Lease extension – Purchase price – Deferment rate – Leasehold Reform, Housing and Urban Development Act 1993 – Appellant lessee exercising right to acquire new lease of flat pursuant to 1993 Act – Leasehold valuation tribunal determining premium payable for new lease – LVT applying Sportelli deferment rate of 5% for flats when valuing reversion of second respondent landlord – Whether further 0.25% addition justified to reflect management risks not considered in Sportelli – Appeal dismissed
The appellant exercised his right, under the leasehold enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 199, to acquire a new lease of a four-bedroom flat in a purpose-built 1950s block of flats in London W1. The flat had been formed by combining three separate flats, which were let on underleases that had between 13.83 and 16.06 years left to run. The first respondent held a leasehold interest in the block with an unexpired term of 173.9 years, at a nil ground rent. The second respondent held an intermediate lease of the block with an unexpired term of 47.15 years, at a fixed annual rent of £7,500 for the duration of the term. The valuation tribunal (LVT) was asked to determine the premium payable to the respondents for the new lease. The LVT determined that the premium payable at the April 2010 valuation date was £4,641,650, of which £1,259,950 was to go to the first respondent, as the competent landlord for the purposes of the legislation, and £3,381,700 to the second respondent as the intermediate landlord.
In reaching that figure, the LVT took the view that, when valuing the second respondent’s reversion in what was agreed to be a well-run block of flats in prime central London (PCL), it should apply the generic deferment rate of 5% for flats prescribed in Earl Cadogan v Sportelli [2007] 1 EGLR 153, with its 0.25% uplift from the 4.75% rate applicable to houses to reflect the additional management risks associated with flats. The LVT rejected the appellant’s contention that it should add a further 0.25% for management risks not considered in Sportelli, including those arising from the consultation requirements imposed on landlords under the Service Charges (Consultation Requirements) (England) Regulations 2003, as had been done in Zuckerman v Trustees of Calthorpe Estate [2009] UKUT 235 (LC); [2011] L&TR 12; [2010] 1 EGLR 187. The appellant appealed.
Held: The appeal was dismissed.
The 0.25% uplift to the generic 4.75% deferment rate for houses, made in Sportelli to reflect the more complex management problems associated with flats, took into account all relevant factors with one exception, namely the effect of the consultation requirements under the 2003 Regulations. That exception, which had justified the Zuckerman addition, related not to the existence of the 2003 Regulations, which had come into force prior to the relevant valuation dates in the cases considered in Sportelli, but to the market having become being more aware of the dangers that those regulations posed in light of the way they had been applied and interpreted in cases such as Daejan Investments Ltd v Benson [2011] EWCA Civ 38; [2011] L&TR 14; [2011] 2 EGLR 113. Those dangers did not arise from the fact that the consultation requirements were more elaborate and prescriptive than their predecessors, but instead stemmed from the fact that, on the law as it was then understood to be, a failure to comply with the strict procedural requirements imposed by the 2003 Regulations could have extremely serious consequences for landlords and leave them unable to recover a large proportion of the costs of repairs, producing draconian results for the landlord and a windfall for the lessees: Daejan, Zuckerman and City & Country Properties v Yeats [2012] UKUT 227 (LC); [2012] PLSCS 192 considered.
However, in light of the subsequent decision of the Supreme Court in Daejan, the potential effects of the legislation for the landlord of an efficiently managed block of flats were no longer draconian. The courts could deal proportionately with applications for dispensation from the consultation requirements and could grant dispensation on terms, so that, so far as the lessees had suffered prejudice by the landlord’s non-compliance with the requirements, they were put in the same position as if the requirements had been satisfied: Daejan [2013] UKSC 14; [2013] 1 WLR 854; [2013] 1 EGLR 4 applied. The risk profile that formed the basis of the Upper Tribunal’s decisions in Zuckerman and Yeats had been changed to such an extent that, while there was still an element of risk, that risk was adequately covered by the uplift of 0.25% in the deferment rate established in Sportelli. Accordingly, there were no longer any grounds for making a Zuckerman addition.
Philip Rainey QC (instructed by Dorman Joseph Wachtel) appeared for the appellant; Anthony Radevsky (instructed by Boodle Hatfield LLP) appeared for the first respondent; Judith Jackson QC (instructed by Russell-Cooke LLP) appeared for the second respondent.
