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You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Lands Chamber) >> Coolrace Ltd & Ors, Re [2012] UKUT 69 (LC) (29 February 2012) URL: http://www.bailii.org/uk/cases/UKUT/LC/2012/LRA_39,45,47,61_2011.html Cite as: [2012] UKUT 69 (LC) |
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UPPER TRIBUNAL (LANDS CHAMBER)
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UT Neutral citation number: [2012] UKUT 69 (LC)
UTLC Case Numbers: LRA/39/2011
LRA/45/2011
LRA/47/2011
LRA/61/2011
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
LEASEHOLD ENFRANCHISEMENT – applications for lease extensions under section 48, Leasehold Reform, Housing and Urban Development Act 1993 - relativities – weight to be given to previous LVT decisions – reliance upon graphs of relativity – appeal allowed
IN THE MATTER OF APPEALS AGAINST DECISIONS OF THE
LEASEHOLD VALUATION TRIBUNAL
OF THE MIDLANDS RENT ASSESSMENT PANEL
by
re: 84 Southcrest Road, Lodge Park, Redditch B98 7HZ
38 Lyneham Gardens, Sutton Coldfield B76 1XH
33E Leigh Court, Mellish Road, Walsall WS4 2DQ
36 & 40 Bickton Close, Erdington, Birmingham B24 0JA
Before: P R Francis FRICS
Sitting at: 43-45 Bedford Square, London WC1B 3AS
Sitting at:
on
3 February 2012
Anthony Radevsky, instructed by Grove Tompkins Bosworth, solicitors of Birmingham, for the appellants
Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39
The following cases were referred to in argument:
Dependable Homes Ltd v Mann [2009] UKUT 171 (LC)
2. In each case, the appellant freeholders (the respondents before the LVT), applied to the LVT for permission to appeal on the grounds that the tribunal made wrong determinations on the subject of relativity. The decision relating to legal and valuer’s fees was an additional ground in one case, and deferment rate in another. The applications were refused. In subsequently granting permission in respect of LRA/39/2011, LRA/45/2011 and LRA/47/2011, the President of this Tribunal said:
“1. It is strongly arguable that, having regard to the observations of the Lands Tribunal in Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 (para 38), the LVT was wrong to base its determination of relativity on previous LVT decisions.
2. This appeal will be limited to the issue of relativity and be by way of rehearing.
3. It should be borne in mind that expressions of opinion as to value, to be treated as expert evidence, need to be independent.
4. …”
In respect of LRA/61/2011, the President said:
“1. In referring in paragraph 20 to a “line of Tribunal decisions” and deciding in paragraph 21 that “the established (relativity) percentages in the Midlands should be used”, it appears that the LVT may have wrongly based its decision largely on previous LVT decisions, notwithstanding its reference to having adopted a broad brush approach.
2. The appeal will be restricted to the issue of relativity…”
4. The relevant facts relating to each of the cases are as follows.
7. The LVT preferred the applicants’ case and adopted a relativity of 86%, producing a premium of £9,830. In doing so, they said:
“26. … The tribunal considers that graphs based upon the Midlands information can generally be preferred to ones that draw more heavily on information from the South East in general and London in particular. There can be local markets and the average or unit cost of leasehold flats is generally lower in the Midlands than in London….
27. Further, the tribunal rejects the argument that reliance on other tribunal decisions creates some sort of circularity or decision basis isolated from the market at large. Whilst some decisions will have been based on previous tribunal decisions, there will frequently be an admixture of market evidence or reliance on tribunal decisions that are entirely market based (for example, that of 31 Griffin Court, Edgbaston). The tribunal will generally prefer market evidence where it is available, and will almost always have regard to the tone of the market when considering the outcome of graphic evidence. Underlying every tribunal decision is the statutory requirements for assessing valuation, and these relate to the no-Act market.
28. Furthermore, it is a false hypothesis to assume that settlements do not suffer from a number of potential distortions: there are poorly represented tenants, there are tenants who may be subject to pressures unrelated to the market place, and many settlements amount to “second guessing” what will happen at a tribunal, whilst taking into account the cost and inconvenience of entering into a formal dispute [known as the Delaforce effect]…”
8. LRA/45/2011 (Midland Freeholds Ltd) 38 Lyneham Gardens, Sutton Coldfield B76 1XH. This is a purpose built ground floor maisonette about 8 miles North East of Birmingham, built by Bryant Homes Ltd, and contains living room, kitchen, two bedrooms and bathroom. There is a garage in a separate block. With 63.67 years remaining, the applicants, through their surveyor, Mr A W Brunt FRICS, sought a relativity of 93% based upon the Lawrence and Wightman Midlands graph. Mr Fell, again relying on the Nesbitt & Co graph, sought 87%. The LVT accepted the applicant tenants’ arguments and adopted 93%, giving a premium of £6,059, saying:
“28 The tribunal determined that as the geographical spread of the Nesbitt & Co graph was expressed to be predominantly Greater London and the outer suburbs with a proportion of provincial towns covering the South Coast and Midlands region it was inappropriate to adhere rigidly to it.”
