Leasehold enfranchisement – the latest guidance

The Court of Appeal has upheld the Lands Tribunal decision that increased the value of most residential investment portfolios.

As reported in previous LawNow in September 2006 the Tribunal issued guidance on the “deferment rate”. This rate is an important component in the valuation of a freeholder’s interest when dealing with a claim by a long-leaseholder to extend a lease or purchase the freehold of a property either individually in the case of a house or collectively in the case of a block of flats. Setting out new guidance, the Tribunal applied a deferment rate of 4.75% for houses and 5% for flats, regardless of location.

The Court of Appeal was satisfied it was in the public interest for the rate to be set in order to reduce costs and provide consistency. However, there did need to be a distinction between valuations of properties in prime central London and elsewhere. When considering properties outside prime central London, the deferment rate adopted by the Tribunal is to be no more than a starting point.

The Court of Appeal further concluded that hope value – the value arising from the option that a freeholder would have had to sell the freehold or lease extension to a tenant in the future – could not, save for one limited exception, be claimed as a separate element in determining the price to be paid in the case of lease extension, collective enfranchisement or freehold house claims.
Both the Court and those involved in the case agreed that Parliament should consider and further legislate on the issue.

Law: Cadogan v Sportelli (25 October 2007)