Lease — Enfranchisement — Reversionary value — Deferment rate — Whether convention establishing 6% minimum rate — Freeholders’ appeals allowed — Leaseholder’s appeal dismissed
These conjoined appeals against decisions of the London Leasehold Valuation Tribunal (LVT) and the London Rent Assessment Panel concerned the price payable on the enfranchisement or for an extended lease of houses or flats in central London. The common issue was the appropriate deferment rate to be applied to the reversionary value (that is, the rate of compound interest that had to be earned on an investment made at the valuation date in order to produce, at the end of the term, the capital value as at the valuation date of the interest, which value would accrue only at the end of the term).
The appeals concerned valuations pursuant to notices to acquire the freehold of houses under section 9(1C) of the Leasehold Reform Act 1967, and claims for collective enfranchisement under Schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993. Expert opinion was divided between an established minimum deferment rate of 6% (based upon a theory of deferment yields – a risk-free rate of return together with a risk premium – as applied to the view of an investor before comparison with the market, settlements and LVT and Lands Tribunal decisions), and a lower rate of around 4.5% (supported by reference to falling yields in all other forms of investment, falling interest rates and low inflation, settlements, previous tribunal decisions and low yields for rack-rented properties).
The court was asked to ascertain a hypothetical rate as a valuation tool to be applied to convert the current open market vacant possession value determinable by market evidence into a figure that formed part of the sum that it was to be assumed would have been realised by a willing seller upon the necessary statutory assumptions.
Held: The freeholders’ appeals were allowed. The leaseholder’s appeal was dismissed.
There was no binding convention to establish that a fixed and constant deferment rate of 6% should be universally used. It was necessary for the deferment rate in each case to be individually determined on the evidence.
Decisions of LVTs and the Lands Tribunal on questions of fact and opinion could not be treated as evidence of value in subsequent cases since they did not establish conventions or precedents. However, a decision of the Lands Tribunal establishing general guidance on valuation principles or procedure might be applied, or referred to, in later cases: Cadogan Estates Ltd v Hows [1989] 2 EGLR 216; [1989] 48 EG 167 and Land Securities plc v Westminster City Council [1992] 2 EGLR 15; [1992] 44 EG 153 considered.
Although market evidence usually represented the best evidence of value, the extent of the right to enfranchisement or to a lease extension was now so wide that dependable market evidence was unlikely to be available in any particular case. In the absence of such evidence, it was permissible to consider the money market: Gallagher Estates Ltd v Walker (1973) 230 EG 359 applied.
Changes in deferment rates would not occur until a change in the trend in risk-free yields had been established or until the continuation of a trend determined a new level of yields. In the present circumstances, it was not appropriate to make any adjustments for different dates of valuation.
Jonathan Brock QC (instructed by Bircham Dyson Bell) appeared for the appellant in the first appeal; Kenneth Munro (instructed by Pemberton Greenish) appeared for the respondent in the first appeal and the appellants in the second, third, fourth and fifth appeals; Andrew Walker (instructed by Bircham Dyson Bell) appeared for the respondents in the second and third appeals; Stanley Gallagher (instructed by Jennifer Israel & Co) appeared for the respondent in the fourth appeal.
Eileen O’Grady, barrister
