[2001] EWLands LRA_10_2000 (12 February 2001)	LRA/10/2000
	
	LANDS TRIBUNAL ACT 1949
	
LEASEHOLD ENFRANCHISEMENT – premium payable for the grant of new lease of flat – value of extended lease – comparables to be taken into account – relationship between existing leasehold and freehold values – whether evidence on relativities relevant – appeal allowed – premium £356,456

IN THE MATTER of an APPEAL FROM A DECISION of the LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL

BETWEEN	EARL CADOGAN
	and
	CADOGAN ESTATES LIMITED	Appellants
		
	and
		
	DR MARK ROTHERHAM CECIL	Respondent

	Re: 	Flat B
		23 Cadogan Square
		London SW1

	Before: N J Rose FRICS

	Sitting in public at 48/49 Chancery Lane, London WC2A 1JR
	on 18 and 19 January 2001

The following cases are referred to in this decision:

Trustees of the Eyre Estate v Saphir [1999] 34 EG71
Wellcome Trust Ltd v Romines [1999] 3 EGLR 229

Kenneth Munro, instructed by Pemberton Greenish, Solicitors of London for the Appellants
Edwin Johnson, instructed by Seifert & Co, Solicitors of London for the Respondent

DECISION

1.	This is an appeal by the Right Honourable Charles Gerald John Earl Cadogan and Cadogan Estates Limited (“the appellants”) against a decision by the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”) determining the premium payable by the tenant, Dr Mark Rotherham Cecil (“the respondent”) for the grant of a new extended lease of premises known as Flat B, 23 Cadogan Square, London SW1 (“the subject property”) under the provisions of Schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) at £311,500.  The appellants’ case at the hearing was that the premium should be £400,750, although this was effectively increased to £410,750 during the course of closing submissions.  The respondent’s case was that the decision of the LVT should be upheld.
2.	Mr Kenneth Munro, counsel for the appellants, called Mr M J W Duncan, senior partner in Messrs W A Ellis and Mr J M Clark, ARICS, an Associate of Messrs Gerald Eve.  Mr Edwin Johnson, counsel for the respondent, called Mr Justin Shingles, managing director of Justin Shingles Limited.  Both Mr Duncan and Mr Shingles have extensive experience of the residential property market in Knightsbridge, where the subject property is situated.  Mr Clark has had detailed experience of statutory valuations for leasehold enfranchisement purposes, albeit over a shorter period.
3.	The parties have agreed a statement of facts.  From this and from the evidence I find the following facts.  The subject property forms part of a late 19th century terraced building, arranged on 6 storeys plus basement, and situated on the east side of Cadogan Square, a prime residential location in central London.  The building is listed Grade II.  It forms part of the Hans Town Conservation Area and has a westerly outlook over the private square gardens.  The subject property is situated on the first floor of the building.  All floors apart from the third and fifth are served by a lift.  There is a resident caretaker and local residents’ on-street parking in the immediate vicinity.
4.	The accommodation currently comprises:
Description
	Metres	Feet	
Hallway (adjacent to lift)	2.18 x 3.63	7' 2" x 11' 11"	
Living Room (west facing, with access to balcony) incorporating dining area	7.44 x 7.11
4.38 x 3.52	24' 5" x 23' 4"
14' 4" x 11' 6"	
Kitchen (east facing into light well)	3.22 x 3.22	10' 7" x 10' 7"	
Guest cloakroom (off hallway, no natural light)	1.67 x 0.84	5' 6" x 2' 9"	
Bedroom (east facing)	7.48 x 5.33	24' 7" x 17' 6"	
Bathroom en suite	2.52 x 1.71	8' 3" x 5' 7"	

