Deritend Investments (Birkdale) Limited v Fung Tai Engineering Company Limited

In leasehold enfranchisement valuation, relativity graphs are a useful cross-check, but they do not determine the value of either the existing lease or the freehold vacant possession value. A substantial divergence from graph evidence should prompt critical examination of the valuation evidence and adjustments. Market transactions may be preferred where they are reasonably comparable and do not require extensive manipulation. Averaging is safe where comparables are very similar and require few adjustments. It may be unreliable where properties differ materially, because subjective adjustments can dilute the significance of the subject property’s characteristics. An appellate tribunal should not substitute its own valuation merely because another approach appears preferable; intervention requires an error of principle or an error in appreciating the evidence.

The landlord appealed against the First-tier Tribunal (Property Chamber)’s determination of the premium payable for the respondent lessee’s 90-year lease extension of a flat with 54.71 years unexpired. The FTT assessed the premium at £159,000, using the February 2024 sale of the existing lease and adjusted sales of six flats with extended leases to assess freehold vacant possession value.

The landlord challenged the assessment of freehold vacant possession value, principally because the resulting relativity was 81.85%, compared with the 74.37% graph rate referred to as the Zucconi rate. The central issues were whether the FTT had erred by averaging heavily adjusted comparables and whether the Upper Tribunal should intervene.

1. Appeal dismissed. The FTT’s assessment of the existing lease value was not open to challenge because that ground had not been pursued in the appeal to the Upper Tribunal. Relativity therefore could not identify an error in the FTT’s separate assessment of freehold vacant possession value.
2. Relativity graphs provide a sense check. A materially unexpected result should prompt critical examination of the evidence and adjustments, but relativity cannot identify which of two independently assessed variables is wrong. Market evidence may properly be preferred to graphs where it is reasonably comparable and does not require extensive manipulation, as explained in Mallory v Orchidbase Ltd [2016] UKUT 468 (LC).
3. Averaging comparable transactions is unobjectionable where the properties are very similar and require few adjustments. It becomes hazardous where there are substantial differences in condition, specification or location. Adjustments unsupported by market evidence may depend on subjective judgment and make the resulting figures increasingly remote from real-world evidence.
4. The Upper Tribunal considered that greater weight could reasonably have been given to the strongest comparables. Nevertheless, it could not conclude that the FTT had erred in principle or in its appreciation of the evidence. The appeal was dismissed.

• Upper Tribunal (Lands Chamber): appeal against the First-tier Tribunal (Property Chamber)’s decision dated 13 January 2025 dismissed.