Leasehold enfranchisement – Leasehold Reform Act 1967 – Enfranchisement of house – Freehold and leasehold values – Proper method of valuation – Use of comparable transactions to value freehold – Valuation of leasehold by application of relativity percentage – Whether LVT entitled to proceed primarily by reference to graphs of relativity – Appeal dismissed
The appellant exercised her right, under the Leasehold Reform Act 1967, to acquire the freehold of a house in St John’s Wood, London NW8, of which she was the long lessee. Her lease had 19.16 years left to run at the relevant valuation date. The leasehold valuation tribunal (LVT) determined the price payable for the freehold, pursuant to section 9(1C) of the 1967 Act, at £7.43m; that figure was based on a freehold value of £15m and a leasehold value of £6.3m, with an agreed deferment rate of 4.75% and capitalisation rate of 5%.
The freehold value was derived by reference to comparables, namely two sales of another property in the same road. The LVT rejected the appellant’s contentions that an adjustment should be made for planning blight, to reflect proposals to redevelop a school on land adjoining the appellant’s property, or for difficulties said to be caused by the proximity of the Israeli ambassador’s private residence on another neighbouring property, including intrusive scrutiny of the appellant’s movements by Special Branch and questioning of visitors and armed police patrolling outside.
As to the leasehold value, the LVT took the view that, in light of the paucity of market evidence, it was appropriate to have regard to graphs of relativity, which indicated a relativity of 42% of freehold value for an unexpired leasehold term of 19.16 years. It rejected the appellant’s contention that a sale of the leasehold of another neighbouring property provided the best starting point for valuing the leasehold. It further rejected a cross-check, put forward by the appellant’s expert, based on the capitalisation of rental income at a gross yield; in that regard, it found that a lease of that length would not be valued in that way.
The appellant appealed on the issue of the freehold and leasehold values. On the appeal, her expert changed his view on the correct approach to the comparable on which the LVT had relied for the freehold value; he submitted that the property had been sold not as a house but as a development site, since it had been marketed with planning permission for redevelopment, albeit that the purchaser had not implemented the permission but had obtained a different permission for alteration and extension of the existing building.
Held: The appeal was dismissed.
(1) It was agreed that the appellant’s property should be valued as a house and not as a development site. The sales on which the LVT had relied as comparable evidence, and the subsequent actions of the purchaser, suggested that the value of the comparable property was very similar whether viewed as a redevelopment site or as an existing house suitable for refurbishment and improvement. The sales of that property, particularly the later of the two sales, provided the best market evidence of the freehold value of the appellant’s property as an existing house with the potential for improvement. Applying a rate per square foot, derived from a division of the sale price of the comparable, adjusted for time, by the gross internal area of the existing and improved property, produced a freehold value of approximately £15.165m for the appellant’s property, which supported the LVT’s freehold valuation figure. That figure was also supported by comparison with another comparable advanced by the appellant.
(2) There was no justification for making a reduction to reflect planning blight from proposals to redevelop the nearby school. The redevelopment proposals had been in the public domain for a long time and there was no evidence that the evolution of the scheme had had a detrimental effect on house values in the area. Moreover, any effect of the proposed development would already be reflected in the comparables, which would be affected more than the appellant’s property since they were closer to the school site.
Nor was the value of the appellant’s property affected by the proximity of the Israeli ambassador’s house. Although the problems identified by the appellant were likely to be a nuisance, they would not have affected value in the rising market prevailing at the valuation date, particularly in light of the compensating factor that a visible police and security presence would probably help to deter burglaries.
(3) As to the valuation of the leasehold, all the proposed valuation methods had their drawbacks. The approach of the appellant’s expert depended on a single transaction with features that suggested that it might not have been at arm’s length. The rental capitalisation method did not assist since there was no evidence that that method was used in the market for leases with unexpired terms of approximately 20 years. Moreover, the rents to which the appellant’s expert referred were attributable to fully modernised accommodation whereas the appellant’s property was assumed to be unimproved. As to graphs of relativity, they could be criticised for being historic, or for being based on one party’s analysis of settlements. However, the LVT had been entitled to have recourse primarily to graphs of relativity in circumstances where market evidence was sparse and required many adjustments. In the light of all the evidence, the LVT had been entitled to take the relativity of the leasehold interest in the property at 42% and its leasehold value of £6.3m should be upheld: Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 and Nailrile Ltd v Earl Cadogan [2009] RVR 95; [2009] 2 EGLR 151 applied.
Edwin Johnson QC (instructed by David Conway & Co Ltd, of Pinner) appeared for the appellant; Michael Buckpitt (instructed by Pemberton Greenish LLP) appeared for the respondents.