The gross internal floor area is approximately 146.79 square metres (1,580 square feet).  Access is by way of communal stairs or a lift opening directly into the subject property.  Central heating and hot water are supplied by the communal system in the building.  The subject property is in good decorative order.
5.	Under the consent granted by way of a Licence to Alter dated 13 September 1995, the respondent has carried out the following works: 
(a)	removing internal partitioning to combine two east facing bedrooms and assorted storage cupboards to form one double bedroom;
(b)	creating a new doorway through an internal structural wall to turn the former separate bathroom into an en suite facility to the double bedroom;
(c)	replanning and refitting the bathroom;
(d)	refitting the kitchen and guest cloakroom;
(e)	redecorating the flat throughout to a high standard;
(f)	re-plumbing, re-wiring and other minor works.
6.	The subject property is held by the respondent under what is effectively a full repairing and insuring underlease for 64 years less 10 days from 25 March 1959, thus expiring on 15 March 2023.  The rent payable throughout the term is £130 per annum, plus a contribution towards the cost of services provided by the lessor.  The lessee covenants not to make any structural alterations to the building and not to cut or injure any of the walls timbers or roof of the building, nor to alter the plan layout or appearance of the flat or erect any internal alterations without the previous written consent of the lessor.
7.	The following matters relevant to the calculation of the premium payable for the new lease are agreed: 
(i)	As at the valuation date, 22 September 1999, it is assumed that the respondent’s existing lease had 23 years 6 months unexpired.  
(ii)	The diminution in value of the separate interests held by the freeholder and head-leaseholder are to be assessed assuming that, upon the grant of the extended lease to the respondent, there will be no reduction in the head rent payable.  
(iii)	The ground rent currently payable by the respondent is to be capitalised for the residue of the term from the head-leaseholder’s point of view on a dual rate basis at 8½%, allowing for the investment of a sinking fund at 2½% and for the effect of tax on the accumulation of interest in the sinking fund at 30%.
(iv)	The appellant’s reversionary interest is to be deferred at 6%.
(v)	The uplift in value to be applied to the value of the proposed extended lease in the flat of 113 years 6 months to give the corresponding value of the freehold in possession to the nearest £1,000 is 2%.
(vi)	The marriage value released upon completion of the transaction is to be divided equally between the respondent on the one hand and the two landlords on the other.  
8.	Throughout most of the hearing there were two matters in dispute between the parties.  They were: 
(a)	the value as at the agreed valuation date of the respondent’s existing lease in the subject property, assuming vacant possession and disregarding the respondent’s right to an extended lease under the 1993 Act, and
(b)	the value at the valuation date of the proposed lease in the subject property, for 113 years 6 months at a peppercorn rent, assuming vacant possession.
9.	In the course of their closing submissions, both counsel agreed that the effect of Mr Duncan’s evidence was that the LVT’s determination of the value of the existing lease was no longer in issue.  The only question left for me to decide, therefore, is the value of the proposed extended lease.  Mr Duncan assessed this at £1,145,000 and Mr Shingles supported the LVT’s figure of £987,500.  A subsidiary issue also arises, however, namely the extent, if any, to which the valuations of the extended lease or the freehold can be checked by considering the relationship between them and the value of the existing lease.
10.	I attach copies of the LVT’s valuation (Annex 1) and that of Mr Clark at £400,750 (Annex 2).  The latter was based on Mr Duncan’s original valuation of £640,000 for the existing lease.  I calculate that the effect of the appellant’s subsequent acceptance of the LVT’s figure of £620,000 for the existing lease would be to increase Mr Clark’s valuation to £410,750 (Annex 3).
11.	Mr Duncan’s valuation of the extended lease in the sum of £1,145,000 was equivalent to £725 per sq ft of gross internal area.  In arriving at this figure he had regard to ten sales of other flats, eight of which were in Cadogan Square itself.  He considered that the valuer should look at all the available evidence - in this case a “basket of comparables” - and exercise his experienced judgment in placing the subject property correctly in the context of the evidence.  He thought that, whilst the LVT had followed this practice in assessing the value of the existing underlease of the subject property, it had based its decision on the value of the extended lease solely on the sale of one flat, 55D Cadogan Square, ignoring the broader body of evidence.  
12.	Mr Duncan adjusted the prices paid for the ten comparable flats to take account of differences in lease length and date only.  Date adjustments were made by reference to the FPD Savills PCL South West Index.  In his original report to this Tribunal, he said that he had adjusted for lease length differentials by reference to his firm’s index of the relationships, in prime inner London residential property, between given lease terms and freeholds.  He explained that this index assumed leases at nominal ground rents and ‘normal’ market conditions.  It had been formulated by ‘averaging’ indices maintained over many years by his firm; by Gerald Eve with John D Wood and Co and by Savills.  He explained that John D Wood and Co had recently disassociated itself from the Gerald Eve index.  At the hearing, he produced an updated index which reflected only his firm’s valuation opinions.  The figures in this index were based primarily on the Trevor Estate, which is located approximately 400 yards from the subject property measured in a straight line.  Most leases on that estate were for a term of less than 21 years and were therefore not enfranchisable.  He compared the prices achieved for such “uncorrupted” leases with prices paid for similar houses which were now in freehold occupation.  It was much more difficult to find uncorrupted leases with an unexpired term of more than 21 years.  A handful of such cases provided datum points.  Mr Duncan and two of his partners had used their own valuation opinions to interpolate between those datum points.  He found it reassuring that this completely fresh look at relativities had not produced results which were greatly out of line with his firm’s previous index.  In cross-examination, he stated that only one transaction outside the Trevor Estate had been used by his firm when compiling the index and that neither that property, nor the properties on the Trevor Estate, were comparable to the subject property.  He did not regard the index as a primary method of valuation, although he knew of no more reliable guide for comparing the values of leases of different length.
13.	Mr Duncan summarised his ten comparables in the following table which, he said, indicated how his valuation of £725 per sq ft “sat comfortably” among them:
	£ psf	
Flat D, 55 Cadogan Square (First Floor)	625	
15 Cadogan Square (First Floor)	639	
Flat 12A, 78 Cadogan Square (Second Floor)	661	
Flat 4, 53 Cadogan Square (Second Floor)	664	
64 Cadogan Square (First Floor)	703	
35 Cadogan Square (First Floor)	717	
Subject Property	725	
62 Cadogan Square (Second Floor)	732	
Flat 2, 38-39 Hans Place (First Floor)	762	
17 Lennox Gardens ((First Floor)	765	
62 Cadogan Square (First Floor)	1,108	

