Properties AY&U Ltd v Barham House Freehold Ltd

Leasehold enfranchisement – Premium – Development potential – Appellant purchasing freehold interest in property at auction – Respondent exercising right of leaseholders to acquire freehold – First-tier tribunal determining enfranchisement premium at less than third of auction price – Appellant appealing – Whether FTT giving adequate reasons for decision – Whether FTT bound to adopt auction price as market value – Appeal dismissed A property known as Barham House, 39-40 Molyneux Street, London W1 was a four-storey purpose-built block of eight flats constructed in 1938. It was located in a conservation area in the middle of a terrace of 18th century listed buildings. The property itself was not listed but was mentioned in the conservation area policy as a building of merit. There were two flats on each of the four floors and all were let on long leases. The freehold interest in the building was offered for sale at auction in February 2020. The auction particulars described the lot as a freehold ground rent investment with a guide price of £15,000 plus. The appellant was the successful bidder at a price of £91,000. The sale to the appellant was completed on 8 April 2020. The respondent gave notice under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993, on behalf of leaseholders of the flats, that it intended to exercise the right to acquire the freehold. The notice offered a premium of £18,000. The parties were unable to agree the premium payable and made reference to the First-tier Tribunal (FTT). After hearing the evidence of expert witnesses for both parties, the FTT decided that, under section 24 of the 1993 Act, the premium payable by the respondent to the appellant should be £30,000. That figure represented the agreed sum of £19,000 for the value of the reversion to the leases, plus £10,000 hope value and £1,000 for the value of the appurtenances. The appellant was granted permission to appeal on the single ground that the FTT had not explained why it did not regard the recent auction purchase price as a reliable indicator of market value. Held: The appeal was dismissed. (1) The extent of the duty of a judge to explain why they had reached their decision depended on the subject matter. Where there was a straightforward factual dispute whose resolution depended simply on which witness was telling the truth, it was likely to be enough for the judge to indicate simply that he believed X rather than Y. But where the dispute involved something in the nature of an intellectual exchange, with reasons and analysis advanced on either side, the judge had to enter into the issues canvassed before him and explain why he preferred one case over the other. That was likely to apply particularly in litigation where there was disputed expert evidence; but it was not necessarily limited to such cases: Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377 applied. (2) In the present case, the FTT had given a sufficient explanation of its reasons for preferring the views of the respondent’s expert to those of the appellant’s. That was a matter of valuation judgment. The FTT was right to say that the valuation was unsupported by evidence about the likelihood of planning permission being obtained; that depended on design issues which the appellant’s expert had assumed would be satisfactorily resolved. He had also given little consideration to the practicalities of undertaking the development. The FTT correctly recorded that the pre-application advice showed that there was very little prospect of any rooftop development. Summarising all those conclusions, the FTT was entitled to say simply that any purchaser would consider this to be a very speculative development opportunity and to value it on that basis at the figure suggested by the respondent’s expert. The appellant could have been left in no doubt, reading the FTT’s decision, why it had not found that the premium should be at least £91,000. The appellant could be taken to have read the evidence presented on its behalf and appreciated that it had been no part of its own case that the auction figure was an appropriate premium for the respondents to pay.  Its own expert witness did not regard the auction price to be a relevant consideration, and did not even refer to it in support of an alternative valuation if his more ambitious development value was rejected.  Accordingly, the FTT’s decision was not inadequately reasoned. (3) The FTT could have arrived at a figure based on the auction price despite the fact that neither of the experts appearing before it considered that that was a reliable guide to value. But in the face of a consensus that the auction price was either irrationally high or irrationally low, and in any event did not represent open market value, the FTT could not be criticised for failing to give it greater weight. It had heard evidence that the auction vendor had attributed a guide price of £15,000 to the property. It had heard no evidence from the appellants of their own reasons for paying £91,000. It was entitled to assume that there had been competitive bidding up to that level, but it was entitled to accept the evidence of the respondent’s expert that the participants in the auction had taken “an expensive punt” and that it was very unlikely that a purchaser on a later occasion would take the same optimistic view: Trustees of Sloan Stanley Estate v Mundy [2018] EGLR 7 followed. Allen v Leicester City Council [2013] UKUT 16 (LC) and Brickfield Properties Ltd v Ullah [2022] UKUT 25 (LC); [2022] PLSCS 24 considered. (4) Appeals to the tribunal on valuation issues were not restricted to appeals on points of law, but nevertheless, where the FTT had heard the evidence of two experts and accepted the view of one of them, it would rarely be possible for the tribunal to say that it was not entitled to do so unless the view proceeded on the basis of some identifiable error of approach. There was no such error in the FTT’s decision or in the evidence of the respondent which it accepted.  Both acknowledged the significance of the auction price and why it would not be repeated. Where an appeal was being conducted as a review, in the absence of some flaw sufficiently significant to vitiate the FTT’s valuation, it was not for the tribunal to substitute a different valuation of its own.  There was no such flaw in the present case: Mundy considered. Paul Clarke (instructed by Jury O’Shea LLP) appeared for the appellant; Sam Madge-Wyld (instructed by Comptons Solicitors LLP) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Properties AY&U Ltd v Barham House Freehold Ltd