25 October 2007

The Court of Appeal has today published its decision on several key cases regarding the method of valuing landlords’ interests in collective enfranchisement claims for purchases of freeholds and for the purchases of lease extensions. There were four appeals from the Lands Tribunal, together known as Sportelli after the name of the leaseholders in one of the cases, which were heard together because they were appealed by Cadogan Estate and Howard de Walden Estate for the same reasons.

The main points argued were:

(i) the appropriate “deferment rate” to be applied in the valuation of landlords’ interests; and

(ii) whether the landlord is entitled to receive “hope value”.

The deferment rate is the discount rate to be applied to the landlords’ future right of reversion on a property in order to bring the value of that reversion to a present value. A higher deferment rate discounts the future value to a greater extent than would a lower deferment rate, providing a lower present value and therefore a lower price for the freehold or lease extension. The major London estates have argued for lower deferment rates in order to increase the value of their freehold portfolios, and the Lands Tribunal decision on the Arbib appeals in 2005 was a major success for them, awarding deferment rates of 4.5% on houses and 4.75% on flats. When the Lands Tribunal heard the Sportelli cases in 2006, Cadogan and Howard de Walden were arguing for a further reduction of the rate to 3.5%. The Tribunal, however, in a surprise turnaround in favour of leaseholders, decided to increase the rates to 4.75% on houses and 5% on flats.

The matter of hope value differs slightly between the enfranchisement of flats and houses. In the case of flats, the landlords have argued that it is unfair and was not the intention of the legislation that marriage value with respect to non-participant flats should be excluded from the price to be paid for the freehold of the building, and that the leaseholders should be required to pay an element of hope value for the potential of realising marriage value on future lease extensions granted to the non-participants. The Lands Tribunal decided that the Leasehold Reform Housing & Urban Development Act 1993 does not entitle the landlord to be compensated for the loss of prospective marriage value on non-participant flats.

27 September 2006

The unique Leasehold Reform services of Bluepoint Consulting were yesterday reported in The Sun newspaper’s Cashflow section. The feature article is evidence of the increasing significance to leaseholders of the recent changes to the Leasehold Reform legislation. The rapidly growing business of Bluepoint Consulting demonstrates the importance of getting the right advice and of taking the most appropriate route to secure the purchase of a building’s freehold or a lease extension without excessive costs and delays.

16 September 2006

The Lands Tribunal yesterday decided on several key cases regarding the method of valuing landlords’ interests in collective enfranchisement claims for purchases of freeholds and for the purchase of lease extensions. The cases, together known as Sportelli after the name of the respondents in one of the cases, will be a significant disappointment for the major London landlords who have for several years sought higher values for their interests when forced to sell under the Leasehold Reform legislation.

The Sportelli cases were heard as appeals against decisions by Leasehold Valuation Tribunals regarding the appropriate figure for the “deferment rate” to be applied in the valuation of landlords’ interests when subject to claims under the Leasehold Reform Housing & Urban Development Act 1993. The deferment rate is the discount rate to be applied to the landlords’ future right of reversion on a property in order to bring the value of that future reversion to a present value. A higher deferment rate discounts the future value to a greater extent than would a lower deferment rate, providing a lower present value and therefore a lower price for the freehold or lease extension.

The major London estates have argued for lower deferment rates in order to increase the value of their freehold portfolios, and the Lands Tribunal decision on the Arbib appeals in 2005 were a major success for them, awarding deferment rates of 4.5% on houses and 4.75% on flats. In the Sportelli cases, the landlords were arguing for a further reduction of the rate to 3.5%. The tribunal, however, decided to increase the rates to 4.75% on houses and 5% on flats, thereby setting the stage for more leaseholder-friendly valuations in claims to purchase the freeholds of buildings and lease extensions for flats.