14.	Mr Clark considered it useful to try to establish whether the relationship between the values ascribed to the existing lease and the proposed extended lease or freehold interest in the subject property was in line with the general pattern of leasehold/freehold relativities of value, where the leasehold interest had been valued disregarding rights to enfranchise.  Since the evidence of leasehold values drawn from the open market was increasingly affected by the existence of tenants’ rights to enfranchise, he believed it was more useful to make the comparison with the evidence drawn from the valuations for the premiums agreed or determined for lease extensions of flats or the enfranchisement of houses within the local residential market.  This was because, in those valuations, the effect of tenants’ rights to enfranchise had already been disregarded.  For that reason his firm had long maintained a record of its final adjusted valuations of the prices agreed or determined for settlements of claims for flats or houses which it had negotiated on behalf of the Cadogan Estate as well as the Grosvenor Belgravia and other estates in central London.
15.	Mr Clark referred to my decision in Trustees of the Eyre Estate v Saphir [1999] 34 EG 71.  He considered that, having formed a view as to the appropriate vacant possession values for the existing and proposed leasehold interests and the freehold interest in the subject flat, the valuer should then stand back and consider objectively whether the relationship between the values of the existing lease and the freehold was reasonable.  If it was not, he should attempt to explain why.  If satisfactory reasons were not forthcoming, the conclusion must be drawn that one or other of the values ascribed to the flat was either too high or too low and should be reconsidered.  He did not believe that the LVT had followed this approach in making its decision and he did not think it could properly have accepted a relativity of 61.5% in the light of both the open market and the settlement evidence presented to it.  In order to check the valuation against settlement evidence, Mr Clark provided details of the premiums for extended leases negotiated by him or his firm under the provisions of 1993 Act.  He referred in particular to nine settlements relating to flats in Cadogan Square and Cadogan Gardens.  In each case the unexpired term was broadly comparable to the existing lease of the subject property and the leases were extended by the same period of 90 years on similar terms, including the reduction of the ground rent to a peppercorn.  The nine settlements showed a pattern of relativities ranging from 50.5% to 53%.
16.	Mr Clark pointed out that Mr Duncan’s original valuation of £640,000 for the existing lease was equivalent to 54.8% of the corresponding value of £1,168,000 for the freehold (102% of £1,145,000).  In his view this relativity was acceptable when compared to the settlement evidence.  Although it was at the upper end of the range derived from the settlements in Cadogan Square and Cadogan Gardens, it remained “just within the bracket of acceptability”.  I should add that Mr Clark was not asked to comment on the relationship between Mr Duncan’s freehold value of £1,168,000 and the existing lease value of £620,000 for which the appellants eventually contended.  In fact, however, the relationship in that case is 53.1%.  It thus falls further within Mr Clark’s “bracket of acceptability” than Mr Duncan’s original approach.
17.	On the other hand, Mr Duncan considered that arguments about relativities were redundant in any case in which the respective values could be established by reference to comparable evidence.  This, he felt, was such a case.  The comparable evidence was extensive and relevant and the values of the existing underlease and extended lease could be clearly established by reference to that evidence.
18.	At the LVT hearing, Mr Shingles valued the freehold interest in the subject property at £925,000.  Although he did not depart from this opinion, he was prepared to support the LVT’s figure of £1,007,250 before me, for three reasons.  Firstly, its determination and the values behind its decision were not that far removed from his own conclusions and therefore did not lead him to shift his view fundamentally.  Secondly, analysis of subsequent evidence that had either been confirmed or come to light since his original proof was prepared fitted well with the LVT’s opinion.  Finally, valuation was an art not a science and the differences between his opinion and the LVT’s determination were within what he regarded as acceptable valuation tolerances.  
19.	Mr Shingles relied on seven comparables to support the LVT’s freehold valuation, which had been based on a 2 per cent uplift on an extended lease value of £625 per square foot.  Four of his comparables were also relied upon by Mr Duncan.  The two valuers analysed the sale prices differently, however, as can be seen from the following table.
Address	Mr Duncan	Mr Shingles	
		£		 £	
15 Cadogan Square (First Floor)	639	645	
35 Cadogan Square (First Floor)	717	676	
64 Cadogan Square (First Floor)	703	631	
55D Cadogan Square (First Floor)	625	633	

