Client: Cadogan Estate and Howard de Walden Estate
The discount rate used by valuers to assess the freehold value at the end of the lease when leaseholders are applying to buy their freehold or extend their lease for flats and houses is known as the ‘deferment rate’. It has been a contentious issue for the last eight years.
The lower the deferment rate, the greater the value of the landlord’s interest. For around 30 years, the rate for central London properties was fixed at 6%, but more recent claims have been difficult to resolve through negotiation and have instead gone to the Lands Tribunal – the appeal court for tribunals. This has meant that our landlord clients, especially Grosvenor, Cadogan Estate, Ilchester Estate and Howard de Walden Estate, often face expensive, protracted negotiations with an uncertain outcome.
The solution
The most important Lands Tribunal determination was published in September 2006 and is known as the ‘Sportelli case’. Our residential leasehold reform team advised the Cadogan Estate and Howard de Walden Estate in this case and their evidence assisted the Tribunal in determining the deferment rate of 4.75% for houses and 5.0% for flats.
However, the Lands Tribunal decision on Sportelli created other problems that have also needed to be resolved. In particular, its decision on the deferment rate excluded hope value from the valuation of the freehold interst, an issue which Cadogan Estate and Howard de Walden Estate appealed to the Court of Appeal in 2007. We advised on this and the Court of Appeal upheld the Lands Tribunal decision. Subsequently, Cadogan applied for leave to appeal to the House of Lords, the outcome of which is awaited.
Results
The Sportelli judgement crystalised the reduction in deferment rates in central London that had been sought by landlords for several years. Although other issues remain to be addressed, the resolution of this aspect of the valuation process has reduced one area of dispute between leaseholders and freeholders.
|
|