Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Flat – Premium payable by appellant tenant – Section 48 of and Schedule 13 to 1993 Act – Correct approach to relativity in calculating premium – Whether leasehold valuation tribunal (LVT) erring in determining premium outside range of disputed values – Previous LVT decisions Comparables – Graph of graphs – Appeal allowed
The respondents held a long lease of a two-bedroom flat in a 1960s block in Goring-by-Sea, West Sussex, for a term of 99 years from December 1962. The appellant was their landlord. They applied for a new lease under the leasehold enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 1993. The leasehold valuation tribunal (LVT) was asked to determine the amount of the premium. At the relevant valuation date in July 2007, the existing lease had 54 years to run at a fixed ground rent of £12.60 pa.
The appellant contended for a premium of £19,500 and the respondents for £13,725. The deferment rate was agreed at 5% but the long leasehold value and relativity were disputed. The appellant’s expert took a long leasehold value of £167,500, to which he applied a relativity of 84% to give a short leasehold value of £140,700. He relied on the “graph of graphs” of relativity, showing an average of averages derived from data relating to properties in different areas. The respondents’ expert, by contrast, relied largely on previous LVT decisions and comparables derived from actual sales of long and short leasehold interests. He took the long leasehold value at £151,537 by uplifting a short leasehold value of £135,000 by 12.25%, equivalent to a relativity of 89%.
The LVT determined the premium at £12,968, based on a long leasehold value of £150,000, a short leasehold value of £135,000 and a relativity of 90%. In reaching that conclusion, it took the view that the graph of graphs was of limited evidential value. The appellant appealed. On the appeal, the parties advanced further matters, including: (i) for the appellant, a graph of relativities produced by its expert’s own company; and (ii) for the respondents, a “rule of thumb”, said to be adopted by LVTs in the area, of allowing an uplift of 0.5% of the short leasehold value for every year of the unexpired term up to 80 years.
Held: The appeal was allowed.
(1) The LVT had not been entitled to fix a premium of £12,698 since it fell outside the range of those argued for by the parties before it. The Lands Tribunal, on appeal, was confined to the disputed range before the LVT, but could determine component parts of the premium outside the ranges argued for by the parties before the LVT so long as the resulting premium fell within the disputed range: Arrowdell Ltd v Coniston Court (Hove) Ltd [2007] RVR 39 and Pitts v Earl Cadogan [2007] 3 EGLR 86; [2007] 42 EG 296 applied.
(2) Applying the best comparable evidence of long leasehold values, the value of the long leasehold interest in the respondents’ flat at the valuation date was £158,000.
(3) In determining the appropriate relativity, the percentage figures adopted in previous LVT decisions were of no evidential value, since each decision depended on the evidence before the LVT in the particular case. The use of previous LVT decisions should therefore be rejected. Any graph of relativities based on LVT decisions, such as that produced by the company of the appellant’s expert, was subject to the same criticisms. Moreover, it was undesirable to take a “rule of thumb” approach to relativity that was not based on a proper consideration of the facts and evidence of individual cases, and no weight should be attached to such an approach.
Evidence of real-world comparable transactions could be considered provided that a deduction was made to discount any value attributable to the right to acquire the new lease, thereby taking into account the assumption in para 3(2) of Schedule 13 to the 1993 Act. However, the application of a percentage deduction in the instant case was complicated by the unreliability of the comparable transaction evidence and uncertainties arising from matters such as the condition of the flats, the lack of any adjustment for the date of sale and the fact that some were sales of long leasehold interests. The respondents’ analysis of relativities based on comparable transactions was therefore incomplete, inadequate and could not be relied on.
Relativity did not necessarily have to reflect location and, accordingly, in the absence of other satisfactory evidence, the graph of graphs should be relied on. That graph was used to determine a relativity that reflected the benefit of the Act and required no further adjustment: Nailrile Ltd v Earl Cadogan [2009] RVR 95 applied. On all the evidence, the appropriate relativity was 83%. The premium payable for the lease extension was £19,000.
Camilla Lamont (instructed by Griffith Smith Farrington Webb, of Brighton) appeared for the appellant; Christopher Spratt FRICS appeared for the respondents with the permission of the tribunal.
Sally Dobson, barrister
