Leasehold Reform Act 1967 – Enfranchisement of house – Section 9(1) valuation – Leasehold Valuation Tribunal taking two-stage approach involving capitalisation of section 15 rent in perpetuity at second stage – Whether three-stage approach with Haresign addition appropriate – Whether 4.75% Sportelli deferment rate applicable to standing-house reversion rather than higher rate previously assumed – Appeals dismissed
The appellant was the freeholder of eight houses that were the subject of leaseholder applications to acquire the freehold under section 9(1) of the Leasehold Reform Act 1967. In two separate decisions, one relating to seven of the properties and another to the eighth, the leasehold valuation tribunal (LVT) determined the prices payable by the leaseholders in a range between approximately £5,500 and £12,500. It valued the properties in two stages. First, it capitalised the existing ground rents for the term of the unexpired lease at 6.5% for seven of the properties and 7% for the eighth and, second, it capitalised the section 15 rents, based on 5.5% of the site value apportionment, in perpetuity, deferred for the unexpired term of the existing lease at 5.5%.
The appellant appealed in respect of the deferment rate and the value of its ultimate reversion. It contended that the section 9(1) valuation should have been carried out in three stages, namely: (i) capitalisation of the existing ground rent at the agreed rate of 6.5%; (ii) deferred capitalisation of the section 15 ground rent for 50 years, rather than in perpetuity; and (iii) reversion to the standing-house value (the Haresign addition): Haresign v St John’s College, (Oxford) (1980) 255 EG 711. It contended that the practice of ignoring the standing-house reversion and instead capitalising the section 15 rent in perpetuity had arisen because the difference between the two- and three-stage methods had previously been considered to be marginal, on the assumption that a higher deferment rate applied at the third stage to reflect a perceived increase in risk resulting from the more distant reversion. It submitted that the decision of the Lands Tribunal (LT) in Earl Cadogan v Sportelli [2007] 1 EGLR 153 had challenged the perceived wisdom that deferment rates differed when applied to longer reversions. Consequently, the separate valuation of the second reversion was no longer marginal and produced a substantially different capital sum from that resulting from the capitalisation of the section 15 rent in perpetuity; the two-stage approach was no longer appropriate.