11. The LVT said:
“16. …. It is very useful to have a reasonable number of direct comparables in the same road… The tribunal considers that the starting point for determining the extended lease value for both properties is £91,500. There is a direct comparable at this price at 21 Bickton Close [extended], and the sale date is between the valuation dates.
19. There are two properties in the Table at paragraph 9 which sold on the existing lease. The earlier of these was 39 Bickton Close which was sold in December 2008 for £94,000. The more recent, and hence the most useful, is 53 Bickton Close which was sold in July 2010 for £80,000. 39 Bickton Close seems at variance with the other sales in the Table, but the market has declined since that sale. The tribunal note the advice in Arrowdell … and whilst the various comparability graphs may be imperfect, tribunals should have regard to what is available in the absence of evidence compelling the adoption of other figures. The tribunal do not find that the single comparable of 53 Bickton Close is itself compelling evidence, but is a useful cross-check against the values obtained by applying relativity.
20. The evidence brought forward at the hearing is that in Prime Central London and the South Coast, relativity is greater than in the Midlands area. The Nesbitt & Co graph may be the only graph containing any figures for the Midlands in the RICS graphs, but in view of the obviously limited amount which it contains, the tribunal considers that it should be treated with caution. Mr Brunt’s suggestion of 91% is broadly in line with the line of tribunal decisions he has brought forward. Although it was not introduced into evidence the percentage used was stated by Mr Brunt to be in line with the graph which is used regularly in the Midlands area and is known as the “Lawrence and Wightman” graph.
21. The tribunal considers that the percentage chosen by Mr Brunt is more appropriate than the lower percentage extracted from the Nesbitt & Co graph by Mr Fell. The tribunal accepts the evidence that relativities are higher in London and the South and feel that the established percentages in the Midlands should be used. However, the tribunal prefers to adopt a “broad brush” approach and finds that a relativity of 90% should be applied to both properties….”
In the light of this conclusion, they determined premiums of £6,569 (No. 36) and £6,602 (No. 40).
12. Mr Davis is a chartered surveyor, and has practised in the West Midlands for over 40 years, specialising in leasehold enfranchisement matters. He set out the procedure he adopts in undertaking lease extension or collective enfranchisement valuations which initially includes research of websites such as Rightmove, Nethouseprices and Mouseprices to obtain recent sale prices and asking prices, and contact with agents in the area. If there is clear and good evidence of sales of very similar properties with both extended and unextended leases, then it is possible for a suitable relativity to be established. However, such comprehensive and compelling evidence is rarely available, and there was no reliable open market or settlement evidence from which relativity can be established in any of these cases. It is necessary then, he said, to look at recent LVT decisions relating to the same development and adopt an appropriate percentage from that. Again, if this type of evidence is unavailable (as here), and following the Lands Tribunal and Upper Tribunal (Lands Chamber) advice in Arrowdell and Nailrile Ltd v Cadogan [2009] 2 EGLR 151, reliance upon an appropriate graph of relativity is appropriate.
13. In Arrowdell, the Tribunal (the President and N J Rose FRICS) said, at para 39:
“39. The difficulty that confronts every LVT, as it now confronts us, in seeking to determine the appropriate relativity to apply in a particular case is the inadequacy of the available evidence. If no assistance is to be derived from earlier LVT decisions for the reasons we have just given, the same will go for settlements that have themselves been based on such decisions. In such circumstances, in our view, it is necessary for the tribunal to do the best it can with any evidence of transactions that can be usefully applied, even though such transactions take place in the real world rather than the no-Act world. Regard can also be had to graphs of relativity, as we say below, and later on we suggest that greater guidance could be derived from this particular type of evidence.”
