Leasehold enfranchisement – Valuation – Relativity – Section 9(1A) of the Leasehold Reform Act 1967 – Appellant tenant serving notice to acquire freehold of property – Parties producing expert evidence on price payable – Statutory assumptions made in valuing existing lease at valuation date – LVT determining relativity of existing lease value to freehold vacant possession value – Whether appellant entitled to rely on evidence of statistical study analysing market transactions for earlier time period rather than at valuation date – Appeal dismissed
The appellant tenant held a property at 47 Phillimore Gardens, Kensington, London from the respondent landlords on a long lease. In October 2011, when the lease had 52.45 years unexpired, the appellant served a notice under the Leasehold Reform Act 1967 to acquire the freehold. The price fell to be determined in accordance with section 9(1A) of the 1967 Act. Under section 9(1D), a marriage value was to be included in the calculation of the price to reflect the uplift in value resulting from the joinder of the leasehold and freehold interests. In order to calculate that marriage value, it was necessary to know the value at the October 2011 valuation date of the existing 52.45-year lease, assessed on the assumption in section 9(1A)(a) that the 1967 Act conferred no right on the tenant to acquire the freehold.
It was agreed that the proper approach to calculating the existing lease value was to start with the value of the property with freehold vacant possession at the valuation date and then to decide what proportion, as a percentage, the existing lease value bore to the freehold possession value (the relativity). Before the leasehold valuation tribunal (LVT), the appellant contended for a relativity of 87.04% and the respondents for a relativity of 75.5%. The LVT adopted a relativity of 76% based on the respondents’ figure.
The appellant appealed against that finding. She sought to rely on the expert evidence of an economist and statistician who had carried out a detailed analysis of what had actually happened in the market between 1987 and 1991, and produced a graph showing how relativity varied with unexpired lease length at a date prior to the extension of leasehold enfranchisement rights by the Leasehold Reform, Housing and Urban Development Act 1993. She argued that the relativities shown were relevant when assessing the relativity of the existing lease value on the basis of no enfranchisement rights.
The respondents contended that, even if the study by the appellant’s expert accurately measured relativity in the absence of enfranchisement rights, the assumption required to be made under section 9(1A) was in fact different and required the assumption that there were no enfranchisement rights for the existing lease but that it was hypothetically for sale at the valuation date in a market where other long leaseholds did carry enfranchisement rights.
Held: The appeal was dismissed.
Although the appellant’s expert was to be commended for his efforts to find a settled position on relativities for leasehold properties, the tribunal was unable to place weight on his evidence in the present case. It was of particular significance that no valuation evidence had been submitted on behalf of the appellant to explain or support the expert’s argument that relativity should be determined differently from the conventional approach, which required valuers to rely on the various graphs published by the RICS as laid down in the case of Arrowdell Ltd v Coniston Court (North) Hove Ltd (LRA/72/2005) [2013] PLSCS 278. Further, the expert had relied on hedonic regression analysis of sales data compiled from transactions that took place before the 1993 Act came into force and there had been no supporting valuation evidence that his studies of relativities in the market of 1987-1991 could give reliable guidance on the relativity relevant for calculating the existing lease value of the property at the valuation date in October 2011 on the statutory assumptions.
The published RICS graphs would constitute an important ingredient in the decision of potential hypothetical purchasers of the existing lease at the valuation date as to how much to bid for the existing lease. At the valuation date, those graphs had been in existence and were widely referred to and relied on by valuers. The advice which the well-informed hypothetical purchaser would be likely to obtain from an experienced valuer would include advice that those graphs existed, that they had some strengths but also some weaknesses and that some suggested higher prices than others. The successful hypothetical purchaser would be the purchaser who was prepared to base their bid on the average of all the graphs. The graphs showed relativity points after an allowance for no enfranchisement rights and no further adjustment was required. In the present case, the average relativity shown across the various graphs was approximately the 76% adopted by the LVT and supported by the respondents.
In all the circumstances, deciding the appeal only on the basis of the evidence and arguments presented, the proper conclusion was that the LVT had correctly determined a relativity of 76%.
Stan Gallagher (instructed by Farrer & Co) appeared for the appellant; Gary Cowen (instructed by Forsters LLP) appeared for the respondents.
Eileen O’Grady, barrister
