A flat with an unexpired term of 16.23 years was sold at auction on 4 July 2019 for £112,000. On even date, but before the sale, the vendors served a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 claiming a new lease. The vendors’ suggested premium was £49,950. Two weeks after the sale, the purchasers put the flat up for sale at auction. When the hammer fell, the price paid was £175,000. For the purpose of valuing the premium, which, if either, sale price represents a more reliable indication of the flat’s market value? This was the valuation conundrum the Upper Tribunal (Lands Chamber) was asked to resolve in Brickfield Properties Ltd v Ullah and others [2022] UKUT 25 (LC); [2022] PLSCS 24.
The property, 42 Queens Court, Rocklands Drive, Harrow, was a purpose-built first-floor flat within one of several two-storey blocks. The flat was approximately 600 sq ft and comprised an entrance hall, two bedrooms, reception room, bathroom and kitchen.
After the respondent leaseholders purchased the flat for £175,000, the appellant competent landlord served a counter-notice under section 45, valuing the premium at £198,620. The parties were unable to agree a premium for the lease extension and the matter came before the First-tier Tribunal to determine.
At the hearing before the FTT, the only aspects of the valuation in dispute were the existing and extended lease values. After hearing evidence from the parties’ experts, the FTT accepted the appellant’s expert evidence on the long leasehold value, which gave a notional freehold value of £273,232.
In respect of the short leasehold value, the FTT relied on the decision of the UT in Allen v Leicester City Council [2013] UKUT 016 (LC) in determining that a “contemporaneous bona fide auction sale” was the best evidence of value and was preferable to an analysis based on graphs of relativity.
After allowing £2,500 for tenant’s improvements and adjusting the auction sale price by 21.49% for Act rights, the FTT arrived at a short leasehold value of £135,430. The resulting premium was therefore determined at £128,774. The appellant appealed.
In setting aside the FTT’s decision, the UT observed that in carrying out a valuation it was necessary to have regard to all available evidence and “to stand back” and consider how the evidential pieces fitted together. In the present case, the FTT took into consideration the auction sale from which it arrived at a short leasehold value of £135,430 – a figure that was higher than contended for by the parties’ own experts. This figure equated to a relativity of 49.57%. Using both 2016 unenfranchisable graphs of relativity produced by Savills and by Gerald Eve, that represented an unexpired term of 28.5 years.
The UT was critical of the FTT’s reliance on Allen as in that case the UT was asked to decide between an auction sale on one hand and a basic residual method, which was noted as being the method of last resort. Allen was not authority for the proposition that an auction sale must prevail in all circumstances in the face of all competing evidence.
In the present case neither of the sales, in isolation, were reliable. Yet the UT found that the FTT fell into error by focusing solely on the auction sale. The consistency of the first sale price with the graphs was a strong indicator that the first sale price was more likely to reflect market value than the auction sale. The first sale price of £112,000, allowing for tenant’s improvements at £2,500, and adjusted by 21.49% for Act rights, gave a figure of £85,982. That would represent a relativity of 31.46%, which compared consistently with the average graph relativity figure of 32.1%.
The UT determined the premium payable at £153,498.
Elizabeth Dwomoh is a barrister at Lamb Chambers