20.	In analysing these comparables Mr Shingles, like Mr Duncan, adjusted for differences in date by reference to the FPD Savills PCL South West Index.  He also made subjective allowances to reflect differences from the subject property in terms of lease length, room height, views, location and balcony amenity.  The differences between the respective analyses are largely accounted for by differences in the two valuers’ approaches to lease length and the fact that Mr Duncan did not make specific adjustments to reflect physical and locational differences.  In addition, Mr Shingles’ analyses were prepared in terms of the equivalent freehold value, whereas Mr Duncan approached the matter on the basis of the extended lease value.
21.	Mr Shingles adjusted the remaining comparables upon which he relied to produce the following equivalent values per square foot for the subject property:
45 Cadogan Place (Second and Third Floors)	£574	
37 Pont Street (Lower Ground, Ground and First Floors)	£529	
21B Lennox Gardens (First Floor)	£529	

22.	In order to check the reliability of the relationship between the LVT’s valuations of the existing lease and the freehold, Mr Shingles relied in particular on two buildings.  At 36 Lennox Gardens, a lease of the third floor flat 5, with 14.83 years unexpired, was surrendered and a new lease granted for an extended term.  Agreement was reached in November 2000.  According to Mr Shingles’ analysis, the agreed valuations suggested that the existing lease was worth 49.72% of the freehold value.  In Mr Shingles’ opinion, if this flat were compared with the subject property, and if one assumed a lease decay rate of 1.5% per annum, it pointed to a relativity of 62.57% for the subject property, very close to the LVT’s 61.55%.
23.	The second building was 1 Eaton Square, where 2 flats on the third floor, H and J, were sold in October 1999 and February 2000 respectively.  The lease of H had 73.68 years unexpired and that of J had 19.82 years unexpired.  Mr Shingles made adjustments for ground rent, size, date and lease length which, he said, indicated a relationship of 56% between a 23½ year lease and a freehold.  If further adjustments were made to reflect the slower decay rate for a prime first floor flat compared with a third floor flat in a noisier position with lower ceiling heights, the relationship between the LVT’s valuations did not appear to be incorrect.
24.	I inspected the subject property on 31 January 2001, accompanied by a representative of each party.  I also made unaccompanied inspections on the same day of six of the eight flats in Cadogan Square that had been referred to as comparables.  The parties were unable to secure access to flat 12A, 78 Cadogan Square or the first floor of No.64 and I inspected those buildings from the outside only.  It was common ground that Cadogan Square is the most desirable square in the area and in my view evidence of transactions outside the square is unlikely to be of material assistance.  It was also agreed that the west facing terrace in Cadogan Square, which includes the subject property, is superior to the east facing terrace, which contains four flats which have been cited as comparables.  In view of this, and in the light of my inspections, I have concluded that the most reliable evidence is provided by the four comparable flats which form part of the west facing terrace.  Moreover, I consider that Mr Duncan’s analyses of those comparables are reasonable and offer the appropriate starting point for the valuation.  I am satisfied that he has made appropriate adjustments to reflect differences in date and - subject to one caveat below – lease length.
25.	I have inspected all four comparables internally and comment briefly on each as follows:
15 Cadogan Square – First Floor
1297 square feet.  Lease of some 122 years sold October 2000 at £950,000.  Equivalent to £639 per square foot at the valuation date.  Two definite double bedrooms are an advantage.  With this exception, the subject property is superior in terms of layout and views over the square gardens.  Moreover, the lease at No.15 prohibits alterations.  This evidence suggests the extended lease of the subject property was worth £680/710 per square foot.

35 Cadogan Square – First Floor
1456 square feet.  Lease of some 59 years sold December 2000 at £975,000.  Adopting Mr Duncan’s adjustment for lease length differential, equivalent to £717 per square foot at the valuation date.  Very comparable to the subject flat, but with superior views over square gardens.  Suggests £700 per square foot.

Flat 4, 53 Cadogan Square – Second Floor
1585 square feet.  Lease of some 24 years sold June 2000 with benefit of claim for 90 year lease extension at agreed premium of £363,000.  Assuming statutorily recoverable costs of £7,000, equivalent to £664 per square foot at the valuation date.  Certain advantages, particularly three bedrooms, but on inferior second floor, no balcony and original living room substantially reduced in size.  Suggests £700 per square foot.

