Leasehold Reform, Housing and Urban Development Act 1993 – Claim to new lease of maisonette – Determination of premium payable by respondent lessees to appellant freeholders – Whether leasehold valuation tribunal erring in valuation of freehold – Whether taking erroneous approach to evidence on relativity – Appeal allowed
On a lease extension claim by the respondents under the Leasehold Reform, Housing and Urban Development Act 1993, the leasehold valuation tribunal (LVT) was asked to determine the premium payable to the appellant freeholders for a new lease of a three-bedroom maisonette on Portobello Road, London W11. The maisonette was built over two floors, with a gross internal area of 1,086 sq ft. At the relevant valuation date in March 2010, the existing lease had 69.82 years unexpired, at a ground rent of £100 pa. The parties agreed that the appropriate deferment rate was 5% and the capitalisation rate was 7%. Issues remained in dispute as to the freehold vacant possession value and the relativity percentage to be applied to derive the existing leasehold value. The parties referred to various graphs, although both placed reliance on a Savills table of with-rights relativities published in spring 2003; both agreed that a discount of 2.5% should be made to reach a without-rights figure. The appellants contended for a premium of £58,000. The respondents contended for £41,387.
The LVT valued the freehold at £741,604, deriving that figure from the price originally paid by the respondents for their maisonette in December 2009 and making adjustments by reference to the Savills table. It valued the extended lease at £734,188, being 99% of the freehold value. As to the value of the existing lease, it applied a relativity of 89.35% of freehold value. In doing so, it took the view that the property was not in a PCL location, that there was a paucity of evidence on relativity and no persuasive evidence to accept any one graph; it accordingly took an average of the percentages shown by all the graphs.
The appellants appealed. It contended that the LVT should have: (i) applied a relativity of 87% to calculate the existing lease value; and (ii) taken other comparables into account, adjusted for the date of the transaction, when valuing the freehold.
Held: The appeal was allowed.
(1) The LVT had erred in its view that there was a paucity of evidence as to relativity. Unusually, there was cogent evidence of relativity before the LVT in the form of agreements between the parties. The Savills table had been used by both experts. Although it would ordinarily be difficult to derive the “without-rights” relativity from this table, because of the difficulty of establishing the value of the tenants’ rights, in the instant case the experts had agreed that the appropriate discount for rights was 2.5%. Deducting that percentage from a with-rights relativity of 89.03%, derived from the Savills table, produced a relativity of 86.80%. That supported the appellants’ suggested 87%; the appellants’ evidence was therefore accepted on that issue and the relativity was determined at 87%.
(2) The evidence provided by the sale of the property itself, very close to the valuation date, was likely to provide the best available evidence of value, regardless of whether the precise sale dates of other comparables was known. There was unchallenged evidence as to the time adjustment to be made to the price paid by the respondents. With deductions for improvements, and upgrading the figure to freehold by reference to the Savills table, the freehold value was £767,560, producing a premium of £59,040. However, since both the freehold value and the premium exceeded the figures for which the appellant had contended before the LVT, and it would not have been open to the LVT to determine a premium in excess of £58,000 in the light of the evidence before it, the premium should be determined at £58,000.
The appeal was determined on the written representations of the parties.
