Mallory and others v Orchidbase Ltd

  Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Premium – Relativity – Appellants exercising right to acquire extended leases of flats under 1993 Act – Correct approach to valuation of existing leases for purposes of determining premium payable under Schedule 13 to Act – Whether evidence of actual market transactions of similar flats to be preferred over graphs of relativity for that purpose – Appeals determined accordingly The appellants were the long leaseholders of three two-bedroom flats on a 1970s estate in Hemel Hempstead, Hertfordshire. The appellants’ three flats were all very similar in nature and each was located in one of two adjacent three-storey, purpose-built blocks within a cul-de-sac on the estate. The appellants exercised their right to acquire extended leases of the flats pursuant to Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993. An issue arose as to the premium payable to the respondent, as freeholder, for the new lease. At the valuation date in May 2015, each of the leases had an unexpired term of 57.68 years. The first-tier tribunal determined that the premium payable in each case was £21,915. The appellants’ appeal against that decision was conducted by way of a rehearing. The main issue between the parties concerned the proper approach to be taken to the valuation of the existing unexpired lease terms, as a percentage relative to the value of the freehold/extended long leasehold value, for the purpose of determining the premium payable pursuant to Schedule 13 of the 1993 Act. The appellant sought to derive the existing leasehold value by reference to graphs of relativity. He relied on the 2009 RICS Research Report: Leasehold Reform: Graphs of Relativity, combined with the John D Wood & Co (1996) and Gerald Eve graph, to arrive at an average relativity of 82.75%, which he said gave a fair reflection of the value disregarding rights under the 1993 Act. The respondent contended that there was sufficient comparable evidence of actual market transactions to provide an accurate valuation of the appellants’ existing leases without the need to rely on graphs of relativity. It relied on two sales of short leases of flats in the appellants’ blocks in 2015 and, as a cross-check, on the first appellant’s acquisition of his flat in 2012. It made a deduction of £6,500 for improvements, to arrive at the unimproved sale price, and made a further deduction of 5.5%, by reference to the Savills (2002) “enfranchisable” graph and the Gerald Eve (1996) graph, in order to discount the existence of rights under the 1993 Act. The resulting valuation of £110,565 represented a relativity figure of 76.2% against the long leasehold/freehold value of £145,000 for which the respondent contended. Held: The appeal was determined accordingly. Market evidence was to be preferred over the use of relativity graphs, so long as it could be shown that the market evidence was reasonably comparable and did not require artificially extensive manipulation in order to apply it to the subject valuation: Trustees of Sloane Stanley Estate v Mundy [2016] UKUT 223 (LC); [2016] EGLR 38 applied. In the instant case, there was sufficient market evidence to render unnecessary any reference to graphs of relativity. Not only was there a market transaction on one of the appellants’ flats, there were also two market transactions on very similar properties with virtually identical unexpired terms to that which had to be assumed for the calculation on the appeal flats.  The two comparable sales were preferable to the historic sale of one of the appeal properties, which required an adjustment for time by reference to indices. The series of graphs in the RICS Research Report on which the appellants relied each had limitations; some were based primarily on transactions in different areas from the appellants’ flats while one was based on a mixture of opinion, settlements, transactions, LVT and Lands Tribunal decisions. None of those graphs provided a more reliable guide to relativity than transactions in the same scheme as the appeal properties. The series of graphs in the “published research” section of the RICS Research Report also had deficiencies. Of those, the College of Estate Management graph comprised only LVT decisions; it had been subjected to the criticism that no valuer used the graph in negotiations and that LVT decisions might not always produce a correct valuation: Trustees of Sloane Stanley Estate applied. Similar reservations could be levelled at the Leasehold Advisory Service graph, which again comprised solely LVT decisions. No assistance could be derived from the CEM or Leasehold Advisory Service graphs. The only remaining graph was the Savills 2002 graph, which the respondent had also used. Accordingly, the method and calculations of the respondent were to be preferred to those of the appellants. While it was doubtful whether a blanket deduction of £6,500 for improvements should be made in each and every case, there was no evidence from the appellants to refute it. The deduction of 5.5% for Act rights was a modest one. It was also consistent with the tribunal’s findings in Sloane Stanley, although each case had to be considered on its merits and had to be based on the evidence available. The tribunal accordingly adopted the respondent’s short lease value, unimproved and without Act rights, of £110,565. On that basis, the premium payable for the extended lease in each case was £21,908. The first appellant appeared in person for the appellants; Stan Gallagher (instructed by Orchidbase Ltd) appeared for the respondent. Sally Dobson, barrister Click here to download the transcript of Mallory and others v Orchidbase Ltd