Flat D, 55 Cadogan Square – First Floor
1486 square feet.  Lease of some 77 years sold August 1999 at £840,000.  Equivalent to £625 per square foot; no time adjustment required.  Very comparable to subject property.  However, disadvantage resulting from division of living room more than offsets advantage of extra bathroom.  Suggests £640/670 per square foot.
26.	In considering this evidence, I bear in mind that the conclusion I have drawn from No.35 should be treated with some caution.  As Mr Duncan put it:
“extrapolating the value of a lease for 59 years, to an equivalent value of a lease for 113 years, is obviously prone to distortion.”
In addition, the lease provides for reviews of the ground rent, the basis of which was not clear.  If the review provisions were unusually onerous, this could have had a significant effect on the price achieved.
27.	The sales of Nos. 15 and 53 took place respectively 13 months and 9 months after the relevant valuation date.  Mr Duncan and Mr Shingles agreed that post-valuation date evidence was no less reliable than that of transactions prior to the relevant date.  They also agreed, however, that such reliability diminished as the difference in time increased.  The time adjustments therefore produce a possible source of error.
28.	I agree with the LVT that the sale of flat D, 55 Cadogan Square in August 1999
“was the most useful long lease comparable put in evidence.”
The other three comparables from which I receive some, albeit limited assistance, however, all point to the value of the subject property being at the upper end of the range of £640/670 per square foot that I derive from 55D.  I therefore find that the value of the extended lease in that property was £1,059,000, calculated as follows:
1,580 square feet at £670 = £1,058,600, say £1,059,000.
29.	Adopting the basis agreed between the parties, this is equivalent to a freehold value of £1,080,000, as follows:
£1,059,000 + 2% = £1,080,180, say £1,080,000.
30.	The agreed existing lease value of £620,000 is equivalent to 57.41% of what I have found to be the value of the freehold.  This is appreciably higher than the range of 50.5% to 53% that is suggested by Mr Clark’s analysis of nine settlements in Cadogan Square and Cadogan Gardens.  Mr Munro submitted that settlement evidence provides valuable evidence to cross-check valuations arrived at on the basis of comparable evidence and that it is the best evidence where no comparables are available.  In this connection he referred to Wellcome Trust Limited v Romines [1999] 3 EGLR 229.
31.	I consider that those submissions are well-founded.  They assume, however, that the settlement evidence is reliable.  In this case, I am far from satisfied that the analyses of settlements provided by Mr Clark provide an accurate indication of the valuations which were in fact agreed.  A particularly vivid example of this is provided by Flat 4, 53 Cadogan Square.  The premium for an extended lease of this flat was agreed between Mr Clark and Mr D’Arcy Clark of Messrs Chesterfield, the existing lease having an unexpired term of approximately 23 years.  Mr D’Arcy Clark wrote to Mr Clark on 17 February 2000, proposing a settlement at a premium of £363,000, which was in fact agreed.  In his letter, Mr D’Arcy Clark indicated that his unimproved freehold value was £1,100,000 and that the only real difference between the surveyors was the unimproved leasehold value, on which he offered a compromise at £630,000, producing a premium of £363,007, say £363,000.  The analysis that Mr Clark put forward to this Tribunal, however, incorporated figures of £1,018,500 and £541,500 for the freehold and leasehold interests respectively.  Mr Clark’s analysis suggests a relationship of 53.2% between the two values, whereas the final values that had been put forward by the lessee’s surveyor suggest 57.3%.  Mr Clark explained that the values that appeared in his analysis were based upon figures that had been provided by Mr Duncan.  In answer to a question from me, he was unable to refer to a single case where his final valuations had been varied to include different figures from those originally suggested by Mr Duncan.  It therefore seems to me that Mr Johnson was right to submit that, so far as they concern relativities, Mr Clark’s analyses do not add materially to Mr Duncan’s opinions of the appropriate values for the leasehold and freehold interests.  
32.	I have also considered Mr Shingles’ evidence as to the relationship between leasehold and freehold values.  I do not find it of any more assistance than the evidence produced by Mr Clark.  In my judgment, it consists merely of subjective and largely unsupported adjustments, applied to a very small number of transactions. 
33.	As I have said, I consider that reliable analyses of settlements can perform a useful part in the valuation process.  This applies particularly to capitalisation and deferment rates and “uncorrupted” existing lease values, where there is a difficulty in obtaining market evidence.  Mr Clark mentioned that his was not the only firm which produced such analyses.  Following a request from me, there were produced graphs recently prepared by two other firms, Boston Carrington Pritchard and John D Wood and Co, indicating the relationship between the value of a lease of given length and a freehold.  Both firm’s graphs suggested that the appropriate percentage for a 23½ year lease was in excess of the 57.41% which emerges from my valuations.  There is insufficient information to enable me to determine whether either graph is any more objective than Mr Clark’s.  What is clear, however, is that there is no reliable settlement evidence before me to suggest that my valuation is outside a range which I can properly accept.
34.	The effect of my finding as to the value of the extended lease is that the appeal is allowed.  I find that the premium payable by the respondent to the appellants under Schedule 13 of the 1993 Act is £356,456, as calculated in Annex 4.
35.	What I have said so far concludes my determination of the substantive issues in this case.  It will take effect as a decision when the question of costs is decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and Order 61 rule 1(1) of the Civil Procedure Rules will come into operation.  The parties are invited to make submissions as to the costs of this appeal and a letter accompanying this decision sets out the procedure for submissions in writing.
Dated:  12 February 2001

