Introduction

The case of Roberts & Anor v. Fernandez ([2015] UKUT 106 (LC)) presented a pivotal moment in leasehold enfranchisement, particularly concerning the calculation of premiums payable for lease extensions. This Upper Tribunal (Lands Chamber) decision involved the joint freeholders, Mr. Jonathan Roberts and Ms. Janet Thain, challenging the First-tier Tribunal's (Property Chamber) determination of a premium of £10,052 demanded from the respondent lessee, Ms. Maria Fernandez, for an extended lease of a flat located at 70 Andace Park Gardens, Bromley.

The core issues revolved around the appropriate relativity percentage, the deferment rate, and the capitalisation rate used in calculating the premium. The case also delved into whether adjustments should be made to the freehold and marriage value calculations to account for allegedly onerous lease terms, including high ground rents and other restrictive clauses.

Summary of the Judgment

The Upper Tribunal upheld the primary decision of the First-tier Tribunal (F-tT), dismissing the appeal by the freeholders. While recognizing that certain aspects of the F-tT's calculations were flawed—specifically the deferment and capitalisation rates—the Tribunal concluded that the overall premium calculation remained accurate within negligible margins.

The key determinative factors included the appropriate relativity percentage of 93.7%, a deferment rate adjustment from 5.75% to 5.25%, and the adoption of a 7% capitalisation rate. However, due to the minimal difference between the Upper Tribunal's valuation and the F-tT's, the appeal was dismissed, and the original premium of £10,052 was confirmed.

Analysis

Precedents Cited

The Judgment relied heavily on existing tribunal decisions to guide the determination of relativity, deferment rates, and capitalisation rates. Notable cases included:

• Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39: Emphasized that tribunal decisions do not constitute binding precedents but can be persuasive based on their factual contexts.
• Sinclair Gardens Investments (Kensington) Ltd’s Appeal [2014] UKUT 79 (LC): Highlighted the necessity for each case to be decided on its evidence, limiting the weight of previous decisions.
• Millard Investments v Cadogan Estates [2004] LON/LVT/1756/04: Addressed the palatability of ground rents relative to freehold values.
• Zuckerman v Trustees of the Calthorpe Estate [2009] UKUT 235: Discussed adjustments to deferment rates based on rental obligations and regulatory impacts.
• Voyvoda v Grosvenor West End Properties [2014] L & TR 10: Considered the adequacy of deferment rate adjustments post-legislation changes.

These precedents collectively influenced the Tribunal's approach to recalibrating the deferment and capitalisation rates, ensuring that the calculations were both fair and reflective of current market standards.

Legal Reasoning

The Tribunal undertook a meticulous examination of the factors influencing lease extension premiums. Key aspects of the legal reasoning included:

• Relativity Calculation: The Tribunal assessed various relativity percentages suggested by different sources, ultimately settling on 93.7% based on market data and the nature of the property.
• Deferment Rate Adjustment: Initially set at 5.75% by the F-tT, the Upper Tribunal reduced it to 5.25% after determining that the previous factors used to justify the higher rate lacked sufficient evidence.
• Capitalisation Rate Determination: The Tribunal critically evaluated the proposed 7% rate, rejecting it initially but ultimately aligning with it based on widespread agreement among experts and alignment with similar cases.
• Onerous Lease Terms: Arguments concerning high ground rents and restrictive clauses were analyzed, with the Tribunal finding that such terms did not warrant additional adjustments to the premium.
• Impact of Service Charges Regulations 2003: Consideration was given to how these regulations affected landlord recovery costs, leading to a nuanced adjustment in the deferment rate.

The Tribunal emphasized the importance of evidence-based adjustments, rejecting speculative claims and underscoring the need for reliable market data in premium calculations.

Impact

The decision in Roberts & Anor v. Fernandez sets significant precedents for future lease extension cases, particularly in the following ways:

• Standardization of Rates: Establishes clearer guidelines for determining relativity, deferment, and capitalisation rates, promoting consistency across cases.
• Evidence-Based Adjustments: Reinforces the necessity for robust empirical evidence when proposing deviations from established rates, thereby reducing arbitrary or biased adjustments.
• Non-Binding Nature of Tribunal Decisions: Clarifies that while previous decisions are persuasive, each case must be adjudicated on its unique factual matrix.
• Handling of Onerous Lease Terms: Provides a framework for assessing when and how onerous lease terms impact premium calculations, ensuring fair treatment for both freeholders and lessees.

These impacts collectively contribute to a more predictable and equitable lease extension landscape, benefiting both property owners and lessees by clarifying calculation methodologies.

Complex Concepts Simplified

Relativity Percentage

Relativity refers to the percentage of the freehold's value that the leasehold interest is worth. For instance, a relativity of 93.7% means that the leasehold's value is 93.7% of the freehold's value.

Deferment Rate

The deferment rate is a percentage used to calculate the present value of the ground rent due to the landlord until the lease's expiration. A higher deferment rate reduces the present value of future rents, thereby impacting the premium calculation.

Capitalisation Rate

The capitalisation rate is used to determine the value of the freehold interest by converting the annual ground rent into a capital sum. It reflects the rate of return an investor would expect, with a higher rate indicating a lower value and vice versa.

Onerous Ground Rent

Onerous ground rent refers to ground rent that is considered excessive or burdensome compared to typical market standards, potentially impacting the lease's attractiveness and its valuation.

Marriage Value

Marriage value arises when the value of a property increases as a result of extending the lease. It is typically shared between the freeholder and the leaseholder, often requiring adjustments in premium calculations.

Conclusion

The judgment in Roberts & Anor v. Fernandez underscores the judiciary's commitment to precision and fairness in lease extension premium calculations. By meticulously evaluating the evidence and adhering to established legal principles, the Upper Tribunal has fortified the framework governing leasehold enfranchisement.

Key takeaways include the reinforcement of evidence-based decision-making, the refinement of standard rates for deferment and capitalisation, and the clarification of how onerous lease terms should be treated within premium calculations.

This decision not only resolves the immediate dispute between the freeholders and the lessee but also serves as a guiding beacon for future cases, ensuring that lease extension processes are conducted with heightened transparency and equitable considerations for all parties involved.