Deferment rate challenge reaches appeal court

A challenge to a controversial Lands Tribunal decision that set deferment rates for leasehold enfranchisement across the country has reached the Court of Appeal. Both the freeholders and leaseholders in a series of disputes over properties in the Cadogan and Howard de Walden estates in central London are appealing against the September 2006 decision in Earl Cadogan v Sportelli. 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. In Sportelli, the tribunal tried to deal comprehensively with the issue of the deferment rate to be applied in enfranchisement valuations by determining a generic rate for flats and houses and giving guidance as to the factors that determine the rate and how those factors might influence future changes in the rate. However, commentators have said that the tribunal’s decision was fundamentally flawed and that it will result in leaseholders being priced out of the enfranchisement and lease extension market. Opening the case for Cadogan, Kenneth Munro told the court: “Although these appeals involve, on their face, narrow points, a vast amount of money turns on the proper determination of the issues and because of the way in which the tribunal approached the issues they affect not only these properties, but are also of universal application across the whole country.” Arguably, the most significant appeals are those by the leaseholders challenging the tribunal’s decision not to allow property market evidence to be taken into account in determining deferment rates and the tribunal’s insistence on a deferment rate for the whole country. Stephen Jourdan, counsel for leaseholder Maybury Court, says that the tribunal was wrong in law to refuse property market evidence and “if its decision stands then it will effect a massive nationwide shift of the value in residential property away from tenants to landlords.” He also submits that by taking the unprecedented step of setting a deferment rate for the whole country that should be adhered to “unless compelling evidence to the contrary is adduced”, the tribunal was under a “fundamental misconception” as to its role and the status of its decisions. Ward and Carnwath LJJ and Sir Peter Gibson are hearing the appeal over three-and-a-half days and are expected to reserve judgment until a later date. Earl Cadogan and others v Sportelli and similar appeals Court of Appeal (Ward and Carnwath LJJ and Sir Peter Gibson) 23 July 2007.