	
	(Signed):  N J Rose

Addendum on costs

36.	I have received submissions on costs from both parties.  The appellants ask for their costs of the appeal.  They point out that the premium fixed by the Tribunal is a marked increase on the LVT’s figure and that contended for by the respondent.  They refer to offers made by the parties, including one of £350,000 by the respondent only a week before the hearing.  Although by then most costs had been incurred the offer did not refer to those costs.  The net effect was that the respondent’s offer was substantially below £350,000 and the Tribunal’s figure a substantial improvement on the respondent’s offer.  Whether the matter is analysed on the basis of costs following the event or which party won, the appellants have succeeded.  In the absence of any special or exceptional circumstances, they are entitled to their costs; there are no such circumstances. 
37.	The respondent submits that only one offer has a bearing on costs, since none of the others beat the Tribunal’s determination.  That offer was made by the respondent on 4 July 2000 in the sum of £360,000 plus s.60 costs with each side paying its own costs of the appeal.  It would be surprising if either side had incurred many costs on the appeal before that offer was made.  Thus the respondent offered more than the appellants secured on the appeal.  Although there was no time limit on the July offer, the appellants rejected it by letter dated 10 July 2000.
38.	The respondent also suggests that he should be entitled to a proportion of his costs for dealing with the short lease issue and Mr Clark’s evidence.  If the appellants had asked Mr Duncan at an early stage whether he felt able to say that the LVT’s short lease valuation was wrong – and it may be that they did – it would have been obvious that that aspect of the appeal was hopeless.  As to Mr Clark’s evidence, the Tribunal took the view that it was unreliable and did not add materially to Mr Duncan’s evidence and Mr Duncan, to his credit, regarded Mr Clark’s evidence as irrelevant in any event.
39.	If these points were all ignored, and no offers had been made, the respondent submits that the result would represent a draw, rather than a win for the appellants.
40.	Finally, the respondent suggests that the appellants decided to proceed with the appeal in order to bring the values within a relativity which they regarded as acceptable.  Even if they had succeeded, therefore, there would have been an element of unfairness in the respondent having to incur the cost of fighting an appeal on “a much wider agenda” than his own.  Accordingly, the appellants should be ordered to pay one half of the respondent’s costs of the appeal up to 10 July 2000; thereafter the appellants should pay the respondent’s costs. 
41.	In response the appellants suggest that the fact that the respondent’s offer of 4 July 2000 was subsequently withdrawn undermines the whole of his submissions on costs; the offer that was available until and throughout the hearing was below the figure determined by the Tribunal.  The appellants do not accept that considerable costs were incurred on the short lease issue, nor that it was unreasonable for Mr Duncan to speak to the same figure as that to which he spoke in the LVT.  Moreover, little time was spent on this issue at the hearing.
42.	They also reject the suggestion that the Tribunal took the view that Mr Clark’s evidence on relativity was unreliable.  The fact that Mr Shingles addressed relativities in his own evidence shows that he also thought it was relevant.  They deny that the result of the appeal was a draw and they reject the suggestion that they had some sort of secret agenda.  They considered that the LVT was wrong; they had a right of appeal which they exercised and the Tribunal decided that the LVT was wrong.
43.	In my judgment, the appellants’ appeal has been successful, since they secured an increase of £44,956, or more than 14% on the LVT’s figure.  They were therefore fully justified in appealing.  I do not consider that they should be penalised for calling evidence on relativity, since the respondent, too, considered it appropriate to adduce such evidence.
44.	On the other hand, the appellants were not justified in rejecting the respondent’s offer, dated 4 July 2000, to settle at a figure in excess of that determined by the Tribunal.  That offer remained opened for acceptance for nearly six months.  The appellants had more than adequate time to consider it and its subsequent withdrawal is not material.
45.	The appropriate order would therefore normally be that the respondent should pay the appellants’ costs up to 10 July 2000, when his original offer was rejected and thereafter the appellants should pay the respondent’s costs.  I consider that there is some merit in the respondent’s submission that costs incurred in dealing with the value of the existing lease were unnecessary.  I agree with the appellants, however, that the amount of costs incurred on this issue was limited, and this applies particularly in the period up to the rejection of the respondent’s offer.  Similarly, the fact that the appellants may have been concerned with the effect of the appeal on future negotiations elsewhere is not sufficient to disqualify them from receiving what are no doubt the limited costs they incurred in that short period.  These considerations are therefore not so significant as to justify a departure from the order that would normally be appropriate.
46.	Accordingly, the respondent will pay the appellants’ costs of the appeal in respect of the period up to 10 July 2000.  Thereafter the appellants will pay the respondent’s costs.  All such costs are to be agreed or, in default of agreement, assessed on the standard basis by the Registrar of the Lands Tribunal in accordance with the Civil Procedure Rules.
					Dated:  7 March 2001

					(Signed) N J Rose 

Annex 1

23B Cadogan Square SW1
Valuation of LVT

1.	Diminution in value of freehold interest	£	£	
	Freehold value with vacant possession	1,007,250		
	Deferred 23.50 years @ 6%	     0.254		255,841	
				