Sally Dobson, barrister
Leasehold enfranchisement – Leasehold Reform Act 1967 – Enfranchisement of house – Freehold and leasehold values – Proper method of valuation – Use of comparable transactions to value freehold – Valuation of leasehold by application of relativity percentage – Whether LVT entitled to proceed primarily by reference to graphs of relativity – Appeal dismissedThe appellant exercised her right, under the Leasehold Reform Act 1967, to acquire the freehold of a house in St John’s Wood, London NW8, of which she was the long lessee. Her lease had 19.16 years left to run at the relevant valuation date. The leasehold valuation tribunal (LVT) determined the price payable for the freehold, pursuant to section 9(1C) of the 1967 Act, at £7.43m; that figure was based on a freehold value of £15m and a leasehold value of £6.3m, with an agreed deferment rate of 4.75% and capitalisation rate of 5%.The freehold value was derived by reference to comparables, namely two sales of another property in the same road. The LVT rejected the appellant’s contentions that an adjustment should be made for planning blight, to reflect proposals to redevelop a school on land adjoining the appellant’s property, or for difficulties said to be caused by the proximity of the Israeli ambassador’s private residence on another neighbouring property, including intrusive scrutiny of the appellant’s movements by Special Branch and questioning of visitors and armed police patrolling outside.As to the leasehold value, the LVT took the view that, in light of the paucity of market evidence, it was appropriate to have regard to graphs of relativity, which indicated a relativity of 42% of freehold value for an unexpired leasehold term of 19.16 years. It rejected the appellant’s contention that a sale of the leasehold of another neighbouring property provided the best starting point for valuing the leasehold. It further rejected a cross-check, put forward by the appellant’s expert, based on the capitalisation of rental income at a gross yield; in that regard, it found that a lease of that length would not be valued in that way.The appellant appealed on the issue of the freehold and leasehold values. On the appeal, her expert changed his view on the correct approach to the comparable on which the LVT had relied for the freehold value; he submitted that the property had been sold not as a house but as a development site, since it had been marketed with planning permission for redevelopment, albeit that the purchaser had not implemented the permission but had obtained a different permission for alteration and extension of the existing building.Held: The appeal was dismissed.(1) It was agreed that the appellant’s property should be valued as a house and not as a development site. The sales on which the LVT had relied as comparable evidence, and the subsequent actions of the purchaser, suggested that the value of the comparable property was very similar whether viewed as a redevelopment site or as an existing house suitable for refurbishment and improvement. The sales of that property, particularly the later of the two sales, provided the best market evidence of the freehold value of the appellant’s property as an existing house with the potential for improvement. Applying a rate per square foot, derived from a division of the sale price of the comparable, adjusted for time, by the gross internal area of the existing and improved property, produced a freehold value of approximately £15.165m for the appellant’s property, which supported the LVT’s freehold valuation figure. That figure was also supported by comparison with another comparable advanced by the appellant.(2) There was no justification for making a reduction to reflect planning blight from proposals to redevelop the nearby school. The redevelopment proposals had been in the public domain for a long time and there was no evidence that the evolution of the scheme had had a detrimental effect on house values in the area. Moreover, any effect of the proposed development would already be reflected in the comparables, which would be affected more than the appellant’s property since they were closer to the school site.Nor was the value of the appellant’s property affected by the proximity of the Israeli ambassador’s house. Although the problems identified by the appellant were likely to be a nuisance, they would not have affected value in the rising market prevailing at the valuation date, particularly in light of the compensating factor that a visible police and security presence would probably help to deter burglaries.(3) As to the valuation of the leasehold, all the proposed valuation methods had their drawbacks. The approach of the appellant’s expert depended on a single transaction with features that suggested that it might not have been at arm’s length. The rental capitalisation method did not assist since there was no evidence that that method was used in the market for leases with unexpired terms of approximately 20 years. Moreover, the rents to which the appellant’s expert referred were attributable to fully modernised accommodation whereas the appellant’s property was assumed to be unimproved. As to graphs of relativity, they could be criticised for being historic, or for being based on one party’s analysis of settlements. However, the LVT had been entitled to have recourse primarily to graphs of relativity in circumstances where market evidence was sparse and required many adjustments. In the light of all the evidence, the LVT had been entitled to take the relativity of the leasehold interest in the property at 42% and its leasehold value of £6.3m should be upheld: Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 and Nailrile Ltd v Earl Cadogan [2009] RVR 95; [2009] 2 EGLR 151 applied.Edwin Johnson QC (instructed by David Conway & Co Ltd, of Pinner) appeared for the appellant; Michael Buckpitt (instructed by Pemberton Greenish LLP) appeared for the respondents.Sally Dobson, barrister