Aaron v The Wellcome Trust Ltd; Trustees of the Sloane Stanley Estate v Mundy and another

Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Valuation – Evidence – Upper Tribunal determining applications for new leases under Chapter II of Part I of 1993 Act – Application by tenants to admit additional valuation evidence in support of approach to relativity rejected in earlier tribunal decision but relied on by their valuation expert – Whether appropriate to admit additional evidence – Application allowed The Upper Tribunal agreed to determine applications by three tenants of flats in central London for the grant of new long leases of those flats under Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. In each case, issues arose as to the price payable for the new leases, with each side submitting valuation evidence on that matter. That evidence included a valuer’s report submitted on behalf of the tenants on the issue of relativity, namely the relationship, expressed as a percentage, between the value of the existing lease of each flat on the statutory hypotheses and its freehold vacant possession value. The report drew on a body of research undertaken by a Dr Bracke, which the latter had presented in evidence to the Upper Tribunal (UT) in Kosta v Trustees of the Phillimore Estate [2014] UKUT 319 (LC); [2014] PLSCS 242 and which was based on a “hedonic regression analysis” of a substantial body of data drawn from the archives of John D Wood & Co concerning more than 8,000 sales of residential leases of different lengths which had occurred in the years 1987-1991, before the entitlement to a new long lease was conferred on tenants by the 1993 Act. On that occasion, the UT had identified weaknesses in Dr Bracke’s evidence and rejected it. The tenants applied to rely on additional expert evidence from Dr Bracke himself to meet and answer the criticisms made by the UT in Kosta. They contended that, where the landlords were advancing reports by two professors who made criticisms of Dr Bracke’s original research, it might be necessary to call Dr Bracke to answer any technical questions on the methodology employed in his statistical model. Held: The application was allowed. The present three lease extension applications had been transferred to the UT in the expectation that it would give guidance on the validity of Dr Bracke’s “hedonic regression” analysis of pre-1993 data as a basis for establishing leasehold relativity for current leases. The issue was important both in these and other applications. The sums of money at stake were significant, with the disputed issue of relativity accounting for the greater part of the difference between the parties’ experts on the premium payable for the new leases. The same relativity issue was raised by one party or the other in almost all applications for the grant of new long leases under the 1993 Act. The issue was highly significant for landlords, who faced a substantial diminution in the value of their reversionary interests if the approach of Dr Bracke was endorsed by the UT and subsequently came to be applied generally in such applications.  The outcome of the present proceedings was likewise of great importance to tenants making such applications in future. Although in Kosta the UT had not felt able to adopt the approach espoused by Dr Bracke, it had recognised the value of his analysis, while feeling that it ought to be supported by more conventional valuation evidence. That being so, it was important that the methodology under consideration be explained by a witness fully in command of the technical material. It would frustrate the purpose of the proceedings being transferred to the UT if it did not have access to technical evidence which might be important to the achievement of a consensus amongst the relevant experts on issues of detail or, in the absence of such agreement, might be necessary to a proper understanding of the disputed methodology. It followed that Dr Bracke’s evidence should be permitted on terms requiring him to identify, in a report compliant with the UT’s rules and practice directions, how much of the relativity report so far presented as the work of the tenant’s valuer he adopted as his own and on which he was the appropriate witness to whom questions should be directed. He should also include in the report such evidence as it was desired for him to give concerning the technical issues raised by the professors giving evidence for the landlords. After that report was submitted, he should then participate in the preparation of a statement of the matters on which the experts agreed and disagreed. Stephen Jourdan QC (instructed by Pemberton Greenish LLP) appeared for the respondent landlord in the first case; Gary Cowen (instructed by CMS Cameron McKenna LLP) appeared for the applicant landlord in the second case; Philip Rainey QC (instructed by Collins Benson Goldhill LLP) appeared for the tenants in both cases. Sally Dobson, barrister Click here to read Aaron v The Wellcome Trust Ltd; Trustees of the Sloane Stanley Estate v Mundy and another