A nominee purchaser told to pay almost £3n for the freehold of a block of flats in Kensington and Chelsea has lost a Court of Appeal fight to lower the figure.
Charles Carey-Morgan and John Stephenson – together the “nominee purchaser” – had challenged aspects of a decision of the Upper Tribunal (Lands Chamber) decision in relation to the “hope value” attributed to flats let on leases with unexpired terms of less than 80 years and the deferment rate to be used in valuing the freehold interest in relation to six flats subject to leases with unexpired terms of less than five years.
However, now Morgan J has dismissed their appeal, and backed the Upper Tribunal’s October 2011 ruling that they must pay the Sloane Stanley Estate, as reversioner, £2,946,613 for the freehold of the block known as Vale Court, Mallord Street, London SW3.
The nominee purchaser had argued that the Upper Tribunal was wrong in law in relation to its treatment of both the deferment rate and hope value, and that its treatment of the two was inconsistent and involved “double counting”.
The judge said that, of the 25 flats in the block, six were let on leases with unexpired terms of 4.74 years, 17 were let on leases with unexpired terms of between 70 and 96 years and two were to be the subject of leasebacks with terms of 999 years.
The Upper Tribunal held that the deferment rate for reversions of less than five years should be the net rental yield which the evidence showed to be appropriate for the property in question – 3.25% – plus an end allowance of 5%.
However, the nominee purchaser questioned the Upper Tribunal’s assumption that the freeholder would be entitled to vacant possession of the relevant flat at the end of the unexpired term of the relevant lease, when Schedule 10 of the Local Government and Housing Act 1989 might apply to entitle the tenant to remain in occupation, if it was his only or principal home.
It argued that the deferment rate should be lowered to reflect that.
However, Morgan J said that this point was not raised before the Upper Tribunal, and ruled: “I consider that the nominee purchaser ought not to be allowed to raise the new point as to the 1989 Act. It follows that the Upper Tribunal was entitled to decide the case in the way in which it did.”
The nominee purchaser also challenged the Upper Tribunal’s approach in relation to the “hope value” reflecting the possibility that a non-participating tenant will come forward, seeking to negotiate with the freeholder for the grant of an extended lease, prior to expiry of their lease.
The judge said: “The Upper Tribunal correctly directed itself that hope value was to be assessed on the assumption that the tenants did not have a statutory right to an extended lease.
It argued that, instead of the Upper Tribunal assessing the hope of a tenant coming forward to negotiate for an extended lease without the benefit of any statutory entitlement, it assessed a different hope, namely, that a tenant who had an entitlement to an extended lease under the Leasehold Reform, Housing and Urban Development Act 1993 would seek to exercise that entitlement.
Dismissing that ground of appeal, the judge said: “If the Upper Tribunal had done that which the nominee purchaser contends it did, then it would have made an elementary error. I do not consider that the Upper Tribunal made any such error. In the course of its decision, the Upper Tribunal repeatedly referred to the need to assess the chance of the tenant “coming forward” to seek an extended lease. In context, it is clear that the Upper Tribunal was referring to a tenant coming forward without a statutory entitlement to an extended lease.”
He added that he did not consider that there was any inconsistency in the approach of the Upper Tribunal to the two questions of deferment rate and hope value.
The judge, however, added a qualification to future guidance given by the Tribunal in the decision, in which it said: “We conclude that the deferment rate for reversions of less than five years should be the net rental yield that the evidence shows to be appropriate for the property in question; and that in addition there should be an end allowance, which, in the absence of evidence establishing some other percentage, should be 5%.”
Backing the nominee purchaser’s argument that this should not necessarily be treated as definitive, he said: “I agree that the guidance given by the Upper Tribunal in this case may have to be qualified in a case in which a party raises an issue as to the possible application of the 1989 Act (or the Rent Act 1977 or the Housing Act 1988) at the end of the unexpired terms of the leases.
“If such an issue is raised, then the relevant tribunal will have to consider it and the decision in the present case, where the issue was not raised, does not offer any guidance as to how it should be dealt with.”