The Tribunal then observed:
“57. As we have said above, we have been acutely aware of the difficulty of reaching a satisfactory conclusion on relativity in the light of the inadequacy of the available evidence, and it is clear that this is a problem that is likely to confront LVTs in all such cases. The likelihood is that decisions will be varied and inconsistent, while if local perceptions of relativities are built up as the result of decisions and settlements it is improbable that these will properly reflect no-Act values. Against this background, we consider that graphs of relativity are capable of providing the most useful guidance. While it may be that relativities will vary between one type of property and another, and from area to area, we think that there is little doubt that the predominant factor is the length of the term. It ought, we believe, to be possible to produce standard graphs, distinguishing between mortgage-dependent markets and those that are not so dependent, on the basis of a survey of assessments made by experienced valuers addressing themselves properly to the hypothetical no-Act world. We express the hope that the Royal Institution of Chartered Surveyors may find itself able to carry out such an exercise and to produce guidance in the form of standard graphs that can readily be applied by valuers in carrying out enfranchisement valuations. Such graphs could be used as evidence by LVTs, with the relativities shown being applied by them in the absence of evidence compelling the adoption of other figures.”
14. In Nailrile, the Tribunal agreed, and said, at para 228(s):
“(s) Relativity is best established by doing the best one can with such transaction evidence as may be available and with graphs of relativity…”
18. Mr Davis said that he had acted against Mr Rutledge of Lawrence and Wightman in a case relating to 34 Whittington Grove, Stechford, Birmingham where the LVT had preferred his adoption of the LEASE graph to Mr Rutledge’s Midlands graph. Also, he referred to five Midlands LVT cases where decisions had been issued in February 2011 relating to properties in Halesowen, West Midlands. There had been criticism of the evidence of both sides’ surveyors, and the LVT had said in each case (one of which was BIR/OOCR/OLR/2010/0088 relating to 91 Apperley Way, Halesowen):
“9. Mr Moore has been unable to find any evidence of extended lease sales…He has used the graph prepared by Lawrence and Wightman which gave a relativity of just over 93% as both a guide and a check. However, on being questioned by the tribunal, he conceded that the Lawrence and Wightman figure was too high, and he had “come down from that”.
10. We are not persuaded by Mr Moore’s argument. There is very little evidential value in the analysis of a small number of LVT decisions. The Lawrence and Wightman figure is, as Mr Moore concedes, considerably out of line with other methods of determining relativity.
13 In the absence of satisfactory market evidence of extended lease sales and in view of our criticism of the approach of both valuers we have looked at public research collated by RICS in its Research Report of October 2009. We find that the graph produced by LEASE is, in the absence of any better evidence, the most appropriate, and we adopt a relativity 89% as being appropriate for a lease with an unexpired term of approximately 62.25 years.”
19. In respect of an LVT case relating to 11 flats at Sadlers Court, Abingdon, Oxon where Mr Michael Cannon FRICS, a partner in Lawrence & Wightman had acted for the lessees, it was recorded in the decision (CAM/38UE/OJR/2010/0024) at para 7.5 that he said:
“7.5. Mr Cannon stated that due to absence of any market evidence as to long lease values, reliance must be placed on the use of graphs in order to ascertain the relativity between short lease and long lease values. Mr Cannon’s preference was to use the LEASE graph as in his opinion it was the most commonly used graph and provides the best or independent evidence as to relativity….
7.6 Mr Cannon makes no further adjustment for the “no-Act world”. He suggests that there is an element in the LEASE graph that takes account of the no-Act world and that a further deduction would amount to double counting.”
Mr Cannon had sought a relativity of 91.5% for an unexpired term of 66.75 years whereas the freeholder’s surveyor had sought 81.5%. Although there were complications relating to what precisely had been agreed in terms of the long lease value (relating to the value of improvements), the tribunal adopted Mr Cannon’s LEASE based percentage.
21. In submissions, Mr Radevsky handed in the Beckett & Kay 2011: Second Revision presentation of RICS data (the “Graph of Graphs”) and referred to Dependable Homes Ltd v Mann [2009] UKUT 171 (LC). This was a case relating to a property in Goring by Sea, West Sussex, where evidence on relativities was considered, and where the appellant’s surveyor had relied, in part, on the “graph of graphs” – described by the LVT as “an average of averages based upon limited, undefined data from all areas outside central London” The Tribunal (Mr A J Trott FRICS) said in its conclusions on relativity, at para 40 (having said in para 38 that he thought the evidence of the respondents’ surveyor (Mr Spratt) based on comparable transactions was incomplete and inadequate):
“40. I do not accept Mr Spratt’s assertion that relativity must reflect location; he produced no evidence to support it other than to say that the graph of graphs was based solely upon non-comparable central London transactions. In Arrowdell, a case concerning a property in Hove, the Tribunal relied upon a graph showing relativities in the London suburbs. In the absence of more satisfactory evidence I therefore rely upon the graph of graphs. Mr Pridell’s [the applicant’s surveyor] own graph is said by him to have been based upon LVT decisions and settlements. As such, it is subject to the same criticisms of LVT decisions made in Arrowdell…. The use of settlements was criticised in Arbib v Earl Cadogan [2005] 3 EGLR 139 and again in Nailrile.
