Graphs of relativity are often employed by valuers to determine relativity in the absence of any transactional evidence concerning the sale of comparable properties.
In Deritend Investments Birkdale Ltd v Treskonova [2020] UKUT 164 (LC); [2020] PLSCS 145 the Upper Tribunal (Lands Chamber) reaffirmed its guidance in Trustees of Barry and Peggy High Foundation v Claudio Zucconi and another [2019] UKUT 242 (LC); [2019] PLSCS 183 as to the correct relativity graphs to use in the absence of transaction evidence, notwithstanding that the subject of the valuation was outside of prime central London (PCL).
The subject property was a one-bedroom flat and garage located in Sutton, Surrey, SM5. The respondent leaseholder served notice on the appellant landlord claiming a new lease under the Leasehold Reform, Housing and Urban Development Act 1993.
The parties had agreed all the elements of the calculation of the premium payable for the lease extension, except for the relativity to be applied to the freehold vacant possession value to ascertain the existing leasehold value and thus marriage value.
The respondent’s expert determined relativity using the average of five Greater London and England graphs included in the RICS Research Report on Graphs of Relativity, published in 2009 (“the RICS 2009 graphs”).
The appellant’s expert determined relativity by first obtaining the average of the relativities contained in the Savills 2016 (unenfranchiseable) graph of relativity (“the Savills 2016 graph”) and the Gerald Eve 2016 (unenfranchiseable) graph of relativity (“the Gerald Eve 2016 graph”). Then, by obtaining the average from that figure and the relativity from the Beckett and Kay (unenfranchiseable) 2017 mortgage-dependent graph.
The First-tier Tribunal (FTT) was dissatisfied with the approach adopted by both experts. In particular, the FTT criticised the appellant’s expert use of the Savills 2016 and Gerald Eve 2016 graphs because the data from those graphs were derived solely from PCL data. It found their use to be inappropriate in relation to a small one-bedroom flat in Sutton.
Using its own judgment and knowledge, the FTT derived a figure for relativity by taking an average of the five RICS 2009 graphs. The landlord applied for permission to appeal. In so doing, it drew the FTT’s attention to Zucconi. In refusing permission to appeal, the FTT found that it was not bound to apply decisions of the UT “where the facts and evidence before it differed” and on which no argument was heard or submissions made by the parties.
The UT allowed the appeal and set aside the FTT’s determination. It observed that the outcome of each case turned on its own particular facts, the elements of valuation which were in dispute and the quality of evidence presented by the parties. Yet, although the FTT was correct in stating that it was not bound to apply decisions of the UT “where the facts and evidence before it differed” this represented an incomplete description of the FTT’s relationship to the UT. One of the most important functions of the UT was to give guidance on valuation practice, and the hierarchical relationship between tribunals required the FTT to adhere to that guidance.
Relying upon Reiss v Ironhawk Ltd [2018] UKUT 311 (LC); Oliyide v Elmbirch Properties Plc [2019] UKUT 190 (LC); [2019] PLSCS 178 and Zucconi, the UT found that those cases presented a consistent pattern: in each case where transaction evidence was either unhelpful or unavailable, the recent Savills 2016 and Gerald Eve 2016 graphs were adopted as the most reliable and objective evidence of relativity.
The UT again underscored the limitations of the RICS 2009 graphs. It found that the RICS 2009 graphs overstated relativity in post financial crisis markets. Further, the data in the RICS 2009 graphs were not only historic, but suffered variously from limitations of scale and source.
Elizabeth Dwomoh is a barrister at Lamb Chambers
