Leasehold enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Collective enfranchisement – Purchase price payable to landlord for freehold – Deferment rate to be applied in determining price – Whether landlord should be excluded from adducing evidence challenging Sportelli generic deferment rate – Application granted
On a collective enfranchisement claim under the Leasehold Reform, Housing and Urban Development Act 1993, the leasehold valuation tribunal (LVT) was asked to determine the purchase price payable by the nominee purchaser to the landlord for the freehold of the property in question. An issue arose as to the appropriate deferment rate to be applied in determining that price because the existing lease of the relevant flat had only 17 years left to run. The LVT applied the 5% generic rate for flats laid down by the Lands Tribunal (LT) in Earl Cadogan v Sportelli [2007] 1 EGLR 153. On appeal against that decision, the nominee purchaser contended that a rate of 5.5% should have been applied. The freeholder, in its statement of case, supported the Sportelli rate.
However, it subsequently filed a report written by a financial expert who had reviewed the evidence given by the various experts in Sportelli and concluded that: (i) the LT in that case had overstated the risk premium and understated the growth rate; (ii) the appropriate starting rate was 3.75%, not 4.75% as decided in Sportelli; (iii) there was no basis for using a higher generic rate for a short-term reversion than for a long-term reversion; and (iv) accordingly, the rate to be applied to the property in question was 3.75%, possibly with an additional 0.25% increment for flats, if Sportelli were followed on that issue.The nominee purchaser sought an order that the freeholder should not be permitted to rely upon the report. It contended that, inter alia, it would be an abuse of process to challenge the decision in Sportelli.
Held: The application was granted.
Since the freeholder’s case before the LVT had been that the 5% Sportelli rate was correct, and it had not sought leave to appeal against the LVT’s conclusion to that effect, it would require leave to amend its pleadings. In the instant case, there was no justification for permitting the parties to amend their pleadings to contend for a deferment rate of less than 5% or more than 5.5%. It had not been suggested that the evidence upon which the freeholder sought to rely could not have been advanced before the LVT.
Moreover, although evidence directed to challenging guidance of the sort given by the LT in Sportelli could not properly be characterised as an abuse of process, it would undermine the concept of guidance if a party could in any case insist upon providing evidence designed to show that the guidance was incorrect. The LT had power, pursuant to the inherent power of a statutory tribunal to control its own procedure and r 48 of the Lands Tribunal Rules 1996, to determine what evidence might be provided and how it might be presented, subject to the rules of natural justice. An LVT had similar powers under the Leasehold Valuation Tribunals (Procedure)(England) Regulations 2003. Owing to the public interest in avoiding wasted expenditure and the risk of inconsistent results, an LVT or the LT ought in general to exclude evidence if it were satisfied that that evidence was designed to show that the guidance was incorrect. A party was entitled to expect that the guidance would be followed, and it would be unfair if it were compelled to adduce evidence on the deferment rate, or to cross-examine such evidence, in order to counter a challenge to the guidance by the other party. However, such exclusion was a matter of discretion, and the relevant tribunal needed to consider whether exceptional circumstances justified the guidance not being excluded. In the instant case, the evidence that the freeholder sought to adduce was a direct challenge to the Sportelli guidance and such exceptional circumstances that would justify its inclusion did not arise.
Kenneth Munro (instructed by Pemberton Greenish) appeared for the freeholder; Stephen Jourdan (instructed by Forsters LLP) appeared for the nominee purchaser.
Sally Dobson, barrister