41. I accept Mr Priddell’s view that the graph of graphs is used to determine a relativity that reflects the benefit of the Act and requires no further adjustment.”
22. It was pointed out that the appellants do not seek to rely upon graphs relating purely to Prime Central London – as Mr Davis had explained, LVT decisions there tend to be calculated on a different basis, namely on a price per sq ft. Outside PCL, there is no evidence to suggest that relativity will differ among regions, and it is appropriate therefore to consider graphs of relativity that give the widest possible range of material. It is the LEASE graph which provides the most reliable evidence, Mr Radevsky said, being totally independent and not reliant upon settlement evidence. Mr Davis had given examples of a number of decisions where LEASE had been the preferred graph, including several Midlands cases, and as had been found in 31 Cadogan Square Freehold Ltd v Earl Cadogan [2010] UKUT 321 (LC) both LVT and Upper Tribunal (Lands Chamber) decisions are admissible and weight can be attached to them – not only on questions solely of law or procedure, but also in matters of fact or opinion..
DATED 29 February 2012
P R Francis FRICS
[2012] UKUT 69 (LC)
APPENDIX 1
UPPER TRIBUNAL (LANDS CHAMBER) VALUATION
84 Southcrest Road, Redditch, B98 7HZ
Term
Value as per LVT decision £ 220
Reversion
Extended Leasehold Value £95,000
Excluding Tenants Improvements
PV £1 in 49 years @ 5.75% 0.0646043
£6,137
________________________
£6,357
Marriage Value
Extended Leasehold Value £95,000
Excluding Tenants Improvements
LESS
Present Leasehold Value (78.25%) £74,337
Freehold Value £ 6,357
________
Marriage Value £14,306
x 50% £7,153
_________________________
PREMIUM £13,510
_________________________
APPENDIX 2
UPPER TRIBUNAL (LANDS CHAMBER) VALUATION
38 Lyneham Gardens, Sutton Coldfield, B76 1XH
Term
Value as per LVT decision £ 895
Reversion
Extended Leasehold Value £117,778
Excluding Tenants Improvements
PV £1 in 63.67 years @ 5.75% 0.027973
£3,294
________________________
£4,189
Marriage Value
Extended Leasehold Value
Excluding Tenants Improvements £117,778
LESS
Present Leasehold Value (90%) £106,000
Freehold Value £ 4,189
________
Marriage Value £ 7,589
x 50% £3,794
_________________________
PREMIUM £7,983
_________________________
APPENDIX 3
UPPER TRIBUNAL (LANDS CHAMBER) VALUATION
33E Leigh Court, Walsall WS4 2DQ
Term
Value as per LVT decision £ 450
Reversion
Extended Leasehold Value £133,179
Excluding Tenants Improvements
PV £1 in 59.26 years @ 6% 0.03164
£4,213
________________________
£4,663
Marriage Value
Extended Leasehold Value
Excluding Tenants Improvements £133,179
LESS
Present Leasehold Value (86.5%) £115,200
Freehold Value £ 4,663
________
Marriage Value £13,316
x 50% £6,658
_________________________
PREMIUM £11,321
_________________________
APPENDIX 4
UPPER TRIBUNAL (LANDS CHAMBER) VALUATION
36 Blickton Close, Erdington, Birmingham, B24 OJA
Term
Value as per LVT decision £ 715
Reversion
Extended Leasehold Value £91,500
Less Tenants Improvements £ 1,500
_______
£90,000
PV £1 in 58.48 yrs @ 5.75% 0.03804
£3,423
________________________
£4,138
Marriage Value
Extended Leasehold Value
Excluding Tenants Improvements £90,000
LESS
Present Leasehold Value (85.75%) £77,175
Freehold Value £ 4,138
________
Marriage Value £8,687
x 50% £4,343
_________________________
PREMIUM £8,481
_________________________
APPENDIX 5
UPPER TRIBUNAL (LANDS CHAMBER) VALUATION
40 Bickton Close, Erdington, Birmingham B24 OJA
Term
Value as per LVT decision £ 716
Reversion
Extended Leasehold Value £90,500
Less Tenants Improvements 500
_________
£90,000
PV £1 in 58.14 years @ 5.75% 0.03875
£3,487
________________________
£4.203
Marriage Value
Extended Leasehold Value
Excluding Tenants Improvements £90,000
LESS
Present Leasehold Value (85.5%) £76,950
Freehold Value £ 4,203
________
Marriage Value £ 8,847
x 50% £4,423
_________________________
PREMIUM £8,626
_________________________