2.	Diminution in value of head leasehold interest			
	Ground rent payable	130		
	YP for 23.50 years @ 8.5%, 2.5%, Tax 30%	   7,6674		      997	
				
3.	Diminution in value of both landlords’ interest			256,838	
	Less interest after sale			    1,309	
				255,529	
4.	Marriage value			
	a)	Value of proposed interests			
	Freeholder’s interest			
	Freehold value with vacant possession 1,007,250			
	Deferred 113.5 years @ 6%	  0.0013 	   1,309		
				
	Head leaseholder’s interest	 -    		
				
	Tenant’s interest			
	New lease of 113.5 years equivalent			
	to 98% of freehold value	 987,500		
		988,809		
	b)	Value of existing interests			
	Freeholder’s interest	  255,841		
	Head leaseholder’s interest	      997		
	Tenant’s interest	  620,000		   876,838	
				
	c)	Marriage value			   111,971	
				
5.	Premium			
	Diminution in value of landlords’ interests	255,529		
	50% marriage value	   55,985		   311,514	
	Enfranchisement price – say	£311,500			
				
6.	Apportionment			
	a) 	Freeholder			
	Diminution in value of interest	254,532		
	Share of marriage value			
	55,985  x	254,532
		 255,529	
   55,767	
	310,299	
			Say      £310,300			
	b)	Head leaseholder			
	Diminution in value of interest	997		
	Share of marriage value
55,985  x	    997    
		255,529	

218	

	1,215	
			say         £1,200			

Annex 2

First Floor Flat B, 23 Cadogan Square, SW1
Valuation by J M Clark BSc ARICS

A)	Diminution in Value of Intermediate Leaseholder’s Interest
(Assuming no headlease rent reduction)		£	£			
	a)	Value of Intermediate Leaseholder’s Existing Interest
Annual rent payable
	Years Purchase 23.5 years @ 8.5%, 2.5%, Tax 30.0%	
130
7.6683				
			997			
	b)	Less					
		Value of Intermediate Leaseholder’s Proposed Interest		      Nil			
					
	c)	Diminution in Value of Intermediate Leaseholder’s Interest		997		
						
B)	Diminution in Value of Freeholder’s Interest
(Assuming no headlease rent reduction)					
	a)	Value of Freeholder’s Existing Interest on Reversion					
		Reversion to value of freehold in possession
	Value for lease with 113.5 years unexpired
	@ peppercorn rent in amount of 		£1,145,000
	(per M J W Duncan)					
						
		Say freehold equivalent @		98.0%					
				1,168,367	say	£1,168,000				
		Defer	23.5 years @	6%	    0.2543				
			297,022			
		Less					
	b)	Value of Freeholder’s Proposed Interest on reversion					
		Reversion to value of freehold in possession	1,168,000				
		Defer	113.5 years @	6%	    0.0013				
			     1,518			
	c)	Diminution in value of Freeholder’s Interest			  295,504		
						
C)	Diminution in Value of both Landlords’ Interests 			296,501	
						
D)	Calculation of Marriage Value					
	a)	Value of Proposed Interests					
		Freeholder’s	1,518				
		Intermediate Leaseholder’s	Nil				
		Tenant’s	1,145,000				
			1,146,518			
	b)	Value of Existing Interests					
		Freeholder’s	297,022				
		Intermediate Leaseholder’s 	997				
		Tenant’s  (per M J W Duncan)	    640,000				
		     Value of existing lease/Value of freehold:-	54.8%		    938,019			
						
	c)	Marriage Value			208,499		
						
	d)	Attributed to Landlord @	50%				  104,250	
						
E)		Enfranchisement Price				400,751	
				Say	400,750	
F)		Landlord’s Other Loss				      Nil	
						
G)		Premium Payable				400,750	

Annex 2 (Continued)

First Floor Flat B, 23 Cadogan Square, SW1
Valuation by J M Clark BSc ARICS (Continued)

						
H)	Apportionment of Marriage Value between Freeholder and Intermediate Leaseholder		
	a)	To Intermediate Leaseholder	104,250  x 	     997	=
			296,501		351			
						
	b)	To Freeholder	104,250  x	 295,504	=
			 296,501		   103,899	£104,250		
						
I)	Apportionment of Premium between Freeholder and Intermediate Leaseholder		
	a)	To Intermediate Leaseholder					
		Diminution in value of interest	997				
		Share of marriage value	351				
		Other losses	         Nil				
		1,347				
		Say	1,350			
						
	b)	To Freeholder					
		Diminution in value of interest	295,504				
		Share of marriage value	103,899				
		Other losses	         Nil				
		399,403				
		Say	    399,400			
				£400,750		

Annex  3

First Floor Flat B, 23 Cadogan Square, SW1

Re-Calculation by Lands Tribunal of Mr Clark’s Valuation, but adopting 
LVT’s Value of £620,000 for the existing lease