Sally Dobson, barrister
Voyvoda v Grosvenor West End Properties and another
Lease extension – Purchase price – Deferment rate – Leasehold Reform, Housing and Urban Development Act 1993 – Appellant lessee exercising right to acquire new lease of flat pursuant to 1993 Act – Leasehold valuation tribunal determining premium payable for new lease – LVT applying Sportelli deferment rate of 5% for flats when valuing reversion of second respondent landlord – Whether further 0.25% addition justified to reflect management risks not considered in Sportelli – Appeal dismissedThe appellant exercised his right, under the leasehold enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 199, to acquire a new lease of a four-bedroom flat in a purpose-built 1950s block of flats in London W1. The flat had been formed by combining three separate flats, which were let on underleases that had between 13.83 and 16.06 years left to run. The first respondent held a leasehold interest in the block with an unexpired term of 173.9 years, at a nil ground rent. The second respondent held an intermediate lease of the block with an unexpired term of 47.15 years, at a fixed annual rent of £7,500 for the duration of the term. The valuation tribunal (LVT) was asked to determine the premium payable to the respondents for the new lease. The LVT determined that the premium payable at the April 2010 valuation date was £4,641,650, of which £1,259,950 was to go to the first respondent, as the competent landlord for the purposes of the legislation, and £3,381,700 to the second respondent as the intermediate landlord.In reaching that figure, the LVT took the view that, when valuing the second respondent’s reversion in what was agreed to be a well-run block of flats in prime central London (PCL), it should apply the generic deferment rate of 5% for flats prescribed in Earl Cadogan v Sportelli [2007] 1 EGLR 153, with its 0.25% uplift from the 4.75% rate applicable to houses to reflect the additional management risks associated with flats. The LVT rejected the appellant’s contention that it should add a further 0.25% for management risks not considered in Sportelli, including those arising from the consultation requirements imposed on landlords under the Service Charges (Consultation Requirements) (England) Regulations 2003, as had been done in Zuckerman v Trustees of Calthorpe Estate [2009] UKUT 235 (LC); [2011] L&TR 12; [2010] 1 EGLR 187. The appellant appealed.Held: The appeal was dismissed. The 0.25% uplift to the generic 4.75% deferment rate for houses, made in Sportelli to reflect the more complex management problems associated with flats, took into account all relevant factors with one exception, namely the effect of the consultation requirements under the 2003 Regulations. That exception, which had justified the Zuckerman addition, related not to the existence of the 2003 Regulations, which had come into force prior to the relevant valuation dates in the cases considered in Sportelli, but to the market having become being more aware of the dangers that those regulations posed in light of the way they had been applied and interpreted in cases such as Daejan Investments Ltd v Benson [2011] EWCA Civ 38; [2011] L&TR 14; [2011] 2 EGLR 113. Those dangers did not arise from the fact that the consultation requirements were more elaborate and prescriptive than their predecessors, but instead stemmed from the fact that, on the law as it was then understood to be, a failure to comply with the strict procedural requirements imposed by the 2003 Regulations could have extremely serious consequences for landlords and leave them unable to recover a large proportion of the costs of repairs, producing draconian results for the landlord and a windfall for the lessees: Daejan, Zuckerman and City & Country Properties v Yeats [2012] UKUT 227 (LC); [2012] PLSCS 192 considered.However, in light of the subsequent decision of the Supreme Court in Daejan, the potential effects of the legislation for the landlord of an efficiently managed block of flats were no longer draconian. The courts could deal proportionately with applications for dispensation from the consultation requirements and could grant dispensation on terms, so that, so far as the lessees had suffered prejudice by the landlord’s non-compliance with the requirements, they were put in the same position as if the requirements had been satisfied: Daejan [2013] UKSC 14; [2013] 1 WLR 854; [2013] 1 EGLR 4 applied. The risk profile that formed the basis of the Upper Tribunal’s decisions in Zuckerman and Yeats had been changed to such an extent that, while there was still an element of risk, that risk was adequately covered by the uplift of 0.25% in the deferment rate established in Sportelli. Accordingly, there were no longer any grounds for making a Zuckerman addition.Philip Rainey QC (instructed by Dorman Joseph Wachtel) appeared for the appellant; Anthony Radevsky (instructed by Boodle Hatfield LLP) appeared for the first respondent; Judith Jackson QC (instructed by Russell-Cooke LLP) appeared for the second respondent.Sally Dobson, barrister