Carey -Morgan & Anor v Sloane Stanley Estate

An appellate court will generally refuse a new point said to be one of law where its resolution could depend on uncalled valuation evidence, factual findings or an assessment of risk. A party which accepted the relevant basis of valuation below cannot reopen it on a second appeal in those circumstances.

In collective-enfranchisement valuation, the freeholder’s interest is the interest in the building as a whole. A conventional valuation may nevertheless assess the contribution of individual term and reversion components. Hope value for non-participating tenants concerns the chance of a negotiated lease extension in the assumed no-Act world. It may coexist with the value of early vacant possession and does not necessarily produce double counting.

The reversioner applied under Leasehold Reform, Housing and Urban Development Act 1993 for determination of the price payable by the nominee purchaser on collective enfranchisement of a block of flats. The Leasehold Valuation Tribunal determined the price. The Upper Tribunal (Lands Chamber), on a re-hearing, determined disputed valuation issues, including the deferment rate for six short leases and hope value for five non-participating tenants.

The nominee purchaser appealed from the Upper Tribunal decision, reported at [2012] RVR 92. It contended that the Tribunal had wrongly assumed vacant possession at the end of the short leases, had misapplied the law on hope value, and had adopted inconsistent valuation assumptions. The central issue was whether those alleged errors disclosed an error of law on a second appeal.

1. Appeal dismissed. The Upper Tribunal was entitled to proceed on the basis, accepted by the nominee purchaser below, that the freeholder would obtain possession when the six short leases expired.

2. The proposed reliance on security of tenure under Local Government and Housing Act 1989 was not a pure point of law. Its possible application and valuation consequences required evidence about rateable values, rental values, occupation, the likelihood of tenants remaining, and the valuation effect of the risk. Applying Pittalis v Grant [1989] 1 QB 605, the court refused to permit the new point. If it had been entertained, remittal for further valuation evidence would have been inevitable. Nor would the consequence necessarily have been adoption of the generic rate in Sportelli, which concerned leases of 20 years or more.

3. The interest required to be valued under paragraph 3 of Schedule 6 was the freehold of the whole block, not the reversions on the six short leases viewed as a separate sale. The Tribunal had not made that error. It permissibly used the conventional term-and-reversion method to build up the value of the single freehold interest and could consider an appropriate deferment rate for different components.

4. Hope value was correctly assessed under the assumed no-Act world. Following the House of Lords decision in Sportelli [2010] 1 AC 226, it concerned the prospect that a non-participating tenant would negotiate for an extended lease without a statutory entitlement. Evidence of actual statutory lease extensions could assist the assessment without equating the two situations. The Tribunal’s awards of 20% of marriage value for four short leases and 10% for the longer lease were open to it on the evidence.

5. There was no inconsistency or double counting. The short deferment reflected the purchaser’s right to vacant possession at expiry; hope value reflected the additional prospect of receiving a premium for a negotiated extension before expiry.

6. Obiter: the Upper Tribunal’s future guidance for reversions of less than five years—net rental yield plus, absent contrary evidence, a 5% end allowance—may require qualification where security-of-tenure legislation is properly raised and evidenced.

• Court of Appeal (Civil Division): Appeal dismissed: [2012] EWCA Civ 1181.

• Upper Tribunal (Lands Chamber): Re-hearing appeal from the Leasehold Valuation Tribunal; its valuation decision was upheld: [2012] RVR 92.

• Leasehold Valuation Tribunal: Determined the collective-enfranchisement price by decisions dated 16 December 2008 and 24 April 2009.