A)	Diminution in Value of Intermediate Leaseholder’s Interest
(Assuming no headlease rent reduction)		£	£			
	a)	Value of Intermediate Leaseholder’s Existing Interest
Annual rent payable
	Years Purchase 23.5 years @ 8.5%, 2.5%, Tax  30.0%	
130
7.6683				
			997			
	b)	Less					
		Value of Intermediate Leaseholder’s Proposed Interest		      Nil			
					
	c)	Diminution in Value of Intermediate Leaseholder’s Interest		997		
						
B)	Diminution in Value of Freeholder’s Interest
(Assuming no headlease rent reduction)					
	a)	Value of Freeholder’s Existing Interest on Reversion					
		Reversion to value of freehold in possession
	Value for lease with 113.5 years unexpired
	@ peppercorn rent in amount of 		£1,145,000
	(per M J W Duncan)					
						
		Say freehold equivalent @		98.0%					
				1,168,367	say	£1,168,000				
		Defer	23.5 years @	6%	    0.2543				
			297,022			
		Less					
	b)	Value of Freeholder’s Proposed Interest on reversion					
		Reversion to value of freehold in possession	1,168,000				
		Defer	113.5 years @	6%	    0.0013				
			     1,518			
	c)	Diminution in value of Freeholder’s Interest			  295,504		
						
C)	Diminution in Value of both Landlords’ Interests 			296,501	
						
D)	Calculation of Marriage Value					
	a)	Value of Proposed Interests					
		Freeholder’s	1,518				
		Intermediate Leaseholder’s	Nil				
		Tenant’s	1,145,000				
			1,146,518			
	b)	Value of Existing Interests					
		Freeholder’s	297,022				
		Intermediate Leaseholder’s 	997				
		Tenant’s (determined by LVT)	    620,000				
		     Value of existing lease/Value of freehold:-	53.08%		    918,019			
						
	c)	Marriage Value			228,499		
	d)	Attributed to Landlord @	50%				  114,250	
					410,751	
						
E)		Enfranchisement Price				410,750	
				Say	410,750	
F)		Landlord’s Other Loss				      Nil	
						
G)		Premium Payable				410,750	

Annex 3 (Continued)

First Floor Flat B, 23 Cadogan Square, SW1

Re-Calculation by Lands Tribunal of Mr Clark’s Valuation, but adopting 
LVT’s Value of £620,000 for the existing lease

						
H)	Apportionment of Marriage Value between Freeholder and Intermediate Leaseholder		
	a)	To Intermediate Leaseholder	114,250  x 	     997	=
			296,501		384			
						
	b)	To Freeholder	114,250  x	 295,504	=
			 296,501		   113,866	
£114,250		
						
I)	Apportionment of Premium between Freeholder and Intermediate Leaseholder		
	a)	To Intermediate Leaseholder					
		Diminution in value of interest	997				
		Share of marriage value	384				
		Other losses	      Nil				
		1,381				
		say	1,380			
						
	b)	To Freeholder					
		Diminution in value of interest	295,504				
		Share of marriage value	113,866				
		Other losses	       Nil 				
		409,370				
			    409,370			
				410,750		

						

Annex 4

23B Cadogan Square SW1
Determination by Lands Tribunal

1.	Diminution in value of freehold interest	£	£	
	Freehold value with vacant possession	1,080,000		
	Deferred 23.50 years @ 6%	     0.254		274,320	
				
2.	Diminution in value of head leasehold interest			
	Ground rent payable	130		
	YP for 23.50 years @ 8.5%, 2.5%, Tax 30%	   7,6674		      997	
				
3.	Diminution in value of both landlords’ interest			275,317	
	Less interest after sale			    1,404	
				273,913	
4.	Marriage value			
	a)	Value of proposed interests			
	Freeholder’s interest			
	Freehold value with vacant possession 	1,080,000			
	Deferred 113.5 years @ 6%	  0.0013 	   1,404		
				
	Head leaseholder’s interest	 -    		
				
	Tenant’s interest			
	New lease of 113.5 years equivalent			
	to 100/102 of freehold value	 1,059,000		1,060,404	
				
	b)	Value of existing interests			
	Freeholder’s interest	  274,320		
	Head leaseholder’s interest	      997		
	Tenant’s interest	  620,000		   895,317	
				
	c)	Marriage value			   165,087	
				
5.	Premium			
	Diminution in value of landlords’ interests	273,913		
	50% marriage value	   82,543		   356,456	
				
6.	Apportionment of enfranchisement price			
	a) 	Freeholder			
	Diminution in value of interest	272,916		
	Share of marriage value			
	82,543  x	272,916
		 273,913	
   82,243	
	355,159	
						
	b)	Head leaseholder			
	Diminution in value of interest	997		
	Share of marriage value
82,543  x	    997    
		273,913	

300	

	1,297