Carey-Morgan and anr v Trustees of the Sloane Stanley Estate Court of Appeal (Pill and Rimer LJJ, Morgan J) 3 September 2012
Timothy Dutton (instructed by Bircham Dyson Bell LLP) for the appellants
Kenneth Munro (instructed by Pemberton Greenish LLP) for the respondents
Nominee purchaser loses appeal over freehold value of Kensington and Chelsea block of flats
A nominee purchaser told to pay almost £3n for the freehold of a block of flats in Kensington and Chelsea has lost a Court of Appeal fight to lower the figure. Charles Carey-Morgan and John Stephenson – together the “nominee purchaser” – had challenged aspects of a decision of the Upper Tribunal (Lands Chamber) decision in relation to the “hope value” attributed to flats let on leases with unexpired terms of less than 80 years and the deferment rate to be used in valuing the freehold interest in relation to six flats subject to leases with unexpired terms of less than five years. However, now Morgan J has dismissed their appeal, and backed the Upper Tribunal’s October 2011 ruling that they must pay the Sloane Stanley Estate, as reversioner, £2,946,613 for the freehold of the block known as Vale Court, Mallord Street, London SW3. The nominee purchaser had argued that the Upper Tribunal was wrong in law in relation to its treatment of both the deferment rate and hope value, and that its treatment of the two was inconsistent and involved “double counting”. The judge said that, of the 25 flats in the block, six were let on leases with unexpired terms of 4.74 years, 17 were let on leases with unexpired terms of between 70 and 96 years and two were to be the subject of leasebacks with terms of 999 years. The Upper Tribunal held that the deferment rate for reversions of less than five years should be the net rental yield which the evidence showed to be appropriate for the property in question – 3.25% – plus an end allowance of 5%. However, the nominee purchaser questioned the Upper Tribunal’s assumption that the freeholder would be entitled to vacant possession of the relevant flat at the end of the unexpired term of the relevant lease, when Schedule 10 of the Local Government and Housing Act 1989 might apply to entitle the tenant to remain in occupation, if it was his only or principal home. It argued that the deferment rate should be lowered to reflect that. However, Morgan J said that this point was not raised before the Upper Tribunal, and ruled: “I consider that the nominee purchaser ought not to be allowed to raise the new point as to the 1989 Act. It follows that the Upper Tribunal was entitled to decide the case in the way in which it did.” The nominee purchaser also challenged the Upper Tribunal’s approach in relation to the “hope value” reflecting the possibility that a non-participating tenant will come forward, seeking to negotiate with the freeholder for the grant of an extended lease, prior to expiry of their lease. The judge said: “The Upper Tribunal correctly directed itself that hope value was to be assessed on the assumption that the tenants did not have a statutory right to an extended lease. It argued that, instead of the Upper Tribunal assessing the hope of a tenant coming forward to negotiate for an extended lease without the benefit of any statutory entitlement, it assessed a different hope, namely, that a tenant who had an entitlement to an extended lease under the Leasehold Reform, Housing and Urban Development Act 1993 would seek to exercise that entitlement. Dismissing that ground of appeal, the judge said: “If the Upper Tribunal had done that which the nominee purchaser contends it did, then it would have made an elementary error. I do not consider that the Upper Tribunal made any such error. In the course of its decision, the Upper Tribunal repeatedly referred to the need to assess the chance of the tenant “coming forward” to seek an extended lease. In context, it is clear that the Upper Tribunal was referring to a tenant coming forward without a statutory entitlement to an extended lease.” He added that he did not consider that there was any inconsistency in the approach of the Upper Tribunal to the two questions of deferment rate and hope value. The judge, however, added a qualification to future guidance given by the Tribunal in the decision, in which it said: “We conclude that the deferment rate for reversions of less than five years should be the net rental yield that the evidence shows to be appropriate for the property in question; and that in addition there should be an end allowance, which, in the absence of evidence establishing some other percentage, should be 5%.” Backing the nominee purchaser’s argument that this should not necessarily be treated as definitive, he said: “I agree that the guidance given by the Upper Tribunal in this case may have to be qualified in a case in which a party raises an issue as to the possible application of the 1989 Act (or the Rent Act 1977 or the Housing Act 1988) at the end of the unexpired terms of the leases. “If such an issue is raised, then the relevant tribunal will have to consider it and the decision in the present case, where the issue was not raised, does not offer any guidance as to how it should be dealt with.” Carey-Morgan and anr v Trustees of the Sloane Stanley Estate Court of Appeal (Pill and Rimer LJJ, Morgan J) 3 September 2012Timothy Dutton (instructed by Bircham Dyson Bell LLP) for the appellantsKenneth Munro (instructed by Pemberton Greenish LLP) for the respondents
