Midland Freeholds Ltd, Re: 44 Lomas Drive [2011] UKUT 173 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL OF THE MIDLAND RENT ASSESSMENT PANEL
UT Neutral citation number: [2011] UKUT 173 (LC)Venue BY, MIDLAND FREEHOLDS LIMITED, Re: 44 Lomas Drive, Northfield, Birmingham, B31 5LR, Before: N J Rose FRICS, APPEAL DETERMINED ON WRITTEN REPRESENTATIONS, The following cases are referred to in this decision:, Cadogan v Sportelli [2007] 1 EGLR 153, Cadogan v Sportelli [2008] 1 WLR 2142, DECISION
Between
Midland Freeholds Ltd, Re: 44 Lomas Drive
[1]This is an appeal by Midland Freeholds Limited, the freeholder, against a decision of the Leasehold Valuation Tribunal of the Midland Rent Assessment Panel, determining the premium payable for a new lease of a two bedroom ground floor maisonette known as 44 Lomas Drive, Northfield, Birmingham, B31 5LR under section 56 and Schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993 at £6,544.03.[2]The LVT accepted the evidence of Mr D J Coleman MRICS, the expert witness for the applicant lessee, Mr G H Hubbard, the executor of the estate of Mr Leslie Hubbard deceased, that a rate of 6.0% should adopted when deferring the freehold value of the appeal property before the grant of the new lease. The expert witness for the freeholder had argued for a deferment rate of 4.2%. On 21 December 2010 the President granted permission to appeal by way of review, limited to the issue of whether the LVT was right to make an addition of 0.25% to the deferment rate to reflect the location of the appeal property.[3]In a letter dated 11 January 2011 Mr Coleman informed the Tribunal that the lease of the appeal property had been assigned with the benefit of the original notice of claim to Mr R Price, who had decided for reasons of costs not to respond to the appeal.[4]On 11 February 2011 the appellant’s agent, Mr Matthew Fell of Fell Estates Limited, informed the Tribunal that he was content to rely on the reasons given in the notice of permission to appeal, and in particular the observation there that it appeared the LVT “had no evidential basis for an addition of 0.25% to the deferment rate that would otherwise have been appropriate. Such an addition for location would in any event have needed close scrutiny in the light of Sportelli .”[5]In these circumstances, and in view of the limited issue in the case and the desirability of minimising costs, it seemed to me that oral evidence and argument could reasonably be dispensed with. I therefore ordered that the written representations procedure be followed and I have based this decision on the very limited grounds relied upon by the appellant.[6]In Cadogan v Sportelli [2007] 1 EGLR 153 the Tribunal concluded that the deferment rate for flats in Prime Central London (PCL) was 5%. This was arrived at as follow: risk free rate (2.25%) – real growth rate (2.0%) + risk premium (4.5%) + increased management risk for flats as compared to houses (0.25%). In para 88 the Tribunal said this:
“Although we accept the view of the valuers that the deferment rate could require adjustment for location, on the evidence before us we see no justification for making any adjustment to reflect regional or local considerations either generally or in relation to the particular cases before us. The evidence of the financial experts suggests that no adjustment to the real growth rate is appropriate given the long-term basis of the deferment rate, and locational differences of a local nature are, in the absence of clear evidence suggesting otherwise, to be assumed to be properly reflected in the freehold vacant possession value.”
[7]In para 123 the Tribunal gave the following guidance:
“The application of the deferment rate of 5% for flats and 4.75% for houses that we have found to be generally applicable will need to be considered in relation to the facts of each individual case. Before applying a rate that is different from this, however, a valuer or an LVT should be satisfied that there are particular features that fall outside the matters that are reflected in the vacant value of the house or flat or in the deferment rate itself and can be shown to make a departure from the rate appropriate.”
[8]The Tribunal’s decision in Sportelli was considered by the Court of Appeal [2008] 1 WLR 2142 . In para 102 of his judgment, Carnwath LJ said:
“The issues within the PCL were fully examined in a fully contested dispute between directly interested parties. The same cannot be said in respect of other areas. The judgment that the same deferment rate should apply outside the PCL area was made, and could only be made on the evidence then available. That must leave the way open to the possibility of further evidence being called by other parties in other cases directly concerned with different areas. The deferment rate adopted by the Tribunal will no doubt be the starting point; and their conclusions on the methodology, including the limitations of market evidence, are likely to remain valid. However, it is possible to envisage other evidence being called, for example, on issues relevant to the risk premium for residential property in different areas. That would be a matter for those advising future parties, and for the tribunals, to consider as such issues arise.”
[9]In its application for permission to appeal in the present case, the appellant said this:
“We also wish to appeal against the full use of the ‘Kelton Court’ decision. In ‘Kelton Court’ an additional 0.25% was added to the deferment rate to reflect the greater management responsibilities since the Service Charge Regulations 2003 came into force. The Service Charge Regulations 2003 do not apply to the subject property therefore the additional 0.25% is not applicable. We believe that the LVT has wrongly applied or misinterpreted or disregarded a relevant principle of valuation.”
[10]In refusing permission to appeal the LVT explained its decision in this way:
“whilst we used the principles explained [in the] Kelton Court decision as a starting point for our consideration of the deferment rate our conclusion was expressly based on the fact that the location of the Premises was less attractive than the one in Kelton Court and was nothing to do with the question of additional management responsibilities (which of course do not apply to the Premises.)”
[11]The appellant then applied to this Tribunal for permission to appeal. It referred to the explanation given by the LVT and stated that neither party had presented evidence on the relative attractions of the locations of the appeal property and Kelton Court. That statement was not challenged in his letter dated 11 January 2011 by Mr Coleman, to whom a copy of the appellant’s application had been sent. In the absence of any other evidence, I conclude that it was not open to the LVT to add 0.25% to the deferment rate to reflect inferior location and that they should have determined a rate of 5.75%. This produces a revised premium payable of £6,724.03 (see Appendix).[12]The appeal is allowed. I determine the premium payable for a new lease of 44 Lomas Drive to be £6,724.03. I make no order as to costs. Dated 5 May 2011 N J Rose FRICS APPENDIX 44 LOMAS DRIVE, NORTHFIELD, BIRMINGHAM, B31 5LR VALUATION BY LANDS TRIBUNAL Term Ground rent receivable £52.50 YP 30.50 yrs @ 6% 13.847 £726.97 Ground rent receivable £70.00 YP 33 yrs def 30.50 yrs @ 6% 1.9727 £138.09 Reversion to £90,000.00 PV £1 in 63.5 yrs @ 5.75% 0.0287 £2,583.00 £3,448.06 Marriage value Existing leasehold value £80,000.00 Existing freehold value £3,448.06 £83,448.06 Future leasehold value £90,000.00 Future freehold value 0 £90,000.00 Marriage value £6,551.94 ÷ 2 = £3,275.97 Premium payable £6,724.03

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