission to appeal on the marriage value ground contained in his appellant’s notice.

The Caretaker flat
37.	Mr McHale’s main point here is that the answer to the adverse decisions below lies in the fact that, on a permission application to this court in The Earl Cadogan & Anr v 27/29 Sloane Gardens Ltd & Anr [2006] EWCA Civ 1331, this court (Pill and Lloyd LJJ) refused permission to appeal against a decision to contrary effect, in what can fairly be said to be like circumstances.  The leases in that case were not, however, in identical terms. There was a covenant in the head lease by the head lessee to provide for the demised premises throughout the term a full-time caretaker “who shall reside in the Caretaker’s flat rent-free as a licensee on a service basis….” But the under-lessee’s service charge obligations were different, and included an obligation in sub-paragraph 4 to contribute to: 

“The costs of employing and maintaining and providing accommodation in the Building for a caretaker including the provision of uniforms and boiler suits and including an annual sum equivalent to the market rent of any accommodation provided rent-free by the Lessor and general and water rates and gas and electricity charges in respect of such accommodation.”

38.	The express reference in that subparagraph to an obligation to provide an annual sum “equivalent to the market rent of any accommodation provided rent-free by the lessor” obviously made the argument in that case rather easier than the one in the present case, where the relevant service charge provision refers to: 

“The cost of employing a housekeeper or housekeepers and also in respect of the accommodation (if any) to be provided for such housekeeper or housekeepers (a) the cost to the Lessor of outgoings for such accommodation (including loss of rack rent thereon)…”

39.	Mr Radevsky’s submission is a simple one, and it is the one that appealed to the LVT and the Lands Tribunal, namely that there can be no loss of rack rent in respect of the caretaker’s flat, because there is no right to charge a rack rent in respect of the caretaker’s flat. That is the argument which both tribunals accepted. The Lands Tribunal went a little further and said that they regarded the decision as consistent with the decision of that tribunal in Cadogan v 44/46 Lower Sloane Street Management Company Ltd, a case in which the lease and underlease provisions were identical to those in the present case, and in which Mr McHale was also involved.  In that case too there was an issue as to the value to be attributed to the caretaker’s flat. The matter went to the Lands Tribunal and HHJ Rich QC of the Lands Tribunal upheld the decision below that no value should be attributed to it.  His reasoning however was not (about a minute inaudible) and the reference to the loss of rack rent could sensibly be referring to the loss of rack rent in respect of such accommodation.  That being so, that (nine seconds audible) in respect of the caretaker’s flat.  

40.	So (inaudible) was not in fact saying that (ten seconds inaudible).  For my part I am not entirely satisfied that the tribunal (half a minute inaudible).  As it seems to me the sensible approach to it is that there was a (inaudible) designated as a caretaker’s flat.  That flat (inaudible) and it was that flat in respect of which no rack rent could be charged.  (inaudible) it seems to me that it must be arguable that the reference to the loss of rack rent in the relevant provision of the service charge can be said to be referring to the loss of rack rent and the inability to recover the rack rent in respect of (inaudible)

41.	I do not say that argument is correct, but it appears to me to be at least an arguable one.  It is one which turns on the correct construction of the relevant provisions of the head lease and underleases and therefore is purely a question of law.  It is the correct answer to that question of law which determines whether or not (inaudible).

42.	Accordingly I have come to the conclusion (inaudible).

Order: Application for permission allowed in part.

Judge’s Note
I have no note or sufficient memory enabling me, when approving the draft of this judgment, to fill the gaps in the recording of the judgment reflected in paragraphs 39 to 41.