The Court of Appeal has upheld the controversial decision of the Lands Tribunal (LT) on deferment rates for leasehold enfranchisement.
The Court of Appeal unanimously rejected appeals by both the freeholders and leaseholders against the LT decision on a series of disputes in respect of properties in the Cadogan and Howard de Walden estates, located in the prime central London (PCL) area.
Historically, the price payable on enfranchisement takes account of the open market value of the freehold interest with vacant possession at the time of valuation, adjusted to reflect the fact that vacant possession is not yet available; the adjusting factor is known as the deferment rate.
After hearing from an “impressive array of financial and valuation experts”, the LT, in its September 2006 decision in Earl Cadogan and another v Sportelli and another and similar appeals [2006] PLSCS 198, set the deferment rate without regard to property market evidence and applied its findings not only to PCL sites but to the entire country.
The leaseholders appealed, arguing that the LT was wrong in law to refuse property market evidence and that “if its decision stands, it will effect a massive nationwide shift of the value in residential property away from tenants to landlords”.
They also submitted that by setting a deferment rate for the entire country, the LT was under a “fundamental misconception” as to its role and the status of its decisions.
Dismissing the leaseholders’ appeal on market evidence, Carnwath LJ said: “I accept that, if there had been useful market evidence before the tribunal, it would have been wrong in law to ignore it. However, if it was rationally satisfied that the evidence was of no practical assistance, nothing in law or common sense required it to take it into account.”
On the issue of whether a deferment rate – to be followed by leasehold valuation tribunals throughout the country – should have been set, the court held that it was in the public’s interest to “avoid wasted expenditure, and the risk of inconsistent results, in successive LVT appeals on an issue such as that of deferment rates. The tribunal could hardly have done more to ensure that the issues were fully ventilated and exhaustively examined.”
He added: “It was entirely appropriate for the tribunal to offer guidance as it has done in this case, and unless and until the legislature intervenes, to expect LVTs generally to follow that lead.”
However, Carnwath LJ went on to say: “The tribunal’s later comments on the significance of its guidance do not distinguish in terms between the PCL area and other parts of
“The issues within the PCL were comprehensively examined in a fully contested dispute between directly interested parties. The same cannot be said in respect of other areas. The judgment that the same deferment rate should apply outside the PCL area was made, and could only be made, on the evidence then available.
“That must leave the way open to the possibility of further evidence being called by other parties in other cases directly concerned with different areas. The deferment rate adopted by the tribunal will no doubt be the starting point; and its conclusions on the methodology, including the limitations of market evidence, are likely to remain valid. However, it is possible to envisage other evidence being called, for example, on issues relevant to the risk premium for residential property in different areas. That will be a matter for those advising future parties, and for the tribunals, to consider as such issues arise.”
The court also rejected the freeholders’ appeal against the LT exclusion of “hope value” from the determination of the deferment rate.
Following judgment, Willem Baars, of Rokeby Johnson Baars, solicitor for the leaseholders, and Jeremy Hudson, of Speechly Bircham, solicitor for the Howard de Walden estate, agreed that there was now a need for parliament to do something about the deferment rate issue.
Earl Cadogan and others v Sportelli and similar appeals Court of Appeal (Ward and Carnwath LJJ and Sir Peter Gibson) 25 October 2007.
Kenneth Munro and Philip Rainey (instructed by Pemberton Greenish) appeared for the appellants in the first, second and third appeals; Judith Jackson QC and Michael Pryor (instructed by Speechly Bircham) appeared for the appellant in the fourth appeal; Stephen Jourdan (instructed by Rokeby Johnson Baars) appeared for the respondent in the second and fourth appeals; Thomas Jefferies (instructed by Maxwell Winward) appeared for the respondent in the third appeal; the other respondents did not appear and were not represented.
