Deritend Investments (Birkdale) Ltd v Treskonova

Leasehold enfranchisement – Premium – Relativity – First-tier Tribunal (FTT) asked to determine premium payable for new lease – Whether FTT wrong to average RICS 2009 graphs for Greater London and England and to exclude most recent Prime Central London (PCL) graphs – Appeal allowed The appellant was the head leaseholder of 5 Mansard Manor, Christchurch Park, Sutton, Surrey, a one-bedroom flat of 469 sq ft on the second floor of a 1950s purpose-built block of 12 flats over three storeys. The premises included a single garage. There were communal gardens and car parking. The respondent held a leasehold interest from 24 June 1975 for a term of 99 years. The appellant gave notice under section 42 of Leasehold Reform, Housing and Urban Development Act 1993 of her claim for an extension of her existing lease by 90 years. The parties agreed all the elements of the calculation of the premium payable for the lease extension, with the exception of the relationship, or “relativity”, to be applied to the freehold vacant possession value (FHVP) of £255,893 to establish the existing leasehold value. The First-tier Tribunal (FTT) determined the premium payable.to be £30,264, based on an existing lease value of £210,395 and relativity of 82.22%. It was dissatisfied with the approach adopted by both parties’ experts and criticised the appellant’s expert use of the Savills 2016 and Gerald Eve 2016 graphs because the data from those graphs were derived solely from Prime Central London (PCL) data. It found their use to be inappropriate in relation to a small one-bedroom flat in Sutton. Using its own judgment and knowledge, the FTT determined a figure for relativity by taking an average of the five RICS 2009 graphs. The appellant appealed contending that its expert’s use of the three most recent graphs of relativity should be preferred to the FTT’s reliance on an average of the RICS 2009 graphs, four of which were historic, having been produced prior to the financial crash of 2008 and before mortgage lending criteria became more stringent. The Savills 2016 graph and Gerald Eve 2016 graph were current graphs that had been updated following the Upper Tribunal decision in Trustees of the Sloane Estate v Mundy [2016] UKUT 223 (LC); [2016] EGLR 38 on the shortcomings of earlier versions. The appeal was determined on written representations. Held: The appeal was allowed. (1) The Upper Tribunal in Mundy had provided guidance on the approaches available to determine the relativity of a lease without rights under the 1993 Act where there was no reliable market transaction evidence. One possible method was to use the most reliable graph for determining the relative value of an existing lease. Another method was to use a graph to determine the relative value of an existing lease with such rights and to make a deduction from that value to reflect the absence of those rights on the statutory hypothesis. Both methods required evidence or agreement on FHVP value. The second method also required evidence on which a deduction for Act rights could be determined. When Mundy was decided, the Gerald Eve 1996 graph was the most widely consulted graph of relativity for leases without Act rights. The Savills 2002 graph, and its emerging 2015 successor, provided relativity for leases with Act rights and, by comparison with the Gerald Eve graph, a guide to the adjustment to be made for Act rights at different lease lengths. The Savills graph was also used in the market to determine adjustments to transaction evidence of different lease lengths to arrive at FHVP value. Prompted by Mundy, the Savills 2015 graph was revised in 2016 by the inclusion of a relativity curve for unenfranchiseable leases and the Gerald Eve 2016 graph replaced the 1996 version. Both were freely available on the internet for use by the market. (2) Since Mundy, the tribunal’s decisions on relativity had all concerned properties outside PCL. The outcome of each case depended on the particular facts, the elements of valuation which were in dispute and the quality of evidence presented to the tribunal by the parties, but the approach taken by the tribunal served as guidance which might be relied on in other cases: Reiss v Ironhawk Ltd [2018] UKUT 0311 (LC), Oliyide v Elmbirch Properties Plc [2019] UKUT 190 (LC); [2019] PLSCS 178 and Trustees of Barry and Peggy High Foundation v Claudio Zucconi & Anor [2019] UKUT 242 (LC); [2019] PLSCS 183 presented a consistent pattern: in each case where transaction evidence was either unhelpful or unavailable, the recent PCL graphs were adopted as the most reliable and objective evidence of relativity. The two PCL graphs were still rightly regarded as the most reliable and recent graphs of relativity. They provided objective evidence of relativity, based on a very large data set, and had been revised in light of close scrutiny by the tribunal in Mundy. They should be considered as a starting point where no, or insufficient, transactional evidence had been submitted by the parties. They were not ideal, particularly for property outside PCL, but currently they provided the only treatment of relativity which could be regarded as reliable. Their use was always preferable to the use of an average of the RICS 2009 graphs. (3) One of the most important functions of the Upper Tribunal was to give guidance on valuation practice, and the hierarchical relationship between tribunals required the FTT to adhere to that guidance. The FTT’s only explanation for disregarding the most recent graphs was that the use of PCL graphs was not “appropriate” for a small property outside PCL. In the absence of relevant transactional evidence, and with no reliable and up to date graph of relativity outside PCL, the FTT was not entitled to reject the PCL graphs in favour of an average of five outdated graphs with patent limitations in post financial crisis markets. Accordingly, the FTT’s determination would be set aside. (4) In view of the relatively modest sum in issue the tribunal would reach is own conclusion on the basis of the material before the FTT, rather than remitting the issue for further consideration. The guidance given by the Upper Tribunal endorsed the use of the Savills and Gerald Eve 2016 graphs where there was no transaction evidence, notwithstanding that the subject of the valuation was outside PCL. The outcome justified by the evidence provided to the FTT was a determination based on the average of the two 2016 PCL graphs. Relativity would be determined at 75.4%. The premium payable was £38,990 which figure would be substituted as the premium payable by the respondent for the new lease. Click here to read a transcript of Deritend Investments (Birkdale) Ltd v Treskonova Eileen O’Grady, barrister